| | Proxy Summary Items of Business to Be Considered at the Annual MeetingCorporate Secretary
Our Board asks you to vote on the following items at the annual meeting:
| | | Œ | Election of eight individuals to serve as members of our Board 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. | Ž | 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. |
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 matters 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.
| | Voting Procedures and General Information |
Record Date and Voting
All stockholders of record as of the close of business on February 23, 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 23, 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., 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.
| | | : | Voting on the Internet. You may vote by proxy on the internet up until 11:59 p.m. Eastern Daylight Time the day before the annual meeting. The website for internet 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, 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 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 secretary at NorthWestern Corporation, 3010 West 69th Street, Sioux Falls, South Dakota 57108, prior to the vote at the annual meeting. If your shares are held in street name, you must contact your broker, bank, or other nominee to revoke your proxy.
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Quorum
At the close of business on the record date, there were 47,037,077 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, 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 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.
| | Voting Procedures and General Information |
Broker Non-Votes
Under the rules of the New York Stock Exchange (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 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 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 — 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” 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 Business | Board Recommendation | Voting Approval Standard | Effect of Abstention | Effect of Broker Non-Vote | Proposal 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
|
| | (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. |
| | Voting Procedures and General Information |
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. 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.
Electronic Access to Proxy Statement and Annual Report
The proxy statement, annual report, voting card, and voting instructions are available on the internet 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 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. 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 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.
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| | Voting Procedures and General Information |
Householding; Receipt of Multiple Notices
Under the 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 householding wishes to receive a separate annual report or proxy statement for 2015 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) 732-0330 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 2016, stockholder proposals must be received by the corporate secretary of NorthWestern Corporation not later than November 7, 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 2016 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 2016 Annual Stockholders’ Meeting, the company’s bylaws require that timely notice must be given to the corporate secretary. To be timely, the notice must be received by the corporate secretary of NorthWestern Corporation between December 25, 2015, and January 24, 2016.
Stockholder proposals should be delivered or mailed to and received by us in accordance with the dates set forth above and addressed to:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Proxy Summary Corporate Secretary NorthWestern Corporation
3010 West 69th Street
Sioux Falls, South Dakota 57108
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Proxy Summary Items of Business to Be Considered at the Annual Meeting | | | | | | | | | | | | | | | | | | Proposal | | | | Board
Recommendation | Page | | | | | | | | | | | | | | 1 | Election of nine directors | | FOR each director nominee | 4 | | | | | | 2 | Approval of Deloitte & Touche LLP as the Independent Registered Accounting Firm for 2017 | | FOR | 6 | | | | | | 3 | Advisory Vote to Approve Named Executive Officer Compensation | | FOR | 8 | | | | | | 4 | Advisory Vote on the Frequency of the Advisory Votes on Executive Compensation | | every 1 YEAR | 10 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2016 Executive Pay Overview Alignment of Pay with Shareholder and Customer Interests Our executive pay program is designed to align the long-term interests of our executives, shareholders, and customers. About 77 percent of the compensation of our chief executive officer, or CEO, and about 58 percent of the compensation of our other named executive officers is at risk in the form of performance-based incentive awards that use Board-established metrics and targets, based upon advice from the Board’s independent compensation consultant. The performance metrics did not change from the prior year. We also require our executives to retain meaningful ownership of our stock. This structure encourages our executives to focus on short- and long-term performance and provides a reward to our executives, shareholders, and customers when we achieve our financial and operating objectives. Our CEO to median employee pay ratio for 2016 was 22:1. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Executive Pay Components at a Glance | | | | | | | | Percent of Total Compensation | | | | | | | Component | Description | CEO | Other NEO Avg. | Changes in 2016 | | | | | | Base Salary
Fixed, paid in cash | Target middle of competitive range of peer group, with adjustments for trade area economics, turnover, tenure, and experience | 23% | 42% | Executives received three percent cost of living adjustment provided to all employees | | | | | | Annual Cash Incentive
Variable, paid in cash | Based on net income, safety, reliability, and customer satisfaction metrics and individual performance | 19% | 18% | No change to performance metrics in 2016; performance targets updated to encourage improvement over prior year | | | | | | Long-Term Incentive Program Awards
Variable, paid in equity | Based on earnings per share, return on average equity and relative total shareholder return performance over a three-year vesting period | 46% | 31% | Increased target opportunity for three executives to align with market median; no change to performance metrics; performance targets updated | | | | | | Executive Retention / Retirement Program Awards
Variable, paid in equity | Based on net income performance over a five-year vesting period; paid over five-year period following separation from service | 12% | 9% | No change in 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Performance Against Incentive Targets In 2016, we managed our business through warmer than average winter weather and achieved all-time high safety performance and customer satisfaction, while providing shareholders a 45.7 percent return for the three‑year period ending December 31, 2016. As a result, we achieved above target performance for our 2016 incentive awards. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2016 Annual Cash Incentive Outcome | | | | | 2014 Long-Term Incentive Program Vesting | | | | | | Financial (55%) – % of Target Achieved | 112 | % | | | | | ROAE / Avg. Net Inc. Growth – % of Target Achieved | 157 | % | | | | | | Safety (15%) – % of Target Achieved | 150 | % | | | | | Relative TSR – % of Target Achieved | 60 | % | | | | | | Reliability (15%) – % of Target Achieved | 123 | % | | | | | Total Payout to Participants* | 108 | % | | | | | | Customer Sat. (15%) – % of Target Achieved | 73 | % | | | | | | | | | | | | | Total Funding | 113 | % | | | | | * Each component weighted 50% for total payout | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shareholder Feedback on Executive Pay At our 2016 annual meeting, our 2015 named executive officer pay program was approved by 99.2 percent of the votes cast. In light of the overwhelming approval from our shareholders, we have not changed the overall structure of our named executive officer pay program for 2016. We continue to use the same executive pay components and operate within the parameters previously approved by our shareholders. 2016 Corporate Governance Overview Our Board has nominated nine individuals for election – seven current members and two new candidates, Ms. Britt E. Ide (director and interim CEO of Big Sky Chamber of Commerce) and Ms. Linda G. Sullivan (chief financial officer for American Water). We list all nominees on the following page in Proposal No. 1—Election of Directors. Last year, shareholders elected six of our current director nominees by at least 99.7 percent of the votes cast. Another current director nominee, Mr. Anthony T. Clark (former FERC commissioner), joined our Board in December 2016, following the April 2016 retirement of director Denton Louis Peoples. Our eighth current Board member, Ms. Dorothy M. Bradley announced in February 2017 that she would not be seeking re-election. Each of our Board members and nominees is independent, with the sole exception of our CEO. Our Board is led by an independent chair, and our three Board committees – Audit; Compensation; and Governance – are chaired by and composed entirely of independent directors. In addition, diversity is important to our Board, as reflected in the graphs below regarding our slate of nominees. In 2016, our Board doubled the amount of stock that they are required to hold under our stock ownership guidelines, increasing the guidelines to ten times (from five times) the annual cash Board and committee chair retainers. Other than that change, we made no material changes to our corporate governance practices in 2016. | | | | | | | | | | | | | | | | | | | Diverse Slate of Director Nominees | | | | | | | | | | | | | | | | | | | | |
| | Voting Procedures and General InformationItems of Business |
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 (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 bylaws 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 | | | | | | | | | | | | | | | | | | | | | | Proposal No. 1 Election of Directors | | | | The Board of Directors recommends you vote “FOR” each of the nine director nominees. | | Our Board is nominating nine people for election as directors at the annual meeting. Seven of the nominees currently serve as a director of the company and two nominees, if elected, will become new members of our Board. After election, nominees will serve for one year, until the next annual meeting of shareholders (or until a successor is able to serve). Our nominees are listed below, and we provide additional background information and individual qualifications for each nominee in the Corporate Governance—Individual Directors section of this proxy statement, beginning on page 45. | | | | | | | | | | | | | | | Name Occupation | Independent | Age | Director Since | Committee Membership | | | | �� | | Stephen P. Adik
Retired vice chairman, NiSource, Inc. | Yes | 73 | 2004 | Audit (Chair); Comp. | | | | | | E. Linn Draper, Jr.
Retired chairman, president and CEO, American Electric Power Company | Yes | 75 | 2004 | Board Chair | | | | | | Anthony T. Clark
Former commissioner, FERC and NDPUC (and chair) | Yes | 45 | 2016 | Gov. | | | | | | Dana J. Dykhouse
CEO, First PREMIER Bank | Yes | 60 | 2009 | Comp. (Chair); Audit | | | | | | Jan R. Horsfall
CEO, Maxletics Corporation | Yes | 56 | 2015 | Audit; Gov. | | | | | | Britt E. Ide
President, Ide Energy & Strategy; Interim CEO Big Sky Chamber of Commerce | Yes | 45 | New Nominee | N/A | | | | | | Julia L. Johnson
President, NetCommunications, LLC; former commissioner and chair, Fla. PSC | Yes | 54 | 2004 | Comp.; Gov. (chair) | | | | | | Robert C. Rowe
President and CEO, NorthWestern Energy | No | 61 | 2008 | N/A | | | | | | Linda G. Sullivan
Executive Vice President and CFO, American Water | Yes | 53 | New Nominee | N/A | | | | | | | | | | | |
Director - Investor Relations
and Business Development
(605) 978-2945
| or | Emily Larkin
Assistant Corporate Secretary
(605) 978-2871
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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.
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. In 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.
| | | ●CertificateItems 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
Business |
| | | 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 recognized our say-on-pay disclosures.
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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 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. | | | |
| | | | | | | | 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 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 our Chief Executive Officer (CEO). If elected, Mr. Horsfall also will be independent.
| | | | | | | | | | | | | | Unless you specifically withhold your authority to vote for the election of directors, the persons named in the accompanying proxy intend to vote “FOR” the election of each of the director nominees. 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 nine nominees.
Our individual Board members havevalues the diversity of its members. When selecting this slate of nominees, our Board concluded these nominees will provide insight from a number of perspectives, based on their diversity with respect to gender, age, ethnicity, skills and background, as well as location of residence. We believe these varied expertise andperspectives expand the Board’s ability to provide relevant guidance to our business.
Our Board also concluded that these individuals bring extensive professional experience from both within and outside our industry. This diversity of experience provides our Board with a vastbroad 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 membersthe nominees is essential, we also will benefit from the viewpoints of our directors with expertise outside our industry. These varied perspectives expand the Board’s ability to provide relevant guidance toThus, our business. | | | | Collective Board Skills | |
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| Marketing | Board | 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. Our Board members are focused on long-term company success and maintain 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 current director has been recognized as a Governance Fellow by the National Association of Corporate Directors (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,
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 offers 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 partrecommends a vote “FOR” election of each of the Board’s annual self-evaluation process. The Board held six meetings in 2014. Eachnominees.
Vote Required
Directors will be elected by a favorable vote of our current directors attended 100 percenta plurality of the meetingsshares of voting stock present and entitled to vote, in person or by proxy, at the Board and of each committee on which he or she served. At our last annual meeting of stockholders in April 2014,meeting. You may vote “FOR” all of the seven currentnominees 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. Shareholders 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, under our Majority Plus Resignation Vote Policy described on page 54 of this proxy statement, if a nominee for director nominees werereceives more “WITHHOLD AUTHORITY” votes than “FOR” votes, such nominee shall immediately tender his or her resignation under the procedures 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 2004the policy.
| | | | | | | | | | Utility, Finance, and Engineering experience asThe Board of Directors recommends a vote “FOR” the retired vice chairman (2001-03)election 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 ineach of 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).
| | nine director nominees. | | | | | | | | | | | | 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.
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| | Corporate GovernanceItems of Business |
| | | | | | | | | Dorothy M. Bradley Age 68 Independent Director since 2009
| | | | | | | | | | Legal /Proposal No. 2
Ratification of Deloitte & Touche LLP, as Independent Registered Public PolicyAccounting Firm for 2017 | | The Board of Directors recommends you vote “FOR” Deloitte as our independent accounting firm. | | Our Audit Committee oversees the integrity of our accounting, financial reporting and auditing processes. To assist with those responsibilities, the committee has appointed Deloitte & Touche LLP as our independent registered public accounting firm to audit our financial statements for 2017. The Board experienceasis asking you to ratify the retired District Court Administrator forcommittee’s decision at the 18th Judicial Courtannual meeting. Deloitte representatives will be present at the annual meeting. They will have the opportunity to make a statement and to respond to appropriate questions.
The Board values your input on the committee’s appointment of Montana (2000-07), eight terms as an elected state legislatorDeloitte, but approval by shareholders is not required by law. If shareholders do not ratify the appointment of Deloitte, the committee will reconsider its selection. Regardless of the voting result, the committee may appoint a new firm at any time if the committee believes a change would be in the Montana House of Representatives (beginning in 1971) and the Directorbest interests of the University Water Center at Montana State University (1993-2000).company and its shareholders. | | | | | | | | | | | | | | Description of Fees
The table on the following page presents a summary of the fees Deloitte billed us for professional services for the fiscal years ended December 31, 2015 and 2016. As reflected in the table:
Service TerritoryAudit fees are 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 2016, this amount includes estimated billings for the completion of the 2016 audit, which Deloitte rendered after year-end.
Audit-related feesNACD Fellow are 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 2015 and 2016.
Tax feescredentials are fees billed for tax compliance, tax advice and tax planning.
All other fees are fees for products and services other than the services reported above. In fiscal years 2015 and 2016, there were no other fees.
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Fee Category | 2015
Fees
($) | | 2016
Fees
($) | | | | | | | | Audit fees | 1,285,875 |
| | 1,350,850 |
| | | | | | | | Audit-related fees | — |
| | — |
| | | | | | | | Tax fees | 168,628 |
| | 325,400 |
| | | | | | | | All other fees | — |
| | — |
| | | | | | | | Total fees | 1,454,503 |
| | 1,676,250 |
| | | | | | | | | | | | | | | | | | | | | | 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 2016, the Audit Committee (or the Chair of the Audit Committee pursuant to delegated authority) pre-approved 100 percent of the tax fees | | | | Leased Employees In connection with their audit of our 2016 annual financial statements, more than 50 percent of Deloitte’s work was performed by full-time, permanent employees of Deloitte. Vote Required 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 appointment of Deloitte. Brokers may vote a client’s proxy in their own discretion 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 ratify the selection of Deloitte to serve as the independent registered public accounting firm for NorthWestern Corporation for the fiscal year ending December 31, 2017. | | | | | The Board of Directors recommends a vote “FOR” the ratification of Deloitte & Touche LLP as our independent registered public accounting firm. | | | | | | | | | | | | |
| | | | | | | | | | | | | | Proposal No. 3 Advisory Vote to Approve Named Executive Officer Compensation | | | | | | | | | The Board of Directors recommends youvote “FOR” the resolution approving named executive officer pay. | | We would like your input as to how we pay our named executive officers, as required by Section 14A of the Exchange Act, through an advisory vote to approve named executive officer compensation (or a say-on-pay vote). Your vote will provide insight and guidance to us and our Board regarding your sentiment about our executive pay philosophy, policies and practices, as described in this proxy statement. Our Board will consider the guidance received by the say-on-pay vote when determining executive pay for the remainder of 2017 and beyond. We ask you to support our executive pay and vote in favor of the say-on-pay resolution.
Last year, through the say-on-pay vote, over 99 percent of the votes cast approved how we pay our named executive officers. In fact, since our first say-on-pay vote in 2011, at least 94 percent of the votes cast have approved our executive pay each year.
We view your voting guidance over the years as strong support for the way we pay our executives. Thus, in 2016, we left intact the executive pay program you previously approved and continued to use four components - base salary, annual cash incentive awards, long-term incentive awards, and retention/retirement awards. We did not change the design of these components. In fact, the only changes for 2016 from the 2015 program you approved, were (1) three percent base salary increases (the same increase available to all employees) and (2) for our CEO and two of our named executive officers, an increase to the long-term incentive target opportunity to align with the market median.
Our Human Resources Committee, or Compensation Committee, and our Board believe the company’s overall executive pay program is structured to reflect a strong pay-for-performance philosophy and aligns the long-term interests of our executives and our shareholders. If you would like additional information about what we do with our executive pay program, we have provided a more detailed discussion in the Compensation Discussion and Analysis section, or CD&A, starting on page 11 of this proxy statement, and the 2016 Executive Pay section, starting on page 33.
We believe we have designed our executive pay program appropriately to align the long-term interests of management and shareholders, and the Board recommends that shareholders approve our executive pay 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 the company’s 2017 proxy statement) is hereby APPROVED. | | | | | | | |
| | | | | | | | | | | | | | This advisory vote to approve named executive officer pay is not binding on the company. However, we and our Board will take into account the result of the vote when determining future executive pay arrangements. Vote Required 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 residentvote 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 pay of and respected civic leaderthe company’s named executive officers, as set forth in Montana, including non-public companythe company’s 2017 proxy statement. | | | | | | | The Board positions at One Montana, Science Technology Engineering and Math, andof Directors recommends a vote “FOR” adoption of the American Prairie Foundation.resolution approving, on an advisory basis, the pay of the company’s named executive officers, as described in this proxy statement. | | | | | | | |
| | | | | | | | | | | | | | Proposal No. 4 Advisory Vote on Frequency of Advisory Votes on Executive Compensation | | | | | | | | | The Board of Directors recommends you vote to hold a Say-on-Pay vote to approve executive pay every “1 YEAR” | | In 2011, over 80 percent of our voting shareholders voted for a say-on-pay vote every year, and we have been conducting an annual say-on-pay vote ever since. Now, we would like your input again as to how often we should hold a say-on-pay vote – every one, two or three years. Our Board believes that continuing our say-on-pay vote every year is the appropriate frequency for our company. We are committed to maintaining high standards of corporate governance. We believe that conducting the say-on-pay vote every year will provide a high level of transparency to our shareholders and a frequent, direct opportunity for our shareholders to offer feedback concerning our executive pay programs. For these reasons, our Board is asking you to vote for a say-on-pay vote every “1 YEAR.” You have three choices for how frequently we should conduct our say-on-pay vote – every one, two or three years. You also may abstain from voting. Your vote on this proposal is an advisory vote. It is not binding on our Board. However, like in 2011, the Board will take into account the result of this year’s vote when determining the frequency of future say-on-pay votes. The Board recommends that you vote to conduct the say-on-pay vote every “1 YEAR.” Unless instructed to the contrary in your proxy, the proxy holder(s) will vote the shares represented by your proxy to conduct the say-on-pay vote every “1 YEAR.” Please note that you are voting for how often you feel the company should conduct a say-on-pay vote. You are not voting to approve or disapprove the Board of Directors’ recommendation. Vote Required 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 also will have no effect on the outcome of this 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 pay of the company’s named executive officers, as set forth in the company’s 2017 proxy statement. | | | | | | | | | | | | | | | | | | | | | | | | 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
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| | | | | | | | E. Linn Draper, Jr. Age 73 Independent Director since 2004 Chairmanof the Board
| | | | | | | | Utility, Executive, and Engineering experiencethrough positions as retired chairman, president and chiefThe Board of Directors recommends you vote to hold an advisory vote to approve executive officer of both American Electric Power Company, a 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.
| | | | | | | | 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: ANR) (since 2004); TransCanada (NYSE: TRP) (2005-13), and Temple-Inland Inc. (2004-12).
| | pay every “1 YEAR.” | | | | | | | | | | | 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 committee 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
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| | | | | | | | Dana J. Dykhouse Age 58 Independent Director since 2009
| | | | | | | | | Finance, Executive, and Board experiencethrough his leadership of First PREMIER Bank, a regional bank headquartered in Sioux Falls, South Dakota, as its chief executive officer (since 1995) and his service in a variety of executive leadership roles in community and professional organizations and non-public company boards in South Dakota.
| | | | | | | | Service Territory and NACD Fellow credentials as a resident of and respected civic leader in South Dakota.
| | | | | | | | | | | We believe Mr. Dykhouse is Qualified to Serve on our Board because of his
● Experience as a respected civic, community and professional leader within South Dakota
● Local perspective on relevant issues facing our company in South Dakota
● 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
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| | | | | | | | Julia L. Johnson Age 52 Independent Director since 2004
| | | | | | | | | Utility, 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 Florida Public Service Commission, service to various public policy and non-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).
| | | | | | | | | | | 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
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| | | | | | | | 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 (1992-93), with an engineering (registered professional engineer) and accounting (certified public accountant – retired status) background.
| | | | | | | | Board and NACD Fellow credentials through various utility industry 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 Edison Electric Institute and Electric Power Research Institute, and as a current and former 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 San Francisco Bay Area and Northern Nevada for Naval War College Foundation and trustee of the Boyd Family Foundation.
| | | | | | | | | | | We believe Mr. Peoples is Qualified to Serve on our Board because of his
● Executive experience and expertise in the electric and natural gas energy industries
● Utility and engineering background gained from service on industry related boards
● Financial proficiency – audit committee financial Expert (SEC), financially literate (NYSE), CPA
● Tenure on our Board provides working knowledge of our company, efficiency and continuity
● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011
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| | | | | | | | Robert C. Rowe Age 59Director since 2008
| | | | | | | | | Utility, 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, 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.
| | | | | | | | | | | We believe Mr. Rowe is Qualified to Serve on our Board because of his
● Position as our president and chief executive officer
● Experience in the regulatory and public policy arenas
● Financial proficiency – financially literate (NYSE)
● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011
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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.
| | | | | | | | Jan R. Horsfall Age 54 Nominated as Independent Director
| | | | | | | | Finance, Marketing, and Executive experiencethrough his current position as co-founder and chief executive officer of Maxletics Corporation, a sports technology and media company and his former roles as chief executive officer of Universal Lubricants, LLC (2012-14), an oil collecting, refining, blending and distribution 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.
| | | | | | | | | We believe Mr. Horsfall is Qualified to Serve on our Board because of his
● Executive experience as a chief executive officer, chief marketing officer and other positions
● Financial proficiency – financially literate (NYSE)
● Marketing background
● Experience with mergers, acquisitions and the growth and development of companies
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Independent Board Chair
| | | | Our Board has placed the responsibilities of Chair with an independent member of the Board, which we believe provides optimum accountability between the Board and our 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 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. | | | | |
Each regularly scheduled Board and committee meeting provides the opportunity for executive sessions of the non-employee directors without management in attendance. 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, (b) is not a close relative of any management employee of the 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, 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, 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.
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 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.
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.
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 Board determined that each member of the Audit Committee 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.
Our Human Resources 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;
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 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. |
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 (CFO).
Our Nominating and Corporate Governance 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.
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 (Code of 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. 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.
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 (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
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. 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 have pledged any of our securities as collateral for a loan. The policy 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.
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 policy is available on our website at www.northwesternenergy.com under Our Company / Investor Relations / 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 West 69th Street, Sioux Falls, South Dakota 57108. The Corporate Secretary will forward directly to the Board any communication received.
