DEF 14A 1 a2015proxystatement.htm DEF 14A 2015 Proxy Statement



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 (Amendment No. )
Filed by the Registrant  x
 
Filed by a Party other than the Registrant  o
Check the appropriate box:
o
Preliminary Proxy Statement
o
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x
Definitive Proxy Statement
o
Definitive Additional Materials
o
Soliciting Material Pursuant to §240.14a-12
NorthWestern Corporation
(Name of Registrant as Specified In Its Charter)
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
x
No fee required.
o
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
(1)
Title of each class of securities to which transaction applies:
 
 
 
 
(2)
Aggregate number of securities to which transaction applies:
 
 
 
 
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
 
 
(4)
Proposed maximum aggregate value of transaction:
 
 
 
 
(5)
Total fee paid:
 
 
 
o
Fee paid previously with preliminary materials.
o
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
(1)
Amount Previously Paid:
 
 
 
 
(2)
Form, Schedule or Registration Statement No.:
 
 
 
 
(3)
Filing Party:
 
 
 
 
(4)
Date Filed:
 
 
 
 
 
 





 
 



 
 
 
 
IMPORTANT VOTING INFORMATION
If you owned shares of NorthWestern Corporation common stock at the close of business on February 23, 2015, you are entitled to one vote per share upon each matter presented at the annual meeting of stockholders to be held on April 23, 2015. Stockholders whose shares are held in an account at a brokerage firm, bank, or other nominee (i.e., in “street name”) will need to obtain a proxy from the broker, bank, or other nominee that holds their shares authorizing them to vote at the annual meeting.
Your broker is not permitted to vote on your behalf on the election of directors and other matters to be considered at this stockholders meeting, except on ratification of our appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2015, unless you provide specific instructions by completing and returning the voting instruction form or following the instructions provided to you to vote your shares via telephone or the internet. For your vote to be counted, you will need to communicate your voting decisions to your broker, bank, or other financial institution before the date of the annual meeting.
YOUR VOTE IS IMPORTANT
Your vote is important. Our Board strongly encourages you to exercise your right to vote. Voting early helps ensure that we receive a quorum of shares necessary to hold the annual meeting.
ASSISTANCE
If you have any questions about the proxy voting process, please contact the broker, bank, or other  financial institution where you hold your shares. The Securities and Exchange Commission also has a website (www.sec.gov/spotlight/proxymatters.shtml) with more information about your rights as a stockholder. You also may contact our Investor Relations Department by phone at (605) 978-2945 or by email at investor.relations@northwestern.com.
 
 
 
 
 
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 23, 2015
The Notice of Annual Meeting, Proxy Statement, and 2014 Annual Report to
Stockholders are available on the internet at www.proxyvote.com.
 
 
 
 
 
ATTENDING THE ANNUAL MEETING IN PERSON OR BY WEBCAST
Only stockholders of record or their legal proxy holders as of the record date or our invited guests may attend the annual meeting in person. If you wish to attend the annual meeting and your shares are held in street name at a brokerage firm, bank, or other nominee, you will need to bring your notice or a copy of your brokerage statement or other documentation reflecting your stock ownership as of the record date. You may be asked to provide photo identification, such as a driver’s license.
The annual meeting will be webcast (audio and slides) simultaneously with the live meeting. You may access the webcast from our website at www.northwesternenergy.com under Our Company / Investor Relations / Presentations and Webcasts. A replay of the webcast will be available at the same location on our website through May 23, 2015.
 




 
March 6, 2015

Notice of 2015 Annual Meeting and Proxy Statement

Dear Fellow NorthWestern Corporation Stockholder:

You are cordially invited to attend the 2015 Annual Meeting of Stockholders to be held on Thursday, April 23, 2015, at 10:00 a.m. Central Daylight Time at the NorthWestern Energy South Dakota / Nebraska Operational Support Office, 600 Market Street West, Huron, South Dakota.

At the meeting, stockholders will be asked to elect the Board of Directors, to ratify the selection of our independent registered public accounting firm for 2015, and to hold an advisory vote to approve named executive officer compensation. The proxy statement included with this letter provides you with information about the annual meeting and the business to be conducted.
YOUR VOTE IS IMPORTANT. We urge you to read this proxy statement carefully. Whether or not you plan to attend the annual meeting in person, we urge you to vote promptly through the internet, by telephone or by mail.
If you are unable to attend our annual meeting in person, we are pleased to offer an audio webcast of the meeting. The webcast can be accessed live on our website at www.northwesternenergy.com under Our Company / Investor Relations / Presentations and Webcasts, or you can listen to a replay of the webcast, which will be archived on our website at the above location for
30 days after the meeting.

Thank you for your continued support of NorthWestern Corporation.
 
