17 | Includes 70,516 shares held by executive officers not named above, of which 8,820 shares are held jointly with spouse or are held as custodian for children, 7,312 shares are held indirectly under the RKSP and 39,875 shares which the executive officers not named above have the right to acquire within 60 days through exercise of options under the Restated SOP. Does not include 15,625 unexercisable shares under the Restated SOP for executive officers not named above and 1,372† Based on the total number of shares beneficially owned on December 31, 2013 (including shares owned as of December 31, 2013, options exercisable within 60 days after December 31, 2013, shares underlying the Restricted Stock Units with performance threshold (RSUs) that vested within 60 days after December 31, 2013, and shares held in deferred compensation accounts that would be received by directors and officers within 60 days of December 31, 2013, if the director or officer ceased service with NW Natural on that date).
(1) Unless otherwise indicated, beneficial ownership includes both sole voting power and sole investment power. Shares under the Directors Deferred Compensation Plan (DDCP), the Executive Deferred Compensation Plan (EDCP) and the Deferred Compensation Plan for Directors and Executives (DCP) that would be received by directors, Named Executive Officers and all directors and officers as a group within 60 days of December 31, 2013, if the director, Named Executive Officer, or all officers and directors as a group ceased service with NW Natural on that date are included in the table. Unexercisable options and RSUs with performance threshold and the remaining shares under the DDCP, EDCP and DCP are not included in the table as they represent under the terms of the plans, rights to receive shares that would not be distributed until a date that is later than 60 days after December 31, 2013; such shares are more fully disclosed in the footnotes below with respect to each beneficial owner named in table. (2) Includes 22,512 shares held directly by Mr. Kantor, 4,604 shares held jointly with Mr. Kantor’s spouse, 625 shares credited to the DCP, 95,500 shares which Mr. Kantor has the right to acquire within 60 days through the exercise of options under the Restated Stock Option Plan (Restated SOP), 3,025 RSUs which Mr. Kantor has the right to acquire within 60 days at vesting under the Long Term Incentive Plan (LTIP), 3,637 shares held indirectly under the Restated Retirement K Savings Plan (RKSP), and 770 shares held by Mr. Kantor’s parent, with respect to which Mr. Kantor is power of attorney and a potential beneficiary. Does not include 7,500 unexercisable shares under the Restated SOP, 7,675 unvested RSUs under the LTIP and 2,814 shares credited to the DCP. (3) Includes 537 shares held directly by Mr. Anderson, 45,059 shares held jointly with Mr. Anderson’s spouse, 47,250 shares which Mr. Anderson has the right to acquire within 60 days through the exercise of options under the Restated SOP, 1,200 RSUs which Mr. Anderson has the right to acquire within 60 days at vesting under the LTIP, 704 shares held indirectly under the RKSP. Does not include 2,750 unexercisable shares under the Restated SOP, 3,050 unvested RSUs under the LTIP and 1,579 shares credited to the DCP. (4) Includes 12,400 shares held directly by Mr. Feltz, 1,500 of which are pledged as collateral, 13,125 shares which Mr. Feltz has the right to acquire within 60 days through the exercise of options under the Restated SOP, 625 RSUs which Mr. Feltz has the right to acquire within 60 days at vesting under the LTIP, and 4,151 shares held indirectly under the RKSP. Does not include 875 unexercisable shares under the Restated SOP and 1,675 unvested RSUs under the LTIP. (5) Includes 3,453 shares held directly by Ms. Doolittle, 227 shares held by Ms. Doolittle’s spouse, 7,433 shares held indirectly under the RKSP, 241 shares held indirectly under the RKSP by her spouse, 31 shares credited to the EDCP, 19,750 shares which Ms. Doolittle has the right to acquire within 60 days through the exercise of options under the Restated SOP, 3,800 shares which Ms. Doolittle’s spouse has the right to acquire within 60 days through the exercise of options under the Restated SOP, 550 RSUs which Ms. Doolittle has the right to acquire within 60 days at vesting under LTIP and 30 RSUs which Ms. Doolittle’s spouse has the right to acquire within 60 days at vesting under the LTIP. Does not include 1,250 unexercisable shares under the Restated SOP, 1,425 unvested RSUs under the LTIP, 447 shares credited to the EDCP, 1,228 shares credited to the DCP, and 75 unvested RSUs under the LTIP for Ms. Doolittle’s spouse. (6) Includes 8,797 shares held directly by Ms. Kirkpatrick, 31,875 shares which Ms. Kirkpatrick has the right to acquire within 60 days through the exercise of options under the Restated SOP, 747 RSUs which Ms. Kirkpatrick has the right to acquire within 60 days at vesting under the LTIP and 603 shares held indirectly under the RKSP. Does not include 1,625 unexercisable shares under the Restated SOP and 1,881 unvested RSUs under the LTIP. (7) Includes 472 shares held directly by Mr. Boyle, 16,354 shares credited to the DCP and 386 shares credited to the DDCP. Does not include 3,478 shares credited to the DDCP. (8) Includes 284 shares held directly by Ms. Byorum, 6,828 shares credited to the DCP and 1,172 shares credited to the DDCP. (9) Includes 17,608 shares held directly by Mr. Carter, 27,302 shares credited to the DCP and 6,339 shares credited to the DDCP. Does not include 2,612 shares credited to the DCP. (10) Includes 7 shares held directly by Mr. Dodson, 6,853 shares held in a trust for Mr. Dodson’s spouse and 3,445 shares credited to the DCP. Does not include 13,782 shares credited to the DCP. (11) Includes 1,090 shares held directly by Mr. Gibson, 110 shares held by Mr. Gibson’s spouse, 3,953 shares credited to the DCP and 239 shares credited to the DDCP. Does not include 11,046 shares credited to the DCP and 2,158 shares credited to the DDCP. (12) Includes 5,810 shares held directly by Mr. Hamachek, 367 shares credited to the DCP and 1,945 shares credited to the DDCP. Does not include 3,327 shares credited to the DCP and 17,514 shares credited to the DDCP. (13) Includes 1,000 shares held directly by Ms. Peverett and 12,366 shares credited to the DCP. (14) Includes 3,500 shares held directly by Mr. Thrasher and 4,000 shares held jointly with Mr. Thrasher’s spouse and that secure a personal line of credit. (15) Includes 110,253 shares held by executive officers not named above, of which 8,472 shares held directly by these executive officers, 9,445 shares are held jointly with spouse, 13,669 shares are held indirectly under the RKSP, 75,700 shares that the executive officers not named above have the right to acquire within 60 days through exercise of options under the Restated SOP and 2,967 RSUs that the executive officers not named above have the right to acquire within 60 days at vesting under the LTIP. Does not include 5,025 unexercisable shares under the Restated SOP and 7,009 unvested RSUs under the LTIP and 10,411 shares credited to the DCP for executive officers not named above. TOTAL OWNERSHIP OF COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS Set forth below is the total number of shares of NW Natural’s Common Stock owned, directly or indirectly, as of December 31, 2013 by all directors and nominees, each of the Named Executive Officers included in the Summary Compensation Table below and all directors and executive officers as a group. This supplemental table is provided to illustrate each specified individual’s total ownership in NW Natural, specifically including all shares subject to unexercised options, all unvested RSUs, and credited to deferred compensation plan accounts that are excluded from the above table entitled “Beneficial Ownership of Common Stock by Directors and Executive Officers,” as referenced in the footnotes to that table.Amounts included in this table are a different representation of the amounts included in the above table and footnotes entitled “Beneficial Ownership of Common Stock by Directors and Executive Officers,” and are not in addition to amounts included in that table. | | | | | Name of Owner | | Total Number of Shares | | Named Executive Officers | | | | | Gregg S. Kantor (also a director) | | | 148,662 | | David H. Anderson | | | 102,129 | | Stephen P. Feltz | | | 32,851 | | Lea Anne Doolittle | | | 39,940 | | Margaret D. Kirkpatrick | | | 45,528 | | Directors | | | | | Timothy P. Boyle | | | 20,690 | | Martha L. “Stormy” Byorum | | | 8,284 | | John D. Carter | | | 53,861 | | Mark S. Dodson | | | 24,087 | | C. Scott Gibson | | | 18,596 | | Tod R. Hamachek | | | 28,963 | | Jane L. Peverett | | | 13,366 | | Kenneth Thrasher | | | 7,500 | | All directors and officers as a group (20 in number) | | | 677,155 | |
EXECUTIVE COMPENSATION REPORT OF THE ORGANIZATION AND EXECUTIVE COMPENSATION COMMITTEE The Organization and Executive Compensation Committee of the Board of Directors (OECC) is responsible for discharging the responsibilities of the Board of Directors relating to the compensation of executives by ensuring that the Chief Executive Officer and other senior executives are compensated appropriately and in a manner consistent with the stated compensation philosophy of NW Natural and the requirements of the appropriate regulatory authorities. The OECC is responsible for producing this report and for providing input and guidance to management in the preparation of the Compensation Discussion and Analysis following this report. In fulfilling its responsibilities, the OECC has reviewed and discussed the Compensation Discussion and Analysis with management. In reliance on the review and discussion referred to above, the OECC recommended to the Board of Directors (and it has approved and directed) that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into NW Natural’s Annual Report on Form 10-K for the year ended December 31, 2010. 2013. Respectfully submitted on February 23, 201127, 2014 by the Organization and Executive Compensation Committee of the Board of Directors: | | | | | | | C. Scott Gibson, Chair | | Kenneth Thrasher | | | Jane L. Peverett | | Russell F. Tromley |
COMPENSATION DISCUSSION AND ANALYSIS Overview Organization and Executive Compensation Committee Purpose and Function The Organization and Executive Compensation Committee (OECC) is responsible for, among other matters, reviewing the performance of the Chief Executive Officer and other executive officers, making recommendations to the Board relating to executive compensation programs and benefit plans, and monitoring risk related to such programs and plans. The OECC also reviews, with the Chief Executive Officer and the Senior Vice President and Chief Administrative Officer, the Company’s organizational structure and recommends to the Board NW Natural’s succession planning for executive positions. In addition, the OECC makes recommendations to the Board regarding Board compensation. The OECC operates pursuant to a written charter that is available atwww.nwnatural.com. Under the charter, the OECC is primarily responsible for: | Ÿ | | discussing and reviewing the management and affairs of NW Natural relating to its organization and to executive personnel and their compensation;
|
| Ÿ | | producing an annual compensation committee report for inclusion in NW Natural’s proxy statement; and
|
| Ÿ | | providing input and guidance to management in the preparation of the Compensation Discussion and Analysis also to be included in NW Natural’s proxy statement.
|
The OECC also periodically reviews with the Chief Executive Officer and the Senior Vice President responsible for human resources NW Natural’s succession planning process, including the identification of potential internal and external candidates for executive positions. The OECC’s policies and decisions applicable to the compensation of all of the Named Executive Officers (listed below) are generally similar in all material respects.
Delegation of Authority to OECC.. The Board of Directors has delegated to the OECC its full authority to grant stock options under the terms of the Restated Stock Option Plan and to grantequity awards under the terms of the Long Term Incentive Plan. Both of these plans have been approved by our shareholders. With respect to other components of the Named Executive Officers’ compensation, the OECC submits its recommendations to the Board for approval. Day-to-day administration of director and executive compensation plans has been delegated, under the terms of the plans, which have been approved either by shareholders or the Board of Directors, as appropriate, to certain officers, with oversight provided by the OECC. Management’s Role.Role Relative to OECC. Management provides support to the OECC in a number of ways to facilitate executive compensation decisions, including working with counsel on plan design changes, preparing reports and materials, communicating with outside advisors, administering plans on a day-to-day basis and implementing the Board’s and OECC’s decisions. The Senior Vice President responsible for human resourcesand Chief Administrative Officer is the primary management contact for the OECC. The Chief Executive Officer makes recommendations to the OECC regarding plan design, salary increases, incentive awards and other executive compensation decisions for executives other than himself. Use of Consultants.Consultants by the OECC.The OECC has engaged an executive compensation expert (Consultant) from Towers Watson, an independenta compensation consulting firm, (Consultant), to assist in the evaluation of the competitiveness of our executive compensation programs and to provide overall guidance to the OECC in the design and operation of these programs. The Consultant reports directly to the OECC chair, and the chair reviews all invoices submitted by the Consultant. At the direction and under the guidance of the OECC chair, the Consultant provides data and analysis that is used by both management and the OECC to develop recommendations for executive compensation and executive programs to submit to the OECC for its consideration. Our Named Executive Officers
For purposes of this report, our Named Executive Officers include the following individuals:
| | | Name | | Title | Gregg S. Kantor
| | President and Chief Executive Officer | David H. Anderson
| | Senior Vice President and Chief Financial Officer | Lea Anne Doolittle
| | Senior Vice President | J. Keith White
| | Vice President, Business Development and Energy Supply and Chief Strategic Officer
| Margaret D. Kirkpatrick
| | Vice President and General Counsel |
OurOECC Compensation Philosophy
The OECC has adopted a total compensation philosophy centered on pay for performance to guide its decisions with respect to executive compensation. Each year, including 2010,2013, the OECC reviews makes changes or corrections asand adjusts, if necessary, and reaffirms its compensation philosophy. The guiding principles of this philosophy are to design executive compensation programs that: | Ÿ | | ensure that we have the ability to attract, retain and motivate talented and qualified executives critical to the achievement of our annual goals, our long-term business strategy and objectives, and the enhancement of shareholder value by providing total remuneration, including base salary, incentive compensation, benefits and retirement income, at a level that is competitive with that of other energy service and general industry companies, as applicable, of comparable size and circumstances;
|
attract, retain and motivate talented and qualified executives critical to the achievement of our annual goals, our long-term business strategy, and enhancement of shareholder value by providing total remuneration, including base salary, incentive compensation, benefits and retirement income, at a level that is competitive with that of other comparable energy service and general industry companies, as applicable; | Ÿ | | motivate high levels of performance by linking a significant portion of each executive’s total direct compensation opportunity, which includes base salary and annual and long-term incentives, to Company performance using the achievement of previously-established annual and long-term performance goals, and by including components of compensation opportunity that are at risk subject to the achievement of established performance criteria;
|
| Ÿ | | promote creation of shareholder value by requiring meaningful stock ownership by officers (see “Stock Ownership Guidelines,” below), and by providing a significant component of compensation that is based on earnings growth and stock price performance (see “Compensation Programs—Long-Term Incentives,” below) to align executives’ long-term interests with those of our shareholders;
|
| Ÿ | | pay for performance and the right results by driving the achievement of our business strategy while creating shareholder value, operating within the established risk profile of NW Natural, and providing a significant portion of pay through incentive compensation programs that are tied to NW Natural strategies and objectives;
|
| Ÿ | | achieve the correct balance by providing compensation that is attractive to executives, affordable to NW Natural, proportional to the executive’s contribution, and fair to shareholders and employees, while providing a payout that is aligned with actual performance, balances short- and long-term incentive measures, and uses multiple incentive measures where appropriate; and
|
| Ÿ | | align pay practices with shareholder interests with an eye toward remaining competitive, and use risk analysis and mitigation to provide compensation practices that motivate appropriate risk-taking, by, for example, providing compensation incentives for achievement of certain identified Company objectives and goals, while disincenting unnecessary risk-taking, by, for example, including “clawbacks” from certain executive officers’ compensation under certain plans and awards in the event of misconduct.
|
motivate high levels of performance by linking a significant portion of each executive’s total direct compensation opportunity, which includes base salary and annual and long-term incentives, to Company performance by including components that are at risk subject to the achievement of established performance criteria; promote shareholder value by: (i) requiring meaningful officer stock ownership, and (ii) providing a significant component of compensation that is based on earnings growth, dividend growth and stock price performance, to align executives’ long-term interests with those of our shareholders; pay for performance and the right results by: (i) driving our business strategy while operating within the established risk profile of NW Natural, (ii) providing a significant portion of pay through incentive compensation programs that are tied to NW Natural strategies, objectives and performance, and (iii) appropriately balancing short- and long-term incentive measures, and using multiple incentive measures where appropriate; correctly balance compensation that is attractive to executives, affordable to NW Natural, proportional to the executive’s contribution, and fair to shareholders and employees; and align pay practices with shareholder interests, remain competitive, and use risk analysis and mitigation to provide compensation practices that motivate appropriate risk-taking to achieve Company objectives and goals, but disincent inappropriate risk-taking with design tools like “clawbacks” for executive officers in the event of misconduct. Recent OECC Actions Supporting its Compensation Philosophy The OECC has taken a number of actions in recent years in furtherance ofto further its total compensation philosophy, including, but not limited to: | Ÿ | | eliminating perquisites for executives;
|
eliminating perquisites for executives; | Ÿ | | eliminating change-in control severance gross-up payments;
|
eliminating change-in-control severance gross-up payments; | Ÿ | | establishing a policy whereby potential change-of-control severance payments decline in amount as an executive nears retirement age;
|
establishing a policy whereby potential change-of-control severance payments decline in amount as an executive nears retirement age; | Ÿ | | reducing the interest crediting rate on compensation deferred after 2004 to a variable market rate;
|
reducing the interest crediting rate on compensation deferred after 2004 to a variable market rate; | Ÿ | | modifying the Executive Supplemental Retirement Income Plan (ESRIP) and Supplemental Executive Retirement Plan (SERP) to reduce benefits and expenses, including limiting the amount of an executive’s annual bonus that is included in final average compensation for purposes of those plans and eliminating the annual payment of ESRIP-related FICA tax on behalf of ESRIP participants;
|
modifying the Executive Supplemental Retirement Income Plan (ESRIP) and Supplemental Executive Retirement Plan (SERP) to reduce benefits and expenses, including limiting the amount of an executive’s annual bonus that is included in final average compensation for purposes of those plans and eliminating the annual payment of ESRIP-related FICA tax on behalf of ESRIP participants; | Ÿ | | closing new participation in the ESRIP and SERP Tier I;
|
closing new participation in the ESRIP and SERP Tier I, as well as participation in SERP Tier II for officers hired after 2006; | Ÿ | | establishing guidance to discontinue use of employment contracts and provide limited use and duration of non-change-in-control severance; and
|
establishing guidance to discontinue use of employment contracts to limit the use and duration of non-change-in-control severance; | Ÿ | | increasing the percentage of total target direct executive compensation that is at-risk, particularly for the Chief Executive Officer.
|
adding requirements to “clawback” from executive officers certain benefits under annual and long-term incentive awards in the event of misconduct, pending further evaluation as new regulations are adopted; and maintaining a high percentage of total target direct executive compensation that is at risk, particularly for the Chief Executive Officer. Highlights of 20102013 OECC Actions In 2010,2013, the OECC took the following significant actions with respect to our executive compensation programs and practices: | Ÿ | | implemented decisions made in late 2009 to add new requirements to “clawback” from executive officers certain benefits under annual and long-term incentive awards in the event of misconduct (see “Clawback Provisions”);
|
reviewed, with the Chief Executive Officer and Senior Vice President and Chief Administrative Officer, succession planning for the executive team, and recommended to the Board adjusting certain executive functional areas of responsibility to further enhance cross-training and development of the executive team and to further strengthen the depth and breadth of the executive team’s succession plans; | Ÿ | | conducted a thorough request for proposal with six executive compensation consulting firms, and after considering quality of services, price, knowledge of industry policies and procedures in place to prevent conflicts and other factors, decided to retain the current consultant, Towers Watson; and
|
took appropriate steps to comply with new rules governing compensation consultant independence relative to Company practices prior to the rules’ effective date; | Ÿ | | reviewed, analyzed and considered whether the Company’s compensation policies and practices create risks that are reasonably likely to have a material adverse effect on NW Natural, and concluded that no such material risks were identified.
|
implemented revised executive stock ownership guidelines, to increase the amount of stock that executive officer positions of Senior Vice President and above are required to hold, and adjusted the manner of calculating the number of shares held; undertook an intensive review of the performance metrics included in performance share awards and considered competitive modifications to those metrics; and reviewed, analyzed and considered whether the Company’s compensation policies and practices create risks that are reasonably likely to have a material adverse effect on NW Natural, and concluded that no such material risks were identified. OECC Consideration of Say-on-Pay Vote Results The OECC carefully considered the results of the shareholder’s advisory vote regarding compensation of the Named Executive Officers submitted to the shareholders last year. At the Annual Meeting of Shareholders held May 23, 2013, approximately 96 percent of the shareholder votes cast on the proposal were cast in favor of the resolution approving the compensation of the Company’s Named Executive Officers. The OECC considers the level of support indicated by that vote as reflecting favorably on the Company’s executive compensation system and determined that no changes in response to the vote were needed. Elements and Objectives of our Executive Compensation Program for 2013 At theThe core of our total compensation philosophy is pay for performance through the use ofusing both annual and long-term incentives. The elements and objectives of the executive compensation program for the Named Executive Officers are described below:
| | | | | Compensation Element | | Objective(s) | | Key Features | | | | Base Salaries | | • Reflect executives’ performance in demonstrating leadership competencies. • Recognize that certain aspects of executives’ leadership rolesresponsibilities cannot be measured as objectively as other functions for purposes of meeting performance measures under incentive pay programs. | | • Targeted at 50th percentile of the applicable survey data, on average, except that CEO is targeted below 50th percentile to have a greater percentage of pay at risk and tied to Company performance. • Adjustments are made based upon the value of the position to the business, the performance of the individual, and pay relative to the appropriate comparison market. | | | | | Executive Annual Incentive Plan | | • Encourage and reward executive officers’ contributions in achieving our annual goals, including financial, operating and individual performance goals, with a recognition that annual goals are an essential building block of long-term performance. | | • Annual incentive cash payments are based on a formula that includes earnings per share, return on invested capital, Company performance relative to other operational goals, and individual performance. | | | | Long-term incentive awardsLong-Term Incentive Awards
| | • Provide executives with an incentive to work toward increasing the price of our Common Stock.common stock. • More closely alignAlign executives’ interests with shareholders’ interests. • Reward relative total shareholder return performance to the Company’s peer group.
• Focus the executives on key long-term objectives and long-term business results that align with the creation of shareholder value. | | • We seek to haveIn 2013, the expected value of long-term incentives granted to executive officers bewas targeted at approximately 20-2535 percent in the form of stock optionsRestricted Stock Units with performance threshold and approximately 75-8065 percent in the form of performance share awards. • Performance share awards have a performance period of three years and are based 75 percent on total shareholder return and 25 percent on achievement of performance milestones relative to strategic plan goals. • Generally, Restricted Stock options are granted at market andUnits with performance threshold vest in annual increments generally25 percent annually over the first four years after the grant date. |
date, provided the Company’s performance threshold is met. | | | | | Compensation Element
| | Objective(s)
| | Key Features
| Executive health, welfareHealth, Welfare and retirement benefitsRetirement Benefits | | • Provide executives reasonable and competitive benefits. • Encourage savings for retirement. • Allow for attraction and retention of experienced mid-career hires. • Mitigate the impact of limits on qualified plan benefits imposed by the Internal Revenue Code. | | • Health and welfare benefits consistent with standard benefits provided to non-bargaining unit employees. • 401(k) plan and non-qualified deferred compensation plans allow for deferral of compensation and certain Company matching contributions on such deferrals. • Qualified pension plan for personsFor executive officers employed prior to 2007, including all Named Executive Officers, qualified and supplemental non-qualified pension benefits, with lower benefit levels for newer executive officers. | | | | Change-in-control arrangementsChange-In-Control Arrangements | | • Ensure attention and dedication to performance without distraction in the circumstance of a potential change in control of NW Natural. • Enables executives to maintain objectivity with respect to merger or acquisition offers considered by the Board. | | • Double trigger change in controlchange-in-control severance agreements.agreements without any tax gross up. • Declining levels of benefits as executive approaches age 65. |
Pay for Performance 2010 was a strong year for NW Natural. Full year 2010 operating results were among the highest inDuring 2013 the Company’s historyleadership advanced the Company’s long-term strategic directives to better position the Company for the future. Accomplishments in 2013 include, among other items, an annual customer growth rate of 1.3 percent; development of new online tools for customers to compare energy costs, service options, and initiate natural gas service; pursuit of development opportunities at our Mist gas storage facility; improvements in system safety, reliability and delivery capacity; completion of construction of a new operations service center and an industry-leading training facility; construction and operation of a source control facility at the Company’s Gasco environmental site; initiation of union negotiations three months ahead of schedule with earningsa majority of $2.73 per share. NW Natural achievednegotiations complete by year-end; and a ranking of highest in the nationWest among gaslarge utilities for residential customer satisfaction. Thein the J.D. Power and Associates Gas Utility Residential Customer Study. In addition, in 2013 the Company also reduced its operations and maintenance expenses 5 percent for the year as compareddrove efforts to 2009, and customer gas rates declinedobtain regulatory approval in Oregon to offer a service to install, own and Washington formaintain gas compression equipment at business locations of customers who want to fuel their fleets with compressed natural gas. And, the second yearCompany participated in achieving key legislation that supports natural gas use in Oregon, while reducing overall greenhouse gas emissions from energy production in the state. Also in 2013, the Company settled with all but three of the defendant insurers in the Company’s environmental insurance recovery litigation, resulting in payments of approximately $48 million by December 31, 2013. These accomplishments were achieved while the Company executed its business plan cost-effectively in a row. Moreover,low-growth economy resulting in earnings that rose from $2.18 per share in 2012 to $2.24 per share in 2013.
These key accomplishments and the Gill Ranch Storage facility near Fresno, California commenced operationsCompany’s performance in the fall of 2010. The Company’s strong performance was2013 were reflected in an average payoutpayouts to NEOsthe Named Executive Officers averaging 136.52 percent of 132.66 percenttarget under the Executive Annual Incentive Plan. The Executive Annual Incentive Plan which is designed to tieties executive compensation to executive officers’ contributions in achieving NW Natural’sachievement of the Company’s annual goals, including financial, operating and individual performance goals. FactorsPayout for the Executive Annual Incentive Plan was well above target due to reaching 150 percent achievement of the Key Goals factor, reflecting above-target achievement of all pre-set operating goals, and 150 percent achievement of the return on invested capital (ROIC) factor with an ROIC of 6.93 percent, which was above the maximum targeted ROIC of 6.92 percent. Also contributing to the higher than targetedabove target payout was 117 percent achievement of the Earnings Per Share (EPS) factor based on EPS of $2.24, which was 3 cents above the target EPS for the year. In contrast to the above-target payout under the Executive Annual Incentive Plan, include, among other things, achievement of earnings per share (EPS) of $2.73, which was 8 cents higher than the target EPS for the year, achievement of a return on invested capital (ROIC) of 8.32 percent, which was higher than the targeted ROIC of 7.95 percent and achievement of several other operating goals establishedCompany’s three-year performance resulted in pre-set targets. Despite NW Natural’s strong annual performance, executive officers received a payout of only 23.9425.88 percent of target, or 12.94 percent of a possible 200 percent total opportunity, from their performance share awards under the Long Term Incentive Plan for the 2008-20102011-2013 award cycle. The payout under this plan was lowsignificantly below the target and maximum opportunities because the total shareholder return
component factor, which comprises 75 percent of our performance share award, resulted in a zero percent payout factor, due to a total shareholder return for the period that was below all of the plan threshold and below the ninth best performing companycompanies in the plan’s assigned peer group of ten companies. The OECC assigned a rating of 95.75103.5 percent tofor the remaining 25 percent of the performance share awards reflecting,for the 2011-2013 three-year cycle, based on specific achievements during the three-year cycle of, among other things, strongNW Natural’s financial performance for each year of the three-year cycle, including cost-effective operationROIC and return on equity; the Company’s successful completion of our corethe gas reserves transaction in 2011, which is designed to provide the Company with a long-term fixed-price hedge that is backed with physical gas supplies; successfully securing favorable rate treatment of the gas reserves transaction; management’s business development and customer growth activities; execution of the Company’s strategic plan in workforce development and succession planning; and management’s strong performance in executing its business plan cost effectively in a low-growth environmenteconomy. These accomplishments were offset by certainthe challenges surrounding budget overruns on construction of the Gill Ranch storage facility and difficult market conditions in theassociated with gas storage markets generally.that have experienced historically low pricing, as well as certain business development and growth initiatives that were not realized. Our Named Executive Officers For purposes of this report, our Named Executive Officers include the following individuals: | | | Name | | Current Title | Gregg S. Kantor | | President and Chief Executive Officer | David H. Anderson | | Executive Vice President and Chief Operating Officer1 | Stephen P. Feltz | | Senior Vice President and Chief Financial Officer | Lea Anne Doolittle | | Senior Vice President and Chief Administrative Officer | Margaret D. Kirkpatrick | | Senior Vice President and General Counsel |
| 1 | Effective February 27, 2014. |
In connection with its responsibilities for oversight of executive organization and succession planning, the OECC, in conjunction with the Chief Executive Officer and the Senior Vice President and Chief Administrative Officer, reviewed succession planning for the executive team. That review concluded in February 2013 with a recommendation to the Board to adjust certain executive functional areas of responsibility to further enhance cross-training and development of the executive team and to strengthen the depth and breadth of its succession plans. On the OECC’s recommendation, the Board adjusted certain executive titles to reflect these new areas of functional responsibility, effective February 28, 2013 as follows: | | | | | Name | | Title Prior to February 28, 2013 | | Title After February 28, 2013 | Gregg S. Kantor | | President and Chief Executive Officer | | President and Chief Executive Officer | David H. Anderson | | Senior Vice President and Chief Financial Officer | | Executive Vice President, Operations and Regulation1 | Stephen P. Feltz | | Treasurer and Controller | | Senior Vice President and Chief Financial Officer | Lea Anne Doolittle | | Senior Vice President | | Senior Vice President and Chief Administrative Officer | Margaret D. Kirkpatrick | | Vice President and General Counsel | | Senior Vice President and General Counsel |
| 1 | Effective February 27, 2014, Mr. Anderson was appointment Executive Vice President and Chief Operating Officer. |
How Compensation Decisions Are Made Compensation decisions are made by considering competitive market data, along with other relevant considerations including corporate and individual performance, an executive’s experience and contribution, as well as the relative relationship of an executive’s responsibilities to other executive roles. Our executive compensation programs are sufficiently flexible to allow pay relative to the applicable market median to vary by individual position if warranted by special circumstances. These special circumstances might include strong individual performance, marketability of skills, or retention considerations that could allow certain executives to receive higher than the average compensation increases for the applicable industry, or higher incentive awards in recognition of these special considerations. The Chief Executive Officer considers this type of information prior to recommending to the OECC salary and annual and long-term incentive compensation levels for the other Named Executive Officers. The OECC then considers the Chief Executive Officer’s recommendations with respect to the other Named Executive Officers and completes its own evaluation and recommendation with respect to the Chief Executive Officer, considering applicable competitive market data prepared by the Consultant in both instances. The OECC also solicits and considers the Consultant’s advice to make decisions regarding: the inclusion of compensation program elements; the design and operation of the executive incentive plans; policies for allocating between long-term and currently paid compensation; policies for allocating between cash and equity compensation, and among the different forms of equity compensation; and the basis for allocating to each of the two primary types of long-term compensation award opportunity. The OECC also considers tally sheets prepared by our human resources department and reviewed by outside legal, actuarial and compensation consultants, which show each executive’s current total compensation from all sources, including the probability of attaining the weighted potential compensation from equity awards not yet earned, as well as retirement benefits, along with possible compensation from any severance arrangements, including change-in-control compensation. In addition to using tally sheets when making executive compensation decisions, the OECC also uses tally sheets to review the potential impact of any significant plan change. The OECC further evaluates the total remuneration package for each executive to consider whether each compensation package encourages unnecessary or inappropriate risk-taking on the part of the relevant executive or the Company. For example, the OECC evaluates whether a package might encourage behavior that focuses on short-term results at the expense of long-term value, and whether the compensation package encourages meaningful stock ownership by each executive to align that executive’s interests with that of the shareholders. Competitive Market Position The OECC seeks to achieve its executive compensation program’s objectives by positioningtargeting total executive compensation, consisting of annual base salary, annual incentives, long-term incentives and benefits, at or near the 50th percentile of the applicable competitive market. The OECC has determined that using the 50th percentile of competitive market surveys as a guide for establishing executive compensation will provideprovides us with the ability to attract and retain the best possible executive talent at or near competitive standards for comparable positions in the competitive market for each executive position.talent. Although the total remuneration program is designed to pay compensation at the middle of the applicable competitive market, the program contains several variable components whichthat allow compensation to exceed median competitive pay levels when the performance expectations of the OECC are exceeded; conversely,exceeded. Conversely, the program provides less than median competitive compensation when performance doesresults do not meet those expectations. We are likely to attract candidates for most executive positions from the energy service market, specifically, from gas and electric companies with similar revenue size in the United States. However, general industry market information may also be considered for certain executive positions that can be found in any industry. The OECC reviews all components of executive compensation (including salary, annual incentives, equity and long-term incentive compensation, health, welfare, and other benefits, as well as the dollar value and cost of all benefits under our qualified and non-qualified deferred compensation and supplemental retirement plans) and compares them to the applicable competitive market for each executive officer position every two years, including 2009 and 2011.2013. The direct compensation components (salary and annual and long-term incentives) are also compared to the applicable competitive market for each executive officer annually. The market data used in these comparative analyses are generally obtained from salary survey databases compiled by the Consultant, industry associations or other general industry sources. In preparing its competitive market assessment the Consultant employshas determined that it is appropriate to employ a methodology that focuses on survey data for gas and electric energy service companies with annual revenues of $500 million to $3.0 billion, which is an annual revenue range and industry group that the Consultant has determined to be appropriate.billion. The Consultant also provides survey data for general industry companies within the same annual revenue range. The Consultant collects and updates 50thpercentilerange, as well as supplementary proxy data for the most senior executives from compensation surveys for base salaries, annual incentives and long-term incentives annually.sixteen natural gas industry companies identified inExhibit A as reported in their most recent proxy statements. The Consultant selects the most appropriate market comparisons for each executive position and synthesizes that data to provide to the OECC for its review. Named Executive Officers’ positions are matchedAt that time, the Consultant provides recommendations as to use of the survey benchmarksor proxy data, including circumstances when other data may be a more appropriate guide. Survey data is formulated based on functional responsibilities.responsibilities of each Named Executive Officer’s position. Survey data used in this analysis includesincluded the American Gas Association, “Executive Compensation Survey Results”,Results, 2012,” Towers Perrin “EnergyWatson “CDB Energy Services Executive Survey”,Survey, 2012,” and Towers Perrin “GeneralWatson “CDB General Industry Executive Compensation Survey.Survey, 2012.” The list of companies included in each of these surveys is attached hereto asExhibit B. In addition to looking at
While the OECC considers energy service industry survey data, general industry survey data, and certain natural gas industry proxy data, each of these resources serve as only one component or resource for the OECC’s compensation analysis, and no one resource dictates the OECC’s analysis. Current vs. At-Risk Compensation An executive’s base salary is intended to understandreflect the value of the executive’s position to NW Natural and provide a competitive compensation foundation for the executive’s work. The remainder of the total direct compensation is at risk and must be earned by achieving short-term and long-term performance goals, which are intended to increase shareholder value. The portion of total direct compensation designed to be paid in base salary versus variable pay depends upon the executive’s position and the ability of that position to influence outcomes, as well as market factors. The Chief Executive Officer has the largest portion of pay at risk, and the Consultant also provided the OECC with supplementary data in February 2010OECC’s current compensation strategy for the Chief Executive Officer is to continue to provide a somewhat lower than market median base salary and higher than market median percentage of pay at risk. The following charts show the percentage represented by each of the four components of total direct compensation in 2013 for the Chief Executive Officer and for the other Named Executive Officers targeted by the OECC and show that pay at risk as a percentage of total target direct compensation was 71 percent for the Chief Executive Officer and an average of 54 percent for the other Named Executive Officers. Total Target Direct Compensation by Type 
| 1 | Based on a grant value of $45.50, which was the price per share assumed by the OECC when making the RSU grant. |
| 2 | Based on an assumed grant value of $45.86 per share, which was calculated using for the strategic component (weighted 25%) a per share price of $44.84, which was the average closing price of NW Natural Common Stock in January 2013, and for the total shareholder return (TSR) component (weighted 75%) a per share price of $46.20, which was the estimated grant-date fair value per share of the TSR component, excluding the estimated value of the expected dividends. |
The following charts show the percentage represented by each of the four components of total direct compensation in 2013 for the Chief Executive Officer and for the other Named Executive Officers that could have been achieved if the Executive Annual Incentive Plan had paid out at the maximum of 150 percent of target and the performance shares had paid out at the maximum of 200 percent. Based on maximum potential payouts, pay at risk as a percentage of total direct compensation would be 80 percent for the Chief Executive Officer and an average of 65 percent for the other Named Executive Officers. Maximum Total Direct Compensation by Type 
| 1 | Based on a grant value of $45.50, which was the price per share assumed by the OECC when making the RSU grant. |
| 2 | Based on an assumed grant value of $45.86 per share, which was calculated using for the strategic component (weighted 25%) a per share price of $44.84, which was the average closing price of NW Natural Common Stock in January 2013, and for the total shareholder return (TSR) component (weighted 75%) a per share price of $46.20, which was the estimated grant-date fair value per share of the TSR component, excluding the estimated value of the expected dividends. |
2013 Compensation Programs 2013 Base Salaries Base salaries paid to executives are established by the Board of Directors, on recommendation of the OECC, based upon the value of the position to the business, the performance of the individual, length of time in the position, and consideration of the market salary analyses for comparable positions prepared by the Consultant. Salaries are typically adjusted March 1 of each year. As described previously, the OECC, with the Chief Executive Officer and Senior Vice President and Chief Administrative Officer, conducted an intensive review of executive team succession plans that resulted in adjustment of certain executive functional areas effective February 28, 2013. The OECC considered these new functional areas of responsibility and appropriate survey data market comparisons when reviewing the Named Executive Officers’ salary adjustments. The following table shows the salaries of the Named Executive Officers before and after salary adjustments went into effect on March 1, 2013. For his fifth year as Chief Executive Officer, Mr. Kantor’s salary continued to be set below the 50th percentile for chief executive officers, at 82 percent of the 50th percentile of the energy service company survey data. Mr. Kantor presented his request to the OECC that his base salary continue to be below the market median, with a greater portion of his direct compensation at risk and tied to Company performance. The OECC determined to recommend to the Board a lower than market base salary, consistent with the OECC’s strategy to tie a greater portion of Mr. Kantor’s total direct compensation to the Company’s performance. However, the OECC determined that an approximately eight percent increase in base salary coupled with a five percentage point decrease in Mr. Kantor’s annual incentive target award percentage (discussed below) was necessary to achieve the OECC’s desired balance of his total target cash compensation. For the remaining Named Executive Officers, the OECC considered, among other information, energy service company survey data prepared by the Consultant as the appropriate guide given each Named Executive Officer’s new functional responsibilities. Salaries for Mr. Anderson, Ms. Doolittle and Ms. Kirkpatrick were adjusted to near the 50th percentile of the energy service company survey data for their new roles, titles and responsibilities. Accordingly, the approximately five percent increase in Mr. Anderson’s base salary reflects Mr. Anderson’s promotion from Senior Vice President and Chief Financial Officer General Counsel,to Executive Vice President, Operations and Regulation, and the twoapproximately three percent increase in Ms. Doolittle’s base salary reflects recognition of the broader responsibilities of a Chief Administrative Officer and, accordingly, a change in the comparable survey data for that position. The approximately three percent increase in Ms. Kirkpatrick’s salary reflects recognition of her change in title and an increase in energy service company survey data for her position. Mr. Feltz’s salary was increased approximately 27 percent in recognition of his promotion from Treasurer and Controller to fiveSenior Vice President and Chief Financial Officer. This resulted in a salary that is 84 percent of the 50th percentile of energy service company survey data, with the expectation of higher than average salary increases as Mr. Feltz develops in his new position. | | | | | | | | | | | Name | | Salary Effective
March 1, 2012 | | | Salary Effective
March 1, 2013 | | | Percentage
Increase | Gregg S. Kantor | | $ | 481,000 | | | $ | 520,000 | | | 8.11% | David H. Anderson | | | 370,000 | | | | 389,000 | | | 5.14% | Stephen P. Feltz | | | 232,000 | | | | 295,000 | | | 27.16% | Lea Anne Doolittle | | | 260,000 | | | | 268,000 | | | 3.08% | Margaret D. Kirkpatrick | | | 285,000 | | | | 294,000 | | | 3.16% |
The following discussion and analysis contains statements regarding individual and corporate performance measures, targets and goals. These measures, targets and goals are used for purposes of executive incentive compensation programs, and in some cases incentive compensation programs that are available to all NW Natural employees. These measures, targets and goals are disclosed in the limited context of NW Natural’s compensation programs and should not be understood to be statements of management’s representations of Company financial performance for the periods covered. The results reported with respect to these incentive compensation programs are used specifically for executive incentive compensation programs, and NW Natural cautions investors not to apply these statements to other most highlycontexts. Furthermore, these prior results are not intended to be and are not indicative of the Company’s future financial performance. Executive Annual Incentive Plan The Executive Annual Incentive Plan ties executive pay to Company performance by focusing key executives on achieving annual goals, including financial, operating and individual performance goals. Participation in the plan currently is limited to 13 participants selected by the OECC, including the Named Executive Officers. Awards are paid executives fromby March 15 of the following 13 natural gasyear if the OECC determines the goals are achieved and the Board approves the recommended awards. This plan’s “clawback” provision provides that in the event of a restatement of the Company’s financial statements due to misconduct of any person, all participants must repay to the Company the difference between the bonus received for the affected year and the amount of bonus that would have been received if calculated based on the financial statements as restated. This plan also precludes any payout or benefit following termination of employment for any participant who is terminated for cause. Target awards for executives vary as a percent of base salary based on the executive’s position. Target, maximum and actual awards in dollars and target and actual awards as a percent of base salary (in effect on December 31, 2013) for 2013 incentive awards paid in 2014 are set forth in the table below and illustrated in the bar chart immediately following the table. | | | | | | | | | | | | | | | | | | | | | Named Executive
Officer | | Target Award
Percentage | | | Target Award
Amount | | | Maximum
Award
Amount | | | Actual Award
Percentage | | | Actual Award
Amount | | Gregg S. Kantor | | | 80 | % | | $ | 416,000 | | | $ | 624,000 | | | | 109.42 | % | | $ | 569,000 | | David H. Anderson | | | 50 | % | | | 194,500 | | | | 291,750 | | | | 68.38 | % | | | 266,000 | | Stephen P. Feltz | | | 40 | % | | | 118,000 | | | | 177,000 | | | | 54.58 | % | | | 161,000 | | Lea Anne Doolittle | | | 40 | % | | | 107,200 | | | | 160,800 | | | | 55.22 | % | | | 148,000 | | Margaret D. Kirkpatrick | | | 40 | % | | | 117,600 | | | | 176,400 | | | | 54.76 | % | | | 161,000 | |
The OECC reduced Mr. Kantor’s target award percentage under the Executive Annual Incentive Plan from 85 percent in 2012 to 80 percent in 2013, which when combined with his base salary, achieved the OECC’s goal of placing his target total cash compensation at 85 percent of the 50th percentile of the energy service industry companies,company survey data. As discussed earlier, the OECC’s reduction in Mr. Kantor’s target award percentage was coupled with a greater than expected increase in Mr. Kantor’s base salary, to better align it with applicable survey data. For each of the other Named Executive Officers, the OECC increased the target award percentage by five percentage points, thereby setting target amounts payable under the Executive Annual Incentive Plan at levels that, when combined with base salary, placed executives’ target total cash compensation near the 50th percentile of energy service company survey data for their positions, except that Mr. Feltz’s target total cash compensation was set at 79 percent of the 50th percentile for comparable energy service industry positions, reflecting his first year as reportedSenior Vice President and Chief Financial Officer, and the expectation of higher than average target total cash compensation growth as he develops in their most recent proxy statements:his new position. Consistent with our philosophy that executives should be paid in accordance with the performance of the Company, when goals are exceeded, it is expected that executives’ compensation will be above target levels; conversely if goals are not achieved, executives’ compensation will be below these levels. The OECC has discretion to recommend an award increase up to a maximum of 150 percent of the target or to reduce an executive’s performance-based award. The OECC has given considerable attention to what performance measures are appropriate for the executive incentive plans, and reviews these measures at least annually. Changes may be made to the measures at the start of new performance periods if the OECC determines that changes are appropriate, and the OECC may authorize adjustments to performance measure calculations to eliminate extraordinary, non-recurring or unplanned impacts. For 2013, awards under the Executive Annual Incentive Plan reflect a focus on compensation for Company performance, with an allocation of 75 percent to corporate performance goals (EPS, return on invested capital and certain operating goals) and an allocation of 25 percent to individual performance criteria established for each executive. The formula for the total incentive award is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | [ | | Corporate | | | | | | ] | | | | [ | | Individual | | | | | | ] | | | | Target Award | | | | Total Annual Incentive Award | | | Performance | | X | | 75% | | | + | | | Performance | | X | | 25% | | | X | | | = | | | | Factor | | | | | | | | | | Factor | | | | | | | | | | | |
Corporate Performance Factor. In 2013, the Corporate Performance Factor goals established by the OECC for the Executive Annual Incentive Plan were designed to reward participants for exceeding the Company’s budgeted operating results by emphasizing the achievement of EPS, return on invested capital targets, and the attainment of several key operating goals shared with all employees. The ranges and targets set each year vary from prior years, in some cases with higher ranges and targets and in some cases with lower ranges and targets. In each case, the OECC sets the ranges and targets taking into account the current economic and regulatory environment, Management’s annual objectives, and the way in which those annual objectives fit within the larger growth goals for the Company. The Corporate Performance Factor is determined using the following formula: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | AGL Resources Inc.[
| | Ni Source Inc.EPS
| Atmos Energy Corp.Factor
| | Piedmont Natural Gas Company Inc.