Audit Committee Report
The Audit Committee operates pursuant to a charter that is reviewed annually and was last amended in October 2010. A summary of the Audit Committee’s oversight responsibilities can be found on page 15 of this proxy statement. A copy of the 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, 2014, 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 (PCAOB) in Rule 3200T. The Audit Committee received the written disclosures and the letter from Deloitte & Touche LLP (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, 2014, 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 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.
| | Compensation Discussion and Analysis |
Executive Pay
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 (CD&A) describesexplains how we pay our executive compensation programs, includingexecutives and how the oversight of such programs by the HRCompensation Committee of our Board andoversees executive pay, including the rationale and processes the Committee used to determine the 2014 compensation of ourset executive officers. This includespay in 2016. The CD&A summarizes the objectives and specific elements of our compensation2016 pay program, including cash, compensation, equity compensation,stock, and post-termination compensation. ThisThe 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 thisCD&A. This CD&A follows.is organized into the following sections: | | | | | | CD&A Table of Contents | Page | Executive Summary | 21 | | 2014 Results | 21 | | Compensation Practices | 23 | | Compensation Components | 24 | Pay for Performance | 25 | | Value Provided to Stockholders | 25 | | Performance Relative to Our Peers | 26 | | Peer Group for 2014 | 26 | Say-on-Pay Results | 28 | Governance of Our Executive Compensation Program | 28 | | Human Resources Committee | 28 | | Compensation Consultant | 29 | | Decision-Making Process and Role of Executive Officers | 29 | Targeted Overall Compensation and Competitive Analysis | 29 | | Compensation Philosophy | 29 | | Compensation Consultant Data and Analysis | 30 | | Internal Pay Equity and Wealth Accumulation | 31 | Components of Executive Compensation for 2014 | 32 | | Base Salary | 32 | | Annual Cash Incentive Awards | 33 | | Long-Term Performance-Based Equity Awards under the Equity Compensation Plan | 37 | | | | 2014 Long-Term Incentive Program | | | | Section | Summary | Page | | | Executive Summary | Highlights of our 2016 executive pay program and results | 11 | | | Pay for Performance Unit Grants | 38How our pay and performance, relative to our peers, provides value to shareholders | 14 | | | Say-on-Pay Results | Details about how our Board uses shareholder feedback to set pay | 18 | | | How We Set Pay | How our Compensation Committee governs our executive pay programs | 18 | | | Targeted Pay and Competitive Analysis | How our Compensation Committee determined the amount of 2016 executive pay | 19 | | | Pay Components | Details about the different parts of 2016 executive pay | 22 | | | Other Pay Policies | Information on other aspects of our pay program | 31 | | | | | 2014 Executive Retention / Retirement Program Restricted Share Grants | 39 | |
CD&A Executive Summary 2016 Results In 2016, we continued to show strong operating results, which have translated into returns for our shareholders. Our earnings per share continued to grow, and we achieved our best ever safety results and customer satisfaction ratings, while providing our customers with reliable service. | | | | | | | | | | | | | | | Vesting of 2012 Long-Term Incentive Program Performance Unit Grants in 2014 | 40 | Other Compensation Policies | 41 | | | | | | | | | Stock Ownership Guidelines2016 Earnings Per Share Our earnings per share grew 6.9 percent to $3.39 in 2016from $3.17 in 2015. | 41 | | | Total Shareholder Return Our TSR was 45.7 percent for the three-year period ending December 31, 2016. That was ninth highest in our 14-member peer group and trailed the peer group average (53.4 percent). | | | | Dividend Yield Our dividend of $2.00 per share provided adividend yield of 3.5 percentbased on our stock price at the end of 2016.
| | | | Retirement and Other Benefits | 41 | | | | | | | | | | | Severance and Post-Termination Benefits | 42 | | | | | | | | | | | Non-Qualified Deferred Compensation | 42 | | | | | | | | | | | No Employment AgreementsSafety In 2016, we worked more safely than ever, with lost time and total recordable incident rates at all-time lows. | 42 | | | Reliability Thereliabilityof our electric and natural gas systems wasat or slightly better than target. | | | | Customer Service Our JD Power rating for overall satisfaction results showedcustomer satisfaction at our highest level ever. | | | | Tax Treatment of Certain Compensation | 42 | | | | | | | | |
| | | 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 showWe achieved these strong operating results which have translated into returns for our stockholders. We achieved our best ever safety results and customer satisfaction rating,during 2016, while providing our customers with reliable service and our stockholders with returns among the industry leaders.also:
| | | ● | Our net income grew 28.3 percent to $120.6 millionFiling a Montana natural gas delivery service and production rate case, which requested an annual increase in 2014 from $94 million in 2013.base rates of approximately $10.9 million; and |
| | | ● | ForSuccessfully accessing the five-year period ending in 2014,debt capital markets to lower 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 appearoverall cost of capital by participating in the Edison Electric Institute’s Utility Index, we areissuance of (a) $60 million of South Dakota First Mortgage Bonds at 2.80% maturing in 2026; (b) $45 million of South Dakota First Mortgage Bonds at 2.66% maturing in 2026; and (c) the only company with a TSRCity of Forsyth's Pollution Control Revenue Refunding Bonds of $144.7 million at 2.00% maturing in the top ten for the one-, two-, three- and five-year periods ending December 31, 2014.2023. |
| | ● | 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.
| | Compensation Discussion & Analysis |
In spite of thisour strong operating performance and completion of the Hydro Transaction,achievements in 2016, the overall compensation ofpay our executives receive ranks near the bottom of our peer group, which is identified on page 2617 of this proxy statement. In summary, for 20132015 (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 periodsavailable in the top quartile. Meanwhile, our CEO pay has been among the lowestSummary Compensation Table for each respective company, excluding changes 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.pension value):
| | | 3-YEAR | 3rd Lowest CEO Pay | 2nd Highest TSR | of 15 Peers | of 15 Peers | |  ● Our CEO’s total compensation was approximately 80 percent of the median total compensation (excluding change in pension value) of the CEOs in our peer group. | | | | | | | | | 1-YEAR | 3rd Lowest CEO PayNamed Executive Officers for 2016 | 3rd Highest TSR | of 15 Peers | of 15 Peers | Robert C. Rowe
President and Chief Executive Officer | | | | 
VicePresident and Chief Financial Officer | | | | 
VicePresident and General Counsel | | | | Curtis T. Pohl
VicePresident - Distribution | | | | Bobbi L. Schroeppel
VicePresident - Customer Care, Communications and HR | |
We consider our executive compensationpay 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 — 3—Advisory Vote to Approve Named Executive Officer Compensation.Compensation.
| | Compensation Discussion and Analysis |
Our overarching philosophy concerning executive compensation is that itwe should be structuredstructure executive pay to be market competitiveconsistent with our peers and to align the long-term interests of our executives, our stockholdersshareholders, and our customers so that the compensationpay appropriately reflects performance in achieving financial and non-financial operating objectives. In order toTo live up to ourthis philosophy, we believe that a significant portion of an executive’s compensationpay should be “at-risk”at risk in the form of performance-based incentive awards that are only paid if earned, as a result ofthe individual and company performance.performance targets are met. Our executive compensationpay program is designed to: | | | ● | Attract and retain a high-quality executive team by providing competitive compensationpay 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;pay; and |
| | | ● | Maximize long-term stockholdershareholder value by putting a significant emphasis on: |
| | ● | on financial performance, reliability, safety, and customer satisfaction; andsatisfaction. |
| | Compensation Discussion and long-term at-risk, performance-based compensation.Analysis |
Compensation Practices
Our executive compensation program accomplishes our goals by incorporating certain compensation practices while avoiding other, more problematic or controversial compensation practices.
| | | | | | | | | | Our Pay Practices | | | | | | | Our executive pay program accomplishes our goals by incorporating certain pay practices while avoiding other, more problematic or controversial practices. | | | | | | | | What We Do | | | | ● | Place a significant portion of executive compensationpay at risk in the form ofby granting 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 stockholdershareholder interests. | | | | ● | Target executive compensationpay 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 Restatedour 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 compensationThese 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 a 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.executives. | | | | ● | Pay dividends or dividend equivalents on unvested performance shares or units. | | | | ● | Allow our executives or directors to hedge or pledge company securities. | | | | | | |
Pay Package For 2016, our executive pay package included the same components as in 2015 — base salary, annual cash incentive award, and two long-term stock incentive awards. All incentive awards (cash and stock; annual and long-term) were performance-based. Unlike many of our peers, we do not offer a non-performance-based supplemental executive retirement plan. The table on the following page provides a high level summary of our 2016 executive pay package. Please see the Pay Components section later in this CD&A for a more detailed summary of how we pay our executives.
| | Compensation Discussion &and 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.
| | | | | | | | Component | Description | Why we include this component | How we determine amount | Decisions for 20142016 | Reason for Change | Base Salary | Short-term fixed cash compensation | Provide a base level of compensation for executive talent | Target middle of competitive range of peer group, with adjustments for trade area economics, turnover, tenure, and experience | Consistent withOur CEO and other executives received the salary adjustmentthree percent increase generally provided to all employees executives received a three percent increase to base salary for 2014 | To remain market competitive and provide cost of living adjustment | Annual Cash Incentive | Short-term variable cashcompensation, based on corporate performance against annually established metrics (financial, safety, reliability, and customer satisfaction) andindividual performance | Motivate employees to meet and exceed annual company objectives that are part of our strategic plan | Target middle of competitive range of peer group, with adjustments for trade area economics, turnover, tenure, and experience | One executive received a 12.5 percent increaseThere were no changes to the annual cash incentive target;component for 2016, other than updating the performance targets unchanged for other executives | To increase the compensation opportunity for a strategic position to align with market medianNot applicable | Added natural gas reliability metrics and additional customer satisfaction metrics | To 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, equitycompensation, paid following three-year vesting period if corporatefinancial performance metrics (EPS, ROAE, and TSR) are achieved | Provide market-competitive, performance-based compensation opportunities while aligning interests of executives and stockholdersshareholders | Market survey of similar peer group roles and responsibilities and assessment of the strategic value of each position | Increased target opportunity for threeour CEO and two executives and updated performance targets | To 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 income | To 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,shareholders, while encouraging retention and the continuity of our strategic plan | Peer 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 position | Target opportunities doubled for all executivesThere were no changes to the ERRP restricted share grants | To remain competitive with the market median for long-term incentive compensation opportunityNot applicable |
| | Compensation Discussion and Analysis |
Pay for Performance Our HRCompensation Committee has designed our compensationpay program to align pay with performance. Our executives are rewarded for providing value to stockholdersshareholders and for performing relative to our peer group, which is summarizedidentified on page 2617 of this proxy statement. Value Provided to StockholdersShareholders Over the past three years, we have provided value to our shareholders, with total shareholder return (including reinvestment of dividends) of 45.7 percent, average EPS growth of 11.6 percent, and return on average equity of 10.3 percent. These results we achieved for our shareholders are consistent with the results obtained under our incentive plans. With respect to our annual cash incentive plan for 2016, our net income achieved 111.6 percent of target and our safety and customer satisfaction results were at all-time highs. These operational successes resulted in a funding of our annual cash incentive plan at 113 percent of target for 2016. The grants of long-term performance units that were made in 2014 pursuant to the LTIP vested on December 31, 2016. The performance measures associated with those grants were measured over a three-year vesting period and were tied to EPS growth, ROAE, and TSR. The company had solid results over the three-year vesting period with respect to the LTIP metrics, attaining 11.6 percent average EPS growth, 10.3 percent ROAE, and 44.5 percent TSR (eighth highest of our 14-member peer group when calculated as required by the LTIP). Based on these results, the LTIP awards paid out at 108.3 percent of target.
| | | | 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-Compensation Discussion 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.Analysis |
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 returnThe chart below shows our TSR of 45.7 percent, assuming reinvestment of dividends. However, the calculation required by the LTIP results in a TSR of 44.5 percent for the same period. The difference in these TSRs is computed assumingthe method of calculation required by the terms of our LTIP, which uses a 20-day average stock price at the beginning and end of the performance period and does not assume reinvestment of dividends. | | 3 YEARTHREE-YEAR TSR | | | Source: SNL Financial LC (assumes reinvestment of dividends) |
| | Compensation Discussion & Analysis |
The charts below provide another exampledepiction of pay for performance and the value we provide to shareholders 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 INCOMEEPS | VS. ROAE | VS. CUMULATIVE TSR | | | | Net Income is stated in millions.EPS reflects diluted earnings per average share of our common stock. TSR illustrates the growth of $100 invested in our common stock on December 31, 2009,2011, 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, relativeRelative to our peers, we are producing high performance for low pay. Overour CEO pay is aligned with performance. For the past three years,three-year period ending December 31, 2016, our TSR iswas the ninth highest in our peer group (according to SNL Financial and assuming reinvestment of dividends), while our CEO’s compensation was the first quartileninth highest of our peer group while our CEO’s(based on the three most recently available years of compensation falls to the low end of the peer group rangedata as disclosed in the fourth quartile.proxy statement summary compensation tables of our peers). 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.
| | | Compensation Discussion and Analysis |
We also provide value to shareholders by maintaining a relatively small executive team.team, which reduces overall executive compensation. We currently have nine members on our executive team. As of the record date, three of our 14 peers also haveFebruary 7, 2017, nine executives, eight of our peers have larger executive teams of ten or more members, and threemembers; while, four 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 Company | | Portland General Electric Company | Avista Corp. | | Great Plains Energy Incorporated | | UIL Holdings Corporation | Black Hills Corporation | | IDACORP, Inc. | | Vectren Corporation | Cleco Corporation | | MGE 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.
| | |
| | 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 percentagepercentile of the range between the highest value in the category.and lowest values. The charts and tables demonstrate that,a strong CEO pay for performance alignment over the past three years, ouryears. Our CEO is generally being compensated at a lower level than the CEOs of most of our peers, (in the fourth quartile), while leading strong performance for stockholders (in the first quartile)delivering similar value to our shareholders relative to our peers.
Datapoints within the shaded pay-for-performance alignment band reflect a strong correlation betweenan alignment of 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-YEAR | | | 3-YEAR | | | | | | | | |
| | | Relative 1-Year CEO Pay* | Relative 1-Year CEO Pay* | | Relative 1-Year TSR* | | Relative 3-Year CEO Pay* | | Relative 3-Year TSR* | Relative 1-Year CEO Pay* | | Relative 1-Year TSR* | | Relative 3-Year CEO Pay* | | Relative 3-Year TSR* | | PNM Resources Inc. | | 100% | | Otter Tail Corporation | 100% | | Vectren Corporation | 100% | | Westar Energy, Inc. | 100% | | Vectren Corporation | 100% | | El Paso Electric Co. | 100% | | Cleco Corporation | 100% | | PNM Resources Inc. | 100% | 67% | | MGE Energy Inc. | 72% | | PNM Resources Inc. | 99% | | MGE Energy Inc. | 87% | | Cleco Corporation | 99% | | Vectren Corporation | 96% | | PNM Resources Inc. | 94% | | NorthWestern Corporation | 100% | | | Avista Corp. | | 55% | | Westar Energy, Inc. | 59% | | Avista Corp. | 83% | | IDACORP, Inc. | 71% | | Westar Energy, Inc. | | 46% | | Black Hills Corporation | 58% | | Great Plains Energy | 70% | | Vectren Corporation | 63% | | Portland General Electric | | 44% | | OGE Energy Corp. | 51% | | Black Hills Corporation | 67% | | Avista Corp. | 58% | | Great Plains Energy | 89% | | NorthWestern Corporation | 96% | | Great Plains Energy | 93% | | Black Hills Corporation | 98% | 40% | | ALLETE, Inc. | 49% | | Westar Energy, Inc. | 65% | | Otter Tail Corporation | 57% | | UIL Holdings Corporation | 88% | | Westar Energy, Inc. | 91% | | Vectren Corporation | 86% | | Vectren Corporation | 96% | | | Avista Corp. | 77% | | IDACORP, Inc. | 87% | | UIL Holdings Corporation | 75% | | IDACORP, Inc. | 93% | | | PNM Resources Inc. | 77% | | Avista Corp. | 84% | | Avista Corp. | 71% | | Portland General Electric | 87% | | | Black Hills Corportation | 74% | | Portland General Electric | 81% | | 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% | | | Black Hills Corporation | | 40% | | Vectren Corporation | 42% | | Portland General Electric | 58% | | Portland General Electric | 57% | | IDACORP, Inc. | 68% | | MGE Energy Inc. | 60% | | IDACORP, Inc. | 66% | | MGE Energy Inc. | 78% | 30% | | El Paso Electric Co. | 36% | | IDACORP, Inc. | 54% | | PNM Resources Inc. | 53% | | Portland General Electric | 62% | | Great Plains Energy | 59% | | Black Hills Corporation | 64% | | Cleco Corporation | 74% | | | OGE Energy Corp. | | 24% | | Portland General Electric | 34% | | NorthWestern Energy | 30% | | NorthWestern Energy | 43% | | ALLETE, Inc. | 48% | | Cleco Corporation | 56% | | Portland General Electric | 56% | | Avista Corp. | 74% | 23% | | IDACORP, Inc. | 32% | | ALLETE, Inc. | 28% | | El Paso Electric Co. | 42% | | NorthWestern Energy | | 21% | | Avista Corp. | 24% | | OGE Energy Corp. | 28% | | ALLETE, Inc. | 41% | | El Paso Electric Co. | 46% | | UIL Holdings Corporation | 48% | | ALLETE, Inc. | 44% | | ALLETE, Inc. | 63% | 21% | | PNM Resources Inc. | 21% | | El Paso Electric Co. | 26% | | Black Hills Corporation | 23% | | NorthWestern Corporation | 45% | | Empire District Electric | 48% | | NorthWestern Corporation | 40% | | Great Plains Energy | 61% | | | Empire District Electric | 34% | | ALLETE, Inc. | 41% | | MGE Energy Inc. | 29% | | UIL Holdings Corporation | 54% | | | Otter Tail Corporation | | 16% | | NorthWestern Energy | 8% | | Otter Tail Corporation | 10% | | Great Plains Energy | 20% | | MGE Energy Inc. | 31% | | Black Hills Corportation | 11% | | Empire District Electric | 21% | | Empire District Electric | 35% | 0% | | Great Plains Energy | 0% | | MGE Energy Inc. | 0% | | OGE Energy Corp. | 0% | | | | | | | | | | * 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. | | | *Relative CEO pay and TSR are expressed as a percentile of the range between the highest and lowest values. | | *Relative CEO pay and TSR are expressed as a percentile of the range between the highest and lowest values. | | Source: CEO Pay for the one-year period is the 2015 total compensation and for the three-year period is the 2013-15 total compensation, as published in the 2014, 2015, and 2016 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 Shareholder Return is from SNL Financial for the one- and three-year periods ended December 31, 2016, and assumes reinvestment of dividends. | | Source: CEO Pay for the one-year period is the 2015 total compensation and for the three-year period is the 2013-15 total compensation, as published in the 2014, 2015, and 2016 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 Shareholder Return is from SNL Financial for the one- and three-year periods ended December 31, 2016, and assumes reinvestment of dividends. |
| | Compensation Discussion &and 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.shareholders. 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 thanhas lagged our peer group median.median until recently. | | | | | | NAMED EXECUTIVE OFFICER PAY VS. PEERS | | | PAY 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.
| | | | | | | | | | Our 2016 Peer Group | | Our Compensation Committee selects the members of our peer group and periodically examines whether peers continue to meet the criteria for inclusion described below. As part of this process, the Compensation Committee receives advice from its independent compensation consultant and selects a peer group that includes companies that: (1) maintain a regulated utility industry perspective, emphasizing operational excellence and customer satisfaction as a means to create shareholder value; (2) are referenced as relevant comparisons by other companies, the analyst community, and their advisors; and (3) have similar revenue, market capitalization and return-based measures of performance.
For 2016, based on these criteria and the advice of its independent compensation consultant, our Compensation Committee added OGE Energy Corp. and Otter Tail Corporation to our peer group and removed three companies that were in our 2015 peer group because of merger or acquisition activity. | | | | | | 2016 Peer Group
ALLETE, Inc.
Avista Corp.
Black Hills Corporation
El Paso Electric Co.
Great Plains Energy Incorporated
IDACORP, Inc.
MGE Energy Inc.
OGE Energy Corp.
Otter Tail Corporation
PNM Resources Inc.
Portland General Electric Company
Vectren Corporation
Westar Energy, Inc. | | Market Capitalization(1) | | Revenue (2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (1) Market capitalization range of our peer group as of February 3, 2017. | | | | (2) Range of total revenues for our peer group over the four most recent publicly available fiscal quarters. | | |
| | | Compensation Discussion and Analysis |
Compensation ConsultantSay-on-Pay Results
In its governanceAt our annual meeting in 2016, our shareholders continued to show strong support of our executive compensationpay program, with 99.2 percent of the HRvotes approving the say-on-pay resolution.
