DEF 14A 1 d830682ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

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

Check the appropriate box:

 

¨   Preliminary Proxy Statement
¨   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x   Definitive Proxy Statement
¨   Definitive Additional Materials
¨   Soliciting Material Pursuant to §240.14a-12

NATIONAL FUEL GAS COMPANY

(Name of Registrant as Specified in its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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Table of Contents

NATIONAL FUEL GAS COMPANY

 

Notice of Annual Meeting

and

Proxy Statement

 

Annual Meeting of Stockholders

to be held on

March 12, 2015


Table of Contents

WHY YOUR VOTE IS IMPORTANT

Q: Who is asking for my vote and why am I receiving this document?

A: The Board asks that you vote on the matters listed in the Notice of Annual Meeting, which are more fully described in this Proxy Statement. This Proxy Statement is a document that Securities and Exchange Commission regulations require that we give you when we ask you to sign a proxy designating individuals to vote on your behalf. A proxy, if duly executed and not revoked, will be voted and, if it contains any specific instructions, will be voted in accordance with those instructions.

Q: How many shares are not voted at the Annual Meeting on non-routine matters (like election of directors and proposals other than the ratification of accountant)?

A: 25% of all shares were not voted last year at our Annual Meeting on non-routine matters. Since 2010, brokers have not been able to vote customer shares on non-routine matters. As you can see, this has disenfranchised a significant group of our stockholders.

 

 

LOGO

Q: How can I vote?

A: There are four ways to vote by proxy:

 

   

Vote by Phone by calling 1-800-690-6903: You will need information from your proxy card to vote; have it available and follow the instructions provided.

 

   

Vote by scanning the Quick Response Code LOGO or “QR Code” on the Proxy card: By accessing the QR site through the proxy card you can vote your shares.

 

   

Vote by Internet by going to www.proxyvote.com: You will need information from your proxy card to vote; have it available and follow the instructions provided.

 

   

Vote by Mail: Complete and return the separate enclosed proxy card in the prepaid and addressed envelope.

You may also vote in person at the Annual Meeting. However, if you are the beneficial owner of the shares, you must obtain a legal proxy from the stockholder of record, usually your bank or broker, and bring it with you. 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 owner, and will not know how many shares you have to vote.

 

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TABLE OF CONTENTS

 

2015 PROXY STATEMENT OVERVIEW & SUMMARY

    iii   

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

GENERAL INFORMATION

    1   

• PROPOSAL 1. ELECTION OF DIRECTORS

    4   

Compensation Committee Interlocks and Insider Participation

    12   

Risk Oversight

    12   

Related Person Transactions

    12   

Directors’ Compensation

    13   

Director Compensation Table — Fiscal 2014

    14   

Audit Fees

    15   

Audit Committee Report

    16   

Security Ownership of Certain Beneficial Owners and Management

    17   

Equity Compensation Plan Information

    19   

Executive Compensation

    20   

Compensation Committee Report

    20   

Compensation Discussion and Analysis

    20   

Fiscal 2014 Summary Compensation Table

    40   

Grants of Plan-Based Awards in Fiscal 2014

    42   

Outstanding Equity Awards at Fiscal Year-End 2014

    43   

Option Exercises and Stock Vested in Fiscal 2014

    45   

Pension Benefits

    46   

Fiscal 2014 Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans

    48   

Fiscal 2014 Potential Payments Upon Termination or Change in Control

    49   

•   PROPOSAL 2. RATIFICATION OF BY-LAW THAT DISQUALIFIES DIRECTORS WHO ACCEPT CERTAIN COMPENSATION FROM A THIRD PARTY

    62   

•  PROPOSAL 3. ADVISORY APPROVAL OF NAMED EXECUTIVE OFFICER COMPENSATION

    64   

•  PROPOSAL 4. AMENDMENT AND REAPPROVAL OF THE 2010 EQUITY COMPENSATION PLAN

    71   

•   PROPOSAL 5. RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2015

    81   

•  PROPOSAL 6. A STOCKHOLDER PROPOSAL TO SPIN OFF THE COMPANY’S UTILITY

    82   

•   PROPOSAL 7. A STOCKHOLDER PROPOSAL TO ADD GENDER IDENTITY AND EXPRESSION TO OUR EMPLOYMENT NON-DISCRIMINATION POLICY

    85   

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

    88   

CODE OF ETHICS

    88   

PROPOSALS OF SECURITY HOLDERS FOR THE 2016 ANNUAL MEETING

    89   

OTHER BUSINESS

    89   

WHERE YOU CAN FIND ADDITIONAL INFORMATION

    89   

 

YOUR

VOTE IS IMPORTANT!

PLEASE VOTE BY PHONE, BY QR CODE OR BY INTERNET, OR COMPLETE, SIGN, DATE AND RETURN YOUR PROXY CARD.

 

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2015 Proxy Statement Overview & Summary

This overview and summary includes certain business performance information and highlights information contained elsewhere in this proxy statement. This overview and summary does not contain all of the information that you should consider, and you should read the Company’s Summary Annual Report and Form 10-K and this entire proxy statement carefully before voting.

 

Annual Meeting Voting Matters

The table below summarizes the matters that will be subject to the vote of stockholders at the 2015 Annual Meeting of Stockholders of National Fuel Gas Company:

 

Proposals  

Board Vote

Recommendation

 

Page Number

(for additional details)

1.  Election of Directors

  FOR ALL NOMINEES   Page 4

2.  Ratification of By-Law that Disqualifies Directors who Accept Certain Compensation From a Third Party

  FOR   Page 62

3.  Advisory Approval of Named Executive Officer Compensation

  FOR   Page 64

4.  Amendment and Reapproval of the 2010 Equity Compensation Plan

  FOR   Page 71

5.  Ratification of Auditor

  FOR   Page 81

6.  A Stockholder Proposal to Spin Off the Company’s Utility

  AGAINST   Page 82

7.  A Stockholder Proposal to Add Gender Identity and Expression to Our Employment Non-Discrimination Policy

  AGAINST   Page 85

 

Annual Meeting of Stockholders

 

Ø    Time and Date

   March 12, 2015 at 9:30 a.m. local time

Ø    Location

  

The Ritz-Carlton Golf Resort, Naples

2600 Tiburón Drive, Naples, FL 34109

Ø    Record Date

   January 12, 2015

Ø    Voting Details

   Stockholders as of the record date are entitled to one vote for each share of common stock for each director nominee and each other proposal to be voted.

Ø    Voting Deadline

  

Votes must be received by March 11, 2015.

For employee benefit plans votes must be received by March 10, 2015.

Ø    Attending the Meeting

   National Fuel stockholders as of the record date are entitled to attend the annual meeting. In accordance with our security procedures, all persons attending the annual meeting may be asked for picture identification and proof of stock ownership. Please see “Attending the Meeting” on page 2.

 

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Overview of Business Performance and Long-Term Strategic Initiatives

Fiscal 2014 was another successful year for the Company, both financially and operationally. While each of our business segments had a solid operating performance during fiscal 2014, the Company’s midstream businesses, consisting of the Pipeline & Storage segment and Gathering segment, combined to achieve a remarkable 44% growth in net income. This success results from long-term planning that capitalizes on our strategic geographic location. Our existing and planned interstate pipeline and gathering systems support the growth of Seneca Resources Corporation (“Seneca”), our exploration and production subsidiary, as well as other, non-affiliated Appalachian shale producers.

Also in fiscal 2014, Seneca began the development of its Marcellus Shale acreage in its Western Development Area (“WDA”). The WDA consists of 720,000 acres in western Pennsylvania, largely free of royalties and lease expirations. Seneca’s first two well pads in the WDA (with a total of 15 wells) were brought on line late in the fiscal year. Seneca has de-risked 1,700 to 2,000 well locations there.

In the Eastern Development Area of its Marcellus Shale acreage, Seneca continued to deliver growth in natural gas production and reserves by bringing 35 new wells on line.

2014 Financial and Operating Highlights:

 

   

14% Growth in Earnings per Share: The Company’s earnings per share in fiscal 2014 were $3.52, an increase of 14% over the prior year.

 

   

44% Growth from Midstream Businesses: The Company’s midstream businesses generated combined net income of $110.3 million ($77.6 million in the Pipeline & Storage segment and $32.7 million in the Gathering segment), which was an increase of 44% over the prior year. This growth was driven by new transportation contracts and higher throughput during the fiscal year.

 

   

33% Increase in Natural Gas and Crude Oil Production: Seneca increased its total natural gas and crude oil production to 160.5 billion cubic feet equivalent (“Bcfe”), a 33% increase over the prior year.

 

   

24% Growth in Natural Gas & Crude Oil Reserves: At the end of fiscal 2014, Seneca increased its proved reserves of natural gas and crude oil to 1.913 trillion cubic feet equivalent (“Tcfe”), an increase of 24% over the prior year.

 

   

44th Year of Consecutive Dividend Increases: In June, the Company’s annual dividend rate was increased by 2.7% to $1.54 per share, marking the 44th year of consecutive dividend increases and 112th year of uninterrupted dividend payments. The consolidated financial strength created by the Company’s unique integrated natural gas business model allowed our continued elite dividend record.

 

   

Continued First-Rate Service: During the coldest winter in our utility service territory in 50 years, our servicemen and women in the field, our customer response representatives on the phone, and our dispatch operators and compression engineers kept the gas flowing to all of our customers with minimal disruption. In the rare instances we encountered outages, our crews restored service typically in a matter of hours.

 

 

 

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LOGO

2014 Long-Term Strategic Results

National Fuel’s capital intensive operations require a focus on strategic initiatives, including those between subsidiaries, that may take several years from business planning through completion. The results of this focus include:

 

   

New Major Interstate Pipeline Expansion Projects: In the Pipeline & Storage segment, agreements supporting the construction of two major interstate pipeline expansion projects were executed. Seneca is the anchor shipper on each of the Northern Access 2015 project (through Tennessee Gas Pipeline) and Northern Access 2016 project. These projects, which will have a combined investment of approximately $476 million, will provide Seneca a firm transportation path from its development in the WDA to high-value markets in Canada. While supporting Seneca’s long-term growth, these projects are also a significant growth vehicle for the Pipeline & Storage segment.

 

   

Continued Build Out of the Clermont Gathering System: National Fuel Gas Midstream Corporation is continuing its real-time construction of the Clermont Gathering System, a 1 Bcf per day pipeline that will represent an investment in excess of $500 million when fully constructed. This gathering system is instrumental to the success of Seneca’s long-term WDA Development Program. The build out of this gathering system will continue for a number of years and is fully integrated with Seneca’s drilling plans, such that capital deployment and construction activities are directly coordinated with Seneca’s development in the Marcellus Shale.

 

   

Expanding Natural Gas Gathering and Transportation Capabilities: The Company continues to aggressively pursue opportunities to expand its infrastructure to serve the rapid

 

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growth in volumes of natural gas produced from the Marcellus and Utica shales in Appalachia. Capital expenditures for fiscal 2015 through fiscal 2017 are estimated to be $890 million in the Pipeline & Storage segment and $370 million in the Gathering segment, a combined addition of 85% to the $1.188 billion of Midstream business net property plant and equipment, and 22% to the $5.743 billion of Company net property plant and equipment, both as of the end of fiscal 2014. A substantial portion of this investment relates to the Northern Access 2015 and Northern Access 2016 projects, both designed to provide Seneca production with access to higher-priced commodity markets in Canada.

 

   

Ongoing Natural Gas Development Success: Seneca continues to develop and further delineate its WDA. In addition, Seneca continues to evaluate the technology and design of its horizontal wells in order to maximize its return on capital.

 

Proposal 1 — Nominees for Election as Directors

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES FOR THE BOARD OF DIRECTORS.

Philip C. Ackerman — age 71 

Principal Occupation: Former Chairman of the Board and Former Chief Executive Officer of National Fuel Gas Company

Expertise: Leadership, Industry, Regional

Stephen E. Ewing — Age 70

Principal Occupation: Former Vice Chairman of DTE Energy

Expertise: Leadership, Industry

For complete information on this proposal, please refer to page 4 and following.

 

Proposal 2 — Ratification of By-Law

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF A BY-LAW DISQUALIFYING DIRECTORS WHO ACCEPT CERTAIN COMPENSATION FROM A THIRD PARTY.

The Company By-Law to be voted on is set forth in Appendix C to this Proxy Statement. The Board of Directors (the “Board”) strongly believes that the By-Law is a common sense control that enforces every Director’s fiduciary duty of loyalty to all the stockholders, as a whole, rather than those particular stockholders with which the Director has a separate agreement — a vital, clear and obvious benefit to all stockholders.

The key By-Law language disqualifies from service as a Company director any person who: … is

a party to any … financial arrangement … with any person or entity other than the Company …

or has received any such compensation or other payment from any person or entity other than the

Company … in connection with service as a Director of the Company …

The By-Law then lists certain types of financial arrangements that are not disqualifying under the By-Law, including certain pre-existing employment arrangements.

The Board strongly believes that allowing a multi-tiered Board in which a subset of Directors is compensated and motivated significantly differently from other Directors would be dysfunctional, bad for the stockholders overall, and contrary to the very essence of being a Director of a public company. A Director’s fiduciary obligation is to put the interests of the Company and its stockholders first, and certainly before any conflicting personal interests.

For complete information on this proposal, please refer to page 62 and following.

 

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Proposal 3 — Advisory Approval of Named Executive Officer Compensation

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMPANY’S NAMED EXECUTIVE OFFICER COMPENSATION.

This proposal allows stockholders to take part in a non-binding, advisory vote to approve the compensation of the Company’s named executive officers. The summary below and the discussion in the Compensation Discussion and Analysis beginning on page 20 (as well as the Say-on-Pay Proposal) provide information about the Company’s compensation programs.1

As described in the 2014 Financial and Operating Highlights on page iv, from both a short- and long-term perspective, fiscal 2014 was another successful year operationally and financially. CEO compensation is targeted at approximately P50 of the Hay Energy Industry market data. In addition, as a result of stockholder feedback, the Company has fully transitioned its long-term incentive program from one awarded partially in cash to one awarded fully in equity, two-thirds of which is performance based relative to the Hay peer group. The Board recommends a vote FOR the advisory approval of named executive officer compensation because it believes that the Company’s compensation policies and procedures, as developed following engagement with its stockholders, encourage a culture of pay for performance and are strongly aligned with the interests of the Company’s stockholders.

For complete information on this proposal, please refer to page 64 and following.

 

2014 Advisory Vote on Named Executive Officer Compensation and Stockholder Feedback

2014 Say-on-Pay Vote and Stockholder Engagement

The 2014 Say-on-Pay advisory vote yielded a result of about 96% of votes cast in support of the compensation of the Company’s named executive officers. As in 2012 and 2013, members of Company management continue to hold meetings with some of the Company’s largest stockholders to obtain feedback on the Company’s compensation program, among other topics. The Board and management believe that this engagement facilitates important dialogue from which we gather various important viewpoints.

As a result of the stockholder feedback received in 2012, in 2013 the Compensation Committee of the Board (the “Compensation Committee”) converted a cash-based long-term incentive program to an equity-based program utilizing performance-based restricted stock units (“RSUs”). As with the cash-based program, the RSU program is subject to the same three-year total return on capital performance target relative to companies reported in the Natural Gas Distribution and Integrated Natural Gas Companies group of the Monthly Utility Reports of AUS, Inc. In both programs the target award will vest should the Company rank at the 60th percentile of the peer group. For the RSU program, performance at the 60th percentile will result in fifty percent of the RSUs vesting.

For fiscal 2014, the Compensation Committee adopted a new approach to long-term incentive compensation. Under the new approach, approximately two-thirds of a named executive officer’s long-term incentive award consists of performance shares, split between two distinct performance conditions: one performance condition is tied to 3-year TSR and the other is tied to 3-year total return on capital, both relative to the performance of companies in the Hay peer group (as described below). The remaining approximately one-third of the long-term incentive award consists of time-vested RSUs used as a retention tool. The Compensation Committee’s action represents an evolution from its practice prior to fiscal 2013 of utilizing a cash component for approximately one-half of long-term incentive awards. The Compensation Committee utilized its new approach in fiscal years 2014 and 2015. Assuming stockholder approval of Proposal 4 related to the 2010 Equity Compensation Plan, including the authorization of additional shares, the Compensation Committee expects to continue the new approach in fiscal 2016.

 

1 

Unless otherwise indicated, we intend capitalized and abbreviated terms to have the same meaning in this section as in the CD&A.

 

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CEO Compensation

For fiscal 2014, because of the transition associated with Mr. Smith’s retirement and Mr. Tanski’s assumption of the top executive position, as well as the move away from a long-term incentive partially paid in cash, the Summary Compensation Table does not appropriately reflect the philosophy behind the Compensation Committee’s approach to CEO Compensation.

Below is a chart which compares information provided by Hay, the Compensation Committee’s targeting of Mr. Tanski’s pay for fiscal 2014 and the corresponding amounts contained in the Summary Compensation Table.

Fiscal 2014

CEO Compensation

 

    

Hay P50 Target  

Energy Industry  

    As Targeted by
Compensation Committee  
   

As Contained in the

Summary Compensation Table  

 
Base Salary   $ 914,700        $ 845,625        $ 845,625     
Bonus   $ 966,200        $ 887,906        $ 1,202,225     
Total Cash   $ 1,880,900        $ 1,733,531        $ 2,047,850     
Total Target LTI   $ 2,203,700        $ 2,203,700        $ 2,286,841     
Total Direct Compensation   $ 4,084,600        $ 3,937,231        $ 4,334,691     

 

Compensation Summary and Overview

Objectives of the Compensation Committee

When setting compensation for the Company’s executives, the Compensation Committee’s primary goal is to provide balanced incentives for creating value for stockholders in both the near-term and long-term. In order for this to occur, the Compensation Committee awards a combination of cash and equity components that are designed to:

 

Ø

  

Focus management efforts on both near-term and long-term drivers of stockholder value;

Ø

  

Tie a significant portion of executive compensation to long-term TSR by linking a significant portion of an executive officer’s potential compensation to the future price of the Company’s common stock; and

Ø

  

Attract, motivate, reward and retain management talent in the highly competitive energy industry in order to achieve the objectives that contribute to the overall success of the Company.

Elements of Compensation

The main elements of the 2014 executive compensation program are as follows:

 

Ø

  

Base Salary (Cash) — Provides a predictable base compensation for day-to-day job performance;

Ø

  

Short-Term Performance Incentives (Cash) — Utilizes metrics specific to each executive in order to motivate them to deliver near-term results for stockholders, generally over a period that is no longer than two years; and

Ø

  

Long-Term Performance Incentives (Equity) — Focuses the attention of executives on delivering long-term stockholder value and on maintaining a significant personal investment in the Company through stock ownership.

 

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Recent Changes to the Compensation Program

After meeting with many of our largest stockholders during the past few years and obtaining valuable feedback, the compensation program has been amended in each of the past two years.

These recent changes to the executive compensation program are as follows:

 

Ø

  

Shifting Long-Term Performance Incentive to Equity — Prior to fiscal 2013, the Company granted a combination of equity-based awards (restricted stock and stock appreciation rights (“SARs”)) and performance-based cash awards tied to a total return on capital goal. In fiscal 2013, as an interim step prior to an in-depth review of its long term incentive (“LTI”) approach, the Compensation Committee replaced the cash portion of the program with performance-based RSUs, utilizing the same relative total return on capital metric. For fiscal 2014, the Company further revised the mix of awards to be approximately two-thirds performance shares (split between two distinct relative performance metrics measured over three years against a peer group) and one-third time-vested RSUs (vesting ratably over a 3-year period).

Ø

  

Adoption of Relative Performance Conditions for Fiscal 2014 — As noted above, for fiscal 2014, the Compensation Committee devoted two-thirds of the LTI award to performance shares. The Committee established two distinct performance metrics: 3-year TSR relative to the Hay peer group and 3-year total return on capital relative to the Hay Peer Group.

Ø

  

The CEO is required to own Six Times Base Salary in Company Stock — Our CEO’s stock ownership is approximately 22 times his base salary as of November 28, 2014.

Other Key Compensation Features

 

Ø

  

The Company does not provide tax “gross-ups”;

Ø

  

Named executive officers and other officers are required to meet stock ownership guidelines that range from one to six times base salary;

Ø

  

Equity incentive plans prohibit the repricing or exchange of equity awards without stockholder approval;

Ø

  

The Committee has engaged two independent compensation consultants to assist in setting compensation;

Ø

  

All change-in-control agreements are double triggered; and

Ø

  

The Board has adopted a clawback provision.