| Chesapeake Utilities Corp.
| | South Jersey Industries Inc.
| Laclede Group Inc.
| | Southwest Gas Corp.
| National Fuel Gas Co.
| | Vectren Corp.
| New Jersey Resources Corp.
| | WGL Holdings
| Nicor Inc.
| | | | | | ] | | | | [ | | Return on | | | | | | ] | | | | [ | | Key | | | | | | ] | | | | Corporate | | | X | | 33 1/3 | | | + | | | Invested | | X | | 33 1/3 | | | + | | | Goals | | X | | 33 1/3 | | | = | | Performance | | | | | | | | | | | Capital Factor | | | | | | | | | | Factor | | | | | | | | | Factor |
EPS Factor. The OECC concluded that the Earnings Per Share Factor (EPS Factor) would be accorded a weight of 33.33 percent to align executives’ interests with shareholders’ interests and in recognition of the importance earnings have in influencing our future stock price. For 2013, the EPS Factor consisted of a range of diluted EPS results from $2.09 per share to $2.30 or above, corresponding to payout factors ranging from 0 percent to 150 percent. The target level of diluted EPS was $2.21 per share, corresponding to a 100 percent payout factor. Actual EPS results are interpolated to determine the corresponding performance factor, up to a maximum of 150 percent. Actual 2013 diluted EPS was $2.24 resulting in an EPS Factor equal to 117 percent, which was calculated according to the formula established by the OECC at the beginning of the year. Return on Invested Capital Factor. The weighting assigned to the Return on Invested Capital Factor also was 33.33 percent. The OECC includes this measure because there is a significant amount of capital deployed to build and maintain the gas distribution and storage businesses and the OECC wants to hold the executives accountable for ensuring that the Company is getting a reasonable return on the capital being deployed in the business. Return on invested capital is defined as net income plus net interest divided by average long-term capital (shareholders’ equity plus long-term debt, including current portion). This goal consisted of a range of results from 6.16 percent to 6.92 percent or greater, which were generated taking into account NW Natural’s forecasted capital spending plans, corresponding to payout factors ranging from 0 to 150 percent. The target level of return on invested capital was set at 6.69 percent, which corresponds to a 100 percent payout factor, and which is below NW Natural’s current cost of capital. Actual 2013 return on invested capital was 6.93 percent, resulting in a Return on Invested Capital Factor equal to 150 percent. Key Goals Factor. Operating goals of significant importance to the enhancement of our overall profitability and productivity were selected by the OECC to comprise the Key Goals Factor, which accounts for 33.33 percent of the weighting for the Corporate Performance Factor. The operating goals are substantially aligned with the Key Goals incentive program for all employees. While each goal can contribute a goal rating between 0 and 200 percent multiplied by the assigned goal weight based on actual results, the aggregate of the Key Goals Factor is limited to a maximum of 150 percent. Actual results are interpolated to determine the performance factor for each goal. The Key Goals Factor was determined using the following formula: Sum of [Goal Performance x Goal Weight] for each of 9 Key Goals = Key Goals Factor A summary of the key operating goals for 2013, the weighting of each goal to the overall factor, and the 2013 goal performance rating achieved is set forth in the following table: | | | | | | | | | | | Key Goals | | Goal Description | | Goal
Performance
Range | | Target
(100%)
Performance | | Goal Weight
in Key Goal
Performance
Factor | | 2013 Goal
Performance
Rating
Achieved | Profitability— Corporate Earnings Per Share | | Diluted earnings per share | | $2.09 – $2.35 | | $2.21 | | 40% | | 116.67% | Customer Satisfaction— Overall Company | | On a survey scale of 1-10
(10 as highest), percent ofcustomers rating overall satisfaction at a 9 or 10 | | 62.63% – 69.38% | | 66.00% | | 5% | | 200.00% | Customer Satisfaction— Employee/Customer Interaction | | Customers who had
interactions with service technicians and/or construction crew members rating satisfaction at a 9 or 10 | | 79.75% – 90.25% | | 85.00% | | 10% | | 122.29% | Total Customer Additions | | Total new meter sets | | 7,427 – 10,777 | | 9,102 | | 5% | | 200.00% | Retail Gross Margins | | Utility net operating
revenues | | $342,056,000 –
$347,286,000 | | $344,671,000 | | 10% | | 193.88% | Productivity— Expense Per Customer | | Operations and maintenance
expense divided by
year-end number of
customers | | $188.51 – $180.81 | | $184.66 | | 10% | | 198.96% | Response Time—Damages | | Percentage of damage calls
with a response time of
under 60 minutes | | 92% – 98% | | 95.00% | | 5% | | 200.00% | Response Time—Odor | | Percentage of odor calls
with a response time under
60 minutes | | 70% – 90% | | 80.00% | | 5% | | 200.00% | Return on Invested Capital | | Net income plus net interest
divided by average
long-term capital
(shareholders’ equity plus
long-term debt, including
current portion) | | 6.16% – 6.96% | | 6.69% | | 10% | | 162.50% |
While
Our operating performance in 2013 resulted in a Key Goals Factor of the maximum of 150 percent. This level of achievement resulted from all operating goals exceeding target levels, as demonstrated in the final column of the above table. For 2013, the combination of the EPS Factor, the Return on Invested Capital Factor and the Key Goals Factor, produced an overall Corporate Performance Factor equal to 138.89 percent of target. Individual Performance Factor. Twenty-five percent of each Named Executive Officer’s annual incentive target award is based on the Individual Performance Factor determined by individual performance goals, which include some “stretch” goals. In the case of the Chief Executive Officer, individual goals are determined by the OECC in consultation with the Chief Executive Officer. Whether the Chief Executive Officer has attained his goals is determined largely based on the OECC’s assessment of the Chief Executive Officer’s performance, subject to Board approval based on the OECC’s recommendation. The other Named Executive Officers’ individual performance goals align with the Chief Executive Officer’s goals and support the Company’s strategic plan. The OECC and the Company’s Management believe that achieving the Company’s strategic goals, along with the strong operation and management of our day-to-day business, will create success for our customers, employees and shareholders. In setting individual goals, executive officers align with the Company’s priority goals. NW Natural’s 2013 priority goals included, among other goals: profitable customer growth in the core utility; effective resolution of remaining rate case issues; continued improvement of customer service, facilities, and system capacity and reliability; effective management and remediation of certain environmental sites; disciplined growth of our non-utility business; effective management of the gas storage business in a low-price, low-volatility market; sustained strong employee and system safety, emergency response and business continuity programs; achievement of overall customer satisfaction, profitability, growth and productivity targets consistent with the Executive Annual Incentive Plan; and achievement of EPS, return on invested capital, return on equity targets and other measures set in the Company’s long-term incentive plans. In addition to the above shared executive officer goals, the Chief Executive Officer’s individual performance goals included achieving an additional EPS goal, maximizing our storage business, advancing new utility and non-utility business opportunities and initiatives and the continued strengthening of alignment and strategic direction of the executive management team. The Chief Executive Officer evaluated the 2013 individual performance of each Named Executive Officer on a scale from 0 to 150 percent, based on performance and peer ratings. A rating of 100 percent indicates goals, including a particular “stretch” goal, were met, while ratings between 100 and 150 percent indicate extraordinary performance or achievement of multiple “stretch” goals. The Chief Executive Officer’s recommendations regarding individual performance are reviewed and approved by the OECC as it reviews the overall performance of executives against the operating goals. The OECC uses this same method of assessment to establish the year-end performance rating for the Chief Executive Officer. The OECC determined that executives had met or exceeded these goals and assigned a rating of 130 percent for the Chief Executive Officer’s individual performance. Performance of the other Named Executive Officers ranged from 126 percent to 133 percent. Together with the Corporate Performance Factor of 138.89 percent, the individual performance of the Named Executive Officers resulted in an overall average payout under the Executive Annual Incentive Plan of 136.52 percent of target. Long-Term Incentives In 2013, the long-term incentive portion of our executive compensation program consisted of two components: restricted stock units with performance threshold and performance shares. For purposes of valuing awards, we define the expected value of each restricted stock unit to be an estimated market price of the Company’s common stock near the grant date. We define the expected value of each performance share under the strategic component of performance share awards to be the average closing market price of the Company’s common stock for the calendar month preceding the grant date. We define the expected value of each share of the total shareholder return component of performance share awards to be the estimated grant-date fair value of the awards based on historical Monte Carlo method allocation and the Company’s average stock price in January 2013, excluding the estimated value of expected dividends. Among the factors the OECC considers in determining long-term incentives in the form of RSUs with performance threshold and performance shares to be granted to the Chief Executive Officer, and that the Chief Executive Officer considers when making recommendations for other Named Executive Officers are: the total long-term competitive market compensation survey data from theseprovided by the Consultant; the executive’s relative position and level of responsibility within NW Natural; the performance of the executive during the prior period; the retention value of long-term incentives before vesting; and the value of long-term incentives needed to ensure that executives are focused on absolute share price appreciation over the long term. As was the case in 2012, the energy service industry and general industry survey data reviewed in February 2013 showed a significant and unexpected year-over-year increase in expected values of long-term incentives compared to the survey data reviewed prior to 2012. The OECC discussed various components of the energy service and general industry survey data with the Consultant. After considerable consideration, the OECC determined that, given the variability in long-term incentive plan design and weighting across industries, and across companies of various size within industries, the most appropriate guide for targeted long-term incentive opportunities was the natural gas industry companies,proxy data provided by the Consultant. As previously described, the OECC’s compensation strategy with respect to Mr. Kantor is to award target long-term incentive opportunities above market for his position while maintaining a salary below market for his position to tie a relatively larger percentage of his compensation directly to long-term Company performance. Accordingly, the expected value of long-term incentives granted to Mr. Kantor was 128 percent of the 50th percentile for his position in the natural gas industry proxy data. Additionally, in recognition of Mr. Anderson’s new responsibilities as Executive Vice President, Operations and Regulation, and to tie a greater portion of his compensation to the Company’s long-term performance, the OECC targeted the expected value of long-term incentives granted to Mr. Anderson at 126 percent of the 50th percentile for his position in the natural gas industry proxy data. The expected value of long-term incentives granted to the remaining Named Executive Officers ranged from 94 percent to 117 percent of the 50th percentile of natural gas industry proxy data relevant to each Named Executive Officer’s position. The OECC targeted an allocation of the expected value of long-term incentives for 2013 at 35 percent RSUs with performance threshold and 65 percent performance share awards. While RSUs with performance threshold motivate executives to work toward increasing the price of our Common Stock, and closely align executives’ interests with shareholders’ interest, the performance share program rewards relative stock price performance to a peer group, and focuses the executives on key long-term objectives that align with the creation of shareholder value, thereby tying this portion of executive pay to Company performance. The OECC believes that the allocation between RSUs with performance threshold and performance shares provides a balanced performance focus for executives. The following table shows the expected value of long-term incentives approved by the OECC for each Named Executive Officer, and the allocation of that value to amounts of RSUs with performance threshold and performance shares. | | | | | | | | | | | | | | | | | | | | | RSUs with Performance
Threshold | | Performance Shares | Name | | Expected Value
of Long-Term
Incentives | | | Percent of
Total
Expected
LTI Value | | | Number of RSUs
with Performance
Threshold
Granted | | Percent of Total
Expected LTI
Value | | Target Number
of Performance
Shares | Gregg S. Kantor | | $ | 869,000 | | | | 34 | % | | 6,500 | | 66% | | 12,500 | David H. Anderson | | | 343,000 | | | | 34 | % | | 2,600 | | 66% | | 4,900 | Stephen P. Feltz | | | 224,000 | | | | 35 | % | | 1,700 | | 65% | | 3,200 | Lea Anne Doolittle | | | 165,000 | | | | 36 | % | | 1,300 | | 64% | | 2,300 | Margaret D. Kirkpatrick | | | 203,000 | | | | 35 | % | | 1,540 | | 65% | | 2,900 |
For 2013 compensation, the expected value of long-term incentives represented approximately 48 percent of the target total direct compensation for the Chief Executive Officer and approximately 34 percent on average for the other Named Executive Officers. Restricted Stock Units with Performance Threshold. In 2012, the OECC recommended modification of our long-term incentive program to grant RSUs with a Company performance threshold instead of stock options. The purpose of RSUs with performance threshold is to closely align executives’ interests with shareholders’ interests by providing a portion of compensation in stock. The OECC makes RSU with performance threshold grants at its meeting each February, so that it focuseshas the benefit of considering the relative value of all components of each executive’s total compensation. Off-cycle grants may occur when the Company grants RSUs to attract new employees or to reward extraordinary performance. Depending on the survey data, rathercircumstances, these off-cycle grants may not include a performance threshold, and may include a vesting schedule that differs from the standard RSU with performance threshold vesting schedule. The shareholders have previously approved the Long Term Incentive Plan to comply with the performance-based compensation requirements of Section 162(m) of the Internal Revenue Code, and the Company performance threshold included in the RSUs with performance threshold is designed to satisfy the other principal requirement for performance-based compensation so that compensation related to the RSUs will not be subject to the $1 million limitation on tax-deductible compensation. No Named Executive Officer has been awarded an RSU without a performance threshold. An RSU obligates the Company upon vesting to issue to the RSU holder one share of Common Stock plus a cash payment equal to the total amount of dividends paid per share between grant and vesting of the RSU. In general, if the Company performance threshold is met, RSUs vest for 25 percent of the awarded shares on March 1 of each of the first four years after the grant date. No RSUs with performance threshold will vest in a given year if the Company’s performance threshold is not met, and shares subject to vesting in that year will be forfeited. The performance threshold for the RSUs will be met on each vesting date if the Company’s return on common equity for the preceding year is greater than the proxy data,Company’s average cost of long-term debt for the preceding five years. This performance threshold was satisfied in 2013. The Company’s form of RSU agreement has a “clawback” provision which provides that if a restatement of the Company’s financial statements due to misconduct of any person results in a determination that the performance threshold was not satisfied for any year, all participants must repay to the Company any RSU payouts received based on performance for that year. The Company’s form of RSU agreement also provides that if a participant’s misconduct contributes to an inflated stock price and the participant sells shares acquired upon vesting of an RSU at such inflated stock price, the OECC may require the participant to repay the amount determined by the OECC to be the excess amount received. Additionally, these agreements preclude any vesting of RSUs following termination of employment by any participant who is terminated for cause. Performance Shares. The second component of our executives’ long-term compensation program is provided through performance shares under our Long Term Incentive Plan. The purpose of the performance share program is to reward executives for their success in driving long-term performance results that increase shareholder value and to tie executive compensation directly to Company performance. This component also encourages ownership of our stock by our executives. All of the Named Executive Officers participate in the performance share program. The Company’s form of performance share agreement has a “clawback” provision which generally provides that if a participant’s misconduct contributed to an inflated payout under the total shareholder return component of any award because the majorityCompany’s stock price in the last three months of the performance cycle was higher than it would have been absent the misconduct, the OECC may require the participant to repay the amount determined by the OECC to be the excess amount received. In February 2013, each Named Executive Officer received a performance share award to be earned over a three-year performance period (2013-2015) as displayed in the table above. The performance criteria used for the three most recent three-year performance cycles, 2011-2013, 2012-2014 and 2013-2015 were based on two primary factors: a total shareholder return component that measures relative total shareholder return versus a peer group of energy companies (weighted 75 percent of the total award) and a strategic component which measures achievement of performance milestones relative to our core and non-core strategic plan goals (weighted 25 percent of the total award). Total Shareholder Return Component. Seventy-five percent of the performance share award is based on total shareholder return relative to a peer group of natural gas utility companies. Total shareholder return is the return a shareholder earns over a specified period of time, in this case the three-year performance period. Total shareholder return measures the change in share price, assuming dividends are reinvested, and is what we might expect a shareholder to receive from his or her ownership in NW Natural. The value at the end of the period is determined based on the three-month average daily closing price prior to the end of the performance period compared to the three months immediately prior to the start of the performance period. This measure was determined by the OECC to align the interests of management with those of the shareholders. 2013-2015 Performance Share Awards (Granted in 2013). For the 2013-2015 performance share awards granted in February 2013, the peer group consisted of all companies included in the Dow Jones U.S. Gas Distribution Index for the duration of the performance cycle. As of December 31, 2013, the peer group companies were AGL Resources Inc., Atmos Energy Corporation, South Jersey Industries, Inc., National Fuel Gas Company, New Jersey Resources Corporation, NiSource Inc., ONEOK, Inc. Piedmont Natural Gas Company Inc., Questar Corporation, Southwest Gas Corporation, UGI Corporation and WGL Holdings, Inc. The payout levels are based on the percentile rank of our total shareholder return for the performance cycle as compared to the peer companies, with a threshold 25 percent payout at the 30th percentile, target 100 percent payout at the 50th percentile, and maximum 200 percent payout at or above the 90th percentile. However, the calculated payout percentage is reduced by 25 percent if the Company’s total shareholder return is less than 0 percent. 2011-2013 Performance Share Awards (Performance Cycle Completed in 2013).Under our prior methodology for measuring the total shareholder return component, the Company’s performance was compared to a peer group of 10 gas utility companies. For the 2011-2013 performance cycle, this peer group consisted of AGL Resources Inc., Atmos Energy Corporation, The Laclede Group, Inc., New Jersey Resources Corporation, Piedmont Natural Gas Company, Inc., Questar Corporation, South Jersey Industries, Inc., Southwest Gas Corporation, Vectren Corporation, and WGL Holdings, Inc. The following table shows the total shareholder return component factors used under the structure in place for the 2011-2013 performance cycle to determine NW Natural’s factor for total shareholder return compared to rankings for companies in the peer group noted above: | | | Total Shareholder Return Ranking for Peer Group | | Total Shareholder Return Component Factor | | 10 | | 0% | | 9 | | 0% | | 8 | | 25% | | 7 | | 25% | | 6 | | 50% | | 5 | | 75% | | 4 | | 100% | | 3 | | 125% | | 2 | | 150% | | 1 | | 200% |
For the 2011-2013 performance cycle, NW Natural’s total shareholder return was a cumulative -1.5% percent, which was below the level achieved by all of the companies in the proxypeer group, and therefore resulted in a zero percent payout factor for the total shareholder return component. As indicated above, the total shareholder return is, in part, based on the difference between the three-month average daily closing price prior to the end of the performance period compared to the three-month average immediately prior to the start of the performance period. Strategic Component. The remaining 25 percent of any performance share award is subjective and determined at the discretion of the OECC at the end of the three-year performance cycle. Among other things, the OECC considers actual performance relative to strategic milestones set forth in our strategic plan and approved by the OECC prior to the beginning of the cycle. Factors considered by the OECC include, but are larger than NW Natural as measured by revenues,not limited to: financial measures, consisting of return on invested capital and because proxy datareturn on equity; growth measures relating to gas storage, pipeline, and gas supply projects; utility strategic initiatives, including natural gas reserves, rate case execution, and customer growth; leadership development and succession planning; and utility operations and service, and occupational safety. The following formula is provided by position title, rather than position function,used to determine the latterperformance share factor at the end of the three-year performance period. This factor is then applied to the target awards for each award recipient. | | | | | | | | | | | | | | | | | | | | | | | | | [ | | Total Shareholder Return ComponentFactor (0-200%) | | | | | | ] | | | | [ | | Strategic ComponentFactor (0-200%) | | | | | | ] | | | | Performance Share Factor | | | | X | | 75% | | | + | | | | X | | 25% | | | = | | | | | | | | | | | | | | | | | | | | |
At the end of the 2011-2013 program term, the OECC determined the degree to which the strategic goals were achieved during the three-year plan cycle. The OECC has determinedweighed in its assessment, among other things, NW Natural’s financial performance for each year of the three-year cycle, including ROIC and ROE; the Company’s successful gas reserves transaction in 2011, which is more meaningful. Whiledesigned to provide the median revenuesCompany with a long-term fixed-price hedge that is backed with physical gas supplies; successfully securing favorable rate treatment of the gas reserves transaction; management’s business development and customer growth activities; execution of the Company’s strategic plan in workforce development and succession planning; and management’s strong performance in executing its business plan cost effectively in a low-growth economy. The OECC also considered the challenges associated with gas storage markets that have experienced historically low pricing, as well as certain business development and growth initiatives that were not realized, and assigned a strategic component factor of 103.5 percent from a possible 200 percent. Because the OECC’s determination as to the achievement of this portion of the award is discretionary, amounts paid to the Named Executive Officers may not be tax deductible under Section 162(m) of the Internal Revenue Code. See “Regulatory, Tax and Accounting Considerations,” below. Total 2011-2013 Performance Shares. The combination of the total shareholder return component factor (at zero percent, weighted 75 percent) and the strategic component factor (at 103.5 percent, weighted 25 percent) for the proxy data peer group2011-2013 cycle resulted in a performance share factor of 25.88 percent of target, or 12.94 percent of a possible 200 percent total opportunity. Minimum, target, maximum and actual share awards for the 2011-2013 performance share awards are $2.5 billion, someset forth in the table below, and the value of the companiesshare award levels is illustrated in the proxy data group may be includedfollowing bar chart: | | | | | | | | | | | Named Executive Officer | | Minimum Share
Award | | | Target Share
Award | | Maximum Share
Award | | Actual Share
Award | Gregg S. Kantor | | | 0 | | | 15,000 | | 30,000 | | 3,881 | David H. Anderson | | | 0 | | | 5,000 | | 10,000 | | 1,294 | Stephen P. Feltz | | | 0 | | | 1,750 | | 3,500 | | 453 | Lea Anne Doolittle | | | 0 | | | 2,250 | | 4,500 | | 582 | Margaret D. Kirkpatrick | | | 0 | | | 3,200 | | 6,400 | | 828 |
| * | Using a stock price of $42.82, which was the closing price of NW Natural common stock on December 31, 2013. |
Share award amounts in one or more of the survey data groups, if their annual revenues are comparable to NW Natural’s. above table do not include cash dividend amounts paid. For actual 2011-2013 award cash value, including cash dividend amounts, see the “Option Exercises and Stock Vested During 2013” table, below. Tally SheetsPerquisites
Every yearThe OECC reviewed its perquisite policy and eliminated perquisites for executives effective January 1, 2008. The OECC acknowledges that certain benefits incidental to other business-related activities may continue, but the aggregate annual value of such benefits is not expected to exceed $10,000 for any Named Executive Officer. The OECC reviewsconfirmed that while many utilities continue to provide some level of perquisites, many general industry companies are moving away from this practice as these benefits are not provided to all employees.
Qualified and Non-Qualified Retirement (Defined Benefit) Plans In general, when compared to non-utilities, the utility industry has historically provided a greater percentage of total remuneration of executives in the form of a tally sheet prepared by our human resources department and reviewed by outside consultants (legal, actuarial and compensation), which shows each executive’s current total compensation from all sources, including probability of attainment weighted potential compensation from equity awards not yet earned, as well as retirement benefits, along with possibleparticularly in the form of defined benefit plans, rather than current cash compensation. The Named Executive Officers participate in the Retirement Plan for Bargaining Unit and Non-Bargaining Unit Employees, our qualified defined benefit pension plan, on the same terms as other salaried employees. We also maintain the following non-qualified supplemental retirement plans for certain executives: the Executive Supplemental Retirement Income Plan and the Supplemental Executive Retirement Plan. These plans are more fully described below under the “Pension Benefits as of December 31, 2013” table and the related narrative discussion. As discussed there, in 2009 the OECC recommended and the Board approved amendments to these plans that will moderate the growth in benefits payable under these plans. Qualified and Non-Qualified Deferred Compensation (Defined Contribution) Plans We also maintain both tax-qualified and non-tax-qualified defined contribution plans in which the Named Executive Officers are eligible to participate. Our 401(k) Plan is a tax-qualified defined contribution plan and our Deferred Compensation Plan for Directors and Executives is a non-tax-qualified deferred compensation from any severance arrangements, includingplan. For further discussion of Named Executive Officer participation in non-qualified deferred compensation plans in 2013, see the “Non-Qualified Deferred Compensation in 2013” table below. Change in Control/ Severance Agreements The Board of Directors considers an effective, highly-skilled and vital management team to be essential to protect and enhance the best interests of our Company. As such, it recognizes that the possibility of a change in control compensation.of NW Natural and the uncertainty and questions that such possibility could raise among management, may result in the departure or distraction of management personnel to the Company’s detriment. Accordingly, the Board has approved double trigger severance agreements with all of the Named Executive Officers. The OECC also uses tally sheetsagreements contain a provision that reduces the level of benefits available under the agreements as the Named Executive Officers approach age 65 given that the value of the benefit should diminish commensurate with an officer’s potential remaining years of employment. The Board believes the current form of severance agreement reflects a conservative approach relative to reviewenergy industry standards. None of the potential impactagreements with officers of any significant plan change. NW Natural include provisions for tax gross-up upon a triggering event. See “Potential Payments Upon Termination or Change in Control,” below. In its most recent review of tally sheets,general, the OECC determinedprefers not to enter into severance agreements other than for change in control purposes as discussed above. Accordingly, the OECC has established a guideline that each executive’s compensation remained consistentseverance benefits may only be provided following a termination without cause in the first five years of employment in a particular position or after a change in control. The benefit for termination without cause, absent a change in control, is reduced over the term of the agreement, which cannot exceed five years. In late 2008, the OECC approved an agreement of this nature with Mr. Kantor as the OECC’s expectationsincoming Chief Executive Officer. This agreement provided that potential non-change-in-control severance payments would decline annually, and no changes to pay programs or practices were recommended.terminated as of December 31, 2013. Stock Ownership GuidelinesLong-Term Incentives
Our Corporate Governance Standards provideIn 2013, the following ownership guidelines forlong-term incentive portion of our executive officers, expressed as a multiplecompensation program consisted of two components: restricted stock units with performance threshold and performance shares. For purposes of valuing awards, we define the expected value of each executive officer’s base salary:restricted stock unit to be an estimated market price of the Company’s common stock near the grant date. We define the expected value of each performance share under the strategic component
| | | | | Position
| | Dollar Value
of Stock Owned
as Multiple of
Base Salary | | Chief Executive Officer
| | | 2x | | Executive and Senior Vice Presidents
| | | 1.5x | | All other executive officers
| | | 1x | |
Theof performance share awards to be the average closing market price of the Company’s common stock for the calendar month preceding the grant date. We define the expected value of each share of the total shareholder return component of performance share awards to be the estimated grant-date fair value of the awards based on historical Monte Carlo method allocation and the Company’s average stock price in January 2013, excluding the estimated value of expected dividends. Among the factors the OECC reviewed and reaffirmed the stock ownership requirements for executive officers as of December 31, 2010. The Board of Directors of NW Natural believes that these ownership objectives provide executives with a meaningful stakeconsiders in determining long-term incentives in the ownershipform of NW NaturalRSUs with performance threshold and as a result, fully align executive officers’ interests with those of our shareholders. The stock ownership objectives should generallyperformance shares to be attained within five years of appointment as an officer. The OECC annually reviews the progress made by executives against these objectives. This progress is measured using both shares owned directly by executives as well as shares credited to their Retirement K Savings Plan (401(k) Plan) and non-qualified deferred compensation plan accounts and is determined using the average daily closing price for the
Common Stock over the preceding calendar year. The OECC last reviewed the progress of the Named Executive Officers in achieving these stock ownership objectives in February 2011 and concluded that all of the Named Executive Officers have achieved stock ownership goals or, for newer officers, have made satisfactory progress in achieving these goals given the time they have served in their respective executive positions. The Company does not have a policy that requires retention of stock acquired from equity compensation plans or vesting of shares.
Compensation Programs
How Compensation Decisions Are Made
Competitive data is used as a guide to make compensation decisions, along with other relevant considerations including corporate and individual performance, an executive’s experience and contribution, as well as the relative relationship of an executive’s responsibilities to other executive roles. Our executive compensation programs are sufficiently flexible to allow pay relative to the market median to vary by individual position if warranted by special circumstances. These special circumstances might include strong individual performance, marketability of skills, or retention considerations that could allow certain executives to receive higher than the average compensation increases for the industry or higher incentive awards in recognition of these special considerations. The Chief Executive Officer considers this type of information prior to recommending to the OECC salary, and annual and long-term incentive compensation levels for the other Named Executive Officers. The OECC then considers the Chief Executive Officer’s recommendations with respect to the other Named Executive Officers and completes its own evaluation and recommendation with respectgranted to the Chief Executive Officer, considering competitive data prepared by the Consultant in both instances.
The OECC also considers the Consultant’s advice, including information from the Consultant’s competitive analysis and survey, to determine:
| Ÿ | | the inclusion of the various compensation program elements;
|
| Ÿ | | policies for allocating between long-term and currently paid compensation;
|
| Ÿ | | policies for allocating between cash and non-cash compensation, and among the different forms of non-cash compensation; and
|
| Ÿ | | the basis for allocating to each of the two primary types of long-term compensation award opportunity.
|
The OECC’s policy is to establish the allocations between long-term and currently paid compensation, and between cash and non-cash compensation (including the allocation among different forms of non-cash compensation), in approximately the same manner as the median of the applicable competitive market for comparable executive positions. The OECC also evaluates the total remuneration package for each executive to consider whether those compensation packages encourage unnecessary or inappropriate risk-taking on the part of the executive or the Company, such as by encouraging behavior that focuses on short-term results at the expense of long-term value, and whether the compensation package encourages meaningful ownership by each executive to align that executive’s interests with that of the shareholders.
Current vs. At-Risk Compensation
An executive’s base salary is intended to reflect the value of the executive’s position to our Company and provide a competitive foundation for the work being performed. The remainder of the total direct compensation is at risk and must be earned by achieving short-term and
long-term performance goals, which are intended to increase shareholder value. See “Long-Term Incentives” below for a brief description of how NW Natural determines the “expected value” of long-term incentives. The portion of total direct compensation designed to be paid in base salary versus variable pay depends upon the executive’s position and the ability of that position to influence outcomes, as well as market factors. The Chief Executive Officer has the largest portion of pay at risk, and the OECC’s current compensation strategy for the Chief Executive Officer is to continue to increase the percentage of his pay at risk. In 2010, the percentage of targeted total direct compensation opportunity at risk or earned by achieving performance goals was approximately 71 percentconsiders when making recommendations for the Chief Executive Officer, and, for the other Named Executive Officers the average percentage of such compensation at risk was approximately 51 percent. The remaining portion of direct compensation is delivered in the form of base salary.are:
2010 Base Salaries
Base salaries paid to executives are establishedthe total long-term competitive market compensation survey data provided by the BoardConsultant;
the executive’s relative position and level of Directors, on recommendation of the OECC, based upon the value of the position to the business, responsibility within NW Natural; the performance of the individualexecutive during the prior period; the retention value of long-term incentives before vesting; and consideration the value of long-term incentives needed to ensure that executives are focused on absolute share price appreciation over the long term. As was the case in 2012, the energy service industry and general industry survey data reviewed in February 2013 showed a significant and unexpected year-over-year increase in expected values of long-term incentives compared to the survey data reviewed prior to 2012. The OECC discussed various components of the market salary analyses prepared by the Consultant. As described above, these analyses include salary survey and proxy data for comparable positions at similarly-sized energy service and general industry companies. Salaries are typically adjusted March 1 of each year. The following table shows the salaries of the Named Executive Officers before and after 2010 salary adjustments went into effect on March 1, 2010. The Named Executive Officers received salary increases ranging from 2.4 percent to 3.2 percent, generally consistentsurvey data with the averageConsultant. After considerable consideration, the OECC determined that, given the variability in long-term incentive plan design and weighting across industries, and across companies of various size within industries, the most appropriate guide for targeted long-term incentive opportunities was the natural gas industry proxy data provided by the Consultant. As previously described, the OECC’s compensation strategy with respect to Mr. Kantor is to award target long-term incentive opportunities above market for his position while maintaining a salary increasebelow market for non-union employeeshis position to tie a relatively larger percentage of 2.75 percent for 2010. For his second year as Chief Executive Officer,compensation directly to long-term Company performance. Accordingly, the expected value of long-term incentives granted to Mr. Kantor’s salary continued to be under the 50th percentile salary for energy service company chief executive officers, at 81Kantor was 128 percent of the 50th percentile.percentile for his position in the natural gas industry proxy data. Additionally, in recognition of Mr. Kantor presentedAnderson’s new responsibilities as Executive Vice President, Operations and Regulation, and to tie a greater portion of his requestcompensation to the Company’s long-term performance, the OECC that any base salary increase be generally consistent with increases made for other employees. The OECC chose to substantially increasetargeted the expected value of his long-term incentives granted to Mr. Anderson at 126 percent of the 50th percentile for his position in lieuthe natural gas industry proxy data. The expected value of long-term incentives granted to the remaining Named Executive Officers ranged from 94 percent to 117 percent of the 50th percentile of natural gas industry proxy data relevant to each Named Executive Officer’s position.
