DEF 14A 1 mdu2015proxy.htm DEF 14A Wdesk | MDU 2015 Proxy

 
 
 

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.         )

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¨    Soliciting Material under §240.14a-12

MDU Resources Group, Inc.
(Name of Registrant as Specified In Its Charter)
____________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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March 18, 2015
To Our Stockholders:
Please join us for the 2015 Annual Meeting of Stockholders. The meeting will be held on Tuesday, April 28, 2015, at 11:00 a.m., Central Daylight Saving Time, at 909 Airport Road, Bismarck, North Dakota.
The formal matters are described in the accompanying Notice of Annual Meeting of Stockholders and Proxy Statement. We also will have a brief report on current matters of interest. Lunch will be served following the meeting.
We were pleased with the stockholder response for the 2014 Annual Meeting at which 90.21 percent of the common stock was represented in person or by proxy. We hope for an even greater representation at the 2015 meeting.
You may vote your shares by telephone, by the Internet, or by returning the enclosed proxy card. Representation of your shares at the meeting is very important. We urge you to submit your proxy promptly.
Brokers may not vote your shares on two of the three matters to be presented if you have not given your broker specific instructions as to how to vote. Please be sure to give specific voting instructions to your broker so that your vote can be counted.
All stockholders who find it convenient to do so are cordially invited and urged to attend the meeting in person. Registered stockholders will receive a request for admission ticket(s) with their proxy card that can be completed and returned to us postage-free. Stockholders whose shares are held in the name of a bank or broker will not receive a request for admission ticket(s). They should, instead, (1) call (701) 530-1000 to request an admission ticket(s), (2) bring a statement from their bank or broker showing proof of stock ownership as of March 2, 2015, to the annual meeting, and (3) present their admission ticket(s) and photo identification, such as a driver’s license. Directions to the meeting will be included with your admission ticket.
I hope you will find it possible to attend the meeting.
 
Sincerely yours,
 
 
David L. Goodin



 
MDU Resources Group, Inc. Proxy Statement






Proxy Statement
 

MDU RESOURCES GROUP, INC.
1200 West Century Avenue
Mailing Address:
P.O. Box 5650
Bismarck, North Dakota 58506-5650
(701) 530-1000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 28, 2015
Important Notice Regarding the Availability of Proxy Materials for the
Stockholder Meeting to be Held on
April 28, 2015
The 2015 Notice of Annual Meeting and Proxy Statement and 2014 Annual Report
to Stockholders are available at www.mdu.com/proxymaterials.


March 18, 2015
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of MDU Resources Group, Inc. will be held at 909 Airport Road, Bismarck, North Dakota, on Tuesday, April 28, 2015, at 11:00 a.m., Central Daylight Saving Time, for the following purposes:
(1)
Election of ten directors nominated by the board of directors for one-year terms;
(2)
Ratification of the appointment of Deloitte & Touche LLP as the company’s independent registered public accounting firm for 2015;
(3)
Approval, on a non-binding advisory basis, of the compensation of the company’s named executive officers; and
(4)
Transaction of any other business that may properly come before the meeting or any adjournment(s) thereof.
The board of directors has set the close of business on March 2, 2015, as the record date for the determination of common stockholders who will be entitled to notice of, and to vote at, the meeting and any adjournment(s) thereof.
All stockholders who find it convenient to do so are cordially invited and urged to attend the meeting in person. Registered stockholders will receive a request for admission ticket(s) with their proxy card that can be completed and returned to us postage-free. Stockholders whose shares are held in the name of a bank or broker will not receive a request for admission ticket(s). They should, instead, (1) call (701) 530-1000 to request an admission ticket(s), (2) bring a statement from their bank or broker showing proof of stock ownership as of March 2, 2015, to the annual meeting, and (3) present their admission ticket(s) and photo identification, such as a driver’s license. Directions to the meeting will be included with your admission ticket. We look forward to seeing you.
 
By order of the Board of Directors,
 
 
Paul K. Sandness
 
Secretary

 
MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

 
 
 
 
 
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MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

PROXY STATEMENT
The board of directors of MDU Resources Group, Inc. is furnishing this proxy statement beginning March 18, 2015, to solicit your proxy for use at our annual meeting of stockholders on April 28, 2015, and any adjournment(s) thereof. We are soliciting proxies principally by mail, but directors, officers, and employees of MDU Resources Group, Inc. or its subsidiaries may solicit proxies personally, by telephone, or by electronic media, without compensation other than their regular compensation. Okapi Partners LLC additionally will solicit proxies for approximately $8,000 plus out-of-pocket expenses. We will pay the cost of soliciting your proxy and reimburse brokers and others for forwarding proxy materials to you.
The Securities and Exchange Commission’s e-proxy rules allow companies to post their proxy materials on the Internet and provide only a Notice of Internet Availability of Proxy Materials to stockholders as an alternative to mailing full sets of proxy materials except upon request. For 2015, we have elected to use the Securities and Exchange Commission’s full set delivery option, which means that while we are posting our proxy materials online, we are also mailing a full set of our proxy materials to our stockholders. We believe that mailing a full set of proxy materials will help ensure that a majority of outstanding shares of our common stock are present in person or represented by proxy at our meeting. We also hope to help maximize stockholder participation. Therefore, even if you previously consented to receiving your proxy materials electronically, you will receive a full set of proxy materials in the mail for this year’s annual meeting. However, we will continue to evaluate the option of providing only a Notice of Internet Availability of Proxy Materials to some or all of our stockholders in the future.
VOTING INFORMATION
Who may vote? You may vote if you owned shares of our common stock at the close of business on March 2, 2015. You may vote each share that you owned on that date on each matter presented at the meeting and any adjournment(s) thereof. As of March 2, 2015, we had 194,597,172 shares of common stock outstanding entitled to one vote per share.
What am I voting on? You are voting on:
election of ten directors nominated by the board of directors for one-year terms
ratification of the appointment of Deloitte & Touche LLP as the company’s independent registered public accounting firm for 2015
approval, on a non-binding advisory basis, of the compensation of the company’s named executive officers and
any other business that is properly brought before the meeting or any adjournment(s) thereof.
What vote is required to pass an item of business? A majority of our outstanding shares of common stock entitled to vote must be present in person or represented by proxy to hold the meeting.
If you hold shares through an account with a bank or broker, the bank or broker may vote your shares on some matters even if you do not provide voting instructions. Brokerage firms have the authority under the New York Stock Exchange rules to vote shares on certain matters when their customers do not provide voting instructions. However, on other matters, when the brokerage firm has not received voting instructions from its customers, the brokerage firm cannot vote the shares on those matters and a “broker non-vote” occurs. This means that brokers may not vote your shares on items 1 and 3 if you have not given your broker specific instructions as to how to vote. Please be sure to give specific voting instructions to your broker so that your vote can be counted.
Item 1 – Election of Directors
A majority of votes cast is required to elect a director in an uncontested election. A majority of votes cast means the number of votes cast “for” a director’s election must exceed the number of votes cast “against” the director’s election. “Abstentions” and “broker non-votes” do not count as votes cast “for” or “against” the director’s election. In a contested election, which is an election in which the number of nominees for director exceeds the number of directors to be elected, directors will be elected by a plurality of the votes cast. If a nominee becomes unavailable for any reason or if a vacancy should occur before the election, which we do not anticipate, the proxies will vote your shares in their discretion for another person nominated by the board.

 
MDU Resources Group, Inc. Proxy Statement 1


Proxy Statement
 

Our policy on majority voting for directors contained in our corporate governance guidelines requires any proposed nominee for re-election as a director to tender to the board, prior to nomination, his or her irrevocable resignation from the board that will be effective, in an uncontested election of directors only, upon:
receipt of a greater number of votes “against” than votes “for” election at our annual meeting of stockholders and
acceptance of such resignation by the board of directors.
Following certification of the stockholder vote, the nominating and governance committee will promptly recommend to the board whether or not to accept the tendered resignation. The board will act on the nominating and governance committee’s recommendation no later than 90 days following the date of the annual meeting.
Item 2 – Ratification of the Appointment of Deloitte & Touche LLP as the Company’s Independent Registered Public Accounting Firm for 2015
Approval of Item 2 requires the affirmative vote of a majority of our common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal. Abstentions will count as votes “against” the proposal.
Item 3 – Approval, on a Non-Binding Advisory Basis, of the Compensation of the Company’s Named Executive Officers
Approval of Item 3 requires the affirmative vote of a majority of our common stock present in person or represented by proxy at the meeting and entitled to vote on the item. Abstentions will count as votes “against” the item. Broker non-vote shares are not entitled to vote on the item and, therefore, are not counted in the vote.
Unless you specify otherwise when you submit your proxy, the proxies will vote your shares of common stock “for” all directors nominated by the board of directors and “for” items 2 and 3.
How do I vote? If you are a stockholder of record, you may vote by:
calling the toll free telephone number on the enclosed proxy card
using the Internet as described on the enclosed proxy card or
returning the enclosed proxy card in the envelope provided.
If you are a beneficial owner, you must provide voting instructions to your bank, broker, or other nominee to ensure your shares are voted as you would like. You should follow their instructions.
You may also vote in person at the meeting. However, if you are the beneficial owner of the shares, you must obtain a legal proxy from your bank or broker and present it at the meeting. A legal proxy identifies you, states the number of shares you own, and gives you the right to vote those shares. Without a legal proxy we cannot identify you as the beneficial owner of the shares or know how many shares you have to vote.
Can I change my vote? Yes.
If you are a stockholder of record, you may revoke your proxy and change your vote by:
submitting a written revocation to the corporate secretary before the meeting
submitting a proxy bearing a later date to the corporate secretary before the meeting or
voting in person at the meeting.
If you are a beneficial owner, you may change your vote by providing later dated voting instructions to your bank, broker, or other nominee in accordance with their procedures or by obtaining a legal proxy and voting in person at the meeting, as set forth above.


 
2 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

ITEM 1. ELECTION OF DIRECTORS
The board expresses its thanks to J. Kent Wells, who resigned effective February 28, 2015. Mr. Wells had served as a director and vice chairman of the corporation since January 4, 2013, and as president (until July 15, 2014) and chief executive officer of Fidelity Exploration & Production Company since May 2, 2011.
All nominees for director are nominated to serve one-year terms until the annual meeting of stockholders in 2016 and until their respective successors are elected and qualified, or until their earlier resignation, removal from office, or death.
We have provided information below about our nominees, all of whom are incumbent directors, including their ages, years of service as directors, business experience, and service on other boards of directors, including any other directorships held during the past five years. We have also included information about each nominee’s specific experience, qualifications, attributes, or skills that led the board to conclude that he or she should serve as a director of MDU Resources Group, Inc. at the time we file our proxy statement, in light of our business and structure. Unless we specifically note below, no corporation or organization referred to below is a subsidiary or other affiliate of MDU Resources Group, Inc.
Director Nominees
 
Thomas Everist
Director Since 1995
 
65
Compensation Committee
 
 
Mr. Everist has served as president and chairman of The Everist Company, Sioux Falls, South Dakota, an aggregate, concrete, and asphalt production company, since April 15, 2002. He has been a managing member of South Maryland Creek Ranch, LLC, a land development company, since June 2006, president of SMCR, Inc., an investment company, since June 2006, and a managing member of MCR Builders, LLC, which provides residential building services to South Maryland Creek Ranch, LLC, since November 2014. He was previously president and chairman of L.G. Everist, Inc., Sioux Falls, South Dakota, an aggregate production company, from 1987 to April 15, 2002. He held a number of positions in the aggregate and construction industries prior to assuming his current position with The Everist Company. He is a director of Showplace Wood Products, Sioux Falls, South Dakota, a custom cabinets manufacturer, and has been a director of publicly traded Raven Industries, Inc., Sioux Falls, South Dakota, a general manufacturer of electronics, flow controls, and engineered films since 1996, and its chairman of the board since April 1, 2009. Mr. Everist has served as a director and chairman of the board of Everist Genomics, Inc., Ann Arbor, Michigan, which provides solutions for personalized medicines since 2002. He served as Everist Genomics’ chief executive officer from August 2012 to December 2012. He was a director of Angiologix Inc., Mountain View, California, a medical diagnostic device company, from July 2010 through October 2011 when it was acquired by Everist Genomics, Inc. He has been a director of Bell, Inc., Sioux Falls, South Dakota, a manufacturer of folding cartons and packages, since April 2011.
Mr. Everist attended Stanford University where he received a bachelor’s degree in mechanical engineering and a master’s degree in construction management. He is active in the Sioux Falls community and currently serves as a director on the Sanford Health Foundation, a nonprofit charitable health services organization, and co-founder and chairman of the board of Searching for Solutions Institute, a nonprofit public foundation that provides leaders with resources to address critical social issues. From July 2001 to June 2006, he served on the South Dakota Investment Council, the state agency responsible for prudently investing state funds.
The board concluded that Mr. Everist should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement for the following reasons. A significant portion of MDU Resources Group, Inc.’s earnings is derived from its construction services and aggregate mining businesses. Mr. Everist has considerable business experience in this area, with more than 41 years in the aggregate and construction materials industry. He has also demonstrated success in his business and leadership skills, serving as president and chairman of his companies for over 27 years. We value other public company board service. Mr. Everist has experience serving as a director and chairman of another public company, which enhances his contributions to our board. His leadership skills and experience with his own companies and on other boards enable him to be an effective board member and compensation committee chairman. Mr. Everist is our longest serving board member, providing 20 years of board experience as well as extensive knowledge of our business.

 
MDU Resources Group, Inc. Proxy Statement 3


Proxy Statement
 

 
Karen B. Fagg
Director Since 2005
 
Age 61
Compensation Committee
Nominating and Governance Committee

 
 
 
Ms. Fagg served as vice president of DOWL LLC, d/b/a DOWL HKM, an engineering and design firm, from April 2008 until her retirement on December 31, 2011. Ms. Fagg was president from April 1, 1995 to June 2000, and chairman, chief executive officer, and majority owner from June 2000 through March 2008 of HKM Engineering, Inc., Billings, Montana, an engineering and physical science services firm. HKM Engineering, Inc. merged with DOWL LLC on April 1, 2008. Ms. Fagg was employed with MSE, Inc., Butte, Montana, an energy research and development company, from 1976 through 1988, and from 1993 to April 1995 she served as vice president of operations and corporate development director. From 1989 through 1992, Ms. Fagg served a four-year term as director of the Montana Department of Natural Resources and Conservation, Helena, Montana, the state agency charged with promoting stewardship of Montana’s water, soil, energy, and rangeland resources; regulating oil and gas exploration and production; and administering several grant and loan programs.
Ms. Fagg has a bachelor’s degree in mathematics from Carroll College in Helena, Montana. In 2013, she served on a three-person selection committee appointed by the Attorney General to identify trustees for the Montana Healthcare Foundation Board. She also became a board member of the Montana Justice Foundation, whose mission is to achieve equal access to justice for all Montanans through effective funding and leadership, and of the First Interstate BancSystem Foundation, which has a strong commitment to community. She has been a board member of the Billings Chamber of Commerce since July 2009 serving as its chair from July 2013 to July 2014, as well as a member of the Billings Catholic Schools Board since December 2011. She served on the board for St. Vincent’s Healthcare from October 2003 until October 2009, including a term as board chair, on the board of Deaconess Billings Clinic Health System from 1994 to 2002, as a member of the Board of Trustees of Carroll College from 2005 through 2010, and on the board of advisors of the Charles M. Bair Family Trust from 2008 to July 2011, including a term as board chair. From 2007 until December 31, 2011, she was a member of the Montana State University Engineering Advisory Council, whose responsibilities include evaluating the mission and goals of the College of Engineering and assisting in the development and implementation of the college’s strategic plan. From 2002 through 2006, she served on the Montana Board of Investments, the state agency responsible for prudently investing state funds. From 2001 to 2005, she served on the board of Montana State University’s Advanced Technology Park. From 1998 through 2006, she served on the ZooMontana Board and as vice chair from 2005 through 2006.
The board concluded that Ms. Fagg should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement for the following reasons. Construction and engineering, energy, and the responsible development of natural resources are all important aspects of our business. Ms. Fagg has business experience in all these areas, including 17 years of construction and engineering experience at DOWL HKM and its predecessor, HKM Engineering, Inc., where she served as vice president, president, chief executive officer, and chairman. Ms. Fagg also has 14 years of experience in energy research and development at MSE, Inc., where she served as vice president of operations and corporate development director, and four years focusing on stewardship of natural resources as director of the Montana Department of Natural Resources and Conservation. In addition to her industry experience, Ms. Fagg brings to our board over 20 years of business leadership and management experience, including over 8 years as president, chief executive officer, and chairman of her own company, as well as knowledge and experience acquired through her service on a number of Montana state and community boards.