 
 
Very truly yours,
 
 
 
 
 
 
Robert C. Rowe
President and Chief Executive Officer
 
 
 




Table of Contents
Page
Annual Meeting Notice
1

Items of Business to Be Considered at the Annual Meeting
2

Voting Procedures
2

 
Appointment of Proxy Holders
2

 
Record Date and Voting
3

 
Quorum
3

 
Broker Non-Votes
4

 
Required Vote and Method of Counting
4

 
Method and Cost of Soliciting and Tabulating Votes
5

 
Electronic Access to Proxy Statement and Annual Report
5

General Information
5

 
Attending the Annual Meeting in Person or by Webcast
5

 
Householding; Receipt of Multiple Notices
6

 
Available Information
6

 
Future Stockholder Proposals
6

 
Assistance
7

Corporate Governance
8

 
Board of Directors
9

 
Individual Directors
10

 
Nomination of New Director
13

 
Independent Board Chair
14

 
Determination of Independence and Family Relationships
14

 
Committees of the Board
15

 
Code of Conduct
17

 
Risk Oversight of the Company
17

 
Transactions with Related Persons
18

 
Hedging and Pledging Our Securities
18

 
Political Contributions Policy
18

 
Communications with Our Board
19

Audit Committee Report
19

Compensation Committee Interlocks and Insider Participation
19

Compensation Committee Report
20

Compensation Discussion and Analysis
20

 
Compensation Discussion and Analysis Table of Contents
20

 
Executive Summary
21

 
Pay for Performance
25

 
Say-on-Pay Results
28

 
Governance of Our Executive Compensation Program
28

 
Targeted Overall Compensation and Competitive Analysis
29

 
Components of Executive Compensation for 2014
32

 
Other Compensation Policies
41

Compensation of Executive Officers and Directors
43

 
2014 Summary Compensation Table
43

 
2014 Grants of Plan-Based Awards
44

 
Outstanding Equity Awards at 2014 Fiscal Year-End
46

 
2014 Stock Vested
47

 
Post-Employment Compensation
47

 
2014 Director Compensation
50

 
Director Stock Ownership
51

Stock Ownership Information
52

 
Security Ownership of Directors and Management
52

 
Section 16(a) Beneficial Ownership Reporting Compliance
53

 
Security Ownership of Certain Beneficial Holders
53

Other Matters
54

 
Securities Authorized for Issuance Under Equity Compensation Plans
54

Proposals Requiring Your Vote
55

 
Proposal 1 – Election of Directors
55

 
Proposal 2 – Ratification of Independent Registered Public Accounting Firm
57

 
Proposal 3 – Advisory Vote to Approve Named Executive Officer Compensation
59

Proxy Statement Glossary
62





Notice of the
2015 Annual Meeting of Stockholders

Meeting Date:
April 23, 2015
Meeting Time:
10:00 a.m. Central Daylight Time
Location:
NorthWestern Energy South Dakota / Nebraska Operational Support Office, 600 Market Street West, Huron, South Dakota
Record Date:
February 23, 2015
Purposes of the Annual Meeting:
Election of eight individuals to serve as members of our Board of Directors for a one-year term. Seven of the eight individuals nominated for election currently are serving on our Board.
Ratification of the appointment of Deloitte & Touche LLP as the company’s independent registered public accounting firm for 2015.
Approval of the compensation for our named executive officers through an advisory say-on-pay vote.
Transaction of any other matters and business as may properly come before the annual meeting or any postponement or adjournment of the annual meeting.
Stockholders, or their legal proxy holders, owning NorthWestern Corporation common stock at the close of business on February 23, 2015, the record date, are entitled to vote at the annual meeting.
Only our stockholders, their legal proxy holders as of the record date, or our invited guests may attend the annual meeting in person. The annual meeting will be webcast (audio and slides) simultaneously with the meeting.
On or about March 6, 2015, we mailed to our stockholders either (1) a Notice of Internet Availability of Proxy Materials, which indicates how to access our proxy materials on the internet, or (2) a copy of our proxy statement, a proxy card, and our 2014 Annual Report.
By Order of the Board of Directors,
Timothy P. Olson
Corporate Secretary



2015 Proxy Statement
March 6, 2015
This proxy statement contains information related to the solicitation of proxies by the Board of Directors (the Board) of NorthWestern Corporation d/b/a NorthWestern Energy (NorthWestern, the company, we, us, or our) in connection with our 2015 Annual Meeting of Stockholders. See the Proxy Statement Glossary on the inside back cover for additional definitions used in this proxy statement.
Items of Business to Be Considered at the Annual Meeting
Our Board asks you to vote on the following items at the annual meeting:
Œ
Election of eight individuals to serve as members of our Board for a one-year term. Seven of the eight individuals nominated for election currently are serving on our Board.

Ratification of the appointment of Deloitte & Touche LLP as the company’s independent registered public accounting firm for 2015.
Ž
Approval of the compensation for our named executive officers through an advisory say-­on-pay vote.