 

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“Reported” Pay Does Not Adequately Reflect The Changing Compensation Approach

Given changes by the Compensation Committee (following stockholder outreach) to the LTI program as discussed above, we have provided an additional, supplemental compensation table below in order to distinguish the annual short-term cash incentive from the 3-year long-term cash incentive associated with awards made prior to fiscal 2013, to remove the impact of the move from cash-based LTI to equity-based LTI, and to remove the volatile, significant effects of changes in actuarial assumptions on the value of the named executive officers’ pension benefits disclosed in the 2014 Summary Compensation Table. This table, however, is not a substitute for the Summary Compensation Table, which can be found at page 40 in this proxy statement.

 

Name and Principal Position

  Year     Salary
($)
    Short-Term
Cash
Incentive
($)
    Long-Term
Cash
Incentive
(1)($)
    Stock
Awards
(2)($)
    Option
Awards
($)
    All Other
Compensation
($)
    Total
($)
 

Ronald J. Tanski

    2014        845,625        1,202,225        938,000        1,143,421        0        150,530        4,279,801   

President and Chief

    2013        726,148        802,829        806,680        N/A        458,072        107,613        2,901,342   

Executive Officer of the Company

    2012        681,000        640,140        752,800        344,313        280,005        96,124        2,794,382   

David P. Bauer

    2014        343,500        246,315        262,640        127,080        0        34,949        1,014,484   

Treasurer and Principal Financial

    2013        318,000        233,000        225,120        N/A        113,353        26,042        915,515   

Officer of the Company

    2012        293,750        215,000        75,280        68,863        56,001        23,728        732,622   

Matthew D. Cabell

    2014        617,500        697,219        844,200        389,116        0        99,609        2,647,644   

President of Seneca

    2013        591,250        774,981        562,800        N/A        356,866        80,721        2,366,618   

Resources Corporation

    2012        573,750        445,402        564,600        309,881        252,005        58,412        2,204,050   

Anna Marie Cellino

    2014        518,750        517,272        450,240        285,964        0        77,851        1,850,077   

President of National Fuel

    2013        497,000        543,942        431,480        N/A        249,901        78,171        1,800,494   

Gas Distribution Corporation

    2012        482,250        585,861        423,450        206,588        168,003        79,695        1,945,847   

John R. Pustulka

    2014        500,500        505,380        450,240        277,820        0        90,013        1,823,953   

President of National Fuel

    2013        462,750        415,272        431,480        N/A        235,909        70,306        1,615,717   

Gas Supply Corporation

    2012        425,000        443,573        225,840        206,588        168,003        69,617        1,538,621   

David F. Smith

    2014        341,250        598,382        1,250,166        117,804        0        90,251        2,397,853   

Executive Chairman of the

    2013        776,600        1,378,894        1,435,140        N/A        909,650        168,863        4,669,147   

Board until 4/1/14

    2012        880,000        1,073,160        1,317,400        550,900        448,008        151,211        4,420,679   

 

(1)

For fiscal 2014, Long-Term Cash Incentive represents an estimated payment for the three-year performance period ended September 30, 2014. See footnote 2 to the Summary Compensation Table for more information.

 

(2)

This column reflects: (a) for fiscal 2012, the stock awards listed in the Summary Compensation Table, (b) for fiscal 2013, no entry to emphasize the fact that the stock award in that year was issued in place of the prior long-term cash incentive already listed and (c) for fiscal 2014, one-half the value of the stock awards listed in the Summary Compensation Table to reflect the prior practice of issuing only one-half of LTI as equity. Also, for Mr. Smith, this represents the award for his employment through March 31, 2014.

CEO Compensation in Alignment with Peers

The Compensation Committee understands the importance of using benchmark data that reflects information from companies with comparable business segments over similar time periods. Reflected in the chart below is the Hay Group’s comparison of fiscal 2013 total direct compensation for the Company’s CEO (Mr. Tanski) against that of CEOs in our Hay peer group. The Company’s CEO total direct compensation, shown in the table below, is in line with that of our peers.

Fiscal 2013 is the most recent complete fiscal year for which proxy statement data is available. Fiscal 2014 compensation may not yet be accurately compared to peers because 2014 compensation data for most of those peers is not yet available.

 

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    LOGO         

 

 

CEO and President

 
  Compared to CEO proxy data for fiscal year 2013  

 

                 Total Direct
Compensation
Company   Title   

Sales

($M)

  

 

Actual

  

 

Target

AGL Resources, Inc.

  Chairman, President & CEO    $4,617    $6,831,250    $5,935,080

Atmos Energy Corp.

  President & CEO    $3,886    $4,449,444    $4,058,823

Cabot Oil & Gas Corp.

  Chairman, President & CEO    $1,746    $8,846,710    $7,647,672

Energen Corp.

  Chairman & CEO    $1,739    $5,797,858    $5,814,280

EQT Corp.

  Chairman, President & CEO    $1,862    $7,831,022    $6,213,715

MDU Resources Group, Inc.

  President & CEO    $4,462    $3,476,905    $2,803,780

New Jersey Resources Corp.

  Chairman, President & CEO    $3,198    $2,513,855    $2,507,394

Northwest Natural Gas Co.

  President & CEO    $778    $1,864,445    $1,706,245

Questar Corp.

  Chairman, President & CEO    $1,220    $4,344,280    $3,934,855

Quicksilver Resources, Inc.

  President & CEO    $532    $2,772,307    $3,454,807

Range Resources Corp.

  President & CEO    $1,772    $10,495,667    $9,919,947

SM Energy Co.

  CEO    $2,265    $5,932,674    $5,188,443

Southwest Gas Corp.

  President & CEO    $1,951    $2,204,916    $2,150,820

UGI Corp.

  President & CEO    $7,195    $3,204,172    $3,242,755

Ultra Petroleum Corp.

  Chairman, President & CEO    $913    $5,800,000    $5,000,000

Whiting Petroleum Corp.

  Chairman & CEO    $2,696    $10,095,368    $6,627,000

Summary Statistics

                  

75th Percentile

     $3,370    $7,081,193    $6,004,739

Average

     $2,552    $5,403,805    $4,762,851

Median

     $1,906    $5,123,651    $4,529,412

25th Percentile

     $1,609    $3,096,206    $3,133,011

National Fuel Gas Company

  CEO and President    $1,830    $5,013,112    $4,791,201

Percentile Rank

       44%    49%    52%

Total Direct Compensation = base salary + bonus + long-term incentives (target value for cash and grant date value for equity).

 

 

© 2014 Hay Group. All rights reserved

For complete information on this proposal, please refer to page 64 and following.

 

Proposal 4 — Amendment and Reapproval of the 2010 Equity Compensation Plan

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT AND REAPPROVAL OF THE 2010 EQUITY COMPENSATION PLAN.

We are seeking your approval of the National Fuel Gas Company 2010 Equity Compensation Plan (the “Plan”) for the purposes of (i) amending the Plan solely to increase the number of shares authorized for issuance under the Plan by an additional 3,000,000 shares of our Common Stock, par value $1.00 per share, and (ii) reaffirming the existing performance goals provided under, and other provisions of, the Plan in order to qualify certain performance-based awards to certain of our executive officers as performance-based compensation exempt from the limitation on income tax deductible compensation under Section 162(m) of the Internal Revenue Code (the “Code”).

As a result of stockholder feedback, we have structured a significant part of our management’s compensation in the form of equity awards that directly align the interests of key executives and other key management employees with the interests of the Company’s stockholders in growing the market value of the Company. In addition, in recent years equity awards have become more common in the exploration and production business. These developments naturally result in additional shares being used

 

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against the currently authorized number of shares to grant, which were authorized at a time when the Compensation Committee had determined, based on its business judgment, that long-term incentives should include a cash component.

For complete information on this proposal, please refer to page 71 and following.

 

Proposal 5 — Ratification of Auditors

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THIS APPOINTMENT.

As a matter of good governance, it is important that stockholders vote to ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent auditors for fiscal 2015.

For complete information on this proposal, please refer to page 81 and following.

 

Proposal 6 — A Stockholder Proposal to Spin Off the Company’s Utility

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS STOCKHOLDER PROPOSAL.

The Board believes that a spin-off of its utility subsidiary would reduce stockholder value and put the Company’s elite dividend record at risk. The Company’s unique geographic, operational, commercial and financial integration, in which the Utility is an important part, drives distinct stockholder value creation opportunities. The Board and management have carefully considered this proposal and recommend a vote against it.

For complete information on this proposal, please refer to page 82 and following.

 

Proposal 7 — A Stockholder Proposal to Add Gender Identity and Expression to Our Employment Non-Discrimination Policy

THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS STOCKHOLDER PROPOSAL.

For the second consecutive year, the Company received a stockholder proposal from an institutional investment manager, in the name of its client, Social Justice Fund NW. This proposal is substantially similar to a proposal submitted by that Fund last year which was defeated by more than 66% of the votes cast. As of fiscal 2014 year-end, Social Justice Fund NW (which limits its activity to five northwestern states where the Company does no business) owns 97 shares of Company Common Stock.

The Company is an equal opportunity employer and is fully committed to complying with all equal employment opportunity laws applicable to its employees. Federal regulations that address gender identity for certain employers have been promulgated and are expected to be effective in April, 2015. Once the regulations become effective, the Company will amend its policy to be in compliance. Thus, the Company believes that the proposal is unnecessary.

For complete information on this proposal, please refer to page 85 and following.

 

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NATIONAL FUEL GAS COMPANY

6363 MAIN STREET

WILLIAMSVILLE, NEW YORK 14221

January 23, 2015

Dear Stockholders of National Fuel Gas Company:

We are pleased to invite you to join us at the Annual Meeting of Stockholders of National Fuel Gas Company. The meeting will be held at 9:30 a.m. local time on March 12, 2015 at The Ritz-Carlton Golf Resort, Naples, 2600 Tiburón Drive, Naples, Florida, 34109. The matters on the agenda for the meeting are outlined in the enclosed Notice of Annual Meeting and Proxy Statement.

So that you may elect Company directors and secure the representation of your interests at the Annual Meeting, we urge you to vote your shares. The preferred methods of voting are by telephone, by Quick Response Code or (“QR Code”) or by Internet as described on the proxy card. These methods are both convenient for you and reduce the expense of soliciting proxies for the Company. If you prefer not to vote by telephone or the Internet, please complete, sign and date your proxy card and mail it in the envelope provided. The Proxies are committed by law to vote your shares as you instruct on the proxy card, by telephone, by QR Code or by Internet.

The Company’s annual proxy statement contains important stockholder and/or company proposals for which votes are needed in order to be passed — and your vote is always important. Stockholder voting is the primary means by which stockholders can influence a company’s operations and its corporate governance. In fact, stockholders who do vote can influence the outcome of the election in greater proportion than their percentage share ownership.

Your vote is important. Please make your voice heard by voting your shares on these important matters.

If you plan to be present at the Annual Meeting, you may so indicate when you vote by telephone, by QR Code or by Internet, or you can check the “WILL ATTEND MEETING” box on the proxy card. Even if you plan to be present, we encourage you to promptly vote your shares by telephone, by QR Code or by Internet, or to complete, sign, date and return your proxy card in advance of the meeting. If you later wish to vote in person at the Annual Meeting, you can revoke your proxy by giving written notice to the Secretary of the Annual Meeting and/or the Trustee (as described on the first page of this proxy statement), and/or by casting your ballot at the Annual Meeting.

Coffee will be served at 9:00 a.m. and I look forward to meeting with you at that time.

Please review the proxy statement and take advantage of your right to vote.

Sincerely yours,

Ronald J. Tanski

President and Chief Executive Officer


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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

to be held on March 12, 2015

To the Stockholders of National Fuel Gas Company:

Notice is hereby given that the Annual Meeting of Stockholders of National Fuel Gas Company (the “Company”) will be held at 9:30 a.m. local time on March 12, 2015 at The Ritz-Carlton Golf Resort, Naples, 2600 Tiburón Drive, Naples, Florida, 34109. The doors to the meeting will open at 9:00 a.m. local time. At the meeting, action will be taken with respect to:

 

  (1)

The election of two directors to hold office for three-year terms as provided in the attached proxy statement and until their respective successors have been elected and qualified;

 

  (2)

Ratification of By-Law that disqualifies directors who accept certain compensation from a third party;

 

  (3)

Advisory approval of named executive officer compensation;

 

  (4)

Amendment and Reapproval of the 2010 Equity Compensation Plan;

 

  (5)

Ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal 2015;

 

  (6)

A stockholder proposal to spin off the Company’s utility, if presented at the meeting;

 

  (7)

A stockholder proposal to add gender identity and expression to our employment non-discrimination policy, if presented at the meeting;

and such other business as may properly come before the meeting or any adjournment or postponement thereof.

Stockholders of record at the close of business on January 12, 2015, will be entitled to vote at the meeting.

BY ORDER OF THE BOARD OF DIRECTORS

PAULA M. CIPRICH

General Counsel and Secretary

January 23, 2015

Important Notice Regarding The Availability Of Proxy Materials For The Stockholder

Meeting To Be Held On March 12, 2015

The proxy statement and summary annual report to security holders and financial statements are available at

proxy.nationalfuelgas.com

 

   
  

YOUR VOTE IS IMPORTANT

Please vote by telephone, by QR Code or by Internet.

 

Whether or not you plan to attend the meeting, and whatever the number of shares you own, please vote your shares by telephone, by QR Code or by Internet as described in the proxy/voting instruction card and reduce National Fuel Gas Company’s expense in soliciting proxies. Alternatively, you may complete, sign, date and promptly return the enclosed proxy/voting instruction card in the accompanying envelope, which requires no postage if mailed in the United States.

      


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NATIONAL FUEL GAS COMPANY

6363 MAIN STREET

WILLIAMSVILLE, NEW YORK 14221

PROXY STATEMENT

GENERAL INFORMATION

Introduction

This proxy statement is furnished to the holders of National Fuel Gas Company (the “Company”) common stock (the “Common Stock”) in connection with the solicitation of proxies on behalf of the Board of Directors of the Company (the “Board of Directors” or the “Board”) for use at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held on March 12, 2015, or any adjournment or postponement thereof. This proxy statement and the accompanying proxy/voting instruction card are first being mailed to stockholders on or about January 23, 2015.

Solicitation of Proxies

All costs of soliciting proxies will be borne by the Company. MacKenzie Partners, Inc., 105 Madison Avenue, New York, NY 10016, has been retained to assist in the solicitation of proxies by mail, telephone, and electronic communication and will be compensated in the estimated amount of $16,122 plus reasonable out-of-pocket expenses. A number of regular employees of the Company and its subsidiaries, and one or more retirees of the Company and its subsidiaries, may solicit proxies in person, by telephone or by other methods. Costs, if any, associated with solicitation by retirees are expected to be de minimus.

Record Date, Outstanding Voting Securities and Voting Rights

Only stockholders of record at the close of business on January 12, 2015, will be eligible to vote at the Annual Meeting or any adjournment or postponement thereof. As of that date, 84,268,995 shares of Common Stock were issued and outstanding. The holders of 42,134,498 shares will constitute a quorum at the meeting.

Each share of Common Stock entitles the holder thereof to one vote with respect to each matter that is subject to a vote at the Annual Meeting. Shares may not be voted unless the owner is present or represented by proxy. To be represented by proxy, a stockholder can use the telephone, QR Code or Internet voting procedures or return a signed proxy card. All shares that are represented by effective proxies received by the Company in time to be voted shall be voted by the authorized Proxy at the Annual Meeting or any adjournment or postponement thereof.

If you hold your shares through a broker, bank or other nominee (in “street name”), you will receive instructions from them on how to vote your shares. If you do not give the broker specific instructions on how you would like your shares to be voted, your broker may nonetheless vote your shares on “routine” matters, such as Proposal 5 — Ratification of Independent Auditor. However, your broker is prohibited from voting uninstructed shares on “non-routine” matters such as Proposal 1 — Election of Directors; Proposal 2 — Ratification of By-Law That Disqualifies Directors Who Accept Certain Compensation From a Third Party; Proposal 3 — Advisory Approval of Named Executive Officer Compensation; Proposal 4 —Amendment and Reapproval of the 2010 Equity Compensation Plan; Proposal 6 — A Stockholder Proposal to Spin Off the Company’s Utility; and Proposal 7 — A Stockholder Proposal to Add Gender Identity and Expression to Our Employment Non-Discriminatory Policy. The absence of voting instruction results in what is called a “broker non-vote” on those proposals and will not be counted. Your vote is important. PLEASE MAKE YOUR VOICE HEARD BY VOTING YOUR SHARES ON THESE IMPORTANT MATTERS.

 

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Where stockholders direct how their votes shall be cast, shares will be voted in accordance with such directions. Proxies submitted with abstentions and broker non-votes will be included in determining whether or not a quorum is present. Abstentions and broker non-votes will not be counted in tabulating the number of votes cast on proposals submitted to stockholders and therefore will not have the effect of a vote cast for or against any proposal.

The proxy also confers discretionary authority to vote on all matters that may properly come before the Annual Meeting, or any adjournment or postponement thereof, respecting: (i) matters of which the Company did not have timely notice but that may be presented at the meeting; (ii) approval of the minutes of the prior annual meeting of stockholders; (iii) the election of any person as a director if a nominee is unable to serve or for good cause will not serve; (iv) any stockholder proposal omitted from this proxy statement pursuant to Rule 14a-8 or 14a-9 of the Securities and Exchange Commission’s (the “SEC”) proxy rules; and (v) all matters incident to the conduct of the meeting.

With respect to Proposal 1, the affirmative vote of a plurality of the votes cast by the holders of shares of Common Stock entitled to vote is required to elect each of the nominees for director. Approval of each other proposal requires a majority of the votes cast by the holders of shares of Common Stock entitled to vote on the proposal.

Attending the Meeting

You are entitled to attend the Annual Meeting if you are a stockholder as of the close of business on January 12, 2015, the record date. In order to be admitted to the Annual Meeting, each stockholder may be asked to present valid picture identification, such as driver’s license or passport, and proof of stock ownership as of the record date, such as the enclosed proxy card or a brokerage statement reflecting stock ownership. Cameras, recording devices and other electronic devices will not be permitted at the meeting.

Revoking a Proxy

Any stockholder giving a proxy may revoke it at any time prior to the voting thereof by mailing a revocation or a subsequent proxy to Paula M. Ciprich, General Counsel and Secretary of the Company, at the National Fuel Gas Company address noted below, by voting a subsequent proxy by phone, QR Code or by Internet, or by filing written revocation at the meeting with Ms. Ciprich, Secretary of the meeting, or by casting a ballot at the meeting. If you are an employee stockholder or retired employee stockholder, you may revoke voting instructions given to the Trustee by following the instructions under “Employee and Retiree Stockholders” in this proxy statement.

Employee and Retiree Stockholders

If you are a participant in the Company’s Employee Stock Ownership Plan or any of the Company’s Tax-Deferred Savings Plans (the “Plans”), the proxy card will also serve as a voting instruction form to instruct Vanguard Fiduciary Trust Company (the “Trustee”) for the Plans, as to how to vote your shares. All shares of Common Stock for which the Trustee has not received timely directions shall be voted by the Trustee in the same proportion as the shares of Common Stock for which the Trustee received timely directions, except in the case where to do so would be inconsistent with the provisions of Title I of the Employee Retirement Income Security Act (“ERISA”). If the voting instruction form is returned signed but without directions marked for one or more items, regarding the unmarked items you are instructing the Trustee and the Proxies to vote FOR all of the Director nominees named in this proxy statement, FOR Proposals 2, 3, 4 and 5 and AGAINST Proposals 6 and 7. Participants in the Plan(s) may also provide those voting instructions by telephone, QR Code or the Internet. Those

 

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instructions may be revoked by re-voting or by written notice to the Trustee on or before March 10, 2015 in care of the following address:

To:     Vanguard Fiduciary Trust Co.

c/o National Fuel Gas Company

Attn: Legal Department

6363 Main Street

Williamsville, NY 14221

Multiple Copies of Proxy Statement

The Company has adopted a procedure approved by the SEC called “householding.” Under this procedure, stockholders of record who have the same address and last name may receive only one copy of the proxy statement and the Company’s annual report. However, if any stockholder wishes to revoke consent for householding and receive a separate summary annual report, financial statements or proxy statement for the upcoming Annual Meeting or in the future, he or she may telephone, toll-free, 1-800-542-1061. The stockholder will need their 12-digit Investor ID number and should simply follow the prompts. Stockholders may also write Broadridge Householding Department, 51 Mercedes Way, Edgewood, NY 11717. Stockholders sharing an address who wish to receive a single set of reports may do so by contacting their banks or brokers if they are the beneficial holders, or by contacting Broadridge at the address provided above if they are the record holders. This procedure will reduce our printing costs and postage fees, and reduce the quantity of paper arriving at your address.