 
4 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

 
David L. Goodin
Director Since 2013
 
Age 53
President and Chief Executive Officer
 
 
Mr. Goodin was elected president and chief executive officer and a director of the company effective January 4, 2013. Prior to that, he served as chief executive officer and president of Intermountain Gas Company effective October 2008, chief executive officer of Cascade Natural Gas Corporation, Montana-Dakota Utilities Co., and Great Plains Natural Gas Co. effective June 2008, president of Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. effective March 2008, and president of Cascade Natural Gas Corporation effective July 2007. He began his career with the company in 1983 at Montana-Dakota Utilities Co., where he served as a division electrical engineer effective May 1983, division electric superintendent effective February 1989, electric systems supervisor effective August 1993, electric systems manager effective April 1999, vice president-operations effective January 2000, and executive vice president-operations and acquisitions effective January 2007. He additionally serves as an executive officer and as chairman of the company’s principal subsidiaries, and of the managing committees of Montana-Dakota Utilities Co. and Great Plains Natural Gas Co.
Mr. Goodin has a bachelor of science degree in electrical and electronics engineering from North Dakota State University, a masters in business administration from the University of North Dakota, and has completed the Advanced Management Program at Harvard School of Business. Mr. Goodin is a registered professional engineer in North Dakota. He is a member of the U.S. Bancorp Western North Dakota Advisory Board. Mr. Goodin is involved in numerous civic organizations, including serving on the board of directors of Sanford Bismarck, an integrated health system dedicated to the work of health and healing, Sanford Living Center, and the North Dakota State University Alumni Association. He also serves on the Board of Trustees for the Missouri Valley YMCA, the Bismarck State College Foundation, and the University of Mary. He is a past board member of several industry associations, including the American Gas Association, the Edison Electric Institute, the North Central Electric Association, the Midwest ENERGY Association, and the North Dakota Lignite Council. Mr. Goodin received the University of Mary Entrepreneurship Award in 2009.
The board concluded that Mr. Goodin should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement for the following reasons. As chief executive officer of MDU Resources Group, Inc., Mr. Goodin is the only officer of the company on our board. With over 30 years of significant, hands-on experience at our company, Mr. Goodin’s long history and deep knowledge and understanding of MDU Resources Group, Inc., its operating companies, and its lines of business bring continuity to the board. Mr. Goodin has demonstrated his leadership abilities and his commitment to our company through his long service to the company, including as chief executive officer and president of the four utility companies. He demonstrated strong leadership skills in integrating Cascade Natural Gas Corporation and Intermountain Gas Company while meeting and exceeding profitability goals. The board’s unanimous election of Mr. Goodin to serve as our president and chief executive officer in January 2013 was in recognition of the board’s belief that he has the strategic vision, operational experience, passion, and values to lead the future growth of the company. The board believes these characteristics make him well-suited to serve on our board, particularly in this challenging economic environment.
 
Mark A. Hellerstein
Director Since 2013
Age 62
Audit Committee
 
 
 
Mr. Hellerstein was chief executive officer of St. Mary Land & Exploration Company (now SM Energy Company), an energy company engaged in the acquisition, exploration, development, and production of crude oil, natural gas, and natural gas liquids, from 1995 until February 2007; he was president from 1992 until June 2006 and executive vice president and chief financial officer from 1991 until 1992. He was first elected to the board of St. Mary in 1992 and served as chairman of the board from 2002 until May 2009. Prior to joining St. Mary, from 1980 to 1991 Mr. Hellerstein’s career included positions as chief financial officer of CoCa Mines Inc., which mined and extracted minerals from lands previously held by the public through the Bureau of Land Management; American Golf Corporation, which manages and owns golf courses in the United States; and Worldwide Energy Corporation, an oil and gas acquisition, exploration, development, and production company with operations in the United States and Canada. Mr. Hellerstein served on the board of directors of Transocean Inc., a leading provider of offshore drilling services for oil and gas wells, from December 2006 to November 2007.

 
MDU Resources Group, Inc. Proxy Statement 5


Proxy Statement
 

Mr. Hellerstein’s leadership has been recognized with induction into the Rocky Mountain Oil and Gas Hall of Fame, and Ernst & Young named Mr. Hellerstein both Rocky Mountain and National Entrepreneur of the Year in 2005 and 2006, respectively. He graduated number one in his class with a bachelor’s degree in accounting from the University of Colorado. Mr. Hellerstein is a certified public accountant (CPA), on inactive status. He received the Elijah Watts Sells Gold Medal award for achieving the highest score in the United States on the November 1974 CPA exam out of 38,000 participants. Mr. Hellerstein has served on the board for Community Resources Inc. since September 2013, which is a nonprofit organization that brings programs into the Denver Public Schools to enhance education. He served as a board director on the Denver Children’s Advocacy Center (Center) from August 2006 until December 2011, including as chairman for the last three years, and continues to participate in and fund the Center’s Safe from the Start Program. The Center’s mission is to provide a continuum of care for traumatized children and their families.
The board concluded that Mr. Hellerstein should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement for the following reasons. MDU Resources Group, Inc. has significant operations in the oil and natural gas industry. Mr. Hellerstein has extensive business experience, recognized excellence, and demonstrated success and leadership, including in the oil and natural gas industry, as a result of his 17 years of senior management experience and service as board chairman of St. Mary. His skills and experience enable him to contribute independent insight into the company’s business and operations and the economic environment and long-term strategic issues the company faces. Mr. Hellerstein’s skills and experience in the oil and natural gas industry will enable him to provide valuable guidance to the company in light of the company’s decision to market and potentially sell its oil and natural gas production business. As a certified public accountant, on inactive status, with extensive financial experience as a result of his employment as chief financial officer with several companies, including public companies, Mr. Hellerstein contributes significant finance and accounting knowledge to our board and audit committee. His financial expertise assists the board in its oversight of the company’s financial reporting and financial risk management functions, and supports his service on the audit committee. His service on the board of two publicly traded companies has provided him substantial insight into governance matters, which enhances his contributions to our board. Mr. Hellerstein also brings to the board his knowledge of local, state, and regional issues involving the Rocky Mountain region where we have important operations.
 
A. Bart Holaday
Director Since 2008
 
Age 72
Audit Committee
Nominating and Governance Committee

 
 
 
Mr. Holaday headed the Private Markets Group of UBS Asset Management and its predecessor entities for 15 years prior to his retirement in 2001, during which time he managed more than $19 billion in investments. Prior to that he was vice president and principal of the InnoVen Venture Capital Group, a venture capital investment firm. He was founder and president of Tenax Oil and Gas Corporation, an onshore Gulf Coast exploration and production company, from 1980 through 1982. He has four years of senior management experience with Gulf Oil Corporation, a global energy and petrochemical company, and eight years of senior management experience with the federal government, including the Department of Defense, Department of the Interior, and the Federal Energy Administration. He is currently the president and owner of Dakota Renewable Energy Fund, LLC, which invests in small companies in North Dakota. He is a member of the investment advisory board of Commons Capital LLC, a venture capital firm; is a director of Hull Investments, LLC, a private entity that combines nonprofit activities and investments; serves on the Board of Trustees for the University of Jamestown; is a member of the board of directors of Adams Street Partners, LLC, a private equity investment firm, Alerus Financial, a financial services company, the United States Air Force Academy Endowment (former chairman), the Falcon Foundation (director and former vice president), which provides scholarships to Air Force Academy applicants, the Center for Innovation Foundation at the University of North Dakota (trustee and former chairman), and Discover Goodwill of southern and western Colorado, a nonprofit organization providing job training, placement, and retention programs for people transitioning from welfare to work; and is chairman and chief executive officer of the Dakota Foundation, a nonprofit foundation that fosters social entrepreneurship. He is a past member of the board of directors of the University of North Dakota Foundation, National Venture Capital Association, Walden University, and the U.S. Securities and Exchange Commission advisory committee on the regulation of capital markets, and is a past member of the board of trustees for The Colorado Springs Child Nursery Centers Foundation, a nonprofit organization that supports the operations of Early Connections Learning Centers, a nonprofit child care organization in Colorado.
Mr. Holaday has a bachelor’s degree in engineering sciences from the U.S. Air Force Academy. He was a Rhodes Scholar, earning a bachelor’s degree and a master’s degree in politics, philosophy, and economics from Oxford University. He also earned a law degree from George Washington Law School and is a Chartered Financial Analyst. In 2005, he was awarded an honorary Doctor of Letters from the University of North Dakota.

 
6 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

The board concluded that Mr. Holaday should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement for the following reasons. MDU Resources Group, Inc. has significant operations in the oil and natural gas industry. Mr. Holaday has extensive business knowledge and experience, and has demonstrated success and leadership, including in the oil and natural gas industry. He founded and served as president of Tenax Oil and Gas Corporation. He has four years experience in senior management with Gulf Oil Corporation. His knowledge and experience in the oil and natural gas industry will enable him to provide valuable guidance to the company in light of the company’s decision to market and potentially sell its oil and gas production business. Mr. Holaday has 15 years of experience managing private equity investments, including investments in oil and gas, as the head of the Private Markets Group of UBS Asset Management and its predecessor organizations. Mr. Holaday brings to the board extensive finance and investment experience, as well as business development skills acquired through his work at UBS Asset Management, Tenax Oil and Gas Corporation, Gulf Oil Corporation, and several private equity investment firms. This will enhance the knowledge of the board and provide useful insights and guidance to management in connection not only with our natural gas and oil business, but with all of our businesses. His significant experience in finance supports his service on the audit committee.
 
Dennis W. Johnson
Director Since 2001
 
Age 65
Audit Committee
 
 
 
Mr. Johnson is chairman, chief executive officer, and president of TMI Corporation, and chairman and chief executive officer of TMI Systems Design Corporation, TMI Transport Corporation, and TMI Storage Systems Corporation, all of Dickinson, North Dakota, manufacturers of casework and architectural woodwork. He has been employed at TMI since 1974 serving as president or chief executive officer since 1982. Mr. Johnson is serving his fifteenth year as president of the Dickinson City Commission. He served as a director of the Federal Reserve Bank of Minneapolis from 1993 through 1998. He is a past member and chairman of the Theodore Roosevelt Medora Foundation.
Mr. Johnson has a bachelor of science degree in electrical and electronics engineering, as well as a master of science degree in industrial engineering from North Dakota State University. He has served on numerous industry, state, and community boards, including the North Dakota Workforce Development Council (chairperson), the Decorative Laminate Products Association, the North Dakota Technology Corporation, St. Joseph Hospital Life Care Foundation, St. John Evangelical Lutheran Church, Dickinson State University Foundation, the executive operations committee of the University of Mary Harold Schafer Leadership Center, the Dickinson United Way, and the business advisory council of the Steffes Corporation, a metal manufacturing and engineering firm. He also served on North Dakota Governor Sinner’s Education Action Commission, the North Dakota Job Service Advisory Council, the North Dakota State University President’s Advisory Council, North Dakota Governor Schafer’s Transition Team, and chaired North Dakota Governor Hoeven’s Transition Team. He has received numerous awards, including the 1991 Regional Small Business Person of the Year Award and the Greater North Dakotan Award.
The board concluded that Mr. Johnson should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement for the following reasons. Mr. Johnson has over 40 years of experience in business management, manufacturing, and finance, and has demonstrated his success in these areas, holding positions as chairman, president, and chief executive officer of TMI for 33 years, as well as through his prior service as a director of the Federal Reserve Bank of Minneapolis. His finance experience and leadership skills enable him to make valuable contributions to our audit committee, which he has chaired for eleven years. As a result of his service on a number of state and local organizations in North Dakota, Mr. Johnson has significant knowledge of local, state, and regional issues involving North Dakota, a state where we have significant operations and assets.

 
MDU Resources Group, Inc. Proxy Statement 7


Proxy Statement
 

 
William E. McCracken
Director Since 2013
 
Age 72
Compensation Committee
Nominating and Governance Committee

 
 
 
Mr. McCracken served as chief executive officer of CA, Inc., one of the world’s largest information technology management software companies, from January 2010 until January 7, 2013, after which he served as executive adviser to the new chief executive officer until March 31, 2013, and after that as a consultant to the company until December 31, 2013. Mr. McCracken was a director of CA, Inc. from May 2005 until January 7, 2013, serving as non-executive chairman of the board from June 2007 to September 2009, interim executive chairman from September 2009 to January 2010, and executive chairman from January 2010 to May 2010. He is president of Executive Consulting Group, LLC, a general business consulting firm, since 2002. During his 36-year career with International Business Machines Corporation, a manufacturer of information processing products and a technology, software, and networking systems manufacturer and developer, Mr. McCracken held a number of executive positions, including general manager of IBM printing systems division from 1998 to 2001, general manager of marketing, sales, and distribution for IBM PC Company from 1994 to 1998, and president of IBM’s EMEA and Asia Pacific PC Company from 1993 to 1994. From 1995 to 2001, he served on IBM’s Chairman’s Worldwide Management Council, a group of the top 30 executives at IBM. Mr. McCracken was a director of IKON Office Solutions, Inc., a provider of document management systems and services, from 2003 to 2008, where he served on its audit committee, compensation committee, and strategy committee at various points in time during his tenure as a director.
Mr. McCracken has a bachelor of science degree in physics and mathematics from Shippensburg University. He has served on the board of the National Association of Corporate Directors (NACD), a nonprofit membership organization for corporate board members, since 2010, and was named by the NACD as one of the top 100 most influential people in the boardroom in 2009. He served on that organization’s 2009 blue ribbon commission on risk governance and in 2012 co-chaired its blue ribbon commission on board diversity. He was elected vice-chair and has been a board member of the Millstein Center for Global Markets and Corporate Ownership at Columbia University since 2013 and has been the New York chairman of the Chairmen’s Forum since 2011. He is board chairman of Lutheran Social Ministries of New Jersey, a charitable organization that provides adoption, assisted living, counseling, and immigration and refugee services, and is a former board member of PENCIL, a nonprofit organization that partners businesses with public schools.
The board concluded that Mr. McCracken should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement for the following reasons. Mr. McCracken has extensive executive leadership experience and significant experience in information technology through his tenure at CA, Inc. and IBM. This experience coupled with his service as the chair or a member of the board of other public companies and the NACD will enable him to provide insight into the operations, challenges, and complex issues our company is facing in today’s environment and to make significant contributions to the board’s oversight of operational risk management functions and corporate governance.
 