The OECC targeted an allocation of the expected value of long-term incentives for 2013 at 35 percent RSUs with performance threshold and 65 percent performance share awards. While RSUs with performance threshold motivate executives to work toward increasing the price of our Common Stock, and closely align executives’ interests with shareholders’ interest, the performance share program rewards relative stock price performance to a more significant salary increase, consistentpeer group, and focuses the executives on key long-term objectives that align with Mr. Kantor’s request and the OECC’s strategy to increase thecreation of shareholder value, thereby tying this portion of his compensation at risk subjectexecutive pay to the Company’s long-termCompany performance. The salary survey data reviewedOECC believes that the allocation between RSUs with performance threshold and performance shares provides a balanced performance focus for executives. The following table shows the expected value of long-term incentives approved by the OECC in early 2010for each Named Executive Officer, and the allocation of that value to amounts of RSUs with performance threshold and performance shares. | | | | | | | | | | | | | | | | | | | | | RSUs with Performance
Threshold | | Performance Shares | Name | | Expected Value
of Long-Term
Incentives | | | Percent of
Total
Expected
LTI Value | | | Number of RSUs
with Performance
Threshold
Granted | | Percent of Total
Expected LTI
Value | | Target Number
of Performance
Shares | Gregg S. Kantor | | $ | 869,000 | | | | 34 | % | | 6,500 | | 66% | | 12,500 | David H. Anderson | | | 343,000 | | | | 34 | % | | 2,600 | | 66% | | 4,900 | Stephen P. Feltz | | | 224,000 | | | | 35 | % | | 1,700 | | 65% | | 3,200 | Lea Anne Doolittle | | | 165,000 | | | | 36 | % | | 1,300 | | 64% | | 2,300 | Margaret D. Kirkpatrick | | | 203,000 | | | | 35 | % | | 1,540 | | 65% | | 2,900 |
For 2013 compensation, the expected value of long-term incentives represented approximately 48 percent of the target total direct compensation for the Chief Executive Officer and approximately 34 percent on average for the other Named Executive Officers reflected small increasesOfficers. Restricted Stock Units with Performance Threshold. In 2012, the OECC recommended modification of our long-term incentive program to grant RSUs with a Company performance threshold instead of stock options. The purpose of RSUs with performance threshold is to closely align executives’ interests with shareholders’ interests by providing a portion of compensation in stock. The OECC makes RSU with performance threshold grants at its meeting each February, so that it has the benefit of considering the relative value of all components of each executive’s total compensation. Off-cycle grants may occur when the Company grants RSUs to attract new employees or to reward extraordinary performance. Depending on the circumstances, these off-cycle grants may not include a performance threshold, and may include a vesting schedule that differs from the similar data reviewed in early 2009, so salaries for Ms. Kirkpatrick and Mr. White remained nearstandard RSU with performance threshold vesting schedule. The shareholders have previously approved the 50th percentileLong Term Incentive Plan to comply with the performance-based compensation requirements of Section 162(m) of the energy service company survey data for their positions,Internal Revenue Code, and the salaries for Mr. Anderson and Ms. Doolittle remained at or about the mid-point between the energy service and general industry survey data medians for their positions, consistent with the OECC’s ongoing view that these two positions should be competitive with and partially reflect the higher median salaries paid by general industry companies. | | | | | | | | | Name | | Salary Effective
March 1, 2009 | | | Salary Effective
March 1, 2010 | | Gregg S. Kantor | | $ | 446,000 | | | $ | 456,570 | | David H. Anderson | | | 343,000 | | | | 353,000 | | Lea Anne Doolittle | | | 240,000 | | | | 247,000 | | J. Keith White | | | 220,000 | | | | 227,000 | | Margaret D. Kirkpatrick | | | 262,000 | | | | 270,000 | |
The following discussion and analysis contains statements regarding individual and corporateCompany performance measures, targets and goals. These measures, targets and goals are used for purposes of executive incentive compensation programs, and in some cases incentive compensation programs that are available to all NW Natural employees. These measures, targets and goals are disclosedthreshold included in the limited context of NW Natural’s compensation programs and should not be understood to be statements of management’s representations of Company financialRSUs with performance for the periods covered. The results reported with respect to these incentive compensation programs are used specifically for executive incentive compensation programs, and NW Natural cautions investors not to apply these statements to other contexts. Furthermore, these prior results are not intended to be and are not indicative of the Company’s future financial performance.
Executive Annual Incentive Plan
The Executive Annual Incentive Planthreshold is designed to tie executive paysatisfy the other principal requirement for performance-based compensation so that compensation related to the RSUs will not be subject to the $1 million limitation on tax-deductible compensation. No Named Executive Officer has been awarded an RSU without a performance threshold.
An RSU obligates the Company upon vesting to issue to the RSU holder one share of Common Stock plus a cash payment equal to the total amount of dividends paid per share between grant and vesting of the RSU. In general, if the Company performance by incenting key executives to achieve our annual goals, including financial, operating and individual performance goals. Awards are paid by March 15threshold is met, RSUs vest for 25 percent of the followingawarded shares on March 1 of each of the first four years after the grant date. No RSUs with performance threshold will vest in a given year if the OECC determinesCompany’s performance threshold is not met, and shares subject to vesting in that year will be forfeited. The performance threshold for the goals are achieved. AlthoughRSUs will be met on each vesting date if the OECCCompany’s return on common equity for the preceding year is greater than the Company’s average cost of long-term debt for the preceding five years. This performance threshold was satisfied in 2013. The Company’s form of RSU agreement has discretion to increase an award up to a maximum of 150 percent of the target or to reduce an executive’s performance-based award, it has not determined the need to increase or decrease awards under this plan to date. In 2009, we modified this plan to generally provide“clawback” provision which provides that in the event ofif a restatement of the Company’s financial statements due to misconduct of any person results in a determination that the performance threshold was not satisfied for any year, all participants must repay to the Company the difference between the bonusany RSU payouts received based on performance for the affected yearthat year. The Company’s form of RSU agreement also provides that if a participant’s misconduct contributes to an inflated stock price and the participant sells shares acquired upon vesting of an RSU at such inflated stock price, the OECC may require the participant to repay the amount of bonus that would have been received if calculated based ondetermined by the financial statements as restated, as well asOECC to be the excess amount received. Additionally, these agreements preclude any payout or benefitvesting of RSUs following termination of employment forby any participant who is terminated for cause.
We believe thisPerformance Shares. The second component of our executives’ long-term compensation program supportsis provided through performance shares under our Long Term Incentive Plan. The purpose of the performance share program is to reward executives for their success in driving long-term performance results that increase shareholder value and to tie executive compensation objectivedirectly to Company performance. This component also encourages ownership of motivating executives to achieve high levelsour stock by our executives. All of performance. Participationthe Named Executive Officers participate in the plan currently is limitedperformance share program.
The Company’s form of performance share agreement has a “clawback” provision which generally provides that if a participant’s misconduct contributed to 12 participants selectedan inflated payout under the total shareholder return component of any award because the Company’s stock price in the last three months of the performance cycle was higher than it would have been absent the misconduct, the OECC may require the participant to repay the amount determined by the OECC includingto be the Named Executive Officers.excess amount received. Target awards for executives vary as a percent of base salary based on the executive’s position. The 2010 bonus target percentages for all Named Executive Officers except Mr. White remained the same as 2009 levels. Mr. White’s target award percentage increased from 35 percent in 2009 to 40 percent in 2010 to reflect his increased accountability for business development initiatives, including gas storage. Target and actual awards in dollars and as a percent of base salary (in effect on December 31, 2010) for 2010 incentive awards paid in 2011 were as follows:
| | | | | | | | | | | | | | | | | Named Executive Officer | | Target Award
Percentage | | | Target Award
Amount | | | Actual Award
Percentage | | | Actual Award
Amount | | Gregg S. Kantor | | | 70 | % | | $ | 319,599 | | | | 94 | % | | $ | 428,000 | | David H. Anderson | | | 45 | % | | | 158,850 | | | | 60 | % | | | 211,000 | | Lea Anne Doolittle | | | 35 | % | | | 86,450 | | | | 48 | % | | | 119,000 | | J. Keith White | | | 40 | % | | | 90,800 | | | | 50 | % | | | 114,000 | | Margaret D. Kirkpatrick | | | 35 | % | | | 94,500 | | | | 47 | % | | | 128,000 | |
When added to base salaries, the amounts payable upon achievement of these goals are intended to place executives’ compensation at the 50th percentile of total cash compensation for applicable comparable energy service industry positions included in the Consultant’s survey data and analyses, except that Mr. Anderson and Ms. Doolittle have target total cash
compensation at or about the midpoint between the energy service and general industry medians for their positions, which is consistent with their salary positioning, and Mr. Kantor’s target total cash compensation is about 85 percent of the energy service median (50th percentile) for his position, also consistent with his salary positioning. Consistent with our philosophy that executives should be paid in accordance with the performance of the Company, when goals are exceeded, it is expected that executives’ compensation will be above these levels; conversely if goals are not achieved, executives’ compensation will be below these levels. For information on the performance-based portion of specific awards granted toIn February 2013, each Named Executive Officer seereceived a performance share award to be earned over a three-year performance period (2013-2015) as displayed in the “Grants of Plan-Based Awards During 2010” table below.
above. The OECC has given considerable attention to what performance measures are appropriatecriteria used for the executive incentive plans,three most recent three-year performance cycles, 2011-2013, 2012-2014 and reviews these2013-2015 were based on two primary factors: a total shareholder return component that measures relative total shareholder return versus a peer group of energy companies (weighted 75 percent of the total award) and a strategic component which measures achievement of performance milestones relative to our core and non-core strategic plan goals (weighted 25 percent of the total award). Total Shareholder Return Component. Seventy-five percent of the performance share award is based on total shareholder return relative to a peer group of natural gas utility companies. Total shareholder return is the return a shareholder earns over a specified period of time, in this case the three-year performance period. Total shareholder return measures the change in share price, assuming dividends are reinvested, and is what we might expect a shareholder to receive from his or her ownership in NW Natural. The value at least annually. Changes may be madethe end of the period is determined based on the three-month average daily closing price prior to the measures atend of the performance period compared to the three months immediately prior to the start of newthe performance periodsperiod. This measure was determined by the OECC to align the interests of management with those of the shareholders. 2013-2015 Performance Share Awards (Granted in 2013). For the 2013-2015 performance share awards granted in February 2013, the peer group consisted of all companies included in the Dow Jones U.S. Gas Distribution Index for the duration of the performance cycle. As of December 31, 2013, the peer group companies were AGL Resources Inc., Atmos Energy Corporation, South Jersey Industries, Inc., National Fuel Gas Company, New Jersey Resources Corporation, NiSource Inc., ONEOK, Inc. Piedmont Natural Gas Company Inc., Questar Corporation, Southwest Gas Corporation, UGI Corporation and WGL Holdings, Inc. The payout levels are based on the percentile rank of our total shareholder return for the performance cycle as compared to the peer companies, with a threshold 25 percent payout at the 30th percentile, target 100 percent payout at the 50th percentile, and maximum 200 percent payout at or above the 90th percentile. However, the calculated payout percentage is reduced by 25 percent if the OECC determines that changes are appropriate.Company’s total shareholder return is less than 0 percent. 2011-2013 Performance Share Awards (Performance Cycle Completed in 2013).Under our prior methodology for measuring the total shareholder return component, the Company’s performance was compared to a peer group of 10 gas utility companies. For 2010, awardsthe 2011-2013 performance cycle, this peer group consisted of AGL Resources Inc., Atmos Energy Corporation, The Laclede Group, Inc., New Jersey Resources Corporation, Piedmont Natural Gas Company, Inc., Questar Corporation, South Jersey Industries, Inc., Southwest Gas Corporation, Vectren Corporation, and WGL Holdings, Inc. The following table shows the total shareholder return component factors used under the Executive Annual Incentive Plan reflectstructure in place for the 2011-2013 performance cycle to determine NW Natural’s factor for total shareholder return compared to rankings for companies in the peer group noted above: | | | Total Shareholder Return Ranking for Peer Group | | Total Shareholder Return Component Factor | | 10 | | 0% | | 9 | | 0% | | 8 | | 25% | | 7 | | 25% | | 6 | | 50% | | 5 | | 75% | | 4 | | 100% | | 3 | | 125% | | 2 | | 150% | | 1 | | 200% |
For the 2011-2013 performance cycle, NW Natural’s total shareholder return was a focuscumulative -1.5% percent, which was below the level achieved by all of the companies in the peer group, and therefore resulted in a zero percent payout factor for the total shareholder return component. As indicated above, the total shareholder return is, in part, based on compensation for Companythe difference between the three-month average daily closing price prior to the end of the performance with an allocationperiod compared to the three-month average immediately prior to the start of 75the performance period. Strategic Component. The remaining 25 percent of any performance share award is subjective and determined at the discretion of the OECC at the end of the three-year performance cycle. Among other things, the OECC considers actual performance relative to corporate performance goals (EPS,strategic milestones set forth in our strategic plan and approved by the OECC prior to the beginning of the cycle. Factors considered by the OECC include, but are not limited to: financial measures, consisting of return on invested capital and certain operating goals) and an allocation of 25 percent to individual performance criteria established for each executive. The formula for the total incentive award is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | [ | | | | | | | | ] | | | | [ | | | | | | | | ] | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate Performance Factor | | X | | 75% | | | + | | | Individual
Performance Factor | | X | | 25% | | | X | | Target Award | | = | | Total Annual Incentive Award | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate Performance Goals. In 2010, the corporate performance goals established by the OECC for the Executive Annual Incentive Plan were designed to reward participants for exceeding the Company’s budgeted operating results by emphasizing the achievement of EPS and return on invested capital targets,equity;
growth measures relating to gas storage, pipeline, and the attainment of several key operating goals shared with all employees. The rangesgas supply projects; utility strategic initiatives, including natural gas reserves, rate case execution, and targets set each year vary from prior years, in some cases with higher rangescustomer growth; leadership development and targetssuccession planning; and in some cases with lower ranges utility operations and targets. In each case, the OECC sets the rangesservice, and targets taking into account Management’s annual objectives and the way in which those annual objectives fit within the larger growth goals for the Company.occupational safety. The corporate performance factorfollowing formula is determined using the following formula: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | [
| | | | | | | | | | ]
| | | | | | [
| | | | | | | | | | ]
| | | | [
| | | | | | | | | | ]
| | | | | | EPS
Factor
| | X | | | 33 1/3 | % | | | | + | | | | Return on Invested Capital Factor | | X | | | 33 1/3 | % | | | + | | | Key
Goals
Factor
| | X | | | 33 1/3 | % | | | = | | Corporate
Performance Factor
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Earnings Per Share factor.The OECC concluded that EPS would be accorded a weight of 33.33 percent to align executives’ interests with shareholders’ interests and in recognition of the importance earnings have in influencing our future stock price. For 2010, the EPS performance goal consisted of a range of diluted EPS results from $2.508 per share to $2.84 or above, corresponding to payout factors ranging from 0 percent to 150 percent. The target level of diluted EPS was $2.65 per share, corresponding to a 100 percent payout factor. Actual EPS results are interpolated to determine the corresponding performance factor, up to a maximum of 150 percent.
Actual 2010 diluted EPS was $2.73, or 8 cents above the 2010 target of $2.65, resulting in an EPS factor equal to 121.04 percent, which was calculated according to the formula established by the OECC at the beginning of the year.
Return on Invested Capital factor. The weighting assigned to the Return on Invested Capital factor also was 33.33 percent. The OECC includes this measure because there is a significant amount of capital deployed to build and maintain the gas distribution and storage businesses and the OECC wants to hold the executives accountable for ensuring that the Company is getting a reasonable return on the capital being deployed into the business. Return on Invested Capital is defined as net income plus net interest divided by average long-term capital (shareholders’ equity plus long-term debt, including current portion).
This goal consisted of a range of results from 7.21 percent to 8.08 percent or greater, which were generated taking into account NW Natural’s forecasted capital spending plans, corresponding to payout factors ranging from 0 to 150 percent. The target level of return on invested capital was set at 7.95 percent, which corresponds to a 100 percent payout factor, and which is slightly below NW Natural’s current cost of capital.
Actual 2010 return on invested capital was 8.32 percent, resulting in a return on invested capital factor equal to 150 percent.
Key Goals factor.Operating goals of significant importance to the enhancement of our overall profitability and productivity were selected by the OECC to comprise the Key Goals factor, which accounts for 33.33 percent of the weighting for corporate performance goals. The operating goals are substantially aligned with the Key Goals incentive program for all employees. While each goal can contribute a goal rating between 0 and 200 percent multiplied by the assigned goal weight based on actual results, the aggregate of the Key Goals factor is limited to a maximum of 150 percent. Actual results are interpolatedused to determine the performance share factor at the end of the three-year performance period. This factor is then applied to the target awards for each goal.award recipient.
| | | | | | | | | | | | | | | | | | | | | | | | | [ | | Total Shareholder Return ComponentFactor (0-200%) | | | | | | ] | | | | [ | | Strategic ComponentFactor (0-200%) | | | | | | ] | | | | Performance Share Factor | | | | X | | 75% | | | + | | | | X | | 25% | | | = | | | | | | | | | | | | | | | | | | | | |
At the end of the 2011-2013 program term, the OECC determined the degree to which the strategic goals were achieved during the three-year plan cycle. The Key Goals factor was determined using the following formula: Sum of [Goal Performance X Goal Weight]OECC weighed in its assessment, among other things, NW Natural’s financial performance for each year of 9 Key Goals = Key Goals Factorthe three-year cycle, including ROIC and ROE; the Company’s successful gas reserves transaction in 2011, which is designed to provide the Company with a long-term fixed-price hedge that is backed with physical gas supplies; successfully securing favorable rate treatment of the gas reserves transaction; management’s business development and customer growth activities; execution of the Company’s strategic plan in workforce development and succession planning; and management’s strong
A summaryperformance in executing its business plan cost effectively in a low-growth economy. The OECC also considered the challenges associated with gas storage markets that have experienced historically low pricing, as well as certain business development and growth initiatives that were not realized, and assigned a strategic component factor of 103.5 percent from a possible 200 percent.
Because the OECC’s determination as to the achievement of this portion of the key operating goals for 2010award is discretionary, amounts paid to the Named Executive Officers may not be tax deductible under Section 162(m) of the Internal Revenue Code. See “Regulatory, Tax and Accounting Considerations,” below. Total 2011-2013 Performance Shares. The combination of the total shareholder return component factor (at zero percent, weighted 75 percent) and the weightingstrategic component factor (at 103.5 percent, weighted 25 percent) for the 2011-2013 cycle resulted in a performance share factor of each goal to25.88 percent of target, or 12.94 percent of a possible 200 percent total opportunity. Minimum, target, maximum and actual share awards for the overall factor is2011-2013 performance share awards are set forth in the following table: | | | | | | | | | Key Goals | | Goal Description | | Goal
Performance
Range | | Target
(100%)
Performance | | Goal Weight
in Key Goal
Performance
Factor | | | | | | | | | | | | | | | | Profitability—Earnings
per share (utility only) | | Earnings per share for
utility operations (excludes
earnings per share
contributions from certain
non-utility activities) | | $2.49 – $2.75 | | $2.62 | | 40.00% | | | | | | Customer
satisfaction—
overall | | On a survey scale of 1-10 (10
as highest), percent of
customers rating overall
satisfaction at a 9 or 10 | | 56.63% – 63.38% | | 60.00% | | 5.00% | | | | | | Customer
satisfaction—
employee
interaction | | Customers who had
interactions with service
technicians and/or
construction crew members
rating satisfaction at a
9 or 10 | | 73.75% – 84.25% | | 79.00% | | 10.00% | | | | | | Total Customer
Additions | | Total new meter sets | | 8,214 – 10,614 | | 9,414 | | 5.00% | | | | | | Productivity—
expense per customer | | Operations and maintainance
expense divided by year-end
number of customers | | $174.88 – $166.38 | | $170.63 | | 10.00% | | | | | | Effectiveness of capital
investment—capital
expenditures per
customer | | Measures capital
expenditures (excluding new
meter construction costs)
per customer | | $125.39 – $116.89 | | $121.14 | | 5.00% | | | | | | Effectiveness of
Capital Investment—Total
Acquisition
construction
cost per meter | | Efficiency measure to
calculate construction costs
to install each new meter | | $2,305.22 – $2,005.22 | | $2,155.22 | | 5.00% | | | | | | Retail Gross Margins | | Utility net operating
revenues | | $334,235,000 –
$339,965,000 | | $337,100,000 | | 10.00% | | | | | | Return on invested
capital | | Net income plus net interest
divided by average long-term
capital (shareholders’ equity
plus long-term debt,
including current portion) | | 7.21% – 8.21% | | 7.95% | | 10.00% |
Our operating performance in 2010 resulted in a Key Goals factor attable below, and the 150 percent maximum level. Before applicationvalue of the 150 percent cap on this factor, our performance relative to the Key Goals generated a payout factor of 163 percent. This high level of achievement resulted from several operating goals for which targetshare award levels were substantially exceeded (e.g., the utility EPS, return on invested capital, productivity—expense per customer, and overall customer satisfaction goals were each equal to the maximum of 200 percent, the employee interaction customer satisfaction goal was equal to 188 percent, and the retail gross margin goal was equal to 144 percent). High performance on these goals more than offset those goals that were achieved below targeted levels (e.g., the total customer additions goal was equal to 5 percent), or not achieved at all (e.g., capital expenditures per customer and total acquisition construction cost per meter were equal to 0 percent). The goals not achieved were primarily due to a slowdownis illustrated in the new construction market as a result of the national economic recession and housing market decline, and higher than planned costs for new customer additions.
For 2010, the combination of the Earnings Per Share factor, the Return on Invested Capital factor and the Key Goals factor, produced an overall corporate performance factor equal to 140.35 percent of target.
Individual Performance Goals.Twenty-five percent of each Named Executive Officer’s annual incentive target award is based on individual performance goals. In the case of the Chief Executive Officer, individual goals are determined by the OECC in consultation with the Chief Executive Officer. The Chief Executive Officer’s attainment of his goals is determined largely based on the OECC’s qualitative assessment of the Chief Executive Officer’s performance. The other Named Executive Officers’ individual performance goals align with the Chief Executive Officer’s goals and support the Company’s strategic plan. The OECC and the Company believe that achieving its strategic goals, along with the strong operation and management of our day-to-day business, will create success for our customers, employees and shareholders. Generally, NW Natural’s 2010 annual priority goals included:following bar chart:
| | | | | | | | | | | Named Executive Officer | | Minimum Share
Award | | | Target Share
Award | | Maximum Share
Award | | Actual Share
Award | Gregg S. Kantor | | | 0 | | | 15,000 | | 30,000 | | 3,881 | David H. Anderson | | | 0 | | | 5,000 | | 10,000 | | 1,294 | Stephen P. Feltz | | | 0 | | | 1,750 | | 3,500 | | 453 | Lea Anne Doolittle | | | 0 | | | 2,250 | | 4,500 | | 582 | Margaret D. Kirkpatrick | | | 0 | | | 3,200 | | 6,400 | | 828 |
| * | Ÿ | | improving productivity throughUsing a stock price of $42.82, which was the continued deployment and integrationclosing price of new technology and through the effective use of resources;
NW Natural common stock on December 31, 2013. |
| Ÿ | | continuing advancement of the Palomar projects;
|
| Ÿ | | completing construction of Gill Ranch consistent with milestone objectives;
|
| Ÿ | | continuing to emphasize NW Natural’s commitment to clean and green policies and technologies;
|
| Ÿ | | achieving overall customer satisfaction consistent with the Key Goals target;
|
| Ÿ | | achieving EPS growth, return on invested capital and cash flow targets; and
|
| Ÿ | | accomplishing these goalsShare award amounts in a manner consistent with NW Natural’s core values.
|
In addition to the above shared executive officer goals,table do not include cash dividend amounts paid. For actual 2011-2013 award cash value, including cash dividend amounts, see the Chief Executive Officer’s individual performance goals included exceeding the EPS goal, ensuring that the construction of Gill Ranch was completed“Option Exercises and certain capacity contracts received by year end, advancement of Palomar and the continued strengthening of alignment and strategic direction of the executive management team.Stock Vested During 2013” table, below.
Perquisites The Chief Executive Officer evaluated the 2010 individual performance of each Named Executive Officer on a scale from 0 to 150 percent, based on performanceOECC reviewed its perquisite policy and peer ratings. The Chief Executive Officer’s recommendations regarding individual performance are reviewed and approved by the OECC as it reviews the overall performance ofeliminated perquisites for executives against the operating goals.effective January 1, 2008. The OECC uses this same methodacknowledges that certain benefits incidental to other business-related activities may continue, but the aggregate annual value of assessmentsuch benefits is not expected to establish the year-end performance ratingexceed $10,000 for the Chiefany Named Executive Officer. The OECC determinedconfirmed that executives had met or exceededwhile many utilities continue to provide some level of perquisites, many general industry companies are moving away from this practice as these goalsbenefits are not provided to all employees. Qualified and assignedNon-Qualified Retirement (Defined Benefit) Plans In general, when compared to non-utilities, the utility industry has historically provided a ratinggreater percentage of 114 percent fortotal remuneration in the Chief Executive Officer’s individual performance. Performanceform of retirement benefits, particularly in the otherform of defined benefit plans, rather than current cash compensation. The Named Executive Officers ranged from 77.78 percent to 127.74 percent. On average,participate in the total awardsRetirement Plan for Bargaining Unit and Non-Bargaining Unit Employees, our qualified defined benefit pension plan, on the Chiefsame terms as other salaried employees. We also maintain the following non-qualified supplemental retirement plans for certain executives: the Executive OfficerSupplemental Retirement Income Plan and the otherSupplemental Executive Retirement
Plan. These plans are more fully described below under the “Pension Benefits as of December 31, 2013” table and the related narrative discussion. As discussed there, in 2009 the OECC recommended and the Board approved amendments to these plans that will moderate the growth in benefits payable under these plans. Qualified and Non-Qualified Deferred Compensation (Defined Contribution) Plans We also maintain both tax-qualified and non-tax-qualified defined contribution plans in which the Named Executive Officers were 32.66 percent aboveare eligible to participate. Our 401(k) Plan is a tax-qualified defined contribution plan and our Deferred Compensation Plan for Directors and Executives is a non-tax-qualified deferred compensation plan. For further discussion of Named Executive Officer participation in non-qualified deferred compensation plans in 2013, see the target awards for the year, primarily due to higher than targeted EPS and return on invested capital performance for the year. “Non-Qualified Deferred Compensation in 2013” table below. Change in Control/ Severance Agreements The Board of Directors considers an effective, highly-skilled and vital management team to be essential to protect and enhance the best interests of our Company. As such, it recognizes that the possibility of a change in control of NW Natural and the uncertainty and questions that such possibility could raise among management, may result in the departure or distraction of management personnel to the Company’s detriment. Accordingly, the Board has approved double trigger severance agreements with all of the Named Executive Officers. The agreements contain a provision that reduces the level of benefits available under the agreements as the Named Executive Officers approach age 65 given that the value of the benefit should diminish commensurate with an officer’s potential remaining years of employment. The Board believes the current form of severance agreement reflects a conservative approach relative to energy industry standards. None of the agreements with officers of NW Natural include provisions for tax gross-up upon a triggering event. See “Potential Payments Upon Termination or Change in Control,” below. In general, the OECC prefers not to enter into severance agreements other than for change in control purposes as discussed above. Accordingly, the OECC has established a guideline that severance benefits may only be provided following a termination without cause in the first five years of employment in a particular position or after a change in control. The benefit for termination without cause, absent a change in control, is reduced over the term of the agreement, which cannot exceed five years. In late 2008, the OECC approved an agreement of this nature with Mr. Kantor as the incoming Chief Executive Officer. This agreement provided that potential non-change-in-control severance payments would decline annually, and terminated as of December 31, 2013. Long-Term IncentivesTheIn 2013, the long-term incentive portion of our executive compensation program consistsconsisted of two components: restricted stock optionsunits with performance threshold and performance shares. The Consultant providesFor purposes of valuing awards, we define the OECC with annual compensation survey data based on the total expected value of long-term incentives, which is defined foreach restricted stock optionsunit to be an estimated market price of the grant-date Black-ScholesCompany’s common stock near the grant date. We define the expected value of options grantedeach performance share under the strategic component
during the year, and is defined forof performance share awards to be the grant-dateaverage closing market price of the target numberCompany’s common stock for the calendar month preceding the grant date. We define the expected value of each share of the total shareholder return component of performance share awards to be the estimated grant-date fair value of the awards based on historical Monte Carlo method allocation and the Company’s average stock price in January 2013, excluding the estimated value of expected dividends. Among the factors the OECC considers in determining long-term incentives in the form of RSUs with performance threshold and performance shares covered by awards duringto be granted to the year. TheChief Executive Officer, and that the Chief Executive Officer considers when making recommendations for other Named Executive Officers are:
the total long-term competitive market compensation survey data provided by the ConsultantConsultant; the executive’s relative position and level of responsibility within NW Natural; the performance of the executive during the prior period; the retention value of long-term incentives before vesting; and the value of long-term incentives needed to ensure that executives are focused on absolute share price appreciation over the long term. As was the case in 2012, the energy service industry and general industry survey data reviewed in February 20102013 showed lowera significant and unexpected year-over-year increase in expected values of long-term incentives for all executive positions thancompared to the survey data provided in 2009, reflecting generally lower industry equity values in the 2010 survey period. Accordingly, for all Named Executive Officers other than Ms. Kirkpatrick, the 2010 survey data indicated that the expected valuereviewed prior to 2012. The OECC discussed various components of long-term incentives granted in 2009 was above the energy service median levels for their positions. Asand general industry survey data with the only executive below market, Ms. Kirkpatrick therefore received a higher performance share grantConsultant. After considerable consideration, the OECC determined that, given the variability in 2010 compared to 2009 to bring her long-term incentive value up toplan design and weighting across industries, and across companies of various size within industries, the energy service median levelmost appropriate guide for her position. The OECC chose not to reduce grant levels based ontargeted long-term incentive opportunities was the 2010 surveynatural gas industry proxy data soprovided by the stock option and performance share award levels Mr. Anderson, Ms. Doolittle and Mr. White were unchanged in 2010. For Mr. Kantor,Consultant. As previously described, the OECC’s compensation strategy with respect to Mr. Kantor is to award target long-term incentive opportunities above market for his position while maintaining a salary below market for his position to tie a relatively larger percentage of his compensation directly to long-term Company performance. Accordingly, the targetedexpected value of long-term incentives granted to Mr. Kantor in 2010 increased by 27 percent compared to 2009, to a level that was 137128 percent of the energy service median level50th percentile for his position in the 2010 survey data, although only 114natural gas industry proxy data. Additionally, in recognition of Mr. Anderson’s new responsibilities as Executive Vice President, Operations and Regulation, and to tie a greater portion of his compensation to the Company’s long-term performance, the OECC targeted the expected value of long-term incentives granted to Mr. Anderson at 126 percent of the energy service median level50th percentile for his position in the 2009 surveynatural gas industry proxy data. The expected value of long-term incentives granted to the remaining Named Executive Officers ranged from 94 percent to 117 percent of the 50th percentile of natural gas industry proxy data relevant to each Named Executive Officer’s position. In 2010, the long-term incentive portion of our executive compensation program was designed such that approximately 20 percentThe OECC targeted an allocation of the expected value of long-term incentives to be granted to each Named Executive Officer’s interest would be granted in the form of stock options,for 2013 at 35 percent RSUs with performance threshold and approximately 8065 percent of such expected value of long-term incentives would be granted as performance share awards. While equity provides incentives toRSUs with performance threshold motivate executives to work toward increasing the price of our Common Stock, and to more closely align executives’ interests with shareholders’ interest, the performance share program rewards relative stock price performance to a peer group, and also focuses the executives on key long-term objectives that align with the creation of shareholder value, thereby tying this portion of executive pay to Company performance. The OECC believes that equitythe allocation between RSUs with performance threshold and performance shares provides a balanced performance focus for executives. The following table shows the expected value of long-term incentives approved by the OECC for each Named Executive Officer, and the allocation of that value to amounts of RSUs with performance threshold and performance shares.
| | | | | | | | | | | | | | | | | | | | | RSUs with Performance
Threshold | | Performance Shares | Name | | Expected Value
of Long-Term
Incentives | | | Percent of
Total
Expected
LTI Value | | | Number of RSUs
with Performance
Threshold
Granted | | Percent of Total
Expected LTI
Value | | Target Number
of Performance
Shares | Gregg S. Kantor | | $ | 869,000 | | | | 34 | % | | 6,500 | | 66% | | 12,500 | David H. Anderson | | | 343,000 | | | | 34 | % | | 2,600 | | 66% | | 4,900 | Stephen P. Feltz | | | 224,000 | | | | 35 | % | | 1,700 | | 65% | | 3,200 | Lea Anne Doolittle | | | 165,000 | | | | 36 | % | | 1,300 | | 64% | | 2,300 | Margaret D. Kirkpatrick | | | 203,000 | | | | 35 | % | | 1,540 | | 65% | | 2,900 |
For 20102013 compensation, the expected value of long-term incentives represented approximately 5248 percent of the target total direct compensation for the Chief Executive Officer and approximately 3234 percent on average for the other Named Executive Officers. Restricted Stock OptionsUnits with Performance Threshold. In 2010, pursuant to the Restated Stock Option Plan,2012, the OECC grantedrecommended modification of our long-term incentive program to grant RSUs with a Company performance threshold instead of stock options which vest equally over four years. Exceptoptions. The purpose of RSUs with performance threshold is to closely align executives’ interests with shareholders’ interests by providing a portion of compensation in cases ofstock. The OECC makes RSU with performance threshold grants of options made to attract new employees, option and performance share grants are made by the OECC at its meeting each February. This is the same time the OECC considers and approves changes in all of the other components of executive compensation, thus havingFebruary, so that it has the benefit of considering the relative value of all components of pay (base salary, and annual and long-term incentives) at once, as well as reviewingeach executive’s total compensation. Off-cycle grants may occur when the Consultant’s annual updated competitive compensation analysis. The exercise price for stock options is set at 100 percent of the closing market price of our Common Stock quotedCompany grants RSUs to attract new employees or to reward extraordinary performance. Depending on the NYSE oncircumstances, these off-cycle grants may not include a performance threshold, and may include a vesting schedule that differs from the date of grant. The OECC uses the same practice to establish stock option exercise prices for all employees receiving options. Option repricing is specifically prohibited under our Corporate Governance Standards. It is the OECC’s policy to grant non-statutory stock options under the Internal Revenue Code and the related regulations so that any compensation recognized upon the exercise of options will be tax deductible by NW Natural.standard RSU with performance threshold vesting schedule. The shareholders have previously approved the
Restated Stock Option Long Term Incentive Plan to comply with the performance-based compensation requirements of Section 162(m) of the Internal Revenue Code, and the plan provisions areCompany performance threshold included in the RSUs with performance threshold is designed to satisfy the other requirementsprincipal requirement for performance-based compensation so that compensation related to the exercise of options granted under this Plan wouldRSUs will not be subject to the $1 million limitation on tax-deductible compensation. No Named Executive Officer has been awarded an RSU without a performance threshold.
In 2010,An RSU obligates the Company amended itsupon vesting to issue to the RSU holder one share of Common Stock plus a cash payment equal to the total amount of dividends paid per share between grant and vesting of the RSU. In general, if the Company performance threshold is met, RSUs vest for 25 percent of the awarded shares on March 1 of each of the first four years after the grant date. No RSUs with performance threshold will vest in a given year if the Company’s performance threshold is not met, and shares subject to vesting in that year will be forfeited. The performance threshold for the RSUs will be met on each vesting date if the Company’s return on common equity for the preceding year is greater than the Company’s average cost of long-term debt for the preceding five years. This performance threshold was satisfied in 2013.
The Company’s form of stock optionRSU agreement effectivehas a “clawback” provision which provides that if a restatement of the Company’s financial statements due to misconduct of any person results in a determination that the performance threshold was not satisfied for both new and existing options,any year, all participants must repay to generally providethe Company any RSU payouts received based on performance for that year. The Company’s form of RSU agreement also provides that if a participant’s misconduct contributes to an inflated stock price and the participant sells shares acquired upon exercisevesting of an optionRSU at such inflated stock price, the OECC may require the participant to repay the amount determined by the OECC to be the excess amount received. Additionally, these agreements were amended to preclude any exercisevesting of optionsRSUs following termination of employment by any participant who is terminated for cause. Among the factors the OECC considers in determining the number of options to be granted to the Chief Executive Officer, and that the Chief Executive Officer considers when making recommendations for the other Named Executive Officers, are:
the total long-term competitive market compensation survey data provided by the Consultant;
the executive’s relative position and level of responsibility within NW Natural;
the performance of the executive during the prior period;
the retention value of options before vesting; and
the number of options needed to ensure that executives are focused on absolute share price appreciation over the long term.