Stockholders who participate in householding will continue to receive separate proxy cards. Householding will not affect your dividend check mailings.

For additional information on householding, please see “IMPORTANT NOTICE REGARDING DELIVERY OF STOCKHOLDER DOCUMENTS” in this proxy statement.

Other Matters

The Board of Directors does not know of any other matter that will be presented for consideration at the Annual Meeting. If any other matter does properly come before the Annual Meeting, the Proxies will vote in their discretion on such matter.

Annual Report

Mailed herewith is a copy of the Company’s Summary Annual Report for the fiscal year ended September 30, 2014 (“fiscal 2014”). Also enclosed are the financial statements for fiscal 2014. The Company will furnish any exhibit to the Form 10-K upon request to the Secretary at the Company’s principal office, and upon payment of $5 per exhibit.

 

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PROPOSAL 1. ELECTION OF DIRECTORS

Two directors are to be elected at the Annual Meeting. The nominees for the two directorships are: Philip C. Ackerman and Stephen E. Ewing. The nomination process is discussed under “Nominating/Corporate Governance” on page 11 of this proxy statement.

The services of Mr. R. Don Cash conclude at the 2015 Annual Meeting, in accordance with the provisions of the Company’s Corporate Governance Guidelines on Director Age. Mr. Cash has been a Company director since 2003. The Board is deeply appreciative of Mr. Cash’s strong leadership and valuable contributions.

The Company’s Restated Certificate of Incorporation provides that the Board of Directors shall be divided into three classes, and that these three classes shall be as nearly equal in number as possible. (A class of directors is the group of directors whose terms expire at the same annual meeting of stockholders.) As well, the Company’s Restated Certificate of Incorporation provides that any elected director shall hold office until their successors are elected and qualify, subject to prior death, resignation, retirement, disqualification or removal from office. Accordingly, Messrs. Ackerman and Ewing have been nominated for terms of three years and until their respective successors shall be elected and shall qualify.

It is intended that the Proxies will vote for the election of Messrs. Ackerman and Ewing as directors, unless they are otherwise directed by the stockholders. Although the Board of Directors has no reason to believe that any of the nominees will be unavailable for election or service, stockholders’ proxies confer discretionary authority upon the Proxies to vote for the election of another nominee for director in the event any nominee is unable to serve, or for good cause will not serve. Messrs. Ackerman and Ewing have consented to being named in this proxy statement and to serve if elected.

The affirmative vote of a plurality of the votes cast by the holders of shares of Common Stock entitled to vote is required to elect each of the nominees for director.

Refer to the following pages for information concerning the two nominees for director, as well as concerning the six incumbent directors of the Company whose current terms will continue after the Annual Meeting, including information with respect to their principal occupations and certain other positions held by them.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR

THE ELECTION OF EACH OF THE NOMINEES NAMED BELOW.

Nominees for Election as Directors for Three-Year Terms to Expire in 2018

Philip C. Ackerman was Chief Executive Officer of the Company from October 2001 to February 2008, Chairman of the Board of the Company from January 2002 to March 2010, President of the Company from July 1999 to February 2006, Senior Vice President of the Company from June 1989 to July 1999 and Vice President of the Company from 1980 to June 1989. He was also President of National Fuel Gas Distribution Corporation (1) from October 1995 to July 1999 and Executive Vice President from June 1989 to October 1995, Executive Vice President of National Fuel Gas Supply Corporation (1) from October 1994 to March 2002, President of Seneca Resources Corporation (1) from June 1989 to October 1996, President of Horizon Energy Development, Inc. (1) from September 1995 to March 2008 and President of certain other non-regulated subsidiaries of the Company from prior to 1992 to March 2008. Mr. Ackerman is also currently a Director of Associated Electric and Gas Insurance Services Limited. Mr. Ackerman holds a B.S. in accounting from the State University of New York at Buffalo and a J.D. from Harvard University. Mr. Ackerman, 71, has been a Company director since 1994. (2)

 

(1)

Wholly-owned subsidiary of the Company

 

(2)

All ages are as of the Annual Meeting date.

 

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Mr. Ackerman’s more than 40 years’ involvement with the Company, including his experience as President (or Executive Vice President) of all of the Company’s major subsidiaries, enables him to provide the Board with an in-depth perspective on the Company. During his tenure with the Company, National Fuel grew from a regional utility company with $300 million in assets to a fully integrated energy company with over $5.1 billion in assets. Also, Mr. Ackerman has deep ties to Western New York, the location of the Company’s corporate headquarters and a number of its significant business operations.

Stephen E. Ewing was Vice Chairman of DTE Energy Company (“DTE”), a Detroit-based diversified energy company involved in the development and management of energy-related businesses and services nationwide, from November 2005 to December 2006. Two of DTE’s subsidiaries are DTE Electric Company (formerly known as Detroit Edison), one of the nation’s largest electric utilities, and DTE Gas Company (formerly known as Michigan Consolidated Gas Company, or “MichCon”), one of the nation’s largest natural gas local distribution companies. Mr. Ewing also had responsibility for DTE’s exploration and production subsidiary (DTE Gas Resources) with operations in the Antrim and Barnett Shale. He was also at various times Group President of the Gas Division at DTE, President and Chief Operating Officer of MCN Energy Group, Inc. (the then parent of MichCon and a company which had utility, pipeline and storage, and exploration and production businesses) and President and Chief Executive Officer of MichCon, until it was acquired by DTE. Mr. Ewing has been a Director of CMS Energy since July 2009. He was also Chairman of the Board of Directors of the American Gas Association (“AGA”) for 2006, a member of the National Petroleum Council, and Chairman of the Midwest Gas Association and the Natural Gas Vehicle Coalition. He is currently a Trustee and past Chairman of the Board of The Skillman Foundation, a not-for-profit foundation focused on providing education for low-income children, Chairman of the Auto Club of Michigan and Chairman of the Board of the Auto Club Group (AAA). Mr. Ewing holds a B.A. from DePauw University and an MBA from Michigan State University, and completed the Harvard Advanced Management Program. Mr. Ewing, 70, has been a Company director since 2007.

Mr. Ewing’s extensive executive management experience at energy companies with regulated businesses similar to those of the Company provides the Board with a valuable perspective on the Company’s regulated operations. Also, his responsibility for DTE’s former exploration and production subsidiary, with operations in the Antrim and Barnett Shale, enables Mr. Ewing to provide knowledgeable insights with regard to the Company’s exploration and production business. Mr. Ewing is the Company’s Lead Independent Director and the Chairman of the Company’s Compensation Committee.

Directors Whose Terms Expire in 2016

David C. Carroll has been President and CEO of Gas Technology Institute (“GTI”) since 2006. He joined GTI in 2001 as Vice President of Business Development. From 1996 to 2001, he worked for Praxair, Inc., serving as Director of Business Development from 1999 to 2001. Prior to that, Mr. Carroll held positions of increasing responsibility with Liquid Carbonic Industries, a subsidiary of Chicago Bridge & Iron, from 1994 to 1996, and Air Products and Chemicals, Inc. from 1980 to 1994. All of these companies are industrial gas producers and manufacturers. He is a member of the Society of Gas Lighting. Mr. Carroll served on the board of Versa Power Systems, Inc. from 2006 through 2012. He was also Chairman of the steering committee for the 17th International Conference and Exhibition on Liquefied Natural Gas in Houston (2013). In June 2015, Mr. Carroll will become President of the International Gas Union as the United States prepares to host the 2018 World Gas Conference in Washington, D.C. Mr. Carroll earned a B.S. in chemical engineering from the University of Pittsburgh, an MBA from Lehigh University, and has completed the Stanford Executive Program at Stanford University’s Graduate School of Business. Mr. Carroll, 58, has been a Company director since June 2012.

As a highly respected, nationally recognized leader with a multi-faceted knowledge of the natural gas industry, Mr. Carroll brings both industry and leadership experience to the Board. His technical expertise on unconventional gas production, transmission and distribution pipeline integrity, and end-use technologies is directly relevant to the Company’s business operations. In addition, Mr. Carroll’s

 

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involvement in both the domestic and international natural gas communities provides the Board with a broad perspective on emerging issues.

Craig G. Matthews was President, Chief Executive Officer and Director of NUI Corporation, a diversified energy company acquired by AGL Resources Inc. on November 30, 2004, from February 2004 to December 2004. In addition, he was Vice Chairman, Chief Operating Officer and Director of KeySpan Corporation (“KeySpan”, previously Brooklyn Union Gas Co.), a natural gas utility company, from March 2001 to March 2002, and held various positions over a 36 year career at KeySpan, including Executive Vice President, and Chief Financial Officer. He was also a Director of KeySpan as well as its exploration and production subsidiary Houston Natural Gas Co. He was a Director of Hess Corporation (formerly Amerada Hess Corporation) from 2002 until 2013, and has been a Board member of Republic Financial Corporation since May 2007. Mr. Matthews is a member and former Chairman of the Board of Trustees, Polytechnic Institute of New York University. He is a member and founding Chairman of the New Jersey Salvation Army Advisory Board and was a member of the National Salvation Army Advisory Board for 18 years. He received his B.S. in civil engineering from Rutgers in 1965, and completed his M.S. in industrial management at Brooklyn Polytechnic University. He also holds a Doctor of Engineering (Honorary) from NYU/POLY received in 2009. Mr. Matthews, 72, has been a Company director since 2005.

Mr. Matthews’ substantial background in the energy industry, including executive, managerial and financial experience with KeySpan and NUI Corporation over 37 years, and particularly his experience in applying accounting principles and developing financial strategy at energy companies, make him highly qualified for his service as Chairman of the Company’s Audit Committee. As more fully described in the Audit Committee discussion on page 10, Mr. Matthews qualifies as an “audit committee financial expert” under the Securities and Exchange Commission Rules. During his career, Mr. Matthews has had responsibilities in the areas of marketing, information systems, engineering, finance, and strategic planning.

David F. Smith has been Chairman of the Board of the Company since March 2010 (from March 2013 through March 2014 he served as Executive Chairman of the Board). He also served as Chief Executive Officer of the Company from February 2008 until March 2013; as President of the Company from February 2006 through June 2010; as Chief Operating Officer of the Company from February 2006 to February 2008; and as Vice President of the Company from April 2005 to February 2006. Mr. Smith was Chairman of National Fuel Gas Distribution Corporation (1), and National Fuel Gas Supply Corporation (1) and Chairman of Empire Pipeline, Inc. (1) and Seneca Resources Corporation (1) from April of 2008 until March of 2013. He was also previously President from April 2005 to July 2008 and Senior Vice President from June 2000 to April 2005 of National Fuel Gas Supply Corporation (1), and President from July 1999 to April 2005 and Senior Vice President from January 1993 to July 1999 of National Fuel Gas Distribution Corporation (1). Mr. Smith was also President of Empire State Pipeline (1) from April 2005 through July 2008, and President or Chairman of various non-regulated subsidiaries of the Company. He is a Board member of Gas Technology Institute (Executive Committee and Audit Committee), the Business Council of New York State (Co-Chairman and member of the Executive Committee) and the State University of New York at Buffalo Law School Dean’s Advisory Council, and a former director of the AGA. Mr. Smith holds a B.A. in political science from the State University of New York at Fredonia, as well as a J.D. from the State University of New York at Buffalo School of Law. Mr. Smith, 61, has been a Company director since 2007.

Mr. Smith was employed by the Company from 1978 to 2014, and during his tenure has served as President of the Company’s pipeline & storage, and utility subsidiaries, and Chairman of Seneca Resources Corporation. He has a long and active participation in industry groups that tackle important issues facing the industry. Also, Mr. Smith has deep ties to Western New York, the location of the Company’s corporate headquarters and a number of its significant business units.

 

(1)

Wholly-owned subsidiary of the Company

 

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Directors Whose Terms Expire in 2017

Ronald W. Jibson has been Chairman of the Board of Questar Corporation (“Questar”), since July 2012 and President and Chief Executive Officer since June 2010. He is also President and CEO of both Questar Gas Company (a natural gas utility) and Wexpro Company (an exploration and production subsidiary), and he is Chairman of Questar Pipeline Company. Mr. Jibson has been a director of Questar since 2010. Mr. Jibson has held various positions at Questar and its subsidiaries over his 34-year career, including Senior Vice President, Executive Vice President, General Manager of Operations and Director of Engineering. Mr. Jibson has served on the Board of IDACORP, Inc. since September of 2013. Mr. Jibson has additional significant industry board experience as past Chairman of the Board of Directors of the AGA and as past Chairman of the Western Energy Institute. He also serves on the Board of Gas Technology Institute. He serves as Chairman of Utah State University’s Board of Trustees and the Chair of the Salt Lake Chamber Board of Directors, as well as past Chair of the Economic Development Corporation of Utah. Mr. Jibson, 61, is a licensed engineer in the state of Utah and received his B.S. in engineering from Utah State University and MBA from Westminster College. Mr. Jibson has been a Company director since 2014.

Mr. Jibson brings to the Board his substantial industry experience at Questar, across three major business segments (utility, pipeline and exploration and production) in which the Company also participates. Mr. Jibson provides insight with respect to strategic business planning, operations, performance, and regulatory issues. In addition, his participation in industry organizations provides the Board with knowledge and perspectives on current natural gas industry trends and developments. Mr. Jibson serves as the Chairman of the Company’s Nominating/Corporate Governance Committee.

Jeffrey W. Shaw will retire as Chief Executive Officer of Southwest Gas Corporation (“Southwest”) on March 1, 2015. He was named Chief Executive Officer and a director of Southwest in 2004 and also served as President of Southwest at various times from 2003 to 2014. Previously Mr. Shaw, a CPA, held various positions at Southwest, including Director of Internal Audit, Controller and Chief Accounting Officer, Vice President/Controller and Chief Accounting Officer, Vice President and Treasurer, Senior Vice President/Finance and Treasurer, Senior Vice President/Gas Resources and Pricing. He worked for Arthur Anderson & Co. in its Dallas and Las Vegas offices in the audit division prior to joining Southwest Gas in May of 1988. He is a member of the American Institute of Certified Public Accountants, the Nevada Society of CPAs and the Leadership Las Vegas Alumni Association. Mr. Shaw serves on the boards of the AGA, the UNLV Foundation, the Council for a Better Nevada and the Las Vegas Economic Club. He is past president of the Western Energy Institute and past president of the Las Vegas Area Council of the Boy Scouts of America. Mr. Shaw, 56, received a B.S. in accounting from the University of Utah. Mr. Shaw has been a Company director since 2014.

Mr. Shaw’s extensive executive management experience at an energy company with regulated businesses similar to those of the Company provides the Board with an additional and valuable perspective on the Company’s operations. In addition, Mr. Shaw’s accounting and finance background, and the significant roles he has held in this area over his career qualify him as an “audit Committee financial expert” and position him to assist the Board in its audit oversight function.

Ronald J. Tanski has been President and Chief Executive Officer of the Company since March 2013. Prior to that, Mr. Tanski served as President and Chief Operating Officer of the Company from July 2010 and as Treasurer and Principal Financial Officer from April 2004. Mr. Tanski was President of National Fuel Gas Supply Corporation (1) from July 2008 to July 2010 and President of National Fuel Gas Distribution Corporation (1) from February 2006 to July 2008. He was previously Treasurer of Distribution, Supply, Empire Pipeline, Inc. and National Fuel Resources, Inc. (1), as well as Senior Vice President of Distribution. Mr. Tanski also served in management roles at Seneca Resources Corporation (1), and other Company subsidiaries, including Empire Exploration, Inc. (merged into Seneca), and Horizon Energy Development, Inc. (sold in 2010). He is Chairman of the Board of Directors of the

 

(1)

Wholly-owned subsidiary of the Company

 

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Interstate Natural Gas Association of America (“INGAA”). Mr. Tanski is a Director of the AGA and a member of the Council on Accountancy at Canisius College. He also serves on the Board of Managers of the Buffalo Museum of Science and is a Director of the Buffalo Niagara Enterprise. Mr. Tanski, 62, holds a B.A. in biology and an MBA from the State University of New York at Buffalo, as well as a J.D. from the State University of New York at Buffalo School of Law. Mr. Tanski has been a Company director since 2014.

Mr. Tanski has been employed by the Company since 1979, and during his career, as noted above, has served in numerous positions in both the regulated and non-regulated businesses. Mr. Tanski’s role as CEO and substantial management experience with the varied subsidiaries, and in particular, his financial background with the Company assist the Board with in-depth review of the Company’s operations. Mr. Tanski also has deep ties to Western New York, the location of the Company’s corporate headquarters and a number of its significant business units.

Annual Meeting Attendance

Last year all directors attended the 2014 Annual Meeting, and they are expected to do so this year. A meeting of the Board of Directors will take place on the same day and at the same place as the Annual Meeting and directors are expected to attend all meetings. If a director is unable to attend a Board meeting in person, participation by telephone is permitted and in that event the director may not be physically present at the Annual Meeting of Stockholders.

Director Independence

The Board of Directors has determined that directors Ackerman, Carroll, Cash, Ewing, Jibson, Matthews and Shaw are independent, that Mr. Smith is not independent due to his past employment relationship with the Company, which concluded March 31, 2014, and that Mr. Tanski is not independent due to his current employment relationship with the Company. The Board’s determinations of director independence were made in accordance with the listing standards of the New York Stock Exchange (the “NYSE”) and SEC regulations. In making its independence determinations, the Board considered that Mr. Carroll is President and Chief Executive Officer of GTI, an organization that receives payments from the Company for dues and fees to support research and development, and that such payments in each of GTI’s last three fiscal years were less than (i) $1,000,000 or (ii) 2% of GTI’s consolidated gross revenues for the applicable fiscal year. Former directors Robert T. Brady and Rolland E. Kidder, each of whose Board service ended March 13, 2014, had been determined by the Board to be independent. The Board considered that Mr. Brady was Executive Chairman of Moog Inc., which maintains its headquarters in the Company’s utility service territory, and that payments made by Moog to Company affiliates for natural gas service in each of Moog’s preceding three fiscal years were less than (i) $1,000,000 or (ii) 2% of Moog’s consolidated gross revenues for the applicable fiscal year. The Board also considered that a son of Mr. Kidder is employed by an affiliate of the Company (since before Mr. Kidder became a Company director) in a non-executive supervisory position, at a rate of total compensation that did not implicate the SEC’s regulations regarding related person transactions.

Board Leadership Structure

The Board of Directors has decided that the appropriate leadership structure at the present time is to separate the CEO and Chairman positions. The Board believes that Mr. Smith’s role as Chairman and Mr. Tanski’s position as Chief Executive Officer, since March 2013, is an effective leadership model given Mr. Smith’s experience in the role of CEO in the past and his experience as Chairman of the Board and Mr. Tanski taking on the role of CEO. The Board believes this is the optimal leadership structure at this time. As in the past, it is the Board’s opinion that the stockholders’ interests are best served by allowing the Board to retain flexibility to determine the optimal organizational structure for the Company at a given time, including whether the Chairman role should be filled by the CEO who serves on the Board. At times in the past the roles have been separate and at other times they have been combined. The members of

 

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the Board possess considerable experience and unique knowledge of the challenges and opportunities the Company faces, have significant industry experience and are in the best position to evaluate its needs and how best to organize the capabilities of the directors and management to meet those needs.

Non-management directors meet at regularly scheduled executive sessions without management. During fiscal 2014, the first two meetings of the non-management directors also constituted meetings of the independent directors. The independent directors subsequently met one additional time in fiscal 2014, as did the non-management directors. The sessions were chaired by Robert T. Brady, as Lead Independent Director, until his retirement from the Board. After Mr. Brady’s retirement, consistent with the Company’s Corporate Governance Guidelines, Mr. Stephen E. Ewing became the Lead Independent Director and chaired the sessions. The Board of Directors provides a process for stockholders and other interested parties to send communications to the Board or to certain directors. Communications to the Lead Independent Director, to the non-management directors as a group, or to the entire Board should be addressed as follows: Lead Independent Director, c/o 6363 Main Street, Williamsville, NY 14221. For the present, all stockholder and interested parties’ communications addressed in such manner will go directly to the indicated directors. If the volume of communication becomes such that the Board determines to adopt a process for determining which communications will be relayed to Board members, that process will appear on the Company’s website at www.nationalfuelgas.com.