Transaction of any other matters and business as may properly come before the annual meeting or any postponement or adjournment of the annual meeting.
Voting Procedures
Appointment of Proxy Holders
Our Board asks you to appoint E. Linn Draper Jr. and Robert C. Rowe as your proxy holders to vote your shares at the annual meeting. You make this appointment by voting the proxy card provided to you and using one of the voting methods described on the next page.
If appointed by you, the proxy holders will vote your shares as you direct on the matters described in this proxy statement. If you sign and date your proxy card, but do not provide direction, they will vote your shares as recommended by our Board.
Management is not aware of any matters to be brought before the annual meeting other than the matters described in the notice of annual meeting accompanying this proxy statement. The persons named in the form of proxy solicited by our Board will vote all proxies that have been properly executed, and if any matters not set forth in the notice of annual meeting are properly brought before the meeting, such persons will vote thereon in accordance with their best judgment.

2

Voting Procedures and General Information


Record Date and Voting
All stockholders of record as of the close of business on February 23, 2015, are entitled to receive notice of and to vote, in person or by proxy, at the annual meeting or any postponement or adjournment of the annual meeting. If you owned shares of our common stock at the close of business on February 23, 2015, you are entitled to one vote per share upon each matter presented at the annual meeting. The company does not have any other outstanding class of voting stock. Stockholders whose shares are held in an account at a brokerage firm, bank, or other nominee (i.e., in “street name”) will need to obtain a proxy from the broker, bank, or other nominee that holds their shares authorizing them to vote at the annual meeting.
:
Voting on the Internet. You may vote by proxy on the internet up until 11:59 p.m. Eastern Daylight Time the day before the annual meeting. The website for internet voting is www.proxyvote.com. Easy-to-follow prompts allow you to vote your shares and confirm that your instructions have been properly recorded. If you vote on the internet, you can request electronic delivery of future proxy materials.
 
 
(
Voting by Telephone. You may vote by proxy by telephone up until 11:59 p.m. Eastern Daylight Time the day before the annual meeting by using the toll-free number listed on your proxy card or voting instruction form. Easy-to-follow prompts allow you to vote your shares and confirm that your instructions have been properly recorded.
 
 
+
Voting by Mail. Mark, sign and date your proxy card or voting instruction form and return it in the postage-paid envelope provided. Your proxy card or voting instruction form must be received far enough in advance of the annual meeting to allow sufficient time for processing.
 
 
?
Voting in Person at the Annual Meeting. If you attend the annual meeting and wish to vote in person, you will be given a ballot at the annual meeting. Please note, however, that if your shares are held in street name by a broker, bank, or other nominee and you wish to vote at the annual meeting, you must bring to the annual meeting a proxy from the record holder of the shares authorizing you to vote at the annual meeting. Submitting your vote by proxy will not affect your right to attend the annual meeting and to vote in person.
 
 
r
Revoking Your Voting Instructions to Your Proxy Holders. If you are a record holder of our common stock, you can change your vote at any time before your proxy is voted at the annual meeting by again voting by one of the methods described above or by attending the annual meeting and voting in person. You also may revoke your proxy by delivering a notice of revocation to our corporate secretary at NorthWestern Corporation, 3010 West 69th Street, Sioux Falls, South Dakota 57108, prior to the vote at the annual meeting. If your shares are held in street name, you must contact your broker, bank, or other nominee to revoke your proxy.
Quorum
At the close of business on the record date, there were 47,037,077 shares of NorthWestern Corporation common stock outstanding and entitled to vote at the annual meeting. Each outstanding share is entitled to one vote.
A quorum, which is a majority of the outstanding shares as of the record date, is necessary to hold a valid annual meeting. A quorum will be present at the annual meeting if the holders of a majority of the shares of our common stock outstanding and entitled to vote on the record date are present in person or represented by proxy. If a quorum is not present at the annual meeting, we expect that the annual meeting will be adjourned to solicit additional proxies.

3

Voting Procedures and General Information


Broker Non-Votes
Under the rules of the New York Stock Exchange (NYSE), certain stockholder nominees (such as brokers) have the discretion to vote on routine matters, such as the ratification of the appointment of our independent registered public accounting firm, unless instructed otherwise by the beneficial owner. They do not have authority to vote on non-routine matters – such as the election of directors and the advisory vote to approve named executive officer compensation – unless they receive instruction from the beneficial owner.
A “broker non-vote” occurs when your broker submits a proxy for your shares but does not indicate a vote for a particular proposal because the broker does not have authority to vote on that proposal and has not received voting instructions from you. Broker non-votes are not counted as votes for or against the proposal in question or as abstentions, and are not counted to determine the number of votes present for the particular proposal.
Under the rules of the NYSE, if your broker holds shares in your name and delivers this proxy statement to you, the broker is entitled to vote your shares on Proposal 2 — Ratification of Independent Registered Public Accounting Firm even if the broker does not receive voting instructions from you. Without your instructions, the broker is not entitled to vote your shares on Proposal 1 — Election of Directors or Proposal 3 — Advisory Vote to Approve Named Executive Officer Compensation. We encourage you to provide instructions to your broker, bank, or other nominee. This ensures your shares will be voted at the annual meeting.
Required Vote and Method of Counting
The required vote and method of counting votes for the various business matters to be considered at the annual meeting are described in the table below. If you sign and return your proxy card without indicating your vote, your shares will be voted “FOR” each of the nominees for director, “FOR” ratification of Deloitte & Touche LLP as our independent registered public accounting firm, “FOR” the advisory vote to approve named executive officer compensation, and in accordance with the recommendations of our Board on any other matters properly brought before the annual meeting for a vote.
Item of Business
Board Recommendation
Voting Approval Standard
Effect of Abstention
Effect of Broker Non-Vote
Proposal 1:

Election of Directors
FOR 
election of each director nominee
Nominee with most “FOR” votes is elected.