Patricia L. Moss
Director Since 2003
 
Age 61
Compensation Committee
Nominating and Governance Committee

 
 
 
Ms. Moss served as the president and chief executive officer of Cascade Bancorp, a financial holding company in Bend, Oregon, from 1998 to January 3, 2012. She served as the chief executive officer of Cascade Bancorp’s principal subsidiary, Bank of the Cascades, from 1998 to January 3, 2012, serving also as president from 1998 to 2003. From 1987 to 1998, Ms. Moss served as chief operating officer, chief financial officer, and corporate secretary of Cascade Bancorp. Ms. Moss has been a director of Cascade Bancorp and Bank of the Cascades since 1993 and was elected vice chairman of both boards effective January 3, 2012. Ms. Moss also serves as chairman of the Bank of the Cascades Foundation Inc., a director of the Oregon Investment Fund Advisory Council, a state-sponsored program to encourage the growth of small businesses within Oregon, co-chairs the Oregon Growth Board, a state agency created to improve access to capital and create private-public partnerships, and serves on the City of Bend’s Juniper Ridge management advisory board.

 
8 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

Ms. Moss graduated magna cum laude with a bachelor of science degree in business administration from Linfield College in Oregon and did master’s studies at Portland State University. She received commercial banking school certification at the ABA Commercial Banking School at the University of Oklahoma. She served as a director of the Oregon Business Council, whose mission is to mobilize business leaders to contribute to Oregon’s quality of life and economic prosperity; the Cascades Campus Advisory Board of the Oregon State University; the North Pacific Group, Inc., a wholesale distributor of building materials, industrial and hardwood products, and other specialty products; the Aquila Tax Free Trust of Oregon, a mutual fund created especially for the benefit of Oregon residents; Clear Choice Health Plans Inc., a multi-state insurance company; and as a director and chair of the St. Charles Medical Center.
The board concluded that Ms. Moss should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement for the following reasons. A significant portion of MDU Resources Group, Inc.’s utility, construction services, and contracting operations are located in the Pacific Northwest. Ms. Moss has first-hand business experience and knowledge of the Pacific Northwest economy and local, state, and regional issues through her executive positions at Cascade Bancorp and Bank of the Cascades, where she gained over 30 years of experience. Ms. Moss provides to our board her experience in finance and banking, as well as her experience in business development through her work at Cascade Bancorp and on the Oregon Investment Fund Advisory Council, the Oregon Business Council, and the Oregon Growth Board. This business experience demonstrates her leadership abilities and success in the finance and banking industry. Ms. Moss is also certified as a senior professional in human resources, which makes her well-suited for our compensation committee.
 
Harry J. Pearce
Director Since 1997
 
Age 72
Chairman of the Board
 
 
Mr. Pearce was elected chairman of the board of the company on August 17, 2006. Prior to that, he served as lead director effective February 15, 2001, and was vice chairman of the board from November 16, 2000 until February 15, 2001. Mr. Pearce has been a director and has served on the audit, finance, compensation, and excellence committees of Marriott International, Inc., a major hotel chain, since 1995. He was a director of Nortel Networks Corporation, a global telecommunications company, from January 11, 2005 to August 10, 2009, serving as chairman of the board from June 29, 2005. He retired on December 19, 2003, as chairman of Hughes Electronics Corporation, a General Motors Corporation subsidiary and provider of digital television entertainment, broadband satellite network, and global video and data broadcasting. He had served as a director of Hughes Electronics since 1992. Mr. Pearce was vice chairman and a director of General Motors Corporation, one of the world’s largest automakers, from January 1, 1996 to May 31, 2001, and was general counsel from 1987 to 1994. He served on the President’s Council on Sustainable Development and co-chaired the President’s Commission on the United States Postal Service. Prior to joining General Motors, he was a senior partner in the Pearce & Durick law firm in Bismarck, North Dakota. Mr. Pearce is a director of the United States Air Force Academy Endowment and a trustee of Northwestern University. He is a Fellow of the American College of Trial Lawyers and a member of the International Society of Barristers. He has served as a chairman or director on the boards of numerous nonprofit organizations, including as chairman of the Board of Visitors of the U.S. Air Force Academy, chairman of the U.S. Air Force Academy Sabre Society, chairman of the National Defense University Foundation, and chairman of the Marrow Foundation. Mr. Pearce received a bachelor’s degree in engineering sciences from the U.S. Air Force Academy and a juris doctor degree from Northwestern University’s School of Law. He received an honorary degree of Doctor of Laws from Northwestern University and an honorary degree of Doctor of Engineering from Rose Hulman Institute of Technology.
The board concluded that Mr. Pearce should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement for the following reasons. MDU Resources Group, Inc. values public company leadership and the experience directors gain through such leadership. Mr. Pearce is recognized nationally, as well as in the state of North Dakota, as a business leader and for his business acumen. He has multinational business management experience and proven leadership skills through his position as vice chairman at General Motors Corporation, as well as through his extensive service on the boards of large public companies, including Marriott International, Inc., Hughes Electronics Corporation, where he was chairman, and Nortel Networks Corporation, where he also was chairman. He also brings to our board his long experience as a practicing attorney. In addition, Mr. Pearce has focused on corporate governance issues and was the founding chair of Yale University’s Chairmen’s Forum, an organization comprised of non-executive chairmen of publicly traded companies. Participants in the Chairmen’s Forum discussed ways to enhance the accountability of corporations to owners and promote a deeper understanding of independent board leadership and effective practices of board chairmanship. The board also believes that Mr. Pearce’s values and commitment to excellence make him well-suited to serve as chairman of our board.

 
MDU Resources Group, Inc. Proxy Statement 9


Proxy Statement
 

 
John K. Wilson
Director Since 2003
 
Age 60
Audit Committee
 
 
 
Mr. Wilson was president of Durham Resources, LLC, a privately held financial management company, in Omaha, Nebraska, from 1994 to December 31, 2008. He previously was president of Great Plains Energy Corp., a public utility holding company and an affiliate of Durham Resources, LLC, from 1994 to July 1, 2000. He was vice president of Great Plains Natural Gas Co., an affiliate company of Durham Resources, LLC, until July 1, 2000. The company bought Great Plains Energy Corp. and Great Plains Natural Gas Co. on July 1, 2000. Mr. Wilson also served as president of the Durham Foundation and was a director of Bridges Investment Fund, a mutual fund, and the Greater Omaha Chamber of Commerce. He is presently a director of HDR, Inc., an international architecture and engineering firm, Tetrad Corporation, a privately held investment company, both based in Omaha, and serves on the advisory board of Duncan Aviation, an aircraft service provider, headquartered in Lincoln, Nebraska. He currently serves as executive director of the Robert B. Daugherty Foundation, Omaha, Nebraska, and formerly served on the advisory board of U.S. Bank NA Omaha.
Mr. Wilson is a certified public accountant, on inactive status. He received his bachelor’s degree in business administration, cum laude, from the University of Nebraska – Omaha. During his career, he was an audit manager at Peat, Marwick, Mitchell (now known as KPMG), controller for Great Plains Natural Gas Co., and chief financial officer and treasurer for all Durham Resources entities.
The board concluded that Mr. Wilson should serve as a director of MDU Resources Group, Inc., in light of our business and structure, at the time we file our proxy statement for the following reasons. Mr. Wilson has an extensive background in finance and accounting, as well as extensive experience with mergers and acquisitions, through his education and work experience at a major accounting firm and his later positions as controller and vice president of Great Plains Natural Gas Co., president of Great Plains Energy Corp., and president, chief financial officer, and treasurer for Durham Resources, LLC and all Durham Resources entities. The electric and natural gas utility business was our core business when our company was founded in 1924. That business now operates through four utilities: Montana-Dakota Utilities Co., Great Plains Natural Gas Co., Cascade Natural Gas Corporation, and Intermountain Gas Company. Mr. Wilson is our only non-employee director with direct experience in this area through his prior positions at Great Plains Natural Gas Co. and Great Plains Energy Corp. In addition, Mr. Wilson’s extensive finance and accounting experience make him well-suited for our audit committee.
The board of directors recommends a vote “for” each nominee.
A majority of votes cast is required to elect a director in an uncontested election. A majority of votes cast means the number of votes cast “for” a director’s election must exceed the number of votes cast “against” the director’s election. “Abstentions” and “broker non-votes” do not count as votes cast “for” or “against” the director’s election. In a contested election, which is an election in which the number of nominees for director exceeds the number of directors to be elected and which we do not anticipate, directors will be elected by a plurality of the votes cast.
Unless you specify otherwise when you submit your proxy, the proxies will vote your shares of common stock “for” all directors nominated by the board of directors. If a nominee becomes unavailable for any reason or if a vacancy should occur before the election, which we do not anticipate, the proxies will vote your shares in their discretion for another person nominated by the board.
Our policy on majority voting for directors contained in our corporate governance guidelines requires any proposed nominee for re-election as a director to tender to the board, prior to nomination, his or her irrevocable resignation from the board that will be effective, in an uncontested election of directors only, upon:
receipt of a greater number of votes “against” than votes “for” election at our annual meeting of stockholders and
acceptance of such resignation by the board of directors.
Following certification of the stockholder vote, the nominating and governance committee will promptly recommend to the board whether or not to accept the tendered resignation. The board will act on the nominating and governance committee’s recommendation no later than 90 days following the date of the annual meeting.
Brokers may not vote your shares on the election of directors if you have not given your broker specific instructions as to how to vote. Please be sure to give specific voting instructions to your broker so that your vote can be counted.


 
10 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

ITEM 2. RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The audit committee at its February 2015 meeting appointed Deloitte & Touche LLP as our independent registered public accounting firm for fiscal year 2015. The board of directors concurred with the audit committee’s decision. Deloitte & Touche LLP has served as our independent registered public accounting firm since fiscal year 2002.
Although your ratification vote will not affect the appointment or retention of Deloitte & Touche LLP for 2015, the audit committee will consider your vote in determining its appointment of our independent registered public accounting firm for the next fiscal year. The audit committee, in appointing our independent registered public accounting firm, reserves the right, in its sole discretion, to change an appointment at any time during a fiscal year if it determines that such a change would be in our best interests.
A representative of Deloitte & Touche LLP will be present at the annual meeting and will be available to respond to appropriate questions. We do not anticipate that the representative will make a prepared statement at the meeting; however, he or she will be free to do so if he or she chooses.
The board of directors recommends a vote “for” the ratification of
Deloitte & Touche LLP as our independent registered public accounting firm for
2015.
Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2015 requires the affirmative vote of a majority of our common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal. Abstentions will count as votes against this proposal.
Accounting and Auditing Matters
Fees
The following table summarizes the aggregate fees that our independent registered public accounting firm, Deloitte & Touche LLP, billed or is expected to bill us for professional services rendered for 2014 and 2013:
 
 
2014

 
 
2013
*
Audit Feesa
$
3,135,220
 
$
2,820,940
 
Audit-Related Feesb
 
45,925
 
 
33,800
 
Tax Feesc
 
124,827
 
 
55,006
 
All Other Feesd
 

 
 
1,374,455
 
Total Feese
$
3,305,972
 
$
4,284,201
 
Ratio of Tax and All Other Fees to Audit and Audit-Related Fees
 
3.92

%
 
50.07
%
*
The 2013 amounts were adjusted from amounts shown in the 2014 proxy statement to reflect actual amounts.
 
a 
Audit fees for 2014 and 2013 consisted of fees for services rendered for the audit of our annual financial statements, reviews of quarterly financial statements, subsidiary, statutory and regulatory audits, compliance with loan covenants, agreed upon procedures associated with the annual submission of financial assurance to the North Dakota Department of Health, the issuance of comfort letters relating to a sales agency agreement and offering of common stock, filing Form S-3 and S-8 registration statements (2014 only), work related to responding to a comment letter from the Securities and Exchange Commission (2013 only) and the audit of financial statements for Fidelity Exploration & Production Company (2014 only). Audit fees for 2014 and 2013 include $31,150 and $30,000, respectively, for the financial statement audit of Dakota Prairie Refining, LLC. These fees are paid by Dakota Prairie Refining, but are included in this table because Dakota Prairie Refining is considered a variable interest entity with respect to MDU Resources and consolidated in its financial statements.
b 
Audit-related fees for 2014 and 2013 are associated with accounting research assistance, technical accounting consultation regarding discontinued and continuing operations (2014 only), variable interest entities, guarantees, and financing agreements (2013 only).
c 
Tax fees for 2014 are associated with a cost segregation study, research on R&D credits and the preparation of federal and state tax returns, in each case for Dakota Prairie Refining, LLC. Tax fees for 2013 include consulting services for federal income tax pollution control associated with the Big Stone power plant and $36,687 associated with a cost segregation study for Dakota Prairie Refining. The fees associated with Dakota Prairie Refining are paid by Dakota Prairie Refining, but are included in this table because Dakota Prairie Refining is considered a variable interest entity with respect to MDU Resources and consolidated in its financial statements.
d 
All other fees for 2013 related to assistance in an internal investigation. There were no fees in this category for 2014.
e 
Total fees reported above include out-of-pocket expenses related to the services provided of $421,427 for 2014 and $414,488 for 2013.

