0001193125-15-082828.txt : 20150309 0001193125-15-082828.hdr.sgml : 20150309 20150309140235 ACCESSION NUMBER: 0001193125-15-082828 CONFORMED SUBMISSION TYPE: PRE 14A PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20150512 FILED AS OF DATE: 20150309 DATE AS OF CHANGE: 20150309 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NISOURCE INC/DE CENTRAL INDEX KEY: 0001111711 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 352108964 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRE 14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-16189 FILM NUMBER: 15684574 BUSINESS ADDRESS: STREET 1: 801 EAST 86TH AVE CITY: MERRILLVILLE STATE: IN ZIP: 46410-6272 BUSINESS PHONE: 2196475200 MAIL ADDRESS: STREET 1: 801 EAST 86TH AVE CITY: MERRILLVILLE STATE: IN ZIP: 46410-6272 FORMER COMPANY: FORMER CONFORMED NAME: NEW NISOURCE INC DATE OF NAME CHANGE: 20000412 PRE 14A 1 d877179dpre14a.htm PRE 14A PRE 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

Filed by the Registrant  x                               Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

x   Preliminary Proxy Statement
¨   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
¨   Definitive Proxy Statement
¨   Definitive Additional Materials
¨   Soliciting Material under Rule 14a-12
NISOURCE INC.
(Name of registrant as specified in its charter)
(Name of person(s) filing proxy statement, if other than the registrant)
Payment of Filing Fee (Check the appropriate box):
x   No fee required.
¨   Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

 

   

 

  (2)  

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  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

   

 

  (4)  

Proposed maximum aggregate value of transaction:

 

 

   

 

  (5)   Total fee paid:
   
   

 

¨   Fee paid previously with preliminary materials.
¨   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

 

   

 

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LOGO

NiSource Inc.

801 E. 86th Avenue Merrillville, IN 46410 (877) 647-5990

 

 

NOTICE OF ANNUAL MEETING

April 7, 2015

To the Holders of Common Stock of NiSource Inc.:

The annual meeting of the stockholders (the “Annual Meeting”) of NiSource Inc., a Delaware corporation (the “Company”), will be held at the Hyatt Rosemont, 6350 N. River Road, Rosemont, IL 60018 on Tuesday, May 12, 2015, at 10:00 a.m., local time, for the following purposes:

 

  (1) To elect eleven directors to hold office until the next annual stockholders’ meeting and until their respective successors have been elected or appointed;

 

  (2) To approve executive compensation on an advisory basis;

 

  (3) To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accountants for the year 2015;

 

  (4) To approve an amendment to the Company’s Amended and Restated Certificate of Incorporation to give stockholders the power to request special meetings of the stockholders;

 

  (5) To approve an amendment to the Company’s Amended and Restated Certificate of Incorporation to reduce the minimum number of Company directors from nine to seven;

 

  (6) To re-approve the Company’s 2010 Omnibus Incentive Plan pursuant to Section 162(m) of the Internal Revenue Code;

 

  (7) To approve an amendment to the Company’s Employee Stock Purchase Plan to increase the maximum number of shares available under the plan;

 

  (8) To consider a stockholder proposal regarding reports on political contributions, if properly presented; and

 

  (9) To transact such other business as may properly come before the meeting and any adjournment or postponement thereof.

All persons who were stockholders of record at the close of business on March 16, 2015 will be entitled to vote at the Annual Meeting and any adjournment thereof.

Please act promptly to vote your shares with respect to the proposals described above. You may vote your shares by marking, signing, dating and mailing the enclosed proxy card. You may also vote by telephone or through the Internet by following the instructions set forth on the proxy card. If you attend the Annual Meeting, you may be able to vote your shares in person, even if you have previously submitted a proxy. See the section “Voting in Person” for specific instructions on voting your shares.

If you plan to attend the Annual Meeting, please so indicate in the space provided on the proxy card or respond when prompted on the telephone or through the Internet.

PLEASE VOTE YOUR SHARES BY TELEPHONE, THROUGH THE INTERNET OR BY PROMPTLY

MARKING, DATING, SIGNING AND RETURNING THE ENCLOSED PROXY CARD.

 

LOGO

Robert E. Smith

Corporate Secretary

Important Notice Regarding the Availability of Proxy Materials

For the Annual Meeting of Stockholders to be Held on May 12, 2015

The Proxy Statement and 2014 Annual Report to Stockholders

are available at http://ir.nisource.com/annuals.cfm


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TABLE OF CONTENTS

 

PROXY STATEMENT

     1   

Who May Vote

     1   

Voting Your Proxy

     1   

Discretionary Voting by Brokers, Banks and Other Stockholders of Record

     1   

Voting in Person

     2   

Revoking Your Proxy

     2   

Quorum for the Meeting

     2   

PROPOSAL 1 — ELECTION OF DIRECTORS

     2   

CORPORATE GOVERNANCE

     9   

Director Independence

     9   

Policies and Procedures with Respect to Transactions with Related Persons

     9   

Executive Sessions of Non-Management Directors

     9   

Communications with the Board and Non-Management Directors

     10   

Code of Business Conduct

     10   

Corporate Governance Guidelines

     10   

Board Leadership Structure and Risk Oversight

     10   

Meetings and Committees of the Board

     11   

DIRECTOR COMPENSATION

     14   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     17   

EXECUTIVE COMPENSATION

     20   

COMPENSATION DISCUSSION AND ANALYSIS

     20   

2014 Accomplishments

     20   

Executive Compensation Highlights

     20   

Overview of Our 2014 Executive Compensation Program

     21   

Our Executive Compensation Philosophy

     22   

Principal Elements of Our Compensation Program

     22   

Other Compensation and Benefits

     24   

Our Executive Compensation Process

     25   

ONC Committee Actions Related to 2014 Compensation

     27   

Changes to Our Executive Compensation Program in 2015

     33   

OFFICER NOMINATION AND COMPENSATION COMMITTEE REPORT

     34   

ASSESSMENT OF RISK

     35   

COMPENSATION OF EXECUTIVE OFFICERS

     35   

EQUITY COMPENSATION PLAN INFORMATION

     49   

PROPOSAL 2 — ADVISORY APPROVAL OF EXECUTIVE COMPENSATION

     49   

PROPOSAL 3 — RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

     50   

AUDIT COMMITTEE REPORT

     51   

INDEPENDENT AUDITOR FEES

     51   

PROPOSAL 4 — AMENDMENT TO THE COMPANY’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO GIVE STOCKHOLDERS THE POWER TO REQUEST SPECIAL MEETINGS OF THE STOCKHOLDERS

     52   

PROPOSAL 5 — AMENDMENT TO THE COMPANY’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO REDUCE THE MINIMUM NUMBER OF DIRECTORS OF THE COMPANY FROM NINE TO SEVEN

     53   


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PROPOSAL 6 — RE-APPROVAL OF THE COMPANY’S 2010 OMNIBUS PLAN PURSUANT TO SECTION 162(m) OF THE INTERNAL REVENUE CODE

     53   

PROPOSAL 7 — APPROVAL OF AN AMENDMENT TO THE COMPANY’S EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE MAXIMUM NUMBER OF SHARES AVAILABLE UNDER THE PLAN

     61   

PROPOSAL 8 — STOCKHOLDER PROPOSAL REGARDING REPORTS ON POLITICAL CONTRIBUTIONS

     63   

STOCKHOLDER PROPOSALS AND NOMINATIONS FOR 2016 ANNUAL MEETING

     65   

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     65   

ANNUAL REPORT AND FINANCIAL STATEMENTS

     65   

AVAILABILITY OF FORM 10-K

     66   

OTHER BUSINESS

     66   

EXHIBIT A

     A-1   

EXHIBIT B

     B-1   

EXHIBIT C

     C-1   


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PROXY STATEMENT

The accompanying proxy is solicited on behalf of the Board of Directors of NiSource Inc. (the “Board”) for the 2015 annual meeting of the stockholders (the “Annual Meeting”) to be held at the Hyatt Rosemont, 6350 North River Road, Rosemont, IL 60018 on Tuesday, May 12, 2015 at 10:00 a.m., local time. The common stock, $.01 par value per share, of the Company represented by the proxy will be voted as directed. If you return a signed proxy card without indicating how you want to vote your shares, the shares represented by the accompanying proxy will be voted as recommended by the Board “FOR” all of the nominees for director; “FOR” advisory approval of the compensation of the Company’s Named Executive Officers; “FOR” the ratification of the appointment of Deloitte & Touche LLP (“Deloitte”) as the Company’s independent registered public accountants for 2015; “FOR” both of the proposed amendments to the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”); “FOR” the re-approval of the Company’s 2010 Omnibus Incentive Plan (the “Omnibus Plan”); “FOR” the proposed amendment to the Company’s Employee Stock Purchase Plan; and “AGAINST” the stockholder proposal regarding reports on political contributions.

This Proxy Statement and the accompanying proxy card are first being sent to stockholders on April 7, 2015. We will bear the expense of this mail solicitation, which may be supplemented by telephone, facsimile, e-mail and personal solicitation by our officers, employees and agents. To aid in the solicitation of proxies, we have retained D.F. King for a fee of approximately $9,500, plus reimbursement of expenses. We will also request brokerage houses and other nominees and fiduciaries to forward proxy materials, at our expense, to the beneficial owners of stock held on March 16, 2015, the record date for voting.

We use the terms “NiSource,” the “Company,” “we,” “our” and “us” in this proxy statement to refer to NiSource Inc.

Who May Vote

Holders of shares of common stock as of the close of business on March 16, 2015 are entitled to notice of and to vote at the Annual Meeting and any adjournment thereof. As of March 16, 2015, [] shares of common stock were issued and outstanding. Each share of common stock outstanding on that date is entitled to one vote on each matter presented at the Annual Meeting.

Voting Your Proxy

If you are a “stockholder of record” (that is, if your shares of common stock are registered directly in your name on the Company’s records), you may vote your shares by proxy using any of the following methods:

 

   

Telephoning the toll-free number listed on the proxy card;

 

   

Using the Internet website listed on the proxy card; or

 

   

Marking, dating, signing and returning the enclosed proxy card.

All votes must be received by the proxy tabulator by 11:59 p.m. Eastern Time on May 11, 2015.

If your shares are held in a brokerage account or by a bank or other stockholder of record (herein referred to as a “Broker”), you are considered a “beneficial owner” of shares held in “street name.” As a beneficial owner, you will receive proxy materials and voting instructions from the stockholder of record that holds your shares. You must follow the voting instructions in order to have your shares of common stock voted.

Discretionary Voting by Brokers, Banks and Other Stockholders of Record

If your shares are held in street name and you do not provide the Broker with instructions as to how to vote such shares, your Broker will only be able to vote your shares at its discretion on certain “routine” matters as permitted by New York Stock Exchange (“NYSE”) rules. The proposal to ratify the appointment of our independent registered public accountants is considered a routine matter. At this meeting, Brokers will only have discretionary authority to vote your shares with regard to the ratification of the appointment of Deloitte as our independent registered public accountants for 2015. Brokers will not have discretionary authority to vote your shares with respect to the election of directors, the advisory approval of executive compensation, either of the

 

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proposed amendments to our Certificate of Incorporation, the re-approval of the Omnibus Plan, the proposed amendment to our Employee Stock Purchase Plan, or the stockholder proposal. Therefore, it is important that you instruct your Broker or other nominee how to vote your shares.

If you hold your shares in our 401(k) Plan (“401(k) Plan”) administered by Fidelity Management Trust Company (“Fidelity”), you should instruct Fidelity how to vote your shares by one of the methods discussed in this Proxy Statement. If you do not instruct the 401(k) Plan how to vote your shares by completing and returning the proxy card or by using the telephone or Internet, or if you sign the proxy card with no further instructions as to how to vote your shares, the 401(k) Plan provides for Fidelity to vote your shares in the same proportion as the shares for which it receives instructions from all other participants, to the extent permitted under applicable law.

Voting in Person

You also may come to the Annual Meeting and vote your shares in person by obtaining and submitting a ballot that will be available at the meeting. However, if your shares are held in street name by a Broker, then, in order to be able to vote at the meeting, you must obtain an executed proxy from the Broker indicating that you were the beneficial owner of the shares on March 16, 2015, the record date for voting, and that the Broker is giving you its proxy to vote the shares.

If your shares are held in the 401(k) Plan, you will not be able to vote your shares at the meeting. In order to vote your shares you must provide instructions to Fidelity either by returning your proxy card or by voting via the telephone or internet no later than 11:59 p.m. Eastern Time on May 11, 2015.

Votes cast in person or represented by proxy at the meeting will be tabulated by the inspectors of election.

If you plan to attend the Annual Meeting, please so indicate when you vote, so that we may send you an admission ticket and make the necessary arrangements. Stockholders who plan to attend the meeting must present picture identification along with an admission ticket or evidence of beneficial ownership.

Revoking Your Proxy

You may revoke your proxy at any time before a vote is taken or the authority granted is otherwise exercised. To revoke a proxy, you may send to the Company’s Corporate Secretary a letter (which must be received before a vote is taken) indicating that you want to revoke your proxy or you can supersede your initial proxy by submitting a duly executed proxy bearing a later date, voting by telephone or through the Internet on a later date, or attending the meeting and voting in person. Attending the Annual Meeting will not in and of itself revoke a proxy.

Quorum for the Meeting

A quorum of stockholders is necessary to take action at the Annual Meeting. A majority of the outstanding shares of common stock, present in person or represented by proxy, will constitute a quorum at the Annual Meeting. The inspectors of election appointed for the Annual Meeting will determine whether or not a quorum is present. The inspectors of election will treat abstentions and broker non-votes as present and entitled to vote for purposes of determining the presence of a quorum. A broker non-vote occurs when a Broker holding shares for a beneficial owner does not have discretionary authority to vote the shares and has not received instructions from the beneficial owner as to how the beneficial owner would like the shares to be voted.

PROPOSAL 1 — ELECTION OF DIRECTORS

At the recommendation of the Corporate Governance Committee, the Board has nominated the persons listed below to serve as directors, each for a one-year term, beginning at the Annual Meeting on May 12, 2015 and running until the 2016 annual meeting of the Company’s stockholders (the “2016 Annual Meeting”). The nominees include ten independent directors, as defined in the applicable rules of the NYSE, and our President and Chief Executive Officer (“CEO”). The Board does not anticipate that any of the nominees will be unable to serve, but if any nominee is unable to serve, the proxies will be voted in accordance with the judgment of the person or persons voting the proxies.

All of the nominees currently serve on the Board.

 

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The Company has announced plans to separate its natural gas pipeline and related businesses into a stand-alone publicly traded company, Columbia Pipeline Group, Inc. (“CPG, Inc.”). If the planned separation of CPG, Inc. from the Company (the “Separation”) occurs in mid-2015, we expect that six of the Company’s directors — Sigmund L. Cornelius, Marty R. Kittrell, W. Lee Nutter, Deborah S. Parker, Robert C. Skaggs and Teresa A. Taylor — are expected to resign from the Company’s Board and will become directors of CPG, Inc. The other five Company directors — Richard A. Abdoo, Aristides S. Candris, Michael E. Jesanis, Richard L. Thompson and Carolyn Y. Woo — will continue to serve on the Company’s Board until the 2016 Annual Meeting. In addition, in connection with the Separation, Joseph Hamrock is expected to become CEO of the Company and to be named to the Company’s Board. Mr. Hamrock is currently Executive Vice President and Group CEO of the Company’s gas distribution business unit and one of the Company’s Named Executive Officers for 2014. Mr. Hamrock is not a nominee for director at the Annual Meeting.

The following chart gives information about all nominees (each of whom has consented to being named in the proxy statement and to serving if elected). The dates shown for service as a director include service as a director of the Company and its corporate predecessor.

Vote Required

In order to be elected, a nominee must receive more votes cast in favor of his or her election than against election. Abstentions by those present or represented by proxy and broker non-votes will not be voted with respect to the election of directors and therefore will have no effect on the outcome.

THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH OF THE NOMINEES LISTED BELOW.

 

Name, Age and Principal Occupations

for Past Five Years and Directorships Held

   Has Been a
Director Since

Directors Expected to Remain on the Board Following the Separation:

  

Richard A. Abdoo, 71

   2008

Since May 2004, Mr. Abdoo has been President of R.A. Abdoo & Co. LLC, Milwaukee, Wisconsin, an environmental and energy consulting firm. Prior thereto, Mr. Abdoo was Chairman and CEO of Wisconsin Energy Corporation from 1991 until his retirement in April 2004. He also served as President of Wisconsin Energy Corporation from 1991 to April 2003. Mr. Abdoo is also a director of A.K. Steel Corporation and ZBB Energy Corp.

  

By virtue of his former positions as Chairman and CEO of a large electric and gas utility holding company, as well as his current positions as director of one other energy-related company and a steel maker that is a major user of energy, Mr. Abdoo has extraordinary expertise and experience with the issues facing the energy industry in general and public utilities in particular. As a former CEO, Mr. Abdoo has deep understanding about the issues facing executive management of a major corporation. Mr. Abdoo’s credentials as a registered professional engineer in several states allow him to offer a unique technical perspective on certain issues under consideration by the Board. As a long-time champion of humanitarian and social causes, including on behalf of the Lebanese-American community, Mr. Abdoo brings expertise and understanding with respect to social issues confronting the Company. His commitment to and work on behalf of social causes earned him the Ellis Island Medal of Honor, presented to Americans of diverse origins for their outstanding contributions to their own ethnic groups and to American society.

  

 

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Name, Age and Principal Occupations

for Past Five Years and Directorships Held

   Has Been a
Director Since

Aristides S. Candris, 63

   2012

Dr. Candris was President and CEO of Westinghouse Electric Company (“Westinghouse”), Pittsburgh, Pennsylvania, a unit of Tokyo-based Toshiba Corp., from July 2008 until his retirement on March 31, 2012. During his 36 years of service at Westinghouse, Dr. Candris served in various positions, including Senior Vice President, Nuclear Fuel from September 2006 to July 2008. Dr. Candris was also on the board of Westinghouse until October 1, 2012 and is a director of Kurion, Inc.

  

Dr. Candris is a nuclear scientist and engineer, and has significant experience gained through leading a global nuclear power company. His knowledge of the electric industry gives him significant insight on the issues impacting the electric utility industry. His experience managing highly technical engineering operations is valuable as we build and maintain facilities to address increasing environmental regulations and make long-term strategic decisions on electric power generation. His technical and management skills are helpful as we build and modernize both our transmission and distribution systems. Dr. Candris’ experience developing customer focused programs and attaining excellence in business processes and behaviors is insightful as we better meet the increasing expectations of customers and regulators. He serves on the Boards of Carnegie Mellon University and Transylvania University. He also serves on the Board of Directors for The Hellenic Initiative.

  

Michael E. Jesanis, 58

   2008

Since July 2013, Mr. Jesanis has been a co-founder and Managing Director of HotZero, LLC, a firm formed to develop hot water district energy systems in New Hampshire. Mr. Jesanis has also, since November 2007, been a principal with Serrafix, Boston, Massachusetts, a firm providing energy efficiency consulting and implementation services, principally to municipalities. Mr. Jesanis also serves as an advisor to several startups in energy related fields. From July 2004 through December 2006, Mr. Jesanis was President and CEO of National Grid USA, a natural gas and electric utility, and a subsidiary of National Grid plc, of which Mr. Jesanis was also an Executive Director. Prior to that, Mr. Jesanis was Chief Operating Officer of National Grid USA from January 2001 to July 2004. Mr. Jesanis also is a director of Ameresco, Inc.

  

By virtue of his former positions as President and CEO, Chief Operating Officer and, prior thereto, Chief Financial Officer (“CFO”) of a major electric and gas utility holding company, as well as his current role with an energy efficiency consulting firm, Mr. Jesanis has extraordinarily broad and deep experience with regulated utilities. He has strong financial acumen and extensive managerial experience, having led modernization efforts in the areas of operating infrastructure improvements, customer service enhancements and management-team development. Mr. Jesanis also demonstrates a commitment to education as the former chair of the board of a college and a current trustee (and past chair of the audit committee) of a university. As a result of his former senior managerial roles and his non-profit board service, Mr. Jesanis also has particular expertise with board governance issues.