Considering these factors, the OECC granted options to the Named Executive Officers in 2010 as shown in the “Grants of Plan-Based Awards During 2010” table below. The option grant for Mr. Kantor in 2010 increased by 5,000 shares compared to his 2009 option grant of 25,000 shares, due to the OECC’s desire to have a greater portion of Mr. Kantor’s total mix of compensation be at-risk and contain a greater weighting of long-term incentive to incent him to focus on long-term Company performance. Option grants in 2010 for Mr. Anderson, Ms. Doolittle, Mr. White and Ms. Kirkpatrick remained unchanged from 2009 at 8,000, 3,000, 4,000 and 4,000, respectively.
Performance SharesShares. The second component of our executives’ long-term compensation program is provided through a performance share programshares under our Long Term Incentive Plan. The purpose of the performance share program is to provide a means for rewardingreward executives for their success in driving long-term performance results that increase shareholder value and to tie executive compensation directly to Company performance. This component is also designed to encourageencourages ownership of our stock by our executives. All of the Named Executive Officers participate in the performance share program. In 2010, the Company amended theThe Company’s form of performance share agreement for new awards tohas a “clawback” provision which generally provideprovides that if a participant’s misconduct contributed to an inflated payout under the total shareholder return component of any award because the Company’s stock price in the last three months of the performance cycle was higher than it would have been absent the misconduct, the OECC may require the participant to repay the amount determined by the OECC to be the excess amount received.
In February 2010,2013, each Named Executive Officer received a performance share award to be earned over a three-year performance period (2010-2012). The threshold (minimum award other than no award), target and maximum performance share awards approved by(2013-2015) as displayed in the OECC for the Named Executive Officers in 2010 were primarily based on the Consultant’s analysis considering competitive opportunities for comparable executive positions and consideration of the level of expected value provided by the program as a percentage of the participant’s total direct compensation opportunity. In 2010, Mr. Kantor’s performance share award increased by 2,000 shares, from 13,000 shares in 2009 to 15,000 shares in 2010 due to the OECC’s desire to have a greater portion of Mr. Kantor’s total mix of compensation be at-risk and contain a greater weighting of long-term incentives to incent him to focus on long-term Company performance. Ms. Kirkpatrick’s performance share award increased by 500 shares, from 3,000 shares in 2009 to 3,500 shares in 2010 to better align her incentive compensation with competitive market medians. Performance share awards remained the same for Mr. Anderson, Ms. Doolittle and Mr. White in 2010 at 5,500, 2,500 and 3,000, respectively. table above. The performance criteria used for the three most recent three-year performance cycles, 2008-2010, 2009-20112011-2013, 2012-2014 and 2010-2012,2013-2015 were based on two primary factors: a total shareholder return component that measures relative total shareholder return versus a named peer group of energy companies (weighted 75 percent of the total award) and a strategic component which measures achievement of performance milestones relative to our core and non-core strategic plan goals (weighted 25 percent of the total award). Total Shareholder Return Component.Component.75 Seventy-five percent of the performance share award is based on total shareholder return relative to a peer group of 10 natural gas utility companies. The OECC selected this peer group of companies because of the companies’ comparability to NW Natural both in terms of size and the nature of their business. This peer group differs from the group included in the total shareholder return table appearing in our 2010 Annual Report to Shareholders in that it focuses on local gas distribution companies instead of a broader group of energy companies. This peer group consists of AGL Resources Inc., Atmos Energy Corporation, South Jersey Industries, Inc., The Laclede Group, Inc., New Jersey Resources Corporation, Nicor Inc., Vectren Corporation, Piedmont Natural Gas Company Inc., Southwest Gas Corporation and WGL Holdings, Inc. This peer group is also considered by the OECC when reviewing compensation practices but is not the primary source of comparison used. Some or all of the companies may be included in the total shareholder return table included in our 2010 Annual Report. If over the course of the cycle a peer company ceases to be publicly traded, an alternative peer company is substituted from a pre-established alternate peer list, which for the 2010-2012 cycle consists of NiSource, National Fuel Gas Company and Chesapeake Utilities Corporation. Total shareholder return is the return a shareholder earns over a specified period of time, in this case the three-year performance period. Total shareholder return measures the change in share price, assuming dividends are reinvested, and is what we might expect a shareholder to receive from his or her ownership in NW Natural. The value at the end of the period is determined based on the three-month average daily closing price prior to the end of the performance period compared to the three months immediately prior to the start of the performance period. This measure was determined by the OECC to best align the interests of management with those of the shareholders. 2013-2015 Performance Share Awards (Granted in 2013). For the 2013-2015 performance cycles prior toshare awards granted in February 2013, the 2010-2012 cycle, wepeer group consisted of all companies included in the Dow Jones U.S. Gas Distribution Index for the duration of the performance cycle. As of December 31, 2013, the peer group companies were AGL Resources Inc., Atmos Energy Corporation, South Jersey Industries, Inc., National Fuel Gas Company, New Jersey Resources Corporation, NiSource Inc., ONEOK, Inc. Piedmont Natural Gas Company Inc., Questar Corporation, Southwest Gas Corporation, UGI Corporation and WGL Holdings, Inc. The payout levels are required to achieve a minimum averagebased on the percentile rank of six percentour total shareholder return per year (a cumulative total of 19.1 percent for the three-year cycle) over the three-year period before any awards can be earned under this component. In 2010, the OECC reviewed the minimum average total shareholder return requirement by looking at peer companies’ thresholds and past plan payouts. The OECC determined that peer companies’ plans did not contain a similar threshold. The OECC also determined that the minimum threshold prevented appropriate performance share payouts in years where the Company had overall outstanding relative performance. As a result, for the 2010-2012 cycle the OECC reduced the minimum average total shareholder return requirement to 0 percent, so that for the 2010-2012 cycle and on a go-forward basis, this component will pay out based on performance relativeas compared to the peer group so long ascompanies, with a threshold 25 percent payout at the 30th percentile, target 100 percent payout at the 50th percentile, and maximum 200 percent payout at or above the 90th percentile. However, the calculated payout percentage is reduced by 25 percent if the Company’s total shareholder return is less than 0 percent.
2011-2013 Performance Share Awards (Performance Cycle Completed in 2013).Under our prior methodology for measuring the total shareholder return component, the Company’s performance was compared to a positive number forpeer group of 10 gas utility companies. For the cycle. 2011-2013 performance cycle, this peer group consisted of AGL Resources Inc., Atmos Energy Corporation, The Laclede Group, Inc., New Jersey Resources Corporation, Piedmont Natural Gas Company, Inc., Questar Corporation, South Jersey Industries, Inc., Southwest Gas Corporation, Vectren Corporation, and WGL Holdings, Inc. The following table shows the total shareholder return component factors we useused under the structure in place for the 2011-2013 performance cycle to determine NW Natural’s factor for total shareholder return compared to rankings for companies in the peer group noted above: | | | Total Shareholder Return Ranking for Peer Group | | Total Shareholder Return Component Factor | | 10 | | 0% | | 9 | | 0% | | 8 | | 25% | | 7 | | 25% | | 6 | | 50% | | 5 | | 75% | | 4 | | 100% | | 3 | | 125% | | 2 | | 150% | | 1 | | 200% |
For the 2008-20102011-2013 performance cycle, NW Natural’s total shareholder return was a cumulative 12.63-1.5% percent, which was below the level achieved by all of the ninth best performing companycompanies in the peer group, and therefore resulted in a 0zero percent payout factor for the total shareholder return component. As indicated above, the total shareholder return is, in part, based on the difference between the three-month average daily closing price prior to the end of the performance period compared to the three monththree-month average immediately prior to the start of the performance period. The total shareholder return on this calculation was lower for NW Natural than its peers due in part to NW Natural’s strong comparative performance in the cycle that ended with the last three months of 2007, which set a higher floor against which the current period’s stock price performance was measured. Strategic Component.Component.The remaining 25 percent of any performance share award is subjective and determined at the discretion of the OECC at the end of the three-year performance cycle. Among other things, the OECC considers actual performance relative to strategic milestones set forth in our strategic plan and approved by the OECC prior to the beginning of the cycle. Factors considered by the OECC include, but are not limited to: | Ÿ | | financial measures, consisting of return on invested capital and return on equity;
|
financial measures, consisting of return on invested capital and return on equity; | Ÿ | | growth measures relating to organizational transition, gas storage and pipeline and gas supply projects; and
|
growth measures relating to gas storage, pipeline, and gas supply projects; | Ÿ | | leadership development and succession planning matters.
|
utility strategic initiatives, including natural gas reserves, rate case execution, and customer growth; leadership development and succession planning; and utility operations and service, and occupational safety. The following formula is used to determine the performance share factor at the end of the three-year performance period. This factor is then applied to the target awards for each award recipient. | | | | | | | | | | | | | | | | | | | | | | | | | [ | | | | | | | | ] | | | | [ | | | | | | | | ] | | | | | | | Total Shareholder Return Component Factor | | X | | 75% | | | + | | | Strategic Component Factor | | X | | 25% | | | = | | Performance Share Factor | | | (0-200%) | | | | | | | | | | (0-200%) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | [ | | Total Shareholder Return ComponentFactor (0-200%) | | | | | | ] | | | | [ | | Strategic ComponentFactor (0-200%) | | | | | | ] | | | | Performance Share Factor | | | | X | | 75% | | | + | | | | X | | 25% | | | = | | | | | | | | | | | | | | | | | | | | |
At the end of the 2008-20102011-2013 program term, the OECC determined the degree to which the strategic goals were achieved.achieved during the three-year plan cycle. The OECC weighed in its subjective assessment, of strongamong other things, NW NaturalNatural’s financial performance for each year of the three-year cycle, including ROIC and ROE; the Company’s successful gas reserves transaction in 2011, which is designed to provide the Company with a long-term fixed-price hedge that is backed with physical gas supplies; successfully securing favorable rate treatment of the gas reserves transaction; management’s business development activities, milestones achieved inand customer growth activities; execution of ourthe Company’s strategic plan in workforce development and succession planning,planning; and management’s strong performance in executing its business plan cost effectively in a low-growth economy, and management’s continued progress toward its overall goal of achieving NW Natural’s five percent annual long-term earnings growth targets,economy. The OECC also considered the challenges associated with gas storage markets that have experienced historically low pricing, as well as challenges in the constructioncertain business development and start-up of our Gill Ranch gas storage project, including some budget overruns and the difficult gas storage market generally,growth initiatives that were not realized, and assigned a strategic component factor of 95.75103.5 percent which was slightly below expected targets. from a possible 200 percent. Because the OECC’s determination as to the achievement of this portion of the award is discretionary, amounts paid to the Named Executive Officers may not be tax deductible under Section 162(m) of the Internal Revenue Code. See “Regulatory, Tax and Accounting Considerations,” below. Total 20102011-2013 Performance Shares.Shares.The combination of the total shareholder return component factor (at 0zero percent, weighted 75 percent) and the strategic component factor (at 95.75103.5 percent, weighted 25 percent) for the 2008-20102011-2013 cycle resulted in a performance share factor of 23.9425.88 percent of target.target, or 12.94 percent of a possible 200 percent total opportunity. Minimum, target, maximum and actual share awards for the 2011-2013 performance share awards are set forth in the table below, and the value of the share award levels is illustrated in the following bar chart: | | | | | | | | | | | Named Executive Officer | | Minimum Share
Award | | | Target Share
Award | | Maximum Share
Award | | Actual Share
Award | Gregg S. Kantor | | | 0 | | | 15,000 | | 30,000 | | 3,881 | David H. Anderson | | | 0 | | | 5,000 | | 10,000 | | 1,294 | Stephen P. Feltz | | | 0 | | | 1,750 | | 3,500 | | 453 | Lea Anne Doolittle | | | 0 | | | 2,250 | | 4,500 | | 582 | Margaret D. Kirkpatrick | | | 0 | | | 3,200 | | 6,400 | | 828 |
| * | Using a stock price of $42.82, which was the closing price of NW Natural common stock on December 31, 2013. |
Share award amounts in the above table do not include cash dividend amounts paid. For actual 20102011-2013 award cash value, including cash dividend amounts, see the “Option Exercises and Stock Vested During 2010”2013” table, below. Storage Project Performance Share Award. Mr. White is the executive officer with principal responsibility for the development of the Company’s Gill Ranch gas storage project. To provide an additional incentive for Mr. White specifically related to the successful completion and early performance of this multi-year project, in February 2009 the OECC approved a special performance share award to him for 2,000 shares. The performance goals for this award are subjective and will be determined in the discretion of the OECC, with one-half of the target award subject to project completion and initial performance through June 30, 2011, and one quarter of the target award subject to performance of the project in each of the following 12-month periods. Payout of this award can range from 0 percent to 125 percent of the target award.
Perquisites The OECC reviewed its perquisite policy and eliminated perquisites for executives effective January 1, 2008. The OECC acknowledges that certain benefits incidental to other business-related activities may continue, but the aggregate annual value of such benefits is not expected to exceed $10,000 for any Named Executive Officer. The OECC confirmed that while many utilities continue to provide some level of perquisites, many general industry companies are moving away from this practice as these benefits are not provided to all employees. Qualified and Non-Qualified Retirement (Defined Benefit) Plans In general, when compared to non-utilities, the utility industry has historically provided a greater percentage of total remuneration in the form of retirement benefits, particularly in the form of defined benefit plans, rather than current cash compensation. The Named Executive Officers participate in the Retirement Plan for Bargaining Unit and Non-Bargaining Unit Employees, our qualified defined benefit pension plan, on the same terms as other salaried employees. We also maintain the following non-qualified supplemental retirement plans for certain executives: the Executive Supplemental Retirement Income Plan and the Supplemental Executive Retirement Plan. These plans are more fully described below under the “Pension Benefits as of December 31, 2010”2013” table and the related narrative discussion. As discussed there, in 2009 the OECC recommended and the Board approved amendments to these plans that will moderate the growth in benefits payable under these plans. Qualified and Non-Qualified Deferred Compensation (Defined Contribution) Plans We also maintain both tax-qualified and non-tax-qualified defined contribution plans in which the Named Executive Officers are eligible to participate. Our 401(k) Plan is a tax-qualified defined contribution plan and our Deferred Compensation Plan for Directors and Executives is a non-tax-qualified deferred compensation plan. For further discussion of Named Executive Officer participation in non-qualified deferred compensation plans in 2010,2013, see the “Non-Qualified Deferred Compensation in 2010”2013” table below. Change in Control/ Severance Agreements The Board of Directors considers the establishment and maintenance of an effective, soundhighly-skilled and vital management team to be essential to protectingprotect and enhancingenhance the best interests of our Company. In recognition ofAs such, it recognizes that the possibility of a change in control of NW Natural and that such possibility, and the uncertainty and questions that itsuch possibility could raise among management, may result in the departure or distraction of management personnel to our detriment,the Company’s detriment. Accordingly, the Board has approved double trigger severance agreements with all of the Named Executive Officers. The agreements contain a provision that reduces the level of benefits available under the agreements as the Named Executive Officers approach age 65 given that the value of the benefit should diminish commensurate with an officer’s potential remaining years of employment. The Board believes the current form of severance agreement reflects a conservative approach usingrelative to energy industry standards. None of the agreements with officers of NW Natural include provisions for tax gross-up upon a triggering event. See “Potential Payments Upon Termination or Change in Control,” below. In general, the OECC prefers not to enter into severance agreements other than for change in control purposes as discussed above. Accordingly, the OECC has established a guideline that severance benefits may only be provided following a termination without cause in the first five years of employment in a particular position or after a change in control. The benefit for termination without cause, absent a change in control, is reduced over the term of the agreement, which cannot exceed five years. In late 2008, the OECC approved an agreement of this nature with Mr. Kantor as the incoming Chief Executive Officer. See “Potential Payments Upon TerminationThis agreement provided that potential non-change-in-control severance payments would decline annually, and terminated as of December 31, 2013. Stock Ownership Guidelines Our Corporate Governance Standards provide the following ownership guidelines for executive officers, expressed as a multiple of each executive officer’s base salary: | | | Position | | Dollar Value of Stock Owned
as Multiple of Base Salary | | Chief Executive Officer | | 4x | | Executive Vice President or Chief Operating Officer | | 3x | | Senior Vice Presidents or Named Executive Officers | | 2x | | Vice Presidents and all other Executive Officers | | 1x |
The OECC periodically reviews the stock ownership requirements for executive officers, which are included in the Company’s Corporate Governance Standards. During 2012, the OECC reviewed executive stock ownership requirements of peer companies, and recommended to the Board of Directors, amendments to the Company’s Corporate Governance Standards to increase the executive stock ownership requirements for the positions of Chief Executive Officer, Executive Vice President, Chief Operating Officer, Senior Vice President and Named Executive Officers, effective as of January 1, 2013. The Board of Directors approved these amendments. The Board of Directors of NW Natural believes that these ownership objectives provide executives with a meaningful stake in the ownership of NW Natural; and, as a result, fully align executive officers’ interests with those of our shareholders. The OECC annually reviews the progress made by executives against these objectives. This progress is measured using shares owned directly by executives as well as shares credited to their Retirement K Savings Plan (401(k) Plan) and non-qualified deferred compensation plan accounts. In addition, after reviewing peer company practices, the OECC amended the stock guidelines effective in 2013 to also measure ownership progress based on stock directly owned by immediate family members, unvested restricted stock units, restricted stock, and in the money stock options. The value of stock owned is determined using the closing price for the Common Stock as of last day of the year. The stock ownership objectives should generally be attained within five years of appointment as an officer. However, the OECC has allowed an additional five years for attainment of stock ownership guidelines from the date that an individual is affected by increased stock ownership requirements, and the OECC retains discretion to extend the time period within which ownership goals are reached. The OECC last reviewed the progress of the Named Executive Officers in achieving these stock ownership objectives in February 2014 and concluded that all of the Named Executive Officers have achieved stock ownership goals or, Changefor newer officers or officers affected by the increased share ownership requirements, have made progress in Control,” below. achieving these goals. The Company does not have a policy that requires retention of stock acquired from equity compensation plans or vesting of shares. Regulatory, Tax and Accounting Considerations Regulatory Treatment WeThe Company fully assessassesses the accounting and tax treatment of each form of compensation paid to the Named Executive Officers for both NW Natural and the individual executive. This is particularly important in a regulated business where we arethe Company is allowed to recover costs of service in rates (salaries, qualified pensions and health and welfare benefit costs), while other elements of executive compensation, such as annual incentive awards, long-term performance shares and non-qualified retirement benefits, are typically shareholder expenses because the programs are designedPublic Utility Commissions that regulate the Company view these expenses as more closely tied to meet shareholder objectives. However, our incentive compensation programs benefit customers by including performance incentives that:
encourage efficient, safe and reliable service; encourage management of capital, operating, and maintenance costs, which helpshelp to abate the need for future rate increases; and focus on customer satisfaction. See “Corporate Performance Goals,” above. Actual amounts currently recovered in rates are based on amounts determined in our general rate cases approved by the Oregon Public Utility Commission of Oregon in 20032012 and by the Washington Utilities and Transportation Commission in 2008. The following table shows the current rate recovery treatment for categories of compensation expenses for various elements of our executive compensation program: | | | Expenses Recovered in Rates | | Expenses Not Recovered in Rates | | | Salaries | | Stock Options | | | Qualified pension plan benefits | | Executive Annual Incentive Plan | | | Matching contributions related to Qualified Retirement K Savings Plan matching contributions Health and welfare benefits
| | Long Term Incentive Plan
Interest accruals and matching contributions on Deferred Compensation Plan for Directors and Executives | | | | Health and welfare benefits | | Interest accruals on Executive Deferred Compensation Plan | | | Executive Supplemental Retirement Income Plan | | | Supplemental Executive Retirement Plan | | | Change-in-control severance benefits | | | Non-change-in-control severance benefits | | | Long-Term Incentive Plan | | | Executive Supplemental Retirement Income Plan
| | | | | Supplemental Executive Retirement Plan
| | | | | Change-in-control severance benefits
| | | | | Non-change-in-control severance benefitsRestricted Stock Units with Performance Threshold
Performance Shares
|
Tax Deductibility of Compensation In developing executive compensation programs, the OECC takes into consideration the tax deductibility of the various components of compensation under the Internal Revenue Code. Section 162(m) of the Internal Revenue Code generally limits to $1 million per person the amount that may be deducted for compensation paid in any year to our Named Executive Officers (other than the chief financial officer). Certain exceptions to this limitation apply to “performance-based compensation.” We havepreviously obtained shareholder approval of theour former Restated Stock Option Plan and the Long Term Incentive Plan to qualify the exercise of non-statutory stock options and the payment of the non-discretionary portion of long-term incentive awardsgranted under the Long Term Incentive Planthat plan as performance-based so that compensation received would not be subject to the $1 million limitation. It ishas been the OECC’s policy to grant options that meet the requirements of the Internal Revenue Code and related regulations so that any such compensation recognized by an optionee will be fully-deductible, performance-based compensation. TheWe have also obtained shareholder approval of our Long Term Incentive Plan to qualify RSUs with a performance threshold and the non-discretionary portion of performance share long-term incentiveawards as performance-based so that compensation received would not be subject to the $1 million limitation. RSUs with a performance threshold and the non-discretionary portion of performance share awards granted by the OECC isare also generally intended to meet the “performance-based compensation” requirements of the Internal Revenue Code and related regulations so that any compensation paid under the non-discretionary portion of those awards should be fully deductible. In 2013, $76,883 of Mr. Kantor’s compensation was considered non-deductible under Section 162(m). We do not expect any amounts paid to our other Named Executive Officers in 20102013 to be considered non-deductible under Section 162(m). REALIZED COMPENSATION TABLE The SEC’s calculation of total compensation, as shown in the Summary Compensation Table set forth on page 44, includes several items that are driven by accounting and actuarial assumptions, which are not necessarily reflective of compensation actually realized by the Named Executive Officers in a particular year. To supplement the SEC-required disclosure, we have included the additional table below, which shows compensation actually realized by each Named Executive Officer for each of the years shown. Realized Compensation Table1 | | | | | | | | | | | Name and Principal Position | | Year | | | Realized Compensation2 | | | | Gregg S. Kantor | | | 2013 | | | | $1,336,048 | | | | President and Chief Executive Officer | | | 2012 | | | | 945,290 | | | | | | | 2011 | | | | 1,062,333 | 4 | | | David H. Anderson | | | 2013 | | | | 912,701 | 3 | | | Executive Vice President of Operations and Regulations5 | | | 2012 | | | | 548,926 | | | | | | | 2011 | | | | 564,507 | | | | Stephen P. Feltz | | | 2013 | | | | 530,134 | 3 | | | Senior Vice President and Chief Financial Officer | | | | | | | | | | | Lea Anne Doolittle | | | 2013 | | | | 484,436 | 3 | | | Senior Vice President and Chief Administrative Officer | | | 2012 | | | | 355,616 | | | | | | | 2011 | | | | 360,977 | | | | Margaret D. Kirkpatrick | | | 2013 | | | | 510,603 | | | | Senior Vice President and General Counsel | | | 2012 | | | | 398,458 | | | | | | | 2011 | | | | 395,583 | | | |
(1) Amounts reported as realized compensation differ substantially from the amounts determined under SEC rules and reported as total compensation in the Summary Compensation Table. Realized compensation is not a substitute for total compensation. For more information on total compensation as calculated under SEC rules, see the narrative and notes accompanying the Summary Compensation Table set forth on page 44. (2)Amounts reflected as realized compensation in this table include the following amounts paid for the applicable year: (1) salary earned in the applicable year; (2) Executive Annual Incentive Plan payments earned in the applicable year; (3) the value of the Performance Share Award actually paid for the performance period ending in the applicable year; (4) the value of RSUs with performance threshold paid during the applicable year; and (5) the value realized on exercise of stock options during the applicable year, if any. The amounts reflected as realized compensation in this table do not include the following amounts for the year indicated: (a) the value of performance share awards, RSUs with performance threshold, or stock options granted but not yet paid or exercised; (b) the aggregate change in the actuarial present value of the Named Executive Officers’ accumulated benefits under all defined benefit pension plans; (c) above-market interest credited to the non-qualified deferred compensation plan accounts of the Named Executive Officers, if any; (d) employer matching contributions to qualified defined contribution plan 401(k) Plan; (e) matching contributions under non-qualified deferred compensation plans, if any; and (f) any additional payments or de minimus amounts. (3)Amount includes compensation realized on the exercise of stock options that were granted in prior years of $172,375 for Mr. Anderson, $53,300 for Mr. Feltz, and $31,031 for Ms. Doolittle. (4)Amount includes compensation of $89,134 realized on the exercise of stock options that were granted in prior years. (5)Effective February 27, 2014, Mr. Anderson was appointed Executive Vice President and Chief Operating Officer. SUMMARY COMPENSATION TABLE The following is a summary of the compensation for our Named Executive Officers in 2008, 20092011, 2012 and 2010.2013. Only a portion of the executive compensation shown in this Summary Compensation Table is included for purposes of establishing regulatory rates charged to customers. Although most of our compensation programs are designed to promote shareholder objectives, our customers also directly benefit because many of the programs include performance incentives that are designed to improve service to our customers. For discussion regarding amounts excluded from rate recovery, see “Compensation Discussion and Analysis—Regulatory, Tax and Accounting Considerations—Regulatory Treatment,” above. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | NAME AND PRINCIPAL POSITION (a) | | YEAR | | | SALARY
($) | | | BONUS1
($) | | | STOCK
AWARDS2
($) | | | OPTION
AWARDS3
($) | | | NON-
EQUITY
INCENTIVE
PLAN
COMPEN-
SATION1
($) | | | CHANGE IN
PENSION
VALUE
AND NON-
QUALIFIED
DEFERRED
COMPEN
SATION
EARNINGS4
($) | | | ALL
OTHER
COMPEN-
SATION5
($) | | | TOTAL
($) | | | | (b) | | | (c) | | | (d) | | | (e) | | | (f) | | | (g) | | | (h) | | | (i) | | | (j) | | Gregg S. Kantor | | | 2010 | | | $ | 454,808 | | | $ | 91,582 | | | $ | 384,629 | | | $ | 190,656 | | | $ | 336,418 | | | $ | 1,296,008 | | | $ | 32,197 | | | $ | 2,786,298 | | President and Chief Executive Officer | | | 2009 | | | | 446,000 | | | | 234,848 | | | | 243,631 | | | | 136,508 | | | | 330,152 | | | | 994,375 | | | | 33,444 | | | | 2,418,958 | | | | | 2008 | | | | 364,833 | | | | 64,615 | | | | 131,250 | | | | 42,757 | | | | 172,485 | | | | 463,775 | | | | 26,924 | | | | 1,266,639 | | David H. Anderson | | | 2010 | | | | 351,333 | | | | 43,791 | | | | 141,030 | | | | 50,842 | | | | 167,209 | | | | 185,937 | | | | 20,823 | | | | 960,965 | | Senior Vice President and Chief Financial Officer | | | 2009 | | | | 343,000 | | | | 152,775 | | | | 103,075 | | | | 43,682 | | | | 163,225 | | | | 137,446 | | | | 19,246 | | | | 962,449 | | | | | 2008 | | | | 341,333 | | | | 49,015 | | | | 111,058 | | | | 42,757 | | | | 145,085 | | | | 21,608 | | | | 18,479 | | | | 729,335 | | Lea Anne Doolittle | | | 2010 | | | | 245,833 | | | | 28,001 | | | | 64,105 | | | | 19,066 | | | | 90,999 | | | | 402,368 | | | | 13,502 | | | | 863,874 | | Senior Vice President | | | 2009 | | | | 240,000 | | | | 104,170 | | | | 46,852 | | | | 16,381 | | | | 88,830 | | | | 263,569 | | | | 19,909 | | | | 779,711 | | | | | 2008 | | | | 238,833 | | | | 26,142 | | | | 70,673 | | | | 21,378 | | | | 78,958 | | | | 192,630 | | | | 13,538 | | | | 642,152 | | J. Keith White | | | 2010 | | | | 225,833 | | | | 18,422 | | | | 76,926 | | | | 25,421 | | | | 95,578 | | | | 263,021 | | | | 9,234 | | | | 714,435 | | Vice President, Business Development and Energy Supply and Chief Strategic Officer | | | 2009 | | | | 220,000 | | | | 76,572 | | | | 148,602 | | | | 21,841 | | | | 81,428 | | | | 164,169 | | | | 15,857 | | | | 728,469 | | Margaret D. Kirkpatrick | | | 2010 | | | | 268,667 | | | | 28,527 | | | | 89,747 | | | | 25,421 | | | | 99,473 | | | | 148,589 | | | | 9,234 | | | | 669,658 | | Vice President and General Counsel | | | 2009 | | | | 262,000 | | | | 106,027 | | | | 56,222 | | | | 21,841 | | | | 96,973 | | | | 45,478 | | | | 9,248 | | | | 597,789 | | | | | 2008 | | | | 260,667 | | | | 26,904 | | | | 60,577 | | | | 21,378 | | | | 86,196 | | | | 32,551 | | | | 8,351 | | | | 496,624 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | NAME AND PRINCIPAL POSITION (a) | | YEAR | | | SALARY
($) | | | BONUS1
($) | | | STOCK
AWARDS2
($) | | | OPTION
AWARDS3
($) | | | NON-
EQUITY
INCENTIVE
PLAN
COMPEN-
SATION1
($) | | | CHANGE IN
PENSION
VALUE AND NON-
QUALIFIED
DEFERRED
COMPEN SATION
EARNINGS4 ($) | | | ALL
OTHER
COMPEN-
SATION5
($) | | | TOTAL
($) | | | | (b) | | | (c) | | | (d) | | | (e) | | | (f) | | | (g) | | | (h) | | | (i) | | | (j) | | Gregg S. Kantor | | | 2013 | | | $ | 513,500 | | | $ | 135,663 | | | $ | 781,945 | | | | $— | | | $ | 433,337 | | | | $12,551 | | | $ | 31,605 | | | $ | 1,908,601 | | | President and Chief Executive Officer | | | 2012 | | | | 478,500 | | | | 126,813 | | | | 969,704 | | | | — | | | | 160,187 | | | | 1,346,128 | | | | 30,128 | | | | 3,111,460 | | | | | 2011 | | | | 464,428 | | | | 134,085 | | | | 378,729 | | | | 201,906 | | | | 224,915 | | | | 1,659,328 | | | | 32,268 | | | | 3,095,659 | | | David H. Anderson | | | 2013 | | | | 385,833 | | | | 63,394 | | | | 308,882 | | | | — | | | | 202,606 | | | | 171,576 | | | | 19,420 | | | | 1,151,711 | | | | | | | | | | | | | Executive Vice President, Operations and Regulation6 | | | 2012 | | | | 368,000 | | | | 49,765 | | | | 359,004 | | | | — | | | | 65,235 | | | | 215,820 | | | | 18,842 | | | | 1,076,666 | | | | | 2011 | | | | 357,167 | | | | 52,523 | | | | 126,243 | | | | 74,032 | | | | 91,477 | | | | 231,701 | | | | 20,861 | | | | 954,004 | | | | | | | | | | | | | Stephen P. Feltz | | | 2013 | | | | 284,500 | | | | 38,082 | | | | 201,812 | | | | — | | | | 122,918 | | | | 309,992 | | | | 13,281 | | | | 970,585 | | | Senior Vice President and Chief Financial Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Lea Anne Doolittle | | | 2013 | | | | 266,667 | | | | 36,332 | | | | 148,597 | | | | — | | | | 111,668 | | | | 95,957 | | | | 13,082 | | | | 672,303 | | | | | | | | | | | | | Senior Vice President and Chief Administrative Officer | | | 2012 | | | | 258,667 | | | | 31,346 | | | | 151,031 | | | | — | | | | 35,654 | | | | 491,259 | | | | 12,644 | | | | 980,601 | | | | | 2011 | | | | 251,167 | | | | 30,918 | | | | 56,809 | | | | 33,651 | | | | 50,082 | | | | 432,363 | | | | 13,733 | | | | 868,723 | | | Margaret D. Kirkpatrick | | | 2013 | | | | 292,500 | | | | 38,499 | | | | 182,863 | | | | — | | | | 122,501 | | | | 237,481 | | | | 10,261 | | | | 884,105 | | | Senior Vice President and General Counsel | | | 2012 | | | | 283,500 | | | | 33,918 | | | | 231,347 | | | | — | | | | 39,082 | | | | 171,805 | | | | 9,428 | | | | 769,080 | | | | | 2011 | | | | 275,000 | | | | 31,148 | | | | 80,796 | | | | 43,746 | | | | 54,852 | | | | 172,741 | | | | 9,234 | | | | 667,517 | |
(1) The total bonus paid to each Named Executive Officer under our Executive Annual Incentive Plan for performance in 2013 is split between columns (d) and (g). Amounts constituting the discretionary portion of bonuses under the plan are the amounts listed as bonuses in column (d). Amounts constituting the performance-based, non-discretionary portion of bonuses under the plan are the amounts listed as non-equity incentive plan compensation in column (g). (2)Amounts shown in column (e) represent the grant date fair value of performance share awards granted in each year and restricted stock unit awards (RSUs) with a performance threshold granted in 2012 and 2013, disregarding estimated forfeitures, determined under share-based compensation accounting guidance. The amount shown for RSUs with performance threshold is equal to the number of RSUs with performance threshold awarded multiplied by the closing market price of the Common Stock on the date of grant. The issuance of the shares under these awards is contingent upon meeting certain performance criteria, so the shares may or may not be earned. The portion of each performance share award based on relative total shareholder return (75 percent of each target award) is considered to be subject to a market condition, so the amount shown for that portion of each performance share award represents the grant date fair value of the award calculated using a Monte Carlo model. For the remaining portion of each performance share award subject to strategic performance milestones (25 percent of each target award), the amount shown is based on the estimated number of shares to be issued multiplied by the sum of the closing market price of the Common Stock on the date of grant plus the estimated dividends per share to be paid over the three-year performance period. As of the grant date of these awards, the target number of shares was estimated to be the number of shares to be issued under the strategic portions of the awards. If the maximum number of shares issuable under the strategic portion had been used as the estimated number of shares, the total amounts in column (e) for 2013 would have been $941,289 for Mr. Kantor, $371,345 for Mr. Anderson, $242,604 for Mr. Feltz, $177,917 for Ms. Doolittle, and $219,831 for Ms. Kirkpatrick. (3)Amounts shown in column (f) represent the grant date fair value of options granted in 2011, disregarding estimated forfeitures, estimated using the Black-Scholes option pricing model. The assumptions used in determining the grant date fair values of options under share-based compensation accounting guidance are disclosed in Note 6 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2013. (4)The amounts included in column (h) as the aggregate change in the actuarial present value of the Named Executive Officers’ accumulated benefits under all defined benefit pension plans during 2013 were: $0 for Mr. Kantor, $171,432 for Mr. Anderson, $299,625 for Mr. Feltz, $87,009 for Ms. Doolittle, and $237,481 for Ms. Kirkpatrick. For Mr. Kantor, the actual change in pension value was a decrease of $187,807, but applicable disclosure rules do not permit inclusion of negative amounts in the above table. The 2013 amounts were calculated using a discount rate of 4.50 percent, which is 87 basis points higher than the discount rate used for 2012 due to the significant increase in long-term interest rates year over year. This significant increase in the discount rate explains the reported 2013 decrease in the actuarial present value of accumulated pension benefits for Mr. Kantor, and resulted in smaller increases for Mr. Feltz and Ms. Doolittle than in recent years. Amounts of above-market interest included in column (h) that were credited to the non-qualified deferred compensation plan accounts of the Named Executive Officers during 2013 were: $12,551 for Mr. Kantor, $144 for Mr. Anderson, $10,367 for Mr. Feltz, $8,948 for Ms. Doolittle, and $0 for Ms. Kirkpatrick. For this purpose, interest credited is considered above-market to the extent such interest exceeds 120 percent of the average of the applicable long-term federal rates for the twelve months corresponding to the period for which market yield information is obtained to calculate interest crediting rates under the non-qualified deferred compensation plans. (5)The amounts included in column (i) as matching contributions under the qualified defined contribution plan 401(k) Plan during 2013 were: $9,180 for each of Mr. Kantor, Mr. Anderson, Mr. Feltz, Ms. Doolittle and Ms. Kirkpatrick. The amounts recorded as matching contributions under non-qualified deferred compensation plans during 2013 were: $19,580 for Mr. Kantor, $8,822 for Mr. Anderson, $3,056 for Mr. Feltz, $2,820 for Ms. Doolittle, and $0 for Ms. Kirkpatrick. The amounts recorded for dividend equivalents for restricted stock units with performance threshold that vested during 2013 were: $2,520 for Mr. Kantor, $990 for Mr. Anderson, $360 for Mr. Feltz, $405 for Ms. Doolittle, and $653 for Ms. Kirkpatrick. Amounts in column (i) also include a $190 gift basket plus $136 gross up expense for Mr. Kantor, $150 gift basket plus $107 gross up expense for Mr. Feltz, and a $145 gift basket plus $104 gross up expense for Ms. Doolittle. Amounts in column (i) also include a $250 gift card plus $178 gross up expense for each of Mr. Anderson, Mr. Feltz, Ms. Doolittle, and Ms. Kirkpatrick. 1(6) | The total bonus paid to each NamedEffective February 27, 2014, Mr. Anderson was appointed Executive Officer under our Executive Annual Incentive Plan for performance in 2010 is split between columns (d)Vice President and (g). Amounts constituting the discretionary portion of bonuses under the plan are the amounts listed as bonuses in column (d). Amounts constituting the performance-based, non-discretionary portion of bonuses under the plan are the amounts listed as non-equity incentive plan compensation in column (g).Chief Operating Officer.
|
2 | Amounts shown in column (e) represent the grant date fair value of performance share awards granted in each year, disregarding estimated forfeitures, determined under share-based compensation accounting guidance. The issuance of the shares under these awards is contingent upon meeting certain performance criteria, so the shares may or may not be earned. The portion of each performance share award based on relative total shareholder return (75 percent of each target award other than Mr. White’s 2009 gas storage project award) is considered to be subject to a market condition, so the amount shown for that portion of each award represents the grant date fair value of the award calculated using a binomial pricing model. For the remaining portion of each performance share award subject to strategic performance milestones (100 percent of Mr. White’s 2009 gas storage project award and 25 percent of each other target award), the amount shown is based on the estimated number of shares to be issued multiplied by the sum of the closing market price of the Common Stock on the date of grant plus the estimated dividends per share to be paid over the three-year performance period. As of the grant date of these awards, the target number of shares was estimated to be the number of shares to be issued under the strategic portions of the awards. If the maximum number of shares issuable under the strategic portion had been used as the estimated number of shares, the total amounts in column (e) for 2010 would have been $570,366 for Mr. Kantor, $209,134 for Mr. Anderson, $95,061 for Ms. Doolittle, $114,073 for Mr. White, and $133,085 for Ms. Kirkpatrick.