 
MDU Resources Group, Inc. Proxy Statement 11


Proxy Statement
 

 
 
 
 
 
Pre-Approval Policy
The audit committee pre-approved all services Deloitte & Touche LLP performed in 2014 in accordance with the pre-approval policy and procedures the audit committee adopted at its August 12, 2003 meeting. This policy is designed to achieve the continued independence of Deloitte & Touche LLP and to assist in our compliance with Sections 201 and 202 of the Sarbanes-Oxley Act of 2002 and related rules of the Securities and Exchange Commission.
The policy defines the permitted services in each of the audit, audit-related, tax, and all other services categories, as well as prohibited services. The pre-approval policy requires management to submit annually for approval to the audit committee a service plan describing the scope of work and anticipated cost associated with each category of service. At each regular audit committee meeting, management reports on services performed by Deloitte & Touche LLP and the fees paid or accrued through the end of the quarter preceding the meeting. Management may submit requests for additional permitted services before the next scheduled audit committee meeting to the designated member of the audit committee, Dennis W. Johnson, for approval. The designated member updates the audit committee at the next regularly scheduled meeting regarding any services that he approved during the interim period. At each regular audit committee meeting, management may submit to the audit committee for approval a supplement to the service plan containing any request for additional permitted services.
In addition, prior to approving any request for audit-related, tax, or all other services of more than $50,000, Deloitte & Touche LLP will provide a statement setting forth the reasons why rendering of the proposed services does not compromise Deloitte & Touche LLP’s independence. This description and statement by Deloitte & Touche LLP may be incorporated into the service plan or included as an exhibit thereto or may be delivered in a separate written statement.
ITEM 3. APPROVAL, ON A NON-BINDING ADVISORY BASIS, OF THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS
In accordance with Section 14A of the Securities Exchange Act of 1934 and Rule 14a-21(a), we are asking our stockholders to approve, in a separate advisory vote, the compensation of our named executive officers as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K. As discussed in the Compensation Discussion and Analysis, our compensation committee and board of directors believe that our current executive compensation program directly links compensation of our named executive officers to our financial performance and aligns the interests of our named executive officers with those of our stockholders. Our compensation committee and board of directors also believe that our executive compensation program provides our named executive officers with a balanced compensation package that includes an appropriate base salary along with competitive annual and long-term incentive compensation targets. These incentive programs are designed to reward our named executive officers on both an annual and long-term basis if they attain specified goals.
Our overall compensation program and philosophy is built on a foundation of these guiding principles:
we pay for performance, with over 50% of our 2014 total target direct compensation for our named executive officers in the form of incentive compensation
we assess the relationship between our named executive officers’ pay and performance on key financial metrics - revenue, profit, return on invested capital, and stockholder return - in comparison to our performance graph peer group
we review competitive compensation data for our named executive officers, to the extent available, and incorporate internal equity in the final determination of target compensation levels
we determine annual performance incentives based on financial criteria that are important to stockholder value, including earnings, earnings per share, and return on invested capital and
we determine long-term performance incentives based on total stockholder return relative to our performance graph peer group.
We are asking our stockholders to indicate their approval of our named executive officer compensation as disclosed in this proxy statement, including the Compensation Discussion and Analysis, the executive compensation tables, and narrative discussion. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers for 2014. Accordingly, the following resolution is submitted for stockholder vote at the 2015 annual meeting:

 
12 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

“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.”
As this is an advisory vote, the results will not be binding on the company, the board of directors, or the compensation committee and will not require us to take any action. The final decision on the compensation of our named executive officers remains with our compensation committee and our board of directors, although our board and compensation committee will consider the outcome of this vote when making future compensation decisions. As the board of directors determined at its meeting in May 2011, we will provide our stockholders with the opportunity to vote on our named executive officer compensation at every annual meeting until the next required vote on the frequency of stockholder votes on named executive officer compensation. The next required vote on frequency will occur at the 2017 annual meeting of stockholders.
The board of directors recommends a vote “for” the approval, on a non-binding advisory basis, of
the compensation of our named executive officers, as disclosed in this proxy statement.
Approval of the compensation of our named executive officers requires the affirmative vote of a majority of our common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal. Abstentions will count as votes against this proposal. Broker non-vote shares are not entitled to vote on this proposal and, therefore, are not counted in the vote.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The following Compensation Discussion and Analysis may contain statements regarding corporate performance targets and goals. These targets and goals are disclosed in the limited context of our compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.
Executive Summary
Named Executive Officers
Our named executive officers for 2014 were:
David L. Goodin, president and chief executive officer of MDU Resources Group, Inc.
Doran N. Schwartz, vice president and chief financial officer
J. Kent Wells, vice chairman of the corporation and chief executive officer of our exploration and production business segment, Fidelity Exploration & Production Company, a direct wholly-owned subsidiary of WBI Holdings, Inc. He was also president of Fidelity until July 15, 2014. Mr. Wells resigned effective February 28, 2015.
Jeffrey S. Thiede, president and chief executive officer of our construction services business segment, MDU Construction Services Group, Inc., and
Steven L. Bietz, president and chief executive officer of our pipelines and energy services segment, WBI Holdings, Inc., which is the parent company of WBI Energy, Inc. and WBI Energy Services, Inc.; Mr. Bietz was a named executive officer in 2012 but not in 2013.
In addition to the business segments above, we have the following business segments:
electric and natural gas distribution, which is comprised of Montana-Dakota Utilities Co., Great Plains Natural Gas Co., Cascade Natural Gas Corporation, and Intermountain Gas Company and
construction materials and contracting, Knife River Corporation.

 
MDU Resources Group, Inc. Proxy Statement 13


Proxy Statement
 

Key Financial Results for 2014
Consolidated GAAP earnings in 2014 were $297.5 million, or $1.55 per share, compared to earnings of $278.2 million, or $1.47 per share, in 2013.
Our total stockholder return for 2014 was (21.2%), as compared to 47.5% for 2013. Our average annual total stockholder return for the five-year period ended December 31, 2014 was 2.8%, compared to 10.5% for the five-year period ended December 31, 2013.
In 2014 the company generated a 7.0% return on invested capital compared to a 6.5% weighted average cost of capital.
Total Realized Pay Compared to Total Compensation from the Summary Compensation Table
The compensation committee believes considering total realized pay, the actual remuneration received by the named executive, is equally as important as considering total compensation as presented in the Summary Compensation Table. Total realized pay reflects the compensation actually earned, which can differ substantially from total compensation as presented in the Summary Compensation Table.
Total compensation as presented in the Summary Compensation Table contains estimated values of grants of performance shares based on multiple assumptions that may or may not come to fruition. In total realized pay, we do not include their value at grant but rather include their value upon vesting at the level they are actually earned. The Summary Compensation Table also shows any increase in pension value, which may result in large part from changes in the valuation assumptions and discount rates used for calculation. We exclude the increase in pension value and above-market earnings on nonqualified deferred compensation from total realized pay because:
the increase in pension value can have a large impact on total compensation as reported in the Summary Compensation Table
when pension value decreases, the negative value does not reduce total compensation as reported in the Summary Compensation Table
even though benefit accruals under our qualified defined benefit pension plan were discontinued effective December 31, 2009, the pension value for 2014 increased due partially to the company’s adoption of updated mortality tables and the use of a lower discount rate and
Supplemental Income Security Plan benefits depend partially on continued employment in the case of Messrs. Goodin and Schwartz.
We define total realized pay as the sum of:
base salary
annual incentive award paid with respect to the year
the value realized upon the vesting of long-term incentive awards of performance shares during the year and
all other compensation as reported in the Summary Compensation Table.
The following table compares total realized pay for our named executives in 2014 to the total compensation as presented in the Summary Compensation Table. This table is not intended to be a substitute for the Summary Compensation Table.
Named Executive Officer
Base Salary
($)

Annual Incentive
 Awards
Paid
($)
Value
Realized
upon
Vesting of
Performance
Shares
($)1

All
Other
Compensation
($)
Total
Realized
Pay
($)

Total Compensation from the Summary Compensation Table
($)
David L. Goodin
 
685,000

830,915
1,047,202

38,686
2,601,803

3,571,637
Doran N. Schwartz
 
360,000

163,080
680,668

34,956
1,238,704

1,195,969
J. Kent Wells
 
600,000

369,750
N/A

21,856
991,606

2,609,290
Jeffrey S. Thiede
 
400,000

730,150
N/A

96,481
1,226,631

1,550,160
Steven L. Bietz
 
380,000

333,552
1,078,573

39,771
1,831,896

1,764,766
1 
Performance shares and dividend equivalents for the 2011-2013 performance period vested at 193% of target and were paid in February 2014.

 
14 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

With respect to our chief executive officer, the following table demonstrates our pay for performance approach for 2010 through 2014 by comparing:
total realized pay, which is the sum of base salary, annual incentive awards paid, all other compensation, and the value realized upon the
vesting of restricted stock during 2010
vesting of performance shares during 2010 (for the 2007 through 2009 performance cycle) and during 2014 (for the 2011 through 2013 performance cycle). None vested during 2011, 2012, or 2013.
total compensation as reported in the Summary Compensation Table and
one-year total stockholder returns for 2010 through 2014.
For years 2010 through 2012, the compensation information is for Mr. Hildestad, our chief executive officer for those years, and for 2013 and 2014, the compensation information is for Mr. Goodin. This table is not intended to be a substitute for the Summary Compensation Table.
 
 
 
 
2010
2011
2012
2013
2014
 
 
 
Total Realized Pay
$2,344,221
$1,742,249
$1,306,474
$2,273,142
$2,601,803
 
 
 
 
 
 
 
 
 
Total Compensation from Summary Compensation Table
$2,860,918
$3,566,327
$2,558,778
$4,047,413
$3,571,637
 
 
 
 
 
 
 
 
 
1 Year Total
Stockholder Return
(11.3
)%
9.1
%
2.1
%
47.5
%
(21.2
)%
 
 
 
 
 
 
Except for 2014, the yearly changes in our chief executive officers’ total realized pay align very closely with yearly changes in total stockholder return. The increase in total realized pay in 2014 is due predominantly to $1,047,202 that vested in 2014 related to the performance shares and dividend equivalents for the 2011 through 2013 performance cycle due to our stockholder performance relative to our performance graph peer group. Additionally, the yearly changes in our chief executive officers’ total compensation from the Summary Compensation Table correspond to the yearly changes in total stockholder return.
Process for Determination of 2014 Compensation
Objectives of our Compensation Program
We have a written executive compensation policy for our Section 16 officers, including all our named executive officers. Our policy’s stated objectives are to:
recruit, motivate, reward, and retain high performing executive talent required to create superior long-term total stockholder return in comparison to our peer group

 
MDU Resources Group, Inc. Proxy Statement 15


Proxy Statement
 

reward executives for short-term performance, as well as the growth in enterprise value over the long-term
provide a competitive package relative to industry-specific and general industry comparisons and internal equity, as appropriate
ensure effective utilization and development of talent by working in concert with other management processes - for example, performance appraisal, succession planning, and management development and
help ensure that compensation programs do not encourage or reward excessive or imprudent risk taking.
Role of Management
Our executive compensation policy calls for an assessment of the competitive pay levels for base salary and incentive compensation for each Section 16 officer position to be conducted at least every two years by an independent consulting firm. Towers Watson conducted the study in 2012 for use by the compensation committee to determine 2013 compensation levels. In 2013, the compensation committee requested the competitive assessment to be completed internally. They directed the vice president-human resources and the human resources department to prepare the competitive assessment in August 2013 on Section 16 officers for their use in establishing 2014 compensation.

The assessment included identifying any material changes to the positions analyzed, updating competitive compensation information, gathering and analyzing relevant general and industry-specific survey data, and updating the base salary structure. The human resources department assessed competitive pay levels for base salary, total annual cash, which is base salary plus target annual incentives, and total direct compensation, which is the sum of total annual cash and the expected value of long-term incentives. The competitive assessment compared our positions to like positions contained in general industry compensation surveys and industry specific compensation surveys. The human resources department aged the survey data from the date of the survey by 2.5% annually to estimate the 2014 competitive targets.

The compensation surveys used in the competitive assessment are listed on the following table:
Survey*
Number of
Companies
Participating
(#)

Median
Number of
Employees
(#) 1

Number of Publicly
Traded
Companies
(#)

Median
Revenue
(000s)
($)

Towers Watson General Industry Executive Compensation DataBank 2012
428

17,909

371

6,154,000

Towers Watson Energy Services Executive Compensation Survey 2012
94

3,120

70

3,280,000

Mercer 2012 Total Compensation Survey for the Energy Sector
313

Not Reported

243

896,000

Towers Watson General Industry Top Management Compensation Survey Report 2012
863

1,837

406

552,000

Pearl Meyer & Partners Natural Gas Transmission Industry 2012 Compensation Survey
19

Not Reported

Not Reported

Not Reported

Effective Compensation, Inc. 2012 Oil and Gas Compensation Survey
123

535

55

Not Reported

*
The information in the table is based solely upon information provided by the publishers of the surveys and is not deemed filed or a part of this Compensation Discussion and Analysis for certification purposes. For a list of companies that participated in the compensation surveys and databases, see Exhibit A.
1 
For the Effective Compensation, Inc. 2012 Oil and Gas Compensation Survey, the number reported as the Median Number of Employees is the average number of employees.


In billions of dollars, our revenues for 2012, 2013, and 2014 were approximately $4.1, $4.5, and $4.7, respectively.
The human resources department also augmented the competitive analysis by using Equilar to provide information on what was reported by companies in our performance graph peer group and by other public companies in relevant industries, as selected by the human resources department and as determined by SIC codes and as disclosed in their SEC filings. The companies referenced via Equilar and the positions for which they were used are found in Exhibit B.
For our president and chief executive officer, the Equilar companies included all companies in our performance graph peer group and data on 95 additional chief executive officers from public companies in the energy, construction, utility, and oil and gas exploration industries with revenues ranging from $1 billion to $8 billion.
For our vice president and chief financial officer, the Equilar companies included all companies in our performance graph peer group and data on 77 additional chief financial officers from public companies in the energy, construction, utility, and oil and gas exploration industries with revenues ranging from $1 billion to $8 billion.

 
16 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

For the chief executive officer of our exploration and production segment, the Equilar data consisted of compensation information on 25 chief operating officers from public companies in the oil and gas exploration and production industries with revenues ranging from $250 million to $1.5 billion, and 33 division heads from public companies in the oil and gas exploration and production industries without regard to revenues.
For the president and chief executive officer of our construction services segment, the Equilar data consisted of compensation information on four chief operating officers and four division heads from public companies in the construction services industry, without regard to revenues.
For the president and chief executive officer of our pipeline and energy services segment, the Equilar data consisted of compensation information on seven chief operating officers from public companies in the energy services industry with revenues ranging up to $1.25 billion and, separately, 27 division heads from public companies in the energy services industry without regard to revenues.
The chief executive officer played an important role in recommending 2014 compensation to the committee for the other named executive officers. The chief executive officer assessed the performance of the named executive officers and considered the relative value of the named executive officers’ positions and their salary grade classifications. He then reviewed the competitive assessment prepared by the human resources department to formulate 2014 compensation recommendations for the compensation committee, other than for himself. The chief executive officer attended compensation committee meetings; however, he was not present during discussions regarding his compensation.
Performance Assessment Program
Our performance assessment program rates performance of our executive officers, except for our chief executive officer, in the following areas, which help determine actual salaries within the range of salaries associated with the executive’s salary grade:
leadership
mentoring
leading with integrity
financial responsibility
achievement focus
safety
risk management
 
 
An executive’s overall performance in our performance assessment program is rated on a scale of one to five, with five as the highest rating denoting distinguished performance. An overall performance above 3.75 is considered commendable performance.
Salary Grades for 2014
The compensation committee determines the named executive officers’ base salaries and target annual and long-term incentives by reference to salary grades. Each salary grade has a minimum, midpoint, and maximum annual salary level with the midpoint targeted at approximately the 50th percentile of the competitive assessment data for positions in the salary grade. The compensation committee may adjust the salary grades away from the 50th percentile in order to balance the external market data with internal equity. The salary grades also have target annual and long-term incentive levels, which are expressed as a percentage of the individual’s actual base salary. We generally place named executive officers into a salary grade based on historical classification of their positions; however, the compensation committee reviews each classification and may place a position into a different salary grade if it determines that the targeted competitive compensation for the position changes significantly or the executive’s responsibilities and/or performance warrants a different salary grade. Individual executives may be paid below, equal to, or above the salary grade midpoint.
The salary grades give the compensation committee flexibility to assign different salaries to individual executives within a salary grade to reflect one or more of the following:
executive’s performance on financial goals and on non-financial goals, including the results of the performance assessment program
executive’s experience, tenure, and future potential
position’s relative value compared to other positions within the company
relationship of the salary to the competitive salary market value
internal equity with other executives and
economic environment of the corporation or executive’s business segment.