  

 

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Name, Age and Principal Occupations

for Past Five Years and Directorships Held

   Has Been a
Director Since

Richard L. Thompson, 75

   2004

Independent Chairman of the Board since May 2013. Prior to his retirement in 2004, Mr. Thompson was Group President, Caterpillar Inc., Peoria, Illinois, a leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. Mr. Thompson also is lead director of Lennox International, Inc. He was also on the board of Gardner Denver Inc. from November 1998 to July 2013.

  

In his prior role as Group President of a large, publicly traded manufacturing company, Mr. Thompson had responsibility for its gas turbine and reciprocating engine business, as well as research and development activities. By virtue of this and prior positions, Mr. Thompson possesses significant experience in energy issues generally and gas turbine electric power generation and natural gas pipeline compression in particular. He is a graduate electrical engineer with experience in electrical transmission system design and generation system planning. This experience provides Mr. Thompson a valuable understanding of technical issues faced by the Company.

  

Carolyn Y. Woo, 60

   1998

Since January 2012, Dr. Woo has been President and CEO of Catholic Relief Services, the international humanitarian agency of the Catholic community in the United States. Prior thereto, Dr. Woo was Martin J. Gillen Dean and Ray and Milann Siegfried Professor of Entrepreneurial Studies, Mendoza College of Business, University of Notre Dame, Notre Dame, Indiana. Dr. Woo is also a director of AON Corporation.

  

Dr. Woo’s current position as President and CEO of an international organization provides her with knowledge and experience in managing a large organization. Her experience as the dean of a major business school and her experience as a professor of entrepreneurship provided her a deep understanding of business principles and extensive expertise with management and strategic planning issues. Through her current and previous service on the boards of directors, audit committees and compensation committees of a number of public companies, including a global reinsurance and risk management consulting company, a pharmaceutical distribution company, an international automotive manufacturer and a financial institution, Dr. Woo has developed an excellent understanding of corporate governance, internal control, financial and strategic analysis and risk management issues. Dr. Woo is a leader in the areas of corporate social responsibility and sustainability, which adds an important perspective to the Company. She is also a current and past board member of several non-profit organizations, including an international relief organization, a global business school accreditation organization, leadership development organizations and an educational organization. This commitment to social and educational organizations provides Dr. Woo with an additional important perspective on the various community and social issues confronting the Company in the various communities that the Company serves.

  

 

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Name, Age and Principal Occupations

for Past Five Years and Directorships Held

   Has Been a
Director Since

Directors Expected to Resign from the Board in Connection with the Separation:

  

Sigmund L. Cornelius, 60

   2011

Since April 1, 2014, Mr. Cornelius has been President and Chief Operating Officer of Freeport LNG, LLC. From October 2008 to October 2010, Mr. Cornelius served as Senior Vice President, Finance and CFO of ConocoPhillips, Houston, Texas, an integrated energy company, before retiring at the end of 2010. During his 30-year tenure at ConocoPhillips, Mr. Cornelius served in various positions, including Senior Vice President, Planning, Strategy and Corporate Affairs from September 2007 to October 2008; Regional President, Exploration & Production-Lower 48 from 2006 to September 2007; and President, Global Gas from 2004 to 2006. Mr. Cornelius served on the board of DCP Midstream L.P. from 2007 to 2008 and is also a director of USEC, Inc., Carbo Ceramics Inc., Western Refining, Inc. and Parallel Energy Inc.

  

Mr. Cornelius has significant experience in the oil and natural gas industry, which enables him to provide valuable insight on issues impacting our pipeline business. He also has significant experience in exploration, production as well as the midstream business, which is valuable to us as we expand our presence in the Utica and Marcellus Shale gas plays. In addition, as the former CFO of a public company, he has extensive experience and skills in the areas of corporate finance, accounting, strategic planning and risk oversight.

  

Marty R. Kittrell, 58

   2007

In February 2011, Mr. Kittrell retired as Executive Vice President & CFO of Dresser, Inc. (“Dresser”), Addison, Texas, after serving in that capacity since December 2007. Dresser, a worldwide leader in providing highly engineered products for the global energy industry, was acquired by General Electric Company in February 2011. Prior to joining Dresser, Mr. Kittrell was Executive Vice President and CFO of Andrew Corporation from October 2003 to December 2007. Mr. Kittrell is also a director of On Assignment, Inc.

  

Mr. Kittrell brings to the Board over 25 years of experience as a CFO, having served in that role at several public companies. As a result of this experience, he has significant expertise with financial reporting issues facing the Company, including Securities and Exchange Commission reporting, and Sarbanes-Oxley internal control design and implementation. His position with a company that supplies infrastructure products to the energy industry gives Mr. Kittrell a particular familiarity with the issues facing the Company’s gas transmission and storage and gas distribution businesses. Mr. Kittrell also has extensive experience with mergers and acquisitions and capital markets transactions. He formerly practiced accounting with a national accounting firm and is an active member of the American Institute of CPAs, the National Association of Corporate Directors, and Financial Executives International. Mr. Kittrell also serves on the Executive Committee and as Chair of the Finance and Real Estate Committee of Lipscomb University.

  

 

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Name, Age and Principal Occupations

for Past Five Years and Directorships Held

   Has Been a
Director Since

W. Lee Nutter, 71

   2007

Prior to his retirement in 2007, Mr. Nutter was Chairman, President and CEO of Rayonier, Inc., Jacksonville, Florida, a leading supplier of high performance specialty cellulose fibers and owner of timberlands and other higher value land holdings. Mr. Nutter was a director of Rayonier, Inc. from 1996 to 2009. He is also a director of Republic Services Inc. and the non-executive Chairman of J.M. Huber Corporation. He is also a member of the Advisory Board at the University of Washington Foster School of Business.

  

Mr. Nutter’s former positions as Chairman and CEO of a forest products company, and his current positions as director of one company engaged in waste management and another involved in the forest products and energy industries, give him a particular familiarity with the issues involved in managing natural resources. These issues include compliance with environmental laws and exercising responsible environmental stewardship. Mr. Nutter also has an extensive background and familiarity in human resource and compensation issues, which complements well his service as chair of the Company’s Officer Nomination and Compensation Committee. In addition, as a former CEO, Mr. Nutter understands how to address the complex issues facing major corporations.

  

Deborah S. Parker, 62

   2007

Ms. Parker retired as Senior Vice President, Quality and Environmental, Health and Safety of Alstom Power, a business segment of Alstom, in August 2014, after serving in that capacity since April 2011. Alstom Power, a global leader in power generation located in Zurich, Switzerland, has agreed to be acquired by General Electric Company. From April 2008 until April 2011, Ms. Parker was President and CEO of International Business Solutions, Inc. (“IBS”), Washington, D.C., a provider of strategic planning and consulting services to profit and not-for-profit organizations. Before joining IBS, Ms. Parker was Executive Vice President and Chief Operations Officer of the National Urban League from July 2007 through April 2008. Prior thereto, Ms. Parker served in numerous operating positions, including Vice President of Global Quality at Ford Motor Company. During her tenure at Ford Motor Company, Ms. Parker also served as CEO and Group Managing Director at Ford Motor Company of Southern Africa (Pty) Ltd. from September 2001 to December 2004.

  

Ms. Parker brings a unique combination of community development and industrial management experience to the Board. As a Senior Vice President of Quality, Environmental, Health and Safety of a global power generation firm, she brings knowledge and understanding of operations, health and safety issues that are valuable to us as we execute on our commitment to increase our investment in environmental projects and focus on safety. As a former CEO of a consulting firm and Chief Operating Officer of a national civil rights organization dedicated to economic empowerment of historically underserved urban communities, Ms. Parker brings expertise and understanding with respect to the social and economic issues confronting the Company and the communities it serves. As a result of her 23-year career at a global manufacturing company, Ms. Parker has extensive experience managing industrial operations, including turning around several struggling business units, finding innovative solutions to management and union issues, implementing quality control initiatives and rationalizing manufacturing and inventory. This experience positions her well to provide valuable insights on the Company’s operations and processes, as well as on social issues confronting the Company.

  

 

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Name, Age and Principal Occupations

for Past Five Years and Directorships Held

   Has Been a
Director Since

Robert C. Skaggs, Jr., 60

   2005

Chief Executive Officer of the Company since July 2005 and President of the Company since October 2004. Prior thereto, Mr. Skaggs served as Executive Vice President, Regulated Revenue from October 2003 to October 2004; President of Columbia Gas of Ohio, Inc. from February 1997 to October 2003; President of Columbia Gas of Kentucky, Inc. from January 1997 to October 2003; President of Bay State Gas Company and Northern Utilities from November 2000 to October 2003; and President of Columbia Gas of Virginia, Inc., Columbia Gas of Maryland, Inc. and Columbia Gas of Pennsylvania, Inc. from December 2001 to October 2003.

  

The Board believes it is important that the Company’s CEO serve on the Board. Mr. Skaggs has a unique understanding of the challenges and issues facing the Company. During his nearly 32 years with the Company, he has served in a variety of positions across the organization, including the legal and finance departments, President of a number of our gas distribution subsidiaries, and Executive Vice President, Regulated Revenue, where he was responsible for developing regulatory strategies and leading external relations across all of our energy distribution markets, as well as our interstate pipeline system. He also led regulated commercial activities, including large customer and marketer relations, energy supply services, as well as federal governmental relations. This wide and deep experience provides an incomparable knowledge of our operations, our markets and our people. Over the course of his career, Mr. Skaggs has been involved in a wide array of community-based organizations as well as a number of industry organizations, further providing him with a valuable perspective on the communities the Company serves and the issues facing our industry. He served as Chairman of the American Gas Association in 2010.

  

Teresa A. Taylor, 51

   2012

Ms. Taylor is currently CEO of Blue Valley Advisors, LLC. Ms. Taylor served as Chief Operating Officer of Qwest Communications, Inc. (“Qwest”), Denver, Colorado, from August 2009 to April 2011. Prior thereto, she was Executive Vice President, Business Markets Group of Qwest from January 2008 to April 2009 and served as Executive Vice President and Chief Administrative Officer from December 2005 to January 2008. Ms. Taylor served in various positions with Qwest and the former US West since 1987. Ms. Taylor also is a director of T-Mobile USA, Inc. and First Interstate BancSystem, Inc.

  

In her position as Chief Operating Officer, Ms. Taylor was responsible for the daily operations of a publicly traded telecommunications company. In this role, she led a senior management team responsible for field support, technical development, sales, marketing, customer support and information technology systems. During her 24-year tenure with Qwest and US West, she held various leadership positions responsible for strategic planning and execution, sales, marketing, product development, human resources, corporate communications and social responsibility. Ms. Taylor is keenly aware of the technical and managerial skills necessary to operate a customer service company in a complex regulatory and competitive business environment. This experience will provide valuable insights to the Company as it operates in multiple regulatory environments and develops products and customer service programs to meet the expectations of our customers.

  

 

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CORPORATE GOVERNANCE

Director Independence

Under our Corporate Governance Guidelines, a majority of the Board must be comprised of “independent directors.” In order to assist the Board in making its determination of director independence, the Board has adopted categorical standards of independence consistent with the standards contained in Section 303A.02(b) of the NYSE Corporate Governance Standards. The Board also has adopted an additional independence standard providing that a director who is an executive officer of a company that has made payments to or received payments from the Company for property or services within the last three years in excess of 1% of such other company’s consolidated gross revenues is not independent until three years after payments fall below that threshold. A copy of our Corporate Governance Guidelines is posted on our website at http://ir.nisource.com/governance.cfm.

The Board has affirmatively determined that, with the exception of Mr. Skaggs, all of the members of the Board and all nominees are “independent directors” as defined in Section 303A.02(b) of the NYSE Corporate Governance Standards and meet the additional standard for independence set by the Board.

Policies and Procedures with Respect to Transactions with Related Persons

We have established policies and procedures with respect to the review, approval and ratification of any transactions with related persons as set forth in the Audit Committee Charter and the Code of Business Conduct.

Under its Charter, the Audit Committee is charged with the review of reports and disclosures of insider and affiliated party transactions. Under the Code of Business Conduct, the following situations must be reviewed to determine if they involve a direct or indirect interest of any director, executive officer or employee (including immediate family members):

 

   

owning more than a 10% equity interest or a general partner interest in any entity that transacts business with the Company (including lending or leasing transactions, but excluding the receipt of utility service from the Company at tariff rates), if the total amount involved in such transactions may exceed $120,000;

 

   

selling anything to the Company or buying anything from the Company (including lending or leasing transactions, but excluding the receipt of utility service from the Company at tariff rates), if the total amount involved in such transactions may exceed $120,000;

 

   

consulting for or being employed by a competitor of the Company; and

 

   

being in the position of supervising, reviewing or having any influence on the job evaluation, pay or benefit of any immediate family member employed by the Company.

Related party transactions requiring review under the Code of Business Conduct are annually reviewed and, if appropriate, ratified by the Audit Committee. Directors, individuals subject to Section 16 of the Securities Exchange Act of 1934 (“Section 16 Officers”) and senior executive officers are expected to raise any potential transactions involving a conflict of interest that relates to them with the Audit Committee so that they may be reviewed in a prompt manner.

There were no transactions between the Company and any officer, director or nominee for director, or any affiliate of or person related to any of them, since January 1, 2014 of the type or amount required to be disclosed under the applicable Securities and Exchange Commission (“SEC”) rules.

Executive Sessions of Non-Management Directors

To promote open discussion among the non-management directors, the Board schedules regular executive sessions at meetings of the Board and each of its Committees. The non-management members met separately from management six times in 2014 in sessions at which the independent Chairman of the Board presided. All of the non-management members are “independent directors” as defined under the applicable NYSE and SEC rules.

 

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Communications with the Board and Non-Management Directors

Stockholders and other interested persons may communicate any concerns they may have regarding the Company as follows:

 

   

Communications to the Board may be made to the Board generally, any director individually, the non-management directors as a group, or the Chairman of the Board, by writing to the following address:

NiSource Inc.

Attention: Board of Directors, or any Board member, or non-management directors, or Chairman of the Board

c/o Corporate Secretary

801 East 86th Avenue

Merrillville, Indiana 46410

 

   

The Audit Committee has approved procedures with respect to the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or audit matters. Communications regarding such matters may be made by contacting the Company’s Ethics and Compliance Officer at ethics@nisource.com, calling the business ethics hotline at 1-800-457-2814, or writing to:

NiSource Inc.

Attention: Director, Corporate Ethics

801 East 86th Avenue

Merrillville, Indiana 46410

Code of Business Conduct

The Company has adopted a Code of Business Conduct to promote (i) ethical behavior including the ethical handling of conflicts of interest, (ii) full, fair, accurate, timely and understandable financial disclosure, (iii) compliance with applicable laws, rules and regulations, (iv) accountability for adherence to our code and (v) prompt internal reporting of violations of our code. Our Code of Business Conduct satisfies applicable SEC and NYSE requirements and applies to all directors, officers (including our principal executive officer, principal financial officer, principal accounting officer and controller) as well as employees of the Company and its affiliates. A copy of our Code of Business Conduct is available on our website at http://ir.nisource.com/governance.cfm and also is available to any stockholder upon written request to our Corporate Secretary.

Any waiver of our Code of Business Conduct for any director, Section 16 Officer or senior executive may be made only by the Audit Committee of the Board and must be promptly disclosed to the extent and in the manner required by the SEC or the NYSE and posted on our website. No such waivers have been granted.

Corporate Governance Guidelines

The Corporate Governance Committee is responsible for annually reviewing and reassessing the Corporate Governance Guidelines and will submit any recommended changes to the Board for its approval. A copy of the Corporate Governance Guidelines can be found on our website at http://ir.nisource.com/governance.cfm and is also available to any stockholder upon written request to the Company’s Corporate Secretary.

Board Leadership Structure and Risk Oversight

Our Corporate Governance Guidelines state that the Company should remain free to configure leadership of the Board in the way that best serves the Company’s interests at the time and, accordingly, the Board has no fixed policy with respect to combining or separating the offices of Chairman and CEO. If the Chairman is not an independent director, an independent lead director will be chosen annually by the Corporate Governance Committee. The Chairman or, if the Chairman is not an independent director, the lead director will serve as chair of the Corporate Governance Committee and as the presiding director for purposes of the NYSE rules.

Since late 2006, the offices of Chairman and CEO of the Company have been held by different individuals, with the Chairman being an independent director. In deciding to separate the offices, the Board determined that having a director with a long tenure serve as Chairman would help ensure continuity and stability. At this time, the Board believes that the independent Chairman arrangement serves the Company well.

 

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The Board takes an active role in monitoring and assessing the Company’s risks, which include risks associated with operations, credit, energy supply, financing, capital investments, and compensation policies and practices. The Board administers its oversight function through utilization of its various committees, as well as through a Risk Management Committee, consisting of members of our senior management, which is responsible for the risk management process. Senior management provides an annual report on our risks to the Board and to the Audit Committee. Additionally, the Audit Committee discusses with management and the independent auditor the effect of regulatory and accounting initiatives on the Company’s financial statements and is responsible for review and evaluation of the Company’s major risk exposures and the steps management has taken to monitor and control such exposures. The Audit Committee reviews and assesses the adequacy of the Company’s Risk Management Committee Charter annually and amends the charter as appropriate. In addition, the Finance Committee, Officer Nomination and Compensation (“ONC”) Committee and the Environmental, Safety and Sustainability (“ESS”) Committee are each charged with overseeing the risks associated with their respective areas of responsibility.

Meetings and Committees of the Board

The Board met fourteen times during 2014. Each director attended at least 93% of the total number of the Board meetings and the meetings of the committees of which he or she was a member. Pursuant to our Corporate Governance Guidelines, all directors are expected to attend the Annual Meeting. All incumbent directors attended the 2014 Annual Meeting of Stockholders.

The Board has established five standing committees to assist the Board in carrying out its duties: the Audit Committee, the Corporate Governance Committee, the ESS Committee, the Finance Committee, and the ONC Committee. The Board evaluates the structure and membership of its committees on an annual basis and appoints the independent members of the Board to serve on the committees and elects committee chairs following the Annual Meeting of Stockholders. The following tables show the composition of each Board committee during 2014. Mr. Skaggs does not serve on any committee but is invited to attend various committee meetings. Mr. Thompson who is Chairman of the Board, also serves as the Chair of the Corporate Governance Committee and is invited to attend all meetings of each of the standing committees.

Board Committee Composition

 

Director    Audit      Corporate
Governance
     ESS      Finance      ONC  

Richard A. Abdoo

              X                  X      X   

Aristides S. Candris

     X         X         X                     

Sigmund L. Cornelius

     X                           X         X   

Michael E. Jesanis

     X                  X               X   

Marty R. Kittrell

     X *(F)                X         X            

W. Lee Nutter

              X                  X         X

Deborah S. Parker

     X                  X         X            

Teresa A. Taylor

              X                  X         X

Richard L. Thompson(1)

              X                           

Carolyn Y. Woo

              X         X                  X   

 

 

  * Committee Chair. Mr. Nutter was Chair of the ONC Committee until May 14, 2014, when Ms. Taylor became Chair.

 

(1) Independent Chairman of the Board.

 

(F) Audit Committee Financial Expert, as defined by the SEC rules.

 

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The summaries below are qualified by reference to the entire charter for each of the Audit, Corporate Governance, ESS, Finance and ONC Committees; each of which can be found on our website at http://ir.nisource.com/governance.cfm and is also available to any stockholder upon written request to the Company’s Corporate Secretary.