If a Nominee receives more “WITHHOLD AUTHORITY” votes than “FOR” votes, the Nominee must submit resignation for consideration by the Nominating and Corporate Governance Committee and final Board decision.
No effect
No effect;
broker may not vote shares
Proposal 2:

Ratification of Appointment of Independent Registered Public Accounting Firm
FOR
Majority of votes(1) present in person or represented by proxy and entitled to vote.
Vote against
Not applicable; broker may 
vote shares
Proposal 3:

Advisory Vote to Approve Named Executive Officer Compensation
FOR
Majority of votes(1) present in person or represented by proxy and entitled to vote.

This advisory vote is not binding on the Board, but the Board will consider the vote results when making future executive compensation decisions.
Vote against
No effect;
broker may not vote shares
(1)
Assumes that a quorum exists – that at least a majority of the number of shares entitled to vote are present in person or represented by proxy at the annual meeting.

4

Voting Procedures and General Information


Method and Cost of Soliciting and Tabulating Votes
The Board is providing these proxy materials to you in connection with the solicitation by the Board of proxies to be voted at our annual meeting. NorthWestern will pay the cost of the solicitation, which will be made primarily by the use of mail and the internet. Proxies also may be solicited in person or by telephone, facsimile, or similar means by our directors, officers, or employees without additional compensation.
We will, on request, reimburse stockholders who are brokers, banks, or other nominees for their reasonable expenses in sending proxy materials and annual reports to the beneficial owners of the shares they hold of record. Broadridge Financial Solutions, Inc., will be the proxy tabulator, and a representative from NorthWestern will act as the Inspector of Election.
Electronic Access to Proxy Statement and Annual Report
The proxy statement, annual report, voting card, and voting instructions are available on the internet at www.proxyvote.com and will be available for one year following the annual meeting. You will need the control number provided on your notice to access the electronic materials.
At www.proxyvote.com, stockholders can view these materials, cast their vote, and request to receive future proxy materials in printed form by mail or electronically by email.

General Information
Attending the Annual Meeting in Person or by Webcast
Only stockholders of record or their legal proxy holders as of the record date or our invited guests may attend the annual meeting in person. If you wish to attend the annual meeting and your shares are held in street name at a brokerage firm, bank, or other nominee, you will need to bring your notice or a copy of your brokerage statement or other documentation reflecting your stock ownership as of the record date. You may be asked to provide photo identification, such as a driver’s license.
No cameras, recording equipment, electronic devices, large bags, briefcases, or packages will be permitted at the annual meeting. No banners, signs, firearms, or weapons will be allowed in the meeting room.
We reserve the right to inspect all items entering the meeting room.
The annual meeting will be held at the NorthWestern Energy South Dakota / Nebraska Operational Support Office, 600 Market Street West, Huron, South Dakota, as shown on the map to the right.
The annual meeting will be webcast (audio and  slides) simultaneously with the live meeting. You may access the webcast from our website at www.northwesternenergy.com under Our Company / Investor Relations / Presentations and Webcasts. A replay of the webcast will be available at the same location on our website through May 23, 2015.
 
 
 
 