 
MDU Resources Group, Inc. Proxy Statement 17


Proxy Statement
 

The committee did not change the named executives’ salary grades, but increased the base salary midpoints for 2014 for salary grades A through L by an average of 1.52% to more closely align with the 50th percentile of the competitive assessment data. The midpoint of salary grade L, which is Mr. Goodin’s salary grade, was increased by 2.3% from $762.5 thousand to $780 thousand; the midpoint of salary grade K, which is Mr. Wells’ salary grade, was increased by 3.0% from $500 thousand to $515 thousand; the midpoint of salary grade J, which is Messrs. Thiede and Bietz’s salary grade, remained at $390 thousand; and the midpoint of salary grade I, which is Mr. Schwartz’s salary grade, was increased by 1.5% from $335 thousand to $340 thousand.
The committee did not change the target incentive compensation guidelines for the salary grades for 2014, except that 2014 target annual and long-term incentives were set at 85% and 60% of base salary, respectively, for the salary grade J president and chief executive officer of the construction services segment (Mr. Thiede) and president and chief executive officer of the construction materials segment, rather than the target annual and long-term incentive guidelines associated with salary grade J of 65% and 90%, respectively, of base salary. In establishing these targets, the committee continued its approach on transitioning these two executive officers’ incentive compensation from what it had been prior to their promotions in 2013 to having their targets equal to those of other salary grade J participants by 2017.
Our named executive officers’ 2014 salary grade classifications and their respective midpoints are:
 
 
2014 Salary Grade Base Salary Midpoint ($000s)
Position
 
Grade
Name
President and CEO
L
David L. Goodin
 
780

 
Vice President and CFO
I
Doran N. Schwartz
 
340

 
Vice Chairman and CEO, Fidelity Exploration & Production Company
K
J. Kent Wells
 
515

 
President and CEO, MDU Construction Services Group, Inc.
J
Jeffrey S. Thiede
 
390

 
President and CEO, WBI Holdings, Inc.
J
Steven L. Bietz
 
390

 
Timing of Compensation Decisions for 2014
The compensation committee, in conjunction with the board of directors, determined all compensation for each named executive officer for 2014. The compensation committee made recommendations to the board of directors regarding compensation of all Section 16 officers, and the board of directors then approved the recommendations.
The compensation committee reviewed the competitive assessment at its August 2013 and November 2013 meetings. At the November 2013 meeting, it established individual base salaries, target annual incentive award levels, and target long-term incentive award levels for 2014. At the February 2014 meeting, the compensation committee and the board of directors determined 2014 annual and long-term incentive awards, along with payments based on performance for the 2013 annual incentive awards and the 2011-2013 performance share awards. The February meeting occurred after the release of earnings for the prior year.
Stockholder Advisory Vote (“Say on Pay”)
Our stockholders had an advisory vote on our named executive officers’ compensation at the 2014 Annual Meeting of Stockholders. Approximately 97% of the shares present in person or represented by proxy and entitled to vote on the matter approved the named executive officers’ compensation. The 97% approval is slightly higher than the results of our say on pay vote at the 2013 Annual Meeting, which was 96%. The compensation committee and the board of directors considered the results of the votes at their May 2014 and November 2014 meetings and did not change our executive compensation program as a result of the votes.
Allocation of Total Target Compensation for 2014
Incentive compensation, which consists of annual cash incentive awards and three-year performance share awards under our Long-Term Performance-Based Incentive Plan, comprises a significant portion of our named executive officers’ total target compensation because:
our named executive officers are in positions to drive, and therefore bear high levels of responsibility for, our corporate performance
incentive compensation is more variable than base salary and dependent upon our performance
variable compensation helps ensure focus on the goals that are aligned with our overall strategy and
the interests of our named executive officers will be aligned with those of our stockholders by making a significant portion of their target compensation contingent upon results that are beneficial to stockholders.

 
18 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

The following table shows the allocation of total target compensation for 2014 among the individual components of base salary, annual incentive, and long-term incentive:
Name
% of Total
Target
Compensation
Allocated to
Base Salary
(%)

 
% of Total Target Compensation
Allocated to Incentives
 
Annual (%)

 
Long-Term (%)

 
Annual +
Long-Term (%)

David L. Goodin
25.0

 
37.5

 
37.5

 
75.0

Doran N. Schwartz
44.4

 
22.2

 
33.4

 
55.6

J. Kent Wells
23.5

 
29.4

 
47.1

 
76.5

Jeffrey S. Thiede
40.8

 
34.7

 
24.5

 
59.2

Steven L. Bietz
39.2

 
25.5

 
35.3

 
60.8

In order to reward long-term growth, the compensation committee generally allocates a higher percentage of total target compensation to the long-term incentive than to the short-term incentive for our higher level executives, since they are in a better position to influence our long-term performance. As discussed later, Mr. Goodin’s long-term incentive percentage was kept at a lower level to balance his higher Supplemental Income Security Plan benefit. Also, Mr. Thiede’s long-term incentive percentage was lower than the guideline, as he transitions from all short-term incentive to a combination of short-term and long-term incentive in connection with his promotion in 2013. Additionally, the long-term incentive, if earned, is paid in company common stock. These awards, combined with our stock retention requirements and stock ownership policy, discussed later, promote ownership of our stock by the named executive officers. The compensation committee believes that, as stockholders, the named executive officers will be motivated to deliver financial results that build wealth for all stockholders over the long-term.
PEER Analysis: Comparison of Pay for Performance Ratios
Each year we compare our named executive officers’ pay for performance ratios to the pay for performance ratios of the named executive officers in the performance graph peer group. This analysis compares the relationship between our compensation levels and our average annual total stockholder return to the peer group over a five-year period. All data used in the analysis, including the valuation of long-term incentives and calculation of stockholder return, were compiled by Equilar, Inc., an independent service provider, which is based on each company’s annual filings for its data collection.
This analysis consisted of dividing what we paid our named executive officers for the years 2009 through 2013 by our average annual total stockholder return for the same five-year period to yield our pay ratio. For the 2009-2013 comparison, we used the 2014 performance graph peer group companies. Our pay ratio was then compared to the pay ratio of the companies in the performance graph peer group, which was calculated by dividing total direct compensation for all the proxy group executives by the sum of each company’s average annual total stockholder return for the same five-year period. The average annual stockholder return is the geometric mean for the five-year period.
For the five-year period of 2009 through 2013, we paid our named executives approximately $4.9 million per point of shareholder return, while the peer group companies paid their named executives approximately $6.4 million per point of shareholder return. The compensation committee believes that the analysis continues to serve a useful purpose in its annual review of compensation for the named executives.
2014 Compensation for Our Named Executive Officers
Base Salaries, Total Annual Compensation, and Total Direct Compensation
David L. Goodin
For 2014, the compensation committee awarded Mr. Goodin, our president and chief executive officer, a 9.6% increase, raising his salary from $625,000 to $685,000, or 87.8% of the midpoint of salary grade L. The committee noted that the $685,000 was below the median salary of $750,000 for the chief executive officers from the performance graph peer companies and below the median salary of $801,500 for the chief executive officers from the salary survey data, both as noted in the competitive assessment. The committee believed the 9.6% increase was appropriate in light of Mr. Goodin’s job maturity, knowledge of the company’s business segments, skill sets, and management style, in addition to 2013 performance, which included earnings per share and return on invested capital results at 103.9% of plan and 103.1% of plan, respectively, as measured on a nine month actual plus three month plan basis. The committee also believed it was appropriate for Mr. Goodin’s 2014 base salary to be less than market and less than the 2014 midpoint due to his newness in the position. The committee established Mr. Goodin’s 2014 target total annual cash compensation at $1,712,500, which was above the median total cash compensation of $1,664,600 paid to chief executive officers from the performance graph peer companies and above the median total cash compensation of $1,532,700 paid to chief executive officers from the salary survey data, both as noted in the competitive assessment.

 
MDU Resources Group, Inc. Proxy Statement 19


Proxy Statement
 

From a total direct compensation perspective, the committee established a target of $2,740,000, which was above the competitive reference point of $2,565,600 for the performance graph peer group and below the competitive reference point of $3,192,800 for the salary survey companies.
Doran N. Schwartz
For 2014, the compensation committee awarded Mr. Schwartz, our vice president and chief financial officer, a 4.3% increase, raising his salary from $345,000 to $360,000, or to 105.9% of the midpoint of salary grade I. Combined with his target annual and long-term incentive, this would result in target total annual compensation of 73% and target total direct compensation of 54% of the 2014 competitive salary survey data at the 50th percentile. The compensation committee’s rationale for the increase was in recognition of his:
assistance in the company delivering earnings per share and return on invested capital results at 103.9% of plan and 103.1% of plan, respectively, as measured on a nine month actual plus three month plan basis
leadership in maintaining excellent relationships with the investment community and
relatively low salary compared to the chief financial officers of performance graph peer companies.
J. Kent Wells
For 2014, the compensation committee awarded Mr. Wells, vice chairman of the corporation and chief executive officer of Fidelity Exploration & Production Company, a 5.3% increase, raising his salary from $570,000 to $600,000 or 116.5% of the midpoint of salary grade K. Combined with his target annual and long-term incentives, this would result in target total annual compensation of 123% and target total direct compensation of 136% of the 2014 competitive salary survey data at the 50th percentile. The compensation committee’s rationale for the increase was in recognition of:
Fidelity Exploration & Production’s continued growth in production and continuing the shift in production mix from natural gas to oil and liquids and
continuing to promote a safety culture at Fidelity Exploration & Production Company.
Jeffrey S. Thiede
For 2014, the compensation committee awarded Mr. Thiede, president and chief executive officer of MDU Construction Services Group, Inc., a 3.9% increase, raising his annual salary from $385,000 to $400,000, or 102.6% of the midpoint of salary grade J. Due to the limited salary survey data on comparable positions, the 2014 competitive assessment was based solely on the Equilar data discussed above under “Role of Management.” Combined with his target annual and long-term incentives, Mr. Thiede’s target total annual compensation and target total direct compensation was 81% and 87%, respectively, of the median proxy pay data on chief operating officers, and 93% and 123%, respectively, of the median proxy pay data on division heads. The committee believed the 3.9% salary increase was appropriate in light of his grasp of financial targets and budget goals and 2013 performance, which included earnings per share and return on invested capital results at 130.1% of plan and 121.9% of plan, respectively, as measured on a nine-month actual plus three-month plan basis for MDU Construction Services Group, Inc.
Steven L. Bietz
For 2014, the compensation committee awarded Mr. Bietz, president and chief executive officer of WBI Holdings, Inc., a 3.3% increase, raising his salary from $367,700 to $380,000, or 97.4% of the midpoint of salary grade J. Combined with his target annual and long-term incentives, this would result in target total annual compensation of 94% and target total direct compensation of 89% of the 2014 competitive salary survey data at the 50th percentile. The compensation committee’s rationale for the increase was in recognition of his leadership in WBI Holdings, Inc.’s expansion in the gas processing and refining areas.
Annual Incentives
What the Performance Measures Are and Why We Chose Them
The compensation committee develops and reviews financial and other corporate performance measures to help ensure that compensation to the executives reflects the success of their respective business segment and/or the corporation, as well as the value provided to our stockholders.
The compensation committee believes earnings, earnings per share, and return on invested capital are very good measurements in assessing a business segment’s performance and the company’s performance from a financial perspective, because:

 
20 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

earnings and earnings per share are generally accepted accounting principle measurements and are key drivers of stockholder return over the long-term and
return on invested capital measures how efficiently and effectively management deploys capital, where sustained returns on invested capital in excess of a business segment’s cost of capital create value for our stockholders.
The compensation committee chose earnings as the performance measure for two business segments. For the construction services segment, selected earnings levels were used in order to balance the difficulty in forecasting as well as earnings volatility for that segment, instead of tying performance to allocated earnings per share and budgeted return on invested capital resulting from the annual planning process. For the exploration and production segment, earnings, as adjusted, were used to motivate the chief executive officer to increase and maintain production at a high level and develop the appropriate mix of production and replacement reserves, without regard to the effect on earnings of non-cash impairments and hedge accounting, the pricing components over which he had no control.
As in prior years, the compensation committee selected allocated earnings per share and return on invested capital for the pipeline and energy services segment, the electric and natural gas distribution segments, and the construction materials and contracting segment to ensure those chief executive officers’ annual incentive payments are closely aligned to criteria promoting long-term growth in stockholder return. We establish these targets in connection with our annual financial planning process, where we assess the economic environment, competitive outlook, industry trends, and company specific conditions to set projections of results. The compensation committee evaluates the projected results and uses this evaluation to establish the incentive plan performance targets based upon recommendation of the chief executive officer. Allocated earnings per share for a business segment is calculated by dividing that business segment’s earnings by the business segment’s portion of the total company weighted average shares outstanding. Return on invested capital for a business segment is calculated by dividing the business segment’s earnings, without regard to after tax interest expense and preferred stock dividends, by the business segment’s average capitalization for the calendar year. If the compensation committee utilizes a return on invested capital target for a business segment, it considers the business segment’s weighted average cost of capital. The weighted average cost of capital is a composite cost of the individual sources of funds including equity and debt used to finance a company’s assets. It is calculated by averaging the cost of debt plus the cost of equity by the proportion each represents in our, or the business segment’s, capital structure.
For the named executive officers working at MDU Resources Group, Inc., who were Messrs. Goodin and Schwartz, the compensation committee continued to base annual incentives on the achievement of performance goals at the business segments: (i) the construction materials and contracting segment, (ii) the construction services segment, (iii) the pipeline and energy services segment, (iv) the exploration and production segment, and (v) the electric and natural gas distribution segments. The compensation committee’s rationale for this approach was to provide greater alignment between the MDU Resources Group, Inc. executives and business segment performance.
As established by the compensation committee in February 2014, the annual performance measures and goal weightings for the business segment leaders were:
Position
Business Segment
Business Segment
Goal Weighting
 
Company
Goal Weighting
Allocated EPS
(%)

ROIC
(%)

Earnings
(%)

 
EPS
(%)1

President and Chief Executive Officer
Exploration and Production


75.0

2 
25.0

President and Chief Executive Officer
Construction Services


75.0

3 
25.0

President and Chief Executive Officer
Pipeline and Energy Services
37.5

37.5


 
25.0

President and Chief Executive Officer
Construction Materials and Contracting
37.5

37.5


 
25.0

President and Chief Executive Officer
Electric and Natural Gas Distribution
37.5

37.5


 
25.0

1 
Earnings per share for purposes of the annual incentive calculation (i) reflect the adjustments referred to in footnote 2 and (ii) exclude the effects on earnings at the MDU Resources level of intersegment eliminations.
2 
Earnings were defined as GAAP earnings reported for the exploration and production segment, adjusted to exclude the (i) effect on earnings of any noncash write-downs of oil and natural gas properties due to ceiling test impairment charges and any associated earnings benefit resulting from lower depletion, depreciation and amortization expenses and (ii) the effect on earnings of any noncash gains and losses that result from (x) ineffectiveness in hedge accounting or (y) derivatives that no longer qualify for hedge accounting treatment.
3 
Earnings were defined as GAAP earnings.