Audit Committee

The Audit Committee met eight times in 2014. Among other things, the Audit Committee has the sole authority to appoint, retain or replace the independent auditors and is responsible for:

 

   

reviewing the independent auditors’ qualifications and independence;

 

   

overseeing the performance of the Company’s internal audit function and the independent auditors;

 

   

reviewing and discussing with management and the independent auditor our annual and quarterly financial statements;

 

   

reviewing and discussing with management and the independent auditor major issues regarding accounting principles, adequacy of internal controls, and critical judgments and estimates made in connection with the preparation of financial statements;

 

   

reviewing related party transactions; and

 

   

overseeing the Company’s compliance with legal and regulatory requirements.

The Board has determined that all of the members of the Audit Committee are independent as defined under the applicable NYSE and SEC rules, including the additional independence standard for audit committee members, and meet the additional independence standard set forth in the Corporate Governance Guidelines. The Audit Committee has reviewed and approved the independent registered public accountants, both for 2014 and 2015, and the fees relating to audit services and other services performed by them.

For more information regarding the Audit Committee, see “Audit Committee Report” below.

Corporate Governance Committee

The Corporate Governance Committee met four times in 2014. Its responsibilities include:

 

   

identifying individuals qualified to become Board members, consistent with criteria approved by the Board;

 

   

recommending to the Board director nominees for election at the next annual meeting of the stockholders;

 

   

developing and recommending to the Board a set of corporate governance principles applicable to the Company;

 

   

consulting with management to determine the appropriate response to stockholder proposals submitted pursuant to SEC rules;

 

   

reviewing and evaluating the CEO succession plan;

 

   

reviewing and overseeing corporate and business unit political spending;

 

   

evaluating any resignation tendered by a director and making recommendations to the Board about whether to accept such resignation; and

 

   

overseeing the evaluation of the performance of the Board and its Committees.

Pursuant to the Corporate Governance Guidelines, the Committee, with the assistance of the ONC Committee and its independent compensation consultant, Exequity LLP, reviews the amount and composition of director compensation from time to time and makes recommendations to the Board when it concludes changes are needed. The Committee is also responsible for evaluating the performance of the CEO and his executive direct reports. The Committee reviews and approves the Company’s goals and objectives relevant to the CEO and his executive direct reports and evaluates their performance in light of those goals and objectives and after receiving input from the Board. The Chair of the Committee reports the Committee’s findings to the ONC Committee, which uses these findings to set the compensation of the CEO and his executive direct reports.

The Committee identifies and screens candidates for director and makes its recommendations for director to the Board as a whole. The Committee has the authority to retain a search firm to help it identify director candidates to the extent it deems necessary or appropriate. In considering candidates for director, the Committee con-

 

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siders the nature of the expertise and experience required for the performance of the duties of a director of a company engaged in our businesses, as well as each candidate’s relevant business, academic and industry experience, professional background, age, current employment, community service, other board service and other factors. Pursuant to the Corporate Governance Guidelines, the Committee also considers the racial, ethnic and gender diversity of the Board. The Committee seeks to identify and recommend candidates with a reputation for and record of integrity and good business judgment who: have experience in positions with a high degree of responsibility and are leaders in the organizations with which they are affiliated; are effective in working in complex collegial settings; are free from conflicts of interest that could interfere with a director’s duties to the Company and its stockholders; and are willing and able to make the necessary commitment of time and attention required for effective service on the Board. The Committee also takes into account the candidate’s level of financial literacy. The Committee monitors the mix of skills and experience of the directors in order to assess whether the Board has the necessary tools to perform its oversight function effectively. The Committee also assesses the diversity of the Board as part of its annual self-assessment process. The Committee will consider nominees for directors recommended by stockholders and will use the same criteria to evaluate candidates proposed by stockholders.

The Board has determined that all of the members of the Committee are independent as defined under the applicable NYSE rules and meet the additional independence standard set forth in the Corporate Governance Guidelines.

For information on how to nominate a person for election as a director at the 2016 Annual Meeting, please see the discussion under the heading “Stockholder Proposals and Nominations for 2016 Annual Meeting.”

Environmental, Safety & Sustainability Committee

The ESS Committee met five times during 2014. The ESS Committee assists the Board in overseeing the programs, performance and risks relative to environmental, safety and sustainability matters. In this regard, the Committee:

 

   

evaluates the Company’s environmental and sustainability policies and practices;

 

   

evaluates the Company’s safety policies and practices relating to our employees, contractors, and the general public;

 

   

reviews and assesses the impact of shareholder proposals related to environmental safety and sustainability;

 

   

evaluates the Company’s programs, policies, practices and performance with respect to health and safety compliance auditing; and

 

   

assesses major legislation, regulation and other external influences that pertain to the Committee’s responsibilities.

Finance Committee

The Finance Committee met five times during 2014. Its responsibilities include overseeing and monitoring the following:

 

   

the financial plans of the Company, capital structure, long and short-term debt levels, and financial policy;

 

   

the Company’s dividend policy and periodic dividends, investment strategy, investments, capital budgets, financial risks and steps taken to control those risks;

 

   

the Company’s corporate insurance coverage; and

 

   

the Company’s hedging policies and exempt swap transactions.

Officer Nomination and Compensation Committee

The ONC Committee met six times in 2014. The ONC Committee advises the Board with respect to nomination, evaluation, compensation and benefits of our executives. In that regard, the Committee:

 

   

approves the CEO’s compensation based on the Corporate Governance Committee’s report on the evaluation of the CEO’s performance;

 

   

approves the compensation of the CEO’s executive direct reports;

 

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makes recommendations to the Board with respect to incentive compensation plans and equity-based plans;

 

   

reviews and approves periodically a general compensation policy for other officers of the Company and officers of its principal subsidiaries;

 

   

recommends Company officer candidates for election by the Board, and oversees the evaluation of management;

 

   

reviews and evaluates the management succession plan, except for the CEO’s succession plan;

 

   

evaluates the risks associated with our compensation policies and practices; and

 

   

oversees equal employment opportunity and diversity initiatives.

In approving the compensation of the CEO and his executive direct reports, the Committee takes into consideration the Corporate Governance Committee’s evaluation of the individual performance of each. When considering changes in compensation for the Named Executive Officers, the Committee also considers input from the Senior Vice President, Human Resources and Exequity LLP, an executive compensation consulting firm that the Committee engaged to advise it with respect to executive compensation design, comparative compensation practices and compensation matters relating to the Board. Exequity LLP provides no other services to the Company. The ONC Committee has determined Exequity LLP is independent under the NYSE rules.

All of the directors serving on the ONC Committee are (i) independent as defined under the applicable NYSE and SEC rules and meet the additional independence standard set forth in the Corporate Governance Guidelines and the additional NYSE standard for compensation committees, (ii) “non-employee directors” as defined under Rule 16b-3 of the Securities Exchange Act of 1934 (“Exchange Act”), and (iii) “outside directors” as defined by Section 162(m) of the Internal Revenue Code (“Section 162(m)”).

Compensation Committee Interlocks and Insider Participation

During the fiscal year ended December 31, 2014, Messrs. Abdoo, Cornelius, Jesanis and Nutter, Ms. Taylor and Dr.  Woo served on the ONC Committee. There were no compensation committee interlocks or insider participation.

DIRECTOR COMPENSATION

Director Compensation.    This section describes compensation for our non-employee directors. To attract and retain highly qualified candidates to serve on the Board, we use a combination of cash and equity awards. A full-time employee who serves as director does not receive any additional compensation for service on the Board. Consequently, because Mr. Skaggs is also our President and CEO, he does not receive additional compensation for his service as a Board member.

Each non-employee director receives an annual retainer of $210,000, consisting of $90,000 in cash and an award of restricted stock units valued at $120,000 at the time of the award. The cash retainer is paid in arrears in four equal installments at the end of each calendar quarter.

The restricted stock units are awarded annually and the number of restricted stock units is determined by dividing the value of the grant by the closing price of our common stock on the grant date. Restricted stock units are granted to directors under the Omnibus Plan, which was approved by the stockholders on May 11, 2010.

Additionally, each director who serves as chair of a Board committee receives compensation for this responsibility. The annual committee chair fees are $20,000 for each of the standing committees. The Chairman of the Board receives additional annual compensation of $160,000 for his role. These fees are paid in cash in arrears in four equal installments and are prorated in the case of partial year service.

All Other Compensation.    The other compensation included under the column “All Other Compensation” in the Director Compensation table below consists of matching contributions made by the NiSource Charitable Foundation.

Omnibus Plan.     The Omnibus Plan permits equity awards to be made to non-employee directors in the form of incentive and non-qualified stock options, stock appreciation rights, restricted stock and restricted stock units, performance shares, performance units, cash-based awards and other stock-based awards. Terms and conditions of awards to non-employee directors are determined by the Board prior to grant. Since May 11, 2010,

 

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awards to directors have been made from the Omnibus Plan. Awards of restricted stock units associated with periods prior to June 1, 2011, vested immediately but are not distributed in shares of common stock until after the director terminates or retires from the Board. Beginning June 1, 2011, the awards of restricted stock units vest and are payable in shares of common stock on the earlier of (a) the last day of the director’s annual term for which the restricted stock units are awarded or (b) the date that the director separates from service due to a “Change-in-Control” (as defined in the Omnibus Plan); provided, however, that in the event that the director separates from service prior to such time as a result of “Retirement” (defined as the cessation of services after providing a minimum of five continuous years of service as a member of the Board), death or “Disability” (as defined in the Omnibus Plan), the director’s restricted stock unit awards shall pro-rata vest in an amount determined by using a fraction, where the numerator is the number of full or partial calendar months elapsed between the grant date and the date of the director’s Retirement, death or Disability, and the denominator of which is the number of full or partial calendar months elapsed between the grant date and the last day of the director’s annual term for which the director is elected that corresponds to the year in which the restricted stock units are awarded. The vested restricted stock units awarded on or after June 1, 2011 are payable as soon as practicable following vesting unless otherwise provided pursuant to any prior election the non-employee director may have made to defer distribution.

With respect to restricted stock units that have not been distributed, additional restricted stock units are credited to each non-employee director to reflect dividends paid to stockholders on common stock. The restricted stock units have no voting or other stock ownership rights and are payable in shares of our common stock upon distribution.

Director Stock Ownership.    The Board maintains stock ownership requirements for its directors that are included in the Corporate Governance Guidelines. Within five years of becoming a non-employee director, each non-employee director is required to hold an amount of Company stock with a value equal to five times the annual cash retainer paid to directors by the Company. Company stock that counts towards satisfaction of this requirement includes shares purchased on the open market, awards of restricted stock or restricted stock units through the prior Non-Employee Director Stock Incentive Plan or Omnibus Plan, and shares beneficially owned in a trust or by a spouse or other immediate family member residing in the same household.

Each director has a significant portion of his or her compensation directly aligned with long-term stockholder value. Fifty-seven percent (57%) of a non-employee director’s annual retainer (valued as of the time of award) consists of restricted stock units, which are converted into common stock when distributed to the director.

 

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The table below shows the number of shares of common stock beneficially owned by each non-employee director, the number of non-voting restricted stock units that have been awarded, and the combined total as of February 27, 2015.

 

Name  

Shares of

Common Stock

   

Non-Voting
Restricted

Stock Units

   

Total Number of
Shares of
Common Stock
and

Non-Voting
Restricted Stock

Units(1)

 

Richard A. Abdoo

    15,000        38,127        53,127   

Aristides S. Candris

    2,000        11,959        13,959   

Sigmund L. Cornelius

    8,043        8,078        16,121   

Michael E. Jesanis

    7,715        25,154        32,869   

Marty R. Kittrell

    845        31,339        32,184   

W. Lee Nutter

    114,970        39,888        154,858   

Deborah S. Parker

           39,514        39,514   

Teresa A. Taylor

    4,444        7,291        11,735   

Richard L. Thompson

    12,871        50,691        63,562   

Carolyn Y. Woo

    16,315        58,801        75,116   

 

 

(1) The number includes non-voting restricted stock units granted under the Non-Employee Director Stock Incentive Plan and the Omnibus Plan.

Director Compensation

The table below sets forth all compensation earned by or paid to our non-employee directors in 2014. Our CEO does not receive any additional compensation for his service on the Board. His compensation for serving as CEO is listed under Compensation of Executive Officers.

 

Name   Fees Earned or
Paid in Cash
($)(1)
    Stock  Awards
($)(2)
   

All Other

Compensation

($)(3)

   

Total

($)

 

Richard A. Abdoo

    107,238        120,000        15,000        242,238   

Aristides S. Candris

    87,238        120,000        20,000        227,238   

Sigmund L. Cornelius

    87,238        120,000        10,000        217,238   

Michael E. Jesanis

    107,238        120,000        10,000        237,238   

Marty R. Kittrell

    107,238        120,000               227,238   

W. Lee Nutter

    94,604        120,000        20,000        234,604   

Deborah S. Parker

    87,238        120,000               207,238   

Teresa A. Taylor

    99,872        120,000               219,872   

Richard L. Thompson

    267,238        120,000               387,238   

Carolyn Y. Woo

    87,238        120,000        10,000        217,238   

 

 

(1) The fees shown include the annual cash retainer and any Board and chair fees paid during the year to each director.

 

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(2) The amounts reported reflect the grant date fair value of awards computed in accordance with FASB ASC Topic 718. For restricted stock units, the grant date fair value is the number of shares multiplied by the closing price of our stock on the award date. Each non-employee director who was elected on May 13, 2014 received an award of restricted stock units valued at $120,000 which was equal to approximately 3,346 stock units valued at $35.86 per unit.

 

(3) This column includes matching contributions made by the NiSource Charitable Foundation under the Director Charitable Match Program. The Foundation matches up to $10,000 annually in contributions by any director to approved tax-exempt charitable organizations. Any amount not utilized for the match in the year it is first available is carried over to the following year.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table contains information about those persons or groups that are known to the Company to be the beneficial owners of more than five percent of the outstanding common stock, based solely on the latest Schedules 13G and any amendments thereto filed with the SEC on or before February 27, 2015.

 

Name and Address of Beneficial Owner   

Amount and Nature of

Beneficial Ownership

    

Percent of Class

Outstanding

 

The Vanguard Group(1)

     24,716,611         7.8%   

100 Vanguard Blvd.

Malvern, PA 19355

                 

T. Rowe Price Associates, Inc.(2)

     21,991,926         6.9%   

100 East Pratt Street

Baltimore, MD 21202

                 

BlackRock, Inc.(3)

     21,005,426         6.7%   

55 East 52nd Street

New York, NY 10022

                 

Deutsche Bank AG(4)

     19,417,886         6.1%   

Taunusanlage 12

60325 Frankfurt am Main

Germany

                 

State Street Corporation(5)

     16,275,486         5.2%   

One Lincoln Street

Boston, MA 02111

                 

FMR LLC(6)

     16,099,997         5.1%   

245 Summer Street

Boston, MA 02210

                 

 

 

(1) As reported on an amendment to statement on Schedule 13G filed with the SEC on behalf of The Vanguard Group on February 10, 2015. The Vanguard Group has sole voting power with respect to 568,067 shares, sole dispositive power with respect to 24,203,397 shares and shared dispositive power with respect to 513,214 shares reported as beneficially owned.

 

(2) As reported on an amendment to statement on Schedule 13G filed with the SEC on behalf of T. Rowe Price Associates, Inc. on February 13, 2015. T. Rowe Price Associates, Inc. has sole voting power with respect to 6,960,111 shares and sole dispositive power with respect to 21,991,926 shares reported as beneficially owned.

 

(3) As reported on an amendment to statement on Schedule 13G filed with the SEC on behalf of BlackRock, Inc. on January 29, 2015. BlackRock, Inc. has sole voting power with respect to 18,198,312 shares and sole dispositive power with respect to 21,005,426 shares reported as beneficially owned.

 

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(4) As reported on a Schedule 13G filed with the SEC on behalf of Deutsche Bank AG on February 17, 2015. Deutsche Bank AG has sole voting power with respect to 19,331,470 shares, sole dispositive power with respect to 19,415,886 shares and shared dispositive power with respect to 2,000 shares reported as beneficially owned.

 

(5) As reported on a Schedule 13G filed with the SEC on behalf of State Street Corporation on February 12, 2015. State Street Corporation has shared voting power and shared dispositive power with respect to 16,275,486 shares reported as beneficially owned.

 

(6) As reported on a Schedule 13G filed with the SEC on behalf of FMR LLC on February 13, 2015. FMR LLC has sole voting power with respect to 298,188 shares and sole dispositive power with respect to 16,099,997 of the shares reported as beneficially owned.

The following table contains information about the beneficial ownership of our common stock as of February 27, 2015 for each of the directors, director nominees and Named Executive Officers, and for all directors and executive officers as a group. Beneficial ownership reflects sole voting and sole investment power, unless otherwise noted.

 

Name of Beneficial Owner   

Amount and Nature of

Beneficial Ownership(1)

 

Richard A. Abdoo

     15,000   

Aristides S. Candris

     2,000   

Sigmund L. Cornelius

     8,043   

Joseph Hamrock

     43,486   

Carrie J. Hightman(2)

     116,862   

Michael E. Jesanis

     7,715   

Glen L. Kettering

     109,243   

Marty R. Kittrell

     845   

W. Lee Nutter

     114,970   

Deborah S. Parker

       

Robert C. Skaggs, Jr.(3)

     863,265   

Stephen P. Smith

     185,388   

Teresa A. Taylor

     4,444   

Richard L. Thompson

     12,871   

Carolyn Y. Woo

     16,315   

All directors and executive officers as a group (18 persons)

     1,601,968   

 

 

(1) Includes shares held in our 401(k) Plan and shares distributable within 60 days pursuant to restricted stock units, as applicable. The percentage of common stock owned by any director or Named Executive Officer, or all directors and executive officers as a group, does not exceed one percent of the common stock outstanding as of February 27, 2015.

 

(2) Includes shares owned by a trust over which Ms. Hightman maintains investment control and of which one or more of her immediate family members are the sole beneficiaries.

 

(3) Includes shares owned by trusts over which Mr. Skaggs maintains investment control and of which he and his immediate family members are the sole beneficiaries.

 

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Certain of our directors and executive owners own common units representing limited partnership interests of Columbia Pipeline Partners LP (“CPPL”), a master limited partnership that the Company controls and in which the Company has a 46.5% ownership interest through its subsidiary, Columbia Energy Group. The table below shows the number of common units beneficially owned as of February 27, 2015. Beneficial ownership reflects sole voting and sole investment power.

 

Name of Beneficial Owner   

Amount and Nature of
Beneficial Ownership
of CPPL Common

Units(1)

 

Richard A. Abdoo

       

Aristides S. Candris

     3,800   

Sigmund L. Cornelius

     4,400   

Joseph Hamrock

     2,500   

Carrie J. Hightman

     1,200   

Michael E. Jesanis

     2,000   

Glen L. Kettering

     1,300   

Marty R. Kittrell

       

W. Lee Nutter

     25,000   

Deborah S. Parker

       

Robert C. Skaggs, Jr.

     37,500   

Stephen P. Smith

     37,500   

Teresa A. Taylor

     3,000   

Richard L. Thompson

     10,000   

Carolyn Y. Woo

       

All directors and executive officers as a group (18 persons)

     133,200   

 

 

(1) The percentage of common units owned by any director or Named Executive Officer, or all directors and executive officers as a group, does not exceed one percent of the common units outstanding as of February 27, 2015.

 

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EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS (CD&A)

2014 Accomplishments

The Company had another year of significant achievements in 2014 including:

 

   

Another industry leading year in stock price appreciation;

 

   

Delivering total shareholder return of approximately 32%;

 

   

Increasing our annual dividend by approximately 4%;

 

   

Outperforming the major utility indices for the sixth consecutive year; and

 

   

Generating earnings growth in line with our guidance range for the eighth consecutive year.