Diversity

Under the Company’s Corporate Governance Guidelines, the Board of Directors is required, when selecting candidates for re-election and candidates for Board membership, to consider factors that include a diversity of experience related to the business segments in which the Company operates, as well as a diversity of perspectives to be brought to the Board by the individual members. National Fuel’s Nominating/Corporate Governance Committee, which makes recommendations to the full Board on nominees for director positions, retained a search firm in 2013 to pursue Board candidates. The firm was given a specific direction as to diversity. Of the candidates approached, three were women, and each declined consideration for directorship. In 2014, the Nominating/Corporate Governance Committee continued to pursue qualified potential candidates to stand for election to the Board, including possible candidates who would increase gender diversity. The Board believes it noteworthy that there is no lack of progress for women at National Fuel’s top corporate levels, as four of the Company’s ten executive officers are women. These officers hold the following important policy-making positions. President of our utility subsidiary, one of three primary segments contributing to the Company’s overall financial success; Controller and Principal Accounting Officer; General Counsel (our chief legal officer) who also serves as the Company’s Corporate Secretary and Compliance Officer; and the Vice President of Business Development, who oversees many of the company’s non-exploration and production development plans.

Meetings of the Board of Directors and Standing Committees

In fiscal 2014, there were six meetings of the Board of Directors. In addition, directors attended meetings of standing or pro tempore committees. The Audit Committee held nine meetings, the Compensation Committee held six meetings, the Executive Committee met twice, and the Nominating/Corporate Governance Committee held three meetings. During fiscal 2014, all directors attended at least 75% of the aggregate of meetings of the Board and of the committees of the Board on which they served.

The table below shows the number of meetings conducted in fiscal 2014 and the directors who serve or did serve during fiscal 2014 on these committees. As previously announced, Mr. Brady and Mr. Kidder retired from the Board on March 13, 2014. As noted above, Mr. Cash will conclude his tenure as Director

 

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at the 2015 Annual Meeting. Mr. Cash also stepped down as Chair of the Compensation Committee on December 8, 2014 and was succeeded by Mr. Ewing on that date.

 

    BOARD COMMITTEES

DIRECTOR

  Audit   Compensation   Executive   Nominating/
Corporate
Governance

Philip C. Ackerman

      X  

Robert T. Brady

    X   X       X**

David C. Carroll

      X   X

R. Don Cash

  X   X (Chair)*     X

Stephen E. Ewing

  X     X*    

Ronald W. Jibson

    X     X (Chair)**

Rolland E. Kidder

  X       X

Craig G. Matthews

  X (Chair)     X  

Jeffrey W. Shaw

  X      

David F. Smith

      X (Chair)  

Ronald J. Tanski

      X  

Number of Meetings in Fiscal 2014

  9   6   2   3

 

*

Mr. Cash stepped down as Chair on December 8, 2014 and was succeeded by Mr. Ewing.

 

**

Mr. Brady was the Chair until the March 2014 Annual Meeting, after which Mr. Jibson became Chair.

Audit

The Audit Committee is a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit Committee held nine meetings during fiscal 2014 in order to review the scope and results of the annual audit, to receive reports of the Company’s independent registered public accounting firm and chief internal auditor, to monitor compliance with the Company’s Reporting Procedures for Accounting and Auditing Matters (included in this proxy statement as Appendix A) and to prepare a report of the committee’s findings and recommendations to the Board of Directors. The members of the committee are independent as independence for audit committee members is defined in NYSE listing standards and in SEC regulations. No Audit Committee member simultaneously serves on the audit committees of more than three public companies. The Board limits the number of audit committees on which an Audit Committee member can serve to three, unless the Board has determined that such simultaneous service would not impair the ability of such members to serve effectively. The Company’s Board of Directors has determined that the Company has two audit committee financial experts (as defined by SEC regulations) serving on its Audit Committee, namely Messrs. Matthews and Shaw, who are independent directors.

In connection with its review of the Company’s internal audit function, the Audit Committee in 2011 had a Quality Assessment performed by Ernst & Young that concluded that the Company’s Audit Services Department conducts its audits in accordance with the Institute of Internal Auditors International Standards for the Professional Practice of Internal Auditing (the “Standards”). The Standards state that an external Quality Assessment should be conducted at least once every five years.

Further information relating to the Audit Committee appears in this proxy statement under the headings “Audit Fees” and “Audit Committee Report.” A current copy of the Audit Committee charter is available to security holders on the Company’s website at www.nationalfuelgas.com.

Compensation

As described in the Compensation Discussion and Analysis in this proxy statement, the Compensation Committee held six meetings during fiscal 2014, in order to review and determine the compensation of Company executive officers and to review reports and/or grant awards under the

 

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Company’s 2010 Equity Compensation Plan, the National Fuel Gas Performance Incentive Program, the National Fuel Gas Company 2012 Performance Incentive Program, the Annual At Risk Compensation Incentive Program (“AARCIP” or the “At Risk Plan”), and the Executive Annual Cash Incentive Program (“EACIP”). The members of the committee are independent as independence is defined in NYSE listing standards. The members of the committee are also “non-employee directors” as defined in SEC regulations and “outside directors” as defined in Federal tax regulations. A current copy of the charter of the Compensation Committee is available to security holders on the Company’s website at www.nationalfuelgas.com.

The Compensation Committee is responsible for various aspects of executive compensation, including approval of the base salaries and incentive compensation of the Company’s executive officers. The Compensation Committee is authorized to evaluate director compensation and make recommendations to the full Board regarding director compensation. The Compensation Committee may form subcommittees and delegate to those subcommittees such authority as the committee deems appropriate, other than authority required to be exercised by the committee as a whole. The Compensation Committee also administers the Company’s 2010 Equity Compensation Plan, the 1997 Award and Option Plan, the At Risk Plan, and the National Fuel Gas Company 2012 Performance Incentive Program, and approves performance conditions and target incentives of executive officers under the EACIP. As described more fully in the Compensation Discussion and Analysis, the Company retained The Hay Group and Meridian Compensation Partners, LLC, both independent compensation consulting firms, to assist in determining executive compensation. In addition, as set forth in the Compensation Committee’s charter, the Chief Executive Officer may and does make, and the Committee may and does consider, recommendations regarding the Company’s compensation and employee benefit plans and practices. The Committee then approves executive compensation as it deems appropriate. The Compensation Committee has assessed the independence of the compensation consultants under NYSE listing standards and has determined there is no conflict under SEC regulations.

Executive

The Executive Committee met twice during fiscal 2014. The committee has, and may exercise, the authority of the full Board, except as may be prohibited by New Jersey corporate law (N.J.S.A.§ 14A:6-9).

Nominating/Corporate Governance

All the members of the Nominating/Corporate Governance Committee are independent, as independence is defined in NYSE listing standards. The committee makes recommendations to the full Board on nominees for the position of director. The committee also has duties regarding corporate governance matters as required by law, regulation or NYSE rules. The committee held three meetings during fiscal 2014. Stockholders may recommend individuals to the committee to consider as potential nominees. Procedures by which stockholders may make such recommendations are set forth in Exhibit B to the Company’s Corporate Governance Guidelines, described in the following paragraph.

In general, the committee’s charter provides for the committee to develop and recommend to the Board criteria for selecting new director nominees and evaluating unsolicited nominations, which criteria are included in this proxy statement as part of the Company’s Corporate Governance Guidelines. A current copy of the charter of the committee is available to stockholders on the Company’s website at www.nationalfuelgas.com and in print to stockholders who request a copy from the Company’s Secretary at its principal office. A current copy of the Corporate Governance Guidelines is included in this proxy statement as Appendix B, and is available to stockholders on the Company’s website at www.nationalfuelgas.com. Appendix B also addresses the qualifications and skills the committee believes are necessary in a director, and the committee’s consideration of stockholder recommendations for director. Stockholder recommendations identifying a proposed nominee and setting out his or her qualifications should be delivered to the Company’s Secretary at its principal office no later than September 25, 2015 in order to be eligible for consideration at the 2016 Annual Meeting of Stockholders.

 

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Under the process for selecting new Board candidates, the Chairman and the Chief Executive Officer and the committee discuss the need to add a new Board member or to fill a vacancy on the Board. The committee will initiate a search, working with staff support and seeking input from Board members and senior management, hiring a search firm if necessary, and considering candidates recommended by stockholders in accordance with Exhibit B to the Corporate Governance Guidelines.

Method of Evaluating Board and Committee Effectiveness

Annually, the Board and each of the Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee take part in a self-evaluation process to determine their effectiveness and opportunities for improvement. Questionnaires are provided to each director soliciting comments with respect to dynamics of the full Board and each of the above committees, on which the director serves, as well as director performance and adequacy of Board materials. The confidential responses are summarized for Board and committee review. Board members are requested to report dissatisfaction with individual performance to the Chairman of the Board and the Chairman of the Nominating/Corporate Governance Committee. At a Board and committee meeting, time is allocated to discuss the summary and review any comments or inadequacies.

Charitable Contributions by Company

Within the preceding three years, the Company did not make any charitable contributions to any charitable organization in which a director served as an executive officer which exceeded the greater of $1 million or 2% of the charitable organization’s consolidated gross revenues in a single fiscal year.

Compensation Committee Interlocks and Insider Participation

There are no “Compensation Committee interlocks” or “insider participation” which SEC regulations or NYSE listing standards require to be disclosed in this proxy statement.

Risk Oversight

The Company has an enterprise risk management program developed by senior management and the Board and overseen by the CEO. Under this program, major enterprise-wide risks have been identified, along with the mitigative measures to address and manage such risk. At each quarterly meeting of the Audit Committee, to which all Directors are invited and typically attend, the major risks and associated mitigative measures are reviewed. At each Board meeting, a specific presentation is made regarding one or two specific areas of risk. Additional review or reporting on enterprise risks is conducted as needed or as requested by the Board.

Related Person Transactions

The Company had no related person transactions in fiscal 2014. The Company’s Code of Business Conduct and Ethics (the “Code of Conduct”) (which is in writing and available to stockholders as described at the end of this proxy statement) identifies the avoidance of any actual or perceived conflicts between personal interests and Company interests as an essential part of the responsibility of the Company’s directors, officers and employees. The Code of Conduct provides that a conflict of interest may arise when a director, officer or employee receives improper personal benefits as a result of his or her position in the Company, or when personal situations tend to influence or compromise a director’s, officer’s or employee’s ability to render impartial business decisions in the best interest of the Company. Potential conflicts of interest under the Code of Conduct would include but not be limited to related person transactions. The Audit Committee administers the Code of Conduct as it relates to the Company’s directors and executive officers.

The Company’s policies and procedures for the review, approval or ratification of related person transactions are set forth in writing in the charter of the Audit Committee. The charter provides that the

 

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Audit Committee will review and, if appropriate, approve or ratify any transaction between the Company and a related person which is required to be disclosed under SEC rules. In the course of its review of a transaction, the Audit Committee will consider the nature of the related person’s interest in the transaction, the material terms of the transaction, the significance of the transaction to the related person and to the Company, whether the transaction would affect the independence of a director, and any other matters the Audit Committee deems appropriate. The Audit Committee will approve or ratify only those transactions that are in, or are not inconsistent with, the best interests of the Company and its stockholders, as the Audit Committee determines in good faith. Any member of the Audit Committee who is a related person with respect to a transaction under review may not participate in the deliberations or vote respecting approval or ratification of the transaction.

Directors’ Compensation

The 2009 Non-Employee Director Equity Compensation Plan (“Director Compensation Plan”) was approved at the 2009 Annual Meeting of Stockholders. This plan provides for the issuance of shares on a quarterly basis to non-employee directors in such amounts as the Board may determine from time to time. In addition, non-employee directors receive a portion of their compensation in cash, as determined by the Board from time to time. Directors who are not Company employees or retired employees do not participate in any of the Company’s employee benefit or compensation plans. Directors who are current employees receive no compensation for serving as directors.

In fiscal 2014, non-employee directors, with the exception of Mr. Smith, were paid an annual retainer of $44,000 plus 2,200 shares of Common Stock. The directors received this annual retainer in quarterly payments of $11,000 and 550 shares of stock, with payments pro-rated for any quarter in which a director began service or was scheduled in advance to retire. Common Stock issued to non-employee directors under the Director Compensation Plan is nontransferable until the later of two years from issuance or six months after the recipient’s cessation of service as a director of the Company, except that transferability restrictions lapse upon the death of the recipient.

Fees paid to non-employee directors, other than Mr. Smith, for each Board and committee meeting were $1,800. The Lead Independent Director (Mr. Ewing) was paid an additional annual retainer of $10,000, and the Chairmen of the Audit, Compensation and Nominating/Corporate Governance Committees (Messrs. Matthews, Cash and Jibson, respectively) were paid an additional annual retainer of $10,000.

In place of the above-described director compensation, beginning as of April 1, 2014, David F. Smith, as Chairman of the Board of Directors, received director compensation under a Director Services Agreement (“Agreement”). Generally, the Agreement provides that, effective as of April 1, 2014, after Mr. Smith’s retirement from the Company, he would perform the duties and responsibilities of the Chairman of the Board of Directors as established under the Company’s By-Laws and Corporate Governance Guidelines, and consult with the Chief Executive Officer on matters pertaining to the administration and operation of the Company that Mr. Smith or the Chief Executive Officer deem appropriate. In no event will Mr. Smith provide, or be required to provide, services during the term of the Agreement for more than the equivalent of fifty full time days in any calendar year (pro-rated for the partial calendar years during such period at the beginning and the end of the Chairman services period). Under the Agreement, Mr. Smith receives an annual fee equal to $500,000. The term of the Agreement is for one year or such longer period as Mr. Smith, the Chief Executive Officer and the Board of Directors agree. Under the Agreement, Mr. Smith is not eligible for any other compensation for his director services (except for the insurance provided by the Company for all directors), or to accrue any additional benefits under any Company employee benefit plans. Also under the Agreement, the Company reimbursed Mr. Smith for reasonable travel, lodging, meals and other appropriate expenses incurred by him in performance of the Agreement and provided him with suitable office space on its premises and appropriate secretarial services on an as-needed basis.

 

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Benefit accruals under the Directors’ Retirement Plan ceased for non-employee directors on December 31, 1996. Individuals who become directors after February 1997 are not eligible to receive benefits under the Directors’ Retirement Plan. The Directors’ Retirement Plan pays an annual retirement benefit equal to 10% of the annual retainer ($18,000 per year) in effect on December 31, 1996, multiplied by the number of full years of service prior to January 1, 1997, but not to exceed 100% of that annual retainer. The retirement benefit begins upon the later of the date of the director’s retirement from the Board or the date the director turns age 70, and continues until the earlier of the expiration of ten years or the death of the director. Mr. Brady was the last remaining director eligible for benefits under the Directors’ Retirement Plan, and after his retirement in March of 2014 he began receiving his accrued Directors’ Retirement Plan benefits of $1,800 per year for up to ten years.

The Company requires that each director, in order to receive compensation for service as a director, must beneficially own at least 500 shares of Common Stock at the end of the first year of service as a director, at least 1,000 shares at the end of the second year of service and at least 3,000 shares at the end of the third year of service. All directors are compliant with this requirement.

The following table sets forth the compensation paid to each non-employee director for service during fiscal 2014:

DIRECTOR COMPENSATION TABLE — FISCAL 2014

 

Name

  Fees
Earned or
Paid in
Cash
($)(1)
    Stock
Awards
($)(2)
    Option
Awards
($)
    Non-Equity
Incentive
Plan
Compensation
($)
    Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings
($)(3)
    All Other
Compensation
($)(4)
  Total
($)
 

Philip C. Ackerman

    60,200        158,276        None        None        N/A      3     218,479   

Robert T. Brady(5)

    34,200        69,151        None        None        N/A      $992     104,343   

David C. Carroll

    62,000        158,276        None        None        N/A      3     220,279   

R. Don Cash

    95,400        158,276        None        None        N/A      3     253,679   

Stephen E. Ewing

    93,600        158,276        None        None        N/A      3     251,879   

Ronald W. Jibson

    50,522        89,890        None        None        N/A      2     140,414   

Rolland E. Kidder(5)

    34,200        69,151        None        None        N/A      2     103,353   

Craig G. Matthews

    86,400        158,276        None        None        N/A      3     244,679   

Jeffrey W. Shaw

    40,522        89,890        None        None        N/A      2     130,414   

David F. Smith(1)

    250,000        None        None        None        N/A      2     250,002   

 

(1)

Except for Mr. Smith, represents the portion of the annual retainer paid in cash, plus meeting fees, plus an additional annual retainer for service as a committee Chairman, and as Lead Independent Director, as applicable. For Mr. Smith, represents the fee due under his Director Services Agreement for the period April 1, 2014 through September 30, 2014.

 

(2)

Represents the aggregate fair value on the date of issuance of the Common Stock issued under the Director Compensation Plan, as required by the Financial Accounting Standards Board’s (FASB’s) authoritative guidance for stock compensation. The average of the high and low stock price on each date of issuance was used to compute the fair value. The average prices (and resultant quarterly values of the Stock Awards) were as follows: $69.125 for October 1, 2013 (stock in total valued at $38,018.75); $70.755 for January 2, 2014 (stock in total valued at $38,915.25); $69.68 for April 1, 2014 (stock in total valued at $38,324; and $78.215 for July 1, 2014 (stock in total valued at $43,018.25). In accordance with the terms of the Director Compensation Plan, Mr. Jibson and Mr. Shaw received a pro-rated portion of the payment for the January to March 31, 2014 quarter. Also, Mr. Brady and Mr. Kidder received a pro-rated portion of the January to March 31, 2014 quarter for their service prior to and through the March 13, 2014 Annual Meeting. As of September 30, 2014, the aggregate number of shares paid for all years of director service under director compensation plans to Messrs. Ackerman, Brady, Carroll, Cash, Ewing, Jibson, Kidder, Matthews and Shaw are 8,589, 19,590, 4,769, 17,433, 12,646, 1,216, 16,680, 15,041 and 1,216 respectively.

 

(3)

Mr. Brady was the only director who served in fiscal 2014 who had an accrued pension benefit under the Directors’ Retirement Plan described above. The Company expensed the present value of this future benefit in a prior fiscal year and continues to expense only the interest associated with this benefit. For fiscal 2014, through Mr. Brady’s retirement date, the interest expense to the Company was $341. The yearly accrual was disclosed in past proxy statements. The directors do not have a non-qualified deferred compensation plan or any other pension plan.

 

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(4)

Represents premiums paid on a blanket travel insurance policy, which covers each director up to a maximum benefit of $500,000 (the value of this benefit for Mr. Brady is $2). This insurance provides coverage in case of death or injury while on a trip for Company business. For Mr. Brady, the reported amount also includes $990 from date of Mr. Brady’s retirement associated with his retirement benefit described above.

 

(5)

Messrs. Brady and Kidder retired from the Board as of March 13, 2014.

AUDIT FEES

In addition to retaining PricewaterhouseCoopers LLP to report on the annual consolidated financial statements of the Company for fiscal 2014, the Company retained PricewaterhouseCoopers LLP to provide various non-audit services in fiscal 2014. The aggregate fees billed for professional services by PricewaterhouseCoopers LLP for each of the last two fiscal years were as follows:

 

     2013      2014  

Audit Fees(1)

   $ 1,542,000       $ 1,774,000   

Audit-Related Fees(2)

   $ 0       $ 0   

Tax Fees

     

Tax advice and planning(3)

   $ 14,900       $ 14,200   

Tax compliance(4)

   $ 75,570       $ 55,638   

All Other Fees(5)

   $ 3,589       $ 88,489   
  

 

 

    

 

 

 

TOTAL

   $ 1,636,059       $ 1,932,327   
  

 

 

    

 

 

 

 

(1)

Audit Fees include audits of consolidated financial statements and internal control over financial reporting, reviews of financial statements included in quarterly Forms 10-Q, comfort letters and consents, and audits of certain of the Company’s wholly-owned subsidiaries to meet statutory or regulatory requirements.

 

(2)

Audit-Related Fees include audits of certain of the Company’s wholly-owned subsidiaries not required by statute or regulation, and consultations concerning technical financial accounting and reporting standards.

 

(3)

Tax advice and planning includes consultations on various federal, state and foreign tax matters.

 

(4)

Tax compliance includes tax return preparation and tax audit assistance.

 

(5)

All Other Fees relate to permissible fees other than those described above and include consulting fees and the software-licensing fee for an accounting and financial reporting research tool.