 
MDU Resources Group, Inc. Proxy Statement 21


Proxy Statement
 

Our Named Executive Officers’ Target Annual Incentive Compensation
The compensation committee established the named executive officers’ target annual incentive as a percentage of each officer’s actual 2014 base salary.
Messrs. Goodin’s and Schwartz’s 2014 target annual incentives were based on the following:
Mr. Goodin’s 2014 target annual incentive was unchanged at 150% of base salary, which was above the 91% and 122% of base salary paid to chief executive officer positions based on salary survey data and performance graph peer group data, respectively, from the competitive assessment. The committee’s rationale for assigning an above-market target annual incentive percentage was to offset a below-market target long-term incentive and to ensure, from an internal equity standpoint, that Mr. Goodin’s target incentive was above the target incentives of his direct reports.
Mr. Schwartz’s 2014 target annual incentive was unchanged at 50% of base salary, which was below the 67% and 77% of base salary paid to chief financial officers based on salary survey data and performance graph peer group data, respectively, from the competitive assessment. Notwithstanding this difference, the committee did not increase Mr. Schwartz’s annual incentive target in favor of waiting some additional time before increasing the annual incentive target.
Mr. Wells’ 2014 target incentive was unchanged at 125% of base salary, which was above the 96% of base salary paid to comparable positions in the survey data and above the 82% and 80% of base salary based on proxy pay data from SEC filings as of July 2013, and as compiled by Equilar, on chief operating officers and division heads from companies in relevant industries. The compensation committee determined, as it had in prior years, that the target incentive of 125% of base salary was appropriate given the significant investment in the exploration and production segment and the desire to incentivize and motivate Mr. Wells to generate earnings that can greatly impact overall company earnings.
Mr. Thiede’s 2014 target incentive was set at 85% of base salary, a decrease from 90% of base salary in 2013. The decrease was part of the committee’s plan to decrease his short-term target incentive to 65% of base salary by 2017 while, at the same time, increasing his long-term incentive target to 90% of base salary over the same time period.
Mr. Bietz’s 2014 target incentive was unchanged from 2013 and set at 65% of base salary, which was below the 74% of base salary paid to comparable positions in the survey data. Notwithstanding the difference, the committee did not increase Mr. Bietz’s incentive target for 2014 because the historical trend has shown smaller differences between the incentive target awarded to Mr. Bietz and the competitive data, and the committee determined not to change the target based on a one-year result.
MDU Resources Group, Inc. EPS Goal
The MDU Resources Group, Inc. earnings per share component represented 25% of the award opportunity for all business segment leaders. Payout could range from no payment if the results were below 85% of the $1.48 target to a 200% payout if the results were $1.70 or higher. The committee set the target at $1.48, as adjusted, which was above the 2013 target of $1.27 and below the adjusted 2013 results of $1.49. The 2014 target was established based on adjusted earnings at the exploration and production segment as described in footnote 2 to the table under What the Performance Measures Are and Why We Chose Them above and excluded the effect on earnings at the company level of intersegment eliminations. The 2014 adjusted earnings per share target level reflected:
continued solid execution in all business segments
significant investments in our exploration and production, electric and natural gas distribution, and pipeline and energy services segments and
anticipated lower oil and natural gas commodity prices.
Earnings per share for 2014 were, on a GAAP basis, $1.55 and, on an adjusted basis as described in footnotes 1 and 2 to the table above under What the Performance Measures Are and Why We Chose them, were $1.50. The payment on this component was 109% of target.
Exploration and Production Segment Earnings Goal
For Mr. Wells, 75% of the 2014 award opportunity was based on earnings adjusted as described in footnote 2 to the table above under What the Performance Measures Are and Why We Chose Them. Payout could range from no payment if 2014 earnings were below the 85% level of $81.2 million to a 200% payout if the segment’s 2014 earnings were at or above the 115% level of $109.8 million. For 2014 the 85% to 115% range was wider than the 90% to 110% range for 2013 to accommodate an expected increase in commodity price volatility for 2014.

 
22 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

The committee set the exploration and production segment’s 2014 adjusted earnings target level at $95.5 million, which was above the 2013 target level of $84.0 million and below the 2013 adjusted results of $98.4 million. The 2014 earnings target as compared to 2013 adjusted results and target was due primarily to higher depletion, depreciation and amortization expense, and lower expected commodity prices, as well as expected increased oil production.
The segment’s 2014 earnings were $82.0 million equating to a 29.3% payment on the segment’s earnings component, which coupled with MDU Resources Group, Inc.’s earnings per share being 109% of target, resulted in a 2014 annual incentive payment for Mr. Wells of $369,750 or 49.3% of target.
Construction Services Segment Earnings Goal
For Mr. Thiede, 75% of the 2014 incentive award opportunity was based on the construction services segment’s 2014 earnings, where the payout could range from no payment if the results were below the 70% level of $14.5 million to 250% of the target amount if the results were at or above $35.8 million.
Predetermined earnings levels were selected in order to balance the difficulty in forecasting as well as earnings volatility for that segment. Specifically, earnings of $20.9 million, the result necessary to trigger payment of the target award, equated to a return on invested capital of approximately 7.2%, and earnings of $35.8 million, the result necessary to trigger payment of the maximum award, equated to a return on invested capital of approximately 12.2%. The committee felt these earnings levels were appropriate given the business segment’s 2014 projected weighted average cost of capital was 9%.
The construction services segment’s 2014 earnings were $54.4 million, equating to a 250% payment on the segment’s earnings component, which coupled with MDU Resources Group, Inc.’s earnings per share being 109% of target, resulted in a 2014 annual incentive payment for Mr. Thiede of $730,150 or 214.8% of target.
Pipeline and Energy Services Segment EPS, ROIC, and Safety Goals
For Mr. Bietz, 75% of the 2014 award opportunity was based on the pipeline and energy service segment’s allocated earnings per share and budgeted return on invested capital, equally weighted. Payout could range from no payment if the results were below the 85% level of $0.83 EPS and 3.3% ROIC to a 200% payout if:
the 2014 allocated earnings per share for the segment were at or above the 115% level of $1.13 and
the 2014 return on invested capital was at or above the 115% level of 4.5%.
For 2014, the committee set the pipeline and energy service segment’s allocated earnings per share target at $0.98 and return on invested capital target at 3.9%. The 2014 earnings per share target was below the 2013 target of $1.16, reflecting lower anticipated natural gas storage levels and start-up costs associated with Dakota Prairie Refining, LLC. The 2014 earnings per share target was also above the 2013 earnings per share results of $0.51 due to anticipated improved results from the business segment’s Pronghorn facility, anticipated higher transportation volumes, and the absence of the $9.0 million negative earnings impact associated with the impairment of natural gas gathering assets that occurred in 2013. The 2014 ROIC target of 3.9% was below the 2013 target of 5.4% and above the 2013 actual results of 3.1%, due primarily to the capital investments in Dakota Prairie Refining.
Mr. Bietz also had five individual goals relating to safety results with each goal that was not met reducing the annual incentive award by 1%. The five individual goals were:
each established local safety committee will conduct eight meetings per year
each established local safety committee must conduct four site assessments per year
report motor vehicle accidents and personal injuries by the end of the next business day, which will be achieved only if 85% or more of the reports are submitted by the end of the next business day
achieve the targeted vehicle accident incident rate of 1.85 or less and
achieve the targeted personal injury incident rate of 2.1 or less.

 
MDU Resources Group, Inc. Proxy Statement 23


Proxy Statement
 

Results at the pipeline and energy services segment (before adjustment for the five safety goals) were 138.8% and 130.8%, respectively, of the 2014 allocated earnings per share and return on invested capital measures, equating to 200% of target each. These results, coupled with MDU Resources Group, Inc.’s earnings per share being 109% of target and four of the five safety goals being met, resulted in 175.5% of the target being met, or an award of $433,552. However, the committee used its negative discretion and reduced Mr. Bietz’s award to $333,552 due to the cost overruns and delay in the start date at Dakota Prairie Refining.
Electric and Natural Gas Distribution Segments EPS and ROIC Goals
For the electric and natural gas distribution segments, 75% of the 2014 award opportunity was based on allocated earnings per share and budgeted return on invested capital, equally weighted. Payout could range from no payment if the allocated earnings per share and return on invested capital results were below the 85% level of $1.11 EPS and 4.8% ROIC to a 200% payout if:
the 2014 allocated earnings per share for the segment were at or above the 115% level of $1.50 and
the 2014 return on invested capital was at or above the 115% level of 6.6%.
The committee set the 2014 target for allocated earnings per share at $1.30, which was higher than the 2013 target and equal to the 2013 actual results to reflect anticipated increased operating efficiencies, offset by higher investments. The committee set the 2014 return on invested capital target at 5.7%, which was lower than the 2013 target level and the 2013 actual results to reflect higher invested capital associated with its growth projects. The 2014 return on invested capital target was above the segment’s projected 2014 weighted average cost of capital.
For 2014, the electric and natural gas distribution segments’ earnings per share and return on invested capital were 89.2% and 93.0% of their respective targets, equating to 46.2% and 64.9%, respectively, of the target amount attributable to those components, which coupled with MDU Resources Group, Inc.’s earnings per share being 109% of target, led to overall results for these segments of 68.9% of the 2014 target annual incentive award.
Construction Materials and Contracting Segment EPS and ROIC Goals
For the construction materials and contracting segment, 75% of the 2014 award opportunity was based on allocated earnings per share and budgeted return on invested capital, equally weighted. Payout could range from no payment if the results were below the 70% level of $0.58 EPS and 4.4% ROIC to a 200% payout if:
the 2014 allocated earnings per share for the segment were at or above the 115% level of $0.95 and
the 2014 return on invested capital was at or above the 138% level of 8.7%.
For the construction materials and contracting segment, the committee set the 2014 allocated earnings per share target at $0.83, which was higher than the 2013 target of $0.52 and actual results of $0.77, to reflect anticipated increases in construction materials volumes and construction activity in western North Dakota and Texas. The committee set the 2014 return on invested capital target at 6.3%, higher than the 2013 target of 4.3% and the 2013 actual results of 6.1%, due to higher anticipated earnings.
The construction materials and contracting segment’s 2014 earnings per share and return on invested capital were 95.2% and 98.4% of their respective 2014 targets, equating to 88.0% and 96.0%, respectively, of the target amount attributable to those components, which coupled with MDU Resources Group, Inc.’s earnings per share being 109% of target, led to overall results for this segment of 96.3% of the 2014 target annual incentive award.

 
24 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

The following two tables show the 2013 and 2014 incentive plan performance targets and results by business segment:
 
2013
Incentive Plan
Performance
Targets
 
2013
Incentive
Plan Results
Name
EPS
Business
Segment
($)
 
ROIC
(%)

Business Segment Earnings
(millions)
 ($)

EPS
MDU
Resources
($)

 
EPS
Business
Segment
($) /
(% of Target)

ROIC
(%) /
(% of Target)

Business
 Segment Earnings
($) /
(% of Target)

EPS
MDU
Resources
($) /
(% of Target)

Pipeline and Energy Services
 
 
1.16

5.4


1.27

 
0.51 / 0

3.1 / 0


1.49 / 200

Exploration and Production
 
 


84.0

1.27

 


98.4 / 200

1.49 / 200

Construction Services
 
 


20.9

1.27

 


52.2 / 250


Construction Materials and Contracting
 
 
0.52

4.3


1.27

 
0.77 / 200

6.1 / 146.5


1.49 / 200

Electric and Natural Gas Distribution
 
 
1.20

5.9


1.27

 
1.30 / 155.5

6.1 / 122.6


1.49 / 200

 
2014
Incentive Plan
Performance Targets
 
2014
Incentive Plan
Results
Name
EPS
 Business Segment
($)
 
ROIC
(%)

Business Segment Earnings (millions)
($)

EPS
 MDU Resources
($)

 
EPS
Business
Segment
($) /
(% of Target)

ROIC
(%) /
(% of Target)

Business
 Segment Earnings
($) /
(% of Target)

EPS
MDU
Resources
($) /
(% of Target)
Pipeline and Energy Services
0.98
 
3.9


1.48

 
1.36 / 200

5.1 / 200


1.50 / 109
Exploration and Production
 

95.5

1.48

 


82.0 / 29.3

1.50 / 109
Construction Services
 

20.9

1.48

 


54.4 / 250

1.50 / 109
Construction Materials and Contracting
0.83
 
6.3


1.48

 
0.79 / 88

6.2 / 96


1.50 / 109
Electric and Natural Gas Distribution
1.30
 
5.7


1.48

 
1.16 / 46.2

5.3 / 64.9


1.50 / 109

Messrs. Goodin’s and Schwartz’s 2014 annual incentives were earned at 90.6% of target based on the following:
 
 
Column A
Percentage of
Annual Incentive
Target Achieved
 
Column B
Percentage of
Average Invested
Capital
 
Column A x Column B
 
 
 
 
 
Pipeline and Energy Services
175.5
%
11.1
%
19.5
%
 
Exploration and Production
49.3
%
26.7
%
13.2
%
 
Construction Services
214.8
%
6.6
%
14.2
%
 
Construction Materials and Contracting
96.3
%
19.6
%
18.9
%
 
Electric and Natural Gas Distribution
68.9
%
36.0
%
24.8
%
 
Total (Payout Percentage)
 
 
90.6
%

The committee, however, used its negative discretion and reduced Mr. Goodin’s award from $930,915 to $830,915 due to the cost overruns and delay in the start date of Dakota Prairie Refining.

 
MDU Resources Group, Inc. Proxy Statement 25


Proxy Statement
 

The table below lists each named executive officer’s 2014 base salary, target annual incentive percentage, and the annual incentive earned.
 
Name

2014
Base
Salary
(000s)
($)

2014
Target
Annual
Incentive
(%)


2014
Annual
Incentive
Earned
(% of Target)

 
2014
Annual
Incentive
Earned
(000s)
($)

 
 
 
 
David L. Goodin
685.0
150.0

90.6 / 80.9

1 
830.9

1 
 
Doran N. Schwartz
360.0
50.0

90.6

 
163.1

 
 
J. Kent Wells
600.0
125.0

49.3

 
369.8

 
 
Jeffrey S. Thiede
400.0
85.0

214.8

 
730.2

 
 
Steven L. Bietz
380.0
65.0

175.5 / 135.1

2 
333.6

2 
 
1 
While Mr. Goodin’s annual incentive was earned at 90.6% of target, because the compensation committee reduced his award to $830.9, he actually earned 80.9% of target.
 