 

LOGO

Our 2014 performance was once again driven in large part by our continued disciplined execution across all facets of our established infrastructure focused and investment-driven business strategy. Key business accomplishments during 2014 include:

 

   

Initiating our strategic and transformational growth plan, including the creation of CPPL and planned separation of our natural gas pipeline and related business into CPG, Inc., a stand-alone, publicly traded company;

 

   

Being selected to the Dow Jones Sustainability North American Index;

 

   

Completing the second of several electric generation environmental upgrades;

 

   

Originating several transformational, customer-driven growth projects at Columbia Pipeline Group, including placing into service more than $300 million in system expansion projects, adding approximately 1.1 billion cubic feet of system capacity; placing into service nearly $200 million in new midstream projects; and completing approximately $325 million in system modernization projects during the year;

 

   

Continuing our multi-billion dollar system modernization programs across each of our business units;

 

   

Being selected as one of the World’s Most Ethical Companies for the fourth consecutive year;

 

   

Increasing equity market capitalization by approximately $3 billion.

In addition, we continued to strengthen our financial profile, and deliver on our capital investment program of just over $2.2 billion while maintaining an investment grade credit rating, and providing a solid and growing dividend.

The ONC Committee considered these achievements while performing its oversight activities throughout the course of the year.

Executive Compensation Highlights

In connection with its ongoing review of our executive compensation program, the ONC Committee made a number of compensation decisions with respect to 2014 including:

 

   

Approving base salary increases for each of the Named Executive Officers for the reasons explained in the section entitled “2014 Base Salaries;”

 

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Approving an increase in the trigger, target and stretch award opportunities for the annual cash short-term incentive for the Chief Executive Officer for the reasons explained in the section entitled “Annual Performance-Based Cash Incentives;”

 

   

Delivering the 2014 annual long-term equity awards to our Named Executive Officers solely in the form of performance shares that vest upon the achievement of performance goals and continuous employment over the course of the multi-year performance period;

 

   

Further aligning the performance goals for our 2014 annual long-term equity awards with the Company’s strategic operating plan and with the interests of shareholders by removing “funds from operations” as a performance goal under the 2014 annual long-term equity incentive program and substantially increasing the weighting for relative total shareholder return;

 

   

Approving increases in the grant date value of the 2014 annual long-term equity award opportunities for Messrs. Skaggs, Smith, and Hamrock for the reasons explained in the section entitled “LTIP Awards;”

 

   

Awarding Mr. Kettering a special cash bonus of $100,000 and a special grant of time-vested restricted stock units with a grant date fair value of $500,000 in recognition of his role as interim Business Unit CEO;

 

   

Approving discretionary cash bonuses for each of the Named Executive Officers based on their significant contributions to the Company’s success as further explained in the section entitled “Additional Discretionary Lump Sum Payouts to the Named Executive Officers Based on 2014 Performance;”

 

   

Approving a change to our 2014 restricted stock and restricted stock unit awards so that change-in-control vesting is contingent on the occurrence of both a qualifying change-in-control and employment termination; and

 

   

Modifying the Comparative Group (as defined below) to further align the Company with companies that are operationally similar and with which we compete for executive talent.

Overview of Our 2014 Executive Compensation Program

Compensation Practices

Our compensation program is intended to attract, retain and motivate highly qualified executives.

The principal elements of compensation we provide to our executives are: base salary, annual short-term performance-based cash incentives and long-term performance-based equity incentive awards. Taken together these three elements are referred to as “total compensation.”

We generally target total compensation to be competitive with the compensation paid to similarly positioned executives at companies within our peer group of companies (the “Comparative Group”) as described in the section entitled “Our Executive Compensation Process — Competitive Market Review.” We do not, however, manage pay to a certain target percentile of the Comparative Group practices.

We use short and long-term performance-based compensation to motivate our executives to meet and exceed the short and long-term business objectives of the Company.

Historically, we have used 100% performance-based equity compensation for our annual long-term equity incentive awards as a means to align the interests of our executives with those of our stockholders. See the section entitled “Changes to Our Executive Compensation Program in 2015” for an explanation of our use of restricted stock units for our 2015 annual long-term equity awards. We also occasionally use special awards of time-vested restricted stock and restricted stock units to attract and retain executive talent, promote management continuity and reward outstanding performance.

We employ leading governance practices, such as clawback policies and stock ownership guidelines, and we conduct an annual risk assessment of the Company’s compensation practices.

In addition, our executive officers are prohibited from trading in Company securities during quarterly blackout periods and they are also prohibited from engaging in hedging or short sales of the Company’s equity securities.

Finally, when making decisions about our executive compensation program, we take into account the stockholders’ view of such matters. In 2014, 96% of our investors voted in favor of our Say on Pay Proposal at our Annual Meeting. No changes were made to the design of our executive compensation program as a result of the stockholder vote.

 

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Our Executive Compensation Philosophy

The discussion of executive compensation philosophy, program and practices that follows applies to our Company’s Named Executive Officers in 2014. They were: Robert C. Skaggs, Jr., President and CEO, Stephen P. Smith, Executive Vice President and CFO; Glen L. Kettering, Executive Vice President and Group Chief Executive Officer, Columbia Pipeline Group (“CPG”); Carrie J. Hightman, Executive Vice President and Chief Legal Officer; and Joseph Hamrock, Executive Vice President and Group Chief Executive Officer, NiSource Gas Distribution (“NGD”).

The key design priorities of the Company’s executive compensation program are to:

 

   

Maintain a financially responsible program aligned with the Company’s strategic plan to build stockholder value and long-term, sustainable earnings growth;

 

   

Provide a total compensation package that is aligned with the standards in our industry thereby enhancing the Company’s ability to:

 

   

Attract and retain executives with competitive compensation opportunities;

 

   

Motivate and reward for achieving and exceeding our business objectives; and

 

   

Provide substantial portions of pay at risk for failure to achieve our business objectives;

 

   

Align the interests of stockholders and executives by emphasizing stock-denominated compensation opportunities that are contingent on goal achievement; and

 

   

Comply with all applicable laws and regulations.

The ONC Committee believes that the Company’s executive compensation program is thoughtfully and effectively constructed to fulfill our compensation objectives, and rewards decision making that creates value for our stockholders, customers and other key stakeholders.

Principal Elements of Our Compensation Program

We have designed our program to meet our business objectives using various compensation elements intended to drive both short-term and long-term performance.

We believe that total compensation for our Named Executive Officers should be largely performance-based, and the proportion of at-risk, performance-based compensation should increase as the executive’s level of responsibility within the Company increases. The ONC Committee believes the appropriate mix of the elements of compensation should take into account the Company’s business objectives, the competitive environment, Company performance, individual performance and responsibilities and evolving governance practices.

For 2014, the approximate percentage of our Named Executive Officers’ 2014 target total compensation (base salary, the annual performance-based cash incentive payable at the target level and the grant date fair value of the annual long-term performance-based equity incentive award payable at the target level) that was fixed (base salary) was as follows:

 

LOGO

 

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The principal elements of our total compensation package, as more fully described below, help us achieve the objectives of our compensation program as follows:

 

               Time Horizon          

Element of Total Compensation

   Form of
Compensation
   Attraction    Short-
Term
        Long-
Term
   Alignment with
Stockholder Interest
   Retention

Base Salary

   Cash    ü                 ü

Annual Performance-Based

Cash Incentive

   Cash    ü    ü           ü    ü

Long-Term Performance-Based

Equity Incentive

   Performance
Shares
   ü           ü    ü    ü

Base Salary.    Base salary is designed to provide our employees with a level of fixed pay that is commensurate with role and responsibility. We believe that by delivering base salaries that are reflective of market norms, the Company is well-positioned to attract, retain and motivate top caliber executives in an increasingly competitive labor environment. The ONC Committee annually reviews the base salaries of the Company’s senior executives, including the Named Executive Officers, to ensure they are competitive within our industry. In so doing, the ONC Committee considers the base salaries paid to similarly situated executives by the companies in the Comparative Group. See the section entitled “Our Executive Compensation Process — Competitive Market Review” listing the companies in our Comparative Group. The ONC Committee determines any base salary changes for the Company’s senior executives based on a combination of factors that includes competitive pay standards, level of responsibility, experience, internal equity considerations, historical compensation, and individual performance and contribution to business objectives, as well as recommendations from the CEO. The CEO is evaluated separately, taking into account those factors reviewed for all other senior executives, as well as the Corporate Governance Committee’s evaluation of the CEO’s performance. See the section below entitled “ONC Committee Actions Related to 2014 Compensation” for more information.

Annual Performance-Based Cash Incentive Plan (“Incentive Plan”).    This component of total compensation provides employees with the opportunity to earn a cash award tied to both the annual performance of the Company and individual contribution to the organization’s success. Annual cash incentives are authorized by the Omnibus Plan which was previously approved by stockholders in May 2010. The performance goals for the Incentive Plan are based on the financial plan approved by the Board at the beginning of the year. The financial plan is designed to achieve the Company’s aim of creating sustainable stockholder value by growing earnings, effectively managing the Company’s cash and providing a strong dividend.

Eligibility for participation in the Incentive Plan extends to nearly all Company employees. Every eligible employee has an incentive opportunity at trigger, target and stretch levels of performance and the ONC Committee identifies expectations for all senior executives, including the Named Executive Officers. See the section below entitled “ONC Committee Actions Related to 2014 Compensation” for more information regarding the 2014 Incentive Plan, including incentive opportunities, performance measures, goals and payouts for each of the Named Executive Officers.

Long-Term Equity Incentive Plan (“LTIP”).    Our compensation program also includes a long-term equity incentive component. The ONC Committee believes it important that each executive, in particular each of our senior executives, has personal financial exposure to the performance of the Company’s stock and, therefore, is aligned with the financial interests of stockholders. The ONC Committee also believes that long-term equity incentives promote decision making that is consistent with the Company’s long-range operating goals.

To ensure that our executives’ interests are aligned with those of our stockholders and the Company’s long-term business objectives, the ONC Committee determined that the annual long-term equity incentive awards should be delivered solely in performance shares. Performance shares provide the opportunity to earn shares of the Company’s common stock contingent on the achievement of multi-year performance goals that we believe drive stockholder value. The number of performance shares that can be earned ranges from 50% of target when performance reaches the trigger level to 200% of target when performance reaches the maximum creditable level of results.

When establishing award opportunity levels for each Named Executive Officer, the ONC Committee considers, among other things, the executive’s base salary, the appropriate mix of cash and equity award opportunities,

 

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prior awards under the LTIP and the compensation practices for similarly situated executives at other companies in our Comparative Group. The actual value of each performance-based award, if any, depends on Company performance against pre-established performance measures as well as stock price at the time the award is paid out.

The ONC Committee may also approve special equity awards that are not performance-based to attract and retain executive talent or to recognize significant contributions. See the section below entitled “ONC Committee Actions Related to 2014 Compensation” for more information regarding the 2014 LTIP awards for each of the Named Executive Officers, including the performance measures and goals and vesting requirements for the 2014 performance share awards, Mr. Kettering’s special time-vested equity award in recognition of his role as interim Chief Executive Officer of CPG, and the performance results and payout amounts for the 2012 performance share awards.

Other Compensation and Benefits

We also provide other forms of compensation to our executives, including the Named Executive Officers, consisting of a limited number of perquisites, severance and change-in-control arrangements and a number of other employee benefits that generally are extended to our entire employee population. These other forms of compensation are generally comparable to those that are provided to similarly situated executives at other companies of our size.

Perquisites.    Perquisites are not a principal element of our executive compensation program. They are intended to assist executive officers in the performance of their duties on behalf of the Company or otherwise to provide benefits that have a combined personal and business purpose. The Company does not reimburse the Named Executive Officers for the payment of personal income taxes incurred by the executives in connection with their receipt of these benefits. For more information on these perquisites, see the Summary Compensation Table and footnote 6 to that table.

Severance and Change-In-Control Benefits.    We maintain an executive severance policy, Change-in-Control Agreements with each of the Named Executive Officers and a letter agreement with Mr. Smith regarding payments to be made in the event of termination of his employment.

Change-in-Control Agreements are intended to ensure that thoroughly objective judgments are made in relation to any potential change in corporate ownership so that stockholder value is appropriately safeguarded and returns to investors are maximized. The Change-in-Control Agreements provide for cash severance benefits upon a double trigger (meaning there must be both a qualifying change-in-control and termination of employment) and do not provide for any “gross-up” payments to executives for excise taxes incurred with respect to benefits received under a Change-in-Control Agreement.

For further discussion of these agreements, see the “Potential Payments upon Termination of Employment or a Change-in-Control of the Company” table and the accompanying narrative.

Pension Programs.    During 2014, we maintained a tax-qualified defined benefit pension plan for essentially all salaried exempt employees hired before January 1, 2010, all non-exempt employees (both non-union and certain union employees) hired before January 1, 2013, as well as for other union employees, regardless of hire date, and a non-qualified defined benefit pension plan (the “Pension Restoration Plan”) for all eligible employees with annual compensation or pension benefits in excess of the limits imposed by the Internal Revenue Service (“IRS”), including the Named Executive Officers. The Pension Restoration Plan provides for a pension benefit under the same formula provided under the tax-qualified plan but without regard to the IRS limits, reduced by amounts paid under the tax-qualified plan. The material terms of the pension programs are described in the narrative to the Pension Benefits table.

Savings Programs.    Our Named Executive Officers are eligible to participate in the same tax-qualified 401(k) Plan as most employees and in a non-qualified defined contribution plan (the “Savings Restoration Plan”) maintained for eligible executive employees. The 401(k) Plan includes a Company match that varies depending on the pension plan in which the employee participates and a Company profit sharing contribution for most employees of between 0.5% and 1.5% of the employee’s eligible earnings based on the overall corporate net operating earnings per share measure. In addition, for salaried employees hired after January 1, 2010 and non-

 

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union hourly employees hired after January 1, 2013, the 401(k) Plan includes a 3% Company contribution to the employee accounts. The Savings Restoration Plan provides for Company contributions in excess of IRS limits under the 401(k) Plan for eligible employees, including the Named Executive Officers. The material terms of the Savings Restoration Plan are described in the narrative to the Non-qualified Deferred Compensation table.

Deferred Compensation Plan.    We also maintain the Executive Deferred Compensation Plan (the “Deferred Compensation Plan”) through which eligible Company executives, including the Named Executive Officers, may elect to defer between 5% and 80% of their base salary and annual cash incentive payout. The Company makes the Deferred Compensation Plan available to eligible executives so they have the opportunity to defer their cash compensation without regard to the limits imposed by the IRS for amounts that may be deferred under the 401(k) Plan. The material terms of the Deferred Compensation Plan are described in the narrative to the Non-qualified Deferred Compensation table.

Health and Welfare Benefits.    We also provide other broad-based benefits such as medical, dental, life insurance and long-term disability coverage on the same terms and conditions to all employees, including the Named Executive Officers. We believe that these broad-based benefits enhance the Company’s reputation as an employer of choice and thereby serve the objectives of our compensation program to attract, retain and motivate our employees.

Our Executive Compensation Process

The ONC Committee is responsible for determining salaries, performance-based incentives and other matters related to the compensation of our executives and for overseeing the administration of our equity plans, including equity award grants to our executive officers. The ONC Committee takes into account various factors when making compensation decisions, including:

 

   

Attainment of established business and financial goals of the Company;

 

   

Competitiveness of the Company’s compensation program based upon competitive market data; and

 

   

An executive’s position, level of responsibility and performance, as measured by the individual’s contribution to the Company’s achievement of its business objectives.

The ONC Committee reviews the compensation of our CEO and his executive direct reports each year. In determining the compensation of the CEO and his executive direct reports, the Committee takes into consideration the Corporate Governance Committee’s evaluation of the CEO’s performance and the CEO’s recommendation with respect to his executive direct reports. When considering changes in compensation for the Named Executive Officers, the ONC Committee also considers input from the Senior Vice President, Human Resources and the ONC Committee’s independent executive compensation consultant, Exequity LLP.

Competitive Market Review.    In connection with its compensation decision making, the ONC Committee reviews the executive compensation practices in effect at other companies in the Comparative Group. These companies comprise leading gas, electric, combination utility and natural gas transmission companies that have been selected by the ONC Committee for their operational comparability to the Company and because we generally compete with these companies for the same executive talent. For 2014, the ONC Committee, with input from Exequity LLP, removed PG&E Corporation, PNM Resources Inc. and Southern Company from the Comparative Group and added Spectra Energy. These changes were made to further align the Company with its peer companies with respect to revenue size, market capitalization and operational similarity. For purposes of considering 2014 compensation decisions, the Comparative Group included the following companies:

 

AGL Resources Inc.    Pepco Holdings, Inc.
Ameren Corporation    PPL Corporation
American Electric Power Company, Inc.    Public Service Enterprise Group Incorporated
CenterPoint Energy, Inc.    Questar Corporation
CMS Energy Corporation    SCANA Corporation
Dominion Resources, Inc.    Sempra Energy
DTE Energy Company    Spectra Energy Corp.
EQT Corporation    WGL Holdings, Inc.
FirstEnergy Corp.    The Williams Companies, Inc.

 

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Policies and Guidelines.    We maintain various guidelines and policies to help us meet our compensation objectives including:

 

   

Executive Stock Ownership and Retention Guidelines.    Senior executives, including the Named Executive Officers, are generally expected to satisfy their applicable ownership guidelines within five years of becoming subject to the guidelines. The stock ownership guideline for the CEO is five times his annual base salary. The other senior executives have a stock ownership guideline of three times their respective annual base salaries. Once the senior executive satisfies the guidelines, he/she must continue to own a sufficient number of shares to remain in compliance with the guidelines. Until such time as the senior executives satisfy the stock ownership guidelines, they are required to hold at least 50% of the shares of common stock received upon the lapse of the restrictions on restricted stock units and the vesting of performance shares. At the end of 2014, each of the Named Executive Officers exceeded their ownership guidelines with the exception of Mr. Hamrock who has an additional two years to satisfy his ownership guideline.

 

   

Trading Windows/Trading Plans/Hedging.    We restrict the ability of certain employees to freely trade in the Company’s common stock because of their periodic access to material non-public information regarding the Company. Under our insider trading policy, our key executives are prohibited from trading in Company securities during quarterly blackout periods. In addition, under our Securities Transaction Compliance Policy for Certain Employees and our Securities Transaction Compliance Policy for Directors and Executive Officers, all directors and all senior executives, including our Named Executive Officers, are prohibited from engaging in short sales of the Company’s equity securities or in buying or selling puts, calls or other options on the Company’s securities or otherwise hedging against or speculating in the potential changes in the value of the Company’s common stock. None of our directors or officers owns Company securities that are pledged.

 

   

Compensation Recovery for Misconduct.    While we believe our executives conduct business with the highest integrity and in full compliance with our Code of Business Conduct, the ONC Committee believes it is appropriate to ensure that the Company’s compensation plans and agreements provide for financial penalties to an executive who engages in certain fraudulent or other inappropriate conduct. Consequently, our Incentive Plan, the Omnibus Plan and its predecessor, the 1994 Long-Term Incentive Plan, contain “clawback” provisions that require reimbursement of amounts received under the plans in the event of certain acts of misconduct with respect to both the annual short-term cash incentive and long-term equity awards.

Tax Treatment of Executive Compensation.    Section 162(m) provides that annual compensation in excess of $1,000,000 paid to the CEO or certain of the other Named Executive Officers, other than compensation meeting the definition of “performance-based compensation,” will not be deductible by a corporation for federal income tax purposes. In January 2014, the ONC Committee established a threshold performance target based on the Company’s operating income in order to qualify certain compensation as performance based for purposes of Section 162(m). The ONC Committee reviews the deductibility of compensation under Section 162(m) and related regulations published by the IRS. The ONC Committee retains the discretion to amend any compensation arrangement to comply with Section 162(m)’s requirements for deductibility in accordance with the terms of such arrangements and what it believes is in the best interest of the Company.

The ONC Committee considers the anticipated tax treatment to the Company when determining executive compensation and routinely seeks to structure its executive compensation program in a way that preserves the deductibility of compensation payments and benefits. It should be noted, however, that there are many factors which are considered by the ONC Committee in determining executive compensation and, similarly, there are many factors which may affect the deductibility of executive compensation. To maintain the flexibility to compensate the Named Executive Officers in a manner designed to promote varying corporate goals, the ONC Committee has not adopted a policy that all executive compensation must be deductible under Section 162(m).