Those 2016 voting results occurred after the Compensation Committee workstook action to approve 2016 pay. Nevertheless, the Compensation Committee and the Board reviewed that feedback from shareholders when establishing executive pay for 2017. The Compensation Committee believes the results from our 2016 annual meeting affirm our shareholders’ continuing support of the company’s approach to executive pay. Thus, the Compensation Committee made no substantive changes to executive pay for 2017. How we set pay Compensation Committee The Compensation Committee, composed entirely of independent directors, is responsible for the oversight of: Pay, benefits, and other employment matters for executives; Stock-based pay plans for employees; The election and appointment of executive officers and other corporate officers; CEO performance; and Director pay. The Compensation Committee considers several factors when it sets executive pay — all of which ultimately influence our executive pay program. | | | | | | | | | | | | | | | | | | | | | | | | Align Interests. Provide pay that aligns management (and employee) interests with those of shareholders and customers. | | | | Peer Comparison. Establish overall pay approximating the median of our peer group and applicable position comparisons. | | | | Attract Talent. Set pay that will attract talent from both within and outside the utility industry. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Economic Circumstances. Set pay based on economic circumstances, including turnover and retention considerations. | | | | Pay for Performance. Tie all components of incentive pay to the company’s short-and long-term financial and operational performance. | | | | No Executive Perks. Executives participate in same benefits plans available to all non‑union employees, with no additional perquisites, other than executive physicals. | | | | | | | | | | | | |
Independent Compensation Consultant To help determine executive pay, the Compensation Committee retains an independent compensationpay consultant, Willis 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 tofor advice regarding the general competitive landscape and trends in compensation and executive and director compensationpay. While the Compensation Committee meets with the consultant from time to time, the chair of the Compensation Committee also communicates directly with the consultant in between Committee meetings. The consultant advises the Committee on several matters including (1) competitive analysis (including in relation to our peer group), (2) incentive plan design, (3) updates on trends in executive and director compensation, (4) peer group composition, and (5) handling other compensation-related matters as 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 HRCompensation Committee works with Willis 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 executives, paying particular attention to applicable comparisons with our peer group. When making comparisons to the peer group, the Compensation Committee seeks to establish compensation levels that approximate the median of our peer group. After determining appropriate levels, the Compensation Committee
| | | Compensation Discussion and Analysis |
recommends both CEO and executive officers. officer pay to the Board for approval. The CEO is not a member of the Compensation Committee and does not vote on Board matters concerning executive pay. With respect to our CEO’s compensation,pay, the HRCompensation Committee conducts an annual performance assessment of the CEO and determines appropriate adjustments to all elements of his total compensationpay based on his individual performance and company performance, taking into considerationthe company’s performance. The Compensation Committee then considers our CEO’s preference to havepreference: having a larger percentage of his pay be at-riskat risk in the form of performance-based compensation and his overall compensationpay to be below the median of his peers. For the other executive officers, the CEO and CFO make recommendations to the HRCompensation Committee for all elements of compensationpay based on individual performance, market data from our peer group and published survey data. The HRCompensation Committee reviews, discusses, modifies, and approves, as appropriate, these compensation recommendations. The HRdiagram below summarizes the Compensation Committee’s annual process for setting executive pay, which begins in July and concludes the following February. | | | | | | | | | | | | | | | | | | | | July Review and discuss timeline for setting executive pay | | | | October Review materials from independent compensation consultant: | | | | | | | | | Executive pay overview | | | | | | | | | Peer compensation analysis | | | | | | | | | Preliminary design of annual and long-term incentive opportunities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December Evaluate overall executive pay program: | | | | February Finalize executive pay: | | | | Review preliminary five-year financial plan | | | | | Review final five-year financial plan | | | | Approve upcoming annual incentive plan grants | | | | | Approve executive pay | | | | Review proposed long-term incentive grants | | | | | Approve long-term incentive program grants | | | | Approve annual executive retention / retirement grants | | | | | Review performance metrics results for prior year and approve payouts for current annual incentive plan and vesting of long-term incentive program | | | | | | | | | | |
At each of its regularly scheduled meetings throughout the year, the Compensation Committee recommends both CEOreviews the company’s performance under all outstanding annual 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.long-term incentive plans. Targeted Overall CompensationPay and Competitive Analysis CompensationPay Philosophy
We target base salary, annual cash incentive awards, and long-term equity grants, as well as total compensation,pay, to be market competitive for our executive officers. Our Compensation Committee believes that the best proxy to determine market competitiveness of pay is the median of our peer group, including individual pay components, as well as total pay. 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 levelon a number of achievement of our pre-established performance goals;factors, including:
●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 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. |
To align the long-term interests of our executives, shareholders, and customers, our Compensation Committee uses performance-based incentive awards to place a significant component of each executive’s pay at risk. According to
| | | Compensation Discussion and Analysis |
our Compensation Committee’s independent compensation consultant, our relative TSR performance metric that is part of our long term incentive program is set at a higher level, and is more difficult to achieve, than our peers. This structure encourages our executives to focus on both short- and long-term performance and provides a reward to our executives, shareholders, and customers when we achieve our financial and operating objectives. | | | | 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 compensationpay mix for our named executive officers changed slightly in 20142016 from 2013.2015. As part of the overall compensation2016 pay package for our named executive officers in 2014, our HRCompensation Committee increased the targeted long-term incentive opportunity for threeour CEO and two of our named executive officers as described below in the 2014 | | | | | 2016 Long-Term Incentive Program Performance Unit Grants section. TheAs a result, of these changes to the target compensation mix was an increase in the percentage of at-risk compensationpay component of the target pay mix increased for all of our named executive officers, as a whole, to 6366 percent in 2016 from 60 percent.62 percent in 2015. | | percent of pay at risk increased for 2016 |
| | Compensation Discussion & Analysis |
For our CEO, 7277 percent of the overall targeted compensationpay (base salary andplus targeted annual and long-term incentives) relates to performance-based incentive awards. For our named executive officers other than the CEO, that percentage averages 5558 percent. The charts below depict the target total compensationpay 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. |
Independent Compensation Consultant Data and Analysis As a component of the HRCompensation Committee’s review of executive compensation matters,pay, Willis Towers Watson provides an analysis of the pay levels of aour 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,In 2016, the published survey data included the Willis Towers Watson Compensation DataBank, William M. Mercer’s Executive Benchmark Database and Willis Towers Watson Survey Report on Top Management Compensation. The peer group data is a primary basis for setting compensationpay 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 compensationpay 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, Willis 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 Compensation 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 pay amounts accordingly. As further detailed below, internal comparison with other officer positions also is considered. In addition to these efforts, Willis Towers Watson prepares an analysis of market data compiled from the Willis 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, Willis Towers Watson size-adjusts the data to reflect our revenue scope.
| | | Compensation Discussion and Analysis |
| | | | 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’sthis analysis and as illustrated in the chart to the right, the direct compensationpay opportunity for our highest-paid employees is below the market median of the direct compensationpay opportunity for the highest-paid employees for energy services companies. For the top five highest-paid employees, our employees’ pay opportunity is 91 percent of the median; while our top 10, 15, and 20 highest-paid employees have a pay opportunity that is 92 percent, 87 percent and 85 percent, respectively, of the median.
We also conducted a separate analysis of the 2015 executive pay of the 13 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 average pay of $1.03 million in 2015, which was less than all but three of the companies in our peer group; while the peer group median had average pay per named executive officer of approximately $1.33 million. For 2015, our CEO’s total pay was approximately 80 percent of the median | | | | AGGREGATE COMPENSATIONPAY OPPORTUNITY
FOR HIGHEST-PAID EMPLOYEES | | | | | | *Top 5 is based on 20142016 proxy data of energy services companies. Top 10, Top 15, and Top 20 are based on a Willis Towers Watson survey of energy services companies completed by Towers Watson.companies. Values exclude any change in pension value. |
| | 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 compensationtotal pay of CEOs in our peer group.
| | |
These analyses demonstrate that, on average, we currentlyour highest paid employees are paid at a level that is below the middlemedian of the competitive range.our peer group and industry. We also are cognizant of prevailing economic conditions, internal pay equity, and executive turnover, which our HRCompensation Committee takes into account when determining executive compensation. InternalCEO Pay EquityRatio and Wealth Accumulation
| | | We believe our executive compensation programpay must be internally consistent and equitable to motivate our employees to create stockholdershareholder value. We are committed to internal pay equity, and the HRCompensation Committee monitors the relationship between the compensation ofpay our executive officers receive and the compensation ofpay our non-managerial employees. In 2014, the HRemployees receive. The Compensation Committee reviewed a comparison of CEO pay (base salary and incentive compensation)pay) to the pay of all our employees.employees in 2016. The compensation for our CEO in 20142016 was approximately 2422 times the median pay of our full-time employees. |  CEO Pay Ratio |
Since 2010, we have voluntarily disclosed our CEO to median employee pay ratio in our proxy statement. Beginning with our 2018 proxy statement, such disclosure will be required under the Dodd-Frank Act. Our CEO to median employee pay ratio calculation includes all componentsis calculated in accordance with what the SEC will require in our 2018 proxy statement pursuant to Item 402(u) of compensation available to our CEO andRegulation S-K. We identified the median employee by examining the 2016 total cash compensation for all individuals, excluding our CEO, who were employed by us on December 16, 2016, the last day of our payroll year. We included all employees, whether employed on a full-time, part-time, or seasonal basis. We did not make any assumptions, adjustments, or estimates with respect to total cash compensation, and we did not annualize the compensation for any full-time employees that were not employed by us for all of 2016. We believe the use of total cash compensation for all employees is a consistently applied compensation measure because we do not widely distribute annual equity awards to employees. Approximately seven percent of our employees receive annual equity awards. After identifying the median employee based on total cash compensation, we calculated annual total compensation for such employee using the same methodology we use for our named executive officers as summarizedset forth in the 2016 Summary Compensation Table later in this proxy statement.
| | | Compensation Discussion and Analysis |
As illustrated 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 thebelow, our 2016 CEO to median employee may receive.pay ratio is 22:1. In 2015 the ratio was 19:1. | | | | | | | | | | | | | | | 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 |
| | | | | | | | | | | | | | | | | | | | | | | | CEO to Median Employee | | | | | | Pay Ratio | | | | | | President
and CEO | | Median Employee | | | | Base Salary | $ | 590,641 |
| | $ | 87,525 |
| | | | Stock Awards | 1,454,138 |
| | — |
| | | | Non-Equity Incentive Plan Compensation | 538,403 |
| | 1,086 |
| | | | Change in Pension Value and Nonqualified Deferred Compensation Earnings (1) | 68,952 |
| | 8,211 |
| | | | All Other Compensation | 97,933 |
| | 27,186 |
| | | | TOTAL | $ | 2,750,067 |
| | $ | 124,008 |
| | | | | | | | | | | CEO Pay to Median Employee Pay Ratio | 22 |
| : | 1 | | | | (1) These amounts are attributable to a change in the value of each individual’s defined benefit pension account balance and do not represent earned or paid compensation. Pension values are dependent on many variables including years of service, earnings, and actuarial assumptions. | | | | | | | | | |
The HRCompensation Committee reviews annually the wealth accumulation of our executives, considering all of the elements of total compensation paid topay each executive officer receives during the prior five-year period, including base salaries, annual cash incentive bonuses,payouts, the value of long-termlong-term incentive awards and any special payments made to an individual executive. The HRCompensation 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 compensationpay 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.
| | Compensation Discussion & Analysis |
Pay Components of Executive Compensation for 2014 | | | | | | | | | | | The primary pay components of total compensation for our executive officers for 2014in 2016 were: | | | | ● | Base SalarySalary; | | | | ● | 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 HRCompensation Committee believes these compensationpay components align the interests of our executives and our stockholdersshareholders by basing a significant portion of total compensationpay on performance and achievement of our short- and long-term goals. The specific mix among the individual components reflects market compensation arrangementscomparisons (primarily with respect to the median of our peer group) and individual position and performance. Base salary represents 2823 percent of our CEO’s targeted total compensationpay and, on average, 4542 percent of our other named executive officers’ targeted total compensation.pay. Performance-based awards (annual and long-term incentive) represent the remaining portion of targeted total compensation.pay. The HRCompensation Committee also believes that our executive compensationpay program appropriately mitigates the risk associated with incentive-based pay. The HRCompensation Committee has designed the entire program and the metrics under our annual and long-term performance-based incentive componentsawards 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.shareholders. If our stockholdersshareholders 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,
| | | Compensation Discussion and Analysis |
and our retirement, healthcare, and welfare benefit programs for executives are generally the same as for all employees and are discussed in the “Compensation of2016 Executive Officers and Directors” Paysection of this proxy statement. Finally, we maintain robust stock ownership guidelines.guidelines for our executives. In light of these pay practices, the HRCompensation Committee believes that our executive compensationpay 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 middlemedian of the competitive range,our peer group, adjusted for other factors such as trade area economics, turn-over, tenure, and experience. Adjustments from marketpeer group 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 compensationpay 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 compensationpay 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 |
| | | | | | | | | | | The Compensation Committee considers adjustments to base salaries for the executive officers on an annual basis. For 2016, the Compensation Committee felt that an increase to the base salaries of our executive officers in line with the increases provided to our employees generally was reasonable in light of the company’s operating results | | in 2015. To remain competitive with the market, the Compensation Committee also considered the effect of such increased salaries for our executive officers in relation to the median of our peer group. The table to the right sets forth the base salaries for our named executive officers. The base salary adjustments for 2016 were effective April 1, 2016. | | | | | | | | | | | | | Annualized Base Salary | | Increase (%) | | | Name | | 2015 ($) | | 2016 ($) | | | | Robert C. Rowe | | 578,231 | | 595,578 | | 3.0 | | | Brian B. Bird | | 399,952 | | 411,951 | | 3.0 | | | Heather H. Grahame | | 350,208 | | 360,714 | | 3.0 | | | Curtis T. Pohl | | 271,769 | | 279,922 | | 3.0 | | | Bobbi L. Schroeppel | | 250,551 | | 258,068 | | 3.0 |
| | Compensation Discussion and Analysis |
Annual Cash Incentive Awards The overall design of our 20142016 annual cash incentive plan was the same as our previous year’s2015’s plan. However, as described in detail in the annual incentiveThe plan uses financial (net income) and operational (safety, reliability, and customer care) 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-representednon-union employees, including executive officers, participate in the same plan described in this section, and regular, representedannual incentive plan; while our union employees participate in a separate, but similar, management-designed program.
Each participating employee has a targeted annual cash incentive award, expressed as a percentage of base salary. Actual payouts for annual cash incentive awards reflect both (1) companythe company’s performance based on financial and operational measures and (2)against the metrics, as well as the employee’s individual performance. There are four factors that determine the amount No portion of the final payout under the annual incentive plan:
| | (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 calculatedaward is guaranteed.
The Compensation Committee calculates the actual payout pursuant to the following formula:formula, which reflects four factors: | | | | | | | | | | | (1) | | (2) | | (3) | | (4) | | | Base Salary | x | Individual Target Incentive (% of Base Salary) | x | Plan Funding Percentage (performance vs. metrics) | x | Individual Performance Multiple | = | Individual Payout |
For example, the Compensation Committee calculated the annual incentive payout for our CEO in 2016 as follows: | | | | | | | | | | | $595,578 | x | 80% | x | 113% | x | 1 | = | $538,403 |
| | | Compensation Discussion and Analysis |
(1) Base Salary Base salary is the first component in the calculation of the annual cash incentive award. Base salary is described in the Base Salary section immediately preceding this Annual Cash Incentive Awards discussion. (2) Individual Target Incentive Each year, the HRCompensation Committee approves aan annual incentive target, incentiveexpressed as a percentage of base salary, for each executive. The target opportunity for our executive basedofficers is derived in part from peer group and competitive survey analysis data and in part by the Compensation Committee’s judgment on the internal equity of the positions, scope of job responsibilities, and external factors previously noted. Management also annuallyeach executive’s industry experience and tenure. Potential adjustments to the annual incentive target for the executive officers are considered by the Compensation Committee on an annual basis. | | | | | | | | | | | The Compensation Committee did not adjust the target incentive opportunity for any of our named executive officers (or any of our other executive officers) in 2016 because the Compensation Committee believed the targets were appropriate and commensurate with the responsibilities of those executives. The table to the right sets forth the 2016 annual incentive target opportunity for our named executive officers. | | | | 2016 | | | Name | | Base Salary | | Target Incentive Opportunity
(% of base salary) | | Target Incentive Opportunity ($) | | | Robert C. Rowe | | $595,578 | | 80% | | $476,462 | | | Brian B. Bird | | $411,951 | | 50% | | $205,976 | | | Heather H. Grahame | | $360,714 | | 45% | | $162,321 | | | Curtis T. Pohl | | $279,922 | | 40% | | $111,969 | | | Bobbi L. Schroeppel | | $258,068 | | 35% | | $90,324 |
(3) Plan Funding Percentage Before each annual incentive plan year begins, management proposes specific performance targets for the company’splan’s financial and operational measures, which are reviewed,measures. The Compensation Committee considers the proposed targets, and after considerable discussionthe Compensation Committee and usually some modification, approved by the HR Committee as well as the Board. AtBoard approve final targets. Following the end of the fiscalplan year, the HRCompensation Committee reviews data submitted by management onregarding company performance against each of the specific performance targets and determines the degree to which each financial and operationalperformance 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) | | | 2010 | 2011 | 2012 | 2013 | | | 94% | 101% | 98% | 108% |
| | | | | | | | | For our executives, the funding (as a percentage of target) under the annual incentive plan has ranged from 80 percent to 125 percent for the five previous years, as set forth in the table to the right. | | Historical Funding of Annual Cash Incentive (as a percentage of target) | | | 2011 | 2012 | 2013 | 2014 | 2015 (1) | | | 101% | 98% | 108% | 125% | 80% | | | | | | | | | | (1) Due to a work-related fatality in 2015, the funding level of the annual cash incentive for executives was 80% (for non-executive employees, the plan was funded at 88%). |
The HRCompensation 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 HRCompensation 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 toFor many years, including 2016, the annual incentive target forplan has used four categories of performance measures to determine the executive officers are considered byplan funding percentage – financial, safety, reliability, and customer satisfaction. The relative weightings of these measures is set forth in the HR Committeegraphic on an annual basis.the following page.
| | Compensation Discussion &and 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 20142016 annual incentive plan to be earned and paid out, a minimum ofthe company must attain at least 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 HRCompensation 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. There were no adjustments in 2016. In addition, the 20142016 annual incentive plan provided that the 2014lost-time incident rate portion of the safety portionmetric would be forfeited in the event of a work-related fatality, unless the HRCompensation 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 performanceIn two incredibly important ways, 2016 was a record year 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. |
| | 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.us. 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 historicalever annual 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 achievedattained our highest ever JD PowersJ.D. Power overall customer satisfaction score. This independent verification of our efforts to serveOur employees completed their work more safely and our customers toappreciated their satisfaction is important. However, we failed to meet threshold on two separate, customer satisfaction measures.efforts more than ever.
The table that follows shows the associated performance metrics (including threshold, target, and maximum levels), weighting and plan payout percentage for each of the 20142016 performance measures, which resulted in the plan funding at 125113 percent of target.target for our named executive officers. | | | | | 2014 Annual Incentive Plan Information | | 2016 Annual Incentive Plan Information | | Performance Measures | | Weight (% of Total Plan Payout) | | Performance Level | | Target % Achieved | | Final Funding % of Total | | Weight (% of Total Plan Payout) | | Performance Level | | Target % Achieved | | Final Funding % of Total | | Threshold | | Target | | Maximum | | Actual Achieved | 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 |
| | 55 | % | | $144.4 | | $ | 160.5 |
| | $ | 176.5 |
| | $164.2 | | 111.6 | % | | 61.4 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Safety (15%) (2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Lost Time Incident Rate | | 7.5 | % | | 1.0 |
| | 0.8 |
| | 0.6 |
| | 0.5 |
| | 150.0 | % | | 11.3 |
| | 7.5 | % | | 0.8 |
| | 0.65 |
| | 0.34 |
| | 0.31 |
| | 150.0 | % | | 11.3 |
| | Total Recordable Incident Rate | | 7.5 | % | | 2.8 |
| | 2.5 |
| | 2.2 |
| | 2.0 |
| | 150.0 | % | | 11.3 |
| | 7.5 | % | | 2.3 |
| | 2.0 |
| | 1.5 |
| | 1.31 |
| | 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 |
| | 5.0 | % | | 123.00 |
| | 108.00 |
| | 97.00 |
| | 95.67 |
| | 150.0 | % | | 7.5 |
| | SAIDI (including major event days) | | 5.0 | % | | 192.0 |
| | 127.0 |
| | 113.0 |
| | 111.5 |
| | 150.0 | % | | 7.5 |
| | 5.0 | % | | 191.00 |
| | 123.00 |
| | 108.00 |
| | 129.22 |
| | 95.4 | % | | 4.8 |
| | 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 |
| | | Gas – Damages per 1000 Locates | | | 2.5 | % | | 2.62 |
| | 2.12 |
| | 1.72 |
| | 2.20 |
| | 92.0 | % | | 2.3 |
| | Gas – Leaks per 100 Miles of Main | | | 2.5 | % | | 7.55 |
| | 6.05 |
| | 4.84 |
| | 3.60 |
| | 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 |
| | 5 | % | | 638.0 |
| | 656.0 |
| | 661.0 |
| | 687.2 |
| | 150.0 | % | | 7.5 |
| Operational Performance – Customer Survey by Flynn Wright | | 5 | % | | 39.55 |
| | 40.32 |
| | 40.47 |
| | 38.5 |
| | — | % | | — |
| | 5 | % | | 36.62 | | 38.55 | | 40.48 | | 37.29 | | 67.4 | % | | 3.4 |
| Reputational Perceptions – Customer Survey by Flynn Wright | | 5 | % | | 39.03 |
| | 39.82 |
| | 39.98 |
| | 38.6 |
| | — | % | | — |
| | 5 | % | | 36.56 |
| | 38.48 |
| | 40.40 |
| | 36.40 |
| | — | % | | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | TOTAL FUNDING PERCENTAGE | | | 125 | % | | | | | | | | TOTAL FUNDING PERCENTAGE | | | 113 | % |
| | | (1) | Net Income. Income.The actual net income target is based upon the Board approved budget for the plan year, and the actual achieved of $112.2 million excludedis determined by what is reported in our annual report on Form 10-K for the impact from two significant non-budgeted items described above.plan year. |
| | | (2) | Safety.Safety performance is calculated by us and participating Edison Electric Institute (EEI) utilities as defined byaccording to Occupational Safety and Health Administration (OSHA). standards. OSHA specifically defines what workplace injuries and illnesses should be recorded and, of those recorded, which must be considered lost time incidents. The thresholdlevel for the safety measures represents our five-year average performance for these metrics, which is significantly above our EEIEdison Electric Institute (EEI) peer group average; the targetlevel represents top tier performance foris significantly above our EEI peer group average and represents 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 themaximum represents top quartile performance for our EEI peer group and a significant improvement over historical company performance. |
| | Compensation Discussion &and 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.
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 ofbetween 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) which was achieved in the last five years.2009. 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 ofbetween the company’s five-year average results and the maximum level; and the maximumlevel 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 LocatesLocates.. 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 firstthe company’s three-year average and is approximately 10 percent better than second quartile performance as reported in a leak reporting survey conducted by the American Gas Association (AGA); the target level represents a tentwenty percent improvement over the company’s two-year three-year average; and the maximum level represents a 2535 percent improvement over the company’s two-yearthree-year average.
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 a 50 percent improvement above second quartile average performance as reported by the AGA; the target level represents the company’s three-year average, which is first quartile performance; and the maximum level represents a 20 percent improvement over the company’s three-year average. | | | (4) | Customer Satisfaction. |
JDJ.D. Power.One customer satisfaction metric is measured by the broadly utilized JDJ.D. 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 thresholdlevel represents the company’s three-yearfive-year average; the targetlevel is an improvement of five pointsone point over 2013;our best ever score, which we achieved in 2015; and the maximumlevel is a five point improvement over 2016 target, which would be first quartile performance and is an improvement of ten points over 2013.based on 2015 data.