2 
While Mr. Bietz’s annual incentive was earned at 175.5% of target, because the compensation committee reduced his award to $333.6, he actually earned 135.1% of target.
Deferral of Annual Incentive Compensation
We provide executives the opportunity to defer receipt of earned annual incentives. If an executive chooses to defer his or her annual incentive, we will credit the deferral with interest at a rate determined by the compensation committee. For 2014, the committee chose to use the average of (i) the number that results from adding the daily Moody’s U.S. Long-Term Corporate Bond Yield Average for “A” rated companies as of the last day of each month for the 12-month period ending October 31 and dividing by 12, and (ii) the number that results from adding the daily Moody’s U.S. Long-Term Corporate Bond Yield Average for “Baa” rated companies as of the last day of each month for the 12-month period ending October 31 and dividing by 12. This resulted in an interest rate of 4.67%. The compensation committee’s reasons for using this approach recognized:
incentive deferrals are a low-cost source of capital for the company and
incentive deferrals are unsecured obligations and, therefore, carry a higher risk to the executives.
2014 Long-Term Incentives
Performance Share Awards
We use the Long-Term Performance-Based Incentive Plan, which has been approved by our stockholders, for long-term incentive compensation, with performance shares as the primary form of long-term incentive compensation. We have not granted stock options since 2001, and in 2011 we amended the plan to no longer permit the grant of stock options or stock appreciation rights; no stock options, stock appreciation rights, or restricted shares are outstanding.
The compensation committee has used relative stockholder return in comparison to the performance graph peer group as the performance measure for a number of years, including the 2014 performance share awards. The performance graph peer group consisted of the following companies when the committee granted performance shares in February 2014.
ALLETE, Inc.
EQT Corporation
SM Energy Company
Alliant Energy Corporation
Granite Construction Incorporated
Sterling Construction Company, Inc.
Atmos Energy Corporation
Martin Marietta Materials, Inc.
Swift Energy Company
Avista Corporation
National Fuel Gas Company
Texas Industries
Bill Barrett Corporation
Northwest Natural Gas Company
Vectren Corporation
Black Hills Corporation
Pike Corporation
Vulcan Materials Company
Comstock Resources, Inc.
Quanta Services, Inc.
Whiting Petroleum Corporation
EMCOR Group, Inc.
Questar Corporation
 
 
The performance measure is our total stockholder return over a three-year measurement period as compared to the total stockholder returns of the companies in our performance graph peer group over the same three-year period. The compensation committee selected the relative stockholder return performance measure because it believes executive pay under a long-term, capital accumulation program such as this should mirror our long-term performance in stockholder return as compared to other public companies in our industries. Payments are made in company stock; dividend equivalents are paid in cash. No dividend equivalents are paid on unvested performance shares.

 
26 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

Total stockholder return is the percentage change in the value of an investment in the common stock of a company, from the closing price on the last trading day in the calendar year preceding the beginning of the performance period, through the last trading day in the final year of the performance period. It is assumed that dividends are reinvested in additional shares of common stock at the frequency paid.
As with the target annual incentive, we determined the target long-term incentive for a given position in part from the competitive assessment and in part by the compensation committee’s judgment on the impact each position has on our total stockholder return. The committee kept the chief executive officer’s target long-term incentive below a level indicated from the competitive assessment. Mr. Goodin’s target was 150% of base salary, below the salary survey median of 207% of base salary and above the performance graph peer group median of 120% of base salary for chief executive officers. The compensation committee has historically set the president and chief executive officer’s target long-term incentive compensation below the level indicated by the salary survey data in the competitive assessment to offset his benefit under the Supplemental Income Security Plan, our nonqualified defined benefit plan, which prior assessments had shown to be higher than competitive levels.
Messrs. Schwartz’s and Wells’ target long-term incentives were unchanged from 2013. Mr. Schwartz’s target long-term incentive of 75% of base salary was below the salary survey median of 175% of base salary and below the performance graph peer group median of 79% of base salary for chief financial officers. Mr. Wells’ target long-term incentive was 200% of base salary, which was above the salary survey median of 138% and above the proxy pay data from SEC filings as of July, 2013, and as compiled by Equilar, of 146% of base salary on chief operating officers and 68% of base salary on division heads from companies in relevant industries. We believed that Mr. Wells’ long-term incentive target was appropriate due to his lack of participation in our supplemental income security plan and our nonqualified defined contribution plan.
Mr. Thiede’s long-term incentive target was set at 60% of base salary for 2014, his first year of participation in the long-term incentive plan. The establishment of his long-term incentive target at 60% of salary was part of the committee’s plan to increase his long-term target incentive to 90% of base salary by 2017 while, at the same time, decreasing his short-term incentive target to 65% of base salary over the same period. Mr. Bietz’s 2014 target long-term incentive was 90% of base salary and was unchanged from 2013. The 90% of target was below the salary survey median of 110% of base salary and above the proxy pay data from SEC filings as of July 2013, and as compiled by Equilar, of 71% of base salary on chief operating officers and 59% of base salary on division heads from companies in relevant industries.
On February 13, 2014, the board of directors, upon recommendation of the compensation committee, made performance share grants to the named executive officers. The compensation committee determined the target number of performance shares granted to each named executive officer by multiplying the named executive officer’s 2014 base salary by his target long-term incentive and then dividing this product by the average of the closing prices of our stock from January 1, 2014 through January 22, 2014, as shown in the following table:
Name
2014
Base
Salary to
Determine
Target
($)

2014
Target
Long-Term
Incentive
at Time of
Grant
(%)

2014
Target
Long-Term
Incentive
at Time of
Grant
($)

 
Average
Closing Price
of Our Stock
From January 1
Through
January 22
($)

 
Resulting
Number of
Performance
Shares
Granted on
February 13
(#)

David L. Goodin
685,000

150

1,027,500

 
30.51

 
33,677

Doran N. Schwartz
360,000

75

270,000

 
30.51

 
8,849

J. Kent Wells
600,000

200

1,200,000

 
30.51

 
39,331

Jeffrey S. Thiede
400,000

60

240,000

 
30.51

 
7,866

Steven L. Bietz
380,000

90

342,000

 
30.51

 
11,209

Assuming our three-year (2014 through 2016) total stockholder return is positive, from 0% to 200% of the target grant will be paid out in February 2017 depending on our total stockholder return compared to the total three-year stockholder returns of companies in our performance graph peer group. The payout percentage will be a function of our rank against our performance graph peer group as delineated in the following table:
Long-Term Incentive Payout Percentages
The Company’s
Percentile Rank
Payout Percentage of
February 13, 2014 Grant
75th or higher
200%
50th
100%
25th
20%
Less than 25th
0%

 
MDU Resources Group, Inc. Proxy Statement 27


Proxy Statement
 

Payouts for percentile ranks falling between the intervals will be interpolated. We also will pay dividend equivalents in cash on the number of shares actually earned for the performance period. The dividend equivalents will be paid in 2017 at the same time as the performance share awards are paid.
As had been established for awards granted beginning in 2011, if our total stockholder return is negative, the shares and dividend equivalents otherwise earned, if any, will be reduced in accordance with the following table:
Total Stockholder Return
Reduction in Award
0% through -5%
50%
-5.01% through -10%
60%
-10.01% through -15%
70%
-15.01% through -20%
80%
-20.01% through -25%
90%
-25.01% or below
100%
The named executive officers must retain 50% of the net after-tax shares that are earned pursuant to this long-term incentive award until the earlier of (i) the end of the two-year period commencing on the date any shares earned under the award are issued and (ii) the executive’s termination of employment.
Payment in February 2014 for 2011 Grants under the Long-Term Performance-Based Incentive Plan
We granted performance shares to our named executive officers under the Long-Term Performance-Based Incentive Plan on February 17, 2011 for the 2011 through 2013 performance period. Our total stockholder return for the 2011 through 2013 performance period was 64.37%, which corresponded to a percentile rank of 87% against our performance graph peer group and resulted in 193% of the shares granted in 2011, plus dividend equivalents, being paid to the named executive officers except for Messrs. Wells and Thiede, who did not participate in the program in 2011.
Clawback
In November 2005, we implemented a guideline for repayment of incentives due to accounting restatements, commonly referred to as a clawback policy, whereby the compensation committee may seek repayment of annual and long-term incentives paid to executives if accounting restatements occur within three years after the payment of incentives under the annual and long-term plans. Under our clawback policy, the compensation committee may require executives to forfeit awards and may rescind vesting, or the acceleration of vesting, of an award.
Post-Termination Compensation and Benefits
Pension Plans
Effective in 2006, we no longer offer defined benefit pension plans to new non-bargaining unit employees. The defined benefit plans available to employees hired before 2006 were amended to cease benefit accruals as of December 31, 2009. The frozen benefit provided through our qualified defined benefit pension plans is determined by years of service and base salary. Effective 2010, for those employees who were participants in defined benefit pension plans and for executives and other non-bargaining unit employees hired after 2006, the company offers increased company contributions to our 401(k) plan. For non-bargaining unit employees hired after 2006, the retirement contribution is 5% of plan eligible compensation. For participants hired prior to 2006, retirement contributions are based on the participant’s age as of December 31, 2009. The retirement contribution is 11.5% for Messrs. Goodin and Bietz, 10.5% for Mr. Schwartz, and 5% for Mr. Wells and Mr. Thiede, which amounts may be reduced in accordance with the provisions of the 401(k) plan.
Supplemental Income Security Plan
Benefits Offered
We offer certain key managers and executives, including all of our named executive officers, except Mr. Wells and Mr. Thiede, benefits under our nonqualified retirement plan, which we refer to as the Supplemental Income Security Plan or SISP. The SISP has a ten-year vesting schedule and was amended to add an additional vesting requirement for benefit level increases occurring on or after January 1, 2010. The SISP provides participants with additional retirement income and death benefits.
We believe the SISP is effective in retaining the talent necessary to drive long-term stockholder value. In addition, we believe that the ten-year vesting provision of the SISP, augmented by an additional three years of vesting for benefit level increases occurring on or after January 1, 2010, helps promote retention of key executive officers.

 
28 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

Benefit Levels
The chief executive officer recommends benefit level increases to the compensation committee for participants except himself. The chief executive officer considers, among other things, the participant’s salary in relation to the salary ranges that correspond with the SISP benefit levels, the participant’s performance, the performance of the applicable business segment or the company, and the cost associated with the benefit level increase.
The chief executive recommended, and the compensation committee approved, a 2014 SISP benefit level increase for Mr. Schwartz. The benefit level increase corresponded to one level below which Mr. Schwartz’s 2014 salary would otherwise qualify. The recommendation was to recognize Mr. Schwartz’s continued growth in assuming the top financial role at the company.
The following table reflects our named executive officers’ SISP levels as of December 31, 2014:
 
 
 
December 31, 2014
 
 
 
Annual SISP Benefits
Name
 
 
Survivor
($)

 
Retirement
($)

 
 
David L. Goodin
 
 
552,960

 
276,480

Doran N. Schwartz
 
 
262,464

 
131,232

J. Kent Wells
 
 
N/A

 
N/A

Jeffrey S. Thiede
 
 
N/A

 
N/A

Steven L. Bietz
 
 
386,640

 
193,320

Nonqualified Defined Contribution Plan
The company adopted the Nonqualified Defined Contribution Plan, or NQDCP, effective January 1, 2012, to provide deferred compensation for a select group of management or highly compensated employees who do not participate in the SISP. The compensation committee, upon recommendation from the chief executive officer, determines which employees will participate in the NQDCP for any year. The compensation committee determines the amount of employer contributions under the plan, which are credited to plan accounts and not funded. After satisfying a four-year vesting requirement for each contribution, the contributions and investment earnings will be distributed to the executive in a lump sum upon separation from service with the company or in annual installments commencing upon the later of (i) separation from service and (ii) age 65. The four-year vesting requirement is waived if the participant dies while employed by the company.
The committee, upon recommendation of the chief executive officer, selected Mr. Thiede as a participant for 2014 with an employer contribution of $75,000 or 18.75% of his base salary as of January 1, 2014. The contribution was awarded to recognize his leadership in the construction services segment’s achievement of a twelve-month return on invested capital, measured at June 30, 2013, of 16.1% as compared to a median return on invested capital of 9.5% at the relevant companies in our performance graph peer group. We believe that Mr. Thiede’s participation in this plan and the four-year vesting requirement enhances retention since he cannot participate in any of our defined benefit retirement plans.
Impact of Tax and Accounting Treatment
The compensation committee may consider the impact of tax and/or accounting treatment in determining compensation. Section 162(m) of the Internal Revenue Code places a limit of $1 million on the amount of compensation paid to certain officers that we may deduct as a business expense in any tax year unless, among other things, the compensation qualifies as performance-based compensation, as that term is used in Section 162(m). Generally, long-term incentive compensation and annual incentive awards for our chief executive officer and those executive officers whose overall compensation is likely to exceed $1 million are structured to be deductible for purposes of Section 162(m) of the Internal Revenue Code, but we may pay compensation to an executive officer that is not deductible. All annual or long-term incentive compensation paid to our named executive officers in 2014 satisfied the requirements for deductibility, except for $195,645 paid to Mr. Thiede in 2014 attributable to his 2013 annual incentive compensation. This incentive award was granted to Mr. Thiede prior to his promotion in May 2013 under a plan that was not approved by stockholders for purposes of Section 162(m) of the Code.
Section 409A of the Internal Revenue Code imposes additional income taxes on executive officers for certain types of deferred compensation if the deferral does not comply with Section 409A. We have amended our compensation plans and arrangements affected by Section 409A with the objective of not triggering any additional income taxes under Section 409A.
Section 4999 of the Internal Revenue Code imposes an excise tax on payments to executives and others of amounts that are considered to be related to a change of control if they exceed levels specified in Section 280G of the Internal Revenue Code. To the extent a change in

 
MDU Resources Group, Inc. Proxy Statement 29


Proxy Statement
 

control triggers liability for an excise tax, payment of the excise tax will be made by the individual. The company will not pay the excise tax. We do not consider the potential impact of Section 4999 or 280G when designing our compensation programs.
The compensation committee also considers the accounting and cash flow implications of various forms of executive compensation. In our financial statements, we record salaries and annual incentive compensation as expenses in the amount paid, or to be paid, to the named executive officers. For our equity awards, accounting rules also require that we record an expense in our financial statements. We calculate the accounting expense of equity awards to employees in accordance with Financial Accounting Standards Board generally accepted accounting principles for stock-based compensation.
Stock Ownership Requirements
We instituted stock ownership guidelines on May 5, 1993, which we revised in November 2010 to provide that executives who participate in our Long-Term Performance-Based Incentive Plan are required within five years to own our common stock equal to a multiple of their base salaries. Stock owned through our 401(k) plan or by a spouse is considered in ownership calculations. Unvested performance shares and other unvested equity awards are not considered in ownership calculations. The level of stock ownership compared to the requirements is determined based on the closing sale price of the stock on the last trading day of the year and base salary at December 31 of each year. Each February the compensation committee receives a report on the status of stock holdings by executives. The committee may, in its sole discretion, grant an extension of time to meet the ownership requirements or take such other action as it deems appropriate to enable the executive to achieve compliance with the policy. The table shows the named executive officers’ holdings as of December 31, 2014:
Name
Assigned
Guideline
Multiple of
Base Salary
Actual
Holdings as a
Multiple of
Base Salary

Number of
Years at
Guideline
Multiple
(#)
David L. Goodin
 
4X
2.25

2.00

1 
Doran N. Schwartz
 
3X
2.79

4.87

2 
J. Kent Wells
 
3X
1.09

3.67

3 
Jeffrey S. Thiede
 
3X
0.13

1.00

4 
Steven L. Bietz
 
3X
4.47

12.33

 
1 Participant must meet ownership requirement by January 1, 2018.
2 Participant must meet ownership requirement by February 17, 2015.
3 Participant must meet ownership requirement by May 1, 2016.
4 Participant must meet ownership requirement by January 1, 2019.
 