|
3 | Amounts shown in column (f) represent the grant date fair value of options granted in each year, disregarding estimated forfeitures, estimated using the Black-Scholes option pricing model. The assumptions used in determining the grant date fair values of options under share-based compensation accounting guidance are disclosed in Note 6 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2010.
|
4 | The amounts included in column (h) as the aggregate change in the actuarial present value of the Named Executive Officers’ accumulated benefits under all defined benefit pension plans during 2010 were: $1,291,313 for Mr. Kantor, $185,864 for Mr. Anderson, $398,033 for Ms. Doolittle, $258,338 for Mr. White, and $148,589 for Ms. Kirkpatrick. Amounts of above-market interest included in column (h) that were credited to the non-qualified deferred compensation plan accounts of the Named Executive Officers during 2010 were: $4,695 for Mr. Kantor, $73 for Mr. Anderson, $4,335 for Ms. Doolittle, $4,683 for Mr. White, and $0 for Ms. Kirkpatrick. For this purpose, interest credited is considered above-market to the extent such interest exceeds 120 percent of the average of the applicable long-term federal rates, with quarterly compounding, for the three months in the prior quarter.
|
5 | The amounts included in column (i) as matching contributions under the qualified defined contribution plan 401(k) Plan during 2010 were: $8,820 for each of Mr. Kantor, Mr. Anderson, Ms. Doolittle, Mr. White and Ms. Kirkpatrick. The amounts paid as matching contributions under non-qualified deferred compensation plans during 2010 were: $23,377 for Mr. Kantor, $11,589 for Mr. Anderson, $4,268 for Ms. Doolittle, $0 for Mr. White, and $0 for Ms. Kirkpatrick. Amounts in column (i) also include a $250 gift card plus $164.25 gross up expense for each of Mr. Anderson, Ms. Doolittle, Mr. White and Ms. Kirkpatrick.
|
Executive Officer Perquisites We do not routinely provide perquisites to our executive officers. No Named Executive Officer received perquisites totaling $10,000 or more in 2010.2013. GRANTS OF PLAN-BASED AWARDS DURING 20102013 The following table includes grants of annual incentive awards, stock optionsperformance share awards, and long-term incentive awardsRSUs with performance threshold granted to our Named Executive Officers during 2010:2013: | Name | | Grant
Date | | | Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards1 | | Estimated Future
Payouts Under Equity
Incentive Plan Awards2 | | All Other
Option
Awards:
Number of
Securities
Underlying
Options3
(#) | | | Exercise
or Base
Price of
Option
Awards
($/Sh) | | | Grant
Date
Fair
Value
of
Equity
Award
($)4 | | | | | | Thresh-
old($) | | | Target($) | | | Maxi-
mum($) | | | Thresh-
old(#) | | | Target(#) | | | Maxi-
mum(#) | | | | | | | All Other
Option
Awards:
Number of
Securities
Underlying
Options3
(#) | | | NAME | | | GRANT
DATE | | | ESTIMATED FUTURE PAYOUTS
UNDER NON-EQUITY INCENTIVE
PLAN AWARDS1 | | ESTIMATED FUTURE
PAYOUTS UNDER EQUITY
INCENTIVE PLAN AWARDS | | GRANT DATE
FAIR VALUE
OF EQUITY
AWARD4
($) | | | | | THRESHOLD
($) | | TARGET
($) | | MAXIMUM
($) | | THRESHOLD
(#) | | TARGET
(#) | | MAXIMUM
(#) | | | (a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (j) | | (k) | | (l) | | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (l) | | Gregg S. Kantor | | | 2/24/2010 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 30,000 | | | $ | 44.25 | | | $ | 190,656 | | | | | | — | | | $ | 312,000 | | | $ | 468,000 | | | | — | | | | — | | | | — | | | $ | — | | | | | | | — | | | $ | 239,699 | | | $ | 359,549 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2/27/2013 | | | | — | | | | — | | | | — | | | | 1,788 2 | | | | 12,500 2 | | | | 25,000 2 | | | | 486,975 | | | | | 2/24/2010 | | | | — | | | | — | | | | — | | | | 2,850 | | | | 15,000 | | | | 30,000 | | | | — | | | | — | | | | 384,629 | | | | 2/27/2013 | | | | — | | | | — | | | | — | | | | — | | | | 6,500 3 | | | | — | | | | 294,970 | | David H. Anderson | | | 2/24/2010 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 8,000 | | | | 44.25 | | | | 50,842 | | | | | | — | | | | 145,875 | | | | 218,813 | | | | — | | | | — | | | | — | | | | — | | | | | | | — | | | | 119,138 | | | | 178,706 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2/27/2013 | | | | — | | | | — | | | | — | | | | 701 2 | | | | 4,900 2 | | | | 9,800 2 | | | | 190,894 | | | | | 2/24/2010 | | | | — | | | | — | | | | — | | | | 1,045 | | | | 5,500 | | | | 11,000 | | | | — | | | | — | | | | 141,030 | | | | 2/27/2013 | | | | — | | | | — | | | | — | | | | — | | | | 2,600 3 | | | | — | | | | 117,988 | | Stephen P. Feltz | | | | | | — | | | | 88,500 | | | | 132,750 | | | | — | | | | — | | | | — | | | | — | | | | | | 2/27/2013 | | | | — | | | | — | | | | — | | | | 458 2 | | | | 3,200 2 | | | | 6,400 2 | | | | 124,666 | | | | | | 2/27/2013 | | | | — | | | | — | | | | — | | | | — | | | | 1,700 3 | | | | | | 77,146 | | Lea Anne Doolittle | | | 2/24/2010 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,000 | | | | 44.25 | | | | 19,066 | | | | | | — | | | | 80,400 | | | | 120,600 | | | | — | | | | — | | | | — | | | | — | | | | | | | — | | | | 64,838 | | | | 97,256 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2/27/2013 | | | | — | | | | — | | | | — | | | | 329 2 | | | | 2,300 2 | | | | 4,600 2 | | | | 89,603 | | | | | 2/24/2010 | | | | — | | | | — | | | | — | | | | 475 | | | | 2,500 | | | | 5,000 | | | | — | | | | — | | | | 64,105 | | | | 2/27/2013 | | | | — | | | | — | | | | — | | | | — | | | | 1,300 3 | | | | — | | | | 58,994 | | J. Keith White | | | 2/24/2010 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 4,000 | | | | 44.25 | | | | 25,421 | | | Margaret D. Kirkpatrick | | | | | | — | | | | 88,200 | | | | 132,300 | | | | — | | | | — | | | | — | | | | — | | | | | | | — | | | | 68,100 | | | | 102,150 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2/27/2013 | | | | — | | | | — | | | | — | | | | 415 2 | | | | 2,900 2 | | | | 5,800 2 | | | | 112,978 | | | | | 2/24/2010 | | | | — | | | | — | | | | — | | | | 570 | | | | 3,000 | | | | 6,000 | | | | — | | | | — | | | | 76,926 | | | | 2/27/2013 | | | | — | | | | — | | | | — | | | | — | | | | 1,540 3 | | | | — | | | | 69,885 | | Margaret D. Kirpatrick | | | 2/24/2010 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 4,000 | | | | 44.25 | | | | 25,421 | | | | | | | | — | | | | 70,875 | | | | 106,313 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | 2/24/2010 | | | | — | | | | — | | | | — | | | | 665 | | | | 3,500 | | | | 7,000 | | | | — | | | | — | | | | 89,747 | | |
| Column (i) was deleted as it isColumn (i), (j) and (k) were deleted as they are not applicable. |
1 | Threshold level estimated payouts cannot be determined because the minimum performance level for payout under each component of the formula in the Executive Annual Incentive Plan is interpolated down to a zero payout. See “Executive Annual Incentive Plan Awards” following this table and “Compensation Discussion and Analysis—Compensation Programs—Executive Annual Incentive Plan,” above, for a complete discussion of the terms of the awards. Amounts above include only the portion of the award subject to performance metrics, constituting 75 percent of the annual incentive opportunity. The remaining 25 percent of the annual incentive opportunity is awarded based on discretionary criteria and is reflected as a bonus in column (d) of the Summary Compensation Table. The actual non-equity incentive plan portion of the awards earned in 2010 and paid in 2011 are reflected in column (g) of the Summary Compensation Table.
|
2 | Share amounts represent potential performance share awards granted pursuant to the terms of the Long Term Incentive Plan (LTIP). See “Long Term Incentive Plan Awards” following this table and “Compensation Discussion and Analysis—Compensation Programs—Long-Term Incentives—Performance Shares,” above, for a complete discussion of the terms of the awards. Share amounts do not include an estimate of an additional $5.28 per share dividend equivalent also payable pursuant to the terms of the awards. Threshold level estimated future payouts assume the minimum award payable other than no payout for each component of the formula in the LTIP.
|
3 | Stock options granted on February 24, 2010 pursuant to the Restated Stock Option Plan vest in four equal installments on February 24, 2011 and January 1, 2012, 2013 and 2014. Vesting will be accelerated upon death, disability or retirement as described below under “Potential Payments upon Termination or Change in Control.” Each option has a maximum term of 10 years and seven days, subject to earlier termination in connection with a termination of the optionee’s employment.
|
4 | Amounts shown in column (l) for option awards represent the grant date fair value of the options based on a value of $6.36 per share calculated using a Black-Scholes option pricing model. The portion of each performance share award under the LTIP based on relative total shareholder return (75 percent of each target award) is considered to be subject to a market condition under share-based compensation accounting guidance, so the amounts shown for that portion represent the grant date fair value of the awards based on a value of $17.68 per share calculated using a binomial pricing model. Amounts shown for the remaining portion of each performance share award subject to strategic performance milestones (25 percent of each target award) represent the grant date fair value of the awards based on a value of $49.53 per share which was the sum of the closing market price of the Common Stock on the grant date plus the estimated dividends per share to be paid over the three-year performance period. The values used for option and performance share awards are the same as those used under share-based compensation accounting guidance. The assumptions used in determining option values are described in Note 6 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2010.
|
(1) Threshold level estimated payouts cannot be determined because the minimum performance level for payout under each component of the formula in the Executive Annual Incentive Plan is interpolated down to a zero payout. See “Executive Annual Incentive Plan Awards” following this table and “Compensation Discussion and Analysis—2013 Compensation Programs—Executive Annual Incentive Plan,” above, for a complete discussion of the terms of the awards. Amounts above include only the portion of the award subject to performance metrics, constituting 75 percent of the annual incentive opportunity. The remaining 25 percent of the annual incentive opportunity is awarded based on discretionary criteria and is reflected as a bonus in column (d) of the Summary Compensation Table. The actual non-equity incentive plan portion of the awards earned in 2013 and paid in 2014 are reflected in column (g) of the Summary Compensation Table. (2) Share amounts represent potential performance share awards granted pursuant to the terms of the Long Term Incentive Plan (LTIP). See “Long Term Incentive Plan—Performance Share Awards” following this table and “Compensation Discussion and Analysis—2013 Compensation Programs—Long-Term Incentives—Performance Shares,” above, for a complete discussion of the terms of the awards. Share amounts do not include an estimate of an additional $5.54 per share dividend equivalent also payable pursuant to the terms of the awards. Threshold level estimated future payouts assume the minimum award payable other than no payout for each component of the formula in the LTIP. (3) Share amounts represent RSU awards with a performance threshold granted pursuant to the terms of the LTIP. See “Long Term Incentive Plan—Restricted Stock Unit Awards” following this table and “Compensation Discussion and Analysis—2013 Compensation Programs—Long-Term Incentives—Restricted Stock Units with Performance Threshold,” above, for a complete discussion of the terms of the awards. Share amounts do not include an estimate of an additional dividend equivalent, which is based on a tiered calculation and also payable pursuant to the terms of the awards. RSU awards do not have threshold or maximum payout levels as there is only one payout level to be paid if the performance threshold is satisfied. (4) Amounts shown in column (l) for RSU awards represent the grant date fair value of the RSUs with performance threshold which was based on a value of $45.38 per share, which was the closing market price of the Common Stock on the grant date. The portion of each performance share award under the LTIP based on relative total shareholder return (75 percent of each target award) is considered to be subject to a market condition under share-based compensation accounting guidance, so the amounts shown for that portion represent the grant date fair value of the awards based on a value of $34.95 per share calculated using a Monte Carlo method. Amounts shown for the remaining portion of each performance share award subject to strategic performance milestones (25 percent of each target award) represent the grant date fair value of the awards based on a value of $50.99 per share which was the sum of the closing market price of the Common Stock on the grant date plus the estimated dividends per share to be paid over the three-year performance period. The values used for RSUs with performance threshold and performance share awards are the same as those used under share-based compensation accounting guidance. Compensation and Award Table Discussion Executive Annual Incentive Plan Awards Payment of awards under the Executive Annual Incentive Plan is contingent upon meeting predetermined individual and corporate performance goals. Depending upon position, performance, and the other factors considered by the Organization and Executive Compensation Committee (OECC), the Named Executive Officers may earn from 3540 percent to 7080 percent of base salary if the prescribed corporate and individual performance goals are met, or up to 52.560 percent to 105120 percent of base salary if these goals are exceeded. At the beginning of each year, weighted performance goals are established and, at year-end, performance is measured against these goals. Actual results are considered by the OECC in determining the amounts to be awarded, if any. For further discussion regarding the Executive Annual Incentive Plan, including the components of corporate and individual performance, see “Compensation Discussion and Analysis—2013 Compensation Programs—Executive Annual Incentive Plan,” above. Long Term Incentive Plan - Restricted Stock Unit Awards Beginning in 2012, the OECC modified our long-term incentive program to grant RSUs with a Company performance threshold instead of stock options. An RSU obligates the Company upon vesting of the RSU to issue to the RSU holder one share of Common Stock plus a cash payment equal to the total amount of dividends paid per share between grant and vesting of the RSU. Generally, RSUs with performance threshold will vest for 25 percent of the awarded shares on March 1 of each of the first four years after the grant date provided the Company performance threshold is met. An RSU holder generally must be employed by NW Natural on each vesting date to receive the scheduled payouts; however, if an RSU holder’s employment terminates as a result of retirement, death or disability, the continued employment condition for RSU vesting will be deemed satisfied, and RSUs with performance threshold will then continue to vest if the performance condition is satisfied for applicable years. For further discussion regarding the terms of RSUs, see “Compensation Discussion and Analysis—2013 Compensation Programs—Long-Term Incentives— Restricted Stock Units with Performance Threshold,” above. Long Term Incentive Plan - Performance Share Awards The OECC makes annual performance share awards under the Long Term Incentive Plan (LTIP) payable in Common Stock based on our performance over three-year performance cycles. Target awards are determined by the OECC for each participant. Executives are limited to a maximum performance share award equal to 200 percent of the target award. The OECC establishes corporate performance measures based on total shareholder return relative to our peer group with a minimum required average return over the performance period of six percent per year for the cycle (75 percent of award) and performance milestones relative to our core and non-core strategic plans (25 percent of award). At the end of the cycle, the OECC determines whether the strategic performance milestones were achieved and assigns a factor ranging between 0 percent and 200 percent. As a general guideline, if we achieve the targets as stated, each component factor would be 100 percent. A participant generally must be employed by NW Natural at the end of the performance period to receive an award payout, although pro-rated awards will be paid if employment terminates earlier on account of death, disability or retirement. Awards will be paid in Common Stock as soon as practicable after OECC certification of the end ofresults for the performance period. Participants will also receive dividend equivalent cash payments on the number of shares of Common Stock received on the award payout multiplied by the aggregate cash dividends paid per share by NW Natural during the performance period. For further discussion regarding the terms of the performance shares, see “Compensation Discussion and Analysis—2013 Compensation Programs—Long-Term Incentives—Performance Shares,” above. Restricted Stock Grants. The Long Term Incentive Plan also provides the OECC the ability to grant restricted stock awards. Typically, restricted stock awards are used in special, limited circumstances such as new hire grants and retention or special recognition awards. The OECC infrequently makes restricted stock grants since our long-term incentive program is heavily-weighted to performance shares under the Long Term Incentive Plan, which provides stock incentives that are linked to performance. No restricted stock grants were made during 2010, and as of December 31, 2010, no restricted stock awards were outstanding.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 20102013 The following table includes all of the outstanding equity awards held by our Named Executive Officers at December 31, 2010:2013: | | | | Option Awards | | | Stock Awards | | | Option Awards | | Stock Awards | | Name | | Number
of
Securities
Underlying
Unexercised
Options
Exercisable
(#) | | | Number
of
Securities
Underlying
Unexercised
Options
Unexercisable
(#) | | Option
Exercise
Price
($) | | | Option
Expiration
Date | | | Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares
That
Have Not
Vested
(#)2 | | | Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares
That Have
Not
Vested
($)1 | | | Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#) | | Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#) | | Option
Exercise
Price
($) | | Option
Expiration
Date | | Number of
Shares
That Have
Not Vested
(#) | | Market
Value of
Shares
That Have
Not Vested
($)1 | | Equity Incentive
Plan
Awards:
Number of
Unearned
Shares
That Have
Not Vested
(#) | | Equity Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares
That Have
Not Vested
($)1 | | | (a) | | (b) | | | (c) | | (e) | | | (f) | | | (i) | | | (j) | | | (b) | | (c) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) | | Gregg S. Kantor | | | 6,000 | | | | — | | | | 31.34 | | | | 03/04/2014 | | | | — | | | | — | | | | 3,000 | | | | — | | | $ | 34.29 | | | | 2/29/2016 | | | | — | | | | — | | | | — | | | | — | | | | | | 7,000 | | | | — | | | | 44.48 | | | | 2/28/2017 | | | | — | | | | — | | | | — | | | | — | | | | | | 8,000 | | | | — | | | | 43.29 | | | | 3/6/2018 | | | | — | | | | — | | | | — | | | | — | | | | | 3,000 | | | | — | | | | 34.29 | | | | 02/29/2016 | | | | — | | | | — | | | | 25,000 | | | | — | | | | 41.15 | | | | 3/4/2019 | | | | — | | | | — | | | | — | | | | — | | | | | 5,250 | | | | 1,750 | 3 | | | 44.48 | | | | 02/28/2017 | | | | — | | | | — | | | | 22,500 | | | | 7,500 2 | | | | 44.25 | | | | 3/2/2020 | | | | — | | | | — | | | | — | | | | — | | | | | 4,000 | | | | 4,000 | 4 | | | 43.29 | | | | 03/06/2018 | | | | — | | | | — | | | | 15,000 | | | | 15,000 3 | | | | 45.74 | | | | 3/2/2021 | | | | — | | | | — | | | | — | | | | — | | | | | 6,250 | | | | 18,750 | 5 | | | 41.15 | | | | 03/04/2019 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 25,500 4 | | | $ | 1,091,910 | | | | | — | | | | 30,000 | 6 | | | 44.25 | | | | 03/02/2020 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,400 5 | | | $ | 59,948 | | | | 2,800 6 | | | | 119,896 | | | | | — | | | | — | | | | — | | | | — | | | | 28,000 | | | $ | 1,301,160 | | | | — | | | | — | | | | — | | | | — | | | | 1,625 5 | | | | 69,583 | | | | 4,875 7 | | | | 208,748 | | David H. Anderson | | | 16,000 | | | | — | | | | 32.02 | | | | 09/27/2014 | | | | — | | | | — | | | | 8,000 | | | | — | | | | 34.29 | | | | 2/29/2016 | | | | — | | | | — | | | | — | | | | — | | | | | 8,000 | | | | — | | | | 34.29 | | | | 02/29/2016 | | | | — | | | | — | | | | 7,000 | | | | — | | | | 44.48 | | | | 2/28/2017 | | | | — | | | | — | | | | — | | | | — | | | | | 5,250 | | | | 1,750 | 3 | | | 44.48 | | | | 02/28/2017 | | | | — | | | | — | | | | 8,000 | | | | — | | | | 43.29 | | | | 3/6/2018 | | | | — | | | | — | | | | — | | | | — | | | | | 4,000 | | | | 4,000 | 4 | | | 43.29 | | | | 03/06/2018 | | | | — | | | | — | | | | 8,000 | | | | — | | | | 41.15 | | | | 3/4/2019 | | | | — | | | | — | | | | — | | | | — | | | | | 2,000 | | | | 6,000 | 7 | | | 41.15 | | | | 03/04/2019 | | | | — | | | | — | | | | 6,000 | | | | 2,000 2 | | | | 44.25 | | | | 3/2/2020 | | | | — | | | | — | | | | — | | | | — | | | | | — | | | | 8,000 | 8 | | | 44.25 | | | | 03/02/2020 | | | | — | | | | — | | | | 5,500 | | | | 5,500 3 | | | | 45.74 | | | | 3/2/2021 | | | | — | | | | — | | | | — | | | | — | | | | | — | | | | — | | | | — | | | | — | | | | 11,000 | | | | 511,170 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 9,600 4 | | | | 411,072 | | Lea Anne Doolittle | | | 3,000 | | | | — | | | | 31.34 | | | | 03/04/2014 | | | | — | | | | — | | | | | | | — | | | | — | | | | — | | | | — | | | | 550 5 | | | | 23,551 | | | | 1,100 6 | | | | 47,102 | | | | | | — | | | | — | | | | — | | | | — | | | | 650 5 | | | | 27,833 | | | | 1,950 7 | | | | 83,499 | | Stephen P. Feltz | | | | 2,500 | | | | — | | | | 34.29 | | | | 2/29/2016 | | | | | | | | | | | | | 3,000 | | | | — | | | | 34.29 | | | | 02/29/2016 | | | | — | | | | — | | | | 2,000 | | | | — | | | | 44.48 | | | | 2/28/2017 | | | | | | | | | | | | | 2,250 | | | | 750 | 9 | | | 44.48 | | | | 02/28/2017 | | | | — | | | | — | | | | 2,000 | | | | — | | | | 43.29 | | | | 3/6/2018 | | | | | | | | | | | | | 2,000 | | | | 2,000 | 10 | | | 43.29 | | | | 03/06/2018 | | | | — | | | | — | | | | 2,000 | | | | — | | | | 41.15 | | | | 3/4/2019 | | | | | | | | | | | | | 750 | | | | 2,250 | 11 | | | 41.15 | | | | 03/04/2019 | | | | — | | | | — | | | | 1,500 | | | | 500 2 | | | | 44.25 | | | | 3/2/2020 | | | | | | | | | | | | | — | | | | 3,000 | 12 | | | 44.25 | | | | 03/02/2020 | | | | — | | | | — | | | | 1,750 | | | | 1,750 3 | | | | 45.74 | | | | 3/2/2021 | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 5,000 | | | | 232,350 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 4,900 4 | | | | 209,818 | | J. Keith White | | | 2,000 | | | | — | | | | 31.34 | | | | 03/04/2014 | | | | — | | | | — | | | | | | | — | | | | — | | | | — | | | | — | | | | 200 5 | | | | 8,564 | | | | 400 6 | | | | 17,128 | | | | | | — | | | | — | | | | — | | | | — | | | | 425 5 | | | | 18,199 | | | | 1,275 7 | | | | 54,596 | | Lea Anne Doolittle | | | | 3,000 | | | | — | | | | 34.29 | | | | 2/29/2016 | | | | — | | | | — | | | | — | | | | — | | | | | | 3,000 | | | | — | | | | 44.48 | | | | 2/28/2017 | | | | — | | | | — | | | | — | | | | — | | | | | | 4,000 | | | | — | | | | 43.29 | | | | 3/6/2018 | | | | — | | | | — | | | | — | | | | — | | | | | 2,500 | | | | — | | | | 34.29 | | | | 02/29/2016 | | | | — | | | | — | | | | 3,000 | | | | — | | | | 41.15 | | | | 3/4/2019 | | | | — | | | | — | | | | — | | | | — | | | | | 1,500 | | | | 500 | 13 | | | 44.48 | | | | 02/28/2017 | | | | — | | | | — | | | | 2,250 | | | | 750 2 | | | | 44.25 | | | | 3/2/2020 | | | | — | | | | — | | | | — | | | | — | | | | | 2,000 | | | | 2,000 | 10 | | | 43.29 | | | | 03/06/2018 | | | | — | | | | — | | | | 2,500 | | | | 2,500 3 | | | | 45.74 | | | | 3/2/2021 | | | | — | | | | — | | | | — | | | | — | | | | | 1,000 | | | | 3,000 | 14 | | | 41.15 | | | | 03/04/2019 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | 4,300 4 | | | | 184,126 | | | | | — | | | | 4,000 | 15 | | | 44.25 | | | | 03/02/2020 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 225 5 | | | | 9,635 | | | | 450 6 | | | | 19,269 | | | | | — | | | | — | | | | — | | | | — | | | | 8,000 | | | | 371,760 | | | | — | | | | — | | | | — | | | | — | | | | 325 5 | | | | 13,917 | | | | 975 7 | | | | 41,750 | | Margaret D. Kirkpatrick | | | 6,000 | | | | — | | | | 38.30 | | | | 08/03/2015 | | | | — | | | | — | | | | 6,000 | | | | — | | | | 38.30 | | | | 8/3/2015 | | | | — | | | | — | | | | — | | | | — | | | | | 5,000 | | | | — | | | | 34.29 | | | | 02/29/2016 | | | | — | | | | — | | | | 5,000 | | | | — | | | | 34.29 | | | | 2/29/2016 | | | | — | | | | — | | | | — | | | | — | | | | | 3,000 | | | | 1,000 | 16 | | | 44.48 | | | | 02/28/2017 | | | | — | | | | — | | | | 4,000 | | | | — | | | | 44.48 | | | | 2/28/2017 | | | | — | | | | — | | | | — | | | | — | | | | | 2,000 | | | | 2,000 | 10 | | | 43.29 | | | | 03/06/2018 | | | | — | | | | — | | | | 4,000 | | | | — | | | | 43.29 | | | | 3/6/2018 | | | | — | | | | — | | | | — | | | | — | | | | | 1,000 | | | | 3,000 | 14 | | | 41.15 | | | | 03/04/2019 | | | | — | | | | — | | | | 4,000 | | | | — | | | | 41.15 | | | | 3/4/2019 | | | | — | | | | — | | | | — | | | | — | | | | | — | | | | 4,000 | 15 | | | 44.25 | | | | 03/02/2020 | | | | — | | | | — | | | | 3,000 | | | | 1,000 2 | | | | 44.25 | | | | 3/2/2020 | | | | — | | | | — | | | | — | | | | — | | | | | — | | | | — | | | | — | | | | — | | | | 6,500 | | | | 302,055 | | | | 3,250 | | | | 3,250 3 | | | | 45.74 | | | | 3/2/2021 | | | | — | | | | — | | | | — | | | | — | | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5,900 4 | | | | 252,638 | | | | | | — | | | | — | | | | — | | | | — | | | | 362 5 | | | | 15,501 | | | | 726 6 | | | | 31,087 | | | | | | — | | | | — | | | | — | | | | — | | | | 385 5 | | | | 16,486 | | | | 1,155 7 | | | | 49,457 | |
Column (d), column (g) and column (h) were was deleted as they areit is not applicable. 1(1) Amounts are calculated based on the price of $42.82, the closing market price on the NYSE on December 31, 2013. | Amounts are calculated based on the price of $46.47, the closing market price on the NYSE on December 31, 2010.
|
2 | All share amounts are based on target level awards of performance shares eligible to be earned under the Long Term Incentive Plan (LTIP) upon achievement of performance objectives, which is determined to be the most probable level of payout other than no award. The actual number of shares issuable will be determined by the OECC at the end of the three-year performance cycles ending December 31, 2011 and 2012. Amount does not include an estimate for the accumulated cash dividends also
|
| (2) One hundred percent of the unexercisable portion of this option becomes exercisable on January 1, 2014. (3) Fifty percent of the unexercisable portion of this option becomes exercisable on each of January 1, 2014 and 2015. (4) Share amounts represent the target level of performance share awards, which is determined to be the most probable level of payout other than no award. The actual number of performance shares issuable will be determined by the OECC at the end of the three-year performance cycles ending December 31, 2014 and 2015. Does not include an estimate for the accumulated cash dividends also payable pursuant to the terms of the awards. For a complete description of the performance objectives, see “Compensation Discussion and Analysis-2013 Compensation Programs-Long-Term Incentives-Performance Shares” above. (5) Share amounts represent RSU awards with performance threshold that was met as of December 31, 2013, and that are scheduled to vest based on continued service through March 1, 2014. The achievement of the performance threshold is reviewed and approved by the OECC after the end of each year. Does not include an estimate for the accumulated cash dividends also payable pursuant to the terms of the awards. For a complete description of the performance threshold, see “Compensation Discussion and Analysis-2013 Compensation Programs-Long-Term Incentives-Restricted Stock Units with Performance Threshold” above. (6) Share amounts represent the remaining balance of RSU with performance threshold awards. One-half of the remaining shares covered by each of these RSUs with performance threshold will vest on each of March 1, 2015 and 2016 subject in each case to achievement of the performance threshold for the immediately preceding year. Does not include an estimate for the accumulated cash dividends also payable pursuant to the terms of the awards. (7) Share amounts represent the remaining balance of RSU with performance threshold awards. One-third of the remaining shares covered by each of these RSUs with performance threshold will vest on each of March 1, 2015, 2016 and 2017 subject in each case to achievement of the performance threshold for the immediately preceding year. Does not include an estimate for the accumulated cash dividends also payable pursuant to the terms of the awards. For a complete description of the performance objectives, see “Compensation Discussion and Analysis—Compensation Programs—Long-Term Incentives,” above. |
3 | Option vests over four years. Option on 1,750 shares became exercisable on each February 21, 2008 and January 1, 2009 and 2010, and an additional 1,750 shares will become exercisable on January 1, 2011.
|
4 | Option vests over four years. Option on 2,000 shares became exercisable on February 27, 2009 and January 1, 2010, and an additional 2,000 will become exercisable on each of January 1, 2011 and 2012.
|
5 | Option vests over four years. Option on 6,250 shares became exercisable on February 25, 2010, and an additional 6,250 will become exercisable on each of January 1, 2011, 2012 and 2013.
|
6 | Option vests over four years. Option on 7,500 shares will become exercisable on each of February 24, 2011 and January 1, 2012, 2013 and 2014.
|
7 | Option vests over four years. Option on 2,000 shares became exercisable on February 25, 2010, and an additional 2,000 will become exercisable on each of January 1, 2011, 2012 and 2013.
|
8 | Option vests over four years. Option on 2,000 shares will become exercisable on each of February 24, 2011 and January 1, 2012, 2013 and 2014.
|
9 | Option vests over four years. Option on 750 shares became exercisable on each of February 21, 2008 and January 1, 2009 and 2010, and an additional 750 shares will become exercisable on January 1, 2011.
|
10 | Option vests over four years. Option on 1,000 shares became exercisable on February 27, 2009 and January 1, 2010, and an additional 1,000 shares will become exercisable on each of January 1, 2011 and 2012.
|
11 | Option vests over four years. Option on 750 shares became exercisable on February 25, 2010 and an additional 750 shares will become exercisable on each of January 1, 2011, 2012 and 2013.
|
12 | Option vests over four years. Option on 750 shares will become exercisable on each of February 24, 2011 and January 1, 2012, 2013 and 2014.
|
13 | Options vest over four years. Option on 500 shares became exercisable on each of February 21, 2008 and January 1, 2009 and 2010, and an additional 500 shares will become exercisable on January 1, 2011.
|
14 | Options vest over four years. Option on 1,000 shares became exercisable on February 25, 2010 and an additional 1,000 will become exercisable on each of January 1, 2011, 2012 and 2013.
|
15 | Option vests over four years. Option on 1,000 shares will become exercisable on each of February 24, 2011 and January 1, 2012, 2013 and 2014.
|
16 | Option vests over four years. Option on 1,000 shares became exercisable on each of February 21, 2008 and January 1, 2009 and 2010, and an additional 1,000 shares will become exercisable on January 1, 2011.
|
OPTION EXERCISES AND STOCK VESTED DURING 20102013 | | | | Option Awards | | | Stock Awards | | | Option Awards | | | Stock Awards | | Name | | Number of
Shares
Acquired
on Exercise
(#) | | | Value Realized
on Exercise
($) | | | Number of
Shares
Acquired
on Vesting1
(#) | | | Value Realized
on Vesting1
($) | | | Number of
Shares
Acquired
on Exercise
(#) | | | Value Realized
on Exercise
($) | | | Number of
Shares
Acquired
on Vesting1
(#) | | Value Realized
on Vesting1
($) | | | (a) | | (b) | | | (c) | | | (d) | | | (e) | | | (b) | | | (c) | | | (d) | | (e) | | Gregg S. Kantor | | | 2,000 | | | | 43,400 | | | | 1,556 | | | | 79,776 | | | | — | | | | $— | | | 5,281 | | $ | 253,548 | | David H. Anderson | | | — | | | | — | | | | 1,317 | | | | 67,523 | | | | 16,000 | | | | 172,375 | | | 1,844 | | | 88,493 | | Stephen P. Feltz | | | | 5,000 | | | | 53,300 | | | 653 | | | 31,334 | | Lea Anne Doolittle | | | — | | | | — | | | | 838 | | | | 42,964 | | | | 3,000 | | | | 31,031 | | | 807 | | | 38,738 | | J. Keith White | | | — | | | | — | | | | 718 | | | | 36,812 | | | Margaret D. Kirkpatrick | | | — | | | | — | | | | 718 | | | | 36,812 | | | | — | | | | — | | | 1,190 | | | 57,103 | |
(1)Amounts represent performance share awards and RSUs with performance threshold that vested during 2013. The performance shares are related to the three-year award cycle 2011-2013 and were earned but unpaid as of the fiscal year-end; the value realized is based on a price of $42.82, the closing market price on the NYSE on December 31, 2013, plus dividend equivalents. The LTIP award paid at 25.88 percent of the target level incentive based upon total shareholder return performance and strategic results. See “Compensation Discussion and Analysis—2013 Compensation Programs—Long-Term Incentives—Performance Shares,” above. The number of shares actually paid was determined by the OECC on February 26, 2014. Value realized includes cash for dividend equivalents of $5.365 per share based on dividends per share paid by the Company during the performance period as follows: Mr. Kantor, $20,822; Mr. Anderson, $6,942; Mr. Feltz $2,430; Ms. Doolittle, $3,122; and Ms. Kirkpatrick, $4,442. RSUs with performance threshold are related to the units that vested on March 1, 2013 and the value realized is based on the stock price on March 1, 2013 or $45.73 per share, plus cash dividend equivalents of $1.80 per share based on dividends per share paid by the Company during the period between the grant date and vesting date and were as follows: Mr. Kantor, $2,520; Mr. Anderson, $990; Mr. Feltz, $360; Ms. Doolittle, $405; and Ms. Kirkpatrick, $652. Receipt of the following amounts under performance share awards were deferred pursuant to elections under our Deferred Compensation Plan for Directors and Executives: Mr. Kantor, 971 shares valued at $40,976 and $5,205 of dividend equivalents; Mr. Anderson, 0 shares; Mr. Feltz, 0 shares; Ms. Doolittle, 117 shares valued at $4,937 and $0 of dividend equivalents; and Ms. Kirkpatrick, 0 shares. See “Non-Qualified Deferred Compensation in 2013” for a discussion of the terms of this plan. 1 | Amounts represent performance share awards earned by the Named Executive Officers for the three-year award cycle 2008-2010 under the Long Term Incentive Plan (LTIP), but unpaid as of the fiscal year-end and are based on a price of $46.47, the closing market price on the NYSE on December 31, 2010, plus dividend equivalents. The award paid at 24 percent of the target level incentive based upon total shareholder return performance and strategic results. See “Compensation Discussion and Analysis—Compensation Programs—Long-Term Incentives—Performance Shares,” above. The number of shares actually paid was determined by the OECC on February 23, 2011. Value realized includes cash for dividend equivalents of $4.80 per share based on dividends per share paid by us during the performance period as follows: Kantor, $7,469; Anderson, $6,322; Doolittle, $4,022; White, $3,446; and Kirkpatrick, $3,446. Receipt of the following amounts under performance share awards was deferred pursuant to elections under our Deferred Compensation Plan for Directors and Executives: Mr. Kantor, 389 shares valued at $18,077 and $1,867 of dividend equivalents; Mr. Anderson, 0 shares; Ms. Doolittle, 126 shares valued at $5,855 and $0 of dividend equivalents; Mr. White, 718 shares valued at $33,365 and $0 of dividend equivalents; and Ms. Kirkpatrick, 0 shares. See “Non-Qualified Deferred Compensation in 2010” for a discussion of the terms of this plan.