Flynn Wright SurveysSurveys.. The remaining two customer satisfaction metrics are measured based on the results of a 20142016 customer tracking survey conducted on our behalf by Flynn Wright.Wright, a full service advertising, marketing, public relations, web design, interactive and research advertising agency. For both of these metrics, the thresholdlevel represents the company’s baseline score from research conducted in 2013;is set five percent below target; the targetlevel represents an improvement from 2013 that is statistically significant at the 90 percent confidence level;our average scores for 2013-2015; and the maximumlevel representsis set at five percent above target. (4) Individual Performance Multiple After the Compensation Committee determines the plan funding percentage, the committee determines an improvementindividual performance multiple for each executive, which is statistically significant atfactored into the 95 percent confidence level.incentive payout calculation. To make this determination, the Compensation Committee analyzes the total mix of available information, as well as actual performance measured against pre-established goals. | | | | | | | | | | | | The company’s successes in 2016 were 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 Compensation | 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 2016 annual cash incentive plan, without the addition of any performance multiplier. Actual 2016 annual cash incentive awards for the named executive officers are reflected in the table to the right. | | | | | | | | | | | Name | | 2016 Target Cash Incentive, as Percent of Base Salary (%) | | 2016 Actual Cash Incentive, as Percent of Base Salary (%) | | 2016 Cash Incentive Award ($) | | | Robert C, Rowe | | 80.0 | | 90.4 | | 538,403 |
| | | Brian B. Bird | | 50.0 | | 56.5 | | 232,752 |
| | | Heather H. Grahame | | 45.0 | | 50.9 | | 183,603 |
| | | Curtis T. Pohl | | 40.0 | | 45.2 | | 126,525 |
| | | Bobbi L. Schroeppel | | 35.0 | | 39.6 | | 102,195 |
|
| | | | | | | | | | 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 |
| | 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 Incentive Awards Under the Equity Compensation Plan We have used our Equity Compensation Plan to provide for the award of long-term, performance-based equity incentive awards to our executive officers. These performance-based awards help us achieve our compensation
| | | Compensation Discussion and Analysis |
philosophy of being market competitive while simultaneously aligning the interests of our executives and stockholders.shareholders. The Equity Compensation Plan authorizes several types of stock-based awards, including restricted stock and a variety of performance-based awards. In 2014,2016, the HRCompensation 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 20142016 awards are performance-based and payable, if and when earned, in shares of our common stock. LTIP Performance UnitsUnits. . The HRCompensation 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 HRCompensation Committee approves the annual grant of LTIP performance units to our executive officers (and approximately 100115 other participants) and selects a date (usually the date of the HR Committee’s action) when the awards will be granted, typicallyparticipants in February of each year.2016 ). The awards of LTIP performance units are intended to provide a link between executive officer compensation and long-term stockholdershareholder 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 HRCompensation 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 stockholdershareholder 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 EPS 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 five completed performance periods, the contribution of these two performance measures (and our relative TSR ranking within our peer group when calculated as required by the LTIP) to the overall payout (expressed as a percentage of target). | | | | | | | | | 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 | | | | 2009-2011 | 2010-2012 | 2011-2013 | 2012-2014 | | | Financial Measures Payout Percentage | 135.3% | 143.2% | 59.9% | 156.7% | | | Relative TSR | 2nd of 12 | 4th of 12 | 4th of 12 | 2nd of 15 | | | Relative TSR Payout Percentage | 175.0% | 125.0% | 125.0% | 180.0% | | | Total Payout Percentage | 155.2% | 134.1% | 92.5% | 168.4% |
| | | | | | | | | Performance Period | | | 2010-2012 | 2011-2013 | 2012-2014 | 2013-2015 | 2014-2016 | | Financial Measures Payout Percentage | 143.2% | 59.9% | 156.7% | 154.5% | 78.3% | | Relative TSR | 4th of 12 | 4th of 12 | 2nd of 15 | 2nd of 15 | 8th of 14 | | Relative TSR Payout Percentage | 125.0% | 125.0% | 180.0% | 180.0% | 30.0% | | Total Payout Percentage | 134.1% | 92.5% | 168.4% | 167.3% | 108.3% |
| | Compensation Discussion & Analysis |
ERRP Restricted Share UnitsUnits. . In 2011, the HRCompensation Committee made the first annual grants of ERRP restricted share units. The HRCompensation 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 withbenefits. The ERRP share units also encourage 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 HRCompensation 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 stockholdershareholder interests and to motivate and reward achievement of pre-established corporate financial goals. The HRCompensation 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 onOn December 31, 2016.2016, the first ERRP grants vested. 2014
| | | Compensation Discussion and Analysis |
2016 Long-Term Incentive Program Performance Unit Grants In February 2014,2016, the HRCompensation 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 for each executive officer are derived from peer group and competitive survey data and from the HRCompensation 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 HRCompensation 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 2014,2016, the HRCompensation Committee increased the targeted opportunity (expressed as a percentage of base salary) associated with the LTIP awards for threeour CEO and two of our named executive officers to better 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 weighted average fair market value of a share of our stock on the grant date.date, less the present value of expected dividends. The resulting calculation represents the number of LTIP performance units that were granted and will vest on December 31, 2016,2018, if all performance goals are met at the target performance level. | | | | | | | | | | | | | | The target equity opportunities (value at target and number of shares) for the 2016 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 2015 and 2016 awards. | | | | | Target LTIP Performance Unit Opportunity for 2016 | | | Name | 2015
Base Salary
(%) | | 2016
Base Salary (%) | | 2016
Value at Target ($) | | LTIP Stock Awards (#) (1) | | | Robert C. Rowe | 150 | | 200 | | 1,156,462 |
| | 22,982 |
| | | Brian B. Bird | 100 | | 100 | | 399,952 |
| | 7,948 |
| | | Heather H. Grahame | 70 | | 80 | | 280,166 |
| | 5,568 |
| | | Curtis T. Pohl | 60 | | 60 | | 163,061 |
| | 3,240 |
| | | Bobbi L. Schroeppel | 40 | | 50 | | 125,276 |
| | 2,490 |
| | | | | | | | | | | | | (1) Based on a weighted average grant date fair value of $50.32, which was calculated using the closing stock price of $58.16 on February 10, 2016, less the present value of expected dividends |
After the performance period, the HRCompensation Committee calculates the actual company performance relative to the performance goals and determines the number of LTIP performance units that vest based on such performance. Depending on the calculated company performance, the exact number of LTIP performance units that vest will vary from zero to 200 percent of the target award. In addition, if earned, the value of the award on the vesting date, basedpayout will depend on the fair market valueprice of our stock on that future date, likely will differ from the value at target as reflected in the following table, which is based on the fair market value of a share of ourcommon stock on the grant date.date of payout. | | | | | | | | | | | | | | | The target equity opportunities for the 2014 grants of LTIP performance units are shown in the table to the right. The table also compares the target opportunities (expressed as a percentage of base salary) applicable to the 2013 and 2014 awards. | | | | | | Target LTIP Performance Unit Opportunity for 2014 | | | Name | | 2013
Base Salary
(%) | | 2014
Base Salary (%) | | 2014
Value at Target ($) | | 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. |
| | 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.
credit ratings. The following table summarizes the performance measures for the 20142016 LTIP performance unit awards. | | | Performance Measures — 2014-2016 | | Threshold | | Target | | Maximum | | | Performance Measures — 2016-2018 | | | Threshold | | Target | | Maximum | | Financial Goals – 50% | | | | | | | | | | | | | | ROAE | | 9 | % | | 10 | % | | 11 | % | | 8.95 | % | | 9.70 | % | | 10.45 | % | | Simple Average EPS Growth | | 3.3 | % | | 6.3 | % | | 9.3 | % | | 1.2 | % | | 4.2 | % | | 7.2 | % | | TSR – 50% | | | | | | | | | | | | | | Relative Average vs. Peers | | 13th |
| | 6th |
| | 1st |
| | 13th |
| | 6th |
| | 1st |
|
In general, based on a market analysis conducted by Willis Towers Watson, our metricsperformance levels 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 relatesthese goals relate 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
| | | Compensation Discussion and Analysis |
dividends paid over the performance period. We then compare our TSR with the total stockholdershareholder returns achieved by our peers over the same three-year period and determine our ranking. 20142016 Executive Retention / Retirement Program Restricted Share Unit Grants
In December 2014,2016, the HRCompensation 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 HRCompensation 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.shareholders. It also promotes retention through the five-year cliff vesting component and benefits succession planning and continuity of our strategic plan through its fiver-yearfive-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 HRCompensation 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 HRCompensation 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 2014,2016, the HRCompensation Committee increasedreviewed the equity incentive opportunities provided to our peer group to analyze whether the targeted ERRP restricted share unit award for each ofawards to our executive officers. The HR Committee made this determination following its analysis of equity incentive opportunities provided by ourofficers approximated the peer group and increasedmedian. Based on its review, the Compensation Committee determined that no changes were required for the 2016 ERRP award to approximate the market median.restricted share unit awards. The target equity opportunities for the 20142016 ERRP restricted share unit grants to our named executive officers, and the 2013 ERRP target opportunitybased on a percentage of base salary, are shown in the table onbelow. The 2016 grants offered the following page.same targeted opportunity that was provided by the 2015 ERRP grants. Each executive officer’s 2016 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
| | Compensation Discussion & Analysis |
units that will vest on December 31, 2019,2021, if the company’s net income for three of the five calendar years 20152017 – 20192021 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 fair2016. The value of the award on the grant date, as reflected in the followingbelow table, which is based on the closing market price of our stock on the grant date, less the present value of expected dividends. If earned, the value of the award on payout will depend on the market price of our common stock on the date of payout. | | | | | 2014 Target ERRP Opportunity | | 2016 Target ERRP Opportunity | | Name | | 2013
Base Salary (%) | | 2014 Base Salary (%) | | Value at Grant Date ($) | | ERRP Stock Awards (1) (#) | | 2016 Base Salary (%) | | Value at Grant Date ($) | | ERRP Stock Awards (1) (#) | | Robert C. Rowe | | 25.0 | | 50.0 | | 280,695 |
| | 6,410 |
| | 50.0 | | 297,789 |
| | 6,505 |
| | Brian B. Bird | | 12.5 | | 25.0 | | 92,070 |
| | 2,103 |
| | 25.0 | | 102,988 |
| | 2,250 |
| | Heather H. Grahame | | 10.0 | | 20.0 | | 67,025 |
| | 1,531 |
| | 20.0 | | 72,143 |
| | 1,576 |
| | Curtis T. Pohl | | 10.0 | | 20.0 | | 52,771 |
| | 1,205 |
| | 20.0 | | 55,984 |
| | 1,223 |
| | Kendall G. Kliewer | | 7.5 | | 15.0 | | 36,512 |
| | 834 |
| | | Bobbi L. Schroeppel | | | 15.0 | | 38,710 |
| | 846 |
|
| | | (1) | Based on a weighted average grant date fair value of $43.79,$45.78, which was calculated using the closing stock price of $53.02$55.70 on December 16, 2014,7, 2016, less the present value of expected dividends, calculated using a 1.531.8 percent five-year Treasury rate and assuming quarterly dividends of $0.48$0.52 for the five-year vesting period. |
Vesting of 20122014 Long-Term Incentive Program Performance Unit Grants in 20142016 In February 2012,2014, the HRCompensation Committee approved grants of LTIP performance units, subject to a three-year performance period. The 20122014 LTIP performance unit grants vested on December 31, 2014.2016. 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 table on the following tablepage summarizes the performance measures which governed these 20122014 grants.
| | | Compensation Discussion and Analysis |
| | | Performance Measures — 2012-2014 | | Threshold | | Target | | Maximum | | Actual | | | Performance Measures — 2014-2016 | | | Threshold | | Target | | Maximum | | Actual | | Financial Goals – 50% | | | | | | | | | | | | | | | | | | ROAE | | 7.9 | % | | 9.9 | % | | 11.9 | % | | 10.4 | % | | 9.0 | % | | 10.0 | % | | 11.0 | % | | 10.3 | % | | Average Net Income Growth | | — | % | | 4.0 | % | | 8.0 | % | | 10.1 | % | | | Average EPS Growth | | | 3.3 | % | | 6.3 | % | | 9.3 | % | | 11.6 | % | | Market Goal – 50% | | | | | | | | | | | | | | | | | | Relative TSR Average vs. Peers | | 13th |
| | 6th |
| | 1st |
| | 2nd |
| | 13th |
| | 6th |
| | 1st |
| | 8th |
|
Depending upon actual company performance relative to these performance goals, the exact number of shares that could have vested variedranged from zero to 200 percent of the target award. As summarized above in the 2014 LTIP2016 Long-Term Incentive Program Performance Unit Grantssection, our relative TSR metrics are established at levels higher than our peers according to a market analysis conducted by the HRCompensation Committee’s independent compensation consultant. At the conclusion of the performance period, the HRCompensation Committee calculated the company’s performance relative to these goals during the three-year performance period to determine the vesting percentage for the 20122014 LTIP performance unit grants. During the performance period, forFor the financial goals related to the 2014 LTIP performance unit grants, ROAE was 10.410.3 percent and average net incomeEPS growth was 10.111.6 percent. This financial performance resulted in a 78.478.3 percent vesting percentage for that half of the program. For our market goal, TSR was 70.844.5 percent, resulting in a ranking of 2ndeighth with respect to our peers, and contributing 90.030.0 percent with respect to that half of the program.
For purposes of our LTIP, we calculate TSR by comparing the average closing price for a share of common stock of us and our peers during the period beginning 10 days prior to the end of the performance period and ending 10 days after the performance period plus the cumulative dividends earned during the performance period, to the average closing price of a share of common stock of us and our peers during the period beginning 10 days prior to the start of the performance period and ending 10 days after the start of the performance period. Our Compensation Committee believes that calculating relative TSR using the 20-day average share price around the beginning and end of the performance period results in a more accurate reflection of return for the period that is less impacted by stock market activity on the first and last days of the performance period. Based on the HRCompensation Committee’s calculation of these performance measures, the 20122014 LTIP performance unit grants vested at 168.4108.3 percent. The following table summarizes the performance results with respect to each of the performance measures applicable to the 20122014 LTIP performance unit grants and the corresponding contributions to the vesting percentage. | | | Performance Measures — 2012-2014 | | Result | | Weight | | Vesting | | | Performance Measures — 2014-2016 | | | Result | | Weight | | Vesting | | Financial Goals – ROAE and Average Net Income Growth | | 156.7 | % | | 50 | % | | 78.4 | % | | 156.6 | % | | 50 | % | | 78.3 | % | | Market Goal – TSR | | 180.0 | % | | 50 | % | | 90.0 | % | | 60.0 | % | | 50 | % | | 30.0 | % | | | | | | TOTAL |
| | 168.4 | % | | | | TOTAL |
| | 108.3 | % |
| | Compensation Discussion and Analysis |
The table on the following tablepage summarizes the number of shares awarded byfor the 20122014 LTIP performance unit grants and the number of shares paid out in 20142016 with respect to such grants for our named executive officers, based on the 168.4108.3 percent percent vesting percentage approved by the HRCompensation Committee. | | | | | Vesting of 2012 Performance Unit Grants | | Vesting of 2014 Performance Unit Grants | | Name | | Amount at Grant Date (#) | | Vesting Percentage (%) | | Amount upon Vesting (#) | | Units at Grant Date (#) | | Vesting Percentage (%) | | Units upon Vesting (#) | | Robert C. Rowe | | 14,763 |
| | 168.4 | % | | 24,861 |
| | 21,329 |
| | 108.3% | | 23,099 |
| | Brian B. Bird | | 7,264 |
| | 168.4 | % | | 12,233 |
| | 8,629 |
| | 108.3% | | 9,345 |
| | Heather H. Grahame | | 4,847 |
| | 168.4 | % | | 8,162 |
| | 5,518 |
| | 108.3% | | 5,976 |
| | Curtis T. Pohl | | 3,816 |
| | 168.4 | % | | 6,426 |
| | 4,010 |
| | 108.3% | | 4,343 |
| | Kendall G. Kliewer | | 2,274 |
| | 168.4 | % | | 3,829 |
| | | Bobbi L. Schroeppel | | | 2,395 |
| | 108.3% | | 2,594 |
|
Other Compensation Policies
Stock Ownership Guidelines
| | | Compensation Discussion and Analysis |
Our Corporate Governance Guidelines require our executive officersVesting of 2011 Executive Retention / Retirement Program Grants in 2016
In December 2011, the Compensation Committee approved the first grants of ERRP restricted share units, subject to meet and maintain a specified stock ownership level. Stock ownership guidelines rangefive-year performance period from 2012 to 2016. The 2011 ERRP restricted share unit grants contained 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 thefinancial performance metric that 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 thoseachieve net income during any three of our stockholders.the five years during the performance period that exceeded the company’s net income for 2011. As summarized below, allin the following table, the company achieved net income in each of our named executive officers have satisfied the applicable stock ownership guideline, as have our other executive officers.performance period years that was higher than its net income for 2011.
| | | | | | | | | | | 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 | % |
| | | | | | | Net Income (millions) | | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | | $92.6 | $98.4 | $94.0 | $120.7 | $151.2 | $164.2 |
| | | | | | | | (1) | PercentAs a result of guideline achieved usesachieving the closing stock prices of $43.32 and $56.58 as ofperformance metric, the 2011 ERRP restricted share unit grants vested on December 31, 2013, and 2014, respectively. |
| 2016. In accordance with the terms of the grants, the vested restricted share units have been credited to an account for each executive officer similar to a deferred compensation account. An | (2) | Effective February 18, 2014, our Board increasedexecutive is not entitled to payout of any of the vested units in such account until the executive leaves the company, and following such departure, each unit will be paid out as a share of common stock ownership guideline for our CEOof the company in five equal annual installments.
The table to a multiplethe right summarizes the number of six times base salary from five times base salary. The calculation reflected in this table uses the six times base pay multiple2011 ERRP restricted share units which vested on December 31, 2016, for each year, even thoughof 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.named executive officers. | | | | | | | Name | | 2011 ERRP Restricted Share Units Vested | | | | Robert C. Rowe | | 3,667 |
| | | Brian B. Bird | | 1,203 |
| | | Heather H. Grahame | | 876 |
| | | Curtis T. Pohl | | 689 |
| | | Bobbi L. Schroeppel | | 456 |
|
Other Pay Policies 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
| | 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 of2016 Executive Officers and Directors—PostPay—Pay After Employment Compensation”Ends section, starting on page 4737 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
| | | Compensation Discussion and Analysis |
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 HRCompensation 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, stockholdersshareholders 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 stockholdersshareholders at last year’s annual meeting. The HRCompensation Committee generally seeks ways to limit the impact of Section 162(m). However, the HRCompensation 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. In 2014, we incurred compensation for our Named Executive Officers of approximately $118,000 that may not be deductible for tax purposes. | | | | | | | | Compensation Committee Report The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis with management. Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the proxy statement and incorporated by reference into the Annual Report on Form 10-K for the year ended December 31, 2016. Compensation Committee Dana J. Dykhouse, Chair Stephen P. Adik Dorothy M. Bradley Julia L. Johnson | | | | |
Compensation of2016 Executive Officers and DirectorsPay
The following tables, footnotes, and narratives provide information regarding the compensation, benefits, and equity holdings in the company for the named executive officers during the years ended December 31, 2014, 2013,2016, 2015, and 2012.2014. Please see the CD&A on the previous pages for a description of our executive compensationpay program necessary to gain an understanding of the information disclosed below. 2016 Summary Compensation Table The following table sets forth the compensation earned during 2014, 2013,2016, 2015, and 20122014 for services in all capacities by the named executive officers: | | | | | | | | | | | | | | | | | | | | | | | | | Name and Principal Position | | Year | | Salary ($) | | 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) ($) | | Total ($) | | Robert C. Rowe | | 2014 | | 556,924 |
| | — |
| | 1,098,234 |
| | 561,389 |
| | 104,139 |
| | 22,155 |
| | 2,342,841 |
| | President and | | 2013 | | 540,764 |
| | — |
| | 666,183 |
| | 470,913 |
| | 26,461 |
| | 20,577 |
| | 1,724,898 |
| | Chief Executive Officer | | 2012 | | 525,013 |
| | — |
| | 476,307 |
| | 414,864 |
| | 63,143 |
| | 19,364 |
| | 1,498,691 |
| | Brian B. Bird | | 2014 | | 365,351 |
| | — |
| | 422,840 |
| | 230,175 |
| | 32,002 |
| | 49,005 |
| | 1,099,373 |
| | Vice President and | | 2013 | | 354,749 |
| | — |
| | 281,088 |
| | 193,079 |
| | — |
| | 43,055 |
| | 871,971 |
| | Chief Financial Officer | | 2012 | | 344,417 |
| | — |
| | 217,210 |
| | 170,098 |
| | 29,744 |
| | 42,280 |
| | 803,749 |
| | Heather H. Grahame | | 2014 | | 332,462 |
| | — |
| | 278,547 |
| | 188,509 |
| | — |
| | 46,629 |
| | 846,147 |
| | Vice President and | | 2013 | | 322,815 |
| | — |
| | 184,382 |
| | 140,558 |
| | — |
| | 44,903 |
| | 692,658 |
| | General Counsel | | 2012 | | 313,412 |
| | — |
| | 147,022 |
| | 123,828 |
| | — |
| | 44,095 |
| | 628,357 |
| | Curtis T. Pohl | | 2014 | | 261,754 |
| | — |
| | 206,470 |
| | 131,927 |
| | 64,786 |
| | 62,079 |
| | 727,016 |
| | Vice President - | | 2013 | | 254,159 |
| | — |
| | 145,163 |
| | 110,665 |
| | — |
| | 48,646 |
| | 558,633 |
| | Retail Operations | | 2012 | | 246,757 |
| | — |
| | 115,747 |
| | 97,493 |
| | 62,888 |
| | 40,089 |
| | 562,974 |
| | Kendall G. Kliewer | | 2014 | | 241,478 |
| | — |
| | 131,043 |
| | 106,494 |
| | 36,373 |
| | 46,366 |
| | 561,754 |
| | Vice President and | | 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 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | 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 ($) | | Robert C. Rowe | | | | | | | | | | | | | | | | | | President and Chief Executive Officer | | 2016 | | 590,641 |
| | — |
| | 1,454,138 |
| | 538,403 |
| | 68,952 |
| | 27,933 |
| | 2,680,067 |
| | | 2015 | | 573,567 |
| | — |
| | 1,131,121 |
| | 370,068 |
| | 39,285 |
| | 41,564 |
| | 2,155,605 |
| | | 2014 | | 556,924 |
| | — |
| | 1,098,234 |
| | 561,389 |
| | 104,139 |
| | 22,155 |
| | 2,342,841 |
| | Brian B. Bird | | | | | | | | | | | | | | | | | Vice President and Chief Financial Officer | | 2016 | | 408,536 |
| | — |
| | 502,909 |
| | 232,752 |
| | 15,458 |
| | 50,027 |
| | 1,209,682 |
| | | 2015 | | 391,181 |
| | — |
| | 468,227 |
| | 159,981 |
| | 9,264 |
| | 49,677 |
| | 1,078,330 |
| | | 2014 | | 365,351 |
| | — |
| | 422,840 |
| | 230,175 |
| | 32,002 |
| | 49,005 |
| | 1,099,373 |
| | Heather H. Grahame | | | | | | | | | | | | | | | | | | Vice President and General Counsel | | 2016 | | 357,724 |
| | — |
| | 352,303 |
| | 183,423 |
| | — |
| | 51,496 |
| | 944,946 |
| | | 2015 | | 346,032 |
| | — |
| | 304,597 |
| | 126,075 |
| | — |
| | 48,360 |
| | 825,064 |
| | | 2014 | | 332,462 |
| | — |
| | 278,547 |
| | 188,509 |
| | — |
| | 46,629 |
| | 846,147 |
| | Curtis T. Pohl | | | | | | | | | | | | | | | | | | Vice President - Retail Operations | | 2016 | | 277,602 |
| | — |
| | 219,010 |
| | 126,525 |
| | 21,421 |
| | 59,155 |
| | 703,713 |
| | | 2015 | | 269,577 |
| | — |
| | 212,661 |
| | 86,966 |
| | 5,814 |
| | 59,702 |
| | 634,720 |
| | | 2014 | | 261,754 |
| | — |
| | 206,470 |
| | 131,927 |
| | 64,786 |
| | 62,079 |
| | 727,016 |
| | Bobbi L. Schroeppel | | | | | | | | | | | | | | | | | | Vice President - Customer Care, Communications and Human Resources | | 2016 | | 255,929 |
| | — |
| | 164,014 |
| | 102,066 |
| | 13,992 |
| | 50,221 |
| | 586,222 |
| | | 2015 | | 248,530 |
| | — |
| | 134,849 |
| | 70,154 |
| | 5,012 |
| | 49,823 |
| | 508,368 |
| | | Ms. Schroeppel was not a named executive officer in 2014. |
| | | (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 1716 to the consolidated financial statements in our 20142016 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 $1,915,775$2,610,478 for Mr. Rowe; $753,590$902,812 for Mr. Bird; $490,052$632,457 for Ms. Grahame; $360,174$382,030 for Mr. Pohl; and $225,564$289,299 for Mr. Kliewer. Ms. Schroeppel. |
| | | (2) | The Non-Equity“Non-Equity Incentive Plan CompensationCompensation” 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. Our pension plans were closed prior to Ms. Grahame joining the company; therefore, she is not eligible to participate in a pension plan. |
| | | (4) | The table on the top of the following page identifies the items included in the All“All Other CompensationCompensation” column for 2014.2016. 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 $50,000 for each of the named executive officers. Mr. Rowe’s, Ms. Grahame’s and Mr. Pohl’s other income for 2014 and 2013 includes2016 is from vacation sold back to the company at a rate of 75 percent. |
| | Compensation of Executive Officers and Directors |
| | | | | Health Benefits ($) | | 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 | | 7,288 |
| | 4,426 |
| | 10,400 |
| | 41 |
| | 22,155 |
| | $ | 7,376 |
| | $ | 6,204 |
| | $ | 10,600 |
| | $ | 3,753 |
| | $ | 27,933 |
| | Brian B. Bird | | 21,167 |
| | 1,838 |
| | 26,000 |
| | — |
| | 49,005 |
| | 21,457 |
| | 2,070 |
| | 26,500 |
| | — |
| | 50,027 |
| | Heather H. Grahame | | 18,050 |
| | 2,542 |
| | 26,000 |
| | 37 |
| | 46,629 |
| | 18,317 |
| | 3,603 |
| | 26,500 |
| | 3,076 |
| | 51,496 |
| | Curtis T. Pohl | | 20,135 |
| | 4,107 |
| | 28,600 |
| | 9,237 |
| | 62,079 |
| | 14,727 |
| | 4,363 |
| | 29,150 |
| | 10,915 |
| | 59,155 |
| | Kendall G. Kliewer | | 21,167 |
| | 1,799 |
| | 23,400 |
| | — |
| | 46,366 |
| | | Bobbi L. Schroeppel | | | 21,457 |
| | 2,191 |
| | 26,500 |
| | 73 |
| | 50,221 |
|
2016 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, 2014.2016. 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 | | — |
| | 224,556 |
| | 449,111 |
| | 673,667 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 238,231 |
| | 476,462 |
| | 714,693 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | Performance Units | | 2/18/2014 |
| | — |
| | — |
| | — |
| | — |
| | 21,329 |
| | 42,658 |
| | — |
| | 817,541 |
| | 2/10/2016 |
| | — |
| | — |
| | — |
| | — |
| | 22,982 |
| | 45,964 |
| | — |
| | 1,156,339 |
| | Restricted Share Units | | 12/16/2014 |
| | — |
| | — |
| | — |
| | — |
| | 6,410 |
| | 6,410 |
| | — |
| | 280,694 |
| | 12/7/2016 |
| | — |
| | — |
| | — |
| | — |
| | 6,505 |
| | 6,505 |
| | — |
| | 297,799 |
| | Brian B. Bird | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Annual Cash Incentive | | — |
| | 92,070 |
| | 184,140 |
| | 276,210 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 102,988 |
| | 205,976 |
| | 308,964 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | Performance Units | | 2/18/2014 |
| | — |
| | — |
| | — |
| | — |
| | 8,629 |
| | 17,258 |
| | — |
| | 330,750 |
| | 2/10/2016 |
| | — |
| | — |
| | — |
| | — |
| | 7,948 |
| | 15,896 |
| | — |
| | 399,904 |
| | Restricted Share Units | | 12/16/2014 |
| | — |
| | — |
| | — |
| | — |
| | 2,103 |
| | 2,103 |
| | — |
| | 92,090 |
| | 12/7/2016 |
| | — |
| | — |
| | — |
| | — |
| | 2,250 |
| | 2,250 |
| | — |
| | 103,005 |
| | Heather H. Grahame | Heather H. Grahame | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Annual Cash Incentive | | — |
| | 75,404 |
| | 150,807 |
| | 226,211 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 81,161 |
| | 162,321 |
| | 243,481.5 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | Performance Units | | 2/18/2014 |
| | — |
| | — |
| | — |
| | — |
| | 5,518 |
| | 11,036 |
| | — |
| | 211,505 |
| | 2/10/2016 |
| | — |
| | — |
| | — |
| | — |
| | 5,568 |
| | 11,136 |
| | — |
| | 280,154 |
| | Restricted Share Units | | 12/16/2014 |
| | — |
| | — |
| | — |
| | — |
| | 1,531 |
| | 1,531 |
| | — |
| | 67,042 |
| | 12/7/2016 |
| | — |
| | — |
| | — |
| | — |
| | 1,576 |
| | 1,576 |
| | — |
| | 72,149 |
| | Curtis T. Pohl | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Annual Cash Incentive | | — |
| | 52,771 |
| | 105,541 |
| | 158,312 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 55,985 |
| | 111,969 |
| | 167,953.5 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | Performance Units | | 2/18/2014 |
| | — |
| | — |
| | — |
| | — |
| | 4,010 |
| | 8,020 |
| | — |
| | 153,703 |
| | 2/10/2016 |
| | — |
| | — |
| | — |
| | — |
| | 3,240 |
| | 6,480 |
| | — |
| | 163,021 |
| | Restricted Share Units | | 12/16/2014 |
| | — |
| | — |
| | — |
| | — |
| | 1,205 |
| | 1,205 |
| | — |
| | 52,767 |
| | 12/7/2016 |
| | — |
| | — |
| | — |
| | — |
| | 1,223 |
| | 1,223 |
| | — |
| | 55,989 |
| | Kendall G. Kliewer | | | | | | | | | | | | | | | | | | | | | Bobbi L. Schroeppel | | | | | | | | | | | | | | | | | | | | | Annual Cash Incentive | | — |
| | 42,598 |
| | 85,195 |
| | 127,793 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 45,162 |
| | 90,324 |
| | 135,486 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | Performance Units | | 2/18/2014 |
| | — |
| | — |
| | — |
| | — |
| | 2,466 |
| | 4,932 |
| | — |
| | 94,522 |
| | 2/10/2016 |
| | — |
| | — |
| | — |
| | — |
| | 2,490 |
| | 4,980 |
| | — |
| | 125,284 |
| | Restricted Share Units | | 12/16/2014 |
| | — |
| | — |
| | — |
| | — |
| | 834 |
| | 834 |
| | — |
| | 36,521 |
| | 12/7/2016 |
| | — |
| | — |
| | — |
| | — |
| | 846 |
| | 846 |
| | — |
| | 38,730 |
|
| | | (1) | Reflects possible payout range of 20142016 performance units and restricted share units awards. The performance units granted on February 18, 2014,10, 2016, have a weighted average grant date fair value of $38.33.$50.32. The restricted share units granted on December 16, 2014,7, 2016, have a weighted average grant date fair value of $43.79.$45.78. |
| | | (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 1716 to the consolidated financial statements in our 20142016 Annual Report on Form 10-K for further information regarding assumptions underlying the valuation of equity awards. |
| | Compensation of Executive Officers and Directors |
Non-equity Incentive Plan Awards Non-equity incentive plan compensation includes amounts earned under the NorthWestern Energy 20142016 Annual Incentive Plan for 20142016 performance, which were paid in 2015.2017. The HRCompensation Committee reviewed 20142016 performance against plan targets and the plan achieved a payout percentage of 125113 percent, as discussed in the “CompensationCompensation Discussion and Analysis—Pay Components of Executive Compensation for 2014—Annual—Annual Cash Incentive Awards”Awards section, starting on page 3323 of this proxy statement.