The compensation committee may consider the policy and the executive’s stock ownership in determining compensation. The committee, however, did not do so with respect to 2014 compensation.
Policy Regarding Hedging Stock Ownership
Our executive compensation policy prohibits Section 16 officers from hedging their ownership of company common stock. Executives may not enter into transactions that allow the executive to benefit from devaluation of our stock or otherwise own stock technically but without the full benefits and risks of such ownership. See the Security Ownership section of the proxy statement for our policy on margin accounts and pledging of our stock.
Compensation Committee Report
The compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by Regulation S-K,
Item 402(b), with management. Based on the review and discussions referred to in the preceding sentence, the compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in our proxy statement on Schedule 14A.
Thomas Everist, Chairman
Karen B. Fagg
William E. McCracken
Patricia L. Moss

 
30 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

Summary Compensation Table for 2014
Name and
Principal Position
(a)
 
Year
(b)
Salary
($)
(c)

 
Bonus
($)
(d)

 
Stock
Awards
($)
(e)
1

 
Option
Awards
($)
(f)

 
Non-Equity
Incentive Plan
Compensation
($)
(g)

 
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
(h)
2

 
All Other
Compensation
($)
(i)

 
Total
($)
(j)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
David L. Goodin
 
2014
685,000

 

 
1,385,135

 

 
830,915

 
631,901

 
38,686

3 
3,571,637

   President and CEO
 
2013
625,000

 

 
1,241,280

 

 
1,610,625

 
532,991

 
37,517

 
4,047,413

 
 
2012

 

 

 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Doran N. Schwartz
 
2014
360,000

 

 
363,959

 

 
163,080

 
273,974

 
34,956

3 
1,195,969

   Vice President
 
2013
345,000

 

 
342,579

 

 
296,355

 
28,459

 
34,881

 
1,047,274

   and CFO
 
2012
300,000

 

 
179,445

 

 
103,650

 
100,935

 
34,224

 
718,254

 
 
J. Kent Wells
 
2014
600,000

 

 
1,617,684

 

 
369,750

 

 
21,856

3 
2,609,290

   Vice Chairman of the
 
2013
570,000

 

 
1,509,419

 

 
1,425,000

 

 
20,556

 
3,524,975

   Corporation and
 
2012
550,000

 

 
877,331

 

 

 

 
96,470

 
1,523,801

   CEO of Fidelity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Exploration &
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Production Company
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Jeffrey S. Thiede
 
2014
400,000

 

 
323,529

 

 
730,150

 

 
96,481

3 
1,550,160

   President and CEO of
 
2013
367,068

 

 

 

 
825,000

 

 
66,282

 
1,258,350

   MDU Construction
 
2012

 

 

 

 

 

 

 

   Services Group, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Steven L. Bietz
 
2014
380,000

 

 
461,026



 
333,552

 
550,417

 
39,771

3 
1,764,766

   President and CEO of
 
2013
367,700

 

 
438,167

 

 
119,503

 

 
38,591

 
963,961

   WBI Energy, Inc.
 
2012
360,500

 

 
258,765

 

 
347,973

 
329,969

 
37,884

 
1,335,091

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1 
Amounts in this column represent the aggregate grant date fair value of the performance share awards calculated in accordance with Financial Accounting Standards Board generally accepted accounting principles for stock-based compensation in FASB Accounting Standards Codification Topic 718. This column was prepared assuming none of the awards will be forfeited. The amounts were calculated using a Monte Carlo simulation, as described in Note 13 of our audited financial statements in our Annual Report on Form 10-K for the year ended December 31, 2014.
 
 
2 
Amounts shown represent the change in the actuarial present value for years ended December 31, 2012, 2013, and 2014 for the named executive officers’ accumulated benefits under the pension plan, excess SISP, and SISP, collectively referred to as the “accumulated pension change,” plus above-market earnings on deferred annual incentives, if any. The amounts shown are based on accumulated pension change and above-market earnings as of December 31, 2012, 2013, and 2014, as follows:
 
 
Accumulated
Pension Change
 
Above-Market
Earnings
Name
 
12/31/2012
($)

 
12/31/2013
($)

 
12/31/14
($)

 
12/31/2012
($)

 
12/31/2013
($)

 
12/31/14
($)

David L. Goodin
 

 
532,986

 
631,901

 

 
5

 

Doran N. Schwartz
 
100,935

 
28,459

 
273,974

 

 

 

J. Kent Wells
 

 

 

 

 

 

Jeffrey S. Thiede
 

 

 

 

 

 

Steven L. Bietz
 
329,969

 
(261,546)

 
550,417

 

 

 


 
MDU Resources Group, Inc. Proxy Statement 31


Proxy Statement
 

3 All Other Compensation is comprised of:
        
 
401(k)
($)
a

Life
Insurance
Premium
($)

Matching
Charitable
Contribution
($)

Nonqualified
 Defined
Contribution
Plan
($)

Total
($)

David L. Goodin
37,700

156

830


38,686

Doran N. Schwartz
34,500

156

300


34,956

J. Kent Wells
20,800

156

900


21,856

Jeffrey S. Thiede
20,800

156

525

75,000

96,481

Steven L. Bietz
37,700

156

1,915


39,771

a 
Represents company contributions to 401(k) plan, which include matching contributions and contributions made in lieu of pension plan accruals after pension plans were frozen at December 31, 2009.
Grants of Plan-Based Awards in 2014
 
 
 
 
Estimated Future
Payouts Under Non-Equity
Incentive Plan Awards
 
Estimated Future
Payouts Under Equity
Incentive Plan Awards
 
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)
(i)

All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
(j)

Exercise
or Base
Price of
Option
Awards
($/Sh)
(k)

Grant
Date Fair
Value of
Stock and
Option
Awards
($)
(l)

Name
(a)
Grant
Date
(b)
 
Threshold
($)
(c)

 
Target
($)
(d)

 
Maximum
($)
(e)

 
Threshold
(#)
(f)

 
Target
(#)
(g)

 
Maximum
(#)
(h)

 
David L. Goodin
2/13/2014
1 
319,655

 
1,027,500

 
2,124,767

 

 

 

 




 
2/13/2014
2 

 

 

 
6,735

 
33,677

 
67,354

 



1,385,135

Doran N. Schwartz
2/13/2014
3 
55,998

 
180,000

 
372,222

 

 

 

 




 
2/13/2014
2 

 

 

 
1,770

 
8,849

 
17,698

 



363,959

J. Kent Wells
2/13/2014
1 
187,500

 
750,000

 
1,500,000

 

 

 

 




 
2/13/2014
2 

 

 

 
7,866

 
39,331

 
78,662

 



1,617,684

Jeffrey S. Thiede
2/13/2014
1 
199,750

 
340,000

 
807,500

 

 

 

 




 
2/13/2014
2 

 

 

 
1,573

 
7,866

 
15,732

 



323,529

Steven L. Bietz
2/13/2014
3 
61,750

 
247,000

 
494,000

 

 

 

 




 
2/13/2014
2 

 

 

 
2,242

 
11,209

 
22,418

 



461,026

 
 
1 
Annual incentive for 2014 granted pursuant to the MDU Resources Group, Inc. Long-Term Performance-Based Incentive Plan.
2 
Performance shares for the 2014-2016 performance period granted pursuant to the MDU Resources Group, Inc. Long-Term Performance-Based Incentive Plan.
3 
Annual incentive for 2014 granted pursuant to the MDU Resources Group, Inc. Executive Incentive Compensation Plan.
 
 
Narrative Discussion Relating to the Summary Compensation Table
and Grants of Plan-Based Awards Table
Incentive Awards
Annual Incentive
On February 12, 2014, the compensation committee recommended the 2014 annual incentive award opportunities for our named executive officers and the board approved these opportunities at its meeting on February 13, 2014. These award opportunities are reflected in the Grants of Plan-Based Awards table at grant on February 13, 2014, in columns (c), (d), and (e) and in the Summary Compensation Table as earned with respect to 2014 in column (g).
Executive officers may receive a payment of annual cash incentive awards based upon achievement of annual performance measures with a threshold, target, and maximum level. A target incentive award is established based on a percent of the executive’s base salary. Based upon achievement of goals, actual payment may range from 0% to approximately 207% of the target for Messrs. Goodin and Schwartz, from 0% to 200% of the target for Messrs. Wells and Bietz, and from 0% to 237.5% of the target for Mr. Thiede.
In order to be eligible to receive a payment of an annual incentive award under the Long-Term Performance-Based Incentive Plan, Messrs. Goodin, Wells, and Thiede must have remained employed by the company through December 31, 2014, unless the compensation

 
32 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

committee determines otherwise. The committee has full discretion to determine the extent to which goals have been achieved, the payment level, whether any final payment will be made, and whether to adjust awards downward based upon individual performance. Unless otherwise determined and established in writing by the compensation committee within 90 days of the beginning of the performance period, the performance goals may not be adjusted if the adjustment would increase the annual incentive award payment. The compensation committee may use negative discretion and adjust any annual incentive award payment downward, using any subjective or objective measures as it shall determine. The application of any reduction, and the methodology used in determining any such reduction, is in the sole discretion of the compensation committee.
With respect to annual incentive awards granted pursuant to the MDU Resources Group, Inc. Executive Incentive Compensation Plan, which includes Messrs. Schwartz and Bietz, participants who retire during the year at age 65 pursuant to their employer’s bylaws remain eligible to receive an award. Subject to the compensation committee’s discretion, executives who terminate employment for other reasons are not eligible for an award. The compensation committee has full discretion to determine the extent to which goals have been achieved, the payment level, and whether any final payment will be made. Once performance goals are approved by the committee for executive incentive compensation plan awards, the committee generally does not modify the goals. However, if major unforeseen changes in economic and environmental conditions or other significant factors beyond the control of management substantially affected management’s ability to achieve the specified performance goals, the committee, in consultation with the chief executive officer, may modify the performance goals. Such goal modifications will only be considered in years of unusually adverse or favorable external conditions.
Annual incentive awards earned for Messrs. Goodin and Schwartz were determined based on achievement of performance goals at the following business segments - (i) pipeline and energy services, (ii) exploration and production, (iii) construction services, (iv) construction materials and contracting, and (v) electric and natural gas distribution - and were calculated as follows:
 
 
Column A
Percentage of
Annual Incentive
Target Achieved

Column B
Percentage of
Average Invested
Capital

Column A x Column B

 
 
 
 
Pipeline and Energy Services
175.5
%
11.1
%
19.5
%
 
Exploration and Production
49.3
%
26.7
%
13.2
%
 
Construction Services
214.8
%
6.6
%
14.2
%
 
Construction Materials and Contracting
96.3
%
19.6
%
18.9
%
 
Electric and Natural Gas Distribution
68.9
%
36.0
%
24.8
%
 
Total (Payout Percentage)
 
 
90.6
%
Messrs. Wells, Thiede, and Bietz had 2014 award opportunities based 75% on performance goals at their respective segments and 25% on MDU Resources Group, Inc.’s earnings per share.
The 2014 target for the MDU Resources Group 25% award opportunity was established based on consolidated earnings per share, adjusted as described in the footnote to the table below describing Mr. Wells’ 75% award opportunity and also adjusted to exclude the effect on earnings at the company level of intersegment eliminations.
The MDU Resources Group 25% award opportunity was as follows:
MDU Resources Group, Inc.’s adjusted consolidated 2014
earnings per share results
as a % of target
 
Corresponding payment of
annual incentive target
based on adjusted consolidated
earnings per share results
Less than 85%
 
0%
85%
 
25%
90%
 
50%
95%
 
75%
100%
 
100%
103%
 
120%
106%
 
140%
109%
 
160%
112%
 
180%
115%
 
200%

 
MDU Resources Group, Inc. Proxy Statement 33


Proxy Statement
 

The 75% award opportunity available to Mr. Wells was:
 
Exploration and Production’s
2014 earnings* results as
a % of 2014 target
 
Corresponding payment of
annual incentive target
based on earnings
 
Less than 85%
 
0%
 
85%
 
25%
 
90%
 
50%
 
95%
 
75%
 
100%
 
100%
 
103%
 
120%
 
106%
 
140%
 
109%
 
160%
 
112%
 
180%
 
115%
 
200%
*
Earnings is defined as GAAP earnings reported for the exploration and production segment, adjusted to exclude the (i) effect on earnings of any noncash write-downs of oil and natural gas properties due to ceiling test impairment charges and any associated earnings benefit resulting from lower depletion, depreciation, and amortization expenses and (ii) the effect on earnings of any noncash gains and losses that result from (x) ineffectiveness in hedge accounting or (y) derivatives that no longer qualify for hedge accounting treatment.
The 75% award opportunity available to Mr. Thiede was:
 
Construction Services’ 2014
earnings* results as a
% of 2014 target
 
Corresponding payment of
annual incentive target
based on earnings
 
Less than 70%
 
0%
 
70%
 
70%
 
100%
 
100%
 
116%
 
130%
 
130%
 
160%
 
144%
 
190%
 
157%
 
220%
 
171%
 
250%
*
Earnings is defined as GAAP earnings reported for the construction services segment.

The 75% award opportunity available to Mr. Bietz was:
Pipeline and Energy Services’
2014 return on invested
capital results as
a % of 2014 target
(weighted 37.5%)
Corresponding payment
 of annual incentive
 target based on return
 on invested capital
Pipeline and Energy Services’
2014 earnings per share results
as a % of 2014 target
(weighted 37.5%)
Corresponding payment of
annual incentive target
based on earnings per share
Less than 85%
0%
Less than 85%
0%
85%
25%
85%
25%
90%
50%
90%
50%
95%
75%
95%
75%
100%
100%
100%
100%
103%
120%
103%
120%
106%
140%
106%
140%
109%
160%
109%
160%
112%
180%
112%
180%
115%
200%
115%
200%
The pipeline and energy services segment also had five goals relating to the pipeline and energy services segment’s safety results, and each goal that was not met would reduce Mr. Bietz’s annual incentive award payment by 1%.

 
34 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

For discussion of the specific incentive plan performance targets and results, please see the Compensation Discussion and Analysis.
Long-Term Incentive
On February 12, 2014, the compensation committee recommended long-term incentive grants for the named executive officers in the form of performance shares, and the board approved these grants at its meeting on February 13, 2014. These grants are reflected in columns (f), (g), (h), and (l) of the Grants of Plan-Based Awards table and in column (e) of the Summary Compensation Table.
If the company’s 2014-2016 total stockholder return is positive, from 0% to 200% of the target grant will be paid out in February 2017, depending on our 2014-2016 total stockholder return compared to the total three-year stockholder returns of companies in our performance graph peer group. The payout percentage is determined as follows:
The Company’s Percentile Rank
 
Payout Percentage of
February 13, 2014 Grant
75th or higher
 
200%
50th
 
100%
25th
 
20%
Less than 25th
 
0%
Payouts for percentile ranks falling between the intervals will be interpolated. We also will pay dividend equivalents in cash on the number of shares actually earned for the performance period. The dividend equivalents will be paid in 2017 at the same time as the performance share awards are paid.
If the common stock of a company in the peer group ceases to be traded at any time during the 2014-2016 performance period, the company will be deleted from the peer group. Percentile rank will be calculated without regard to the return of the deleted company. If MDU Resources Group, Inc. or a company in the peer group spins off a segment of its business, the shares of the spun-off entity will be treated as a cash dividend that is reinvested in MDU Resources Group, Inc. or the company in the peer group.