The Audit Committee’s charter (available on the Company’s website at www.nationalfuelgas.com and in print to stockholders who request a copy from the Company’s Secretary at its principal office) references its pre-approval policies and procedures. The committee has pre-approved the use of PricewaterhouseCoopers LLP for specific types of services, including various audit and audit-related services and certain tax services, among others. The chair of the committee and, in his absence, another specified member of the committee, are authorized to pre-approve any audit or non-audit service on behalf of the committee. Each pre-approval is to be reported to the full committee at the first regularly scheduled committee meeting following such pre-approval.

For fiscal 2014, none of the services provided by PricewaterhouseCoopers LLP were approved by the Audit Committee in reliance upon the “de minimis exception” contained in Section 202 of Sarbanes-Oxley and codified in Section 10A(i)(1)(B) of the Exchange Act and in 17 CFR 210.2-01(c)(7)(i)(C).

 

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AUDIT COMMITTEE REPORT

The Company’s Board of Directors has adopted a written charter for the Audit Committee of the Board of Directors, a copy of which is available on the Company’s website at www.nationalfuelgas.com and in print to stockholders who request a copy from the Company’s Secretary at its principal office.

The Audit Committee has reviewed and discussed the Company’s audited financial statements for fiscal 2014 with management. The Audit Committee has also reviewed with management its evaluation of the Company’s internal control over financial reporting and reviewed management’s assessment about the effectiveness of the Company’s internal control over financial reporting, including any significant deficiencies in such internal control over financial reporting. The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 16, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board (PCAOB). The Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by Rule 3526, Communication with Audit Committees Concerning Independence, of the PCAOB and has discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence. The Audit Committee also has considered whether the independent registered public accounting firm’s provision of non-audit services to the Company and its affiliates is compatible with the independent registered public accounting firm’s independence.

Based on the review, discussions and considerations referred to in the preceding paragraph, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the last fiscal year for filing with the SEC.

AUDIT COMMITTEE

CRAIG G. MATTHEWS, Chairman

R. DON CASH

STEPHEN E. EWING

JEFFREY W. SHAW

 

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SECURITY OWNERSHIP OF CERTAIN

BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth for each current director, each nominee for director, each of the executive officers named in the Summary Compensation Table, and for all directors and officers as a group, information concerning beneficial ownership of Common Stock. The Common Stock is the only class of Company equity securities outstanding. Unless otherwise stated, to the best of the Company’s knowledge, each person has sole voting and investment power with respect to the shares listed, including shares which the individual has the right to acquire through exercise of stock options or stock-settled stock appreciation rights (“SARs”) but has not done so. All information is as of November 28, 2014.

 

Name of Beneficial

Owner

  Exercisable Stock
Options/SARs(1)
    Shares Held
in ESOP(2)
    Shares Held in
401(k)
Plan(3)
    Restricted
Stock(4)
    Shares Otherwise
Beneficially Owned(5)
    Percent of
Class(6)
 

Philip C. Ackerman

    0        0        0        0        1,074,930 (7)      1.28

David P. Bauer

    19,339        0        5,314        417        9,593        *   

Matthew D. Cabell

    117,736        0        2,092        46,875        34,547        *   

David C. Carroll

    0        0        0        0        5,541        *   

R. Don Cash

    0        0        0        0        31,983 (8)      *   

Anna Marie Cellino

    44,880        1,098        28,197        1,250        174,211        *   

Stephen E. Ewing

    0        0        0        0        16,396        *   

Ronald W. Jibson

    0        0        0        0        1,866        *   

Craig G. Matthews

    0        0        0        0        23,986        *   

John R. Pustulka

    86,091        3,731        17,593        1,250        35,679        *   

Jeffrey W. Shaw

    0        0        0        0        1,866        *   

David F. Smith

    269,704        1,838        16,840        0        215,016 (9)      *   

Ronald J. Tanski

    123,490        2,913        21,224        2,084        253,595 (10)      *   

Directors and Executive Officers as a Group 18 Total

    798,396        13,708        153,985        53,711        2,132,926        3.71

 

 *

Represents beneficial ownership of less than 1% of issued and outstanding Common Stock.

 

(1)

This column lists shares with respect to which each of the named individuals, and all directors and executive officers as a group (18 individuals), have the right to acquire beneficial ownership within 60 days of November 28, 2014, through the exercise of stock options/SARs granted under the 1997 Award and Option Plan and the 2010 Equity Compensation Plan. The shares included in this column for exercisable SARs equal the number of shares the officer would have received by exercising those SARs on November 28, 2014, when the Fair Market Value (“FMV”) was $69.26 per share. Stock options and SARs, until exercised, have no voting power. The FMV is the average of the high and low stock price on a specified date.

 

(2)

This column lists shares held in the National Fuel Gas Company Employee Stock Ownership Plan (“ESOP”). The beneficial owners of these shares have sole voting power with respect to shares held in the ESOP, but do not have investment power respecting most of those shares until they are distributed.

 

(3)

This column lists shares held in the Company Tax-Deferred Savings Plan for Non-Union Employees (“TDSP”), a 401(k) plan. The beneficial owners of these shares have sole voting and investment power with respect to shares held in the TDSP.

 

(4)

This column lists shares of restricted stock, certain restrictions on which had not lapsed as of November 28, 2014. Owners of restricted stock have power to vote the shares, but have no investment power with respect to the shares until the restrictions lapse.

 

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(5)

This column includes shares held of record and any shares beneficially owned through a bank, broker or other nominee.

 

(6)

This column lists the sum of the individual’s (or individuals’) stock options, SARs and shares shown on this table, expressed as a percent of the Company’s outstanding shares and that individual’s (or individuals’) exercisable stock options and SARs.

 

(7)

Includes 1,000 shares held by Mr. Ackerman’s wife in a trust originally established for the benefit of her mother, 8,991 shares held by Mr. Ackerman’s wife as trustee for her sister, 70,250 shares also held in trust, as to which shares Mr. Ackerman disclaims beneficial ownership, 522,261 shares also held in four Grantor Retained Annuity Trusts (shares of 54,346, 80,675, 87,240 and 300,000, respectively, in each trust), as to which shares Mr. Ackerman disclaims beneficial ownership and 220 shares with respect to which Mr. Ackerman shares voting and investment power with his wife.

 

(8)

Includes 5,000 shares held by the Don Kay Clay Cash Foundation, a Utah not-for-profit corporation, of which Mr. Cash, his wife, son and daughter-in-law are directors and also includes 9,000 shares held by Triple C Securities & Investment, Ltd. a limited partnership in which Mr. Cash has an interest. Mr. Cash disclaims beneficial ownership of all 14,000 shares.

 

(9)

Includes 51,902 shares owned by Mr. Smith’s wife, as to which Mr. Smith shares voting and investment power.

 

(10)

Includes 614 shares owned jointly with Mr. Tanski’s wife, as to which Mr. Tanski shares voting and investment power.

As of January 12, 2015, the Company knows of no one who beneficially owns in excess of 5% of the Company’s Common Stock, which is the only class of Company stock outstanding, except as set forth in the table below.

 

Name and Address of Beneficial Owner

   Shares Held as
Trustee for Company
Employee Benefit
Plans(1)
     Shares
Otherwise
Beneficially Held
    Percent
of
Class(2)
 

Vanguard Fiduciary Trust Company

100 Vanguard Boulevard

Malvern, PA 19355

     3,451,561         5,341,524 (3)      10.43

Mario J. Gabelli

Gabelli & Company, Inc.

One Corporate Center

Rye, NY 10580

     N/A         7,704,724 (4)      9.15

BlackRock, Inc

40 East 52nd Street

New York, NY 10022

     N/A         4,839,721 (5)      5.75

 

(1)

This column lists the shares held by Vanguard Fiduciary Trust Company in its capacity as trustee for certain employee benefit plans. Vanguard Fiduciary Trust Company held 3,451,561 shares on behalf of the plans as of January 12, 2015, all of which have been allocated to plan participants. The plan trustee votes the shares allocated to participant accounts as directed by those participants. Shares held by the Trustee on behalf of the plans as to which participants have made no timely voting directions are voted by the Trustee in the same proportion as the shares of Common Stock for which the Trustee received timely directions, except in the case where to do so would be inconsistent with provisions of Title I of ERISA. Vanguard Fiduciary Trust Company disclaims beneficial ownership of all shares held in trust by the Trustee that have been allocated to the individual accounts of participants in the plans for which directions have been received, pursuant to Rule 13d-4 under the Exchange Act.

 

(2)

This column lists the sum of the shares shown on this table, expressed as a percent of the Company’s outstanding shares at January 12, 2015.

 

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(3)

The Vanguard Group, which is affiliated with Vanguard Fiduciary Trust Company, has sole investment discretion and no voting authority with respect to 5,286,864 shares of Company Common Stock, and defined investment discretion and sole voting authority with respect to 48,560 shares of Company Common Stock and sole investment discretion and sole voting authority with respect to 6,100 shares of Company Common Stock, according to its Form 13F for the period ended September 30, 2014.

 

(4)

This number of shares is derived from Amendment No. 4 to Schedule 13D filed on September 12, 2014 by Gabelli Funds, LLC, GAMCO Asset Management Inc., Gabelli Securities, Inc., MJG Associates, Inc., MJG-IV Limited Partnership, Gabelli Foundation, Inc., GGCP, Inc., GAMCO Investors, Inc., and Mario J. Gabelli.

 

(5)

The number of shares is derived from the BlackRock, Inc. Form 13G filed January 30, 2014. BlackRock has sole investment discretion and sole voting authority with respect to 4,549,660 and sole investment discretion and no voting authority with respect to 290,061 shares of Company stock.

EQUITY COMPENSATION PLAN INFORMATION

As of September 30, 2014

 

Plan category

   Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
    Weighted-average exercise
price of outstanding
options, warrants and
rights
(b)
    Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
 

Equity compensation plans approved by security holders

     2,910,809 (1)    $ 45.69 (2)      751,631 (3) 

Equity compensation plans not approved by security holders

     0        0        0   
  

 

 

   

 

 

   

 

 

 

Total

     2,910,809      $ 45.69        751,631   
  

 

 

   

 

 

   

 

 

 

 

(1)

The securities listed in column (a) include 430,808 shares of Common Stock which would be issued under performance-based awards outstanding at September 30, 2014 if the maximum level of performance is achieved under those awards, including 233,876 shares related to performance-based RSU awards and 196,932 shares related to performance share awards. If actual performance falls below the maximum level of performance for these awards, fewer shares would be issued.

 

(2)

The weighted-average exercise price in column (b) takes into account outstanding stock options and stock appreciation rights. It does not take into account outstanding RSUs, performance-based RSUs or performance shares.

 

(3)

Of the securities listed in column (c), 39,404 were available at September 30, 2014 for issuance pursuant to the Company’s 2009 Non-Employee Director Equity Compensation Plan and 712,227 were available for future issuance under the 2010 Equity Compensation Plan.

 

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EXECUTIVE COMPENSATION

Compensation Committee Report

The Compensation Committee of the Board of Directors (the “Committee”) has reviewed and discussed with management the Compensation Discussion and Analysis contained in this proxy statement. Based upon this review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014.

COMPENSATION COMMITTEE

S. E. EWING, Chairman

R. D. CASH

R. W. JIBSON

Compensation Discussion and Analysis

EXECUTIVE SUMMARY

The Company’s compensation policies and procedures encourage a culture of pay for performance and are strongly aligned with the long-term interests of the Company’s stockholders. In fiscal 2013, the Compensation Committee reviewed and revised certain aspects of the compensation program to incorporate feedback from stockholders. In fiscal 2014, the Compensation Committee continued to build on these efforts.

The Compensation Discussion and Analysis (“CD&A”) provides a detailed review of the Company’s executive compensation program, including the goals of the program. The Committee has retained two compensation consultants, the Hay Group (“Hay”) and Meridian Compensation Partners, LLC (“Meridian”), to assist it in setting and monitoring the program. Overall, the Company’s long-term performance and total direct compensation are in line with that of its peers.

2014 Say-on-Pay Vote and Stockholder Engagement

The 2014 Say-on-Pay advisory vote yielded a result of about 96% of votes cast in support of the compensation of the Company’s named executive officers. As in 2012 and 2013, members of Company management continue to hold meetings with some of the Company’s largest stockholders to obtain feedback on the Company’s compensation program, among other topics. The Board and management believe that this engagement facilitates important dialogue from which we gather various viewpoints.

Recent Changes to the Compensation Program

After meeting with many of our largest stockholders during the past few years and obtaining valuable feedback, the compensation program has been amended in each of the past two years to incorporate the following:

 

   

Shifting Long-Term Performance Incentive to Equity — Prior to fiscal 2013, the Company granted a combination of equity-based awards (restricted stock and stock appreciation rights (“SARs”)) and performance-based cash awards tied to a total return on capital goal. In fiscal 2013, as an interim step prior to an in-depth review of its long-term incentive (“LTI”) approach, the Compensation Committee replaced the cash portion of the program with performance-based RSUs, utilizing the same relative total return on capital metric. For fiscal 2014, the Company further revised the mix of awards to be approximately two-thirds performance shares (split between two distinct relative performance metrics measured over three years against a peer group) and one-third time-vested RSUs (vesting ratably over a 3-year period).

 

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Adoption of Relative Performance Conditions for Fiscal 2014 — As noted above, for fiscal 2014, the Compensation Committee devoted two-thirds of the LTI award to performance shares. The Committee established two distinct performance metrics: 3-year TSR relative to the Hay peer group and 3-year total return on capital (“TROC”) relative to the Hay peer group.

 

   

The CEO is Required To Own Six Times Base Salary in Company Stock — Our CEO’s stock ownership is approximately 22 times his base salary as of November 28, 2014.

The Board and management consider it important to maintain a program of ongoing stockholder engagement, communication, and transparency, and as a result, the Company plans to continue engagement in the future.

CEO Compensation

For fiscal 2014, because of the transition associated with Mr. Smith’s retirement and Mr. Tanski’s assumption of the top executive position, as well as the move away from a long-term incentive partially paid in cash, the Summary Compensation Table does not appropriately reflect the philosophy behind the Compensation Committee’s approach to CEO Compensation.

Below is a chart which compares information provided by Hay, the Compensation Committee’s targeting of Mr. Tanski’s pay for fiscal 2014 and the corresponding amounts contained in the Summary Compensation Table.

Fiscal 2014

CEO Compensation

 

    

Hay P50 Target  

Energy Industry  

    As Targeted by
Compensation Committee  
   

As Contained in the

Summary Compensation Table  

 

Base Salary

  $ 914,700        $ 845,625        $ 845,625     

Bonus

  $ 966,200        $ 887,906        $ 1,202,225     

Total Cash

  $ 1,880,900        $ 1,733,531        $ 2,047,850     

Total Target LTI

  $ 2,203,700        $ 2,203,700        $ 2,286,841     

Total Direct Compensation

  $ 4,084,600        $ 3,937,231        $ 4,334,691     

Total Shareholder Return

From a short-term and long-term perspective, fiscal 2014 was a great year both operationally and financially despite the continued challenge of low natural gas prices, which most significantly impacts the Company’s Exploration & Production subsidiary, specifically within several localized delivery points within the Appalachian Basin. In spite of these challenges, the Company achieved tremendous growth across many facets of its business. The Company’s one-year and three-year TSR were just above the 50th percentile of its Hay peer group. Five-year TSR was at the 38th percentile of that peer group.

2014 Summary Compensation Table Double-Counts Long-Term Incentive Compensation

As part of the Company’s engagement efforts, the aforementioned change to the LTI program from performance-based cash to performance-based equity will distort the 2014 Summary Compensation Table. Prior to 2013, the Company’s LTI program had a meaningful cash component, and for Summary Compensation Table purposes this is reported with respect to the fiscal year for which it is earned and not for the year in which the award opportunity was granted. In 2013, the Committee approved changes to the program to move the value of the cash component to performance-based equity. Equity grants are reported in the Summary Compensation Table in the year in which they are granted. As a result of this change, the 2014 Summary Compensation Table will overstate long-term incentive compensation. Cash paid for the three-year period ended September 30, 2014 appears in the same row of the table as the equity grant for the three-year period ended September 30, 2016.

 

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“Reported” Pay Does Not Adequately Reflect Changing Compensation Approach

Given changes by the Compensation Committee (following stockholder outreach) to the LTI program as discussed above, we have provided an additional, supplemental compensation table below in order to distinguish the annual short-term cash incentive from the 3-year long-term cash incentive, associated with awards made prior to fiscal 2013, to remove the impact of the move from a cash-based LTI to an equity-based LTI, and to remove the volatile, significant effects of changes in actuarial assumptions on the value of the named executive officers’ pension benefits disclosed in the 2014 Summary Compensation Table. This table, however, is not a substitute for the Summary Compensation Table, which can be found at page 40 in this proxy statement.

 

Name and Principal Position

  Year     Salary
($)
    Short-Term
Cash
Incentive
($)
    Long-Term
Cash
Incentive
(1)($)
    Stock
Awards
(2)($)
    Option
Awards
($)
    All Other
Compensation

($)
    Total
($)
 

Ronald J. Tanski

    2014        845,625        1,202,225        938,000        1,143,421        0        150,530        4,279,801   

President and Chief

    2013        726,148        802,829        806,680        N/A        458,072        107,613        2,901,342   

Executive Officer of the Company

    2012        681,000        640,140        752,800        344,313        280,005        96,124        2,794,382   

David P. Bauer

    2014        343,500        246,315        262,640        127,080        0        34,949        1,014,484   

Treasurer and Principal

    2013        318,000        233,000        225,120        N/A        113,353        26,042        915,515   

Financial Officer of the Company

    2012        293,750        215,000        75,280        68,863        56,001        23,728        732,622   

Matthew D. Cabell

    2014        617,500        697,219        844,200        389,116        0        99,609        2,647,644   

President of Seneca

    2013        591,250        774,981        562,800        N/A        356,866        80,721        2,366,618   

Resources Corporation

    2012        573,750        445,402        564,600        309,881        252,005        58,412        2,204,050   

Anna Marie Cellino

    2014        518,750        517,272        450,240        285,964        0        77,851        1,850,077   

President of National

    2013        497,000        543,942        431,480        N/A        249,901        78,171        1,800,494   

Fuel Gas Distribution Corporation

    2012        482,250        585,861        423,450        206,588        168,003        79,695        1,945,847   

John R. Pustulka

    2014        500,500        505,380        450,240        277,820        0        90,013        1,823,953   

President of National

    2013        462,750        415,272        431,480        N/A        235,909        70,306        1,615,717   

Fuel Gas Supply Corporation

    2012        425,000        443,573        225,840        206,588        168,003        69,617        1,538,621   

David F. Smith

    2014        341,250        598,382        1,250,166        117,804        0        90,251        2,397,853   

Executive Chairman of

    2013        776,600        1,378,894        1,435,140        N/A        909,650        168,863        4,669,147   

the Board until 4/1/14

    2012        880,000        1,073,160        1,317,400        550,900        448,008        151,211        4,420,679   

 

(1)

For fiscal 2014, Long-Term Cash Incentive represents an estimated payment for the three-year performance period ended September 30, 2014. See footnote 2 to the Summary Compensation Table for more information.

 

(2)

This column reflects: (a) for fiscal 2012 the stock awards listed in the Summary Compensation Table, (b) for fiscal 2013 no entry to emphasize the fact that the stock award in that year was issued in place of the prior long-term cash incentive and (c) for fiscal 2014 one-half the value of the stock awards listed in the Summary Compensation Table to reflect the prior practice of issuing only one-half of LTI as equity. Also, for Mr. Smith, this represents the award for his employment through March 31, 2014.

CEO Compensation in Alignment with Peers

The Compensation Committee understands the importance of using benchmark data that reflects information from companies with comparable business segments over similar time periods. Reflected in the chart below is the Hay Group’s comparison of fiscal 2013 total direct compensation for the Company’s CEO, Mr. Tanski, against that of CEOs in our Hay peer group. The Company’s CEO total direct compensation, shown in the table below, is in line with that of our peers.

Fiscal 2013 is the most recent complete fiscal year for which proxy statement data is available. It is not possible to compare 2014 compensation against the peer group because 80% of the group maintains a fiscal year based on the calendar year, and will therefore not report 2014 compensation until months after this proxy statement is filed.

 

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    LOGO         

 

 

CEO and President

 
  Compared to CEO proxy data for fiscal year 2013  

 

                 Total Direct
Compensation
Company   Title   

Sales

($M)

  

 

Actual

  

 

Target

AGL Resources, Inc.