|
PENSION BENEFITS AS OF DECEMBER 31, 20102013 | Name | | Age | | | Plan Name | | Number of Years
Credited Service | | | Present
Value of
Accumulated
Benefit1 | | | Age | | Plan Name | | Number of Years
Credited Service | | Present
Value of
Accumulated
Benefit1 | | Gregg S. Kantor | | | 53 | | | Retirement Plan for Non- Bargaining Unit Employees | | | 14.25 | | | | 561,080 | | | | | | | Executive Supplemental Retirement Income Plan | | | 12.92 | | | | 2,807,452 | | | Gregg S. Kantor2 | | | 56 | | Retirement Plan for Bargaining Unit and Non-Bargaining Unit Employees | | 17.25 | | | $913,370 | | | | | | Deferred Compensation Plan Supplemental Annuity | | | 14.25 | | | | 0 | | | | | Executive Supplemental Retirement Income Plan | | 15.92 | | | 5,254,706 | | | | | | | | | Deferred Compensation Plan Supplemental Annuity | | 17.25 | | | — | | David H. Anderson | | | 49 | | | Retirement Plan for Non- Bargaining Unit Employees | | | 6.25 | | | | 164,043 | | | 52 | | Retirement Plan for Bargaining Unit and Non-Bargaining Unit Employees | | 9.25 | | | 376,914 | | | | | | Supplemental Executive Retirement Plan -Tier 1 | | | 6.25 | | | | 227,233 | | | | | Supplemental Executive Retirement Plan - Tier 1 | | 9.25 | | | 633,057 | | | | | | Deferred Compensation Plan Supplemental Annuity | | | 6.25 | | | | 0 | | | | | Deferred Compensation Plan Supplemental Annuity | | 9.25 | | | — | | | Lea Anne Doolittle2 | | | 55 | | | Retirement Plan for Non- Bargaining Unit Employees | | | 10.17 | | | | 385,326 | | | Stephen P. Feltz3 | | | 58 | | Retirement Plan for Bargaining Unit and Non-Bargaining Unit Employees | | 31.17 | | | 1,249,059 | | | | | | Executive Supplemental Retirement Income Plan | | | 10.17 | | | | 789,684 | | | | | Executive Supplemental Retirement Income Plan | | 14.75 | | | 1,050,932 | | | | | | Deferred Compensation Plan Supplemental Annuity | | | 10.17 | | | | 0 | | | | | Deferred Compensation Plan Supplemental Annuity | | 31.17 | | | — | | | J. Keith White3 | | | 57 | | | Retirement Plan for Non- Bargaining Unit Employees | | | 14.50 | | | | 704,221 | | | | | | | Supplemental Executive Retirement Plan - Tier 2 | | | 14.50 | | | | 121,335 | | | Lea Anne Doolittle4 | | | 58 | | Retirement Plan for Bargaining Unit and Non-Bargaining Unit Employees | | 13.17 | | | 608,915 | | | | | | Deferred Compensation Plan Supplemental Annuity | | | 14.50 | | | | 48,958 | | | | | Executive Supplemental Retirement Income Plan | | 13.17 | | | 1,563,192 | | | | | | | | | Deferred Compensation Plan Supplemental Annuity | | 13.17 | | | — | | Margaret D. Kirkpatrick | | | 56 | | | Retirement Plan for Non- Bargaining Unit Employees | | | 5.50 | | | | 214,437 | | | 59 | | Retirement Plan for Bargaining Unit and Non-Bargaining Unit Employees | | 8.50 | | | 476,555 | | | | | | Supplemental Executive Retirement Plan - Tier 1 | | | 5.50 | | | | 70,673 | | | | | Supplemental Executive Retirement Plan - Tier 1 | | 8.50 | | | 390,582 | | | | | | Deferred Compensation Plan Supplemental Annuity | | | 5.50 | | | | 0 | | | | | Deferred Compensation Plan Supplemental Annuity | | 8.50 | | | — | |
(1) The Present Value of Accumulated Benefit in the above table represents the actuarial present value as of December 31, 2013 of the pension benefits of the Named Executive Officers under the respective pension plans calculated based on years of service and final average compensation as of that date but assuming retirement at the earliest age at which benefits were unreduced under the respective plans. Years of service for Mr. Kantor and Mr. Feltz under the Executive Supplemental Retirement Income Plan are based on their years of service since becoming eligible to participate under the plan. The actuarial present value was calculated using the 2014 Static Mortality Table for Non-Annuitants per §1.430(h)(3)-1(e) and a discount rate of 4.50 percent, the same assumptions used in the pension benefit calculations reflected in our audited balance sheet as of December 31, 2013. 1 | The Present Value of Accumulated Benefit in the above table represents the actuarial present value as of December 31, 2010 of the pension benefits of the Named Executive Officers under the respective pension plans calculated based on years of service and final average compensation as of that date but assuming retirement at the earliest age at which benefits were unreduced under the respective plans. Mr. Kantor’s years of service under the Executive Supplemental Retirement Income Plan are based on his years of service since becoming eligible to participate under the plan. The actuarial present value was calculated assuming all participants are fully vested, and using the 2011 Static Mortality Table for Non-Annuitants per § 1.430(h)(3)-1(e) and a discount rate of 5.61 percent, the same assumptions used in the pension benefit calculations reflected in our audited balance sheet as of December 31, 2010.
|
2 | Ms. Doolittle is eligible for early retirement benefits under the Executive Supplemental Retirement Income Plan (ESRIP), but not the other pension plans in which she is a participant. If she had retired on December 31, 2010 and immediately commenced receiving an early retirement benefit under the ESRIP, the Present Value of Accumulated Benefits under the ESRIP for her as reflected in the above table would have been higher by $9,558.
|
3(2) Mr. Kantor is eligible for early retirement benefits under the pension plans in which he is a participant. If he had retired on December 31, 2013, and immediately claimed early retirement benefits under those plans, the Present Value of Accumulated Benefits for him as reflected in the above table would have been higher by the following amounts: Retirement Plan for Bargaining Unit and Non-Bargaining Unit Employees—$24,706; Executive Supplemental Retirement Income Plan—$0; Deferred Compensation Plan Supplemental Annuity—$0. (3)Mr. Feltz is eligible for early retirement benefits under the pension plans in which he is a participant. If he had retired on December 31, 2013 and immediately claimed early retirement benefits under those plans, the Present Value of Accumulated Benefits for him as reflected in the above table would have been higher by the following amounts: Retirement Plan for Bargaining Unit and Non-Bargaining Unit Employees—$68,444, Executive Supplemental Retirement Income Plan—$0, and Deferred Compensation Plan Supplemental Annuity—$0. (4)Ms. Doolittle is eligible for early retirement benefits under the pension plans in which she is a participant. If she had retired on December 31, 2013 and immediately claimed early retirement benefits under those plans, the Present Value of Accumulated Benefits for her as reflected in the above table would have been higher by the following amounts: Retirement Plan for Bargaining Unit and Non-Bargaining Unit Employees—$28,689 and Executive Supplemental Retirement Income Plan—$0, and Deferred Compensation Plan Supplemental Annuity—$0. | Mr. White is eligible for early retirement benefits under the pension plans in which he is a participant. If he had retired on December 31, 2010 and immediately commenced receiving an early retirement benefit under those plans, the Present Value of Accumulated Benefits for him as reflected in the above table would have been higher by the following amounts: Retirement Plan for Non-Bargaining Unit Employees—$53,172, Supplemental Executive Retirement Plan Tier 2—$8,975, and Deferred Compensation Plan Supplemental Annuity—$3,823.
|
Retirement Plan for Bargaining Unit and Non-Bargaining Unit Employees The Retirement Plan for Bargaining Unit and Non-Bargaining Unit Employees (NBU(Retirement Plan) is our qualified pension plan covering certain employees covered by a labor agreement and all regular, full-time employees not covered under a labor agreement whose employment commenced prior to January 1, 2007 (when the NBUnon-bargaining unit portion of the Retirement Plan was closed to new participants). Eligible non-bargaining unit employees commenced participation in the NBURetirement Plan after one year of service and becomebecame 100 percent vested after five years of service. Final average earnings for purposes of calculating benefits consist of the participant’s highest average total annual compensation for any five consecutive years in the last ten10 years of employment, with total annual compensation for this purpose generally consisting of salary and annual incentive, excluding long-term incentives, amounts deferred under our non-qualified deferred compensation plans and, commencing in 2010 as provided in an NBUa Retirement Plan amendment approved in 2009, annual incentive payments in excess of target. In addition, as of December 31, 2010,2013, the Internal Revenue Code limited the amount of annual compensation considered for purposes of calculating benefits under the NBURetirement Plan to $245,000. $255,000. A normal retirement benefit is payable upon retirement at or after age 62 and consists of (a) an annuity benefit equal to 1.8 percent of final average earnings for each of the participant’s first 10 years of service, and (b) a lump sum benefit equal to 7.5 percent of final average earnings for each year of service in excess of 10 years. In addition, for participants hired before January 1, 2000 and under age 60 on that date (including Messrs. Kantor and White)Feltz), a supplemental annuity is provided under the NBU Plan equal to the participant’s total years of service multiplied by the sum of (x) a varying percentage (based on the participant’s hire age and age on January 1, 2000, and which is 0.295 percent for Mr. Kantor and 0.4470.058 percent for Mr. White)Feltz) of total final average earnings, and (y) 0.425 percent of the excess of final average earnings over an amount referred to as Covered Compensation, which generally consists of the average of the Social Security maximum taxable wage bases over the 35 years preceding the participant’s retirement. Employees who have attained age 55, if age plus accredited years of service totals 70 or more, are eligible for early retirement benefits. Annuity benefits are reduced by 1/3 percent per month (four percent per year) for each month that the benefit commencement date precedes age 62, with such benefit reduction increased to 1/2 percent per month (six percent per year) for each month that the benefit commencement date precedes age 60. The lump sum benefit is not subject to reduction on early retirement. At December 31, 2010,2013, Mr. White wasKantor, Mr. Feltz and Ms. Doolittle were the only Named Executive OfficerOfficers eligible for early retirement benefits under the NBURetirement Plan. The basic benefit form for annuity benefits is a monthly single life annuity. The participant may choose among different annuity forms that are the actuarial equivalent of the basic benefit. Deferred Compensation Plan Supplemental Annuity As discussed above, final average earnings for purposes of calculating benefits under the NBURetirement Plan excludesexclude amounts deferred under our non-qualified deferred compensation plans, consisting of our Executive Deferred Compensation Plan (EDCP) and Deferred Compensation Plan for Directors and Executives (DCP), which are described below under “Non-Qualified Deferred Compensation Plans.” Accordingly, deferral of compensation under these plans during a participant’s last 10 years of employment may result in a reduction in benefits payable under the NBURetirement Plan unless the participant’s total annual compensation in each of those years is over the limit ($245,000255,000 in 2010)2013) imposed by the Internal Revenue Code. In recognition of this possible loss of NBURetirement Plan benefits, the DCP provides for payment of a supplemental annuity generally payable in the same form and for the same period of time as the annuity payable under the NBURetirement Plan, subject to certain requirements for the timing of commencement of benefits. The supplemental annuity is equal to the difference between the actual benefit under the NBURetirement Plan assuming the participant had elected to receive the lump sum benefit in the form of an annuity and the corresponding benefit that otherwise would have been payable under the NBURetirement Plan if the participant had not deferred compensation under the EDCP and/or the DCP. Executive Supplemental Retirement Income Plan The Executive Supplemental Retirement Income Plan (ESRIP) is a non-qualified pension plan providing supplemental retirement benefits to persons who were executive officers prior to September 1, 2004, including Mr. Kantor, Mr. Feltz and Ms. Doolittle. Under the ESRIP, a target annual retirement benefit is determined for each participant, which is then reduced by the participant’s (a) NBURetirement Plan benefit (with the lump sum portion converted to a single life annuity), (b) annual Social Security benefits, and (c) any supplemental annuity under the DCP, in each case assuming commencement of benefits at age 65. Final average compensation for purposes of calculating ESRIP benefits generally consists of the participant’s highest average salary and annual incentive for any threefive consecutive compensation years in the last 10 years of employment. Long-term compensation is excluded from the definition of final average compensation. To help control the cost of future benefits under the ESRIP, the Board authorized ESRIP amendments in 2009 to provide that, commencing with annual incentives paid for 2010 performance, annual incentive compensation in excess of 125 percent of target willis also be excluded from the calculation of final average compensation. As provideda result of the promotion of Mr. Feltz to Chief Financial Officer in 2013, the sameterms of ESRIP amendments,provide that his final average compensation will beis calculated using a three-year average, increasing to a four-year average commencing on December 31, 2012 for Ms. Doolittle2016 and commencing on December 31, 2013 for Mr. Kantor,further increasing to a five-year average for each of them one year later. The target annual retirement benefit is equal to (a) 4.33 percent of final average compensation for each of the participant’s first 15 years of service, plus (b) for persons who were ESRIP participants as of September 1, 1998 (including Mr. Kantor), 0.5 percent of final average compensation for up to 10 additional years of service in excess of 15 years. This formula results in a target benefit of 65 percent of final average compensation after 15 years of service and a maximum 70 percent of final average compensation for those eligible after 25 years of service. A normal retirement benefit equal to the target benefit reduced by NBURetirement Plan, Social Security and DCP supplemental annuity benefits as discussed above is payable upon retirement at the later of age 62 or after 10 years of service. Participants become vested for 50 percent of this benefit after five years of service and then become vested for an additional 10 percent for each additional year of service until fully vested after 10 years of service. A participant who is age 55 or older with at least 10 years of service is eligible for early retirement benefits. The ESRIP normal retirement benefit is reduced by 1/20.5 percent per month (six percent per year) for each month that the benefit commencement date precedes age 62. At December 31, 2010,2013, Mr. Kantor, Mr. Feltz and Ms. Doolittle was the only Named Executive Officerwere eligible for early retirement benefits under the ESRIP. The basic benefit form for ESRIP benefits is a monthly single life annuity with 10 years of guaranteed payments. The participant may choose among different annuity forms that are the actuarial equivalent of the basic benefit. Supplemental Executive Retirement Plan The Supplemental Executive Retirement Plan (SERP) is a non-qualified pension plan providing supplemental retirement benefits to persons who become eligible executive officers after September 1, 2004, including Mr. Anderson and Ms. Kirkpatrick and Mr. White.Kirkpatrick. The SERP is divided into two tiers, with persons who became eligible executive officers between September 1, 2004 and December 1, 2006 (Mr. Anderson and Ms. Kirkpatrick) being participants in SERP Tier 1, and persons who are eligible for the Retirement Plan and who become eligible executive officers after December 1, 2006 (Mr. White) being participants in SERP Tier 2. No Named Executive Officer is a participant in SERP Tier 2. Participants must complete five years of service before becoming 100 percent vested in SERP benefits. SERP Tier 1 Under SERP Tier 1, a target lump sum retirement benefit is determined for each participant, which is then reduced by the lump sum actuarial equivalent of the participant’s NBURetirement Plan benefit, Social Security benefit and any supplemental annuity under the DCP, in each case valued as of and assuming commencement at age 65. Final average pay for purposes of calculating SERP Tier 1 benefits generally consists of the participant’s highest average salary and annual incentive for any five consecutive compensation years in the last 10 years of employment. To help control the cost of future benefits under the SERP, the Board authorized SERP amendments in 2009 to provide that, commencing with annual incentives paid for 2010 performance, annual incentive compensation in excess of 125 percent of target will beis excluded from the calculation of final average pay. The target lump sum retirement benefit is equal to 40 percent of final average pay for each of the participant’s first 15 years of service, resulting in a maximum target benefit of six times final average pay after 15 years of service. A normal retirement benefit equal to the target benefit reduced by the lump sum actuarial equivalents of NBURetirement Plan, Social Security, and DCP supplemental annuity benefits as discussed above is payable as a lump sum upon retirement at or after age 60. Upon termination of employment at any time after becoming vested, a participant will receive a termination benefit equal to the SERP Tier 1 normal retirement benefit reduced by 5/120.4166 percent per month (five percent per year) for each month that termination of employment precedes age 60, up to a maximum reduction of 60 percent for termination at age 48 or below. Participants may choose among different annuity forms that are the actuarial equivalent of the basic lump sum benefit. SERP Tier 2 As discussed above, final average earnings for purposes of calculating benefits under the NBURetirement Plan excludes amounts of compensation over a limit ($245,000255,000 in 2010)2013) imposed by the Internal Revenue Code. SERP Tier 2 provides a make-up benefit calculated using the NBURetirement Plan formula (see Retirement Plan for Bargaining Unit and Non-Bargaining Unit Employees, above) without applying this limit. Accordingly, benefits under SERP Tier 2 are equal to (a) the benefits that would be calculated under the NBURetirement Plan if compensation taken into account when determining final average earnings was not limited by the Internal Revenue Code and did not exclude amounts deferred under our non-qualified deferred compensation plans, minus (b) the sum of the actual NBURetirement Plan benefits and the DCP supplemental annuity benefits. SERP Tier 2 benefits are generally payable in the same form and for the same period of time as the annuity payable under the NBURetirement Plan, subject to certain requirements for the timing of commencement of benefits. NON-QUALIFIED DEFERRED COMPENSATION IN 20102013 | Name | | Plan
Name | | Executive
Contributions
in 20101 | | | NW Natural
Contributions
in 20101 | | | Aggregate
Earnings
in 20101 | | | Aggregate
Withdrawals/
Distributions
in 2010 | | | Aggregate
Balance at
12/31/20101 | | | Plan
Name | | Executive
Contributions
in 20131 | | | NW Natural
Contributions
in 20131 | | | Aggregate
Earnings
in 20131 | | | Aggregate
Withdrawals/
Distributions
in 2013 | | | Aggregate
Balance at
12/31/20131 | | Gregg S. Kantor | | EDCP | | $ | — | | | $ | — | | | $ | 5,391 | | | | — | | | $ | 74,661 | | | EDCP | | $ | — | | | $ | — | | | $ | 4,075 | | | $ | 8,865 | | | $ | 61,582 | | | | DCP | | | 123,380 | | | | 23,377 | | | | 27,550 | | | | — | | | | 559,773 | | | DCP | | | 172,735 | | | | 19,580 | | | | 37,912 | | | | 128,758 | | | | 1,070,019 | | David H. Anderson | | EDCP | | | — | | | | — | | | | — | | | | 4,240 | | | | — | | | EDCP | | | — | | | | — | | | | — | | | | — | | | | — | | | | DCP | | | 56,692 | | | | 11,589 | | | | 21,119 | | | | 22,700 | | | | 368,905 | | | DCP | | | 94,258 | | | | 8,822 | | | | 599 | | | | 169,205 | | | | 86,218 | | Stephen P. Feltz | | | EDCP | | | — | | | | — | | | | 13,904 | | | | — | | | | 227,467 | | | | | DCP | | | 42,281 | | | | 3,056 | | | | 11,265 | | | | 3,844 | | | | 289,696 | | Lea Anne Doolittle | | EDCP | | | — | | | | — | | | | 8,604 | | | | — | | | | 120,997 | | | EDCP | | | — | | | | — | | | | 7,747 | | | | — | | | | 143,963 | | | | DCP | | | 42,072 | | | | 4,268 | | | | 16,375 | | | | — | | | | 314,968 | | | J. Keith White | | EDCP | | | — | | | | — | | | | 4,929 | | | | — | | | | 68,259 | | | | | DCP | | | 41,301 | | | | — | | | | 35,318 | | | | — | | | | 636,689 | | | DCP | | | 32,070 | | | | 2,820 | | | | 18,303 | | | | — | | | | 484,225 | | Margaret D. Kirkpatrick | | EDCP | | | — | | | | — | | | | — | | | | — | | | | — | | | EDCP | | | — | | | | — | | | | — | | | | — | | | | — | | | | DCP | | | — | | | | — | | | | — | | | | — | | | | — | | | DCP | | | — | | | | — | | | | — | | | | — | | | | — | |
1(1) All amounts reported in the Executive Contributions and NW Natural Contributions columns are also included in amounts reported in the Summary Compensation Table above for either 2012 or 2013. The portion of the amounts reported in the Aggregate Earnings column that represents above-market earnings is included in column (h) of the Summary Compensation Table, and the amount of above-market earnings for each Named Executive Officer is set forth in footnote 4 to that table. Of the amounts reported in the Aggregate Balance column, the following amounts have been reported in the Summary Compensation Tables in this proxy statement or in prior year proxy statements: Mr. Kantor, $1,092,045; Mr. Anderson, $86,218; Mr. Feltz, $55,704; Ms. Doolittle, $472,055; and Ms. Kirkpatrick, $0. Amounts not previously reported consist of market-rate earnings on amounts deferred and amounts deferred before designation as a Named Executive Officer. Amounts previously reported as described in this footnote have been reduced by amounts distributed such that no amount in this footnote will exceed the amount in the Aggregate Balance column. | All amounts reported in the Executive Contributions and NW Natural Contributions columns are also included in amounts reported in the Summary Compensation Table above for either 2009 or 2010. The portion of the amounts reported in the Aggregate Earnings column that represents above-market earnings is included in column (h) of the Summary Compensation Table, and the amount of above-market earnings for each Named Executive Officer is set forth in footnote 4 to that table. Of the amounts reported in the Aggregate Balance column, the following amounts have been reported in the Summary Compensation Tables in this proxy statement or in prior year proxy statements: Mr. Kantor, $525,199; Mr. Anderson, $348,294; Ms. Doolittle, $331,842; Mr. White $219,235; and Ms. Kirkpatrick, $0. Amounts not previously reported consist of market-rate earnings on amounts deferred and amounts deferred before designation as a Named Executive Officer.
|
Non-Qualified Deferred Compensation Plans In 2013 We currently maintain two non-qualified deferred compensation plans for executive officers: the Executive Deferred Compensation Plan (the EDCP)EDCP and the Deferred Compensation Plan for Directors and Executives (the DCP).DCP. Prior to 2005, the EDCP was the plan pursuant to which our executives deferred compensation. On January 1, 2005, deferrals under the EDCP were discontinued and the DCP became effective for future deferrals of compensation by our executives. Accordingly, all deferred contributions in 20102013 were made under the DCP, while earnings continued to accrue on EDCP account balances. Participants in the DCP may elect in advance to defer up to 50 percent of their salaries, up to 100 percent of their annual incentives, and up to 100 percent of performance share and restricted stock unit awards under our Long Term Incentive Plan. We make matching contributions each year equal to (a) the lesser of 60 percent of the participant’s salary and annual incentive deferred during the year under both the DCP and our 401(k) Plan or 3.6 percent of the participant’s total salary and annual incentive for the year, reduced by (b) the maximum matching contribution we would have made under our 401(k) Plan if the participant had fully participated in that plan. All amounts deferred under the EDCP or the DCP have been or will be credited to either a “stock account” or a “cash account.” Under the DCP, deferrals of compensation payable in cash are made to cash accounts and deferrals of compensation payable in our Common Stock are made to stock accounts, except that participants were permitted to elect to defer performance share award payouts made prior to 2009 into cash accounts. No transfers between a participant’s cash account and stock account are permitted under the EDCP. Under the DCP, transfers from a cash account to a stock account are permitted, but not vice-versa. Stock accounts represent a right to receive shares of our Common Stock on a deferred basis, and are credited with additional shares based on the deemed reinvestment of dividends. Accordingly, theThe average annual rate of earnings on stock accounts over the previous five years ending December 31, 20102013 was approximately 12.813.2 percent representing the total shareholder return of our Common Stock annualized, assuming dividend reinvestment, and in 20102013 was approximately 6.900.9 percent, in each case representing the total shareholder return of our Common Stock annualized, assuming dividend reinvestment. Cash accounts under the EDCP are credited quarterly with interest at a rate equal to Moody’s Average Corporate Bond Yield plus two percentage points, subject to a six percent minimum rate. The average quarterly interest rate paid on EDCP cash accounts in 20102013 was 7.576.36 percent. Cash accounts under the DCP are credited quarterly with interest at a rate equal to Moody’s Average Corporate Bond Yield without the additional two percentage points or the six percent minimum. The average quarterly interest rate paid on DCP cash accounts in 20102013 was 5.574.36 percent.
Participants make elections regarding distributions of their accounts at the time they elect to defer compensation, and have limited rights to change these payment elections. Distributions may commence on a predetermined date while still employed or upon termination of employment, and may be made in a lump sum or in annual installments over five, 10 or 15 years. Hardship withdrawals are permitted under both the EDCP and the DCP, and participants in the EDCP may withdraw their full account balance at any time subject to forfeiture of 10 percent of the balance. POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL Change in Control Compensation We have agreed to provide certain benefits to the Named Executive Officers upon a “change in control” of NW Natural, although certain of the benefits are only payable if the Named Executive Officer’s employment is terminated without “cause” or by the officer for “good reason” within 24 months after the change in control. In our plans and agreements, “change in control” is generally defined to include: | Ÿ | | the acquisition by any person of 20 percent or more of our outstanding Common Stock,
|
the acquisition by any person of 20 percent or more of our outstanding Common Stock; | Ÿ | | the nomination (and subsequent election) of a majority of our directors by persons other than the incumbent directors, and
|
the nomination (and subsequent election) of a majority of our directors by persons other than the incumbent directors; and | Ÿ | | the consummation of a sale of all or substantially all of our assets, or an acquisition of NW Natural through a merger or share exchange.
|
the consummation of a sale of all or substantially all of our assets, or an acquisition of NW Natural through a merger or share exchange. In our plans and agreements, “cause” generally includes willful and continued failure to substantially perform assigned duties or willfully engaging in illegal conduct injurious to NW Natural, and “good reason” generally includes a change in position or responsibilities (that does not represent a promotion), a decrease in compensation, or a home office relocation of over 30 miles. The following table shows the estimated change in control benefits that would have been payable to the Named Executive Officers if (i) a change in control had occurred on December 31, 2010,2013, and (ii) each officer’s employment was terminated on that date either by us without “cause” or by the officer with “good reason.” | Name | | Cash
Severance
Benefit1 | | | Insurance
Continuation2 | | | Performance
Share
Acceleration3 | | | Additional
Lump Sum
SERP
Benefit4 | | | Total
Lump Sum
Payments5 | | | Additional
Annual
ESRIP
and SERP
Tier 2
Benefit6 | | | Cash
Severance
Benefit1 | | Insurance
Continuation2 | | Restricted
Stock Unit
Acceleration3 | | Performance
Share
Acceleration4 | | Additional
Lump
Sum
SERP
Benefit5 | | Total
Lump Sum
Payments6 | | | Additional
Annual
ESRIP
and SERP
Tier 2
Benefit7 | Gregg S. Kantor | | $ | 1,875,592 | | | $ | 31,835 | | | $ | 167,924 | | | $ | — | | | $ | 2,075,351 | | | $ | 174,697 | | | $2,195,000 | | $38,194 | | $480,393 | | $147,160 | | $— | | $2,860,747 | | | | $75,899 | David H. Anderson | | | 1,092,667 | | | | 38,009 | | | | 67,653 | | | | 278,449 | | | | 1,476,778 | | | | — | | | 1,091,333 | | 33,031 | | 190,778 | | 54,621 | | 393,075 | | 1,762,838 | | | | — | | Stephen P. Feltz | | | 744,000 | | 32,692 | | 102,717 | | 25,068 | | — | | 904,477 | | | | — | Lea Anne Doolittle | | | 700,000 | | | | 37,628 | | | | 30,751 | | | | — | | | | 768,379 | | | | 43,273 | | | 487,503 | | — | | 88,490 | | 24,042 | | — | | 600,035 | | | | 37,274 | J. Keith White | | | 548,395 | | | | — | | | | 36,902 | | | | — | | | | 585,297 | | | | 9,449 | | | Margaret D. Kirkpatrick | | | 612,152 | | | | — | | | | 38,906 | | | | 348,879 | | | | 999,937 | | | | — | | | 736,665 | | — | | 118,067 | | 34,017 | | 447,938 | | 1,336,687 | | | | — |
1 | Cash Severance Benefit. Each Named Executive Officer has entered into a severance agreement providing for, among other things, cash severance benefits payable if the officer’s employment is terminated by us without “cause” or by the officer for “good reason” within 24 months after a change in control. The cash severance benefit for each Named Executive Officer is equal to two times (2.5 times for Mr. Kantor) the sum of final annual salary plus average annual incentive for the last three years (annualized for annual incentives paid for partial years). These amounts are payable in a lump sum within five days after termination. The agreements provide for the following reductions in the cash severance benefit based on age at the time of termination: 10% reduction at age 62, 40% reduction at age 63, 70% reduction at age 64, and 100% reduction at age 65.
|
(1) Cash Severance Benefit. Each Named Executive Officer has entered into a severance agreement providing for, among other things, cash severance benefits payable if the officer’s employment is terminated by us without “cause” or by the officer for “good reason” within 24 months after a change in control. The cash severance benefit for each Named Executive Officer is equal to two times (two and a half times for Mr. Kantor) the sum of final annual salary plus average annual incentive for the last three years (annualized for annual incentives paid for partial years). These amounts are payable in a lump sum within five days after termination. The agreements provide for the following reductions in the cash severance benefit based on age at the time of termination: 10 percent reduction at age 62, 40 percent reduction at age 63, 70 percent reduction at age 64, and 100 percent reduction at age 65. Under the severance agreements, if any payments to a Named Executive Officer in connection with a change in control would be subject to the 20 percent excise tax on “excess parachute payments” as defined in Section 280G of the Internal Revenue Code, then, if it would result in a greater net after-tax benefit for the officer to have the payments that would otherwise be made reduced by the amount necessary to prevent them from being “parachute payments,” then the officer will be paid such reduced benefits. The amounts in the above table under Cash Severance Benefit and Insurance Continuation for Mr. WhiteMs. Doolittle and Ms. Kirkpatrick have been reduced in accordance with this provision. (2) Insurance Continuation. If cash severance benefits are triggered, the severance agreements also provide for the continuation of life and health insurance benefits for two years following termination of employment, but not to the extent similar benefits are provided by a subsequent employer. The amounts in the table above represent the present value of two years’ of monthly life and health insurance benefit payments at the rates paid by us for each officer as of December 31, 2013. Under the severance agreements, if any payments to a Named Executive Officer in connection with a change in control would be subject to the 20 percent excise tax on “excess parachute payments” as defined in Section 280G of the Internal Revenue Code, then, if it would result in a greater net after-tax benefit for the officer to have the payments that would otherwise be made reduced by the amount necessary to prevent them from being “parachute payments,” then the officer will be paid such reduced benefits. The amounts in the above table under Cash Severance Benefit and Insurance Continuation for Ms. Doolittle and Ms. Kirkpatrick have been reduced in accordance with this provision. (3) Restricted Stock Unit Acceleration. As of December 31, 2013, each Named Executive Officer held outstanding unvested RSUs with performance threshold as listed in the “Outstanding Equity Awards” table above. The RSU award agreements state that if cash severance benefits are triggered under the severance agreements, all outstanding unvested RSUs will immediately vest. The amounts in the table above represent the number of unvested RSUs with performance threshold as of December 31, 2013 multiplied by a stock price of $42.82 per share, which was the closing price of our Common Stock on the last trading day of 2013, plus an amount for each RSU equal to the dividends paid per share during the period the RSU was outstanding. (4) Performance Share Acceleration. As described above under the “Grants of Plan-Based Awards During 2013” table and “Compensation Discussion and Analysis—2013 Compensation Programs—Long-Term Incentives—Performance Shares,” we granted performance share awards to the Named Executive Officers in February 2013 under which shares of our Common Stock (plus accumulated cash dividends) will be issued to them based on our performance over the years 2013 to 2015. Similar awards were granted in February 2012 to the Named Executive Officers under which Common Stock (and dividends) will be issued based on our performance over the years 2012 to 2014. The award agreements for all those awards require us to issue a calculated number of shares within five days after a change in control and provide that (i) the number of shares to be issued will be pro-rated based on the portion of the award period completed prior to the change in control, (ii) for the portion of the award payable based on total shareholder return relative to a peer group of companies, actual stock performance through the date of the change in control will be applied to determine a gross payout amount before applying the above pro-ration, and (iii) for the portion of the award payable based on achievement of strategic milestones, the payout will be based on 100 percent of the pro-rated target. These payments are required whether or not the officer’s employment is terminated in connection with the change in control. The amounts in the table above represent the number of shares that would have been issued under the awards based on stock performance through December 31, 2013, multiplied by a stock price of $42.82 per share, which was the closing price of our Common Stock on the last trading day of 2013, plus an amount equal to the dividends paid per share during the applicable award periods through December 31, 2013. (5) Additional Lump Sum SERP Tier 1 Benefit. As discussed above in the text accompanying the “Pension Benefits” table, two of our Named Executive Officers are participants in the SERP Tier 1, which generally provides for a lump sum benefit payable six months after termination of employment. If a SERP Tier 1 participant’s employment is terminated by us without “cause” or by the participant for “good reason” within 24 months after a change in control, the SERP Tier 1 participant will receive three additional years of service for purposes of calculating their SERP Tier 1 benefit. The amounts in the table represent the excess of the SERP benefit the participant would receive on termination following a change in control over the SERP benefit he or she would have received if employment had terminated absent a change in control on December 31, 2013. 2(6) | Insurance Continuation. If cash severance benefits are triggered, the severance agreements also provide for the continuation of life and health insurance benefits for two years following termination of employment, but not to the extent similar benefits are provided by a subsequent employer. The amounts in the table above represent the present value of two years’ of monthly life and health insurance benefit payments at the rates paid by us for each officer as of December 31, 2010.
|
3 | Performance Share Acceleration.As described above under the “Grants of Plan-Based Awards During 2010” table and “Compensation Discussion and Analysis—Compensation Programs—Long-Term Incentives—Performance Shares,” we granted performance share awards to the Named Executive Officers in February 2010 under which shares of our Common Stock (plus accumulated cash dividends) will be issued to them based on our performance over the years 2010 to 2012. Similar awards were granted in February 2009 to the Named Executive Officers under which Common Stock (and dividends) will be issued based on our performance over the years 2009 to 2011. The award agreements for all awards other than the special Gill Ranch storage project award granted to Mr. White require us to issue a calculated number of shares within five days after a change in control and provide that (i) the number of shares to be issued will be pro-rated based on the portion of the award period completed prior to the change in control, (ii) for the portion of the award payable based on total shareholder return relative to a peer group of companies, actual stock performance through the date of the change in control will be applied to determine a gross payout amount before applying the above pro-ration, and (iii) for the portion of the award payable based on achievement of strategic milestones, the payout will be based on 100 percent of the pro-rated target. These payments are required whether or not the officer’s employment is terminated in connection with the change in control. The amounts in the table above represent the number of shares that would have been issued under the awards based on stock performance through December 31, 2010, multiplied by a stock price of $46.47 per share, which was the closing price of our Common Stock on the last trading day of 2010, plus an amount equal to the dividends paid per share during the applicable award periods through December 31, 2010.
|
4 | Additional Lump Sum SERP Tier 1 Benefit. As discussed above in the text accompanying the “Pension Benefits” table, two of our Named Executive Officers are participants in the SERP Tier 1, which generally provides for a lump sum benefit payable six months after termination of employment. If a SERP Tier 1 participant’s employment is terminated by us without “cause” or by the participant for “good reason” within 24 months after a change in control, the SERP Tier 1 participant will receive three additional years of service for purposes of calculating their SERP Tier 1 benefit. The amounts in the table represent the excess of the SERP benefit the participant would receive on termination following a change in control over the SERP benefit he or she would have received if employment had terminated absent a change in control on December 31, 2010.
|
5 | Total Lump Sum Payments. Amounts in this column equal the sum of the amounts in the fourfive columns to its left. |
6 | (7)Additional Annual ESRIP and SERP Tier 2 Benefits. As discussed above in the text accompanying the “Pension Benefits” table, Mr. Kantor, Mr. Feltz and Ms. Doolittle are participants in the ESRIP, which generally provides for a lifetime supplemental pension benefit payable by us following retirement. If the employment of any ESRIP participant is terminated by us without “cause” or by the participant for “good reason” within 24 months after a change in control, the ESRIP participant will receive three additional years of service for purposes of calculating his or her ESRIP benefit. In addition, (i) the benefit reductions for commencement of ESRIP benefits prior to age 62 are reduced, from 6 percent for each year benefits commence prior to age 62 to three percent for each year benefits commence prior to age 62; and (ii) benefits will commence immediately (as compared to age 57 for Mr. Kantor, age 62 for Mr. Feltz and immediately for Ms. Doolittle, as elected by them for terminations not involving a change in control). The amounts in the table above represent the excess of the annual ESRIP benefit each of Mr. Kantor, Mr. Feltz and Ms. Doolittle would receive commencing immediately, and giving effect to the above benefit enhancements, over the annual ESRIP benefit they would each receive commencing at the later ages set forth above assuming a voluntary termination of employment on December 31, 2013. The additional actuarial present value of these enhanced ESRIP benefits, calculated using the same mortality and discount rate assumptions as used for purposes of the “Pension Benefits” table above, is $1,308,848, $184,209, and 569,237 for Mr. Kantor, Mr. Feltz and Ms. Doolittle, respectively. |
| benefit payable by us following retirement. If the employment of any ESRIP participant is terminated by us without “cause” or by the participant for “good reason” within 24 months after a change in control, the ESRIP participant will receive three additional years of service for purposes of calculating his or her ESRIP benefit. In addition, (i) the benefit reductions for commencement of ESRIP benefits prior to age 65 are reduced, from 6 percent for each year benefits commence prior to age 65 (applicable to a participant like Mr. Kantor who is not yet eligible for early retirement) or age 62 (applicable to a participant like Ms. Doolittle who is eligible for early retirement) to three percent for each year benefits commence prior to age 62; and (ii) benefits will commence immediately, or if later, at age 55 (as compared to age 57 for Mr. Kantor and age 58 for Ms. Doolittle as elected by them for terminations not involving a change in control). The amounts in the table above represent the excess of the annual ESRIP benefit each of Mr. Kantor and Ms. Doolittle would receive commencing immediately, or if later, at age 55 and giving effect to the above benefit enhancements, over the annual ESRIP benefit they would each receive commencing at the later ages set forth above assuming a voluntary termination of employment on December 31, 2010. The additional actuarial present value of these enhanced ESRIP benefits, calculated using the same mortality and discount rate assumptions as used for purposes of the “Pension Benefits” table above, is $2,643,775 and $739,023, for Mr. Kantor and Ms. Doolittle, respectively. As discussed above in the text accompanying the “Pension Benefits” table, Mr. White is a participant in the SERP Tier 2, which generally provides for a lifetime supplemental pension benefit payable by us following retirement. If the employment of any SERP Tier 2 participant is terminated by us without “cause” or by the participant for “good reason” within 24 months after a change in control, the SERP Tier 2 participant will receive three additional years of service for purposes of calculating his or her SERP Tier 2 benefit. The amount for Mr. White in the table above represents the excess of the annual SERP Tier 2 benefit he would receive on termination following a change in control over the annual SERP Tier 2 benefit he would have received if his employment had terminated absent a change in control on December 31, 2010. The additional actuarial present value of this enhanced SERP Tier 2 benefit, calculated using the same mortality and discount rate assumptions as used for purposes of the “Pension Benefits” table above, is $129,483.