5

Voting Procedures and General Information


Householding; Receipt of Multiple Notices
Under the rules of the Securities and Exchange Commission (SEC), a single Notice of Internet Availability of Proxy Materials or set of annual reports and proxy statements may be sent to any household at which two or more stockholders reside if they appear to be members of the same family. Each stockholder continues to receive a separate proxy card. This procedure, referred to as householding, reduces the volume of duplicate information stockholders receive and reduces mailing and printing expenses. In accordance with a notice sent to certain stockholders who shared a single address, only one annual report and proxy statement were sent to that address unless any stockholder at that address requested that multiple sets of documents be sent. However, if any stockholder who agreed to householding wishes to receive a separate annual report or proxy statement for 2015 or in the future, he or she may telephone toll-free (800) 542-1061 or write to Broadridge Householding Department, 51 Mercedes Way, Edgewood, NY 11717, and the company will deliver promptly upon such written or oral request a separate Notice of Internet Availability of Proxy Materials or annual report or proxy statement. Stockholders sharing an address who wish to receive a single set of reports may do so by contacting their banks, brokers, or other nominees, if they are beneficial holders, or by contacting Broadridge at the address set forth above, if they are record holders.
Available Information
We file annual, quarterly, and current reports, proxy statements and other information with the SEC. These filings are available through a website maintained by a third-party and accessible through our company website at www.northwesternenergy.com under Our Company / Investor Relations / SEC Filings.
Our public filings also are available to the public from document retrieval services and the website maintained by the SEC at www.sec.gov. You also may read and copy any reports, proxy statements or other information that we file with the SEC at the following location of the SEC: Public Reference Room, 100 F Street NE, Room 1580, Washington, DC 20549.
Please call the SEC at (800) 732-0330 for further information on the public reference room. You also may obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street NE, Room 1580, Washington, DC 20549, at prescribed rates.
Future Stockholder Proposals
Stockholder Proposals for Inclusion in Next Year’s Proxy Statement
To be considered for inclusion in the proxy statement for our annual meeting to be held in 2016, stockholder proposals must be received by the corporate secretary of NorthWestern Corporation not later than November 7, 2015. This notice requirement is separate from and in addition to the SEC’s requirements that a stockholder must meet in order to have a stockholder proposal included in the company’s proxy statement.
Other Stockholder Proposals for Presentation at the 2016 Annual Stockholders’ Meeting
For nominations of persons for election as a director or for any proposal that is not submitted for inclusion in next year’s proxy statement, but is instead sought to be presented directly from the floor of the 2016 Annual Stockholders’ Meeting, the company’s bylaws require that timely notice must be given to the corporate secretary. To be timely, the notice must be received by the corporate secretary of NorthWestern Corporation between December 25, 2015, and January 24, 2016.
Stockholder proposals should be delivered or mailed to and received by us in accordance with the dates set forth above and addressed to:
Corporate Secretary
NorthWestern Corporation
3010 West 69th Street
Sioux Falls, South Dakota 57108

6

Voting Procedures and General Information


To be in proper written form, a stockholder’s notice for both annual and special meetings must set forth:
(1) as to each person whom the stockholder proposes to nominate for election as a director, (a) the name, age, and business and residence address of the person, (b) the principal occupation or employment of the person, (c) the class or series and number of shares of capital stock of the company that are owned beneficially or of record by the person, (d) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities and Exchange Act of 1934, as amended (Exchange Act) and the rules and regulations promulgated thereunder, and (e) the written consent of each proposed nominee to being named as a nominee and to serve as a director if elected;
(2) as to any other business that the stockholder proposes to bring before the meeting, (a) a brief description of the business desired to be brought before the meeting, (b) the text of the proposal or business (including the text of any resolutions proposed for consideration, and, in the event that such business includes a proposal to amend the bylaws of the company, the language of the proposed amendment), (c) the reasons for conducting such business at the meeting, and (d) any material interest of such stockholder in the business being proposed and the beneficial owner, if any, on whose behalf the proposal is being made; and
(3) as to the stockholder giving this notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (a) the name and record address of such stockholder and any such beneficial owner, (b) the class or series and number of shares of capital stock of the company that are owned beneficially or of record by such stockholder and beneficial owner, (c) a description of all arrangements or understandings between such stockholder and any such beneficial owner and each proposed nominee and any other persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (d) a representation that such stockholder is a stockholder of record entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the persons and/or conduct the business being proposed as described in the notice, and (e) a representation of whether such stockholder or any such beneficial owner intends or is part of a group which intends (i) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the company’s outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (ii) otherwise to solicit proxies from stockholders in support of such proposal or nomination. The foregoing notice requirements shall be deemed satisfied by a stockholder with respect to an annual meeting if the stockholder has notified the company of his or her intention to present a proposal at such annual meeting in compliance with Regulation 14A (or any successor thereof) promulgated under the Exchange Act and such stockholder’s proposal has been included in a proxy statement that has been prepared by the company to solicit proxies for such annual meeting. The company may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the company.
Assistance
If you need assistance with voting your proxy or have questions regarding our annual meeting, please contact:
Travis Meyer
Director - Investor Relations
and Business Development
(605) 978-2945
or
Emily Larkin
Assistant Corporate Secretary
(605) 978-2871
No persons have been authorized to give any information or to make any representations other than those contained in this proxy statement and, if given or made, such information or representations must not be relied upon as having been authorized by us or any other person. You should not assume that the information contained in this proxy statement is accurate as of any date other than the date of this proxy statement, and the mailing of this proxy statement to stockholders shall not create any implication to the contrary.