  Chairman, President & CEO    $4,617    $6,831,250    $5,935,080

Atmos Energy Corp.

  President & CEO    $3,886    $4,449,444    $4,058,823

Cabot Oil & Gas Corp.

  Chairman, President & CEO    $1,746    $8,846,710    $7,647,672

Energen Corp.

  Chairman & CEO    $1,739    $5,797,858    $5,814,280

EQT Corp.

  Chairman, President & CEO    $1,862    $7,831,022    $6,213,715

MDU Resources Group, Inc.

  President & CEO    $4,462    $3,476,905    $2,803,780

New Jersey Resources Corp.

  Chairman, President & CEO    $3,198    $2,513,855    $2,507,394

Northwest Natural Gas Co.

  President & CEO    $778    $1,864,445    $1,706,245

Questar Corp.

  Chairman, President & CEO    $1,220    $4,344,280    $3,934,855

Quicksilver Resources, Inc.

  President & CEO    $532    $2,772,307    $3,454,807

Range Resources Corp.

  President & CEO    $1,772    $10,495,667    $9,919,947

SM Energy Co.

  CEO    $2,265    $5,932,674    $5,188,443

Southwest Gas Corp.

  President & CEO    $1,951    $2,204,916    $2,150,820

UGI Corp.

  President & CEO    $7,195    $3,204,172    $3,242,755

Ultra Petroleum Corp.

  Chairman, President & CEO    $913    $5,800,000    $5,000,000

Whiting Petroleum Corp.

  Chairman & CEO    $2,696    $10,095,368    $6,627,000

Summary Statistics

                  

75th Percentile

     $3,370    $7,081,193    $6,004,739

Average

     $2,552    $5,403,805    $4,762,851

Median

     $1,906    $5,123,651    $4,529,412

25th Percentile

     $1,609    $3,096,206    $3,133,011

National Fuel Gas Company

  CEO and President    $1,830    $5,013,112    $4,791,201

Percentile Rank

       44%    49%    52%

Total Direct Compensation = base salary + bonus + long-term incentives (target value for cash and grant date value for equity).

 

 

 

 

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OBJECTIVES OF THE EXECUTIVE COMPENSATION PROGRAM

The Company’s executive compensation program is designed to attract, motivate, reward and retain executive talent in order to achieve the objectives that contribute to the overall success of the Company. The Company provides a total compensation program established by the Compensation Committee based on its business judgment after consultation with its compensation consultants. Total compensation for executive officers is comprised of the following components, each of which is addressed in greater detail below:

 

Compensation Component

 

Objectives

 

Key Features in 2014

Base Salary

 

•       Provide a fixed level of pay in recognition of day-to-day job performance.

 

•       Attract, retain and motivate leadership with compensation reflecting specific responsibilities, experience and effectiveness.

 

•       Targeted range of the 50th to 75th percentile of peer median provided by independent compensation consultants.

 

•       Adjustments are made based on Compensation Committee members’ business judgment.

 

•       Overall corporate performance is a factor for subjective consideration.

Annual Cash Incentive Compensation  

•       Motivate performance toward, and reward achievement on, near-term financial, operating and individual goals.

 

•       Targets are set as a percentage of base salary based on position, up to 200% of target compensation.

Long-Term Equity Incentive Compensation  

•       Focus attention on managing Company from a long-term investor’s perspective to create long-term stockholder value.

 

•       Encourage executives and other managers to have a significant, personal investment in the Company through stock ownership.

 

•       Reward executives for longer-term performance of the Company relative to an industry peer group.

 

•       2014 long-term compensation denominated in equity.

 

•       Two-thirds of awards granted as performance shares, split between two distinct performance conditions — 3-year TSR and 3-year TROC.

 

•       Performance conditions are objective and measured relative to a recognized peer group.

 

•       One-third of awards are granted as time-based RSUs as a retention tool.

 

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Compensation Component

 

Objectives

 

Key Features in 2014

Executive Health, Welfare, and Retirement Benefits  

•       Provide executives with reasonable and competitive benefits commensurate with those in the regulated and unregulated energy industry.

 

•       Help the Company attract and retain high-caliber employees in high-level management positions.

 

•       Restore retirement benefits lost under qualified retirement plans as a result of Internal Revenue Code limits.

 

•       Retirement benefits consisting of:

 

1.      a qualified defined contribution plan (401(k));

 

2.      a qualified non-contributory deferred contribution plan (Retirement Savings Account or “RSA”) or qualified defined benefit plan(depending on year of hire); and

 

3.      a non-qualified executive retirement plan and/or non-qualified tophat plan.

Change in Control Arrangements  

•       Assure that executives direct their attention to their duties, acting in the best interests of stockholders, notwithstanding potential for loss of employment in connection with a Change in Control.

 

•       Double-trigger provision to avoid providing benefits to officers who continue to enjoy employment with the Company after a Change in Control event.

 

•       No tax gross-up on payment.

 

•       Payment is reduced on a pro-rata basis if termination occurs between age 62 and 65.

Role of the Compensation Committee    The Committee is comprised of three directors, all of whom have been determined by the Board to be independent. The Committee administers the Company’s compensation program for executive officers, setting base salaries and available incentive compensation ranges. The Committee exercises the authority delegated to it by the stockholders or the Board under the Company’s cash and equity incentive compensation plans, which include:

Cash Compensation Plans

Short-Term

 

   

2012 Annual At Risk Compensation Incentive Plan (the “At Risk Plan”)

 

   

Executive Annual Cash Incentive Program (the “EACIP”)

Long-Term — as stated above, the Committee has moved away from awards of cash long-term incentives

 

   

National Fuel Gas Company 2012 Performance Incentive Program (a program approved by the stockholders in 2012, but under which there has been only one award, made in fiscal 2012, due to feedback from largest stockholders)

Equity Compensation Plans

Long-Term

 

   

2010 Equity Compensation Plan

In addition, the Committee makes recommendations to the Board with respect to the development of incentive compensation plans and equity-based plans and changes in compensation for non-employee directors.

 

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As described below, the Committee retains the services of independent compensation consultants to assist the Committee in administering the Company’s compensation program. Further, as described earlier in this proxy statement, the members of the Committee have vast experience in the energy industry and/or as leaders of major corporations. In these roles, as well as through their experiences with the Company, the Committee has garnered extensive knowledge regarding the establishment of a competitive and properly focused compensation program for the Company’s executive officers. In making the decisions discussed below, the Committee uses its subjective business judgment developed through its years of experience.

Role of Chief Executive Officer

In making its subjective determinations with respect to executive officers other than Mr. Tanski, the Committee discusses the information it receives from its compensation consultants with Mr. Tanski and seeks his recommendation as to the appropriate base salaries, and target short-term and long-term incentive awards for each of these officers, based on Hay and Meridian recommendations and his assessment of their performance, contributions and abilities. Mr. Tanski also provides input to the Committee’s compensation consultants with regard to the responsibilities of the Company’s officers, to facilitate the consultants’ recommendations and comparisons of such officers’ and their positions to other positions in the marketplace. Mr. Tanski makes no recommendations with regard to his own compensation.

Independent Compensation Consultants

The Compensation Committee utilizes recommendations of compensation consultants in exercising its business judgment as to compensation matters, including the selection of peer companies for compensation comparison purposes. The Committee has retained the services of two independent compensation consultants, Hay and Meridian, to assist in setting and monitoring executive compensation: Meridian to benchmark compensation at the Company’s exploration and production business and Hay to benchmark compensation at its other businesses.

Determining Our Peers

Because of the Company’s diverse asset mix, selecting an appropriate peer group of companies requires a customized approach that calls for more critical thought than simple selection of a standard industry group, which may include utility companies without a presence in the natural gas industry. The Company’s assets span the entire natural gas supply chain and include exploration & production (“E&P”), pipeline and storage, midstream, and natural gas utility operations. For compensation and performance comparisons, the Committee utilizes two separate peer groups. The Hay peer group is the primary peer group against which the Compensation Committee generally benchmarks named executive officer compensation and is intended to include a group of companies that, as a whole, represent our asset mix as illustrated in the chart below. Meridian assists in the formulation of a peer group that is targeted to evaluate our E&P business and the compensation of executives that oversee it. Both peer groups may change over time due to corporate transactions or as the Committee believes is warranted based on its business judgment. The Committee believes that the peer groups selected with the guidance of Hay and Meridian include a mix of companies that reflect businesses in which the Company participates, or with which it competes, as reflected in the tables below.

For the purpose of establishing 2014 compensation, the Compensation Committee reviewed the Hay peer group listed below. Given no significant changes to the operations of the Company or its peers, the Committee made no changes to the group. In addition, the Committee utilized the Hay peer group for purposes of setting relative performance conditions on LTI awards of performance shares.

 

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The Hay Group

Hay assists the Compensation Committee in evaluating and setting compensation for Company officers and officers employed by affiliate companies other than Seneca. Generally, Hay provides job evaluation to a wide range of companies through detailed position analysis based on proprietary information from multiple parent organizations and business units. Hay provides similar analysis for supervisory positions in the Company’s regulated subsidiaries. Hay’s job evaluation and benchmarking methodology allows for customizable job descriptions and organizational rankings that are specific to the Company but relative to industry benchmarks.

In fiscal 2014, for Company officers, and officers employed by affiliate companies other than Seneca, Hay provided an analysis of compensation practices with respect to the following forms of compensation compared to similar positions in the general industry and, where appropriate, in the energy industry based on Hay’s proprietary databases:

 

  1)

Base Salary

 

  2)

Total Cash Compensation (base salary, plus short-term cash incentive)

 

  3)

Total Direct Compensation (base salary, plus short-term cash incentive, plus long-term equity incentive)

Hay also made recommendations on incentive compensation target amounts to the Committee for:

 

  1)

Short-Term Incentive (cash incentive payments as discussed below)

 

  2)

Long-Term Incentive (stock appreciation rights, restricted stock units and performance share units also discussed below)

Additionally, Hay provided a proxy analysis of base salary, incentive targets, total cash compensation, long-term incentive and total direct compensation for four of the six named executive officers (Messrs. Tanski, Bauer and Smith, and Mrs. Cellino) for whom adequate comparative information was available based on 2013 proxy data for the Company and the 16 energy companies in the peer group listed below. These 16 companies were selected for the peer group because each participates in one or more businesses that are similar to those of the Company:

 

      Hay Group — Peer Companies   

    Exploration    

    &    

    Production    

  

    Natural    

    Gas Utility    

  

    Pipeline    

    &    

    Storage    

1

   AGL Resources Inc.         X    X

2

   Atmos Energy Corporation         X    X

3

   Cabot Oil & Gas Corporation    X          

4

   Energen Corporation    X    X     

5

   EQT Corporation    X    X    X

6

   MDU Resources, Inc.    X    X    X

7

   New Jersey Resources Corporation         X    X

8

   Northwest Natural Gas Company         X    X

9

   Questar Corporation    X    X    X

10

   Quicksilver Resources Inc.    X          

11

   Range Resources Corporation    X          

12

   Southwest Gas Corporation         X     

13

   SM Energy Company    X          

14

   UGI Corporation         X     

15

   Ultra Petroleum Corporation    X          

16  

   Whiting Petroleum Corporation    X          
     TOTAL    10    10    7

 

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The Compensation Committee reviews the members of the peer group from time to time, and makes adjustments, as it believes are warranted. The Compensation Committee made no revisions to the peer group used for purposed of establishing compensation in 2014. In 2014, however, for purposes of establishing compensation for calendar 2015, the Compensation Committee reviewed the Hay peer group and determined to remove Quicksilver Resources Inc. because of its financial volatility.

Meridian Compensation Partners, LLC    Meridian assists the Committee in evaluating and setting compensation for employees at Seneca, including that of Mr. Cabell. Meridian also benchmarked Mr. Tanski’s compensation against this peer group. The Committee requested this analysis for its use in supplementing the Hay provided comparisons due to the increasing importance of the Company’s E&P segment and Mr. Tanski’s management of that segment. The Committee selected Meridian due to its expertise in E&P industry compensation matters.

In 2013, Meridian provided an analysis for Messrs. Cabell, Tanski and Smith of compensation practices with respect to the following forms of compensation compared to similar positions in the E&P industry:

1. Base Salary

2. Target Short-Term Incentive

3. Target Cash Compensation (base salary plus short-term incentive)

4. Long-Term Incentive

5. Total Target Compensation (base salary plus short-term and long-term incentive)

The Meridian analysis was based on data from Meridian’s Proprietary Oil and Gas Compensation Database, supplemented by published survey data and available proxy data, from 20 E&P companies chosen by the Committee based on certain criteria, such as revenues, assets, and the nature of each company’s operations in the E&P segment of the energy industry, that made them relatively comparable to the operations at Seneca. The companies in the 20-member peer group range in size from approximately $3.1 billion to $147 million in E&P revenues (with a median of $642 million) and from approximately $9.7 billion to $808 million in E&P asset size (with a median of $2.6 billion). The peer group is:

 

      Meridian Compensation Partners — Peer E&P Companies

1

   Approach Resources    11    Oasis Petroleum

2

   Bill Barrett Corporation    12    PDC Energy

3

   Carrizo Oil & Gas, Inc.    13    Quicksilver Resources Inc.

4

   Endeavour International    14    Range Resources Corporation

5

   Energen Corporation    15    Resolute Energy

6

   EQT Corporation    16    SM Energy Company

7

   EXCO Resources, Inc.    17    Southwestern Energy Company

8

   Forest Oil Corporation    18    Swift Energy Company

9

   Goodrich Petroleum    19    Ultra Petroleum Corporation

10

   Laredo Petroleum Holdings    20    Unit Corporation

The Committee reviews the members of this E&P peer group from time to time and makes adjustments, as it believes are warranted. In 2013, the Compensation Committee removed Berry Petroleum from the 2014 Meridian Peer Group because Berry was acquired. In 2014, for purposes of establishing compensation for calendar 2015, the Compensation Committee reviewed the Meridian peer group and determined to remove Quicksilver Resources Inc. because of its financial volatility.

 

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FISCAL 2014 TOTAL COMPENSATION

Base Salary

Base salaries provide a predictable base compensation for day-to-day job performance. The Committee reviews executive officer base salaries at calendar year-end and adjusts them, if it deems appropriate in its subjective business judgment, following review of its compensation consultants’ competitive analysis and upon consideration of the recommendations of the CEO. In addition, base salary may be adjusted during the calendar year when changes in responsibility occur. Base salary is not adjusted based on specific objective financial results, although overall corporate performance is reviewed by the Committee in its decision making process. The Committee does not use formulas; rather, it exercises its business judgment.

In establishing the base salary amount, for named executive officers other than Mr. Cabell, the Committee generally references the 50th percentile of the Hay Energy survey data. In its subjective business judgment, the Committee may pay between the 50th and 75th percentiles of the Hay data if it is necessary to attract, retain and motivate the individuals responsible for the success of the business enterprise. The Committee also considers overall corporate performance and an individual’s specific responsibilities, experience (including time in position), and effectiveness and makes adjustments based on the Committee members’ business judgment and the CEO’s recommendations. Given the growth and importance of the E&P segment to the Company and the highly competitive nature of the Marcellus Shale, the Committee sets Mr. Cabell’s base salary above the 75th percentile of the Meridian survey data. The Committee references the Meridian survey data to target Mr. Cabell’s total direct compensation at approximately the 50th percentile of that data.

Effective on January 1, 2014, in setting Mr. Tanski’s base salary for 2014, the Compensation Committee considered the Hay report indicating Mr. Tanski’s then-current base salary was slightly above the 25th percentile of Hay’s Energy Industry market data  —  a target the Compensation Committee, in exercising its business judgment, determined to be appropriate in March of 2013 when the Board of Directors elected Mr. Tanski as CEO of the Company. For January 1, 2014, the Compensation Committee determined that Mr. Tanski’s base salary should move half-way to the 50th percentile of Hay’s Energy Industry market data and increased Mr. Tanski’s base salary to $832,500. Effective April 1, 2014, following Mr. Smith’s retirement as Executive Chairman of the Board of Directors, the Compensation Committee reviewed Mr. Tanski’s base salary, referencing again the 50th percentile of the Hay Energy Industry market data, the Compensation Committee determined to increase Mr. Tanski’s base salary, effective April 1, 2014, to $900,000  —  slightly below the 50th percentile. Effective January 1, 2014, the Compensation Committee determined to maintain Mr. Smith’s base salary at his then-current amount, which reflected a decrease that was made effective in March of 2013 when he transitioned to the Executive Chairman role.

For calendar year 2014, based on its and Mr. Tanski’s assessment of Mr. Cabell’s responsibilities, experience and effectiveness in the past year, the Committee increased Mr. Cabell’s base salary by 5%. This increase was awarded in recognition of his performance in the management of the E&P segment, and to retain him in his position given the competition for talent in the industry and in that geographic region.

The Committee considered Hay’s report that Mrs. Cellino’s salary was below the Energy Industry median, and following discussion with Mr. Tanski, the Committee increased Mrs. Cellino’s base salary to an amount that was slightly above the Energy Industry 50th percentile. The increase was based on the Committee’s and Mr. Tanski’s assessment of her attention to customer service, safety and oversight of budget and cost control at the utility segment.

For calendar year 2014, upon consultation with Mr. Tanski, the Committee increased Mr. Pustulka’s base salary to an amount that approximated the Energy Industry 50th percentile. This decision was in recognition of Mr. Pustulka’s performance in the management of Supply Corporation and the successful development of pipeline expansion projects.

 

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In determining the 2014 annual base salary for Mr. Bauer, the Committee referenced Hay’s report and increased Mr. Bauer’s salary to a level between the Energy Industry 50th and 75th percentiles, but below the median for his position of the Hay proxy group. The Committee action followed discussion with Mr. Tanski of Mr. Bauer’s specific responsibilities, experience and effectiveness, and his performance managing the Company’s financial strategy.

The fiscal 2014 base salaries of the named executive officers are shown in the Summary Compensation Table under the “Salary” column within this proxy statement.

Annual Cash Incentive

The Company pays an annual cash incentive to its executives to motivate their performance over a short-term (which is generally considered to be no longer than two years). Early in the fiscal year, the Committee establishes a target amount for the annual cash incentive, stated as a percentage of base salary. Executives, other than Messrs. Tanski and Smith, can earn up to 200% of target, based on performance on written goals. Messrs. Tanski and Smith can earn up to 200% of base salary, based on performance on written goals. For executives under the EACIP, the CEO has broad discretion to reduce the amount payable as annual cash incentive based on any factors the CEO may determine.

Target Award Levels

In setting target award levels for the annual cash incentive for 2014, the Committee exercised its business judgment and, upon consideration of the recommendations of Hay and Meridian and, other than with respect to his target incentive, those made by Mr. Tanski, set target awards as follows:

 

Executive

   Target
(As a Percentage of Base Salary)
 

Mr. Tanski

     105

Mr. Bauer

     45

Mr. Cabell

     70

Mrs. Cellino

     70

Mr. Pustulka

     70

Mr. Smith

     105

Performance Goals

Based upon discussions with Mr. Tanski and upon review of forecasted financial data, the Committee approved for each named executive who participated in the At Risk Plan (Messrs. Tanski, Bauer, Cabell, Pustulka and Smith, and Mrs. Cellino) a set of particular performance goals for the 2014 fiscal year. Certain goals overlapped among named executives; for example, each named executive except for Mr. Smith, had a goal tied to consolidated EBITDA and to safety. Incentive payments under the At Risk Plan are based upon performance against the stated objectives. For those officers who participated in the At Risk Plan, 100% of the target incentive was made dependent on objective performance criteria. All performance criteria applicable to a particular executive are communicated to that executive in writing at the time the criteria are established.

To determine the annual cash incentive award based on stated performance objectives, the weight assigned to each goal is multiplied by the percentage of the goal achieved to calculate a weighted percentage for each goal. Once the weighted percentage for each goal is determined, the percentages are totaled. That total weighted percentage is multiplied by the target award to arrive at the total incentive payment amount. The target award is a percentage of the named executive’s base salary for the fiscal year, and the maximum possible award is two times the target amount, except for Messrs. Tanski and Smith, whose maximum possible award is approximately 1.9 times the target amount.

 

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Based on its business judgment, the Compensation Committee designated a single performance objective for Mr. Smith, as noted on the table below, given his role as Executive Chairman at the time of grant. Given his retirement during the fiscal year, Mr. Smith’s award is reduced based on the pro-rata portion of employment during the fiscal year.