In addition, Sections 280G and 4999 of the Internal Revenue Code (the “Code”) impose excise taxes on Named Executive Officers, directors who own significant stockholder interests in the Company and other service providers who receive payments in excess of a threshold level upon a change-in-control. Although the Company does not provide any gross up payments to reimburse officers, directors or others for any such taxes, the

 

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Company or its successor could lose a deduction for amounts subject to the additional tax. As discussed under “Potential Payments upon Termination of Employment or a Change-in-Control of the Company” below, it is possible that payments to the Named Executive Officers could be subject to these taxes.

Finally, Section 409A of the Code imposes additional taxes on Named Executive Officers, directors and other service providers who defer compensation in a manner that does not comply with Section 409A. The Company has reviewed its compensation arrangements for compliance with applicable Section 409A requirements.

ONC Committee Actions Related to 2014 Compensation

During 2014, the ONC Committee reviewed and, as appropriate, took action with respect to each element of total compensation for each Named Executive Officer following the principles, practices and processes described above. In doing so, the ONC Committee concluded that the total compensation provided for each of the Company’s senior executives in 2014, including the Named Executive Officers, was consistent with the Company’s compensation philosophy and was reasonable, competitive and appropriate.

The ONC Committee’s compensation determinations, though subjective in part, were based primarily upon recognition of the performance of each Named Executive Officer, and a determination that the total compensation awarded to each Named Executive Officer provided well-balanced incentives to focus on serving the interests of the Company and its stockholders.

In addition, the ONC Committee considered the stockholders’ advisory approval of the 2013 compensation of our Named Executive Officers at the 2014 Annual Meeting and determined that no changes were necessary or advisable in connection with the design of our senior executive compensation program as a result of the stockholders’ vote.

2014 Base Salaries.    Historically, base salaries of senior executives, including the Named Executive Officers, have been adjusted when deemed necessary to maintain competitiveness and reflect performance. During 2014, the Committee reviewed the base salaries of the Company’s senior executives, including the Named Executive Officers, and approved salary increases for each of the Named Executive Officers.

In so doing, the Committee considered the base salaries earned by similarly situated executives of companies in the Comparative Group, increased responsibilities, experience, internal pay equity, historical compensation practices, individual performance and contribution to achievement of business objectives. In particular, the ONC Committee noted the strong performance of each of the Named Executive Officers, Mr. Kettering’s increased responsibilities as Executive Vice President and Group CEO of CPG and the fact that, with the exception of Mr. Hamrock, there had been no salary increases for the Named Executive Officers since 2012.

The 2014 base salary adjustments for each Named Executive Officer are shown in the table below.

 

Name   2013
Annual Salary
    2014
Annual Salary
 

Robert C. Skaggs, Jr.

  $ 900,000      $ 980,000   

Stephen P. Smith

  $ 575,000      $ 600,000   

Glen L. Kettering

  $ 340,000      $ 500,000   

Carrie J. Hightman

  $ 475,000      $ 490,000   

Joseph Hamrock

  $ 470,000      $ 500,000   

Annual Performance-Based Cash Incentives.    In January 2014, the ONC Committee established performance measures to determine the 2014 incentive payouts to the Named Executive Officers. In determining incentive compensation ranges for the Named Executive Officers, the ONC Committee considered competitive information from the Comparative Group, input from the independent compensation consultant, historical payouts and individual performance and determined that the cash-based incentive compensation range for Mr. Skaggs should be increased to a target of 125% from 100%. Mr. Skaggs’ trigger and stretch amounts were increased to 50% and 200% respectively from 40% and 160% after considering his strong leadership and an evaluation of the competitive market data, including a recognition that Mr. Skaggs’ target cash compensation remained below the market median. The trigger, target and stretch levels were unchanged from the prior year for

 

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the other Named Executive Officers. For more information on the 2014 payout amounts for each of the Named Executive Officers, see the section below entitled “2014 Incentive Plan Payouts to the Named Executive Officers.”

The 2014 Incentive Plan awards for senior executives, including all of the Named Executive Officers, were subject to achievement with respect to two corporate financial goals, net operating earnings per share and corporate funds from operations, as well as an additional operational measure relating to safety. The ONC Committee approved these measures because they were deemed to be important to the Company’s success in increasing stockholder value.

Earnings, cash flow and safety were measured as follows:

 

   

The measure of earnings was net operating earnings per share (after accounting for the cost of any incentive payout). Net operating earnings was defined as income from continuing operations determined in accordance with Generally Accepted Accounting Principles (“GAAP”), adjusted for certain items, such as weather, gains and losses on the sale of assets, certain out-of-period items and reserve adjustments. The ONC Committee uses net operating earnings, a non-GAAP financial measure, for determining financial performance for incentive compensation plans because the Board and management believe this measure better represents the fundamental earnings strength and performance of the Company. The Company uses net operating earnings internally for budgeting and for reporting to the Board.

 

   

The cash flow measure, corporate funds from operations, was calculated by taking net income from operations and adding back non-cash items such as depreciation. The ONC Committee uses corporate funds from operations as an Incentive Plan measure because the ONC Committee and management believe this measure fairly represents the amount of cash produced by the Company’s operations.

 

   

Safety was measured by the number of employee work days missed or restricted or the number of days an employee was transferred, known as the DART metric, which was developed by the Occupational Safety and Health Administration. Each business unit of the Company had its own safety goal. The safety goal for corporate staff was based upon the respective business unit goals, weighted by employee hours for each business unit.

The incentive opportunities for the senior executives, including the Named Executive Officers, were contingent on achievement of goals relating to these measures, subject to final discretionary adjustment by the ONC Committee.

The 2014 Incentive Plan awards for the leaders of our business units also are subject to achievement with respect to business unit net operating earnings and funds from operations goals for each of the business units. The ONC Committee believes the inclusion of business unit goals in the annual Incentive Plan improves the line of sight between employees and the incentive measures, thereby enhancing Company performance. The ONC Committee extended to Mr. Skaggs the authority to establish the annual business unit targets for the year. He assigned goals that, if accomplished, were expected to ensure the Company’s attainment of its overall corporate objectives.

Consequently, the incentive opportunities for Messrs. Kettering and Hamrock were subject to achievement with respect to the corporate financial measures (net operating earnings per share and corporate funds from operations), and achievement with respect to performance measures tied to the business unit net operating earnings (net of interest expense and income taxes) and business unit funds from operations and business unit safety measures for which they have responsibility. As such, each of their measures is weighted differently than the other Named Executive Officers who are members of the corporate service group, as shown in the tables below.

 

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The applicable performance measures and their associated weightings and results as a percentage of the target incentive opportunity for Messrs. Skaggs and Smith, and Ms. Hightman were:

 

Corporate  Measures(1)   Weight   Trigger   Target   Stretch   Result   Robert C. Skaggs,  Jr.   Stephen P. Smith   Carrie J.  Hightman
           

Formulaic

Amounts(2)

 

Formulaic

Amounts(2)

 

Formulaic

Amounts(2)

           

Payout

as a %

of

Target

 

Weighted

Adjusted

Payout

as a %

of

Target

 

Payout
as a %

of

Target

 

Weighted

Adjusted
Payout
as a %
of

Target

 

Payout
as a %

of

Target

 

Weighted

Adjusted

Payout
as a %

of

Target

NiSource Net Operating Earnings Per Share

  50%   $1.61   $1.66   $1.71   $1.72   160%   80%   157.14%   78.57%   158.33%   79.17%

NiSource Funds from Operations

  40%   $1,205M   $1,355M   $1,505M   $1,456M(3)   140.40%   56.16%   138.48%   55.39%   139.28%   55.71%

Safety

  10%   .79 days   .71 days     .76 days   37.50%   3.75%   37.50%   3.75%   37.50%   3.75%

 

 

(1) When the result for a particular measure lands between two goals (for example, between the target and stretch goal), the incentive opportunity is determined by interpolation and is expressed as a percentage of the target incentive opportunity. Interpolation for the safety goal only applies between trigger and target. Consequently, target is the maximum available level for the safety goal.

 

(2) These amounts reflect a percentage of each executive’s target incentive opportunity. The trigger, target and stretch incentive opportunities for each of the Named Executive Officers are provided in the section entitled “2014 Incentive Plan Payouts to the Named Executive Officers.”

 

(3) This includes an upward adjustment to Funds from Operations of $92.4 million taking into consideration the impact of non-recurring items, such as incremental pension expense subsidized by the Company and changes in accounting.

The applicable performance measures and their associated weightings and results as a percentage of the target incentive opportunity for Mr. Kettering were:

 

Corporate Measures(1)   Weight   Trigger   Target   Stretch   Result   Formulaic
Payout as a
% of Target(2)
 

Weighted

Adjusted

Formulaic
Payout as a %
of  Target(2)

NiSource Net Operating Earnings Per Share

  25%   $1.61   $1.66   $1.71   $1.72   158.33%   39.58%

NiSource Funds from Operations

  20%   $1,205M   $1,355M   $1,505M   $1,456M(3)   139.28%   27.86%

CPG Safety

  10%   .25 days   .19 days     .09 days   100.00%   10.00%

CPG Net Operating Earnings

  22.50%   $264M   $269M   $279M   $274M(4)   129.17%   29.06%

CPG Funds from Operations

  22.50%   $397M   $440M   $483M   $527M(5)   158.33%   35.63%

 

 

(1) When the result for a particular measure lands between two goals (for example, between the target and stretch goal), the incentive opportunity is determined by interpolation and is expressed as a percentage of the target opportunity. Interpolation for the safety goal only applies between trigger and target. Consequently, target is the maximum available level for the safety goal.

 

(2) These amounts reflect a percentage of Mr. Kettering’s target incentive opportunity. The trigger, target and stretch incentive opportunities for Mr. Kettering are provided in the section entitled “2014 Incentive Plan Payouts to the Named Executive Officers.”

 

(3) This includes an upward adjustment to Funds from Operations for NiSource of $92.4 million taking into consideration the impact of non-recurring items, such as incremental pension expense subsidized by the Company and changes in accounting.

 

(4) This includes an upward adjustment to Net Operating Earnings for CPG of $9.8 million taking into consideration the impact of changes in tax law, and the impact of non-recurring items such as incremental pension expense subsidized by the Company and other changes in accounting.

 

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(5) This includes an upward adjustment to Funds from Operations for CPG of $38.6 million taking into consideration the impact of non-recurring items, such as incremental pension expense subsidized by the Company and changes in accounting.

The applicable performance measures and their associated weightings and results as a percentage of the target incentive opportunity for Mr. Hamrock were:

 

Corporate Measures(1)   Weight   Trigger   Target   Stretch   Result   Formulaic
Payout as a
% of Target(2)
 

Weighted

Adjusted

Formulaic
Payout as a %
of  Target(2)

NiSource Net Operating Earnings Per Share

  25%   $1.61   $1.66   $1.71   $1.72   161.54%   40.38%

NiSource Funds from Operations

  20%   $1,205M   $1,355M   $1,505M   $1,456M(3)   141.44%   28.29%

NGD Safety

  10%   .91 days   .82 days     1.03 days   0.00%   0.00%

NGD Net Operating Earnings

  22.50%   $214M   $220M   $231M   $216M(4)   58.97%   13.27%

NGD Funds from Operations

  22.50%   $287M   $397M   $507M   $444M(5)   126.29%   28.42%

 

 

(1) When the result for a particular measure lands between two goals (for example, between the target and stretch goal), the incentive opportunity is determined by interpolation and is expressed as a percentage of the target opportunity. Interpolation for the safety goal only applies between trigger and target. Consequently, target is the maximum available level for the safety goal.

 

(2) These amounts reflect a percentage of Mr. Hamrock’s target incentive opportunity. The trigger, target and stretch incentive opportunities for Mr. Hamrock are provided in the section entitled “2014 Incentive Plan Payouts to the Named Executive Officers.”

 

(3) This includes an upward adjustment to Funds from Operations for NiSource of $92.4 million taking into consideration the impact of non-recurring items, such as incremental pension expense subsidized by the Company and changes in accounting.

 

(4) This includes an upward adjustment to Net Operating Earnings for NGD of $2.3 million taking into consideration the impact of changes in accounting.

 

(5) This includes a downward adjustment to Funds from Operations for NGD of $34.1 million taking into consideration the impact of changes in tax law.

2014 Incentive Plan Payouts to the Named Executive Officers.    For 2014, the annual incentive opportunities and actual payout amounts for each of the Named Executive Officers as approved by the ONC Committee were:

 

Named Executive Officer  

Trigger

(% of Salary)

   

Target

(% of Salary)

   

Stretch

(% of Salary)

   

2014 Award

(% of Target)

    2014
Award(1)
 

Robert C. Skaggs, Jr.

    50     125     200     140   $ 1,715,000   

Stephen P. Smith

    30     70     110     138   $ 579,600   

Glen L. Kettering

    25     60     95     142   $ 426,000   

Carrie J. Hightman

    25     60     95     139   $ 408,660   

Joseph Hamrock

    25     65     105     110   $ 357,500   

 

 

(1) The 2014 Awards for each of the Named Executive Officers were calculated as follows: annual base salary multiplied by his/her Target (% of Salary) multiplied by the applicable 2014 Award (% of Target).

In January 2015, the ONC Committee certified the performance results set forth in the tables above. The ONC Committee determined it was appropriate to approve an Incentive Plan payout of $1,715,000 to Mr. Skaggs based on the Company’s above-target performance relative to the net operating earnings per share financial metric and funds from operations financial metric as well as his continued strong leadership in 2014. Mr. Skaggs also

 

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made recommendations to the ONC Committee with respect to the award of Incentive Plan payouts to the other senior executives, including the other Named Executive Officers. In making his recommendations, Mr. Skaggs considered the Company’s performance and the performance of the senior executives in delivering strong stockholder returns again in 2014, as well as the performances of the business unit and corporate functions the executives led. The ONC Committee considered and accepted Mr. Skaggs’ recommendations and approved Incentive Plan payouts to the Named Executive Officers in accordance with the Incentive Plan formula, as set forth in the table above.

2014 Discretionary Lump Sum Payout to Mr. Kettering.    In January 2014, the ONC Committee awarded Mr. Kettering a special one-time cash bonus award of $100,000 in recognition of his role as interim CEO of the CPG. The bonus amount is set forth in the Bonus column of the Summary Compensation Table because it was not based on performance relative solely to the pre-established performance criteria under the Incentive Plan.

Additional Discretionary Lump Sum Payouts to the Named Executive Officers Based on 2014 Performance.    In January 2015, the ONC Committee exercised its discretion to award bonuses to each of the Named Executive Officers in addition to amounts based on performance relative to pre-established performance criteria described above under the section entitled “Incentive Plan.” The ONC Committee approved a discretionary bonus of $1,785,000 for Mr. Skaggs based on the Company’s consistently superior performance over the last several years under his stewardship, including 207% cumulative total shareholder return over the past five years and Mr. Skaggs’ strategic leadership in developing and executing on the decision to create CPPL and to separate the Company’s natural gas pipeline and related businesses into a stand-alone publicly traded company.

In addition, the ONC Committee approved discretionary bonuses of $750,000 for Mr. Smith, and $500,000 for Mr. Kettering based on their significant contributions to the development and execution of the decision to create CPPL and to separate the Company’s natural gas pipeline and related businesses into a stand-alone publicly traded company. In particular, the ONC Committee considered Mr. Smith’s and Mr. Kettering’s key roles in developing and executing on the formation of CPPL and the Separation, including strategic and financial analysis, transition analysis and preparation. The ONC Committee also approved discretionary bonuses of $400,000 and $300,000 for Mr. Hamrock and Ms. Hightman, respectively, based on their contributions to the preparation for the Separation. In particular the ONC Committee considered Mr. Hamrock’s strategic leadership in developing a post-separation organization for our Company and Ms. Hightman’s performance in executing on the preparation for the Separation, as well as the creation of CPPL and its initial public offering.

The amounts of these discretionary bonuses are set forth in the Bonus column of the Summary Compensation Table because they are in addition to the amounts based on performance relative to the pre-established performance criteria under the Incentive Plan, described above, which are set forth in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table.

LTIP Awards.

2014 Performance Share Awards.    In January 2014, the ONC Committee approved a grant of performance shares to senior executives of the Company, including each of the Named Executive Officers. In determining the 2014 long-term incentive grant values to be awarded to the Named Executive Officers, the ONC Committee considered the competitive pay practices at companies within our Comparative Group, input from the ONC Committee’s independent compensation consultant, the historical mix of fixed compensation versus variable incentive compensation and individual performance. In particular, the ONC Committee considered the continued strong leadership of Messrs. Skaggs and Smith and the increased leadership experience of Mr. Hamrock, in addition to the appropriateness of market adjustments for Messrs. Skaggs and Hamrock based on Comparative Group information. The ONC Committee approved an increase for 2014 grant values for Messrs. Skaggs, Smith and Hamrock that were approximately 25%, 8%, and 17% greater than their prior year’s award values, respectively.

Vesting of the 2014 grant of performance shares is dependent on the Company meeting certain performance measures over a three-year performance period and the executive’s continued employment through January 28, 2017. Special vesting rules apply in the event of death, “Retirement,” “Disability” or a “Change-in-Control” (each as defined in the Omnibus Plan). Termination for any other reason will result in forfeiture of all performance shares.

The performance measures on which vesting of 2014 performance shares is contingent relate to cumulative net operating earnings per share over the three-year period from January 1, 2014 through December 31, 2016,

 

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and Relative Total Shareholder Return (“RTSR”). The ONC Committee approved the application of these measures for the 2014-2016 performance cycle because they were deemed to be important to the Company’s success in increasing stockholder value. The ONC Committee determined it appropriate to eliminate funds from operations as a performance measure for the 2014 performance share awards in order to further align the 2014 performance shares with the Company’s strategic operating plan.

For the 2014 awards, we defined RTSR as the annualized growth in the dividends and share price of a share of the Company’s common stock, calculated using a 20-day trading average of the closing price of the Company’s common stock, over a period beginning December 31, 2013 and ending on December 31, 2016 compared to the similarly calculated total shareholder return performance of a peer group of energy companies, pre-determined by the ONC Committee. The peer group of companies selected by the ONC Committee for the purpose of determining RTSR is broader than the Comparative Group utilized by the ONC Committee in its compensation decision-making. The 36 energy companies, including 15 companies from the Comparative Group, were selected by the ONC Committee because each of the companies is similarly affected by external factors that impact stock price such as interest rates and industry opportunities and challenges.

If the pre-established performance goals and service condition are met at target performance levels, award recipients will earn 100% of the target number of performance shares awarded. The ONC Committee also approved trigger and stretch goals for each measure for each executive. If the trigger level is not met, then the executive will not receive any portion of the grant. If the target level is exceeded, the executive could receive up to a maximum of 200% of the target value of the grant unless total shareholder return is negative for the performance period, in which case, the maximum payout for RTSR would be at target regardless of performance relative to the peer group. When the result of net operating earnings per share and RTSR above the 50th percentile lands between two goals (for example, between the target and stretch goal), then the long-term incentive payout is determined by linear interpolation and is expressed as a percentage of the target opportunity. There is no interpolation between goals below the 50th percentile for the RTSR metric.

The measures and goals pertaining to the 2014 performance share awards are:

 

Performance Measure   Weight  

Trigger

(50% Award)

 

Target

(100% Award)

 

Stretch

(200% Award)

Cumulative Net Operating Earnings Per Share for 2014-2016

  50%   $5.11   $5.26   ³$5.63

Relative Total Shareholder Return as of December 31, 2016

  50%   40-49th

Percentile

  50th

Percentile

  100th

Percentile

The ONC Committee authorized 2014 performance share awards to the Named Executive Officers in the following amounts:

 

Named Executive Officer    Target Number of  Performance Shares Awarded

Robert C. Skaggs, Jr.