7

 

Corporate Governance
Our Board oversees the business of the company. It establishes overall policies and standards for us and reviews the performance of our management. The Board operates pursuant to a set of written Corporate Governance Guidelines that set forth the company’s corporate governance philosophy and the governance policies and practices that the company has established to assist in governing the company and its affiliates. In addition to our Corporate Governance Guidelines, the principal documents which establish our primary corporate governance practices are listed below and can be found on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.
 Certificate of Incorporation
 Bylaws
 Audit Committee Charter
 Human Resources Committee Charter 
 Nominating and Corporate Governance
      Committee Charter
 Corporate Governance Guidelines
 Code of Conduct and Ethics
 Code of Ethics for the Chief Executive Officer 
      and Senior Financial Officers 
 Complaint Procedures for the Audit Committee 
      of the Board 
 Corporate Political Contributions Policy 
 Insider Trading Policy 
 Related Persons Transactions Policy 

We are committed to strong corporate governance. As governance standards have evolved, we have enhanced our governance standards as appropriate to best serve the interests of our stockholders. Our commitment to corporate governance best practices has been recognized. Forbes has recognized us three times on its list of America’s Most Trustworthy Companies, a distinction awarded, according to Forbes, for transparent accounting and solid corporate governance practices. Our proxy disclosures also have been recognized by Corporate Secretary magazine. Our proxy statement last year (2014) received Corporate Secretary’s award for Best Proxy Statement (small to mid cap), and we were a finalist for Best Proxy Statement in 2012 and 2013. Glass Lewis and C-Suite magazine also have recognized our say-on-pay disclosures.
We believe that the corporate governance practices we have adopted benefit our stockholders by maintaining appropriate accountability for our company.
 
 
 
 
What We Do
 
Annual election of all directors.
 
Majority vote plus resignation standard in uncontested elections. If a director receives more “WITHHOLD AUTHORITY” votes than “FOR” votes, the director must submit a resignation for the Board to consider.
 
Allow stockholders owning 25 percent of our shares to call a special meeting.
 
Independent board. Our Board is comprised entirely of independent directors, except our CEO.
 
Independent Chairman.
 
Independent Board committees. Each of our Board committees (audit, human resources, and nominating and corporate governance) is made up solely of independent directors.
 
Committee authority to retain independent advisors. Each of our Board committees has the authority to retain independent advisors, which will be paid for by the company.
 
Code of Conduct and Ethics. We are committed to operating with honesty and integrity and maintaining the highest level of ethical conduct. Our Code of Conduct and Ethics applies to all employees, as well as the Board. We also have a separate Code of Ethics for the Chief Executive Officer and Senior Financial Officers concerning financial reporting and other related matters.
 
Robust stock ownership guidelines for executive officers and directors.
 
 
 

8

Corporate Governance


 
 
 
 
What We Don’t Do
 
Poison pill. We do not have a stockholders rights plan or poison pill.
 
Hedging or pledging of company securities. We do not allow our directors, executives, or employees to hedge or pledge company securities.
 
Corporate political contributions. We do not make contributions to candidates for political office, political parties, or committees, or political committees organized to advance political candidates.
 
Supermajority voting. We do not have supermajority voting provisions in our certificate of incorporation or bylaws, except to approve (or amend provisions concerning) business combinations or mergers.
 
 
 
Board of Directors
Currently, we have seven members on our Board. In November 2014, we mourned the passing of our friend, colleague and Board member Philip L. Maslowe. Our Board has not filled the vacancy created by Mr. Maslowe’s passing, but instead conducted a search for an appropriately qualified individual. As a result of that search, our Board identified an individual with the expertise, experience, and skills that our Board believes will augment its collective skill set. Accordingly, our Board has nominated Jan R. Horsfall for election by our stockholders at the annual meeting.
We believe a limited number of directors helps maintain personal and group accountability. Our Board is independent in composition and outlook, led by an independent Chairman and composed of independent directors, other than our Chief Executive Officer (CEO). If elected, Mr. Horsfall also will be independent.
Our individual Board members have varied expertise and bring extensive professional experience from both within and outside our industry. This provides our Board with a vast collective skill set which is
advantageous to the Board’s oversight of our company. While the industry-specific expertise possessed by certain of our Board members is essential, we also benefit from the viewpoints of our directors with expertise outside our industry. These varied perspectives expand the Board’s ability to provide relevant guidance to our business.
 
 
 
Collective Board Skills
 

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Our Board acts as a coherent team and fosters an environment that allows individual insights to contribute to the group consensus. Our Board members are focused on long-term company success and maintain an effective dialogue with management through constructive relationships which provide timely and appropriate deliberation.
Each of our current Board members has exceeded the stock ownership requirements established by our Corporate Governance Guidelines, has not sold any company stock, and continues to hold stock in excess of the ownership requirements. Each current director has been recognized as a Governance Fellow by the National Association of Corporate Directors (NACD) since 2011.
Our Board is actively engaged both inside and outside the boardroom. Each Board member has knowledge and insight that provide guidance concerning our business, with particular focus on succession planning,

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corporate strategy, executive compensation, risk management, and operating performance. Our Board members spend time in our service territory interacting with our employees, customers, and community leaders. They seek and participate in learning opportunities to stay abreast of the latest industry and corporate governance developments affecting their role as directors.
Most of our Board meetings, including the annual meeting, are held in various locations throughout our service territory. This practice offers several educational opportunities for our Board members, including attending receptions of community leaders and meetings with employees. These opportunities are intended to inform our Board about the communities we serve and the issues, concerns, and successes of our employees. We believe holding Board meetings in our service territory also allows our Board to gain a broader understanding of various areas of our company by inviting non-management employees to make presentations to the Board that highlight their work. Our Board meeting agendas regularly include in-depth discussions concerning enterprise risks and different areas of our financial statements.
Our Board considers attendance at meetings and participation by directors in determining continued service on the Board. Attendance and participation is reviewed as part of the Board’s annual self-evaluation process. The Board held six meetings in 2014. Each of our current directors attended 100 percent of the meetings of the Board and of each committee on which he or she served. At our last annual meeting of stockholders in April 2014, all of the seven current director nominees were in attendance.
 