The fiscal 2014 annual cash incentives of the named executive officers are shown in the Summary Compensation Table in the “Non-Equity Incentive Plan Compensation” column. For each named executive, the amount awarded was based on the executive’s performance against the pre-established performance criteria. The incentive payments made to the named executives were approved by the Committee.

 

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The following chart identifies the goals assigned to each of the named executive officers for the 2014 fiscal year, the percentage of each goal achieved, the weight assigned to each goal, and the weighted percentage achieved for each goal. Also noted is each named executive’s target percentage of base salary, maximum percentage of base salary, total weighted percentage, target, and actual incentive payout. Following the chart, numbered sequentially to match the appearance of the performance objective in the chart, is a summary of what the objective was at the threshold level, target level and maximum level of performance, and a summary of actual performance. With regard to EBITDA goals, the 2014 EBITDA performance was averaged with the 2013 EBITDA performance to calculate performance levels for the consolidated EBITDA goal, regulated companies’ EBITDA goal, and the Seneca EBITDA goal as a mechanism to incent individuals to consider more than a one-year earnings impact.

 

Annual Cash Incentive
Executive   Ronald J. Tanski     David P. Bauer     Matthew D. Cabell     Anna Marie Cellino     John R. Pustulka     David F. Smith  
Target % of Base Salary   105%     45%     70%     70%     70%     105%  
Maximum % of Base Salary    200%     90%     140%     140%     140%     200%  
Fiscal 2014 Goals  

%

Achvd

    Wght     Wghtd %
Achvd
   

%

Achvd

    Wght     Wghtd %
Achvd
    %
Achvd
    Wght     Wghtd %
Achvd
    %
Achvd
    Wght     Wghtd %
Achvd
   

%

Achvd

    Wght     Wghtd %
Achvd
   

%

Achvd

    Wght     Wghtd %
Achvd
 

1.

  Consolidated EBITDA*     167        0.25        41.75        167        0.25        41.75        167        0.15        25.05        167        0.25        41.75        167        0.25        41.75        167        1.00        167   
2.   Regulated EBITDA*     200        0.25        50.00        200        0.25        50.00                  200        0.25        50.00        200        0.25        50.00             
3.   Seneca EBITDA*                         135        0.15        20.25                                 
4.   Production Volume     137        0.20        27.40                  137        0.20        27.40                                 
5.   Safety     0        0.10        0.00        0        0.10        0.00                  0        0.10        0.00        0        0.10        0.00             
6.   Environmental/Safety                         200        0.10        20.00                                 
7.   Investor Relations - PE Ratio     100        0.10        10.00        100        0.10        10.00                                           
8.   Capital Expenditures - Mainline Installation     0        0.05        0.00                            0        0.10        0.00        0        0.10        0.00             
9.   Capital Expenditures - Services Installation     125        0.05        6.25                            125        0.10        12.50        125        0.10        12.50             
10.   Seneca Reserve Replacement                         180        0.15        27.00                                 
11.   Seneca F&D Cost               184        0.15        27.60        184        0.15        27.60                                 
12.   Seneca LOE                         80        0.05        4.00                                 
13.   Seneca G&A                         200        0.05        10.00                                 
14.   Investor Relations - 1 on 1 Visits               200        0.10        20.00                                           
15.   SOX Internal Control Compliance               200        0.05        10.00                                           
16.   HEAP - NY                                   200        0.05        10.00                       
17.   HEAP - PA                                   164        0.05        8.20                       
18.   Distribution Operational Safety                                   200        0.10        20.00                       
19.   National Fuel Gas Midstream                                             200        0.10        20.00             
20.   Supply and Empire Transportation and Storage Revenue                                                                                                     200        0.10        20.00                           
    Total Weighted % Achieved     135.40%        159.35%        161.30%        142.45%        144.25%        167.00%   
    Target     $887,906        $154,575        $432,250        $363,125        $350,350        $716,625   
    Annual Cash Incentive     $1,202,225        $246,315        $697,219        $517,272        $505,380        $598,382**   

 

*

Reflects an average of 2014 performance and 2013 performance

**

In fiscal 2014, Mr. Smith earned formulaically, an annual incentive of 167% of his target amount for his performance on the goal set under the At Risk Plan. Pursuant to the terms of the At Risk Plan, Mr. Smith received a pro-rated portion of the annual incentive payment he otherwise would have received because of his retirement prior to the end of the fiscal year.

 

 

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Performance Measure                  Threshold                                    Target                                    Maximum                 Actual Performance
1.   Consolidated EBITDA – In determining final performance level, the results of this goal are averaged with the prior year results on the consolidated EBITDA goal.   $870 Million   $930 Million   $1,000 Million   2014 EBITDA=$953 Million; performance level of 133%; 2-year average of performance levels=(200%+133%)/2=167%
2.   Regulated EBITDA – In determining final performance level, the results of this goal are averaged with the prior year results on the regulated companies EBITDA goal.   $305 Million   $315 Million   $335 Million   2014 Regulated EBITDA=$350 Million; performance level of 200%; 2-year average of performance levels=(200%+200%)/2=200%
3.   Seneca EBITDA – In determining final performance level, the results of this goal are averaged with the prior year results on the Seneca EBITDA goal.   $525 Million   $560 Million   $600 Million   2014 EBITDA=$539 Million; performance level of 70%; 2-year average of performance levels=(200%+70%)/2=135%
4.   Production Volume   145 Bcfe   155 Bcfe   170 Bcfe   160.5 Bcfe
5.   Safety – Measured by number of OSHA recordable injuries in the utility and pipeline and storage segments   Same as Target   4.72   3.65   4.91
6.   Environmental/Safety-Measured by PA DEP enforcements per Marcellus wells drilled.   <0.28   0.20   0.10   0.08
7.   Investor Relations – PE ratio as compared to those reported in Edward Jones Natural Gas Industry Summary of September 30, 2014 for Diversified Natural Gas Companies   Top One-Half   Top Three   Top Two   4th of 9
8.   Capital Expenditures – Mainline Installation. Measured by mainline installation unit costs of Distribution Corporation.   $11.00 per inch foot   $10.80 per inch foot   $10.60 per inch foot   $11.84 per inch foot
9.   Capital Expenditures – Services Installation. Measured by service installation unit costs of Distribution Corporation.   $1,970 per services installed   $1,920 per services installed   $1,860 per services installed   $1,905 per services installed
10.   Seneca Reserve Replacement   Replace 225% of fiscal 2014 production   Replace 275% of fiscal 2014 production   Replace 340% of fiscal 2014 production   327.1%
11.   Seneca Finding and Development Cost   $1.65/Mcfe   $1.35/Mcfe   $1.10/Mcfe   $1.14/Mcfe
12.   Seneca Lease operating expense per Mcfe   $1.07/Mcfe   $1.02/Mcfe   $0.95/Mcfe   $1.03/Mcfe
13.   Seneca General and Administrative expense   $69 Million   $67 Million   $64 Million   $64 Million
14.   Investor Relations – 1 on 1 Visits. Measured by 1 on 1 visits with analysts/money managers.   55   70   85   105
15.   SOX Internal Control Compliance – Measured by number of material weaknesses and significant deficiencies.   No unremediated material weaknesses and no unremediated significant deficiencies aggregating to a material weakness   No material weaknesses and no significant deficiencies aggregating to a material weakness   No material weaknesses and no significant deficiencies   No material weaknesses and no significant deficiencies
16.   HEAP – NY. Measured by number of basic grants collected.   80,000   83,000   87,000   87,611
17.   HEAP – PA. Measured by number of basic grants collected.   18,000   19,000   21,000   20,271
18.   Distribution Operational Safety – Measured by the utility segment’s operational safety performance standards in New York and outstanding leak reduction.   Complete 2 of 3 PSC Safety Performance Standards   Complete all 3 PSC Safety Performance Standards OR Any 2 PSC Performance Standards and Outstanding Leaks Reduction   Complete all 3 PSC Performance Standards and Outstanding Leaks Reduction   Completed all 3 PSC Performance Standards and Outstanding Leaks Reduction
19.   National Fuel Gas Midstream – Measured by construction of facilities at three locations/projects.   Complete 1 of 3   Complete 2 of 3   Complete 3 of 3   Completed 3 of 3
20.   Supply and Empire Transportation, Storage and Gathering Revenue   Same as Target   $263,727,633   $265,227,633   $280,843,229

 

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Long-Term Incentive Compensation

Historically, stock options, restricted stock, RSUs, stock-settled SARs, performance shares and a cash performance incentive program represented the various tools within the long-term incentive and retention component of the executive compensation package. The use of these tools has evolved, as discussed in this proxy statement, such that currently the long-term incentive consists solely of equity based awards, two-thirds of which are performance based. Such awards are intended to focus attention on managing the Company from a long-term investor’s perspective. In addition, the Committee wishes to encourage officers and other managers to have a significant, personal investment in the Company through stock ownership. The Committee typically makes equity awards on an annual basis, but has not established a policy to make grants at a specific meeting, to allow flexibility to review and evaluate appropriate equity grant practices.

With respect to long-term incentive compensation, the Committee uses its business judgment to establish target awards based on its compensation consultants and CEO’s recommendations. In prior years, the Committee had allocated approximately one-half of the long-term incentive opportunity to a cash-based performance incentive program and one-half to equity based awards. For fiscal 2013 awards, the Committee determined to allocate all of the long-term incentive opportunity to equity based awards with approximately one-half of the opportunity awards of SARs that vest in equal increments over three years and approximately one-half awards of performance-based RSUs that vest, if at all, at the end of three fiscal years, only to the extent the performance condition is met. For the fiscal 2013 award, the performance condition is 3-year total return on capital relative to an industry peer group reported in an AUS Inc. monthly report.

For fiscal 2014, following review with its compensation consultants and receipt of stockholder feedback, the Committee used its business judgment to adopt a new LTI approach. Under this program, approximately two-thirds of the equity awards are composed of performance shares, split between two distinct performance conditions: relative 3-year TSR and relative TROC over a 3-year period (both measured relative to the Hay peer group). The remaining one-third is composed of time-vested RSUs, an important retention tool for key employees.

Equity Incentive Awards in Fiscal 2014

As noted above, in fiscal 2014, the Compensation Committee awarded approximately two-thirds of each executive officer’s long-term incentive award in the form of performance shares, which increase the emphasis on relative performance-based equity grants and further align our executives’ goals with those of our stockholders. These performance shares are split between two distinct relative performance conditions that must be achieved within the performance cycle that runs from October 1, 2013 through September 30, 2016. The Compensation Committee established the performance condition for one set of performance shares as the Company’s 3-year TSR over the performance cycle as compared to the same metric for companies in the Hay peer group listed above in the discussion of the peer groups, as calculated based on the data reported for each company (with the starting and ending stock prices over the performance cycle calculated as the average closing stock price for the prior calendar month and with dividends reinvested in that company’s securities at each ex-dividend date) in the Bloomberg online database. The Committee determines the extent to which the performance condition has been satisfied and grants up to one share of Common Stock of the Company (or the equivalent value in cash, as determined by the Committee), provided that the performance share will not vest and will be forfeited to the extent the performance condition is not achieved. The Committee linked the awards to relative levels of performance, which results in the vesting and payment of a percentage of the performance shares depending on the Company’s percentile rank among the Hay peer group, as follows:

 

Company’s Percentile Ranking

   Percentage of
Target Opportunity Paid
 

30th or below

     0

40th

     50

50th

     100

70th

     150

90th or above

     200

 

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If the Company’s 3-year TSR is negative (less than 0.0), the percentage of target opportunity paid shall be capped at 100%, regardless of the Company’s percentile ranking. Moreover, for performance between two established performance levels, the percentage of target opportunity paid will be determined by straight line mathematical interpolation.

The Compensation Committee established the performance condition for the other set of performance shares as the Company’s 3-year TROC over the performance cycle as compared to the same metric for companies in the Hay peer group listed above in the discussion of the peer groups. TROC for the Company or any member of the report group shall mean the average of the returns on capital for each twelve month period corresponding to each of the Company’s fiscal years during the performance cycle, calculated based on the data reported for that company in the Bloomberg database. The Committee determines the extent to which the performance condition has been satisfied and grants up to one share of Common Stock of the Company (or the equivalent value in cash, as determined by the Committee), provided that the performance share will not vest and will be forfeited to the extent the performance condition is not achieved. The Committee linked the awards to relative levels of performance, which results in the vesting and payment of a percentage of the performance shares depending on the Company’s percentile rank among the Hay peer group, as follows:

 

Company’s Percentile Ranking

   Percentage of
Target Opportunity Paid
 

<45th

     0

45th

     50

60th

     100

75th

     150

100th

     200

If the Company’s 3-year TROC is negative (less than 0.0), the percentage of target opportunity paid shall be capped at 100%, regardless of the Company’s percentile ranking. Moreover, for performance between two established performance levels, the percentage of target opportunity paid will be determined by mathematical interpolation.

No dividend equivalent will be provided in respect of any performance shares.

The Compensation Committee also awarded approximately one-third of each executive officer’s long-term incentive award in the form of time-based RSUs, an important retention tool. Vesting of these RSUs occurs in three equal annual installments beginning December 19, 2014. No dividend equivalents will be provided in respect of any RSUs. The fiscal 2014 performance shares and RSUs granted to the named executive officers are set out in the Grants of Plan-Based Awards in Fiscal 2014 Table within this proxy statement.

With regard to Mr. Smith, based on its business judgment, the Compensation Committee awarded his entire long-term incentive in the form of performance shares, split between the two performance conditions discussed above, given, at the time of grant, his role as Executive Chairman and possible retirement, which ultimately occurred on April 1, 2014. Because of his retirement during a performance cycle, Mr. Smith’s awards are determined based on performance calculated following the completion of the performance cycle and are then reduced based on this pro-rated portion of employment, as discussed further in this proxy statement.

2012 Performance Incentive Program

The 2012 Performance Incentive Program is the Company’s cash-based, long-term incentive program. This program was adopted as a complement to the equity based programs and to provide another component of total compensation that was dependent on the Company’s relative performance. It was approved by the stockholders at the 2012 Annual Meeting of Stockholders. Given the Committee’s recent move to an equity-based long-term incentive program, no award opportunities under the Performance Incentive Program were provided in fiscal 2013 or fiscal 2014, and thus there are no longer

 

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any open performance periods under this program. Previously, the Committee had approved target incentives for the current named executive officers under this program associated with the three-year performance period from October 1, 2011 through September 30, 2014. The performance metric for this period is noted below, and the target incentives were as follows:

 

Mr. Tanski

   $ 500,000   

Mr. Bauer

   $ 140,000   

Mr. Cabell

   $ 450,000   

Mrs. Cellino

   $ 240,000   

Mr. Pustulka

   $ 240,000   

Mr. Smith

   $ 800,000   

The performance condition for the performance period noted above was Company’s TROC relative to the same metric for those companies reported in the Natural Gas Distribution and Integrated Natural Gas Companies group as calculated and reported in the Monthly Utility Reports of AUS, Inc., a leading industry consultant (“AUS”). This measure was chosen because it utilizes an independently selected group of industry peers. The natural gas distribution and integrated natural gas companies reported in the December 2014 AUS Monthly Utility Report are:

AGL Resources Inc.

Atmos Energy Corporation

Delta Natural Gas Company

Gas Natural, Inc.

Laclede Group, Inc.

National Fuel Gas Company

New Jersey Resources Corp.

Northwest Natural Gas Co.

Piedmont Natural Gas Co., Inc.

Questar Corporation

RGC Resources, Inc.

South Jersey Industries, Inc.

Southwest Gas Corporation

UGI Corporation

WGL Holdings, Inc.

This financial metric reflects how profitably management is able to allocate capital to its operations, and provides a performance metric of relevance to all participants, regardless of the business segment(s) for which they provide services. Based on the level of performance over the applicable three-year performance period, a cash incentive payment may be made, ranging from 0% to 200% of the portion of each executive officers’ target incentives allocated to the Performance Incentive Program awards.

Generally, payment on awards made under the Performance Incentive Program will be made at the levels specified below, if the Company achieves performance as detailed below over the applicable three-year performance period:

 

National Fuel Rank as a Percentile

of Peer Group

   Percentage of Target
Incentive Payable
 

Less than 45.01%

     0

45.01%

     50

60%

     100

75%

     150

100%

     200

For threshold levels of performance between two established performance levels, the amount of target incentive payable will be determined by straight line mathematical interpolation. Ranking of the companies in the Monthly Utility Reports is determined by calculating the average return on capital for each company for the three-year performance period and sorting the companies from highest to lowest. The Committee has broad discretion to reduce the amount payable to any participant in the Performance

 

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Incentive Program. The Committee may reduce a payment based on any factors it may determine, including the participant’s individual performance. The Committee does not have upward discretion to increase the amount payable under the Performance Incentive Program.

At times, AUS does not include in its calculations gains realized on the sale of operations that are reported under Generally Accepted Accounting Principles as discontinued operations. The Committee previously determined, however, that payouts under the program may take into account the results of the Company’s discontinued operations, if any.

Because the Monthly Utility Report with the necessary data for fiscal 2014 will not be available until February of 2015, the actual award amounts earned for this performance period are currently unknown. The amounts shown within this proxy statement in the Summary Compensation Table in the “Non-Equity Incentive Plan Compensation Column” as explained in footnote (2) to that table were accrued by the Company in fiscal 2014 as estimates of the amount which will be calculated and paid in the second quarter of fiscal 2015. The estimated percentile of the Company’s TROC as compared with the Company’s peer group for this performance period would yield an incentive payment equal to 187.60% of the target award.

EMPLOYEE BENEFITS

Retirement Benefits

The Company maintains a qualified defined contribution retirement plan which includes a traditional 401(k) benefit as well as a Retirement Savings Account (“RSA”) benefit for eligible employees (in other words, those hired at various points in 2003 and thereafter, depending on employee type), a qualified defined benefit retirement plan (for those hired prior to various points in 2003), a non-qualified executive retirement plan (available only to selected officers promoted prior to 2002) and a non-qualified tophat plan. These plans help the Company attract and retain high caliber employees in high-level management positions, and, in the case of the non-qualified plans, restore retirement benefits lost to employees under the qualified retirement plans as a result of the effect of the Internal Revenue Code limits and the qualified plans’ limits on compensation considered and benefits provided under such qualified plans. The employee benefits for executive officers employed prior to 2003 differ from those made available to those employed during or after that year. The Company made changes to its programs that reflected a shift in competitive practices away from certain types of retirement benefits, but generally grandfathered existing employees (including executive officers) who were then in service in the benefits programs that are commensurate with those in the regulated energy industry.

Messrs. Tanski and Pustulka and Mrs. Cellino are (and Mr. Smith until his retirement was) eligible to participate in the qualified defined contribution retirement plan (traditional 401(k)), the qualified defined benefit retirement plan, and both of the non-qualified plans. Mr. Cabell is eligible to participate in the qualified defined contribution retirement plan (including the RSA benefit) and the non-qualified tophat plan. Mr. Bauer is eligible to participate in the qualified defined contribution retirement plan, the qualified defined benefit retirement plan and the non-qualified tophat plan. These benefits are described in more detail in the section entitled “Pension Benefits” within this proxy statement.

Executive Life Insurance

In 2004, the Committee authorized an insurance program known as the “ExecutiveLife Insurance Plan.” Under this plan, upon specific direction of the Company’s CEO, when an executive officer reaches age 50, the Company would pay the premium of a life insurance policy or policies, to be owned by the executive officer, in an amount up to $15,000 per year. The payment is taxable income to the executive officer and ceases when the executive officer’s employment ceases. The Committee authorized this plan as a replacement for its prior practice of providing split dollar life insurance agreements to designated executive officers. The Committee replaced the split dollar arrangement with the current plan because it was prohibited by the Sarbanes-Oxley Act from making premium payments on certain split dollar policies

 

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due to their nature as loans. Mr. Tanski, Mr. Cabell, Mrs. Cellino and Mr. Pustulka are covered by the ExecutiveLife Insurance Plan.

Mr. Smith was not and Mr. Bauer is not a participant in the ExecutiveLife Insurance Plan referenced above. In September 2009, the Company entered into an agreement with Mr. Smith (the “Life Insurance Premium Agreement”) whereby the Company pays to Mr. Smith up to $33,000 per year to be used for life insurance. The Committee recommended the agreement because the Sarbanes-Oxley Act prohibits the Company from making premium payments on split dollar arrangements, as noted above. The payment is taxable income to Mr. Smith. Pursuant to the agreement, this agreement terminates on the earlier of: (1) Mr. Smith’s death; and (2) October 31, 2017.