   109,457

Stephen P. Smith

   39,405

Glen L. Kettering

   14,594

Carrie J. Hightman

   21,891

Joseph Hamrock

   20,432

Consistent with the philosophy and principles articulated above, the ONC Committee believes that the 2014 performance share awards:

 

   

Align the interests of executives with the Company’s stockholders as the ultimate value of the award is dependent upon the value of the Company’s stock;

 

   

Support the Company’s philosophy of paying for performance as the performance shares will not vest unless the Company achieves its performance goals over the measurement period; and

 

   

Provide competitive compensation to recruit and retain executive talent by including a long-term incentive component with a three-year service condition.

 

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Special 2014 Restricted Stock Unit Award for Mr. Kettering.    In January 2014, the ONC Committee granted Mr. Kettering a special award of 14,594 restricted stock units in recognition of his role as interim CEO of CPG. All of these restricted stock units vest three years from the date of grant. The grant date fair value of this restricted stock unit award is included in the Stock Awards column of the Summary Compensation Table.

2012 Performance Share Awards.    In 2012, the ONC Committee awarded a grant of performance shares to each of the Named Executive Officers. Vesting of the 2012 grant of performance shares was dependent upon the Company meeting certain performance measures over the three-year period from 2012 through 2014 and the executive’s continued employment through January 30, 2015. The performance measures related to cumulative net operating earnings per share and cumulative funds from operations over the three-year period and RTSR beginning December 31, 2011 through December 31, 2014. The peer group of companies selected by the ONC Committee for the purpose of determining RTSR for the 2012 awards was comprised of 36 energy companies including ten companies from the Comparative Group that the ONC Committee looked to for purposes of 2012 compensation decision making. Based on the Company’s performance as certified by the ONC Committee in January 2015, 183% of the performance share awards vested as described below.

The performance measures, their weightings and results, as certified by the ONC Committee, were:

 

Performance Measure(1)   Weight  

Trigger

(50% Award)

 

Target

(100% Award)

 

Stretch

(200% Award)

 

Actual

Results

Cumulative Net Operating Earnings Per Share for 2012-2014

  40%   $4.41   $4.56   ³$4.88   $4.76

Cumulative Funds from Operations for 2012-2014

  40%   $3,002M   $3,302M   ³$3,902M   $3,964M

Relative Total Shareholder Return as of December 31, 2014

  20%   40-49th

Percentile

  50th

Percentile

  100th

Percentile

  95th

Percentile

 

 

(1) When the result for a particular measure lands between two goals (for example, between the target and stretch goal), then the long-term incentive award opportunity is determined by interpolation and is expressed as a percentage of the target opportunity.

Thereafter, each Named Executive Officer fully vested in the performance shares, payable one-for-one in shares of the Company’s common stock, as set forth in the table below:

 

Named Executive Officer    2012 Performance  Shares

Robert C. Skaggs, Jr.

   234,917

Stephen P. Smith

   97,881

Glen L. Kettering

   39,153

Carrie J. Hightman

   58,728

Joseph Hamrock

   43,710

Changes to Our Executive Compensation Program in 2015

In January 2015, the ONC Committee determined that the 2015 annual long-term incentive awards to all Company executives, including the Named Executive Officers, should be in the form of service-based restricted stock units instead of performance-based shares in anticipation of the Separation. These restricted stock units do not vest until February 2, 2018, at which time they will vest in full subject to the award recipient’s continued service through the vesting date.

Additionally, the ONC Committee intends to exercise its discretion to make adjustments to the performance conditions and performance periods for outstanding performance share awards in order to preserve the value of such awards for Company executives, contingent upon the occurrence of the Separation. The same service vesting conditions as the original awards would continue. The ONC Committee also intends to make adjustments to the performance conditions and performance period for the 2015 annual performance-based cash incentive awards under the Incentive Plan, contingent upon the occurrence of the Separation.

 

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The Named Executive Officers who are expected to become executive officers of CPG, Inc. at Separation are Messrs. Skaggs, Smith and Kettering. At such time, CPG, Inc. will become a separate publicly traded company, and each of these Named Executive Officers will cease to be employees of the Company. The unvested awards held by each of the Named Executive Officers who become executive officers of CPG, Inc. will be cancelled by the Company and we anticipate that CPG, Inc. will provide awards of equivalent value in lieu of such awards. Their separation from employment will not constitute a “Change-in-Control” for purposes of the Change-in-Control Agreements or a termination of employment for purposes of the Executive Severance Policy.

OFFICER NOMINATION AND COMPENSATION COMMITTEE REPORT

The Officer Nomination and Compensation Committee of the Board of Directors (the “ONC Committee”) has furnished the following report to the stockholders of the Company in accordance with rules adopted by the Securities and Exchange Commission.

The ONC Committee states that it reviewed and discussed with management the Company’s Compensation Discussion and Analysis contained in this Proxy Statement.

Based upon the review and discussions referred to above, the ONC Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

This report is submitted on behalf of the members of the ONC Committee:

Officer Nomination and Compensation Committee

Teresa A. Taylor, Chair

Richard A. Abdoo

Sigmund L. Cornelius

Michael E. Jesanis

W. Lee Nutter

Carolyn Y. Woo

March 2, 2015

 

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ASSESSMENT OF RISK

The Company annually assesses whether its incentive compensation programs are constructed in a manner that might induce participant behaviors that could cause the Company material harm. An assessment was performed in 2014, and the Company concluded that the incentive components of our program for senior executives are not reasonably likely to have a material adverse effect on the Company, for reasons that include the following:

 

   

Our operations are highly regulated at both the federal and state levels and, therefore, are subject to continuous oversight by independent bodies.

 

   

Policies are in place to recoup compensation in the event of certain acts of misconduct and prohibit hedging by our senior executive officers.

 

   

Our compensation program is evaluated annually for its effectiveness and alignment with the Company’s goals without promoting excessive risk.

 

   

Senior executive compensation is weighted toward long-term incentives, thereby ensuring that senior executives have an ongoing, multi-year focus of attention.

 

   

The performance measures that are the basis of incentive awards are approved each year by an independent committee of the Board.

 

   

The long-term incentive equity awards to senior executives generally have three-year vesting periods and are performance based so that their upside potential and downside risk are aligned with that of our stockholders and promote long-term performance over the vesting period.

 

   

The senior executive officers are subject to stock ownership and retention guidelines that are independently set by the Board which are intended to ensure senior executives assume financial risk that is coincident with our stockholders.

 

   

The senior executive officers’ performance incentive measures include safety metrics in order to encourage a strong culture of safety.

COMPENSATION OF EXECUTIVE OFFICERS

Summary.    The following table summarizes compensation for services to NiSource and its affiliates for 2014, 2013 and 2012 awarded to, earned by or paid to each of the Named Executive Officers as of December 31, 2014.

Summary Compensation Table

 

Name and Principal
Position
  Year    

Salary

($)(1)

   

Bonus

($)(2)

   

Stock
Awards

($)(3)

   

Non-equity
Incentive

Plan
Compensation

($)(4)

   

Change in
Pension

Value and
Non-qualified
Deferred
Compensation
Earnings

($)(5)

   

All Other
Compensation

($)(6)

   

Total

($)

 

Robert C. Skaggs, Jr.

    2014        946,667        1,785,000        3,395,356        1,715,000        357,545        82,471        8,282,039   

President and Chief

Executive Officer

    2013        900,000               2,662,652        1,224,000        306,743        85,625        5,179,020   
    2012        900,000               2,635,436        720,000        347,464        79,336        4,682,236   

Stephen P. Smith

    2014        589,583        750,000        1,222,343        579,600        80,415        52,993        3,274,934   

Executive Vice President and

CFO

    2013        575,000               1,109,438        539,350        70,691        52,436        2,346,915   
    2012        564,583               1,098,088        438,725        70,947        54,601        2,226,944   

Glen L. Kettering

    2014        448,333        600,000        908,914        426,000        109,019        299,848        2,792,114   

Executive Vice President and

Group CEO

    2013        340,000        500,000        443,775        275,400        120,229        68,226        1,747,630   
    2012        340,000               439,239        222,360        82,106        71,750        1,155,455   

Carrie J. Hightman

    2014        483,750        300,000        679,059        408,660        62,395        47,520        1,981,384   

Executive Vice President and
Chief Legal Officer

    2013        475,000               665,663        384,750        55,232        49,274        1,629,919   
    2012        475,000               658,849        310,650        53,288        51,300        1,549,087   

Joseph Hamrock

    2014        487,500        400,000        633,801        357,500               48,930        1,927,731   

Executive Vice President and
Group CEO

    2013        461,667               532,540        418,535               46,529        1,459,271   
    2012        298,370        392,500        1,105,313                      28,564        1,824,747   

 

 

(1) Salary deferred at the election of the Named Executive Officer is reported in the category and year in which such salary was earned.

 

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(2) This column shows discretionary bonus payouts that are in addition to any amounts paid under the Incentive Plan described in footnote 4. These bonus amounts are more fully described in the “Compensation Discussion and Analysis — ONC Committee Actions Related to 2014 Compensation — 2014 Discretionary Lump Sum Payout to Mr. Kettering” and “Additional Discretionary Lump Sum Payouts to the Named Executive Officers Based on 2014 Performance.”

 

(3) For a discussion of stock awards granted in 2014, see “Compensation Discussion and Analysis — LTIP Awards” and the Grants of Plan-Based Awards table. This column shows the aggregate grant date fair value, computed in accordance with FASB ASC Topic 718, of the restricted stock, restricted stock units, and performance shares granted in 2014 based on the average price of our common stock on the NYSE on the grant date, discounted for the value of dividends not received in the vesting period. Since the performance share awards are subject to performance conditions, the grant date value is based upon the probable outcome of such conditions. The following table shows the value of the performance share awards reported in the Summary Compensation Table at the grant date assuming that the highest level of performance conditions will be achieved.

 

Name   

Maximum Performance
Share Potential as

of Grant Date for
Awards ($)

 

Robert C. Skaggs, Jr.

     6,790,712   

Stephen P. Smith

     2,444,686   

Glen L. Kettering

     905,412   

Carrie J. Hightman

     1,358,118   

Joseph Hamrock

     1,267,601   

 

(4) For 2014, the Incentive Plan payout amount for each of the Named Executive Officers reflected above in the column entitled Non-Equity Incentive Plan Compensation was based upon overall corporate and business unit performance. For more information regarding 2014 corporate and business unit performance, Incentive Plan payout opportunities for the Named Executive Officers and the actual payout amounts, see “Compensation Discussion and Analysis — ONC Committee Actions Related to 2014 Compensation — Annual Performance-Based Cash Incentives and 2014 Incentive Plan Payouts to the Named Executive Officers.”

 

(5) This column shows the change in the present value of each pension eligible Named Executive Officer’s accumulated benefits under our tax-qualified pension plans and the non-qualified Pension Restoration Plan as a result of annual pay and interest credits to their account balance under the plans as described in the narrative to the Pension Benefits table. Mr. Hamrock is not eligible to participate in either of the Company’s pension plans. For a description of these plans and the basis used to develop the present values, see the Pension Benefits table and accompanying narrative. No earnings on deferred compensation are shown in this column, since no earnings were above market or preferential.

 

(6) The table below provides a breakdown of the amounts shown in the “All Other Compensation” column for each Named Executive Officer in 2014.

 

            Other Compensation         
Name  

Perquisites &

Personal

Benefits(a)

($)

   

Company

Contributions
To 401(k)
Plan(b)

($)

   

Company

Contributions

To Savings

Restoration

Plan(c)

($)

   

Total

($)

 

Robert C. Skaggs, Jr.

    11,471        19,500        51,500        82,471   

Stephen P. Smith

    8,774        19,500        24,719        52,993   

Glen L. Kettering

    257,973        19,500        22,375        299,848   

Carrie J. Hightman

    11,239        19,500        16,781        47,520   

Joseph Hamrock

    12,367        19,500        17,063        48,930   

 

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  (a) All perquisites are valued based on the aggregate incremental cost to the Company, as required by the rules of the SEC. The “Compensation Discussion and Analysis — Other Compensation and Benefits — Perquisites” section of this Proxy Statement contains additional information about the perquisites provided by the Company to its Named Executive Officers. The perquisite amounts listed include financial planning and tax services as follows: Mr. Skaggs, $11,471; Mr. Smith, $8,774; Mr. Kettering, $9,870, Ms. Hightman, $11,104, and Mr. Hamrock, $12,367; travel expense as follows: Mr. Kettering, $233,579; living expense as follows: Mr. Kettering, $14,155; spousal travel as follows: Mr. Kettering, $369; and taxable gift as follows: Ms. Hightman $135. The travel expense for Mr. Kettering was calculated by the Company based on the incremental variable operating costs associated with the use of the Company-leased aircraft to commute to the executive’s office, which includes an hourly use rate, fuel rate and other flight related fees and expenses. Executives are responsible for all taxes associated with the use of the Company aircraft for this purpose.

 

  (b) This column reflects Company matching contributions and profit sharing contributions made on behalf of each of the Named Executive Officers and a Company non-elective contribution of 3% of compensation on behalf of Mr. Hamrock to the 401(k) Plan. The 401(k) Plan is a tax-qualified defined contribution plan, as described above under “Compensation Discussion and Analysis — Other Compensation and Benefits — Savings Programs.”

 

  (c) This column reflects Company matching contributions and profit sharing contributions made on behalf of the Named Executive Officers and a Company non-elective contribution of 3% of compensation on behalf of Mr. Hamrock, in excess of IRS limits to the Savings Restoration Plan. The Savings Restoration Plan is a non-qualified defined contribution plan, as described above under “Compensation Discussion and Analysis — Other Compensation and Benefits — Savings Programs,” and in the narrative following the Non-qualified Deferred Compensation table.

Grants of Plan-Based Awards

The following table sets forth information concerning plan-based awards under the Omnibus Plan to the Named Executive Officers in 2014.

 

           

Estimated Future Payouts Under

Non-Equity Incentive

Plan Awards(1)

   

Estimated Future Payouts Under

Equity Incentive

Plan Awards(2)

   

 All Other Stock 
Awards

Number

of Shares of

Stock or Units

(#)(3)

   

Grant Date Fair Value
of Stock and
Option Awards

($)(4)

 
Name  

Grant

Date

    Threshold
($)
   

Target

($)

    Maximum
($)
    Threshold
(#)
   

Target

(#)

    Maximum
(#)
     

Robert C. Skaggs, Jr.

    01/30/2014        490,000        1,225,000        1,960,000        54,729        109,457        218,914               3,395,356   

Stephen P. Smith

    01/30/2014        180,000        420,000        660,000        19,703        39,405        78,810               1,222,343   

Glen L. Kettering

    01/30/2014        125,000        300,000        475,000        7,297        14,594        29,188        14,594        908,914   

Carrie J. Hightman

    01/30/2014        122,500        294,000        465,500        10,946        21,891        43,782               679,059   

Joseph Hamrock

    01/30/2014        125,000        325,000        525,000        10,216        20,432        40,864               633,801   

 

 

 

(1) The information in the “Threshold,” “Target,” and “Maximum” columns reflects potential payouts based on the performance targets set under the 2014 Incentive Plan. The amounts actually paid appear in the “Non-Equity Incentive Plan Compensation” column of the 2014 Summary Compensation Table. For a description, please see the Compensation Discussion and Analysis section under the caption “ONC Committee Actions Related to 2014 Compensation — Annual Performance-Based Cash Incentives.”

 

(2)

The information in the “Threshold,” “Target,” and “Maximum” columns reflects the potential share payouts under the 2014 performance share awards. The actual number of performance shares earned is determined based on performance over the three-year period from 2014 through 2016. In order for a participant to receive shares, the Company must attain specific performance goals and the participant must satisfy the applicable service condition. For a description, please see the Compensation Discussion and Analysis section

 

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  under the caption “Compensation Discussion and Analysis — LTIP Awards.” If the target level of performance is met, the individual would receive 100% of the grant designated by the ONC Committee. The ONC Committee also set threshold and maximum goals. If the threshold level is not met, then the executive would not receive any value of that portion of the grant. At the threshold level the executive would receive 50% of the value of the target value of the grant, and at the maximum level the executive would receive 200% of the target value of the grant.

 

(3) The information in this column reflects time-based restricted stock units granted to Mr. Kettering on January 30, 2014, all of which will vest on January 30, 2017.

 

(4) This column shows the aggregate grant date fair value, computed in accordance with FASB ASC Topic 718, of the restricted stock, restricted stock units, and performance shares granted in 2014 based on the average price of our common stock on the NYSE on the grant date, discounted for the value of dividends not received in the vesting period. Since the performance share awards are subject to performance conditions, the grant date value is based upon the probable outcome of such conditions.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information at fiscal year-end concerning outstanding grants of equity awards to the Named Executive Officers, including awards of restricted stock, restricted stock units, and performance shares to the Named Executive Officers.

 

     Option Awards   Stock Awards  
Name  

Number of
Securities
Underlying
 Unexercised 
Options
Exercisable

(#)(1)

 

Option
 Exercise 
Price

($)

  Option
 Expiration 
Date
 

Number of

Shares or
Units of
Stock That
Have Not
Vested

(#)

   

Market
Value of
Shares or
Units of
Stock That
Have Not
Vested

($)(2)

   

Equity Incentive
Plan Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested

(#)

   

Equity
Incentive
Plan Awards
Market or
Payout Value of
Unearned
Shares,
Units  or
Other Rights
That Have
Not Vested

($)(3)

 

Robert C. Skaggs, Jr.

          64,043 (4)       2,716,704                 
            46,685 (5)       1,980,378                 
            29,126 (6)       1,235,525                 
            234,917 (7)       9,965,179                 
                          113,208 (8)       4,802,283   
                          109,457 (9)      4,643,166   

Stephen P. Smith

          97,881 (7)       4,152,112                 
                          47,170 (8)       2,000,951   
                          39,405 (9)      1,671,560   

Glen L. Kettering

          39,153 (7)       1,660,870                 
                          18,868 (8)       800,381   
                          14,594 (9)       619,077   
            14,594 (10)      619,077                 

Carrie J. Hightman

          58,728 (7)       2,491,242                 
                          28,302 (8)       1,200,571   
                          21,891 (9)      928,616   

Joseph Hamrock

          43,710 (11)       1,854,178                 
                          22,642 (8)       960,474   
                          20,432 (9)       866,725   

 

 

 

(1) There are no outstanding options held by the Named Executive Officers.

 

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(2) This column shows the market value of the unvested restricted stock units and restricted stock awards held by the Named Executive Officers based on $42.42 per share, the closing price of our common stock on the NYSE on December 31, 2014.

 

(3) This column shows the market value of the unvested performance shares held by the Named Executive Officers payable at target levels, based on $42.42 per share, the closing price of our common stock on the NYSE on December 31, 2014.

 

(4) The awards shown represent restricted stock units granted on March 24, 2009. Vesting of these restricted stock units has been delayed in accordance with the terms of Mr. Skaggs’ award agreement due to limitations on deductibility under Section 162(m). These units will vest and be payable in shares of our common stock on the earlier to occur of: his termination of employment, the date he is no longer subject to Section 162(m) or the date that such shares could be paid to him and be deductible under Section 162(m).

 

(5) The award shown represents restricted stock units granted on January 22, 2010. Vesting of these restricted stock units has been delayed in accordance with the terms of Mr. Skaggs’ award agreement due to limitations on deductibility under Section 162(m). These units will vest and be payable in shares of our common stock on the earlier to occur of: his termination of employment, the date he is no longer subject to Section 162(m) or the date that the restricted stock units can be paid to him and be deductible under Section 162(m).

 

(6) The award shown represents restricted stock units granted on March 23, 2010. Vesting of these restricted stock units has been delayed in accordance with the terms of Mr. Skaggs’ award agreement due to limitations on deductibility under Section 162(m). These units will vest and be payable in shares of our common stock on the earlier to occur of: his termination of employment, the date he is no longer subject to Section 162(m) or the date that the restricted stock units can be paid to him and be deductible under Section 162(m).