Individual Directors
Following are biographies of our current Board members, each of whom is currently serving and has been nominated to serve another one-year term.
 
Stephen P. Adik       Age 71 Independent Director since 2004
 
 
 
 
 
 
 
Utility, Finance, and Engineering experience as the retired vice chairman (2001-03) of NiSource, Inc., an electric and natural gas production, transmission and distribution company, as well as other executive roles prior to that, including chief financial officer (1996-2001).
 
 
 
 
 
 
 
Other Executive, Board, and NACD Fellow credentials through positions in the railroad industry, service on the boards of American Water Works Company, Inc. (NYSE: AWK, 2009-14) and Beacon Power (NASDAQ: BCON, 2004-10), as well as other boards (Chicago SouthShore and South Bend Railroad and the Dearborn Midwest Conveyor Company).
 
 
 
 
 
 
 
 
 
 
We believe Mr. Adik is Qualified to Serve on our Board because of his
● 25+ years energy and utility experience
● Financial proficiency – audit committee financial expert (SEC), financially literate (NYSE), MBA in finance
● Board service in energy- and utility-related industries brings developed perspective
● Tenure on our Board provides working knowledge of our company, efficiency and continuity
● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011
 Remembering our colleague and friend
In 2014, we mourned the passing of our esteemed colleague, fellow director and friend, Philip L. Maslowe. With an extensive background in leveraged buyout and turnaround situations, Phil provided valuable guidance to our company when he joined our Board in 2004 as we emerged from bankruptcy. Throughout his ten years of service to our company, we learned from his wisdom and insights and enjoyed his wit and humor. Phil was an active and important voice on our Board and a highly engaged chairman of our Human Resources Committee. His ideas for improving our proxy statement directly contributed to the Best Proxy Statement (small to mid cap) award we received in 2014 from Corporate Secretary magazine. We will miss his judgment and friendship.

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Dorothy M. Bradley       Age 68       Independent Director since 2009
 
 
 
 
 
 
 
Legal / Public Policy and Board experience as the retired District Court Administrator for the 18th Judicial Court of Montana (2000-07), eight terms as an elected state legislator in the Montana House of Representatives (beginning in 1971) and the Director of the University Water Center at Montana State University (1993-2000).
 
 
 
 
 
 
 
Service Territory and NACD Fellow credentials as a resident of and respected civic leader in Montana, including non-public company Board positions at One Montana, Science Technology Engineering and Math, and the American Prairie Foundation.
 
 
 
 
 
 
 
 
 
 
We believe Ms. Bradley is Qualified to Serve on our Board because of her
● Experience as a respected civic leader within the Montana judicial and legislative systems
● Local perspective on relevant regulatory, political and community issues facing our company
● Background in the public policy arena beneficial for dealing with environmental issues
● Tenure on our Board provides working knowledge of our company, efficiency and continuity
● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011
 
E. Linn Draper, Jr.       Age 73       Independent Director since 2004 Chairman of the Board
 
 
 
 
 
 
Utility, Executive, and Engineering experience through positions as retired chairman, president and chief executive officer of both American Electric Power Company, a public utility holding company (1992-2004), and Gulf States Utilities Company, an electric utility company (1979-1992), as well as other executive roles and his background in nuclear engineering.
 
 
 
 
 
 
 
Finance, Board, and NACD Fellow credentials as a result of extensive service on several public boards (and their committees) for companies in the utility, energy and related industries, including former service to the boards of Alliance Data Systems (NYSE: ADS) (since 2005), Alpha Natural Resources, Inc. (NYSE: ANR) (since 2004); TransCanada (NYSE: TRP) (2005-13), and Temple-Inland Inc. (2004-12).
 
 
 
 
 
 
 
 
 
 
We believe Dr. Draper is Qualified to Serve on our Board because of his
● Extensive experience as the lead executive for some of the top electric utilities in the country
● Wide perspective gained from public company board and committee service
● Financial proficiency – audit committee financial Expert (SEC), financially literate (NYSE)
● Tenure on our Board provides working knowledge of our company, efficiency and continuity
● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011
 
Dana J. Dykhouse       Age 58       Independent Director since 2009
 
 
 
 
 
 
 
Finance, Executive, and Board experience through his leadership of First PREMIER Bank, a regional bank headquartered in Sioux Falls, South Dakota, as its chief executive officer (since 1995) and his service in a variety of executive leadership roles in community and professional organizations and non-public company boards in South Dakota.
 