Equity Incentive Plan Awards As previously discussed in the “CompensationCompensation Discussion and Analysis—Pay Components—Long-Term Performance-Based Equity Incentive Awards2014 Compensation—Long-Term Incentive Plan Equity Awards” section in this proxy statement, the Board approved granting performance awards in 20142016 under the Equity Compensation Plan. The values of stock awards included in the table aboveon the previous page reflect the grant date fair value of these awards as calculated utilizing the provisions of Accounting Standards Codification 718, Stock Compensation, and doesdo not represent earned or paid compensation as the shares are subject to performance and vesting conditions. For the 20142016 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 1716 to the consolidated financial statements in our 20142016 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 2014,2016, “Salary” for the named executive officers accounted for approximately 2826 percent to 5553 percent of total direct compensation (i.e.(i.e., salary plus targeted annual and long-term incentive compensation), while incentive compensation accounted for approximately 4547 percent to 7274 percent of total direct compensation, assuming achievement of a target level of performance for each named executive officer. 2016 Stock Vested The table below shows the number of shares acquired and the dollar amounts realized pursuant to the vesting of equity-based awards during the last fiscal year. | | | | | | | | | | | | | | | | | | Stock Awards | | Name | Number of LTIP Shares Acquired on Vesting (#) (1) | | Value Realized on LTIP Vesting ($) | | Number of ERRP Shares Acquired on Vesting
(#) (2) | | Value Realized on ERRP Vesting
($) | | Total Value Realized
($) | | Robert C. Rowe | 23,099 |
| | 1,313,640 |
| | 3,667 |
| | 208,542 |
| | 1,522,182 |
| | Brian B. Bird | 9,345 |
| | 531,450 |
| | 1,203 |
| | 68,415 |
| | 599,865 |
| | Heather H. Grahame | 5,976 |
| | 339,855 |
| | 876 |
| | 49,818 |
| | 389,673 |
| | Curtis T. Pohl | 4,343 |
| | 246,986 |
| | 689 |
| | 39,183 |
| | 286,169 |
| | Bobbi L. Schroeppel | 2,594 |
| | 147,521 |
| | 456 |
| | 25,933 |
| | 173,454 |
|
| | | (1) | LTIP Shares vested consist of performance units for the 2014-2016 performance period that vested on December 31, 2016, at a performance level of 108.3 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 $56.87. |
| | | (2) | ERRP Shares vested consist of restricted share units for the 2011-2016 performance period that vested on December 31, 2016. We determined the value realized for the vesting of these restricted share units using the fair market value of our common stock on the December 31, 2016, vesting date, which was $56.87. |
| | Compensation of Executive Officers and Directors |
Outstanding Equity Awards at 20142016 Fiscal Year-End The following table contains information regarding outstanding equity-based awards, including the potential dollar amounts realizable with respect to the awards for each named executive officer. Dividends are not paid or accrued on any unvested shares.awards. | | | Name | | Grant Date | | | | | Performance-Based Shares | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (2) (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (1) (2) (3) ($) | | | | | | Stock Awards | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (1) (#) | | 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 | | 12/16/2014 | | 6,410 |
| | 362,678 |
| | | | | | | | | 12/7/2016 | | 6,505 |
| | 369,939 |
| | | | | 2/10/2016 | | 22,982 |
| | 1,306,986 |
| | | | 2/18/2014 | | 42,658 |
| | 2,413,590 |
| | 12/9/2015 | | 6,458 |
| | 367,266 |
| | | | 12/10/2013 | | 3,878 |
| | 219,417 |
| | 2/11/2015 | | 19,828 |
| | 1,127,618 |
| | | | 2/13/2013 | | 34,522 |
| | 1,953,255 |
| | 12/16/2014 | | 6,410 |
| | 364,537 |
| | | | 12/12/2012 | | 3,814 |
| | 215,796 |
| | 12/10/2013 | | 3,878 |
| | 220,542 |
| | | | 12/5/2011 | | 3,667 |
| | 207,479 |
| | 12/12/2012 | | 3,814 |
| | 216,902 |
| | Brian B. Bird | | 12/16/2014 | | 2,103 |
| | 118,988 |
| | | | | | | | 2/18/2014 | | 17,258 |
| | 976,458 |
| | 12/7/2016 | | 2,250 |
| | 127,958 |
| | | | 12/10/2013 | | 1,272 |
| | 71,970 |
| | 2/10/2016 | | 7,948 |
| | 904,006 |
| | | | 2/13/2013 | | 15,400 |
| | 871,332 |
| | 12/9/2015 | | 2,233 |
| | 126,991 |
| | | | 12/12/2012 | | 1,251 |
| | 70,782 |
| | 2/11/2015 | | 8,672 |
| | 986,353 |
| | | | 12/5/2011 | | 1,203 |
| | 68,066 |
| | 12/16/2014 | | 2,103 |
| | 119,598 |
| | | | | 12/10/2013 | | 1,272 |
| | 72,339 |
| | | | | 12/12/2012 | | 1,251 |
| | 71,144 |
| | Heather H. Grahame | | 12/16/2014 | | 1,531 |
| | 86,624 |
| | | | | | | | | 12/7/2016 | | 1,576 |
| | 89,627 |
| | | | | 2/10/2016 | | 5,568 |
| | 316,652 |
| | | | 2/18/2014 | | 11,036 |
| | 624,417 |
| | 12/9/2015 | | 1,564 |
| | 88,945 |
| | | | 12/10/2013 | | 926 |
| | 52,393 |
| | 2/11/2015 | | 5,524 |
| | 314,150 |
| | | | 2/13/2013 | | 9,892 |
| | 559,689 |
| | 12/16/2014 | | 1,531 |
| | 87,068 |
| | | | 12/12/2012 | | 911 |
| | 51,544 |
| | 12/10/2013 | | 926 |
| | 52,662 |
| | | | 12/5/2011 | | 876 |
| | 49,564 |
| | 12/12/2012 | | 911 |
| | 51,809 |
| | Curtis T. Pohl | | 12/16/2014 | | 1,205 |
| | 68,179 |
| |
| |
| | | | 2/18/2014 | | 8,020 |
| | 453,772 |
| | 12/7/2016 | | 1,223 |
| | 69,552 |
| | | | 12/10/2013 | | 729 |
| | 41,247 |
| | 2/10/2016 | | 3,240 |
| | 184,259 |
| | | | 2/13/2013 | | 7,788 |
| | 440,645 |
| | 12/9/2015 | | 1,214 |
| | 69,040 |
| | | | 12/12/2012 | | 717 |
| | 40,568 |
| | 2/11/2015 | | 3,728 |
| | 212,011 |
| | | | 12/5/2011 | | 689 |
| | 38,984 |
| | 12/16/2014 | | 1,205 |
| | 68,528 |
| | Kendall G. Kliewer | | 12/16/2014 | | 834 |
| | 47,188 |
| | | | | | 12/10/2013 | | 729 |
| | 41,458 |
| | | | | 12/12/2012 | | 717 |
| | 40,776 |
| | Bobbi L. Schroeppel | | | | |
| | | | 2/18/2014 | | 4,932 |
| | 279,053 |
| | 12/7/2016 | | 846 |
| | 48,112 |
| | | | 12/10/2013 | | 504 |
| | 28,516 |
| | 2/10/2016 | | 2,490 |
| | 141,606 |
| | | | 2/13/2013 | | 4,790 |
| | 271,018 |
| | 12/9/2015 | | 839 |
| | 47,714 |
| | | | 12/12/2012 | | 496 |
| | 28,064 |
| | 2/11/2015 | | 2,291 |
| | 130,289 |
| | | | 12/5/2011 | | 484 |
| | 27,385 |
| | 12/16/2014 | | 833 |
| | 47,373 |
| | | | | 12/10/2013 | | 490 |
| | 27,866 |
| | | | | 12/12/2012 | | 482 |
| | 27,411 |
|
| | | (1) | Values were calculated based on a $56.58 closing price of our common stock on December 31, 2014.
|
| | (2) | The performance units granted in February 20132015 and 20142016 will vest, if at all, on December 31, 20152017 and 2016,2018, 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, 2014,2016, we are abovebelow target for obtaining payout of the 20132015 and 20142016 grants. The number of units and payout value shown for the 20132015 and 20142016 grants assume a maximumtarget level of performance (200(100 percent), as required by the SEC’s disclosure rules. |
| | | (2) | Values were calculated based on a $56.87 closing price of our common stock on December 31, 2016. |
| | | (3) | The performance-based restricted share units granted under the ERRP in December 2011, 2012, 2013, 2014, 2015, and 20142016 will vest, if at all, on December 31, 2016, 2017, 2018, 2019, 2020, and 2019,2021, respectively, subject to the satisfaction of the applicable performance criteria and generally subject to the recipient’s continued employment through such date. |
| | Compensation of Executive Officers and DirectorsPay |
2014 Stock Vested
The table below shows the dollar amounts realized pursuant to the vesting of equity-based awards during the last fiscal year.Pay After Employment Ends
| | | | | | | | | | | Stock Awards | | Name | | Number of Shares Acquired on Vesting (#) (1) | | Value Realized on Vesting ($) | | Robert C. Rowe | | 24,861 |
| | 1,406,635 |
| | Brian B. Bird | | 12,233 |
| | 692,143 |
| | Heather H. Grahame | | 8,162 |
| | 461,806 |
| | Curtis T. Pohl | | 6,426 |
| | 363,583 |
| | Kendall G. Kliewer | | 3,829 |
| | 216,645 |
|
| | (1) | Shares vested consist of performance units for the 2012 - 2014 performance period that vested on December 31, 2014, at a performance level of 168.4 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 $56.58.
|
Post-Employment Compensation2016 Pension Benefits
2014 Pension Benefits
We have two separate defined benefit pension plans that cover employees hired prior to January 1, 2009. The NorthWestern Energy Pension Plan is applicable to employees who began their employment in Montana, and the NorthWestern Corporation Pension Plan is applicable to employees who began their employment in South Dakota or Nebraska. | | | Name | | Plan Name | | Number of Years Credited Service (#) | | Present Value of Accumulated Benefit ($) | | 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 | | 6.00 |
| | 324,927 |
| | — |
| | NorthWestern Energy Pension Plan | | 8.00 |
| | 433,164 |
| | — |
| | Brian B. Bird | | NorthWestern Pension Plan | | 11.08 |
| | 160,999 |
| | — |
| | NorthWestern Corporation Pension Plan | | 13.08 |
| | 185,721 |
| | — |
| | Heather H. Grahame (1) | | — | | — |
| | — |
| | — |
| | — | | — |
| | — |
| | — |
| | Curtis T. Pohl | | NorthWestern Pension Plan | | 28.39 |
| | 359,026 |
| | — |
| | NorthWestern Corporation Pension Plan | | 30.39 |
| | 386,261 |
| | — |
| | Kendall G. Kliewer | | NorthWestern Pension Plan | | 12.16 |
| | 148,243 |
| | — |
| | | Bobbi L. Schroeppel | | | NorthWestern Corporation Pension Plan | | 18.63 |
| | 176,109 |
| | — |
|
| | | (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, 2014. 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, 2014.
| | | | | | | | 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 15 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016. While we calculated the present values in the table above assuming that benefits commence at age 65, the table to the right summarizes the cash balance available if the individual had terminated service as of December 31, 2016. | | Name | | Cash Balance
($)
| | Robert C. Rowe | | 218,971321,818 |
| | Brian B. Bird | | 146,872180,987 |
| | Heather H. Grahame | | — |
| | Curtis T. Pohl | | 323,032374,686 |
| Kendall G. Kliewer | Bobbi L. Schroeppel | | 128,277169,130 |
| | | | | | | | |
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 six percent per year. Contribution ratesContributions by the company range from (a) three percent to 12 percent for eligible compensation, below the taxable wage base and fromplus (b) 1.5 percent to six percent for eligible compensation above one-half of the taxable social security 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.
| | Compensation of Executive Officers and Directors |
Under the cash balance formula of the NorthWestern Corporation 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(or if deceased, his or her beneficiary,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 “CompensationCompensation Discussion and Analysis—Other CompensationPay Policies—Non-qualified Deferred Compensation”Compensation section in this proxy statement, we implemented a deferred compensation plan in 2009. In 2016, our named executive officers did not defer any compensation into the plan. The following table below provides information on the2014 non-qualified deferred compensation of our named executive officers who participate in the plan. | | | | | | | | | | | | | | | | | | 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) | | 752,957 |
| | — | | 1,309,375 |
| | — | | 5,237,521 |
| | Kendall G. Kliewer (3) | | 112,185 |
| | — | | 170,063 |
| | — | | 683,429 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | Executive Contributions in 2016 | | Registrant Contributions in 2016 | | Aggregate Earnings in 2016 | | Aggregate Withdrawals/ Distributions in 2016 | | Aggregate Balance on December 31, 2016 | | Robert C. Rowe (1) | | $ | — |
| | $ | — |
| | $ | 551,528 |
| | $ | — |
| | $ | 7,124,294 |
|
| | | (1) | All executive contributions in the last fiscal year are reported as compensation to such executive officer in the 2014 Summary Compensation Table on page 43. |
| | (2) | Mr. Rowe’s aggregate contributions under the plan are $3,269,760,$4,584,407, 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 $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 participantsparticipate in the 2008our Key Employee Severance Plan (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 HRCompensation Committee believes that it is appropriate for us to have a severance plan to provide a consistent means of addressing severance situations. During 2016, the Compensation Committee reviewed the terms of the plan with assistance from the Compensation Committee’s independent compensation consultant. Based on this review and the advice of its independent compensation consultant, the Compensation Committee concluded that the severance benefits provided by the plan were below market in general and with respect to our peers. Accordingly, the Compensation Committee recommended, and the Board approved, amendments to the plan to align the severance benefits with market. The 2008Key Employee 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 2008Key Employee 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, involuntaryInvoluntary termination does not include a termination resulting from a participant’s death or disability.
| | Compensation of Executive Officers and Directors |
The severance benefits payable under the 2008Key Employee Severance Plan consist of: Severance Payment:A lump-sum cash payment equal to onetwo times annual base pay;pay plus two times targeted annual cash incentive; Interrupted Annual Bonus: A lump-sum cash payment equal to the amount of the annual cash incentive, pro-rated to the end of the month prior to separation of service and based on actual performance; Welfare Benefits:Reimbursement of Consolidated Omnibus Budget Reconciliation Act (COBRA) premiums paid by the participant during the 12-month24-month period following the participant’s termination date; and $12,000Outplacement Services:Up to $12,000 of outplacement services during the 12-month period following the participant’s termination date. The table on the following tablepage shows the amount of potential cash severance that would have been payable, based on an assumed termination date of December 31, 2014,2016, under the normal severance provisions of the 2008Key Employee Severance Plan, including the amount that each named executive officer would be entitled to be reimbursed for outplacement expenses and reimbursement of costs for continuing coverage and other benefits under our group health, dental, and life insurance plans. Severance benefits are not provided in connection with terminations for cause.
| | | Name | | Base Salary ($) | | COBRA Premiums ($) (1) | | Outplacement Services ($) | | Amount of Potential Severance Benefit ($) | | Base
Salary
($) | | Targeted Annual Incentive
($) | | 2x Base
Salary + 2x Targeted Annual Incentive
($) | | Interrupted Annual Bonus
($) (1) | | COBRA Premiums
($) (2) | | Outplacement Services
($) | | Amount of Potential Severance Benefit
($) | | Robert C. Rowe | | 561,389 |
| | 6,029 |
| | 12,000 |
| | 579,418 |
| | 595,578 |
| | 476,462 |
| | 2,144,080 |
| | 436,757 |
| | 12,232 |
| | 12,000 | | 2,605,069 |
| | Brian B. Bird | | 368,280 |
| | 19,532 |
| | 12,000 |
| | 399,812 |
| | 411,951 |
| | 205,976 |
| | 1,235,854 |
| | 188,811 |
| | 39,656 |
| | 12,000 | | 1,476,321 |
| | Heather H. Grahame | | 335,127 |
| | 21,520 |
| | 12,000 |
| | 368,647 |
| | 360,714 |
| | 162,321 |
| | 1,046,070 |
| | 148,794 |
| | 43,660 |
| | 12,000 | | 1,250,524 |
| | Curtis T. Pohl | | 263,853 |
| | 19,091 |
| | 12,000 |
| | 294,944 |
| | 279,922 |
| | 111,969 |
| | 783,782 |
| | 102,638 |
| | 27,558 |
| | 12,000 | | 925,978 |
| | Kendall G. Kliewer | | 243,414 |
| | 20,011 |
| | 12,000 |
| | 275,425 |
| | | Bobbi L. Schroeppel | | | 258,068 |
| | 90,324 |
| | 696,784 |
| | 82,797 |
| | 40,591 |
| | 12,000 | | 832,172 |
|
(1) Calculated at 100% of target and prorated for 11 of 12 months pursuant to the terms of the Key Employee Severance Plan. | | (1)(2) | Amounts calculated using COBRA premiums in effect as of December 31, 2014. 2016. |
Equity Compensation Plan Change in Control Provision All outstanding equity awards were granted under our Equity Compensation Plan. The Equity 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, 2014, outstanding equity awards at target payout, and a closing stock price on December 31, 2014, of $56.58.
| | | | | | | | All outstanding equity awards were granted under our Equity Compensation Plan. In a change in control situation, the plan 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 Compensation 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 table to the right shows the amount of potential stock value that would have been received, based on an assumed change in control date of December 31, 2016, outstanding equity awards at target payout, and a closing stock price on December 31, 2016, of $56.87. For a termination of service that does not involve a change in control, death, disability, or retirement, all outstanding equity awards granted under the Equity Compensation Plan are forfeited. | | | | | | Name | | Value of Accelerated Stock Vesting ($) | | Robert C. Rowe | | 3,188,7923,973,791 |
| | Brian B. Bird | | 1,253,7001,463,208 |
| | Heather H. Grahame | | 832,1791,000,912 |
| | Curtis T. Pohl | | 636,186685,625 |
| Kendall G. Kliewer | Bobbi L. Schroeppel | | 406,188470,372 |
| | | | |
For a termination of service that does not involve a change in control, death, disability, or retirement, all outstanding equity awards granted under the Equity Compensation Plan are forfeited.