 

(7) The awards shown represent performance shares granted January 26, 2012. These awards vested on February 18, 2015, immediately following the certification of Company performance after satisfaction of the service condition on January 30, 2015. The performance measures, their weightings and results are set forth in the Compensation Discussion and Analysis under the Section entitled “ONC Committee Actions Related to 2014 Compensation — 2012 Performance Share Awards.”

 

(8) The awards shown represent performance shares granted January 24, 2013 at target levels. The number of shares that will actually vest is dependent upon the Company meeting multi-year performance measures, over the 2013 — 2015 performance period and the executive’s continued employment through February 29, 2016.

 

(9) The awards shown represent performance shares granted January 30, 2014 at target levels. The number of shares that will actually vest is dependent upon the Company meeting multi-year performance measures, over the 2014 — 2016 performance period and the executive’s continued employment through February 28, 2017. The performance measures and target number of shares awarded to each of the Named Executive Officers are set forth in the Compensation Discussion and Analysis under the Section entitled “Compensation Discussion and Analysis — LTIP Awards.”

 

(10) The award shown represents shares of restricted stock granted on January 30, 2014. The award vests on January 30, 2017.

 

(11) The award shown represents performance shares granted May 14, 2012. This award vested on February 17, 2015, upon certification of Company performance following satisfaction of the service condition on January 30, 2015. The performance measures, their weightings and results are set forth in the Compensation Discussion and Analysis under the Section entitled “ONC Committee Actions Related to 2014 Compensation — 2012 Performance Share Awards.”

 

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Option Exercises and Stock Vested

 

     Option Awards   Stock Awards  
Name  

Number of Shares
Acquired on Exercise

(#)

 

Value Realized on
Exercise

($)(1)

 

Number of Shares
Acquired on Vesting

(#)

   

Value Realized on
Vesting

($)(5)

 

Robert C. Skaggs, Jr.

        33,476 (2)      1,144,210   
          150,643 (3)      5,317,698   

Stephen P. Smith

        57,245 (3)      2,020,749   

Glen L. Kettering

        27,116 (3)      957,195   

Carrie J. Hightman

        42,180 (3)      1,488,954   

Joseph Hamrock

        7,962 (4)      288,543   

 

 

(1) During 2014, no stock options were exercised by any of the Named Executive Officers.

 

(2) Mr. Skaggs’ restricted stock award vested in its entirety on January 28, 2014. Mr. Skaggs had made an election under Section 83(b) of the Code (“Section 83(b)”) on the grant date and consequently no shares were subject to delayed vesting due to the limitations on deductibility under Section 162(m).

 

(3) Award shown represents performance shares granted January 28, 2011 that vested on February 18, 2014, immediately following the certification of Company performance after satisfaction of the service condition on January 28, 2014.

 

(4) Award shown represents restricted stock units granted May 14, 2012 of which 7,962 shares vested May 2, 2014.

 

(5) The amounts in this column reflect the value realized by the Named Executive Officer upon the vesting of stock which is computed by multiplying the number of shares by the market value of our common stock on the vesting date.

Pension Benefits

 

Name   Plan Name   Number of Years
Credited Service
(#)
    Present Value of
Accumulated Benefit
($)
 

Robert C. Skaggs, Jr.

  Columbia Energy Group Pension Plan     33.5        1,471,116   
    Pension Restoration Plan     33.5        4,040,992   

Stephen P. Smith

  Columbia Energy Group Pension Plan     6.6        109,705   
    Pension Restoration Plan     6.6        302,311   

Glen L. Kettering

  Columbia Energy Group Pension Plan     35.5        838,927   
    Pension Restoration Plan     35.5        551,140   

Carrie J. Hightman

  NiSource Inc. Pension Plan     7.1        114,848   
    Pension Restoration Plan     7.1        219,296   

Joseph Hamrock(1)

  NiSource Inc. Pension Plan              
    Pension Restriction Plan              

 

 

(1) Because Mr. Hamrock was hired after January 1, 2010 he is not eligible to participate in any defined benefit pension plan sponsored by the Company or its affiliates.

Tax Qualified Pension Plans    The Company and its affiliates sponsor several qualified defined benefit pension plans for their respective exempt salaried employees hired before January 1, 2010, including the Named Executive Officers identified in the Pension Benefits Table. Benefits under these plans are funded through and are payable out of a trust fund, which consists of contributions made by the Company and the earnings of the fund.

 

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The specific defined benefit pension plan in which an employee participates depends upon the affiliate into which the employee was hired. Messrs. Skaggs and Kettering participate in the Columbia Energy Group Pension Plan (the “CEG Plan”) because they were participants in this plan at the time of the acquisition of Columbia Energy Group by the Company. Mr. Smith participates in the CEG Plan because he was hired into Columbia Energy Group. Ms. Hightman participates in the NiSource Inc. Pension Plan (the “NiSource Plan”) because she was hired into NiSource Corporate Services Company. Both the CEG Plan and the NiSource Plan previously provided for a “final average pay” benefit (“FAP benefit”) for exempt employees and, alternatively, a cash balance benefit feature (described below). As of January 1, 2011, all active exempt employees participating in our qualified defined benefit pension plans, including the CEG Plan and the NiSource Plan, who had accrued a benefit under a FAP benefit formula or, alternatively, under the prior cash balance formula, were converted to each plan’s respective current cash balance formula. Mr. Skaggs was the only Named Executive Officer participating in the FAP benefit at the time of the January 1, 2011 conversion. Mr. Kettering also previously participated in the FAP benefit but was converted to the prior cash balance formula during an earlier choice program. As such, both Mr. Skaggs’ and Mr. Kettering’s accrued benefit under the CEG plan is equal to his cash balance account, calculated as described below, or, if greater at the time of retirement, his “protected benefit” which is a calculation taking into consideration the accrued benefit under the FAP benefit formula as of the day immediately preceding conversion of the participant’s benefit to the cash balance formula (using only service and compensation earned prior to the benefit conversion). Ms. Hightman and Mr. Smith were participating in the applicable current cash balance benefit formula at the time of the above-referenced conversion.

Pursuant to the above-described conversion of all exempt employees of the Company, including Mr. Skaggs, to the applicable current cash balance feature, each eligible exempt employee who transitioned to the current cash balance feature has an account benefit consisting of: (1) an “opening account balance” equal to either (a) in the case of an exempt employee transitioning from a FAP benefit formula, the lump sum actuarial equivalent of his accrued FAP benefit as of December 31, 2010, or (b) in the case of an exempt employee transitioning from the prior cash balance formula, equal to the account balance in such prior cash balance formula as of December 31, 2010; plus (2) annual pay and interest credits to the cash balance account. Annual pay credits to a participant’s account under the current cash balance formula equal a percentage of compensation, taking into account the Social Security Taxable Wage Base, based on the participant’s combined age and service for the plan year. The applicable pay credits are listed in the following table:

 

Sum of Age Plus

Years of Service

   Percentage of Total
Compensation
     Percentage of Compensation Above  1/2
of the Taxable Wage Base
 

Less than 50

     4.0      1.0

50-69

     5.0      1.0

70 or more

     6.0      1.0

Compensation for purposes of annual pay credits means base pay, any performance-based pay, any “banked” vacation (in the year of vacation payout) and any salary reduction contributions made for the employee pursuant to a plan maintained by the Company or an affiliate under Code Sections 125 or 401(k), but excluding any amounts deferred to a non-qualified plan maintained by the Company. In accordance with Code limits, the maximum compensation taken into account in determining benefits under the plans with respect to all participants, including the Named Executive Officers, in 2014 was limited to $260,000. Interest is credited each year to the account based on the interest rate on 30-year Treasury securities, as determined by the IRS, for the September immediately preceding the first day of each year, subject to a minimum interest credit of 4%.

The automatic form of benefit under the cash balance features of both the CEG Plan and the NiSource Plan is a single life annuity in the case of an unmarried participant and a 50% joint and survivor pop-up annuity in the case of a married participant (unreduced for the value of the pop-up feature). Optional forms of payment are available under the pension plans, depending on the participant’s marital status and benefit feature. Each optional form of benefit is defined in the applicable plan to be the actuarial equivalent of the normal form of benefit defined in the plan.

Under the cash balance features of the applicable plans, any participant may take a distribution of his or her vested cash balance account benefit upon termination of employment, without any reduction. Alternatively, if the

 

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participant’s accrued benefit is determined by the protected benefit calculation referenced above (i.e., the protected benefit calculation is greater than the participant’s cash balance account), the participant would receive the protected benefit amount (which may reflect an actuarial or early retirement reduction if the participant elects to receive it prior to normal retirement date as provided in the applicable plan). Because each of the Named Executive Officers now participates in the current cash balance feature of the applicable plan, each such Named Executive Officer is eligible to take an unreduced distribution of his cash balance account upon termination of employment regardless of age and service, or, if greater, the Named Executive Officer could take a distribution of the accrued benefit using the protected benefit calculation. Currently, Mr. Skaggs and Mr. Kettering are the only Named Executive Officers who are eligible for early retirement (which impacts the protected benefit calculation), with early retirement defined under the CEG Plan as the earlier of age 55 with 10 years of eligible service or age 60 with 5 years of eligible service.

Assumptions.    The present value of the accumulated benefit for each Named Executive Officer identified above is their account balance payable under the applicable plan. For Mr. Skaggs and Mr. Kettering, this value is greater than the present value of their protected benefit using the assumptions set forth in Note 10 — Pension and Other Postretirement Benefits in the footnotes to the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2014. The Company has not granted any extra years of credited service under the plans identified above.

Non-qualified Pension Benefit Plan.    The Company also sponsors the Pension Restoration Plan for NiSource Inc. and Affiliates (the “Pension Restoration Plan”). The Pension Restoration Plan is a non-qualified, unfunded defined benefit plan. The plan includes employees of the Company and its affiliates whose benefits under the applicable tax-qualified pension plan are limited by sections 415 and 401(a)(17) of the Code, including each of the Named Executive Officers. The Pension Restoration Plan provides for a supplemental retirement benefit equal to the difference between (i) the benefit a participant would have received under the qualified pension plan had such benefit not been limited by sections 415 and 401(a)(17) of the Code, or any other applicable section, and reduced by deferrals into our Deferred Compensation Plan, minus (ii) the actual benefit received under the qualified pension plan after applying any limits and considering deferrals into our Deferred Compensation Plan. Participants are provided the opportunity to elect any form of payment available under the qualified pension plan prior to accruing a benefit under the plan. If no election is made, the benefit is payable as a lump sum. The timing of payment under the Pension Restoration Plan generally is 45 days after one of the following: (1) if the participant qualifies for early retirement under the applicable qualified pension plan, following separation from service; or (2) if the participant does not qualify for early retirement at the time of separation from service, the later of separation from service or age 65. Key employees for purposes of section 409A of the Code, however, may not receive payments triggered by separation from service until 6 months after the termination date.

No plan benefits were paid to any Named Executive Officer under the CEG Plan, the NiSource Plan or the Pension Restoration Plan in 2014.

 

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Non-qualified Deferred Compensation

 

Name   Plan Name  

Executive
 Contributions 
in Last FY

($)(1)

   

Registrant
Contributions
in Last FY

($)(5)

   

Aggregate
Earnings in
Last FY

($)(6)

    Aggregate
Withdrawals/
Distributions
($)
   

Aggregate
Balance
at Last
FYE

($)(7)

 

Robert C. Skaggs, Jr.

  Deferred
Compensation
Plan(2)
                  246,016               3,540,023   
    Savings
Restoration
Plan(3)
           57,442        57,887               1,846,013   
    Phantom
Stock Units(4)
                  1,711,449               6,932,745   

Stephen P. Smith

  Savings
Restoration
Plan(3)
           22,400        41,327               338,326   

Glen L. Kettering

  Savings
Restoration
Plan(3)
           5,950        96,810               1,075,471   
    Phantom
Stock(4)
                  467,206        45,128        1,876,788   

Carrie J. Hightman

  Savings
Restoration

Plan(3)

           15,400        4,878               156,513   

Joseph Hamrock

  Deferred
Compensation
Plan(2)
    209,268               7,549               267,537   
    Savings

Restoration

Plan(3)

           14,467        1,960               18,846   

 

 

(1) Amounts shown as “Executive Contributions in Last FY,” if any, were deferred under our Deferred Compensation Plan. The Named Executive Officers may elect to defer and invest between 5% and 80% of their base compensation and between 5% and 100% of their bonus on a pre-tax basis. These contributions are fully vested.

 

(2) For a description of the Deferred Compensation Plan, please see “Compensation Discussion and Analysis — Other Compensation and Benefits — Deferred Compensation Plan” and the narrative accompanying this table.

 

(3) For a description of the Savings Restoration Plan, please see “Compensation Discussion and Analysis — Other Compensation and Benefits — Savings Programs” and the narrative accompanying this table. These contributions are fully vested.

 

(4) For a description of the phantom stock units, see the narrative accompanying this table. All phantom stock units are vested. Dividend equivalent rights payable with respect to the phantom units are reinvested as additional phantom units at the election of Mr. Skaggs and are paid in cash at the election of Mr. Kettering. Dividend equivalent rights are shown in the aggregate earnings in last fiscal year column and when taken in cash are also shown as a distribution.

 

(5) The amount of Company contributions for each Named Executive Officer in this column is included in each Named Executive Officer’s compensation reported on the Summary Compensation Table as All Other Compensation.

 

(6) The aggregate earnings in this column are not reported in the Summary Compensation Table. For a discussion of investment options under these plans, see the narrative accompanying this table.

 

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(7) The aggregate balance reflects amounts for each Named Executive Officer that would have been previously reported as compensation in the Summary Compensation Table for prior years had he or she been a Named Executive Officer in those prior years with the exception of the phantom stock units and the aggregate earnings on deferred compensation.

The Company sponsors two non-qualified defined contribution plans, neither of which credits above-market or preferential earnings. They are the Savings Restoration Plan and the Deferred Compensation Plan. Participants in both plans have an unsecured contractual right to be paid the amounts due under the plans from the Company’s general assets.

Savings Restoration Plan.    The Company sponsors the Savings Restoration Plan to provide a supplemental benefit to eligible employees, including the Named Executive Officers, equal to the difference between: (i) the employer contributions (including matching and profit sharing contributions) an employee would have received under our Retirement Savings Plan had such benefit not been limited by sections 415 (a limitation on annual contributions under a defined contribution plan of $52,000 for 2014) and 401(a)(17) (a limitation on annual compensation of $260,000 for 2014) of the Code, and the Retirement Savings Plan’s definition of compensation, which excludes deferrals into our Deferred Compensation Plan for purposes of calculating certain employer contributions, minus (ii) the actual employer contributions the employee received under the Retirement Savings Plan. Amounts credited under the Savings Restoration Plan are deferred on a pre-tax basis. All of the Named Executive Officers are eligible to participate in the Savings Restoration Plan. Participants’ accounts under the Savings Restoration Plan are 100% vested. Employees designate how these contributions will be invested; the investment options generally are the same as those available under our Retirement Savings Plan.

The timing of payment under the Savings Restoration Plan differs depending on whether the amounts were earned and vested before January 1, 2005 (“Pre-409A Amounts”) or after December 31, 2004 (“Post-409A Amounts”). Pre-409A Amounts generally are payable at the time when amounts under the Retirement Savings Plan are paid. Participants may elect in any year to withdraw Pre-409A Amounts, but that withdrawal is subject to a 10% reduction to the extent the payment is before the amount was otherwise payable under the Retirement Savings Plan. Post-409A Amounts generally are paid within 45 days after separation from service, although key employees generally must not be paid until 6 months after their separation date. Participants may not elect to receive early in-service distributions of Post-409A amounts. Both Pre-409A and Post-409A Amounts may be distributed upon an unforeseeable emergency. The form of payment for both amounts is the form elected by the participant among the choices available under the Retirement Savings Plan.

Deferred Compensation Plan.    The Company sponsors the Deferred Compensation Plan in which employees at certain job levels and other key employees designated by the ONC Committee, including the Named Executive Officers, are eligible to participate to allow deferral on a pre-tax basis of compensation, including compensation that would otherwise be limited by the Code. Participants may elect to defer and invest between 5% and 80% of their base compensation and between 5% and 80% of their non-equity incentive payment on a pre-tax basis. Employees designate how their contributions will be invested; the investment options generally are the same as those available under our Retirement Savings Plan. Employee contributions and any earnings thereon are 100% vested. The timing of payment under the Deferred Compensation Plan generally is the March 31 after the date of the participant’s separation from service. This timing applies both to the Pre-409A and Post-409A Amounts. In the case of Post-409A Amounts payable to key employees within the meaning of Code Section 409A, payments generally will not be payable until 6 months after the date of separation from service. Participants also may elect to receive in-service distributions of both Pre-409A and Post-409A Amounts. If a participant requests an in-service distribution of a Pre-409A Amount with less than 12 months’ advance notice, however, the distribution is subject to a 10% reduction. Participants may delay the commencement of distributions for five years after their originally scheduled payment date, in accordance with the deferral timing procedures under Code Section 409A. Both Pre-409A and Post-409A Amounts also may be paid upon an unforeseeable emergency. The form of payment for both amounts may be either a lump sum or annual installments of up to 15 years, as elected by the participant.

Phantom Units.    Messrs. Skaggs and Kettering were granted fully vested phantom stock units following the acquisition by the Company of Columbia Energy Group, as part of an agreement entered into as of February 1,

2001. Under this agreement, Mr. Skaggs and Mr. Kettering agreed to terminate their rights under a Columbia

 

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Energy Group Change-in-Control Agreement. In exchange, they accepted employment with the Company and agreed to non-competition and non-solicitation provisions. These phantom stock units are recorded as a bookkeeping entry in our books and records and represent an unsecured contractual right to receive cash in the future. They are unfunded and subject to the rights of the Company’s general creditors. One phantom stock unit is equal in value to one share of our common stock. The phantom stock units also are credited with dividend equivalents, which are equal in value to dividends declared on shares of our common stock and payable, at Mr. Skaggs’ and Mr. Kettering’s election, in cash or credited to his account as additional phantom stock units. Their elections must be made in the calendar year prior to the year in which the dividend equivalents are credited. These Units are payable in cash upon termination of employment from the Company subject to execution of a general release of claims.

Potential Payments upon Termination of Employment or a Change-in-Control

of the Company

The Company provides certain benefits to eligible employees, including the Named Executive Officers, upon certain types of termination of employment, including a termination of employment involving a Change-in-Control of the Company. These benefits are in addition to the benefits to which the employees would be entitled upon a termination of employment generally (i.e., (i) vested retirement benefits accrued as of the date of termination, (ii) stock-based awards that are vested as of the date of termination, and (iii) the right to continue medical coverage pursuant to COBRA). The incremental benefits that pertain to the Named Executive Officers are described below.

NiSource Executive Severance Policy.    The NiSource Executive Severance Policy was established to provide severance pay and other benefits to terminated executive-level employees who satisfy the terms of the policy. No employee is eligible to receive benefits under the policy if termination of employment results in the employee being eligible for a payment under a Change-in-Control and Termination Agreement or employment agreement.

A participant becomes entitled to receive benefits under the policy only if he or she is terminated for any of the following reasons: (a) the employee’s position is eliminated due to a reduction in force or other restructuring; (b) the employee’s position is required by the Company to relocate more than 50 miles from its current location and results in the employee having a longer commute of at least 20 miles and the employee chooses not to relocate; or (c) the employee is constructively terminated. Constructive termination means (1) the scope of the participant’s position is changed materially, (2) the participant’s base pay is reduced by a material amount or (3) the participant’s opportunity to earn a bonus under a corporate incentive plan of the Company is materially reduced or is eliminated, and, in any such event, the participant chooses not to remain employed in such position.