|
Other Benefits Triggered on Certain Employment Terminations WhenAs of December 31, 2013, each Named Executive Officer held outstanding unvested RSUs with performance threshold as listed in the “Outstanding Equity Awards at December 31, 2013” table above. The RSU award agreements generally require the officer to be employed by us on the applicable vesting dates to receive RSU payouts, but the agreements also provide that if employment terminates earlier as a result of death or disability, or when the officer is eligible for normal or early retirement under our Retirement Plan, the officer will nevertheless receive 100 percent of each scheduled RSU payout if the performance threshold is satisfied for the applicable year. As of December 31, 2013, Mr. Kantor, Mr. Feltz and Ms. Doolittle were eligible for normal or early retirement under the Retirement Plan. Assuming achievement of the performance threshold for all years, the estimated value of the RSU payouts, based on a stock price of $42.82 per share (which was promotedthe closing price of our Common Stock on the last trading day of 2013) and continuation of quarterly dividends on our Common Stock at the current rate, that Mr. Kantor, Mr. Feltz and Ms. Doolittle would be entitled to Presidentreceive on any termination of employment, and Chief Executive Officer effective January 1, 2009, we entered into a severance agreement with him that provides the following severance benefits if we terminate his employment without cause:Mr. Anderson and Ms. Kirkpatrick would be entitled to receive on death or disability, as of December 31, 2013 would be: Mr. Kantor, $506,061; Mr. Anderson, $200,990, Mr. Feltz, $108,513; Ms. Doolittle, $93,320; and Ms. Kirkpatrick, $124,318.
| Ÿ | | 80 percent of his base salary for a termination without cause during 2010, decreasing to 60 percent of base salary for a termination in 2011, 40 percent in 2012, 20 percent in 2013, and 0 percent thereafter.
|
| Ÿ | | For any termination without cause occurring before his 55th birthday on April 30, 2012, Mr. Kantor will be treated as eligible for early retirement benefits under the ESRIP, for which he will not otherwise be eligible unless he remains employed through his 55th birthday. The estimated value of this ESRIP modification, based on an assumed termination of Mr. Kantor’s employment on December 31, 2010, is an increase in ESRIP benefits of $62,962 per year commencing at age 57, which has an actuarial present value as of December 31, 2010, calculated using the same mortality and discount rate assumptions as used for purposes of the “Pension Benefits” table above, of $735,439.
|
As described above under “Grants of Plan-Based Awards During 2010”2013” table and “Compensation Discussion and Analysis—2013 Compensation Programs—Long-Term Incentives—Performance Shares,” we granted performance share awards to the Named Executive Officers in February 20102013 under which shares of our Common Stock (plus accumulated cash dividends) will be issued to them based on our performance over the years 20102013 to 2012.2015. Similar awards were granted in February 20092012 under which Common Stock (and dividends)dividend equivalents) will be issued based on our performance over the years 20092012 to 2011.2014. The award agreements generally require the officer to be employed by us on the last day of the performance period to receive an award payout, but the award agreements for all those awards other than the special Gill Ranch storage project award granted to Mr. White provide that if employment terminates earlier as a result of death, disability or retirement after reaching age 60 the officer will be entitled to a pro-rated award payout. Accordingly, if any Named Executive Officer had terminated employment on December 31, 20102013 as a result of death, disability or retirement, his or her target award for the 2010-20122013-2015 performance period would have been reduced to one-third of the original target award reflecting employment for one year of the three-year performance period, and his or her target award for the 2009-20112012-2014 performance period would have been similarly reduced to two-thirds of the original target award, and then he or she would receive payouts under these adjusted awards at the end of the applicable performance periods based on our actual performance against the performance goals. Assuming achievement of target performance levels, the estimated value of the pro-rated award payouts, based on a stock price of $46.47$42.82 per share and continuation of quarterly dividends for the remainder of the performance period on our Common Stock at the current rate, for each Named Executive Officer would be: Mr. Kantor, $704,161;$619,928; Mr. Anderson, $283.365;$230,262; Mr. Feltz, $106,283; Ms. Doolittle, $128,802; Mr. White, $154,563;$101,445; and Ms. Kirkpatrick, $163,160. $143,308. As of December 31, 2010,2013, each Named Executive Officer held options to purchase Common Stock as listed in the “Outstanding Equity Awards” table above. Under the terms of their stock option agreements, upon the death or disability of the officer, all unexercisable options become fully exercisable and the standard three-month period for exercising options following termination of employment is extended to one year, but not beyond each option’s original 10-year term. If death or disability of a Named Executive Officer had occurred on December 31, 2010,2013, the sum of (i) for outstanding unexercisable options, the aggregate value as of December 31, 20102013 of those options, assuming a one-year remaining term and otherwise calculated using the Black-Scholes option pricing model with the same assumptions used for valuing our options under ASC 718, plus (ii) for outstanding exercisable options, the increase in value of those options resulting from the extension of the post-termination exercise period from three months to one year with the option values as of December 31, 20102013 for three-month and one-year remaining terms calculated using the Black-Scholes option pricing model with the same assumptions used for valuing our options under ASC 718, for each of the Named Executive Officers was Mr. Kantor, $309,261,$183,438; Mr. Anderson, $115,990;$77,177; Mr. Feltz, $21,566; Ms. Doolittle, $47,680 Mr. White, $55,542,$32,808; and Ms. Kirkpatrick, $67,369.$51,402. If an officer terminates employment when eligible for normal or early retirement under our NBURetirement Plan, the stock option agreements provide that all unexercisable options become fully exercisable and the standard three-month period for exercising options following termination of employment is extended to three years, but not beyond each option’s original 10-year-term. As of December 31, 2010,2013, Mr. White wasKantor, Mr. Feltz and Ms. Doolittle were the only Named Executive OfficerOfficers eligible for normal or early retirement under the NBURetirement Plan. If hethey had retired on December 31, 2010,2013, the aggregate value of option enhancements calculated as described above but using a three-year remaining term instead of a one-year remaining term was $79,672.Mr. Kantor, $373,898; Mr. Feltz, $46,473; and Ms. Doolittle, $70,459. NON-EMPLOYEE DIRECTOR COMPENSATION IN 20102013 | | | | | | | | | | | | | Name | | Fees Earned or
Paid in Cash
($)1 | | | Change in
Pension
Value and
Non-qualified
Deferred
Compensation
Earnings2 | | | Total
($) | | (a) | | (b) | | | (d) | | | (e) | | Timothy P. Boyle | | $ | 96,500 | | | $ | 70 | | | $ | 96,570 | | Martha L. Byorum | | | 112,000 | | | | 695 | | | | 112,695 | | John D. Carter | | | 131,000 | | | | 93 | | | | 131,093 | | Mark S. Dodson | | | 98,000 | | | | 21,215 | | | | 119,215 | | C. Scott Gibson | | | 121,500 | | | | 4,488 | | | | 125,988 | | Tod R. Hamachek | | | 118,000 | | | | 30,946 | | | | 148,946 | | Jane L. Peverett | | | 108,500 | | | | 61 | | | | 108,561 | | George J. Puentes | | | 101,000 | | | | 75 | | | | 101,075 | | Kenneth Thrasher | | | 115,000 | | | | — | | | | 115,000 | | Russell F. Tromley | | | 182,500 | | | | 19,419 | | | | 201,919 | |
| | | | | | | Name | | Fees Earned or
Paid in Cash
($)1 | | Change in
Pension
Value and
Non-qualified
Deferred
Compensation
Earnings2 | | Total
($) | (a) | | (b) | | (d) | | (e) | Timothy P. Boyle | | $113,500 | | $ — | | $113,500 | Martha L. Byorum | | 139,500 | | 1,471 | | 140,971 | John D. Carter | | 145,000 | | 198 | | 145,198 | Mark S. Dodson | | 113,500 | | 21,776 | | 135,276 | C. Scott Gibson | | 137,000 | | 5,873 | | 142,873 | Tod R. Hamachek | | 208,000 | | 54,353 | | 262,353 | Jane L. Peverett | | 119,500 | | 82 | | 119,582 | George J. Puentes 3 | | 109,000 | | 77 | | 109,077 | Kenneth Thrasher | | 135,000 | | — | | 135,000 |
Column (c) was deleted as it is not applicable. (1) All cash amounts were deferred pursuant to the terms of the Deferred Compensation Plan for Directors and Executives for Messrs. Carter, Dodson and Hamachek. A portion of cash amounts paid to Ms. Peverett and Mr. Puentes were deferred pursuant to the terms of the Deferred Compensation Plan for Directors and Executives. (2) Amounts in column (d) represent above-market interest credited to the directors’ accounts under the Directors Deferred Compensation Plan and the Deferred Compensation Plan for Directors and Executives during 2013. For Mr. Dodson, the amount also includes above-market interest credited to his cash account balance under the Executive Deferred Compensation Plan. For this purpose, interest credited is considered above-market to the extent such interest exceeds 120 percent of the average of the applicable long-term federal rates for the twelve months corresponding to the period for which market yield information is obtained to calculate interest crediting rates under the non-qualified deferred compensation plans. 1(3) | All cash amounts were deferred pursuant toMr. Puentes retired from the termsBoard of the Deferred Compensation Plan for Directors and Executives for Messrs. Boyle, Carter, Hamachek, and Puentes. A portion of cash amounts paid to Ms. Peverett were deferred pursuant to the terms of the Deferred Compensation Plan for Directors and Executives.on October 9, 2013.
|
2 | Amounts in column (d) represent above-market interest credited to the directors’ accounts under the Directors Deferred Compensation Plan and the Deferred Compensation Plan for Directors and Executives during 2010. For Mr. Dodson, the amount also includes above-market interest credited to his cash account balance under the Executive Deferred Compensation Plan.
|
Non-Employee Director Compensation Philosophy The OECC’s compensation philosophy for non-employee members of the Board of Directors is designed to attract and retain high performing directors who will perform in the best interest of shareholders. The OECC targets the compensation of Board members to be aligned with the middle of the market (50th percentile) for about 2416 peer companies. The OECC reviews Board compensation every two yearsannually and recommends adjustments to compensation only as necessary. Towers Perrin,Watson, the same consulting firm that assists the OECC with executive compensation, provides competitive market data for Board compensation. While the components of compensation have evolved over the years, the current pay components consist of a cash retainer, cash meeting fees, and extra cash retainers for serving as chair of the Board or of committees of the Board. The Board has adopted stock ownership guidelines that require directors to own NW Natural shares valued at the lesser ofleast $300,000 or five times their annual retainer within five years of joining the Board, including amounts deferred pursuant to the plans described below. The OECC last reviewed the progress of the directors in achieving these stock ownership objectives in February 20112014 and concluded that all of the directors have achieved the stock ownership goals. Director Fees and Arrangements Fees Paid in 20102013 The compensation terms for non-employee members of the Board of Directors are described below: | | | | | Annual Cash Retainer | | $ | 80,000 | 1 | Extra Annual Cash Retainer for Committee Chairs (other than Audit or Organization and Executive Compensation Committee Chairs) | | $ | 5,000 | | Extra Annual Cash Retainer for Audit Committee Chair | | $ | 15,000 | | Extra Annual Cash Retainer for Organization and Executive Compensation Committee Chair | | $ | 10,000 | | Extra Annual Cash Retainer for Chairman of the Board | | $ | 60,000 | | Board Meeting Fees | | $ | 1,500 | | Committee Meeting Fees | | $ | 1,500 | | Per diem (conduct of Company business, other than on Board or Committee meeting day) | | $ | 1,500 | |
| | | | | | Annual Cash Retainer | | $ | 100,000 | 1 | | Extra Annual Cash Retainer for Committee Chairs (other than Audit, Governance, or Organization and Executive Compensation Committee Chairs) | Effective January 1, 2011,
| | 5,000 | | | Extra Annual Cash Retainer for Audit Committee Chair | | | 15,000 | | | Extra Annual Cash Retainer for Organization and Executive Compensation Committee Chair | | | 10,000 | | | Extra Annual Cash Retainer for Governance Committee Chair | | | 7,500 | | Extra Annual Cash Retainer for Chairman of the annual cash retainer increased to $90,000.Board | | | 75,000 | | | Board Meeting Fees | | | 1,500 | | | Committee Meeting Fees | | | 1,500 | | | Per diem (conduct of Company business, other than on Board or Committee meeting day) | | | 1,500 | |
(1)The annual cash retainer was increased to $110,000 effective as of January 1, 2014. Directors do not receive options or any other form of equity compensation, but are subject to the stock ownership guidelines included in our Corporate Governance Standards. See “Non-employee Director Compensation Philosophy,” above. Deferred Compensation Plans Directors Deferred Compensation Plan Prior to January 1, 2005, directors could elect to defer the receipt of all or a part of their directors’ compensation fees (cash or stock retainers and meeting fees) under our non-qualified Directors Deferred Compensation Plan (DDCP). At the director’s election, deferred amounts were credited to either a “cash account” or a “stock account.” If deferred amounts were credited to stock accounts, such accounts were credited with a number of shares based on the purchase price of our Common Stock on the next purchase date under our Dividend Reinvestment and Direct Stock Purchase Plan, and such accounts were credited with additional shares based on the deemed reinvestment of dividends. Cash accounts are credited quarterly with interest at a rate equal to Moody’s Average Corporate Bond Yield plus two percentage points and the crediting rate is subject to a six percent minimum rate. The rate is adjusted quarterly. At the election of the participant, deferred balances in the stock and/or cash accounts are payable after termination of Board service in a lump sum, in installments over a period not to exceed 10 years, or in a combination of lump sum and installments. In SeptemberNovember 2004, the Board approved an amendment to the DDCP partially terminating the plan so that no deferrals will be made to the plan subsequent to December 31, 2004. All amounts deferred into the plan prior to December 31, 2004 will remain in the plan and all other provisions of the DDCP remain in effect. Deferred Compensation Plan for Directors and Executives In January 2005, the Deferred Compensation Plan for Directors and Executives (DCP) replaced the existing DDCP as the vehicle for non-qualified deferral of compensation by directors. See “Non-qualified Deferred Compensation Plans,” above. Our obligation to pay deferred compensation in accordance with the terms of the DCP will generally become due on retirement, death, or other termination of service, and will be paid in a lump sum or in installments of five, 10 or 15 years as elected by the participant in accordance with the terms of the DCP. The right of each participant in the DCP is that of one of our general, unsecured creditors. Directors Retirement Benefit
On January 1, 1998, in connection with the termination of a prior retirement benefit for directors and in lieu of that benefit, we credited a number of shares of our Common Stock to a stock account under the DDCP for each then current director. If such a director retired from the Board at age 70 or older with 10 or more years of service as a director or if the director earlier died or became disabled or if there was an earlier change in control of NW Natural, we were obligated to deliver to the director (or to his or her beneficiary) the number of shares credited to the account, plus an additional number of shares based on reinvested dividends credited to the account over time. Concurrently with the creation of the stock accounts, we contributed to the Umbrella Trust for Directors a number of shares of our Common Stock equal to the number of shares credited to directors’ accounts. Such stock is held in the Umbrella Trust and will be used to fund our obligation to pay out the stock accounts. In February 2008, the Board of Directors amended the DDCP such that each of the directors with this benefit became fully vested in the shares. At that time, the number of shares credited to retirement benefit accounts of then-current directors were as follows: Mr. Hamachek, 919 shares; and Mr. Tromley, 1,415 shares.
Director Perquisites and Other Compensation We do not provide perquisites to our directors of other than nominal value and no director received perquisites at or exceeding a total value of $10,000 in 2010.2013. 20102013 AND 20092012 AUDIT FIRM FEES
The following table shows the fees and expenses that NW Natural paid or accrued for the integrated audits of its consolidated financial statements and other services provided by our independent registered public accounting firm, PricewaterhouseCoopers LLP, for fiscal years 20102013 and 2009:2012: | | | | | | | | | | | | 2010 | | | 2009 | | Audit Fees | | $ | 822,644 | | | $ | 828,707 | | Audit-Related Fees | | | 64,000 | | | | 60,059 | | Tax Fees | | | 34,198 | | | | 231,390 | | All Other Fees | | | 6,723 | | | | 13,000 | | | | | | | | | | | Total | | $ | 927,565 | | | $ | 1,133,156 | | | | | | | | | | |
| | | | | | | | | | | | 2013 | | | 2012 | | Audit Fees | | $ | 930,458 | | | $ | 886,428 | | Audit-Related Fees | | | 4,000 | | | | 78,250 | | Tax Fees | | | 39,580 | | | | 49,907 | | All Other Fees | | | 1,800 | | | | 1,800 | | | | | | | | | | | Total | | $ | 975,838 | | | $ | 1,016,385 | | | | | | | | | | |
Audit Fees This category includes fees and expenses for services rendered for the integrated audit of the consolidated financial statements included in the Annual Report on Form 10-K and the review of the quarterly financial statements included in the Quarterly Reports on Form 10-Q. The integrated audit includes the review of our internal control over financial reporting in compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act). In addition, amounts include fees for statutory filings, issuance of consents and comfort letters relating to the registration of Company securities and assistance with the review of documents filed with the SEC. The amount includes the audit fee of $35,000 and $35,630 in 2010 also includes $2,5002013 and 2012, for agreed upon procedures related to correspondence with the Environmental Protection Agency.a stand-alone financial audit of Gill Ranch Storage, LLC, a wholly-owned subsidiary of NW Natural. Audit-Related Fees This category includes fees and expenses for required audits of NW Natural’s Retirement Plans and its Retirement K Savings Plan.Plan for 2012 only. These services were not performed by our principal auditor in 2013. Fees and expenses for the audit of NW Natural’s Retirement Plans, which are paid by the Trustee from assets of NW Natural’s Retirement Trust, totaled $32,500$33,750 in 20102012. Additionally, fees paid for the 401(k) retirement plan were $28,000 in 2012. This category also includes fees associated with EPA assurance letters, which totaled $4,000 in 2013 and $28,524$3,000 in 2009. 2012. Tax Fees This category includes fees for tax compliance, tax planning and tax advice. The amount in 20102012 includes $17,723$14,612 for additional supportadvice rendered with respect to tax issues related to our investment in connection with our response to an IRS audit review of our change in accounting method for repairs and maintenance expenditures. gas reserves. All Other Fees This category relates to services other than those described above. In 2010,2013 and 2012, the amount primarily relates to paymentsreflects an $1,800 payment for an accounting research tool. Pre-Approval Policy for Audit and Non-Audit Services The Audit Committee approved 100 percent of 20102013 and 20092012 services for audit, audit-related, tax services and all other fees, including audit services relating to compliance with Section 404 of the Sarbanes-Oxley Act. The Chair of the Audit Committee is authorized to pre-approve non-audit services between meetings of the Audit Committee and must report such approvals at the next Audit Committee meeting. See “Report of the Audit Committee,” below. REPORT OF THE AUDIT COMMITTEE The Audit Committee of the Board of Directors (Committee) is responsible for providing independent, objective oversight of NW Natural’s accounting and auditing functions, financial reporting and internal control over financial reporting. The Committee is solely responsible for the engagement of the independent registered public accounting firm on behalf of NW Natural, and the independent registered public accounting firm reports to the Committee. The Committee acts under a written charter, amended as of July 22, 2010 to ensure compliance with applicable laws and regulations. The charter is reviewed annually by the Committee and is available on NW Natural’s website atwww.nwnatural.com.Each of the members of the Committee is independent as defined by current New York Stock Exchange listing standards and NW Natural’s Director Independence Standards. The Board of Directors has designated John D. Carter, chair of the committee, as an “audit committee financial expert.”expert”. The Committee, in accordance with its written charter, oversees the quality and integrity of NW Natural’s accounting, auditing and financial reporting practices. During fiscal year 2010,2013, the Committee discussed the interim financial information in each of NW Natural’s quarterly reports to the Securities and Exchange Commission (SEC) in special meetings with the Chief Executive Officer, the Chief Financial Officer, the Controller, and PricewaterhouseCoopers LLP, NW Natural’s independent registered public accounting firm, prior to filing them with the SEC. In addition, the Chair of the Committee and available Committee members review NW Natural’s quarterly earnings press release before its dissemination. During 2010,2013, the Committee reviewed disclosure controls and procedures designed to ensure the continuing integrity of NW Natural’s financial reports and executive compensation disclosure. The Committee provided regular oversight of NW Natural’s assessment of its internal control over financial reporting in compliance with Section 404 of the Sarbanes-Oxley Act of 2002. In fulfilling its responsibilities, the Committee has reviewed and discussed the audited financial statements contained in NW Natural’s Annual Report on Form 10-K for the year ended December 31, 20102013 with NW Natural’s management and the independent registered public accounting firm. As part of its review, the Committee discussed NW Natural’s critical accounting policies and matters of judgment and estimates used in the preparation of the financial statements included in NW Natural’s 20102013 Annual Report on Form 10-K. In addition, the Committee discussed with the independent registered public accounting firm those matters required to be discussed by Statement on Auditing Standards No. 61, as amended by the Public Accounting Oversight Board (PCAOB) AU 380, Communications with Audit Committees. In discharging its oversight responsibility as to the audit process, the Committee obtained from the independent registered public accounting firm written disclosures and the letter required by the PCAOB Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence, and has discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence. In this regard, the Committee considered whether or not the provision of non-audit services by the independent registered public accounting firm for the year ended December 31, 20102013 is compatible with maintaining the independence of the firm and determined that none of the services provided to NW Natural impacted a finding of independence. In addition, for the year ended December 31, 2010,2013, the Committee reviewed the relationship with its registered public accounting firm, PricewaterhouseCoopers LLP. Based upon the Committee’s assessment and satisfaction with the services provided, the Committee determined it was in NW Natural’s best interest to continue its engagement of PricewaterhouseCoopers LLP. In February 2010,2013, the Committee pre-approved certain non-audit services performed by NW Natural’s independent registered public accounting firm and affirmed its procedure for the pre-approval of any future non-audit services performed by its independent auditor. On February 24, 2011,27, 2014, the Committee pre-approved specific services to be performed by the independent auditor in 2011,2014, including audit, audit-related and tax services, and established its procedure for pre-approval of all other services to be performed by the independent auditor in 2011.2014. The Committee determined that: for proposed non-audit services, management will submit to the Committee a list of non-audit services that it recommends the Committee engage the independent registered public accounting firm to provide; | Ÿ | | for proposed non-audit services, management will submit to the Committee a list of non-audit services that it recommends the Committee engage the independent registered public accounting firm to provide;
|
the Committee will review and consider for approval the list of permissible non-audit services and the budget for such services; | Ÿ | | the Committee will review and consider for approval the list of permissible non-audit services and the budget for such services;
|
management will routinely inform the Committee regarding the non-audit services actually provided by the independent auditor pursuant to this pre-approval process; and | Ÿ | | management will routinely inform the Committee regarding the non-audit services actually provided by the independent auditor pursuant to this pre-approval process; and
|
the Director of Internal Auditing will be responsible for reporting at least annually to the Committee all independent registered public accounting firm fees and the pre-approved budget for such services. | Ÿ | | the Director of Internal Auditing will be responsible for reporting at least annually to the Committee all independent registered public accounting firm fees and the pre-approved budget for such services.
|
The Chair of the Committee is authorized to pre-approve non-audit services between meetings of the Committee and must report such approvals at the next Committee meeting. The Committee also discussed with the independent registered public accounting firm any relationships that may impact its objectivity and independence and satisfied itself as to the auditor’s independence. The Committee also completed its annual assessment of the independent registered public accounting firm’s and internal auditors’ performance. The Committee discussed with management and the internal auditors the quality, adequacy and effectiveness of NW Natural’s internal control over financial reporting, and the organization, responsibilities, budget and staffing of the internal audit function. The Committee reviewed with the independent registered public accounting firm any significant matters regarding NW Natural’s internal control over financial reporting that had come to their attention during the conduct of their audit. The Committee reviewed with both the independent registered public accounting firm and the internal auditors their respective audit plans, audit scopes and identification of audit risks. The Committee, in reliance on the reviews and discussions referred to above, recommended to the Board of Directors (and the Board has approved and directed) that the audited consolidated financial statements be included in Northwest Natural Gas Company’s Annual Report on Form 10-K for the year ended December 31, 2010,2013, for filing with the SEC. Respectfully submitted to the Board of Directors on February 24, 201127, 2014 by the Audit Committee: | | | | | | | John D. Carter, Chair | | Jane L. PeverettTod R. Hamachek | | | Martha L. “Stormy” Byorum | | Kenneth Thrasher | | | Tod R. Hamachek | | Russell F. Tromley |
PROPOSAL 2—PROPOSED REAPPROVAL AND AMENDMENT OF LONG TERM INCENTIVE PLAN
In December 2000 the Board of Directors adopted, and in May 2001 the shareholders approved, the Company’s Long Term Incentive Plan (the Plan). The Plan was reapproved without amendment by the shareholders in May 2006. The Plan gives the Board of Directors broad authority to make long term stock incentive awards and, in its discretion, to qualify such awards as “performance-based compensation” as defined under Section 162(m) of the Internal Revenue Code of 1986 (the Code), thereby permitting full deductibility of any amounts paid under such awards to the Named Executive Officers. The Code requires that the Plan be reapproved by the shareholders at least once every five years in order for awards under the Plan to continue to qualify as performance-based compensation, and the Plan is being submitted to shareholders for that reason.
As of March 15, 2011, there were 274,155 shares available for issuance under the Plan, and target awards for a total of 82,500 shares were outstanding. To ensure that sufficient shares are authorized for the Plan to cover awards for the next five years at grant levels consistent with recent practice, the Board of Directors believes that additional shares are needed. Accordingly, in February 2011, the Board of Directors approved an amendment to the Plan, subject to shareholder approval, to reserve an additional 100,000 shares of Common Stock for the Plan, thereby increasing the total number of shares reserved for issuance under the Plan from 500,000 to 600,000 shares.
The material terms of the Plan are described below, and a complete copy of the Plan, marked to show the proposed amendment, is attached to this Proxy Statement as Appendix A.
Eligibility
All employees, officers and directors of the Company and its subsidiaries are eligible to receive awards under the Plan.
Shares Available
The Plan provides that not more than 500,000 shares of Common Stock may be issued pursuant to the Plan. Since the Plan was adopted in 2001, a total of 143,345 shares have been issued under the Plan. The proposed amendment will increase the number of shares available for issuance under the Plan by 100,000 shares.
Administration
The Plan states that it is administered by the Board of Directors, which may adopt rules and regulations for the operation of the Plan and generally supervises the administration of the Plan. The Board of Directors may delegate to a committee of the Board of Directors or specified officers of the Company, or both, authority to administer the Plan, except that only the Board of Directors may amend, modify or terminate the Plan. The Board of Directors has delegated to the Organization and Executive Compensation Committee (OECC) general authority for making awards under the Plan. The OECC determines individuals to whom awards are made under the Plan and the terms of any such awards.
Term of Plan
The Plan will continue until all shares available for issuance under the Plan have been issued and all restrictions on such shares have lapsed. The Board of Directors may suspend or terminate the Plan at any time.
Stock Bonus Awards
The OECC may award Common Stock as a stock bonus under the Plan. The OECC may determine the persons to receive awards, the number of shares to be awarded and the time of the award. No cash consideration (other than tax withholding amounts) will be paid by employees to the Company in connection with stock bonuses. Stock received as a stock bonus is subject to the terms, conditions and restrictions determined by the OECC at the time the stock is awarded. Restrictions may include restrictions concerning transferability and forfeiture of the shares. Stock bonus shares which are forfeited to the Company are again available for issuance under the Plan.
Restricted Stock
The Plan provides that the Company may issue restricted shares in such amounts, for such consideration (including promissory notes and services), subject to such restrictions and on such terms as the OECC may determine. Restrictions may include restrictions concerning transferability, repurchase by the Company and forfeiture of the shares. Restricted shares that are forfeited to or repurchased by the Company are again available for issuance under the Plan.
Performance-based Awards
The OECC may grant Performance-based Awards denominated either in Common Stock or in dollar amounts. All or part of the awards will be earned if performance goals established by the OECC for the period covered by the award are met and the employee satisfies any other restrictions established by the OECC. The performance goals may be expressed as one or more targeted levels of performance with respect to one or more of the following objective measures with respect to the Company or any subsidiary, division or other unit of the Company: earnings, earnings per share, stock price increase, total shareholder return (stock price increase plus dividends), return on equity, return on assets, return on capital, economic value added, revenues, operating income, inventories, inventory turns, cash flows or any of the foregoing before the effect of acquisitions, divestitures, accounting changes, and restructuring and special charges. Performance-based Awards may be paid in cash or Common Stock and may be made as awards of restricted shares subject to forfeiture if performance goals are not satisfied, as determined by the OECC. No employee may receive in any fiscal year Performance-based Awards denominated in Common Stock under which the aggregate amount payable under the Awards exceeds the equivalent of 50,000 shares of Common Stock or Performance-based Awards denominated in dollars under which the aggregate amount payable under the Awards exceeds $1,000,000. The payment of a Performance-based Award in cash will not reduce the number of shares reserved under the Plan.
Changes in Capital Structure
The Plan provides that if the outstanding Common Stock is increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any stock split, stock dividend or recapitalization, appropriate adjustment will be made by the OECC in the number and kind of shares available for awards under the Plan.
Tax Consequences
An employee who receives stock in connection with the performance of services will generally realize taxable income at the time of receipt unless the shares are substantially nonvested for purposes of Section 83 of the Code. Absent an election under Section 83(b), an employee who receives substantially nonvested stock in connection with performance of services will realize taxable income in each year in which a portion of the shares substantially
vest. The Company will generally be entitled to a tax deduction in the amount includable as income by the employee at the same time or times as the employee recognizes income with respect to the shares.
Section 162(m) of the Code limits to $1,000,000 per person the amount that the Company may deduct for compensation paid to any individual who, on the last day of the taxable year, is its chief executive officer or one of its three other highest compensated officers (excluding the chief financial officer). Under IRS regulations, compensation received through a performance-based award will not be subject to the $1,000,000 limit if the performance-based award and the plan meet certain requirements. One such requirement is shareholder approval at least once every five years of the performance criteria upon which award payouts will be based and the maximum amount payable under awards, both of which are set forth in Section 8 of the Plan. Approval of this proposal will constitute reapproval of the performance criteria and maximum amounts under the Plan previously approved by shareholders. Other requirements are that objective performance goals and the amounts payable upon achievement of the goals be established by a committee of at least two outside directors and that no discretion be retained to increase the amount payable under the awards. The Company believes that, if this proposal is approved by the shareholders, compensation received on vesting of Performance-based Awards granted under the Plan in compliance with all of the above requirements will continue to be exempt from the $1,000,000 deduction limit.
Plan Benefits
In 2010, the Company granted Performance-based Awards under the Plan to the Named Executive Officers, the amounts of which are set forth in the table above under “Executive Compensation—Grants of Plan-Based Awards During 2010” and the terms of which are summarized above under “Compensation Discussion and Analysis–Compensation Programs–Long-Term Incentives–Performance Shares.” In total, the Company granted Performance-based Awards in 2010 on the same terms to all current executive officers as a group at an aggregate target award level of 38,500 shares, and to all other employees as a group at an aggregate target award level of 3,000 shares.
Agreements Under the Plan
In 2010, the Company amended the form of performance share agreement for new awards to generally provide that if a participant’s misconduct contributed to an inflated payout under the total shareholder return component of any award because the Company’s stock price in the last three months of the performance cycle was higher than it would have been absent the misconduct, the OECC may require the participant to repay the amount determined by the OECC to be the excess amount received.
Equity Compensation Plan Information
The following table sets forth information regarding compensation plans under which equity securities of NW Natural are authorized for issuance as of December 31, 2010:
| | | | | | | | | | | | | | | | (a) | | | (b) | | | (c) | | Plan Category | | Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights | | | Weighted-average
exercise price of
outstanding
options, warrants
and rights | | | Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)) | | Equity compensation plans approved by security holders: | | | | | | | | | | | | | Long Term Incentive Plan (LTIP) (Target Award)1 | | | 82,500 | | | | n/a | | | | 274,155 | | Restated Stock Option Plan | | | 490,460 | | | $ | 40.82 | | | | 693,600 | | Employee Stock Purchase Plan | | | 18,936 | | | $ | 41.90 | | | | 152,323 | | | | | | Equity compensation plans not approved by security holders: | | | | | | | | | | | | | Executive Deferred Compensation Plan (EDCP)2 | | | 4,635 | | | | n/a | | | | n/a | | Directors Deferred Compensation Plan (DDCP)2 | | | 66,027 | | | | n/a | | | | n/a | | Deferred Compensation Plan for Directors and Executives (DCP)3 | | | 108,360 | | | | n/a | | | | n/a | | | | | | | | | | | | | | | Total | | | 770,918 | | | | | | | | 1,120,078 | | | | | | | | | | | | | | |
1 | Shares issued pursuant to the LTIP do not include an exercise price, but are payable when the award criteria are satisfied. If the maximum awards were paid pursuant to the performance-based awards outstanding at December 31, 2010, the number of shares shown in column (a) would increase by 82,500 shares and the number of shares shown in column (c) would decrease by 82,500 shares.
|
2 | Prior to January 1, 2005, deferred amounts were credited, at the participant’s election, to either a “cash account” or a “stock account.” If deferred amounts were credited to stock accounts, such accounts were credited with a number of shares of NW Natural common stock based on the purchase price of the common stock on the next purchase date under our Dividend Reinvestment and Direct Stock Purchase Plan, and such accounts were credited with additional shares based on the deemed reinvestment of dividends. Cash accounts are credited quarterly with interest at a rate equal to Moody’s Average Corporate Bond Yield plus two percentage points, subject to a six percent minimum rate. At the election of the participant, deferred balances in the stock accounts are payable after termination of Board service or employment in a lump sum, in installments over a period not to exceed 10 years in the case of the DDCP, or 15 years in the case of the EDCP, or in a combination of lump sum and installments. We have contributed common stock to the trustee of the Umbrella Trusts such that the Umbrella Trusts hold approximately the number of shares of common stock equal to the number of shares credited to all participants’ stock accounts.
|
3 | Effective January 1, 2005, the EDCP and DDCP were replaced by the DCP. The DCP continues the basic provisions of the EDCP and DDCP under which deferred amounts are credited to either a “cash account” or a “stock account.” Stock accounts represent a right to receive shares of NW Natural common stock on a deferred basis, and such accounts are credited with additional shares based on the deemed reinvestment of dividends. Effective January 1, 2007, cash accounts are credited quarterly with interest at a rate equal to Moody’s Average Corporate Bond Yield. Our obligation to pay deferred compensation in accordance with the terms of the DCP will generally become due on retirement, death, or other termination of service, and will be paid in a
|
| lump sum or in installments of 5, 10 or 15 years as elected by the participant in accordance with the terms of the DCP. We have contributed common stock to the trustee of the Supplemental Trust such that this trust holds approximately the number of common shares equal to the number of shares credited to all participants’ stock accounts. The right of each participant in the DCP is that of a general, unsecured creditor of the Company.
|
Vote Required
Reapproval and amendment of the Plan by the shareholders will require the affirmative vote of the holders of a majority of the shares of Common Stock of the Company present, or represented by proxy, and entitled to vote on the matter at the Annual Meeting. Abstentions have the effect of “no” votes in determining whether this proposal is approved. Broker non-votes are counted for purposes of determining whether a quorum exists at the Annual Meeting but are not counted and have no effect on the results of the vote.
The Board of Directors recommends a vote FOR this proposal.
PROPOSAL 3—ADVISORY VOTE ON EXECUTIVE COMPENSATION
This proxy statement includes extensive disclosure regarding the compensation of our Named Executive Officers under the heading “Executive Compensation” on pages 2620 to 6259 above. Pursuant to Section 14A of the Securities Exchange Act of 1934, enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010, requires us towe submit to our shareholders a nonbinding advisory resolution to approve the compensation of the Named Executive Officers disclosed in this proxy statement. Accordingly, theThe Board of Directors has approved the submission of the following resolution to the shareholders for approval at the Annual Meeting: “RESOLVED, that the compensation of the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K under the heading “Executive Compensation” in the Proxy Statement for the Company’s 20112014 Annual Meeting of Shareholders, is approved.” This proposal gives you the opportunity to endorse or not endorse our executive compensation program for our Named Executive Officers by voting for or against the above resolution. As discussed under “Executive Compensation—Compensation Discussion and Analysis” above, our executive compensation programs have been carefully designed and implemented to attract, retain and motivate talented and qualified executives, to emphasize pay for performance, to link compensation to achievement of annual and long-term performance goals, to align executives’ interests with shareholders’ interests, to emphasize pay for performance and to achieve a correct balance between compensation that is attractive to executives, affordable to the Company and fair to shareholders and employees. Substantial components of executive compensation are tied to the Company’s annual and long-term performance. For example, the Executive Annual Incentive Plan, which is designed to encourage and reward executive officer’s contributions in achieving NW Natural’s annual goals, provides for cash payments that are based on a formula that includes meeting proposed targets such as earnings per share, return on invested capital, Company performance relative to other operational goals and individual performance. Similarly, NW Natural’s Long Term Incentive Plan is designed to align executives’ interests with shareholder interests, by rewarding total shareholder return performance relative to the Company’s peer group over a three-year period and focusing executives on achievement of key long-term performance objectives and long-term business results that align with the creation of shareholder value. Performance share awards under the Long Term Incentive Plan haveCompany’s strategic plan. Restricted stock units with performance threshold are also tied to the Company’s performance, by vesting only if a pre-defined performance period of three yearsthreshold is met for the relevant performance period. No RSUs with performance threshold will vest in a given year if the Company’s performance threshold is not met, and are based 75 percent on total shareholder return and 25 percent on achievement of performance milestones relativeshares subject to strategic plan goals.vesting in that year will be forfeited. Additionally, NW Natural’s pay practices work to align executives’ interests with shareholders’ interests by emphasizing stock ownership through stock ownership guidelines and the provision ofperformance based compensation under the Stock Option Plan and the Long Term Incentive Plan. Over the last few years, NW Natural has also adopted a number of pay practices that emphasize fairness to shareholders.shareholders and good governance. Among other practices, executive change in control severance agreements are double-trigger and contain no gross-up provisions, with declining levels of benefits as executives approach age 65. Additionally, theThe OECC has also eliminated perquisites for executives, limited the use and duration of severance agreements (other than in the context of change-in-control), reduced the interest crediting rate on compensation deferred after 2004 to a variable market rate, modified the Executive Supplemental Retirement Income Plan (ESRIP) and Supplemental Retirement Plan (SERP) to reduce benefits and expenses, including limiting the amount of an executive’s annual bonus that is included in final average compensation for purpose of those plans, eliminated the annual payment of ESRIP-related FICA tax on behalf of ESRIP participants, closed new participation in the ESRIP and Tier I of the SERP, and increased the percentage of total targeted direct compensation that is at-risk,at risk, particularly for the Chief Executive Officer. Additionally, NW Natural took actions to increase stock ownership guidelines for executive officers to better align with industry standards. Moreover, NW Natural’s annual and long-termlong term incentive awards contain provisions that “clawback” from executives certain benefits under those awards in the event of misconduct. Overall, NW Natural’s compensation practices are driven by our total compensation philosophy which is designed to provide total remuneration in a manner that motivates high levels of performance, creates shareholder value, and emphasizes our commitment to tie a significant portion of executive compensation to the Company’s performance. Vote Required Approval of this proposal by the shareholders will require that the votes cast in favor of the proposal at the Annual Meeting exceed the votes cast against the proposal. Abstentions and broker non-votes will be counted for purposes of determining whether a quorum exists at the Annual Meeting, but will have no effect on the results of the vote on this proposal. The Board of Directors recommends a vote FOR this proposal. PROPOSAL 4—ADVISORY VOTE ON FREQUENCY OF VOTING ON EXECUTIVE COMPENSATION
Section 14A of the Securities Exchange Act of 1934 requires us to submit the resolution in Proposal 3 above to a shareholder vote at least once every three years, and also requires us at least once every six years to submit to shareholders for a nonbinding advisory vote the question of whether the resolution in Proposal 3 should be voted on every year, every two years or every three years. Accordingly, the Board of Directors has approved the submission of this question to a vote of the shareholders at the Annual Meeting.