ERRP Restricted Share Units Awards under our ERRP, as discussed in the “CompensationCompensation Discussion and Analysis—Other Compensation Policies—Pay Components—Long-Term Performance-Based Equity Awards under the Equity 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.service. 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
| | Compensation of Executive Officers and Directors |
(or (or his or her executor or administrator) is entitled to receive a pro ratapro-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.
2014Assuming that our named executive officers terminated their employment as a result of death, disability or retirement on December 31, 2016, each named executive officer would have received the same payout of the earned annual cash incentive award for 2016 that is set forth in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 33. Similarly, each named executive officer would have received the same payout of long-term incentive compensation for the LTIP performance units whose three-year performance period ended December 31, 2016 as reflected in the “Stock Awards - Value Realized” on LTIP Vesting column in the 2016 Stock Vested Table on page 35. The reason for the same payouts is that the individual would have been employed throughout the entire performance period for the awards.
For the remaining outstanding grants of LTIP performance units and for the outstanding grants of ERRP restricted share units, the table on the following page shows the original grants, the percentage of the original grants that would vest, and the vesting value of those grants, assuming (1) the applicable named executive officer terminated his or her
employment as a result of death, disability or retirement on December 31, 2016, (2) the applicable goals for such performance units were subsequently satisfied at target levels and (3) the price of the Company's Common Stock was $56.87 (the closing price on December 31, 2016) at the time payouts of such performance units and restricted share units occurred. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Future Vesting Date | | Assumed 12/31/16 Death / Disability | | Assumed 12/31/16 Retirement | | Original Grant (#) | | Percent to Vest (%) | | Vesting Value ($) (1) | | Original Grant (#) | | Percent to Vest (%) | | Vesting Value ($) (1) | | Robert C. Rowe | | | | | | | | | |
| | | | | | | | President and Chief Executive Officer | | ERRP | | 12/31/2021 | | 6,505 |
| | 100.0 | % | | 369,939 |
| | 6,505 |
| | — | % | | — |
| | | LTIP | | 12/31/2018 | | 22,982 |
| | 33.3 | % | | 435,226 |
| | 22,982 |
| | 33.3 | % | | 435,226 |
| | | ERRP | | 12/31/2020 | | 6,458 |
| | 100.0 | % | | 367,266 |
| | 6,458 |
| | 20.0 | % | | 73,453 |
| | | LTIP | | 12/31/2017 | | 19,828 |
| | 66.7 | % | | 752,121 |
| | 19,828 |
| | 66.7 | % | | 752,121 |
| | | ERRP | | 12/31/2019 | | 6,410 |
| | 100.0 | % | | 364,537 |
| | 6,410 |
| | 40.0 | % | | 145,815 |
| | | ERRP | | 12/31/2018 | | 3,878 |
| | 100.0 | % | | 220,542 |
| | 3,878 |
| | 60.0 | % | | 132,325 |
| | | ERRP | | 12/31/2017 | | 3,814 |
| | 100.0 | % | | 216,902 |
| | 3,814 |
| | 80.0 | % | | 173,522 |
| | | | | | | | | TOTAL |
| | $ | 2,726,533 |
| | | | TOTAL |
| | $ | 1,712,462 |
| | Brian B. Bird | | | | | | | | | |
| | | | | | | | Vice President and Chief Financial Officer | | ERRP | | 12/31/2021 | | 2,250 |
| | 100.0 | % | | 127,958 |
| | 2,250 |
| | — | % | | — |
| | | LTIP | | 12/31/2018 | | 7,948 |
| | 33.3 | % | | 150,517 |
| | 7,948 |
| | 33.3 | % | | 150,517 |
| | | ERRP | | 12/31/2020 | | 2,233 |
| | 100.0 | % | | 126,991 |
| | 2,233 |
| | 20.0 | % | | 25,398 |
| | | LTIP | | 12/31/2017 | | 8,672 |
| | 66.7 | % | | 328,949 |
| | 8,672 |
| | 66.7 | % | | 328,949 |
| | | ERRP | | 12/31/2019 | | 2,103 |
| | 100.0 | % | | 119,598 |
| | 2,103 |
| | 40.0 | % | | 47,839 |
| | | ERRP | | 12/31/2018 | | 1,272 |
| | 100.0 | % | | 72,339 |
| | 1,272 |
| | 60.0 | % | | 43,403 |
| | | ERRP | | 12/31/2017 | | 1,251 |
| | 100.0 | % | | 71,144 |
| | 1,251 |
| | 80.0 | % | | 56,915 |
| | | | | | | | | TOTAL |
| | $ | 997,496 |
| | | | TOTAL |
| | $ | 653,021 |
| | Heather H. Grahame | | | | | | | | | |
| | | | | | | | Vice President and General Counsel | | ERRP | | 12/31/2021 | | 1,576 |
| | 100.0 | % | | 89,627 |
| | 1,576 |
| | — | % | | — |
| | | LTIP | | 12/31/2018 | | 5,568 |
| | 33.3 | % | | 105,445 |
| | 5,568 |
| | 33.3 | % | | 105,445 |
| | | ERRP | | 12/31/2020 | | 1,564 |
| | 100.0 | % | | 88,945 |
| | 1,564 |
| | 20.0 | % | | 17,789 |
| | | LTIP | | 12/31/2017 | | 5,524 |
| | 66.7 | % | | 209,538 |
| | 5,524 |
| | 66.7 | % | | 209,538 |
| | | ERRP | | 12/31/2019 | | 1,531 |
| | 100.0 | % | | 87,068 |
| | 1,531 |
| | 40.0 | % | | 34,827 |
| | | ERRP | | 12/31/2018 | | 926 |
| | 100.0 | % | | 52,662 |
| | 926 |
| | 60.0 | % | | 31,597 |
| | | ERRP | | 12/31/2017 | | 911 |
| | 100.0 | % | | 51,809 |
| | 911 |
| | 80.0 | % | | 41,447 |
| | | | | | | | | TOTAL |
| | $ | 685,094 |
| | | | TOTAL |
| | $ | 440,643 |
| | Curtis T. Pohl | | | | | | | | | | | | | | | | | | Vice President - Retail Operations | | ERRP | | 12/31/2021 | | 1,223 |
| | 100.0 | % | | 69,552 |
| | 1,223 |
| | — | % | | — |
| | | LTIP | | 12/31/2018 | | 3,240 |
| | 33.3 | % | | 61,358 |
| | 3,240 |
| | 33.3 | % | | 61,358 |
| | | ERRP | | 12/31/2020 | | 1,214 |
| | 100.0 | % | | 69,040 |
| | 1,214 |
| | 20.0 | % | | 13,808 |
| | | LTIP | | 12/31/2017 | | 3,728 |
| | 66.7 | % | | 141,412 |
| | 3,728 |
| | 66.7 | % | | 141,412 |
| | | ERRP | | 12/31/2019 | | 1,205 |
| | 100.0 | % | | 68,528 |
| | 1,205 |
| | 40.0 | % | | 27,411 |
| | | ERRP | | 12/31/2018 | | 729 |
| | 100.0 | % | | 41,458 |
| | 729 |
| | 60.0 | % | | 24,875 |
| | | ERRP | | 12/31/2017 | | 717 |
| | 100.0 | % | | 40,776 |
| | 717 |
| | 80.0 | % | | 32,621 |
| | | | | | | | | TOTAL |
| | $ | 492,124 |
| | | | TOTAL |
| | $ | 301,485 |
| | Bobbi L. Schroeppel | | | | | | | | | | | | | | | | | | Vice President - Customer Care, Communications, and Human Resources | | ERRP | | 12/31/2021 | | 846 |
| | 100.0 | % | | 48,112 |
| | 846 |
| | — | % | | — |
| | | LTIP | | 12/31/2018 | | 2,490 |
| | 33.3 | % | | 47,155 |
| | 2,490 |
| | 33.3 | % | | 47,155 |
| | | ERRP | | 12/31/2020 | | 839 |
| | 100.0 | % | | 47,714 |
| | 839 |
| | — | % | | — |
| | | LTIP | | 12/31/2017 | | 2,291 |
| | 66.7 | % | | 86,903 |
| | 2,291 |
| | 66.7 | % | | 86,903 |
| | | ERRP | | 12/31/2019 | | 833 |
| | 100.0 | % | | 47,373 |
| | 833 |
| | — | % | | — |
| | | ERRP | | 12/31/2018 | | 490 |
| | 100.0 | % | | 27,866 |
| | 490 |
| | — | % | | — |
| | | ERRP | | 12/31/2017 | | 482 |
| | 100.0 | % | | 27,411 |
| | 482 |
| | — | % | | — |
| | | | | | | | | TOTAL |
| | $ | 332,534 |
| | | | TOTAL |
| | $ | 134,058 |
|
| | | (1) | Values were calculated based on a $56.87 closing price of our common stock on December 31, 2016. |
2016 Director CompensationPay 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 (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. |
| | | | | | | | | | | In 2015, the Compensation Committee asked Willis Towers Watson to update its review of the competitive market data concerning Board compensation from peer company comparisons so that the Compensation Committee could determine 2016 compensation levels for non-employee directors. Based upon this review, the Compensation Committee made no changes to the compensation provided to our non-employee directors. The rate schedule for non-employee director compensation for 2016 is presented in the table to the right. | | Director Compensation | | Cash ($) | | Shares (#) | | | Annual Board Retainer | | | | | | | New Member Initial Stock Grant | | — |
| | 1,000 |
| | | Board Chair | | 125,000 |
| | 3,750 |
| | | Board Member | | 25,000 |
| | 2,750 |
| | | Annual Committee Chairperson Retainer | | | | | | | Audit Committee | | 10,000 |
| | — |
| | | Governance and Innovation Committee | | 10,000 |
| | — |
| | | Compensation Committee | | 10,000 |
| | — |
| | | Meeting Fees (Board Chair does not receive meeting fees) | | | Board Meeting | | 2,000 |
| | — |
| | | Committee Meeting | | 2,000 |
| | — |
|
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 2016, our directors deferred 51 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 ten 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 2013,The following table sets forth the HR Committee asked Towers Watson to update its review of the competitive market data concerning Board2016 compensation from peer company comparisons so that the HR Committee could determine 2014 compensation levels for non-employee directors. Based upon this review, the HR Committee increased the annual stock retainers paid to the chairman of our Board (to 3,750 shares from 3,500) and individual Board members (to 2,750 shares from 2,500). The HR Committee made no other changes to the compensation provided toreceived by our non-employee directors. Following is the rate schedule for non-employee director compensation for 2014.
| | | | | | | | | | | Cash ($) | | Shares (#) | | Annual Board Retainer | | | | | | New Member Initial Stock Grant (1) | | — |
| | 1,000 |
| | Board Chairman | | 125,000 |
| | 3,750 |
| | Board Member | | 25,000 |
| | 2,750 |
| | Annual Committee Chairperson Retainer | | | | | | Audit Committee | | 10,000 |
| | — |
| | Nominating and Corporate Governance Committee | | 6,000 |
| | — |
| | Human Resources Committee | | 10,000 |
| | — |
| | Meeting Fees (2) | | | | | | Board Meeting | | 2,000 |
| | — |
| | Committee Meeting | | 2,000 |
| | — |
|
| | | | | | | | | | | | Name | | Fees Earned or Paid in Cash (1) ($) | | Stock Awards (2) ($) | | Total ($) | E. Linn Draper Jr., Board Chair | | 125,000 |
| | 209,400 |
| | 334,400 |
| Stephen P. Adik, Audit Chair | | 71,000 |
| | 153,560 |
| | 224,560 |
| | Dorothy M. Bradley | | 61,000 |
| | 153,560 |
| | 214,560 |
| | Tony Clark (joined Board in December 2016) | | 2,000 |
| | — |
| | 2,000 |
| Dana J. Dykhouse, Compensation Chair | | 71,000 |
| | 147,125 |
| | 218,125 |
| | Jan R. Horsfall | | 61,000 |
| | 147,125 |
| | 208,125 |
| Julia L. Johnson, Governance Chair | | 64,000 |
| | 153,560 |
| | 217,560 |
| | Denton Louis Peoples (retired April 20, 2016) | | 27,500 |
| | 153,560 |
| | 181,060 |
|
| | | (1) | We had no members join our BoardOf the fees earned or paid in 2014. |
| | (2) | The Board Chairman does not receive meeting fees. |
| | Compensation of Executive Officers and Directors |
The following table sets forth the 2014 compensation received by our non-employee directors.
| | | | | | | | | | | | Name | | Fees Earned or Paid in Cash (1) ($) | | Stock Awards (2) ($) | | Total ($) | | E. Linn Draper Jr., Chairman | | 125,000 |
| | 160,538 |
| | 285,538 |
| | Stephen P. Adik | | 67,000 |
| | 117,728 |
| | 184,728 |
| | Dorothy M. Bradley | | 48,000 |
| | 117,728 |
| | 165,728 |
| | Dana J. Dykhouse | | 61,000 |
| | 117,728 |
| | 178,728 |
| | Julia L. Johnson | | 67,000 |
| | 117,728 |
| | 184,728 |
| | Philip L. Maslowe | | 61,000 |
| | 117,728 |
| | 178,728 |
| | Denton Louis Peoples | | 57,000 |
| | 117,728 |
| | 174,728 |
|
| | (1) | Amountscash for 2016, amounts deferred under the deferred compensation plan described above included $125,000 for Mr. Draper; $32,000$36,000 for Mr. Adik; $5,000 for Ms. Bradley; $67,000$64,000 for Ms. Johnson; $61,000 for Mr. Maslowe; and $57,000$27,500 for Mr. Peoples. |
| | | (2) | TheseThe values for stock awards reflect the grant date fair value of annual stockthe awards, described above. Grant date fair value is calculated utilizing the provisions of Accounting Standards Codification 718, Stock Compensation. See Note 1716 to the consolidated financial statements in our 20142016 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 20142016 was $42.81(a) $55.84 per share.share for Mr. Draper, Mr. Adik, Ms. Bradley, Ms. Johnson, Mr. Maslowe, and Mr. Peoples deferred their 2014and (b) $53.50 for Mr. Dykhouse and Mr. Horsfall. The 2016 stock awards were deferred by Mr. Draper, Mr. Adik, Ms. Bradley, Ms. Johnson, and Mr. Peoples under the deferred compensation plan described above. The total deferred share units outstanding as of December 31, 2014,2016 (rounded down to the nearest whole number), are as follows: Mr. Draper – 95,112;114,527; Mr. Adik – 52,061;62,878; Ms. Bradley – 13,076;19,813; and Ms. Johnson – 64,520; Mr. Maslowe - 59,114;77,276.
|
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. In 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 NorthWesternEnergy.com under Our Company / Investor Relations / Corporate Governance. | | | ● Certificate of Incorporation ● Bylaws ● Audit Committee Charter ● Human Resources Committee Charter ● Governance and Mr. Peoples – 35,276.Innovation 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 |
Director Stock OwnershipWe 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 shareholders. 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 the NYSE Governance Services and Corporate Secretary magazine. In June of 2015, our 2014 proxy statement received NYSE's Exemplary CD&A award. That proxy statement also received Corporate Secretary’s Best Proxy Statement (small to mid-cap) award, and we were a finalist for Corporate Secretary’s Best Proxy Statement in 2012, 2013 and 2016. Glass Lewis and C-Suite magazine also have recognized our say-on-pay disclosures.
| | | | | | | | What We believe itDo | | ● | 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 shareholders owning 25 percent of our shares to call a special meeting. | | ● | Independent board. Our Board is important that the interestscomprised entirely of independent directors, except our CEO. | | ● | Independent Board Chair. | | ● | Independent Board committees. Each of our Board members are aligned with the interestscommittees (audit, compensation, and governance) is made up solely of independent directors. | | ● | Committee authority to retain independent advisors. Each of our stockholders. Accordingly, weBoard 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 robusta separateCode of Ethics for the Chief Executive Officer and Senior Financial Officersconcerning financial reporting and other related matters. | | ● | Robust stock ownership guidelines for our non-employeeexecutive officers and 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. | | | |
| | | | | | | | What We Don’t Do | | ● | Poison pill. We do not have a shareholders rights plan or poison pill. | | ● | Hedging of company securities. We do not allow our directors, executives, or employees to hedge 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) certain business combinations or mergers. | | | |
Board of Directors Our bylaws authorize a Board consisting of five to 11 directors, as determined by our Board from time to time. Our Board currently has eight members. Our Board has nominated nine directors for election at our 2017 annual meeting and has approved increasing the number of directors on our Board to nine, effective at the time of annual meeting. Each Board member is elected at each annual meeting to serve for approximately one year, until the next annual meeting of our directors has satisfiedshareholders (or until a successor is able to serve). If any director is not elected or is unable to complete his or her term, the Board may choose a substitute to fill the vacant position or reduce the number of directors on the Board. We believe a limited number of directors helps maintain personal and group accountability. Our Board acts as a coherent team within an environment that allows individual insights to contribute to group consensus. Our Board focuses on long-term company success and maintains an effective dialogue with management through constructive relationships which provide timely and appropriate deliberation. Each director with more than one year of service on our Board (seven of eight) has exceeded the stock ownership guideline requirements established by our Corporate Governance Guidelines and has continuedcontinues to increase his or her ownership levelhold stock in excess of the ownership requirements. Each director with more than one year of service on our Board also has been recognized as a Governance Fellow by the National Association of Corporate Directors (NACD). Our Board is actively engaged both inside and outside of the boardroom. Our Board members have knowledge and insight that enables them to provide guidance concerning our business, with particular focus on succession planning, 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 throughout our service territory at approximately twelve rotating locations. This practice of rotating meeting locations offers 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. Holding Board meetings in our service territory allows our Board to gain a broader understanding of various areas of our company and permits non-management employees to make presentations to the Board that highlight their work. Our Board considers attendance at Board and shareholder meetings and participation by directors in determining continued service on the Board. Attendance and participation is reviewed as part of an annual self-evaluation process. The Board held eight meetings in 2016. Each of our current directors attended 100 percent of the meetings of the Board and of each committee on which he or she served in 2016. At our last annual meeting of shareholders in April 2016, all of our directors who were on the Board at that time were in attendance.