Under the NiSource Executive Severance Policy, an eligible employee receives severance pay in the amount of 52 weeks of base salary at the rate in effect on the date of termination. The employee also receives: a lump sum payment equivalent to 130% of 52-weeks of COBRA (as defined in the Code and the Employee Retirement Income Security Act of 1974 (“ERISA”)) continuation coverage premiums and outplacement services.

All of the Named Executive Officers are eligible to receive benefits under the NiSource Executive Severance Policy.

Change-in-Control and Termination Agreements and Employment Agreements.    As of December 31, 2014, the Company had Change-in-Control and Termination Agreements with each of the Named Executive Officers. The Company entered into these agreements based upon its belief that they are in the best interests of the stockholders, they are designed to help ensure that in the event of extraordinary events, a thoroughly objective judgment is made on any potential corporate transaction, so that stockholder value is appropriately safeguarded and maximized. The Change-in-Control Agreements provide for cash severance benefits if the executive terminates employment for “Good Reason” (as defined below) or is terminated by the Company for any reason other than “Good Cause” (as defined below) within 24 months following certain Change-in-Control events (referred to as a double trigger). None of the agreements contain a “gross-up” provision to reimburse executives for excise taxes incurred with respect to benefits received under a Change-in-Control Agreement. The Change-in-Control Agreements can be terminated on twelve months’ notice.

 

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For purposes of the Change-in-Control and Termination Agreements:

“Change-in-Control” shall be deemed to take place on the occurrence of any of the following events: (1) the acquisition by an entity, person or group (including all affiliates or associates of such entity, person or group) of beneficial ownership, as that term is defined in Rule 13d-3 under the Exchange Act, of capital stock of the Company entitled to exercise more than 30% of the outstanding voting power of all capital stock of the Company entitled to vote in elections of directors (“Voting Power”); (2) the effective time of: (i) a merger or consolidation of the Company with one or more other corporations unless the holders of the outstanding Voting Power of the Company immediately prior to such merger or consolidation (other than the surviving or resulting corporation or any affiliate or associate thereof) hold at least 50% of the Voting Power of the surviving or resulting corporation (in substantially the same proportion as the Voting Power of the Company immediately prior to such merger or consolidation), or (ii) a transfer of a substantial portion of the property of the Company, other than to an entity of which the Company owns at least 50% of the Voting Power; or (3) the election to the Board of the Company of candidates who were not recommended for election by the Board, if such candidates constitute a majority of those elected in that particular election (for this purpose, recommended directors will not include any candidate who becomes a member of the Board as a result of an actual or threatened election contest or proxy or consent solicitation on behalf of anyone other than the Board or as a result of any appointment, nomination, or other agreement intended to avoid or settle a contest or solicitation). Notwithstanding the foregoing, a Change-in-Control shall not be deemed to take place by virtue of any transaction in which the executive is a participant in a group effecting an acquisition of the Company and, after such acquisition, the executive holds an equity interest in the acquiring entity.

“Good Cause” shall be deemed to exist if, and only if, the Company notifies the executive, in writing, within 60 days of its knowledge that one of the following events occurred: (1) the executive has engaged in acts or omissions constituting dishonesty, intentional breach of fiduciary obligation or intentional wrongdoing or malfeasance, in each case that results in substantial harm to the Company; or (2) the executive has been convicted of a criminal violation involving fraud or dishonesty.

“Good Reason” shall be deemed to exist if, and only if: (1) there is a significant diminution in the nature or the scope of the executive’s authorities or duties; (2) there is a significant reduction in the executive’s monthly rate of base salary and the executive’s opportunity to earn a bonus under an incentive bonus compensation plan maintained by the Company or the executive’s benefits; (3) the Company changes by 50 miles or more the principal location at which the executive is required to perform services as of the date of a Change-in-Control; or (4) there is a material breach of the Change-in-Control Agreement.

The Change-in-Control Agreements provide for a lump sum payment of two (three in the case of Mr. Skaggs) times the executive’s current annual base salary and target incentive bonus compensation. The executive will also receive a pro rata portion of the executive’s targeted incentive bonus for the year of termination. The Change-in-Control Agreements also provide that in the event of a Change-in-Control, the executive’s total Change-in-Control payments will equal one dollar less than the amount that would trigger an excise tax gross up; provided, however, that if the total payment due, after being reduced for federal, state, local and other taxes is greater than the reduced amount, the executive will receive the total Change-in-Control payments due (without a gross-up).

In addition, the Change-in-Control Agreements provide for the executives to receive 130% of the COBRA continuation premiums due for the two-year period (three in the case of Mr. Skaggs) following termination. In the event of a Change-in-Control, all performance share awards which have been granted to each of the Named Executive Officers under the Omnibus Plan and are outstanding as of December 31, 2014 will immediately vest. Restricted stock unit awards granted before January 1, 2014 and outstanding as of December 31, 2014 will immediately vest and restricted stock unit awards granted during 2014 and outstanding as of December 31, 2014 vest only upon a termination of employment in connection with a Change-in-Control.

Pursuant to a letter agreement dated May 14, 2008 between the Company and Mr. Smith, if the Company terminates his employment other than for cause or if he terminates his employment for good reason, he is entitled to receive the following severance benefits in lieu of severance benefits under the NiSource Executive Severance Policy: (1) a lump sum payment equal to his annual base salary; (2) a lump sum payment equal to his prorated target incentive for the year in which termination occurs; (3) a lump sum payment equal to 130% of COBRA continuation coverage premiums for one year; and (4) reasonable outplacement services.

 

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Potential Payments Upon Termination of Employment.    The table below represents amounts payable at, following, or in connection with the events described below, assuming that such events occurred on December 31, 2014 for each of the Named Executive Officers.

 

     Severance
($)
   

Pro Rata

Target

Bonus

Payment
($)

   

Equity

Grants
($)

   

Welfare

Benefits
($)

    Outplacement
($)
   

Total

Payment
($)

 

Robert C. Skaggs, Jr.

                                               

Voluntary Termination(1)

                  5,932,607                      5,932,607   

Retirement(2)

                  9,797,578                      9,797,578   

Disability(2)

                  9,797,578                      9,797,578   

Death(2)

                  9,797,578                      9,797,578   

Involuntary Termination(3)

    980,000                      11,887        25,000        1,016,887   

Change-in-Control(4)

    6,615,000        1,225,000        5,093,327        43,665        25,000        13,001,992   

Stephen P. Smith

                                               

Voluntary Termination(1)

                                         

Retirement(2)

                                         

Disability(2)

                  3,999,230                      3,999,230   

Death(2)

                  3,999,230                      3,999,230   

Involuntary Termination(3)

    600,000        420,000               19,233        25,000        1,064,233   

Change-in-Control(4)

    2,040,000        420,000        5,941,430        42,735        25,000        8,469,165   

Glen L. Kettering

                                               

Voluntary Termination(1)

                                         

Retirement(2)

                  1,784,864                      1,784,864   

Disability(2)

                  1,784,864                      1,784,864   

Death(2)

                  1,784,864                      1,784,864   

Involuntary Termination(3)

    500,000                      19,268        25,000        544,268   

Change-in-Control(4)

    1,600,000        300,000        1,362,021        42,094        25,000        3,329,115   

Carrie J. Hightman

                                               

Voluntary Termination(1)

                                         

Retirement(2)

                                         

Disability(2)

                  2,376,071                      2,376,071   

Death(2)

                  2,376,071                      2,376,071   

Involuntary Termination(3)

    490,000                      19,572        25,000        534,572   

Change-in-Control(4)(5)

    1,568,000        294,000        3,490,530        42,630        25,000        4,280,340   

Joseph Hamrock

                                               

Voluntary Termination(1)

                                         

Retirement(2)

                                         

Disability(2)

                  1,866,098                      1,866,098   

Death(2)

                  1,866,098                      1,866,098   

Involuntary Termination(3)

    500,000                      19,268        25,000        544,268   

Change-in-Control(4)

    1,650,000        325,000        2,840,401        42,094        25,000        4,882,495   

 

 

(1)

Amounts payable to each of the Named Executive Officers as shown in the Pension Benefits Table and the Nonqualified Deferred Compensation Table and under the tax-qualified, nondiscriminatory 401(k) Plan are not included. Upon voluntary termination, Mr. Skaggs would receive 64,043 shares under his 2009 Restricted Stock Unit Award, 46,685 shares under his special 2010 Restricted Stock Unit Award, and 29,126 shares under his 2010 annual Restricted Stock Unit Award. The original vesting date for these shares has passed.

 

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  However, these shares were subject to delayed vesting in accordance with the terms of the award agreements due to limitations on deductibility under Section 162(m). These shares are payable to Mr. Skaggs on the earlier to occur of his termination of employment, the date he is no longer subject to Section 162(m) or the date that such shares could be paid to him and be deductible under Section 162(m). In addition, Messrs. Skaggs and Kettering would receive the pro-rated equity amounts reflected below in note 2 because they are retirement eligible at termination.

 

(2) Special vesting rules apply in the event of Retirement, Disability or death pursuant to the terms and conditions of our equity award agreements as discussed above under “Compensation Disclosure and Analysis — LTIP Awards.” Only Mr. Skaggs and Mr. Kettering were eligible for Retirement as of December 31, 2014. For Mr. Skaggs, 230,966 shares would have pro-rata vested as a result of his Retirement, Disability or death. For Mr. Kettering, 42,076 shares would have pro-rata vested as a result of his Retirement, Disability or death. For each of the other Named Executive Officers, the number of shares that would have vested in the event of the executive’s Disability or death is as follows: Mr. Smith, 94,277 shares; Ms. Hightman, 56,013 shares and Mr. Hamrock, 43,991 shares. The value of the equity grants was determined by multiplying the closing price of the Company’s common stock on the NYSE on December 31, 2014 of $42.42 by the number of shares that would have vested upon the Retirement, Disability or death, as applicable, of the Named Executive Officer and, with respect to performance shares, assumes a payout at the target level. No performance shares are actually payable until such time as the ONC Committee certifies attainment of the applicable performance goals, except in the case of death with more than 12 months remaining in the performance period, in which case the performance shares are payable at target levels regardless of ONC Committee certification.

 

(3) Amounts shown reflect payments to be made upon the involuntary termination of the Named Executive Officer under the Company’s Executive Severance Policy described above, or in the case of Mr. Smith, pursuant to the terms of his employment agreement. The amounts shown for Mr. Skaggs and Mr. Kettering do not include equity grants that would pro-rata vest solely as a result of their eligibility for retirement. In addition, the amount shown for Mr. Skaggs’ does not include the shares subject to delayed vesting due to limitations on deductibility under Section 162(m) referred to in note (1) above, which are payable to him in on the earlier to occur of his termination of employment, the date he is no longer subject to Section 162(m) or the date that such shares could be paid to him and be deductible under Section 162(m).

 

(4) Amounts shown reflect payments to be made upon termination of employment in the event of a Change-in-Control of the Company under the Change-in-Control and Termination Agreements described above which have been reduced by excise tax payments if applicable. As described above, the Change-in-Control Agreements do not provide for any “gross-up” payments to executives for excise taxes incurred with respect to benefits received under a Change-in-Control Agreement. The Change-in-Control and Termination Agreements provide that in the event of a Change-in-Control, the executive’s total Change-in-Control payments will equal one dollar less than the amount that would trigger an excise tax gross up; provided, however, that if the total payment due, after being reduced for federal, state, local and other taxes is greater than the reduced amount, the executive will receive the total Change-in-Control payments due (without a gross-up). In addition, the amounts shown for Mr. Skaggs’ and Mr. Kettering’s equity grants do not include the shares referred to in note (2) above, which would automatically pro-rata vest in the event of their termination of employment regardless of a Change-in-Control; and, the amount shown for Mr. Skaggs does not include the shares subject to delayed vesting due to limitations on deductibility under Section 162(m) referred to in note (1) above, which are payable to him in the event of his termination of employment regardless of a Change-in-Control.

 

(5) In accordance with the terms of her Change-in-Control and Termination Agreement described above, the amount shown for Ms. Hightman reflects a benefit reduction of $1,139,820 as it results in a better after-tax position than her receipt of the full benefit and payment of the excise tax. Ms. Hightman was the only Named Executive Officer who was in a better after-tax position as a result of benefit reduction.

 

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EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth certain information for all equity compensation plans and individual compensation arrangements (whether with employees or non-employees, such as directors), in effect as of December 31, 2014.

 

Plan Category   

Number of

Securities to
be Issued Upon

Exercise

of Outstanding

Options,

Warrants and

Rights

(#)(a)

    

Weighted-
Average

Exercise
Price of

Outstanding

Options,

Warrants
and

Rights

($)(2)(b)

    

Number of

Securities
Remaining Available
for

Future Issuance

Under

Equity

Compensation

Plans (Excluding

Securities

Reflected in

Column (a)

(#)(c)

 

Equity compensation plans approved by security holders(1)

     2,424,851         22.62         6,491,322   

Equity compensation plans not approved by security holders

                       

Total

     2,424,851         22.62         6,491,322   

 

 

(1) The Plans approved by security holders include the following plans: the 1994 Long Term Incentive Plan, approved by the stockholders on May 10, 2005 (no shares remain available for future issuance under the plan), the Non-Employee Director Stock Incentive Plan, approved by the stockholders on May 20, 2003 (no shares remain available for future issuance under the plan), the Omnibus Plan approved by the stockholders on May 11, 2010, and the Company’s Employee Stock Purchase Plan, approved by the stockholders on May 15, 2012. As of December 31, 2014, 6,264,223 remained available for issuance under the Omnibus Plan and 227,099 shares remained available for purchase under the Employee Stock Purchase Plan.

 

(2) In calculating the weighted-average exercise price of outstanding options, shown in column (b), restricted stock units and performance stock units which can convert into shares of common stock upon vesting have been excluded. Restricted stock units and performance stock units are payable at no cost to the grantee on a one-for-one basis.

PROPOSAL 2 — ADVISORY APPROVAL OF EXECUTIVE COMPENSATION

In accordance with the federal securities laws, we are asking stockholders to approve in an advisory vote the compensation paid to the Company’s Named Executive Officers, as disclosed under the heading “Executive Compensation” above, including the “Compensation Disclosure and Analysis.” We currently hold an annual advisory vote on our Named Executive Officers’ compensation. Accordingly, a vote will take place at the Annual Meeting and the next such vote will take place at the 2016 Annual Meeting.

The Board of Directors encourages stockholders to carefully review the Executive Compensation section of this Proxy Statement, including the Compensation Discussion and Analysis section, for a thorough discussion of our executive compensation program and philosophy. Our compensation program is designed to be significantly performance-based and to attract and retain highly qualified individuals who enhance long-term stockholder value by contributing to the Company’s ongoing success. All facets of our compensation program are regularly monitored by the ONC Committee to ensure that the program is well-tailored to fulfill the Company’s compensation philosophy and objectives.

In considering this proposal, stockholders may wish to consider the following factors that demonstrate our commitment to maintaining a robust compensation program:

 

   

Compensation is closely tied to both corporate and individual performance;

 

   

Annual and long-term incentive compensation opportunities are contingent on the Company achieving pre-established goals;

 

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Total compensation packages are competitive with those offered by members of the Company’s Comparative Group;

 

   

Perquisites are appropriately limited in number and modest in dollar value; and

 

   

Our compensation program does not create incentives for behaviors that create material risk to the Company.

As discussed in the Executive Compensation section of this Proxy Statement, the ONC Committee and the Board believe that the Company’s executive compensation program fulfills the objectives of its compensation philosophy in a prudent and effective manner.

Accordingly, the following resolution is submitted for an advisory stockholder vote at the Annual Meeting:

RESOLVED, that the compensation paid to the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby approved on an advisory basis.

As this is an advisory vote, the result will not be binding on the Company, the Board or the ONC Committee, although the Committee and the Board will carefully consider the outcome of the vote when evaluating our compensation program and philosophy.

Vote Required

The affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote is needed to approve the advisory vote on the compensation of the Named Executive Officers. Proxies submitted without direction pursuant to this solicitation will be voted “FOR” the advisory approval of executive compensation of the Company’s Named Executive Officers. Abstentions by those present or represented by proxy will have the same effect as a vote against the proposal. Brokers will not have discretionary authority to vote on this proposal, so there could be broker non-votes. Broker non-votes will have no effect on the outcome.

THE BOARD RECOMMENDS A VOTE “FOR” THE ADVISORY APPROVAL OF EXECUTIVE COMPENSATION PAID TO THE NAMED EXECUTIVE OFFICERS.

PROPOSAL 3 — RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

The Audit Committee appointed Deloitte & Touche LLP (“Deloitte”), 111 South Wacker Drive, Chicago, IL 60606, as the Company’s independent registered public accountants for the year 2015. A representative of Deloitte will be present at the meeting, will be given an opportunity to make a statement if he or she so desires, and will be available to respond to appropriate questions.

The Board of Directors and its Audit Committee consider Deloitte well qualified to serve as our independent registered public accountants. The Board of Directors recommends ratification of such appointment by the stockholders.

Although action by stockholders for this matter is not required, the Board of Directors and the Audit Committee believe that it is appropriate to seek stockholder ratification of this appointment in order to provide stockholders a means of communicating the stockholders’ level of satisfaction with the performance of the independent registered public accountants and their level of independence from management. If the proposal is not approved and the appointment of Deloitte is not ratified by the stockholders, the Audit Committee will take this into consideration and will reconsider the appointment.

Vote Required

The affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote is needed to ratify the appointment of Deloitte. Proxies submitted without direction pursuant to this solicitation will be voted “FOR” the ratification of the appointment of Deloitte. Abstentions by those present or represented by proxy will have the same effect as a vote against the proposal. Brokers will have discretionary authority to vote on this proposal, so there will not be broker non-votes.

THE BOARD RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF DELOITTE AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR FISCAL YEAR 2015.

 

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AUDIT COMMITTEE REPORT

Our Audit Committee consists of Messrs. Candris, Cornelius, Jesanis and Kittrell and Ms. Parker. Each of the members of the Audit Committee is independent as defined by the applicable NYSE and SEC rules and meets the additional independence standard set forth by the Board of Directors in the Corporate Governance Guidelines. Each of the members of the Audit Committee also is “financially literate” for purposes of applicable NYSE rules. The Board of Directors has designated Marty R. Kittrell, the Chair of the Audit Committee, as the “audit committee financial expert.”

The Audit Committee has reviewed and discussed the audited consolidated financial statements with management and has discussed with Deloitte, the Company’s independent registered public accountants, the matters required to be discussed by Public Company Accounting Oversight Board (“PCAOB”), Auditing Standard No. 16, “Communications with Audit Committees”; SEC regulation S-X Rule 2-07; PCAOB Auditing Standard No. 5 and the NYSE Corporate Governance Rules. The Audit Committee also has received the written disclosures and the letter from Deloitte required by PCAOB Ethics and Independence Rule 3526, “Communication with Audit Committees Concerning Independence,” and has discussed with Deloitte its independence. The Audit Committee has considered whether Deloitte’s provision of non-audit services to the Company is compatible with maintaining Deloitte’s independence.

In reliance on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

Upon recommendation of the Audit Committee, the Company has appointed Deloitte to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2015.

Audit Committee

Marty R. Kittrell, Chair

Aristides S. Candris

Sigmund L. Cornelius

Michael E. Jesanis

Deborah S. Parker

February 17, 2015

INDEPENDENT AUDITOR FEES

The following table represents the aggregate fees for professional services billed by Deloitte for the fiscal years ended December 31, 2013 and 2014.

 

      2013      2014  

Audit Fees(1)

   $ 6,029,000       $ 6,279,000   

Audit-Related Fees(2)

     829,495         2,566,582   

Tax Fees(3)

     533,387         533,132   

All Other Fees(4)

     18,862         14,140   

 

 

(1) Audit Fees — These are fees for professional services performed by Deloitte for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s Form 10-Q filings, and services that are normally provided in connection with statutory and regulatory filings or engagements.

 

(2) Audit-Related Fees — These are fees for the assurance and related services performed by De