The Board of Directors recommends that you vote to hold a non-binding advisory vote on executive compensation every three years. Our reasons for this recommendation are:
| Ÿ | | Our executive compensation programs avoid problematic pay practices, are straightforward and are consistently implemented. Accordingly, we think that an advisory vote every three years provides shareholders with timely and appropriate input, while avoiding the incremental program and administrative costs for both the Company and its shareholders of holding more frequent advisory votes on executive compensation with little to no additional value to shareholders for that cost.
|
| Ÿ | | An annual say-on-pay vote would not allow for changes to the Company’s compensation program to be in place long enough to evaluate whether the changes were effective. We believe that a three-year interval between advisory votes will provide us with the needed time to thoughtfully evaluate and respond to shareholder input, implement appropriate changes, as needed, to our executive compensation programs, and then have the results of those changes reflected in compensation disclosed in the proxy statement for the next advisory vote three years later.
|
| Ÿ | | A three-year vote matches our three-year long-term incentive cycles. In determining the interval to recommend to shareholders, the Board considered that the ultimate goal of corporate performance is to increase long-term shareholder value. This is reflected by the fact that 51 percent or more of the total direct compensation to each of the Named Executive Officers is at risk and tied to incentive performance; accordingly, a significant portion of the elements of executive compensation do not typically change in a significant manner from year to year.
|
| Ÿ | | At this meeting we are also seeking shareholder reapproval of our Long Term Incentive Plan, and do so every five years which allows shareholders to approve or disapprove the design of that plan in a binding vote. See Proposal 2 above. We also request shareholder reapproval of our Restated Stock Option Plan every five years in a binding vote. Each of these reapprovals provide shareholders an additional opportunity to vote on components of executive compensation.
|
The Board of Directors recommends a vote for EVERY THREE YEARS on this proposal.
PROPOSAL 5—3—RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS At a meeting held February 24, 2011,27, 2014, the Audit Committee of the Board of Directors appointed PricewaterhouseCoopers LLP, independent registered public accounting firm, to audit the books, records and accounts of NW Natural for fiscal year 2011.2014. The Audit Committee and the Board of Directors recommend that the shareholders ratify this appointment. Representatives of PricewaterhouseCoopers LLP will be present at the Annual Meetingannual meeting with the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions. See “2010“2013 and 20092012 Audit Firm Fees,” above. Vote Required The ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accountants for 20112014 will require the affirmative vote of the holders of a majority of the shares of Common Stock of NW Natural present, or represented by proxy, and entitled to vote on the matter at the Annual Meeting. Abstentions have the effect of “no” votes in determining whether the proposal is ratified. Broker non-votes are counted for purposes of determining whether a quorum exists at the Annual Meeting but are not counted and have no effect on the results of the vote. The Audit Committee and the Board of Directors recommend a vote FOR this proposal. OTHER MATTERS Management does not know of any other matters to be presented at the Annual Meeting. If other matters should be properly presented at the meeting, the persons named in the accompanying proxy will vote the shares represented by such proxy with respect to such matters in accordance with their best judgment. Consolidation Services Provided The consolidation of an individual’s multiple proxy cards into one envelope is a service NW Natural provides based on Social Security Number or Tax ID Number match. If you received a consolidated mailing this year and you would like to receive a separate annual report or proxy statement for each account with the same Social Security Number, please submit your request to Shareholder Services, 220 NW Second Avenue, Portland, OR 97209 or call (800) 422-4012, ext. 3412.2402. NW Natural will promptly send additional copies of the annual report and/or proxy statement upon receipt of such request. You may also contact NW Natural if you received multiple copies of the Annual Meeting materials and would prefer to receive a single copy in the future. Delivery of Proxy Materials to Households Only one copy of our annual report and proxy statement will be delivered to an address where two or more shareholders reside unless we have received contrary instructions from a shareholder at the address. A separate proxy card will be delivered to each shareholder at the shared address. If you are a shareholder who lives at a shared address and you would like additional copies of the annual report, this proxy statement, or any future annual reports or proxy statements, contact Shareholder Services, 220 NW Second Avenue, Portland, OR 97209 or call (800) 422-4012, ext. 3412.2402. NW Natural will promptly send additional copies of the annual report and/or proxy statement upon receipt of such request. If you share the same address with another NW Natural shareholder and you currently receive multiple copies of annual reports or proxy statements, you may request delivery of a single copy of future annual reports or proxy statements at any time by calling Shareholder ServicesBroadridge Financial Solutions, Inc. at (800) 422-4012, ext. 3412,542-1061, or by writing Shareholder Services, 220 NW Second Avenue, Portland, OR 97209.to Broadridge Financial Solutions, Inc., Attn: Householding Election, 51 Mercedes Way, Edgewood, NY 11717. Many brokerage firms and other shareholders of record have procedures for the delivery of single copies of company documents to households with multiple beneficial shareholders. If your family has one or more “street name” accounts under which you beneficially own shares of NW Natural Common Stock, please contact your broker, financial institution, or other shareholder of record directly if you require additional copies of this proxy statement or NW Natural’s annual report, or if you have other questions or directions concerning your “street name” account. Electronic Delivery of Annual Meeting Materials If you would like to reduce the costs incurred by NW Natural in mailing proxy materials, you can consent to receive all future proxy statements, proxy cards and annual reports electronically via e-mail or the internet. To sign up for electronic delivery, please follow the instructions above under “Voting“How to Vote By Proxy and How to Revoke Your Proxy” to vote using the internet and, when prompted, indicate that you agree to receive proxy materials electronically. 20122015 ANNUAL MEETING OF SHAREHOLDERS
The SEC’s proxy rules require that any shareholder proposal to be considered for inclusion in NW Natural’s proxy statement for the 20122015 Annual Meeting of Shareholders must be received at NW Natural’s principal executive office no later than December 21, 2011. 15, 2014. NW Natural’s bylaws require shareholders to give NW Natural advance notice of any proposal to be submitted at any meeting of shareholders. The bylaws prescribe the information to be contained in any such notice, and a copy of the relevant provisions of the bylaws will be provided to any shareholder upon written request to the Corporate Secretary of NW Natural. For any shareholder proposal to be considered at the 20122015 Annual Meeting of Shareholders, the shareholder’s notice must be received by NW Natural’s Corporate Secretary no later than February 25, 2012.21, 2015. The SEC’s proxy rules allow NW Natural to use discretionary voting authority to vote on a matter coming before an annual meeting of shareholders, which is not included in NW Natural’s proxy statement, if NW Natural does not have notice of the matter before the deadline established in its bylaws. In addition, discretionary voting authority may generally also be used if NW Natural receives timely notice of such matter (as described above); and if, in the proxy statement, NW Natural describes the nature of such matter and how NW Natural intends to exercise its discretion to vote on such matter. COMPANY INFORMATION NW Natural makes available atwww.nwnatural.com among other things: | Ÿ | | Corporate Governance Standards;
|
| Ÿ | | Director Independence Standards;
|
| Ÿ | | Director Selection Criteria;
|
| Ÿ | | Charters of the Governance, Audit, Organization and Executive Compensation, Finance, Public Affairs and Environmental Policy and Strategic Planning Committees;
|
| Ÿ | | Standards of Conduct; and
|
| Ÿ | | Financial Code of Ethics.
|
Corporate Governance Standards; Director Independence Standards; Director Selection Criteria; Charters of the Governance, Audit, Organization and Executive Compensation, Finance, and Public Affairs and Environmental Policy Committees; and You may request a copy of these documents, at no cost to you, by writing or calling Shareholder Services, 220 NW Second Avenue, Portland, Oregon 97209, telephone (800) 422-4012, ext. 3412. 2402. Shareholders may communicate with the Chairman of the Board or the non-management directors of the Board by mailing correspondence to 220 NW Second Avenue, Portland, OR 97209, Attn: Corporate Secretary. SOLICITATION OF PROXIES Proxies may be solicited on behalf of the Board of Directors by regular employees in person or by mail, telephone, the internet or facsimile transmission. NW Natural will reimburse brokers or other persons holding stock in their names or in the names of their nominees for their reasonable expenses incurred in forwarding proxies and proxy materials to the beneficial owners of such shares. All solicitation costs will be borne by NW Natural. NW Natural has retained AST Phoenix Advisory PartnersAdvisors to assist in the solicitation of proxies from banks, brokers and nominees at a fee of $6,500$7,000 plus reasonable out-of-pocket expenses. Shareholders may assist NW Natural in avoiding expenses in this connection by voting their proxies promptly. If you are unable to be present at the Annual Meeting in person, please mark, date, sign and mail the enclosed proxy, or, alternatively, grant your proxy by telephone or the internet, so that the business of the meeting can be transacted. | | | | | | | | | | | By Order of the Board of Directors, | | | | | | | /s/ MardiLyn Saathoff
| | | |  | | Portland, Oregon | | | | | | MardiLyn Saathoff | April 18, 201114, 2014 | | Chief Governance Officer, Deputy General Counsel | | | | Vice President and Corporate Secretary, Legal, Risk and Compliance |
APPENDIXEXHIBIT A
NORTHWEST NATURAL GAS COMPANY
LONG TERM INCENTIVE PLAN1Natural Gas Industry Companies
ALLETE, Inc. 1.Purpose. Aqua America, Inc.
CH Energy Group, Inc. Chesapeake Utilities Corporation El Paso Electric Company The purpose of this Long Term Incentive Plan (the “Plan”) is to enable NorthwestEmpire District Electric Company IDACORP, Inc. ITC Holdings Corp. The Laclede Group, Inc. MGE Energy, Inc. National Fuel Gas Company Piedmont Natural Gas Company, (the “Company”) to attract and retain the services of selected employees, officers and directors of the Company or of any subsidiary of the Company.Inc. Questar Corporation South Jersey Industries, Inc. Southwest Gas Corporation Unitil Corporation EXHIBIT B 2.Shares Subject to the Plan. Subject to adjustment as provided below and in Section 9, the shares to be offered under the Plan shall consist of Common Stock of the Company, and the total number of shares of Common Stock that may be awarded under the Plan shall not exceed600,000500,000 shares. The shares awarded under the Plan may be authorized and unissued shares, reacquired shares or shares purchased on the open market for delivery to participants. If a Performance-based Award granted under the Plan expires, terminates or is cancelled, the shares subject to such Performance-based Award shall again be available under the Plan. If shares sold or awarded as a bonus or Performance-based Award under the Plan are forfeited to the Company or repurchased by the Company, the number of shares forfeited or repurchased shall again be available under the Plan.
3.Effective Date and Duration of Plan.
(a)Effective Date. The Plan shall become effective as of January 1, 2001. However, all awards under the Plan shall be conditioned on and subject to approval of the Plan by the shareholders of the Company. Subject to this limitation, Performance-based Awards may be granted and shares may be awarded as bonuses or sold under the Plan at any time after the effective date and before termination of the Plan.
(b)Duration. The Plan shall continue in effect until all shares available for award under the Plan have been delivered to participants and all restrictions on such shares have lapsed. The Board of Directors may suspend or terminate the Plan at any time except with respect to Performance-based Awards and shares subject to restrictions then outstanding under the Plan. Termination shall not affect any right of the Company to repurchase shares or the forfeitability of shares awarded under the Plan.
4.Administration.
(a)Board of Directors. The Plan shall be administered by the Board of Directors of the Company, which shall determine and designate from time to time the individuals to whom awards shall be made, the amount of the awards and the other terms and conditions of the awards. Subject to the provisions of the Plan, the Board of Directors may from time to time adopt and amend rules and regulations relating to administration of the Plan, advance the lapse of any waiting period, accelerate any exercise date, waive or modify any restriction applicable to shares (except those restrictions imposed by law) and make all other determinations in the judgment of the Board of Directors necessary or desirable for the administration of the Plan. The interpretation and construction of the provisions of the Plan and related agreements by the Board of Directors shall be final and conclusive. The Board of Directors may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any related agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency.CDB General Industry Executive Survey, 2012 (Revenue less than $3 billion)
1 | Double-underlined matter is new; matter crossed out is proposed to be deleted.
|
(b)Committee. The Board of Directors may delegate to a committee of the Board of Directors or specified officers of the Company, or both (the “Committee”) any or all authority for administration of the Plan. If authority is delegated to a Committee, all references to the Board of Directors in the Plan shall mean and relate to the Committee except (i) as otherwise provided by the Board of Directors, and (ii) that only the Board of Directors may amend or terminate the Plan as provided in Sections 3 and 10.
5.Types of Awards; Eligibility. The Board of Directors may, from time to time, take the following action, separately or in combination, under the Plan: (i) award stock bonuses as provided in Section 6; (ii) sell shares subject to restrictions as provided in Section 7; and (iii) grant Performance-based Awards as provided in Section 8. An award may be made to any employee, officer or director of the Company or any subsidiary of the Company. The Board of Directors shall select the individuals to whom awards shall be made and shall specify the action taken with respect to each individual to whom an award is made. At the discretion of the Board of Directors, an individual may be given an election to surrender an award in exchange for the grant of a new award.
6.Stock Bonuses. The Board of Directors may award shares under the Plan as stock bonuses. Shares awarded as a bonus shall be subject to the terms, conditions and restrictions determined by the Board of Directors. The restrictions may include restrictions concerning transferability and forfeiture of the shares awarded, together with any other restrictions determined by the Board of Directors. The Board of Directors may require the recipient to sign an agreement as a condition of the award, but may not require the recipient to pay any monetary consideration other than amounts necessary to satisfy tax withholding requirements. The agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares awarded shall bear any legends required by the Board of Directors. The Company may require any recipient of a stock bonus to pay to the Company in cash or by check upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the recipient fails to pay the amount demanded, the Company may withhold that amount from other amounts payable to the recipient, including salary, subject to applicable law. With the consent of the Board of Directors, a recipient may satisfy this obligation, in whole or in part, by instructing the Company to withhold from any shares to be received or by delivering to the Company other shares of Common Stock; provided, however, that the number of shares so withheld or delivered shall not exceed the minimum amount necessary to satisfy the required withholding obligation. Upon the payment of a stock bonus, the number of shares reserved for award under the Plan shall be reduced by the number of shares paid as a bonus, less the number of shares withheld or delivered to satisfy withholding obligations.
7.Restricted Stock. The Board of Directors may sell shares under the Plan for any consideration (including promissory notes and services) determined by the Board of Directors. Shares sold under the Plan shall be subject to the terms, conditions and restrictions determined by the Board of Directors. The restrictions may include restrictions concerning transferability, repurchase by the Company and forfeiture of the shares sold, together with any other restrictions determined by the Board of Directors. All Common Stock sold pursuant to this Section 7 shall be subject to a purchase agreement, which shall be executed by the Company and the prospective purchaser of the shares before the delivery of certificates representing the shares to the purchaser. The purchase agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares shall bear any legends required by the Board of Directors. The Company may require any purchaser of restricted stock to pay to the Company in cash or by check upon demand amounts necessary to satisfy any applicable federal, state or
local tax withholding requirements. If the purchaser fails to pay the amount demanded, the Company may withhold that amount from other amounts payable to the purchaser, including salary, subject to applicable law. With the consent of the Board of Directors, a purchaser may satisfy this obligation, in whole or in part, by instructing the Company to withhold from any shares to be received or by delivering to the Company other shares of Common Stock; provided, however, that the number of shares so withheld or delivered shall not exceed the minimum amount necessary to satisfy the required withholding obligation. Upon the sale of restricted stock, the number of shares reserved for award under the Plan shall be reduced by the number of shares sold, less the number of shares withheld or delivered to satisfy withholding obligations.
8.Performance-based Awards. The Board of Directors may grant awards intended to qualify as qualified performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (“Performance-based Awards”). Performance-based Awards shall be denominated at the time of grant either in Common Stock (“Stock Performance Awards”) or in dollar amounts (“Dollar Performance Awards”). Payment under a Stock Performance Award or a Dollar Performance Award shall be made, at the discretion of the Board of Directors, in Common Stock (“Performance Shares”), or in cash or in any combination thereof. Performance-based Awards shall be subject to the following terms and conditions:
(a)Award Period. The Board of Directors shall determine the period of time for which a Performance-based Award is made (the “Award Period”).
(b)Performance Goals and Payment. The Board of Directors shall establish in writing objectives (“Performance Goals”) that must be met by the Company or any subsidiary, division or other unit of the Company (“Business Unit”) during the Award Period as a condition to payment being made under the Performance-based Award. The Performance Goals for each award shall be one or more targeted levels of performance with respect to one or more of the following objective measures with respect to the Company or any Business Unit: earnings, earnings per share, stock price increase, total shareholder return (stock price increase plus dividends), return on equity, return on assets, return on capital, economic value added, revenues, operating income, inventories, inventory turns, cash flows or any of the foregoing before the effect of acquisitions, divestitures, accounting changes, and restructuring and special charges (determined according to criteria established by the Board of Directors). The Board of Directors shall also establish the number of Performance Shares or the amount of cash payment to be made under a Performance-based Award if the Performance Goals are met or exceeded, including the fixing of a maximum payment (subject to Section 8(d)). The Board of Directors may establish other restrictions to payment under a Performance-based Award, such as a continued employment requirement, in addition to satisfaction of the Performance Goals. Some or all of the Performance Shares may be delivered to the participant at the time of the award as restricted shares subject to forfeiture in whole or in part if Performance Goals or, if applicable, other restrictions are not satisfied.
(c)Computation of Payment. During or after an Award Period, the performance of the Company or Business Unit, as applicable, during the period shall be measured against the Performance Goals. If the Performance Goals are not met, no payment shall be made under a Performance-based Award. If the Performance Goals are met or exceeded, the Board of Directors shall certify that fact in writing and certify the number of Performance Shares earned or the amount of cash payment to be made under the terms of the Performance-based Award.
(d)Maximum Awards. No participant may receive in any fiscal year Stock Performance Awards under which the aggregate amount payable under the Awards exceeds the equivalent of 50,000 shares of Common Stock or Dollar Performance Awards under which the aggregate amount payable under the Awards exceeds $1,000,000.
(e)Tax Withholding. Each participant who has received Performance Shares shall, upon notification of the amount due, pay to the Company in cash or by check amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If the participant fails to pay the amount demanded, the Company or the Employer may withhold that amount from other amounts payable to the participant, including salary, subject to applicable law. With the consent of the Board of Directors, a participant may satisfy this obligation, in whole or in part, by instructing the Company to withhold from any shares to be received or by delivering to the Company other shares of Common Stock; provided, however, that the number of shares so delivered or withheld shall not exceed the minimum amount necessary to satisfy the required withholding obligation.
(f)Effect on Shares Available. The payment of a Performance-based Award in cash shall not reduce the number of shares of Common Stock reserved for award under the Plan. The number of shares of Common Stock reserved for award under the Plan shall be reduced by the number of shares delivered to the participant upon payment of an award, less the number of shares delivered or withheld to satisfy withholding obligations.
9.Changes in Capital Structure. If the outstanding Common Stock of the Company is hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any stock split, combination of shares or dividend payable in shares, recapitalization or reclassification, appropriate adjustment shall be made by the Board of Directors in the number and kind of shares available for grants under the Plan. In addition, the Board of Directors shall make appropriate adjustment in the number and kind of shares subject to outstanding Performance-based Awards so that the recipient’s proportionate interest before and after the occurrence of the event is maintained. Notwithstanding the foregoing, the Board of Directors shall have no obligation to effect any adjustment that would or might result in the award of fractional shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the Board of Directors. Any such adjustments made by the Board of Directors shall be conclusive.
10.Amendment of Plan. The Board of Directors may at any time, and from time to time, modify or amend the Plan in such respects as it shall deem advisable because of changes in the law while the Plan is in effect or for any other reason. Except as provided in Section 9, however, no change in an award already granted shall be made without the written consent of the holder of such award.
11.Approvals. The issuance by the Company of authorized and unissued shares or reacquired shares under the Plan is subject to the approval of the Oregon Public Utility Commission and the Washington Utilities and Transportation Commission, but no such approvals shall be required for the purchase of shares on the open market for delivery to participants in satisfaction of awards under the Plan. The obligations of the Company under the Plan are otherwise subject to the approval of state and federal authorities or agencies with jurisdiction in the matter. The Company will use its best efforts to take steps required by state or federal law or applicable regulations, including rules and regulations of the Securities and Exchange Commission and any stock exchange on which the Company’s shares may then be listed, in connection with the grants under the Plan. The foregoing notwithstanding, the
Company shall not be obligated to issue or deliver Common Stock under the Plan if such issuance or delivery would violate applicable state or federal securities laws.
12.Employment and Service Rights. Nothing in the Plan or any award pursuant to the Plan shall (i) confer upon any employee any right to be continued in the employment of the Company or any subsidiary or interfere in any way with the right of the Company or any subsidiary by whom such employee is employed to terminate such employee’s employment at any time, for any reason, with or without cause, or to decrease such employee’s compensation or benefits, or (ii) confer upon any person engaged by the Company any right to be retained or employed by the Company or to the continuation, extension, renewal, or modification of any compensation, contract, or arrangement with or by the Company.
13.Rights as a Shareholder. The recipient of any award under the Plan shall have no rights as a shareholder with respect to any Common Stock until the date the recipient becomes the holder of record of those shares. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date occurs prior to the date the recipient becomes the holder of record.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 
Aeroject Rocketdyne, Inc.
(fka Aerojet-General Corp.) Appvion, Inc.
(fka Appleton Papers Inc.) Arctic Cat Inc. Aricent Group Bush Brothers & Company Century Aluminum Company Chemtura Corporation Chiquita Brands International, Inc. Cloud Peak Energy Inc. Columbia Sportswear Company ConvaTec Inc. Convergys Corporation Covance Inc. Crown Castle International Corp. Curtiss-Wright Corporation Deckers Outdoor Corporation Deluxe Corporation DENTSPLY International Inc. Dex One Corporation Dollar Thrifty Automotive Group, Inc. Donaldson Company, Inc. The E.W. Scripps Company Endo Health Solutions Inc. EnPro Industries, Inc. Environmental Systems Research Institute, Inc. (dba Esri) Equifax Inc. Equity Office Properties Trust Esterline Technologies Corporation Euro-Pro Operating LLC Expedia, Inc. Exterran Holdings Inc. | | | | ~How to Vote~ | | | | Fidessa Group plc GATX Corporation GenCorp Inc. General Atomics Globecomm Systems Inc. Graco Inc. Green Mountain Energy Co. H.B. Fuller Company Hanger, Inc. Harland Clarke Holdings Corp. Harsco Corporation Herman Miller, Inc. Hexcel Corporation HNI Corporation HNTB Corporation Hostess Brands, LLC Houghton Mifflin Harcourt Company Hutchinson Technology Incorporated IDEXX Laboratories, Inc. InterContinental Hotels Group PLC International Data Group, Inc. International Flavors & Fragrances Inc. International Game Technology ION Geophysical Corporation The Irvine Company LLC Itron, Inc. ITT Corporation Jack in the Box Inc. K. Hovnanian Companies LLC Kaman Industrial Technologies Corporation Kansas City Southern KB Home Kennametal Inc. | | Please Choose One of the FollowingKeystone Foods LLC
Voting MethodsKimco Realty Corporation
Leprino Foods Company LifeCell Corp. Lincoln Electric Holdings, Inc. Magellan Midstream Partners, L.P. Makino Inc. Martin Marietta Materials, Inc. Mary Kay Inc. Matthews International Corporation The Medicines Company Meredith Corporation Milacron Inc. Mohegan Sun
Massachusetts, LLC Navigant Consulting, Inc. NBTY, Inc. NeuStar, Inc. Novus International, Inc. Nu Skin Enterprises, Inc. Nypro Inc. OMNOVA Solutions Inc. Outerwall Inc.
(fka Coinstar, Inc.) Pall Corporation Parsons Corporation Plexus Corp. Polaris Industries Inc. Polymer Group, Inc. PolyOne Corporation Purdue Pharma Inc. Quintiles Transnational Holdings, Inc. Rayonier Inc. Regency Centers Corporation Revlon, Inc. | | Ricardo plc Sabre Corporation SAS Institute Inc. Schwan’s Home Service, Inc. Scientific Research Corporation Scotts Miracle-Gro Company The ServiceMaster Company, LLC ShawCor Ltd. Sigma-Aldrich Corportion Snap-On Incorporated Space Systems/Loral, Inc. Stepan Company Sundt Construction, Inc. Swagelok Company Taubman Centers, Inc. TeleTech Holdings, Inc. Teradata Corporation The Toro Company Tower International, Inc. Trepp, LLC Trident Seafoods Corporation Trinity Industries, Inc. Tronox Inc. Tupperware Brands Corporation Underwriters Laboratories, Inc. United Rentals, Inc. Valmont Industries, Inc. Vertex Pharmaceuticals Incorporated Viad Corp Vistaprint N.V. Vulcan Materials Company Warner Chilcott Corporation The Wendy’s Company Zebra Technologies Corporation |
CDB Energy Services Executive Survey, 2012 (Revenue less than $3B) | | | C/O AMERICAN STOCK TRANSFERAffiliated Engineers, Inc. (dba AEI Services)
6201 15thAVENUEALLETE, Inc.
BROOKLYN, NY 11219American Transmission Company LLC
Avista Corporation The Babcock & Wilcox Company Babcock Power Inc. Black Hills Corporation Capital Power Corporation CH Energy Group, Inc. Cheniere Energy, Inc. City of Colorado Springs dba Colorado Springs Utilities/CSU Dynergy Inc. El Paso Electric Company ElectriCities of North Carolina, Inc. Energen Corporation Energy Northwest Employees’ Association EnLink Midstream Partners, LP (fka Crosstex Energy, LP) EQT Corporation Iberdrola Renewables, LLC Idaho Power Company LG&E and KU Energy LLC LCRA (Lower Colorado River Authority) Employees United Charities MGE Energy, Inc. | | | | | | | | New York Power Authority VOTE BY INTERNET -www.proxyvote.comNorthWestern Energy, L.L.C.
| | | | | | | | | | | | | | To vote now by Internet, go towww.proxyvote.com. Have your proxy card availableNSTAR Electric Company
NV Energy, Inc. Oglethorpe Power Corporation Ohio Valley Electric Corporation Omaha Public Power District PNM Resources, Inc. Portland General Electric Company Primary Energy Recycling Corporation Proliance Holdings, LLC Salt River Project Agricultural Improvement and follow the instructions provided at the website. Internet voting is available until 11:59 p.m. Eastern Daylight Time on May 25, 2011. | | | | | | | | | | | | | | Power District and Salt River Valley Water Users’ Association VOTE BY TELEPHONE - 1-800-690-6903
Call the toll-free number, 1-800-690-6903. Have your proxy card available and follow the instructions provided on the call. Telephone voting is available until 11:59 p.m. Eastern Daylight Time on May 25, 2011.
| | | | | | | | | | | | | | 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 Northwest NaturalSouth Jersey Gas Company c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
| | | | | | | | | | | | | | VOTE IN PERSON: ADMISSION TICKETSouthern Union Company
To attend and vote at the Northwest Natural GasSTP Nuclear Operating Company 2011 Annual Meeting of Shareholders, you must bring your Admission Ticket provided on the reverse side of this proxy card and your government-issued photograph identification. If you bring a guest, your guest must also bring a government-issued photograph identification. Information about attending the meeting is provided on the reverse side of this proxy card.
| | | | | | TransCanada Corporation UIL Holdings Corporation UNS Energy Corp. (fka UniSource Energy Corp.) Unitil Corporation URENCO USA, Inc. Vectren Corporation Westar Energy, Inc. Wolf Creek Nuclear Operating Corporation |
American Gas Association Survey, 2012 (Revenue $500M - $1.9B) Avista Corporation Black Hills Corporation CH Energy Group, Inc. City of Colorado Springs dba Colorado Springs Utilities/CSU Energen Corporation EQT Corporation Knoxville Utilities Board Memphis Light Gas & Water District National Fuel Gas Company Piedmont Natural Gas Company, Inc. Questar Corporation SEMCO Energy, Inc. South Jersey Gas Company Southwest Gas Corporation The Laclede Group, Inc. TransCanada Corporation UGI Corporation UIL Holdings Corporation 
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY Signature (Joint Owners) Date Date Signature [PLEASE SIGN WITHIN BOX] ~How to Vote~ Please Choose One of the Following Voting Methods VOTE BY INTERNET - www.proxyvote.com To vote now by Internet, go to www.proxyvote.com. Have your proxy card available and follow the instructions provided at the website. Internet voting is available until 11:59 p.m. Eastern Daylight Time on May 21, 2014. VOTE BY TELEPHONE - 1-800-690-6903 Call the toll-free number, 1-800-690-6903. Have your proxy card available and follow the instructions provided on the call. Telephone voting is available until 11:59 p.m. Eastern Daylight Time on May 21, 2014. 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 Northwest Natural Gas Company, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. VOTE IN PERSON: ADMISSION TICKET To attend and vote at the Northwest Natural Gas Company 2014 Annual Meeting of Shareholders, you must bring your Admission Ticket provided on the reverse side of this proxy card and your government-issued photograph identification. If you bring a guest, your guest must also bring a government-issued photograph identification. Information about attending the meeting is provided on the reverse side of this proxy card. C/O AMERICAN STOCK TRANSFER 6201 15TH AVENUE BROOKLYN, NY 11219 M74037-P52454 THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the name(s) of the nominee(s) on the line below. NORTHWEST NATURAL GAS COMPANY For All Except Withhold All For All THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS Proposal 1. ! ! ! 1. The election of three Class III directors for terms of three years and one Class I director for a term of one year. Class III Nominees: 01) Martha L. “Stormy” Byorum 02) John D. Carter 03) C. Scott Gibson Class I Nominee: 04) Gregg S. Kantor THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 2 AND 3: Against For Abstain This proxy when properly executed will be voted in the manner directed herein by the shareholder whose signature appears below. If no direction is made, the proxy will be voted FOR Proposals 1, 2 and 3. Proposal 2. 2. Advisory vote to approve Named Executive Officer Compensation. ! ! ! Proposal 3. 3. The ratification of the appointment of PricewaterhouseCoopers LLP as NW Natural’s independent registered public accountants for the fiscal year 2014. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. ! ! ! ! For address changes and/or comments, please check this box and write them on the back where indicated. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. ! ! Please indicate if you plan to attend this meeting. Yes No
| | | | | M33294-P11858 KEEP THIS PORTION FOR YOUR RECORDS |
| | | | | THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | NORTHWEST NATURAL GAS COMPANY
| | For
| | Withhold
| | For All
| | | | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the name(s) of the nominee(s) on the line below.
| | | | | | | | | | | | | THE BOARD OF DIRECTORS RECOMMENDS A VOTEFOR THE ELECTION OF DIRECTORS
| | All | | All | | Except | | | | | | | | | | | | | | | | Proposal 1.
| | ¨ | | ¨ | | ¨ | | | | | | | | | | | | | | | | | The election of four Class III directors for terms of three years.
| | | | | | | | | | | | | | | | | | | | | | | | | Class III Nominees:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 01) Martha L. “Stormy” Byorum
02) John D. Carter
03) C. Scott Gibson
04) Gregg S. Kantor
| | | | | | | | | | THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOREVERY THREE YEARSON PROPOSAL 4:
| | | | | | | | | | | | | | | | | | | | | | | | Proposal 4.
| | 1 Year
¨
| | 2 Years
¨
| | 3 Years
¨
| | Abstain
¨
| | | | | | | | | | | | | | | | 4. Frequency of future votes on executive compensation, as an advisory vote.
| | | | | | | | | THE BOARD OF DIRECTORS RECOMMENDS A VOTEFOR PROPOSAL 2 AND 3:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Proposal 2.
| | For | | Against | | Abstain | | | | THE BOARD OF DIRECTORS RECOMMENDS A VOTEFORPROPOSAL 5:
| | | | | | | | | | | | | 2.
| | Reapproval and amendment of the Long Term Incentive Plan to reserve an additional 100,000 shares of common stock for the plan.
| | ¨
| | ¨
| | ¨
| | | | Proposal 5.
5. The ratification of the appointment of PricewaterhouseCoopers LLP as NW Natural’s independent registered public accountants for the fiscal year 2011.
| | | | For
¨
| | Against
¨
| | Abstain
¨
| | | | | Proposal 3.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3.
| | Approval of the compensation of the Named Executive Officers, as an advisory vote.
| | ¨
| | ¨
| | ¨
| | | | Such other business as may properly come before the meeting or any adjournment thereof.
| | | | | For address changes and/or comments, please check this box and write them on the back where indicated.
| | ¨
| | | | This proxy when properly executed will be voted in the manner directed herein by the shareholder whose signature appears below.If no direction is made, the proxy will be voted FOR Proposals 1, 2, 3 and 5; and for every three years on Proposal 4.
| | | | | Please indicate if you plan to attend this meeting.
| | ¨
Yes
| | ¨
No
| | | | | | Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
| | | | | | | | | | | PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Signature [PLEASE SIGN WITHIN BOX]
| | Date
| | | | | | | | Signature (Joint Owners)
| | | | Date
| | | | | | | | | | |
NORTHWEST NATURAL GAS COMPANY 20112014 ANNUAL MEETING OF SHAREHOLDERS ADMISSION TICKET THURSDAY, MAY 26, 2011,22, 2014, 2:00 P.M. PACIFIC DAYLIGHT TIME OREGON CONVENTION CENTER • MEETING ROOMS F 150 AND F 151
777 NE MARTIN LUTHER KING JR. BLVD. NORTHWEST NATURAL GAS COMPANY HOSPITALITY SUITE, FOURTH FLOOR 220 NW SECOND AVE., PORTLAND, OR 97232
| | | | | | | ATTENDING THE ANNUAL MEETING
If you plan to attend the annual meeting, please detach and bring this ticket and a form of government-issued photograph identification for admission. You may bring one guest to the meeting who must also bring a government-issued photograph identification.
97209 ATTENDING THE ANNUAL MEETING If you plan to attend the annual meeting, please detach and bring this ticket and a form of government- issued photograph identification for admission. You may bring one guest to the meeting who must also bring a government-issued photograph identification. ATTENDEES: Large bags and packages, cameras, recording equipment, and other electronic devices will not be permitted in the meeting. A map with driving directions appears on the inside cover of the 2014 proxy statement. The Company will provide reasonable accommodations for a disability. If you need an accommodation, please contact the Company at (503) 226-4211 ext. 2402 at least 72 hours before the meeting. A map with driving directions appears on the inside cover of the 2011 proxy statement. | | |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com. ”Please detach along perforated line and mail in the envelope provided.” M74038-P52454 REVOCABLE PROXY NORTHWEST NATURAL GAS COMPANY PROXY FOR 2014 ANNUAL MEETING OF SHAREHOLDERS This Proxy is Solicited on Behalf of the Board of Directors The undersigned hereby appoints David H. Anderson, Stephen P. Feltz, and MardiLyn Saathoff, and each or any of them, the proxy or proxies, with power of substitution and with authorization to vote all of the common shares of the undersigned at theAnnual Meeting of Shareholders of Northwest Natural Gas Company to be held on Thursday, May 22, 2014, and at all adjournments thereof: (i) as designated on the reverse side of this card; and (ii) at their discretion, upon any and all other matters, which properly may be brought before such meeting or any adjournment thereof. If shares of the Company’s Common Stock are held for the account of the undersigned under the Company’s Dividend Reinvestment and Direct Stock Purchase Plan or its Retirement K Savings Plan, then the undersigned hereby directs the respective fiduciary of each applicable plan to vote all shares of Northwest Natural Gas Company Common Stock in the undersigned’s name and/or account under such plan, in accordance with the instructions given herein, at the 2014 Annual Meeting and at any adjournments or postponements thereof, on all matters properly brought before such meeting or any adjournment thereof, including, but not limited to, the matters set forth on the reverse side. Please date and sign this proxy on the reverse side and mail without delay in the enclosed envelope. Address Changes/Comments: (If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
M33295-P11858
| | | | | | | | | | | | | | | | | REVOCABLE PROXY | | | | | NORTHWEST NATURAL GAS COMPANY
| | | | | PROXY FOR 2011 ANNUAL MEETING OF SHAREHOLDERS
| | | | | This Proxy is Solicited on Behalf of the Board of Directors | | | | | The undersigned hereby appoints David H. Anderson, Stephen P. Feltz, and MardiLyn Saathoff, and each or any of them, the proxy or proxies, with power of substitution and with authorization to vote all of the common shares of the undersigned at the annual meeting of shareholders of Northwest Natural Gas Company to be held on Thursday, May 26, 2011, and at all adjournments thereof, (i) as designated on the reverse of this card and, (ii) at their discretion, upon any and all other matters which properly may be brought before such meeting or any adjournment thereof.
| | | | | If shares of the Company’s Common Stock are held for the account of the undersigned under the Company’s Dividend Reinvestment and Direct Stock Purchase plan or its Retirement K Savings Plan, then the undersigned hereby directs the respective fiduciary of each applicable plan to vote all shares of Northwest Natural Gas Company Common Stock in the undersigned’s name and/or account under such plan in accordance with the instructions given herein, at the 2011 Annual Meeting and at any adjournments or postponements thereof, on all matters properly brought before such meeting or any adjournment thereof, including but not limited to the matters set forth on the reverse side.
| | | | | The Company will provide reasonable accommodations for a disability. If you need an accommodation, please contact the Company at (503) 226-4211 ext. 3412 at least 72 hours before the meeting.
| | | | | Please date and sign this proxy on the reverse side and mail without delay in the enclosed envelope.
| | | | | | | | | Address Changes/Comments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
| | |
|