Board Diversity Our Board values the diversity of its members. When considering director nominees, our Board strives to identify nominees that will provide insight to our Board from a number of perspectives, with equal importance placed on gender, age, ethnicity, skills and background, as well as location of residence. Our Board believes diversity is important because varied perspectives expand the Board’s ability to provide relevant guidance to our business. As��depicted below, our slate of director nominees demonstrate diversity. Our individual Board members also have varied expertise and bring extensive professional experience from both within and outside our industry. This diversity of experience 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. A high level overview of the skills and backgrounds of our director nominees follows. | | | | | | | | | | | | Skills Matrix | Draper | Adik | Clark | Dykhouse | Horsfall | Ide | Johnson | Rowe | Sullivan | | Utility | | | | | | | | | | | Finance | | | | | | | | | | | Executive | | | | | | | | | | | Regulatory | | | | | | | | | | | Engineering | | | | | | | | | | | Service Territory | | | | | | | | | | | Legal / Public Policy | | | | | | | | | | | Marketing | | | | | | | | | | | Board | | | | | | | | | | | NACD Fellow | | | | | | | | | |
Individual Directors Following are biographies of seven of our eight current Board members, each of whom is currently serving and has been nominated to serve another one-year term. The eighth Board member, Dorothy M. Bradley, has announced that she will not be seeking re-election at the 2017 annual meeting. The biographies of two new director nominees follow the biographies of our current directors. | | | | | | | | Stephen P. AdikAge 73 Independent Director since 2004 | Audit Chair | | | | | | | | 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), and as a financial executive for American Natural Resources Company and three railroad companies. | | | | | | | | Other Executive, Board, and NACD Fellowcredentials through positions in the railroad industry, current service on the board of the Chicago SouthShore and South Bend Railroad, and prior service on the boards of American Water Works Company, Inc. (NYSE: AWK, 2009-14), Beacon Power (NASDAQ: BCON, 2004-10), the Dearborn Midwest Conveyor Company and several nonprofits. | | | | | | | | | | | 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), finance MBA ● Board service in energy- and utility-related industries brings developed perspective ● Tenure on our Board provides working knowledge of our company, efficiency and continuity ● Commitment to boardroom excellence – NACD Governance Fellow since 2011 |
| | | | | | | | Anthony T. ClarkAge 45 Independent Director since 2016 | | | | | | | | | Utility, Regulatory, and Public Policy experience as a senior advisor at Wilkinson Barker Knauer, LLP, and prior service as Commissioner (2012-16) of the Federal Energy Regulatory Commission, prior service as Commissioner (2001-12) of the North Dakota Public Utilities Commission (including five years as its chair), former President of the National Association of Regulatory Utility Commissioners (NARUC) (2010-11), chair of the NARUC telecommunications committee, former North Dakota Labor Commissioner (1999-2000), and former North Dakota state legislator (1994-97). | | | | | | | | | | We believe Mr. Clark is Qualified to Serve on our Board because of his ● Experience in the state and federal public utility regulatory arena, as a regulator ● Public policy background which provides a wide perspective on regulatory and political issues ● Demonstrated commitment to boardroom excellence – working to attain NACD Governance Fellow status in 2017 |
| | | | | | | Thanking a retiring board member | | | | | In February 2017, Dorothy M. Bradley announced that she would not be seeking re-election to our Board at the end of her annual term on April 27, 2017. Dorothy has served over eight years on our Board, as a member of the Governance and Innovation and Human Resources Committees. As a resident of and respected civic leader in Montana, she has offered an important local perspective on relevant regulatory, political, community and environmental issues facing our company. Her experience and knowledge of our Montana service territory and unique engagement with our employees and customers will be missed. We are grateful to have had her service to our shareholders and company these past years. | |
| | | | | | | | E. Linn Draper, Jr.Age 75 Independent Director since 2004 Board Chair | | | | | | | | | Utility, Executive, and Engineeringexperiencethrough positions as retired chairman, president and chief executive officer of both American Electric Power Company, a 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. | | | | | | | | Finance, Board, and NACD Fellowcredentials as a result of extensive service on several public boards (and their committees) for companies in the utility, energy and related industries, including service to the boards of Alliance Data Systems (NYSE: ADS) (since 2005), Alpha Natural Resources, Inc. (2004-16); TransCanada (NYSE: TRP) (2005-13), and Temple-Inland Inc. (2004-12). | | | | | | | | | | | 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 committee service
● Financial proficiency – audit committee financial expert (SEC), financially literate (NYSE)
● Tenure on our Board provides working knowledge of our company, efficiency and continuity
● Commitment to boardroom excellence – NACD Governance Fellow since 2011 |
| | | | | | | | Dana J. DykhouseAge 60 Independent Director since 2009 | Compensation Chair | | | | | | | | | Finance, Executive, and Boardexperiencethrough his leadership of First PREMIER Bank, a regional bank headquartered in Sioux Falls, South Dakota, as its chief executive officer (since 1995) and his service in a variety of executive leadership roles in community and professional organizations and non-public company boards in South Dakota. | | | | | | | | Service Territory and NACD Fellowcredentials as a resident of and respected civic leader in South Dakota. | | | | | | | | | | | We believe Mr. Dykhouse is Qualified to Serve on our Board because of his ● Experience as a respected civic, community and professional leader within South Dakota ● Local perspective on relevant issues facing our company in South Dakota
● Financial proficiency – audit committee financial expert (SEC), financially literate (NYSE)
● Tenure on our Board provides working knowledge of our company, efficiency and continuity
● Commitment to boardroom excellence – NACD Governance Fellow since 2011 |
| | | | | | | | Jan R. Horsfall Age 56 Independent Director since 2015 | | | | | | | | Finance, Marketing, and Executiveexperiencethrough his current position as president and chief executive officer of Maxletics Corporation, a sports technology company that connects influential elite athletes to brands (since 2014) and former roles as chief executive officer of Universal Lubricants, LLC (2012-14), a privately held environmental energy company; founder and co-chairman of Startup Colorado (2011-12), a startup business facilitator in Colorado's front range; chief marketing officer of Turbine Inc. (2009-10), an online gaming company, and senior marketing roles at Lycos, Inc., the search engine/portal, and The Valvoline Company, an automotive supply company. | | | | | | | | | | Boardand NACD Fellowcredentials as a current and former board member of several privately held and non-profit entities. | | | | | | | | | We believe Mr. Horsfall is Qualified to Serve on our Board because of his ● Executive experience as a chief executive officer, chief marketing officer and other positions
● Financial proficiency – financially literate (NYSE) ● Marketing background ● Experience with mergers, acquisitions and the growth and development of companies ● Tenure on our Board provides working knowledge of our company, efficiency and continuity ● Commitment to boardroom excellence – NACD Governance Fellow since 2015 |
| | | | | | | | Julia L. JohnsonAge 54 Independent Director since 2004 | Governance Chair | | | | | | | | Utility, 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 Florida Public Service Commission, service to various public policy and non-profit organizations, and legal background. | | | | | | | | Boardand NACD Fellowcredentials 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 (2003 until merger with FirstEnergy in 2011). | | | | | | | | | | | We believe Ms. Johnson is Qualified to Serveon 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 ● Commitment to boardroom excellence – NACD Governance Fellow since 2011 |
| | | | | | | | Robert C. RoweAge 61 Director since 2008 | | | | | | | | | Utility, 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, and NACD Fellowcredentials as a resident of Montana, and from voluntary leadership roles in the utility industry, such as chairman (2012-2013) of the Western Energy Institute (2012-present), co-chair of the Institute of Electric Innovation (Edison Electric Foundation), board member of the American Gas Association, and past president of the National Association of Regulatory Utility Commissioners. | | | | | | | | | | | We believe Mr. Rowe is Qualified to Serve on our Board because of his ● Position as our president and chief executive officer
● Experience in the regulatory and public policy arenas
● Financial proficiency – financially literate (NYSE)
● Commitment to boardroom excellence – NACD Governance Fellow since 2011 |
Director Succession Planning Over the past several years, our Governance Committee has led our Board through a director succession planning process. The Governance Committee initiated the process to allow for a smooth and gradual transition from our directors who were in the final third of their 15-year term limit to new directors with the right skills for our company’s future, while preserving the culture of the Board. The process began with a review of the individual skill sets of current members and consideration of additional skills that could be beneficial for the Board in the future, with a particular focus on the company’s strategy and emerging risks. The Governance Committee also reviewed tenure limits regarding each existing Board member and discussed potential timing for inviting new members to join the Board. With that background analysis, the Governance Committee began developing a general transition timeline and assembling a list of potential candidates who were identified through a combination of personal relationships, industry knowledge, and research.
This foundational work regarding director succession planning proved beneficial when one of our directors, Mr. Denton Louis Peoples, retired in April 2016 after serving approximately eight years on our Board, and then again, in February 2017, when another director, Ms. Dorothy M. Bradley, announced her retirement, effective April 27, 2017. With three current Board members in the final years of their 15-year term limit, our Board’s succession planning work will continue. Our Board believes maintaining a relatively small Board of approximately eight members provides several benefits. However, to preserve the Board’s culture, the size of our Board may increase temporarily so that new members can serve alongside Board members nearing the end of their terms. As important as it wasthe transition to achievenew membership concludes, we anticipate that the required stock ownership levels, wesize of our Board will return to approximately eight members. Nomination of New Directors At the beginning of 2016, our Board had eight members. When Mr. Peoples retired at the conclusion of his annual term in April 2016, our Board acted to reduce the size of the Board to seven members. Several months later, a non-management director and our CEO recommended that the Board consider Anthony T. Clark, former FERC commissioner, as a candidate. After meeting with Mr. Clark, the Board concluded that he has the expertise, experience, and skills to augment our Board’s collective skill set. Accordingly, in December 2016, our Board increased its size to eight members and elected Mr. Clark to serve as a director until the 2017 annual meeting. The Board has re-nominated Mr. Clark for election by our shareholders at the annual meeting, and his biography appears above with our other current directors. During 2016 and as a result of the ongoing director succession planning process described above, our Board also began considering additional candidates for service on our Board. The Governance Committee identified a pool of candidates with solid backgrounds in finance and utility executive experience. After considering several potential candidates, the Board met with Ms. Linda G. Sullivan, who was initially recommended by a non-management director. The Board found Ms. Sullivan to possess the skills and qualities, including with respect to finance and the utility industry, that would enhance the Board’s collective skill set today and into the future. Thus, the Board nominated Ms. Sullivan to serve on our Board, subject to election by shareholders at the 2017 annual meeting. In February 2017, Ms. Bradley announced that she would not be seeking re-election at the conclusion of her annual term in April 2017. As a resident of Montana, Ms. Bradley provided our Board with a valuable local perspective. Thus, our Board reviewed a pool of candidates who were residents of Montana. After considering and meeting with several candidates, the Board concluded that Ms. Britt E. Ide, initially recommended by a non-management director, possessed utility, engineering, legal, and other skills that would be beneficial to our Board, in addition to her local Montana knowledge. Thus, the Board also nominated Ms. Ide to serve on our Board, subject to election by shareholders at the 2017 annual meeting. Our Board has chosen to nominate Ms. Ide and Ms. Sullivan for election by shareholders at the annual meeting, rather than exercising its right under our bylaws to increase the size of the Board by immediately fill the vacancy without shareholder approval. The Board has approved increasing the size of our Board to nine directors (from eight), effective at the time of annual meeting. If our shareholders do not support all of our director nominees, our Board may act to reduce the size of our Board rather than fill any resulting vacancy. We are delighted that Ms. Ide and Ms. Sullivan accepted our Board’s invitation and recommend that you vote “For” their election at the annual meeting. Ms. Ide’s and Ms. Sullivan’s summary biographies are provided on the following page.
| | | | | | | | Britt E. IdeAge 45 Nominated as Independent Director | | | | | | | | | | Utility, Legal, Engineering, and Executive experience through her current positions as president of Ide Energy & Strategy; and director and interim chief executive officer of the Big Sky Chamber of Commerce (Montana). Former progressive leadership roles include senior counsel of Idaho Power Company (2009-11), associate general counsel at Healthwise, Incorporated (2005-2008), senior attorney, Albertson’s Inc. (2005) and counsel at Boise Cascade Corporation (2000-2004). | | | | | | | | | Service Territory and Board credentials as a resident of and respected civic leader in Montana and from service on the boards of the Big Sky Chamber of Commerce and Hotrock Energy Research Organization, as well as appointments to Montana’s Clean Power Plan Advisory Council and as an ambassador of the Clean Energy & Empowerment Initiative. Previous member of the Northwest Chapter of the National Association of Corporate Directors (2015-2016) and the former independent chair of the board of directors of PCS Edventures!, Inc. (2014-2015) (also nominating and governance chair and compensation committee member). | | | | | | | | | | | We believe Ms. Ide is Qualified to Serve on our Board because of her ● 25+ years business, engineering and legal experience ● Utility and energy industry experience ● Local perspective on relevant regulatory, political and community issues facing our company ● Board credentials and demonstrated commitment to boardroom excellence – working to attain NACD Governance Fellow status in 2017 |
| | | | | | | | Linda G. SullivanAge 53 Nominated as Independent Director | | | | | | | | | | Utility, Finance, Executive, and Regulatory experiencethrough her position as executive vice president and chief financial officer (CFO) of American Water, the largest publicly traded U.S. water and wastewater utility company (since 2014) and former progressive leadership roles over 22 years with the Edison International companies, including senior vice president and CFO of Southern California Edison (2009-14), vice president and controller of both Edison International and Southern California Edison (2005-09), assistant controller of Edison International (2001-05), and prior finance and accounting roles at the corporate level and within an operating business unit at the utility. | | | | | | | | | | Board credentials as a current board member of the University of Maryland University College (UMUC) Ventures, a non-profit organization dedicated to supporting accessible, affordable quality education to adult students and prior service on the boards of Crystal Stairs, Inc., a $90 million non-profit organization assisting working families with child care services in underserved communities of Los Angeles County, and Executive Services Corps, which provides coaching and consulting to nonprofits throughout southern California. | | | | | | | | | | | We believe Ms. Sullivan is Qualified to Serve on our Board because of her ● 25+ years utility finance and regulatory experience ● Financial proficiency – audit committee financial expert (SEC), financially literate (NYSE) ● Financial expertise as a Certified Public Accountant since 1991 (inactive) and Certified Management Accountant since 1995 ● Board credentials and demonstrated commitment to boardroom excellence – working to attain NACD Governance Fellow status in 2017 |
Board Independence Independent Board Chair Our Board has placed the responsibilities of Chair with an independent member of the Board, which we believe provides optimum accountability between the Board and our management team. We believe it is equally significant thatbeneficial 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 CEO; presiding at Board meetings, executive sessions and shareholder 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. Each regularly scheduled Board and committee meeting provides the opportunity for executive sessions of the non-employee directors have continued to retainwithout management in attendance. These executive sessions are chaired by our Board Chair or the independent Chair of the respective committee. Determination of Independence and increase their stock ownership after meeting their stock ownership guidelines. NoneFamily Relationships All of our directors are independent, with the sole exception of our CEO. A director is 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, (b) is not a close relative of any management employee of the company, (c) provides no services to the company, and is not employed by any firm providing major services to the company, other than as a 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 have sold or otherwise transferred any(Messrs. Adik, Clark, Draper, Dykhouse, and Horsfall and Ms. Johnson, as well as new director nominees Mses. Ide and Sullivan) are independent as defined in the listing standards noted above. Our final director, Mr. Rowe, is an executive officer of their sharesthe company and, therefore, is not independent. In addition to the independence assessment of our common stock. In addition, as described above, for 2014,current directors, our Board reviewed the family relationships of our current directors deferred 73 percentand executive officers to determine the existence of their aggregate compensation into the company’s common stock, even though they previously had satisfied their stock ownership guideline requirements.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 directors Dana J. Dykhouse and Jan R. Horsfall are first cousins. The table set forth below shows the non-employee Board members’ stock ownership levels as of December 31, 2014.Committees | | | | | | | | | | | | | | | 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 | % |
| | | | 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 (Compensation Committee); and ● Governance and Innovation Committee. | | COMMITTEES 100% INDEPENDENT |
Our Board holds its 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 is able to attend 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.
| | | | | | | | | | | Audit Committee | | | | | | | Primary Responsibilities Our Audit Committee assists the Board with oversight of: ●The company’s accounting and financial reporting processes; ●The audit and integrity of the company’s financial statements; ●The company’s compliance with legal and regulatory requirements; ●The independent auditor’s qualifications and independence; ●The performance of the company’s internal audit function and independent auditors; ●The preparation of the Audit Committee Report for the company’s proxy statement; ●Significant financings and dividend policy and dividend payment recommendations; ● The company’s key business, financial and regulatory risks and security program (including physical and cyber security, and business continuity); and ●Such other duties as directed by the Board. Financial Expertise, Financial Literacy, and Independence The Board determined that each member of the Audit Committee: ●Qualifies as an audit committee financial expert under the applicable SEC regulations; ●Is financially literate within the meaning of the listing standards of the NYSE; and ●Is independent, as defined in the listing standards of the NYSE and the SEC regulations. Audit Committee Report The Audit Committee Report is included on page 60 of this proxy statement. Audit Committee Charter The Audit Committee operates pursuant to a charter that is reviewed annually and was last amended in October 2016. The Charter is available on our website at NorthWesternEnergy.com under Our Company / Investor Relations / Corporate Governance. | | | | | | | | | | | 5 | Meetings in 2016 | | | | | | | | | | | | | Members | | | | | Stephen P. Adik (Chair) | | | | | Dana J. Dykhouse | | | | | Jan R. Horsfall | | | | | | | | | | “The Audit Committee encourages broad attendance and participation by management at its meetings. In addition, at each meeting, the Committee conducts private and separate executive sessions with the company’s chief audit and compliance officer, with the company’s management, and with the company’s external auditors. This allows the direct and candid communication necessary for the Committee to operate effectively.” Stephen P. Adik, Audit Committee Chair | | | | | | | | | | | | |
| | | | | | | | | | | Compensation Committee | | | | | | | Primary Responsibilities Our Human Resources Committee (Compensation 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; ●The assessment of the performance of the CEO; ● Succession planning for the CEO, executives and other officers; and ●The compensation of non-employee members of the Board. As discussed in the Compensation Discussion and Analysis section of this proxy statement, the Compensation Committee also considers input on executive compensation from our CEO and CFO. Our Compensation Committee has delegated some of the administration of our executive compensation and benefits plans to our Compensation and Benefits Department. Independence Each member of our Compensation 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. Compensation Committee Report The Compensation Committee report is included at page 32 of this proxy statement. Compensation Committee Charter We call our compensation committee the Human Resources Committee because its responsibilities extend beyond the realm of compensation to other human resources and employee issues. The Human Resources Committee operates pursuant to a charter that is reviewed annually and was last amended in October 2016. The Charter is available on our website at NorthWesternEnergy.com under Our Company / Investor Relations / Corporate Governance. | | | | | | | | | | | 5 | Meetings in 2016 | | | | | | | | | | | | | Members | | | | | Dana J. Dykhouse (Chair) | | | | | Stephen P. Adik | | | | | Dorothy M. Bradley | | | | | Julia L. Johnson | | | | | “We evaluate executive compensation annually and believe we have developed a program for compensation that we can consistently apply year after year. The performance metrics attempt to align our interests with those of our shareholders, customers, employees and regulators.” Dana J. Dykhouse, Compensation Committee Chair | | | | | | | | | | | | |
Independent Compensation Consultant The Compensation Committee has directly retained Willis Towers Watson as its independent, external compensation consultant for the last several years. Willis 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. Willis Towers Watson reports directly to the Compensation Committee and, at the Compensation Committee’s request, provides an annual evaluation and analysis of trends in both executive compensation and director compensation. Willis Towers Watson also evaluates other compensation issues at the direct request of the Compensation Committee. In accordance with NYSE requirements approved by the SEC in 2013, the Compensation Committee evaluated the following six factors to assess independence and conflicts of interest before it engaged Willis Towers Watson to do work in 2016 and 2017: | | (1)1. | The provision of other services to the company by Willis Towers Watson. |
| | | 2. | The amount of fees received from the company by Willis Towers Watson, as a percentage of the firm's total revenues. |
| | | 3. | The policies or procedures of Willis Towers Watson that are designed to prevent conflicts of interest. |
| | | 4. | Any business or personal relationship of a member of the Compensation Committee with the regular members of the Willis Towers Watson executive compensation team serving the company. |
| | | 5. | Any stock of the company owned by the regular members of the Willis 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 Willis Towers Watson executive compensation team serving the company. |
The Compensation Committee also obtained a representation letter from Willis Towers Watson addressing these six factors and certain other matters related to its independence. Based on the Compensation Committee’s evaluation of these factors and the representations from Willis Towers Watson, the Compensation Committee concluded that Willis Towers Watson is an independent adviser and has no conflicts of interest with us. | | | | | | | | | | | Governance Committee | | | | | | | ValuePrimary Responsibilities
Our Governance and ownership percentage calculatedInnovation Committee (Governance Committee) assists the Board in: ●Identifying qualified individuals to become Board members, including succession planning regarding current Board members; ●Determining the composition of the Board and its committees; ●Monitoring a process to assess Board effectiveness; ●Developing and implementing corporate governance principles; and ●Overseeing the company’s efforts concerning innovation, including emerging or competing technologies and alternative energy resources. Further, the Governance Committee reviews and oversees our position on corporate social responsibilities, such as environmental and public policy issues that significantly affect us, our shareholders, our customers and our other key stakeholders. Independence Each member of December 31,our Governance Committee meets the independence requirements under the NYSE corporate governance listing standards. Governance and Innovation Committee Charter The Governance and Innovation Committee operates pursuant to a charter that is reviewed annually and was last amended in October 2016. The Charter is available on our website at 2014NorthWesternEnergy.com, using a closing stock price of $ under 56.58Our Company / Investor Relations / Corporate Governance. | | | | | | | | | | | 5 | Meetings in 2016 | | | | | | | | | | | | | Members | | | | | Julia L. Johnson (Chair) | | | | | Dorothy M. Bradley | | | | | Anthony T. Clark | | | | | Jan R. Horsfall | | | | | | | | | | “Corporate governance is emphasized at NorthWestern. We believe strong governance leads to investor confidence in the company and are proud of the national recognition our governance practices have received.” Julia L. Johnson, Governance Committee Chair | | | | | | | | | | | | |
Director Candidate Evaluation Our Governance Committee evaluates each director candidate to determine whether the Board should recommend such candidate as a director nominee. In considering new individuals for nomination as directors, the Governance 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, if necessary. Our goal is to maintain a diverse Board that operates cohesively and challenges management in a constructive way. The Governance 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 Governance 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 shareholders, industry knowledge, independence, and financial literacy. With the exception of the company’s CEO, all of our directors are independent, as required by our Corporate Governance Guidelines. When nominating persons to serve on our Board, the Governance Committee considers individuals who can add value to the strategic policymaking and oversight responsibilities of the Board. A director’s ability and available time to contribute to the Board 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 Governance Committee believes that the nominees for election at this year’s annual meeting collectively possess the experience, skills, and attributes necessary to lead the company to a long and successful future. Our Governance Committee also has the responsibility for considering nominees for directors properly recommended by shareholders. A shareholder who wishes to submit a candidate for consideration at the annual meeting of shareholders 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 shareholder’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 shareholder’s name and address, the number of shares of our common stock beneficially owned by the shareholder and any arrangements or understandings between the nominee and the shareholder. The shareholder 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 Governance Committee evaluates candidates recommended by shareholders is generally the same as candidates from other sources. However, the Governance Committee also will seek and consider information concerning the relationship between the recommending shareholder and the candidate to determine if the candidate can represent the interests of all of the shareholders. The Governance Committee will not evaluate a candidate recommended by a shareholder unless the shareholder 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. Director 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 (or a Majority Withheld Vote) shall promptly offer his or her resignation following certification of the shareholder vote. Under this policy, the Governance Committee shall promptly make a recommendation to the Board regarding the resignation offer and possible responses based on the circumstances that led to the Majority Withheld Vote, if known. The Board must act on the Governance Committee’s recommendation within 90 days following certification of the shareholder vote. Thereafter, the Board will promptly disclose its decision-making 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. Any director who tenders his or her resignation pursuant to this policy shall not participate in the Governance Committee’s recommendation or Board action regarding whether to accept the resignation offer. However, if each member of the Governance 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 among 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.