Executive Perquisites

The Company offers a limited number of perquisites to our executive officers. The basis for offering these perquisites is to enhance the Company’s ability to attract and retain highly qualified persons and also to assist the officer in conducting business on behalf of the Company. For certain items, the perquisite is incidental to other business-related use. For example, the Company shares an arena suite with a local law firm for the local professional hockey team. The Company also has additional season tickets for seats for both the local professional hockey and football teams. The Company made these investments as a result of specific drives by the Buffalo, New York business community to support the retention of these professional athletic teams in the Buffalo area. These suites are primarily used for Company business. On the occasions when the suites are not used for Company business, the executive officers as well as other employees are permitted personal use.

The Company offers executive officers tax preparation advice, in part to assure the Company that its officers are properly reporting compensation. The Company makes contributions for the named executive officers’ medical plans. The Company also pays the costs of spouses accompanying named executive officers to certain of the Board of Directors meetings and functions, as well as blanket travel insurance for the named executive officer and spouse.

CHANGE IN CONTROL ARRANGEMENTS

The Company’s named executive officers serve at the pleasure of the Board of Directors and are not employed pursuant to employment agreements. Each of the named executive officers is a party to an Employment Continuation and Noncompetition Agreement (“ECNA”) with the Company, which would become effective upon a Change in Control of the Company.

The Company and the Committee believe that these agreements are required for the attraction and retention of the executive talent needed to achieve corporate objectives and to assure that executive officers direct their attention to their duties, acting in the best interests of the stockholders, notwithstanding the potential for loss of employment in connection with a Change in Control.

The agreement contains a “double-trigger” provision that provides payment only if employment terminates within three years following a Change in Control, as defined in the agreement, either by the Company other than for cause or by the executive officer for good reason. The Committee believes this structure strikes a balance between the incentive and the executive attraction and retention efforts described above, without providing Change in Control benefits to executive officers who continue to enjoy employment with the Company in the event of a Change in Control transaction.

The payment is generally calculated by multiplying 1.99 by the sum of the executive officer’s current base salary plus the average of the annual short-term incentive compensation payment for the previous two fiscal years. The 1.99 multiplier is reduced on a pro-rata basis if termination occurs between age 62 and 65. There is no gross-up for taxes. If payment is triggered, certain health benefits are continued for the earlier of 18 months following termination or the date other similar coverage becomes available.

 

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The ECNA contains a restrictive covenant whereby the executive officer may, upon termination following a Change in Control, choose to refrain from being employed by or otherwise serving as an agent, consultant, partner or major stockholder of a business engaged in activity that is competitive with that of the Company or its subsidiaries. If the executive officer so chooses to be bound by this restrictive covenant, an additional payment is made in the amount of one times the sum of current base salary plus the average of the annual short-term incentive compensation payment for the previous two fiscal years.

There is no gross-up for taxes on either payment. The Committee and the Company believe this is an appropriate payment in exchange for the executive officer’s agreement to the non-compete covenant.

If an executive officer’s employment is terminated without cause within a specific time following a Change in Control of the Company, many of the components of total compensation described above become immediately vested or paid out in a lump sum. More detail about these items and calculations as of September 30, 2014, are set forth in the section entitled “Potential Payments Upon Termination or Change in Control” within this proxy statement.

STOCK OWNERSHIP GUIDELINES

In fiscal 2002, in an effort to emphasize the importance of stock ownership and after consultation with the Compensation Committee, Company Common Stock ownership guidelines were established for officers, ranging from one times base salary for junior officers to four times base salary at the CEO level. In fiscal 2013, the guidelines were revised to increase the ownership requirements for the CEOs to six times base salary and all named executive officers to three times base salary. The CEO holds approximately 22 times his base salary as of November 28, 2014. Other employees receiving equity awards are encouraged to retain their Common Stock for long-term investment. The Board and management believe that employees who are stockholders perform their jobs in a manner that considers the long-term interests of the stockholders. Company Directors are also subject to ownership requirements, as noted on page 14 of this proxy statement.

TAX AND ACCOUNTING CONSIDERATIONS

In designing the Company’s compensation program, consideration is given to the accounting treatment of the awards made to our executive officers and pertinent tax law provisions. In granting stock-settled SARs in lieu of options, the Company took into account that such SARs result in the same financial accounting cost as would have applied to a comparable award of options, but resulted in less dilution to stockholders. Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) generally prohibits the Company from deducting compensation paid in excess of $1 million per year to certain of the executive officers listed in the Summary Compensation Table (other than the Principal Financial Officer and Mr. Smith) unless such compensation qualifies as “performance-based compensation” within the meaning of Section 162(m). The Committee has generally intended for the At Risk Plan, the Performance Incentive Program and the short-term cash incentive compensation payable thereunder, and long-term equity awards to qualify for this performance based exception. However, the Committee may elect to award compensation that is not fully deductible, if the Committee determines that such award is consistent with its philosophy and is in the best interests of the Company and its stockholders. The Company has also designed its compensation program with the intent that any awards granted thereunder will either be exempt from, or comply with the applicable requirements under, Section 409A of the Internal Revenue Code.

 

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Fiscal 2014 Summary Compensation Table

The following table sets forth a summary for fiscal 2014 of the compensation paid to or earned by the CEO, the principal financial officer, each of the three most highly compensated executive officers other than the CEO and principal financial officer who were serving as executive officers at the end of the fiscal year, and David F. Smith, who served during the fiscal year as an executive officer until his retirement on April 1, 2014 (the “named executive officers”). The compensation reflected for each officer was for the officer’s services provided in all capacities to the Company and its subsidiaries.

 

Name and Principal

Position

  Fiscal
Year
    Salary
($)
    Bonus
($)
    Stock
Awards
($)(1)
    Option
Awards
($)
    Non-Equity
Incentive
Plan
Compensation
($)(2)
    Change in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(3)
    All Other
Compensation
($)(4)
    Total
($)
 

Ronald J. Tanski

    2014        845,625        N/A        2,286,841        0        2,140,225        1,153,361        150,530        6,576,582   

President and Chief

    2013        726,148        N/A        3,026,063        458,072        1,609,509        476,377        107,613        6,403,782   

Executive Officer of the Company

    2012        681,000        N/A        344,313        280,005        1,392,940        1,845,542        96,124        4,639,924   

David P. Bauer

    2014        343,500        N/A        254,159        0        508,955        186,322        34,949        1,327,885   

Treasurer and Principal

    2013        318,000        56,553        225,324        113,353        401,567        2,194        26,042        1,143,033   

Financial Officer of the Company

    2012        293,750        33,242        68,863        56,001        257,038        178,196        23,728        910,818   

Matthew D. Cabell

    2014        617,500        N/A        778,231        0        1,541,419        N/A        99,609        3,036,759   

President of Seneca

    2013        591,250        N/A        709,379        356,866        1,337,781        N/A        80,721        3,075,997   

Resources Corporation

    2012        573,750        N/A        309,881        252,005        1,010,002        N/A        58,412        2,204,050   

Anna Marie Cellino

    2014        518,750        N/A        571,927        0        967,512        1,005,015        77,851        3,141,055   

President of National Fuel

    2013        497,000        N/A        496,808        249,901        975,422        684,879        78,171        2,982,181   

Gas Distribution Corporation

    2012        482,250        N/A        206,588        168,003        1,009,311        1,420,489        79,695        3,366,336   

John R. Pustulka

    2014        500,500        N/A        555,640        0        955,620        1,056,719        90,013        3,158,492   

President of National Fuel

    2013        462,750        N/A        468,976        235,909        846,752        652,283        70,306        2,736,976   

Gas Supply Corporation

    2012        425,000        N/A        206,588        168,003        669,413        1,130,193        69,617        2,668,814   

David F. Smith

    2014        341,250        N/A        1,419,290        0        1,848,548        2,339,664        90,251        6,039,003   

Executive Chairman of the

    2013        776,600        N/A        1,808,311        909,650        2,814,034        1,116,059        168,863        7,593,517   

Board until 4/1/14

    2012        880,000        N/A        550,900        448,008        2,390,560        3,234,805        151,211        7,655,484   

 

(1)

The stock award values for fiscal 2014 show the full grant date fair value of time-based RSUs as well as the aggregate grant date fair value of performance shares. For information on the valuation assumptions and performance conditions with respect to these awards, refer to Note A under the heading “Stock-Based Compensation” and Note E under the heading “Stock Option and Stock Award Plans” in the Company’s financial statements in its Form 10-K for the fiscal year ended September 30, 2014 (“2014 Form 10-K”). The grant date fair value of performance shares reflects an estimate that 100% of the performance shares awarded will vest at the end of the three-year performance period. The actual percentage vesting will be determined following fiscal 2016. The value of the performance shares assuming the highest level of performance (200%) is $3,055,114 for Mr. Tanski, $339,576 for Mr. Bauer, $1,039,684 for Mr. Cabell, $764,048 for Mrs. Cellino, $742,286 for Mr. Pustulka and $2,838,581 for Mr. Smith. Mr. Smith will only receive a pro rata amount of these awards based upon the number of days worked in the performance period, therefore, 200% of the pro-rated amount would be $471,216.

 

(2)

For fiscal 2014, this column reflects both an estimated Performance Incentive Program payment expected to be paid by March 15, 2015 ($938,000 for Mr. Tanski, $262,640 for Mr. Bauer, $844,200 for Mr. Cabell, $450,240 for Mrs. Cellino, $450,240 for Mr. Pustulka and $1,250,166 for Mr. Smith) and the actual At Risk Plan payment made in December 2014 ($1,202,225 for Mr. Tanski, $246,315 for Mr. Bauer, $697,219 for Mr. Cabell, $517,272 for Mrs. Cellino, $505,380 for Mr. Pustulka and $598,382 for Mr. Smith).

For the three-year performance period ended September 30, 2014 under the Performance Incentive Program, the Company estimates that its performance relative to its peer group will result in a payout of approximately 187.6% of the “Target Incentive Opportunity” set for each of the participants in the Performance Incentive Program. This estimate of 187.6% is subject to change based on the final AUS report for the performance period ended September 30, 2014.

 

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With respect to fiscal 2013, the estimated Performance Incentive Program amount that was in the fiscal 2013 proxy statement has been updated for actual Performance Incentive Program payments made in March 2014 ($806,680 for Mr. Tanski, $562,800 for Mr. Cabell, $431,480 for Mrs. Cellino, $225,120 for Mr. Bauer, $431,480 for Mr. Pustulka and $1,435,140 for Mr. Smith).

Please refer to the Compensation Discussion and Analysis for additional information about these programs, including information regarding the performance conditions applicable to the awards.

 

(3)

This column represents the actuarial increase in the present value of the named executive officer’s benefits under all pension plans maintained by the Company determined using interest rate and mortality rate assumptions consistent with those used in the Company’s financial statements in its 2014 Form 10-K, as described in Note H, “Retirement Plan and Other Post-Retirement Benefits.” The amount for Mr. Bauer also includes the actuarial increase in the present value of his Retirement Plan-Related Tophat. These amounts may include amounts which the named executive officer may not currently be entitled to receive because such amounts are not vested as of September 30, 2014, 2013 and 2012, respectively. For fiscal 2014, the amount includes above-market earnings under the Deferred Compensation Plan for Mrs. Cellino of $721, Mr. Pustulka of $336 and $2,000 for Mr. Smith. See the narrative, tables and notes to the Pension Plan and the Nonqualified Deferred Compensation Plan within this proxy statement for more information.

 

(4)

All Other Compensation Table

The following table describes each component of the All Other Compensation column in the Summary Compensation Table for fiscal 2014:

 

Description

   Ronald J.
Tanski
($)
     David P.
Bauer
($)
     Matthew D.
Cabell
($)
     Anna Marie
Cellino
($)
     John R.
Pustulka

($)
     David F.
Smith
($)
 

Defined Contributions(a)

     15,525         14,244         23,740         15,525         15,525         7,725   

401(k) Tophat(b)

     105,584         19,395         19,681         46,511         44,638         48,653   

RSA Tophat(c)

     0         0         41,010         0         0         0   

Employee Stock Ownership Plan “ESOP” Supplemental Payment(d)

     1,981         0         0         637         2,727         835   

Life Insurance(e)

     15,000         1,259         15,000         15,000         15,000         33,000   

Travel Accident Insurance(f)

     114         51         178         178         178         38   

Perquisites(g)

     12,326         N/A         N/A         N/A         11,945         N/A   

Total

     150,530         34,949         99,609         77,851         90,013         90,251   

 

a)

Represent the Company matching contributions for all named executive officers within the 401(k) and the Company contribution into the RSA plan for Mr. Cabell. Each officer receives a Company match within the 401(k) plan on the lesser of (1) their base salary or (2) the IRS annual compensation limits. Messrs. Tanski, Pustulka and Smith and Mrs. Cellino receive a 6% match in the 401(k) plan. Mr. Cabell and Mr. Bauer received a 4.5% match in the 401(k) through January 2014 and 6% thereafter. In addition, Mr. Cabell is a participant in the Company’s RSA benefit and received a Company contribution of 3% for the first four months of the fiscal year, then 4% thereafter, on the portion of his base salary plus annual bonus that does not exceed the IRS annual compensation limits.

 

b)

Each officer is prohibited from receiving the full 401(k) Company match on their salary due to the IRS annual compensation limits. The 401(k) Tophat gives each officer, except Mr. Cabell, a Company match on the following forms of compensation: (1) base salary that exceeds the IRS annual compensation limit; and (2) At Risk Plan payment. For Mr. Cabell, the 401(k) Tophat is based on his annual base salary that exceeds the IRS maximum annual compensation limits. The 401(k) Tophat represent the benefit earned in fiscal 2014.

 

c)

Represents the Company contributions on Mr. Cabell’s base salary plus At Risk Plan payment that exceeded the IRS annual compensation limit. The RSA Tophat represents the benefit earned in fiscal 2014.

 

d)

All management participants who were hired prior to December 31, 1986, participate in the ESOP which pays dividends to the participants on the Common Stock held in the plan. The participant does not have the option to reinvest these dividends in order to defer the federal and state income taxes on these dividends. Therefore, the Company makes supplemental payments representing the approximate amount the Company saves in corporate income taxes. The ESOP is a qualified benefit plan that was frozen in 1987 and closed to future participants.

 

e)

Represents the Company-paid life insurance premiums on behalf of Messrs. Tanski, Cabell and Pustulka and Mrs. Cellino under the ExecutiveLife Insurance Plan. The Company also reimbursed Mr. Smith $33,000 under the Life Insurance Premium Agreement. For Mr. Bauer, this represents the Company-paid insurance premiums under the National Fuel Gas Company Group Life Insurance Plan.

 

f)

Represents the premiums paid for the blanket travel insurance policy, which provides a death benefit to beneficiaries of an officer if the officer dies while traveling on business.

 

g)

Perquisites for Mr. Tanski consist of tax preparation and advice, personal use of Company purchased tickets to attend local sporting or entertainment events, attendance at company events for Mr. Tanski’s wife, blanket travel insurance for personal travel and medical contributions paid by National Fuel. Perquisites for Mr. Pustulka consist of tax preparation and advice, personal use of Company purchased tickets to attend local sporting or entertainment events, personal use of the shared suite for

 

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local athletic events, attendance at Company events for Mr. Pustulka’s wife, blanket travel insurance for personal travel and medical contributions paid by National Fuel. No single perquisite exceeded the greater of $25,000 or 10% of the total perquisites provided to Mr. Tanski or Mr. Pustulka. Perquisites for each of the other named executive officers were less than $10,000.

Grants of Plan-Based Awards in Fiscal 2014

The following table sets forth information with respect to awards granted to the named executive officers during fiscal 2014 under the At Risk Plan and the 2010 Equity Compensation Plan. Please refer to the CD&A within this proxy statement for additional information regarding these plans.

 

                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

(#)
    Grant Date
Fair Value of
Stock and
Option
Awards
($)(4)
 

Name

  Note     Grant
Date
    Threshold
($)
    Target
($)
    Maximum
($)
    Threshold
(#)
    Target
(#)
    Maximum
(#)
     

Ronald J. Tanski

    (1     12/19/13              5,686        11,372        22,744          741,411   
    (1     12/19/13              711        11,372        22,744          786,146   
    (2     12/19/13                    11,375        759,284   
    (3     12/20/13        443,953        887,906        1,691,250             

David P. Bauer

    (1     12/19/13              632        1,264        2,528          82,408   
    (1     12/19/13              79        1,264        2,528          87,380   
    (2     12/19/13                    1,264        84,371   
    (3     12/20/13        77,288        154,575        309,150             

Matthew D. Cabell .

    (1     12/19/13              1,935        3,870        7,740          252,309   
    (1     12/19/13              242        3,870        7,740          267,533   
    (2     12/19/13                    3,871        258,389   
    (3     12/20/13        129,675        432,250        864,500             

Anna Marie Cellino .

    (1     12/19/13              1,422        2,844        5,688          185,418   
    (1     12/19/13              178        2,844        5,688          196,606   
    (2     12/19/13                    2,845        189,903   
    (3     12/20/13        181,563        363,125        726,250             

John R. Pustulka

    (1     12/19/13              1,382        2,763        5,526          180,137   
    (1     12/19/13              173        2,763        5,526          191,006   
    (2     12/19/13                    2,764        184,497   
    (3     12/20/13        175,175        350,350        700,700             

David F. Smith(5)

    (1     12/19/13              5,283        10,566        21,132          688,863   
    (1     12/19/13              660        10,566        21,132          730,428   
    (3     12/20/13        716,625        716,625        1,365,000             

 

(1)

The performance shares awarded to executive officers on December 19, 2013 vest at the end of a three-year performance cycle (October 1, 2013 through September 30, 2016) subject to the achievement of a performance condition. Please refer to the narrative disclosure under the “National Fuel Gas Company 2010 Equity Compensation Plan” section within this proxy statement for additional information on the performance condition and vesting terms. This table shows the full award to Mr. Smith. Mr. Smith retired on April 1, 2014 and therefore, will receive only a pro-rata portion of the awards.

 

(2)

The restricted stock units (RSUs) shown on this table were granted under the Company’s 2010 Equity Compensation Plan and vest in one-third increments on the anniversary date of the award. Please refer to the narrative disclosure under “Potential Payments Upon Termination or Change in Control” section within this proxy statement for additional information regarding termination prior to and after the vest date of the RSUs.

 

(3)

This represents the annual cash incentive opportunity set in fiscal 2014 under the At Risk Plan. The amount actually paid for fiscal 2014 is set forth in the Summary Compensation Table under the “Non-Equity Incentive Plan Compensation” column. Please refer to the CD&A for additional information about the performance conditions applicable to each payment.

 

(4)

The equity award values reflect the fair value of Performance Shares and RSUs at the date of grant, based on probable outcome of the performance shares performance condition. Refer to Note A under the heading “Stock-Based Compensation” and Note E under the heading “Stock Option and Stock Award Plans” in the Company’s financial statements in its 2014 Form 10-K.

 

(5)

The table shows the full value of the Non-Equity and Equity awards to Mr. Smith. Mr. Smith retired on April 1, 2014 and therefore, will receive only a pro-rata portion of the awards.

 

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Outstanding Equity Awards at Fiscal Year-End 2014

The following table sets forth, on an award-by-award basis, the number of securities underlying unexercised stock options or SARs, the total number and aggregate market value of shares of unvested restricted stock held by the named executives, and the number and market value of unvested RSUs and performance shares, as of September 30, 2014. The table also provides the exercise price, which is the FMV (the average of the high and low on grant date) and date of expiration of each unexercised stock option or SAR.

 

    Option Awards     Stock Awards  

Name

  Grant
Date(1)
   
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(1)
    Option
Exercise
Price
($)(2)
    Option
Expiration
Date
    Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)(3)
    Market
Value of
Shares
or Units
of Stock
That
Have
Not
Vested
($)(3)
    Equity
Incentive
Plan

Awards:
Number  of
Unearned

Shares,
Units or
Other
Rights

That Have
Not Vested
(#)(4)
    Equity
Incentive
Plan

Awards:
Market or
Payout
Value  of
Unearned

Shares,
Units

or Other
Rights

That Have
Not Vested
($)(4)
 

Ronald J. Tanski

    12/06/06        45,000        0        39.48        12/06/2016        0        0        0        0   
    02/20/08        15,000        0        47.37        02/20/2018        0        0        0        0   
    12/22/08        75,000        0        29.88        12/22/2018        0        0        0