Other Governance Practices Code of Conduct Our Board adopted a Code of Conduct and Ethics (Code of Conduct) which it reviews 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, 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. You may review our Code of Conduct on our website at 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. 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. 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, compliance, and security risks. The Audit Committee receives reports from management at least quarterly regarding the company’s assessment of risks. The Compensation Committee oversees risks in compensation plans, and the Governance 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 and business development opportunities. 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 (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 has a reporting relationship to the Audit Committee. We believe this division of 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 approves 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 shareholders. No material related person transactions were identified during 2016. Under the policy, a “related person” is an officer, director, director nominee, or five percent or more shareholder 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 shareholders. The policy is available on our website at 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 certain transactions involving our securities, including hedging or other monetization transactions and 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 our general counsel. None of our directors or executive officers have pledged any of our securities as collateral for a loan. The policy is available on our website at 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 shareholders. 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. 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. State and local ballot initiatives and referenda on important policy issues do 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. In addition, the policy allows individual employees to make personal contributions to political action committees. The policy is available on our website at NorthWesternEnergy.com under Our Company / Investor Relations / Corporate Governance. Communications with Our Board You may contact our Board, Board Chair or independent directors, individually or as a group, by sending your communication to our Corporate Secretary at NorthWestern Corporation, 3010 West 69th Street, Sioux Falls, South Dakota 57108. The Corporate Secretary will forward any communication received to the intended recipient.
| | Stock Ownership Information |
Stock Ownership Information Who owns our stock Our common stock is currently theour only class of voting securities. The number of shares noted in the tablestable 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. Stock Ownership ofby Directors and ManagementExecutives The following table sets forth certainprovides information as of February 23, 2015,27, 2017, with respect to the beneficial ownership of shares of our common stock owned by our current non-employee directors, theour 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 |
| | 54,811 |
| | 74,811 |
| | * | — |
| | 20,000 |
| | 65,629 |
| | 85,629 |
| | * | | E. Linn Draper Jr. | | — |
| | — |
| | 99,403 |
| | 99,403 |
| | * | — |
| | — |
| | 118,825 |
| | 118,825 |
| | * | | Dorothy M. Bradley | | 3,719 |
| | — |
| | 15,825 |
| | 19,544 |
| | * | 3,987 |
| | — |
| | 22,564 |
| | 26,551 |
| | * | | Anthony T. Clark | | — |
| | — |
| | 3,750 |
| | 3,750 |
| | * | | Dana J. Dykhouse | | 17,500 |
| | — |
| | — |
| | 17,500 |
| | * | 23,000 |
| | — |
| | — |
| | 23,000 |
| | * | | Jan R. Horsfall | | 5,950 |
| | — |
| | — |
| | 5,950 |
| | * | | Julia L. Johnson | | — |
| | — |
| | 67,404 |
| | 67,404 |
| | * | — |
| | — |
| | 80,027 |
| | 80,027 |
| | * | | Philip L. Maslowe | | — |
| | — |
| | 58,204 |
| | 58,204 |
| | * | | | Denton Louis Peoples | | 3,000 |
| | — |
| | 38,058 |
| | 41,058 |
| | * | | Robert C. Rowe (2) | | 7,018 |
| | 4,230 |
| | 116,828 |
| | 128,076 |
| | * | 2,818 |
| | — |
| | 125,273 |
| | 128,091 |
| | * | | Brian B. Bird | | 62,450 |
| | — |
| | — |
| | 62,450 |
| | * | 52,469 |
| | — |
| | — |
| | 52,469 |
| | * | | Heather H. Grahame | | 29,766 |
| | — |
| | — |
| | 29,766 |
| | * | 22,907 |
| | — |
| | — |
| | 22,907 |
| | * | | Curtis T. Pohl | | 19,302 |
| | — |
| | — |
| | 19,302 |
| | * | 16,653 |
| | — |
| | — |
| | 16,653 |
| | * | | Kendall G. Kliewer | | 7,590 |
| | — |
| | 12,079 |
| | 19,669 |
| | * | | | Bobbi L. Schroeppel | | 15,147 |
| | — |
| | — |
| | 15,147 |
| | * | | Directors and Executive Officers as a Group (16 persons) | | 189,143 |
| | 24,230 |
| | 474,647 |
| | 688,020 |
| | 1.5 | 190,757 |
| | 20,000 |
| | 434,387 |
| | 645,144 |
| | 1.33 | | * Less than one percent. | | | | | | | | | | | | *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. |
Stock Ownership Guidelines We believe it is important that our interests are aligned with the interests of our shareholders. Accordingly, our Board has established robust stock ownership guidelines for our non-employee directors and executive officers. Our stock ownership guidelines are set forth in our Corporate Governance Guidelines on our website at NorthWesternEnergy.com under Our Company / Investor Relations / Corporate Governance. In 2016, our Board doubled the amount of stock ownership required for non-employee directors. Under the increased stock ownership guidelines, each non-employee director must retain at least ten 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. The previous guideline was five times. For executives, the stock ownership guidelines are 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 - Customer Care, Communications and Human Resources.
| | | Stock Ownership Information |
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. Our Board instituted stock ownership guidelines to require its members and our executives to hold a meaningful financial stake in the company to align our interests with those of our shareholders. As summarized below, all of our directors and our named executive officers who have been serving more than one year have satisfied his or her applicable stock ownership guideline. As important as it was to achieve the required stock ownership levels, we 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. For 2016, our directors deferred 51 percent of their aggregate compensation into the company’s common stock, even though they previously had satisfied their stock ownership guideline requirements. | | | | | | | | | | | | | | | | | | | | | | Satisfaction of Stock Ownership Guidelines | | | | | | Pay Subject to Multiple | | Multiple Required | | Stock Ownership Requirement ($) | | Number of Shares and DSUs Owned (#) | | Value of Shares and DSUs Owned (1) ($) | | Percent of Guideline Achieved as of Feb. 27, 2017 (1) (%) | | Percent of Guideline Achieved
as of 12/31/15
(%) | | Directors | | | | | | | | | | | | | | | E. Linn Draper Jr., Board Chair | | $125,000 | | 10x | | 1,250,000 |
| | 118,825 |
| | 6,889,474 |
| | 551 | % | | 455 | % | Stephen P. Adik, Audit Chair | | $35,000 | | 10x | | 350,000 |
| | 85,629 |
| | 4,964,769 |
| | 1,419 | % | | 1,201 | % | | Dorothy M. Bradley | | $25,000 | | 10x | | 250,000 |
| | 26,551 |
| | 1,539,427 |
| | 616 | % | | 440 | % | | Anthony T. Clark (2) | | $25,000 | | 10x | | 250,000 |
| | 3,750 |
| | 217,425 |
| | 87 | % | | N/A |
| Dana J. Dykhouse, Comp. Chair | | $35,000 | | 10x | | 350,000 |
| | 23,000 |
| | 1,333,540 |
| | 381 | % | | 272 | % | | Jan R. Horsfall | | $25,000 | | 10x | | 250,000 |
| | 5,950 |
| | 344,981 |
| | 138 | % | | 62 | % | Julia L. Johnson, Gov. Chair | | $35,000 | | 10x | | 350,000 |
| | 80,027 |
| | 4,639,965 |
| | 1,326 | % | | 1,541 | % | | Executives | | | | | | | | | | | | | | | | Robert C. Rowe | | $595,578 | | 6x | | 3,573,468 |
| | 128,091 |
| | 7,426,716 |
| | 208 | % | | 230 | % | | Brian B. Bird | | $411,951 | | 4x | | 1,647,804 |
| | 52,469 |
| | 3,042,153 |
| | 185 | % | | 201 | % | | Heather H. Grahame | | $360,714 | | 3x | | 1,082,142 |
| | 22,907 |
| | 1,328,148 |
| | 123 | % | | 161 | % | | Curtis T. Pohl | | $279,922 | | 3x | | 839,766 |
| | 16,653 |
| | 965,541 |
| | 115 | % | | 142 | % | | Bobbi L. Schroeppel | | $258,068 | | 2x | | 516,136 |
| | 15,147 |
| | 878,223 |
| | 170 | % | | 205 | % |
| | | (1) | Value of shares or DSUs owned and ownership as a percent of stock ownership requirement are calculated as of February 27, 2017, using a closing stock price of $57.98. |
| | | (2) | Shares held indirectly by Mr. Rowe represent shares held in a SEP IRA owned by Mr. Rowe.Clark joined our Board on December 6, 2016. |
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 20142016 all of its directors and executive officers timely filed all reports required by Section 16 of the Exchange Act.
| | Stock Ownership Information |
Security Ownership of Certain Beneficial Holders
The table on the following tablepage 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 23, 2015. Such27, 2017. The information reflected in the table is based solely on a review of statements filed with the SEC pursuant to Sections 13(d), 13(f), and 13(g) of the Exchange Act.
| | | Stock Ownership Information |
| | | 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) | | 4,585,078 | | 10.0 | | 8,208,262 | | 17.0 | 55 East 52nd Street, New York, NY 10022 | | | The Vanguard Group, Inc. (2) | | 3,221,132 | | 6.9 | | Deutsche Bank AG (2) | | | 5,710,128 | | 11.8 | | Taunusanlage 12, 60325 Frankfurt am Main, Federal Republic of Germany | | | The Vanguard Group (3) | | | 4,099,389 | | 8.5 | | 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. (4) | | 2,318,335 | | 5.0 | | | 100 E. Pratt Street, Baltimore, MD 21202 | | |
| | | (1) | Reflects shares beneficially owned by BlackRock, Inc. as of December 31, 2014,2016, according to a statement on Schedule 13G13G/A filed with the SEC on January 12, 2015,11, 2017, 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 4,460,9358,072,370 shares and sole dispositive power with respect to 4,585,0788,208,262 shares. The beneficial owner holds shared voting or dispositive power with respect to none of the shares. The Schedule 13G13G/A 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.,Deutsche Bank AG, as of December 31, 2014,2016, according to a statement on Schedule 13G filed with the SEC on February 19, 2015,13, 2017, 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 69,4135,508,176 shares and sole dispositive power with respect to 3,159,4195,710,128 shares. The beneficial owner holds shared voting or dispositive power with respect to none of the shares. The Schedule 13G certifies that, to the best of the beneficial owner’s knowledge and belief, the foreign regulatory scheme applicable to the beneficial owner, a bank organized under the laws of the Federal Republic of Germany, is substantially comparable to the regulatory scheme applicable to the functionally equivalent U.S. institution. The beneficial owner also undertakes to furnish to the Commission staff, upon request, information that would otherwise be disclosed in a Schedule 13D. |
| | | (3) | Reflects shares beneficially owned by The Vanguard Group, as of December 31, 2016, according to a statement on Schedule 13G filed with the SEC on February 9, 2017, which indicates that the beneficial owner, an investment adviser in accordance with Rule 13d-1(b), has sole voting power with respect to 62,691 shares and sole dispositive power with respect to 4,038,600 shares. The beneficial owner has shared voting power with respect to 5,400 shares and shared dispositive power with respect to 61,71360,789 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 Deutsche Asset and Wealth Management Investment GmbH, as of December 31, 2014, according to a statement on Schedule 13G filed with the SEC on February 17, 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 2,835,000 shares and sole dispositive power with respect to 2,835,000 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 T. Rowe Price Associates, Inc., as of December 31, 2014, according to a statement on Schedule 13G filed with the SEC on February 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), has sole voting power with respect to 611,760 shares and sole dispositive power with respect to 2,318,335 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. |
Other Matters
Securities AuthorizedStock for Issuance Under Equity Compensation Plans
The following table presents summary information about our Equity Compensation Plan. The table presents the following dataPlan, as of the close of business on December 31, 2014:2016: | | | 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 1716 to our Consolidated Financial Statements ofconsolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014.2016. | | | 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) | | 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) | | 258,168 |
| (2) | $44.97 | (3) | 870,186 |
| (4) | | Equity compensation plans not approved by security holders | | | | | | | | | — |
| | — |
| | — |
| | | None | | — |
| | — |
| | — |
| | | | Total | | 222,292 |
| | | | 1,121,723 |
| | | 258,168 |
|
|
|
|
| 870,186 |
| |
| | | (1) | Consists of the NorthWestern Corporation Amended and Restated Equity Compensation Plan, which was re-approved by stockholders atis the 2014 annual meeting.company’s only equity compensation plan. |
| | | (2) | Consists of (a) 180,572195,577 unvested performance units, with a weighted average grant date fair value of $35.77,$46.35, granted to employees who participate in our LTIP, and (b) 41,72062,591 unvested restricted share units, with a weighted average grant date fair value of $35.14,$41.14, granted to executive officers under our ERRP. For descriptions of our LTIP and ERRP, please see theCompensation Discussion and Analysissection of this Proxy Statement.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. |
Proposals Requiring Your Vote
At the annual meeting, stockholders will consider and our Board asks you to vote on the following items of business:
| | | Œ | Election of eight individuals to serve as members of our Board 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. | Ž | 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. |
The first three 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, and 3. |
When voting by internet 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.
Proposal 1
Election of Directors
| | | | | | Our Board is nominating eight individuals for election as directors at | | Audit Committee Report In the annual meeting. All nominees,performance of the Audit Committee’s oversight function, and in connection with the exception of Jan R. Horsfall, are currently serving as directors ofDecember 31, 2016, financial statements, the company. In accordanceAudit Committee reviewed and discussed the audited financial statements 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 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. |
management. 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:
| | Proposal 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 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. Biographical information and the individual qualifications of each nominee are described beginning on page 10 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, Peoples, and Rowe to hold office as directors until the next annual meeting of stockholders in 2016 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. 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 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, 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 (or a Majority Withheld 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
| | 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 among 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.
Proposal 2
Ratification of Independent Registered Public Accounting Firm
| | | | | | Our Audit Committee has selecteddiscussed the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board (PCAOB) in Rule 3200T. The Audit Committee received the written disclosures and the letter from Deloitte & Touche LLP as(Deloitte), our independent registered public accounting firm, to audit ourrequired 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 endingended December 31, 2015, and recommends that stockholders vote for ratification of such appointment. Although action by2016, filed with 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.SEC. |
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, 2014 and 2013:
| | | | | | | | | Fee Category | | Fiscal 2014
Fees ($) | | Fiscal 2013
Fees ($) | | Audit fees | | 1,322,600 |
| | 1,304,675 |
| | Audit-related fees | | — |
| | — |
| | Tax fees | | 367,325 |
| | 113,566 |
| | All other fees | | — |
| | — |
| | Total fees | | 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 2014, this amount includes estimated billings for the completion of the 2014 audit, which Deloitte rendered after year-end.
| | Audit Committee Stephen P. Adik, Chair Dana J. Dykhouse Jan R. Horsfall | | 57 |
| | 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 2014 and 2013.
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 2014 and 2013, there were no other fees.
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 2014, the Audit Committee (or the Chairman of the Audit Committee pursuant to delegated authority) pre-approved 100 percent of the tax fees.
Leased Employees
In connection with their audit of our 2014 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, 2015.
| | Proposal 3 — Advisory Vote to Approve Named Executive Officer Compensation |
Proposal 3
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 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.
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 2015 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.
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 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 20 of this proxy statement, and the “Compensation of Executive Officers and Directors” section, starting on page 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-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, our Equity Compensation Plan. In 2009, our Board granted performance-based awards to the company’s senior
| | Proposal 3 — 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 Pay | 2nd Highest TSR | of 15 Peers | of 15 Peers | | | | | 1-YEAR | 3rd Lowest CEO Pay | 3rd 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.
| | Proposal 3 — 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 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 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 2015 proxy statement.
Annual Meeting Information Voting Procedures Appointment of Proxy Holders Our Board asks you to appoint our independent Board Chair, E. Linn Draper Jr., and our CEO, 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 or by using one of the voting methods described below. 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 matters 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. Record Date and Voting All shareholders of record as of the close of business on the record date, February 27, 2017, 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 the record date, 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. Shareholders 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. | | | | Voting on the Internet. You may vote by proxy on the internet up until 11:59 p.m. Eastern Daylight Time the day before the annual meeting. The website for internet 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, 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. |
| | | Annual Meeting Information |
| | | | 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 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. | | | | Revoking Your Proxy or 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 secretary at NorthWestern Corporation, 3010 West 69th Street, Sioux Falls, South Dakota 57108, prior to the vote at the annual meeting. If your shares are held in street name, you must contact your broker, bank, or other nominee to revoke your proxy. |
Quorum At the close of business on the record date, there were 48,335,246 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, 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 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. Broker Non-Votes Under the rules of the New York Stock Exchange (NYSE), certain shareholder nominees (such as brokers) have the discretion to vote shares on routine matters, such as the ratification of the appointment of our independent registered public accounting firm, when they do not receive voting instructions from the beneficial owner. They do not have authority to vote on non-routine matters (such as the election of directors, the advisory vote to approve named executive officer compensation, and the advisory vote on the frequency of advisory votes on executive 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 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, Proposal 3 — Advisory Vote to Approve Named Executive Officer Compensation, or Proposal 4 — Advisory Vote to Approve Frequency of Advisory Votes on Executive 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 on the following page. 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” the advisory vote to approve named executive officer compensation, for every “1 YEAR” on the advisory vote on the frequency of advisory votes on executive compensation and in accordance with the recommendations of our Board on any other matters properly brought before the annual meeting for a vote.
| | | Annual Meeting Information |
| | | | | | | Item of Business | Board Recommendation | Voting Approval Standard | Effect of Abstention | Effect of Broker Non-Vote | Proposal 1:
Election of Directors | FOR
election of each director nominee | If a quorum exists, the 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 Governance Committee and final Board decision. | No effect | No effect | Proposal 2:
Ratification of Appointment of Independent Registered Public Accounting Firm | FOR | If a quorum exists, the majority of votes present in person or represented by proxy and entitled to vote. | Vote against | Not applicable; broker may
vote shares without instruction | Proposal 3:
Advisory “Say-on-Pay” Vote to Approve Executive Compensation | FOR | If a quorum exists, the majority of votes present in person or represented by proxy and entitled to vote. This advisory voteis not binding on the Board, but the Board will consider the vote results when making future executive compensation decisions. | Vote against | No effect | Proposal 4:
Advisory Vote on Frequency of Future Say-on-Pay Votes | for every 1 YEAR | If a quorum exists, the pluralityof votes present in person or represented by proxy and entitled to vote. This advisory voteis not binding on the Board, but the Board will consider the vote results when determining the frequency of future Say-on-Pay votes. | No effect | No effect |
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. 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 shareholders 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. Electronic Access to Proxy Statement and Annual Report The proxy statement, annual report, voting card, and voting instructions are available on the internet at www.proxyvote.com where you can also cast your vote and request to receive future proxy materials in printed form by mail or electronically by email. These materials 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. General Information Attending the Annual Meeting in Person or by Webcast Only shareholders of record or their legal proxy holders as of the record 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. You may be asked to provide photo identification, such as a driver’s license.
| | | Annual Meeting Information |
| | | | | 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 NorthWesternEnergy.com under Our Company / Investor Relations / Presentations and Webcasts. A webcast replay will be available at the same location on our website through April 27, 2018. | | | | | |
Householding; Receipt of Multiple Notices Under the rules of the 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 shareholders reside if they appear to be members of the same family. Each shareholder continues to receive a separate proxy card. This procedure, referred to as householding, reduces the volume of duplicate information shareholders receive and reduces mailing and printing expenses. In accordance with a notice sent to certain shareholders who shared a single address, only one annual report and proxy statement were sent to that address unless any shareholder at that address requested that multiple sets of documents be sent. However, if any shareholder who agreed to householding wishes to receive a separate annual report or proxy statement for 2017 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. Shareholders 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 NorthWesternEnergy.comunder 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 may read and copy any reports, proxy statements or other information that we file with the SEC at the SEC Public Reference Room, 100 F Street NE, Room 1580, Washington, DC 20549. You also may request copies of this information from the SEC by mail from the same address, at prescribed rates. Please call the SEC at (800) 732-0330 for further information on the public reference room. Future Shareholder Proposals Shareholder 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 2018, shareholder proposals submitted under Exchange Act Rule 14a-8 must be received by the corporate secretary of NorthWestern Corporation not later than November 3, 2017. Such proposal must comply with all applicable SEC requirements that a shareholder must meet in order to have a shareholder proposal included in the company’s proxy statement.
| | | Annual Meeting Information |
Other Shareholder Proposals for Presentation at the 2018 Annual Shareholders’ 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 2018 Annual Shareholders’ Meeting, the company’s bylaws require that timely notice must be given to the corporate secretary. To be timely, the notice must be received by the corporate secretary of NorthWestern Corporation between December 26, 2017, and January 25, 2018. Shareholder proposals should be delivered or mailed to and received by the Company in accordance with the dates set forth above and addressed to: Corporate Secretary NorthWestern Corporation 3010 West 69th Street Sioux Falls, South Dakota 57108 To be in proper written form, a shareholder’s notice for both annual and special meetings must set forth: | | | (1) | as to each person whom the shareholder 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 (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 shareholder 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 bylaws 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 shareholder in the business being proposed and the beneficial owner, if any, on whose behalf the proposal is being made; and |
| | | (3) | as to the shareholder 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 shareholder 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 shareholder and beneficial owner, (c) a description of all arrangements or understandings between such shareholder 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 shareholder, (d) a representation that such shareholder is a shareholder 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 shareholder 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 shareholders in support of such proposal or nomination. The foregoing notice requirements shall be deemed satisfied by a shareholder with respect to an annual meeting if the shareholder 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 shareholder’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 Planning (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 shareholders shall not create any implication to the contrary.
Proxy Statement Glossary The list below defines the various terms, abbreviations, and acronyms used in this proxy statement.
| | | 2008 Severance Plan | NorthWestern Corporation 2008 Key Employee Severance Plan, effective October 1, 2008 | | AGA | American Gas Association | | Board | Board of Directors of NorthWestern Corporation | | CD&A | Compensation Discussion and Analysis | | CEO | President and Chief Executive Officer | | CFO | Vice President and Chief Financial Officer | | COBRA | Consolidated Omnibus Budget Reconciliation Act | | Code of Conduct | Code of Conduct and Ethics | | Company | NorthWestern Corporation d/b/a NorthWestern Energy | | Compensation Committee | Human Resources Committee | | Deloitte | Deloitte & Touche LLP | | Director Deferred Plan | NorthWestern 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) | | EPS | Earnings per share | | ERM | Enterprise Risk Management and Business Continuity Programs | | ERRP | Executive Retention / Retirement Program | | Exchange Act | Securities and Exchange Act of 1934, as amended | | Executive Officer | The Named Executive Officers and other executives responsible for company policy, strategy and operations. For 2014,2016, there were nine executive officers serving on our executive team. | HRGovernance Committee | Human ResourcesGovernance and Innovation Committee | | Key Employee Severance Plan | NorthWestern Corporation Key Employee Severance Plan, effective Oct. 19, 2016 | | LTIP | Long-Term Incentive Program | | NACD | National Association of Corporate Directors | | Named Executive Officer | 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 2014.2016. Our named executive officers for 20142016 are identified in the Compensation Discussion and Analysis section of this Proxy Statement.proxy statement. | NCG Committee | Nominating and Corporate Governance Committee | | NorthWestern | NorthWestern Corporation d/b/a NorthWestern Energy | | NYSE | New York Stock Exchange | | Officer Deferred Plan | NorthWestern Corporation 2009 Officer Deferred Compensation Plan | | OSHA | Occupational Safety and Health Administration | | Our | NorthWestern Corporation d/b/a NorthWestern Energy | | PCAOB | Public Company Accounting Oversight Board | | Record Date | February 23, 201527, 2017 | | ROAE | Return on Average Equityaverage equity | | SAIDI | System Average Interruption Duration Index | | SEC | Securities and Exchange Commission | | TSR | Total Stockholder Returnshareholder return | | Us | NorthWestern Corporation d/b/a NorthWestern Energy | | We | NorthWestern Corporation d/b/a NorthWestern Energy |
| | | | | | | Montana Operational Support Office
4011 East BroadwayPark Street
Butte, Montana 59701 (406) 497-1000 | | South Dakota / Nebraska Operational Support Office 600 Market Street West Huron, South Dakota 57350
(605) 353-7478 | | Corporate Support Office 3010 West 69th Street Sioux Falls, South Dakota 57108 (605) 978-2900 |
| | | | | | | | | | | Connect With Us: | | | | www.northwesternenergy.com | | | | | | NorthWestern Energy.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 DIRECTORS | For All | Withhold All | For All Except | To 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: | o | o | o | | | | | | Vote on Directors 1. Election of Directors Nominees: | | | | 01) Stephen P. Adik 02) Dorothy M. BradleyAnthony T. Clark 03) E. Linn Draper Jr. | 04) Dana J. Dykhouse | 05) Jan R. Horsfall 06) Britt E. Ide | 07) Julia L. Johnson 07) Denton Louis Peoples 08) Linda G. Sullivan 09) Robert C. Rowe | | | | | | | Vote on Proposals | | | For | Against | Abstain | | | The Board of Directors recommends that you vote FOR Proposal 2: | | | | | | | 2. Ratification of the appointment of Deloitte & Touche LLP as the company’s independent registered public accounting firm for 2015.2017. | | o | o | o | | | The Board of Directors recommends that you vote FOR Proposal 3: | | | | | | | 3. Approval of the compensation for ourAdvisory vote to approve named executive officers through an advisory say-on-pay vote.officer compensation. | | o | o | o | | | The Board of Directors recommends that you vote FOR1 Year on Proposal 4: | 1 Year | 2 Years | 3 Years | Abstain | | 4. Advisory vote on the frequency of the advisory votes on executive compensation. | o | o | o | o | | | | | | | | | 4.The Board of Directors recommends that you vote FOR Proposal 5: | | For | Against | Abstain | | 5. Transaction of any other matters and business as may properly come before the annual meeting or any postponement or adjournment of the annual meeting. | | o | o | o | | | | | | | | 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. 69TH69TH STREET, SIOUX FALLS, SD 57108
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 23, 2015
27, 2017
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 20152017 Annual Meeting of StockholdersShareholders of NORTHWESTERN CORPORATION to be on held Thursday, April 23, 2015,27, 2017, at 10:00 a.m. Central Daylight Time at the NorthWestern Energy Operations Center,South Dakota/Nebraska Operational Support Office, 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; AND “FOR” THE ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION IN ITEM 3.
3; AND FOR EVERY “1 YEAR” IN ITEM 4.
Continued and to be signed on the reverse side | |
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