 
 
 
 
 
 
Service Territory and NACD Fellow credentials as a resident of and respected civic leader in South Dakota.
 
 
 
 
 
 
 
 
 
 
We believe Mr. Dykhouse is Qualified to Serve on our Board because of his
● Experience as a respected civic, community and professional leader within South Dakota
● Local perspective on relevant issues facing our company in South Dakota
● Financial proficiency – audit committee financial expert (SEC), financially literate (NYSE)
● Tenure on our Board provides working knowledge of our company, efficiency and continuity
● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011

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Julia L. Johnson       Age 52       Independent Director since 2004
 
 
 
 
 
 
 
Utility, Regulatory, Executive, Finance, and Legal / Public Policy experience through her leadership as President of NetCommunications, LLC (since 2000), a consulting firm in the energy, telecommunications and information technology public policy arenas, prior service as Chairwoman (1997-99) and Commissioner (1993-97) of the Florida Public Service Commission, service to various public policy and non-profit organizations, and legal background.
 
 
 
 
 
 
 
Board and NACD Fellow credentials as a director on public company boards, including companies in the utility and energy industries, such as current service to American Water Works Company, Inc. (NYSE: AWK) (since 2008), FirstEnergy (NYSE: FE) (since 2011 following merger with Allegheny Energy in 2011), and MasTec, Inc. (NYSE: MTZ) (since 2002), and former service to the board of Allegheny Energy (NYSE: AYE) (2003 until merger with FirstEnergy in 2011).
 
 
 
 
 
 
 
 
 
 
We believe Ms. Johnson is Qualified to Serve on our Board because of her
● Experience in the public utility regulatory arena, as an executive, board member and regulator
● Public policy background which provides a wide perspective on regulatory and political issues
● Financial proficiency – financially literate (NYSE)
● Tenure on our Board provides working knowledge of our company, efficiency and continuity
● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011
 
Denton Louis Peoples       Age 74       Independent Director since 2006
 
 
 
 
 
 
 
Utility, Engineering, Finance, and Executive experience through his position as retired chief executive officer and vice chairman of Orange and Rockland Utilities, Inc. (1994-99), an investor-owned, electric and natural gas utility, and as executive vice president of Madison Gas and Electric Company (1992-93), with an engineering (registered professional engineer) and accounting (certified public accountant – retired status) background.
 
 
 
 
 
 
 
Board and NACD Fellow credentials through various utility industry directorships and memberships, including former chairman and member of the New York Power Pool Executive Committee, former chairman of the New York Power Pool Transition Steering Committee to form the new York Independent System Operator, former vice chairman and director of the Energy Association of New York State and the Empire State Electric Energy Research Corporation, former director of Edison Electric Institute and Electric Power Research Institute, and as a current and former member of numerous non-public company boards, including the Center for Clean Air Policy, Nevada Area Council of the Boy Scouts of America, regional director for the San Francisco Bay Area and Northern Nevada for Naval War College Foundation and trustee of the Boyd Family Foundation.
 
 
 
 
 
 
 
 
 
 
We believe Mr. Peoples is Qualified to Serve on our Board because of his
● Executive experience and expertise in the electric and natural gas energy industries
● Utility and engineering background gained from service on industry related boards
● Financial proficiency – audit committee financial Expert (SEC), financially literate (NYSE), CPA
● Tenure on our Board provides working knowledge of our company, efficiency and continuity
● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011

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Robert C. Rowe       Age 59      Director since 2008
 
 
 
 
 
 
 
Utility, Regulatory, Finance, Executive, and Legal / Public Policy experience through service as our president and chief executive officer (since 2008) and former service as co-founder and senior partner at Balhoff, Rowe & Williams (2005-08), a national professional services firm advising the telecommunications and energy industries, and chairman (2003-04)and commissioner (1993-2002) of the Montana Public Service Commission.
 
 
 
 
 
 
 
Service Territory, Board, and NACD Fellow credentials as a resident of Montana, and from voluntary leadership roles in the utility industry, such as chairman of the Western Energy Institute (2012-13), co-chair of the Institute of Electric Innovation (Edison Electric Foundation) and past president of the National Association of Regulatory Utility Commissioners.
 
 
 
 
 
 
 
 
 
 
We believe Mr. Rowe is Qualified to Serve on our Board because of his
● Position as our president and chief executive officer
● Experience in the regulatory and public policy arenas
● Financial proficiency – financially literate (NYSE)
● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011
Nomination of New Director
Over approximately the past two years, our Nominating and Corporate Governance Committee (NCG Committee) has been leading our Board through a Board succession planning process. In addition to the typical annual review of individual Board members and our Board skills matrix, the NCG Committee led a continued analysis throughout this period of the future membership of our Board as our directors approach the end of their 15-year term limits and began to assemble a list of potential candidates based on internal recommendations.
As a result, the NCG Committee possessed the foundation for conducting a search to fill the Board vacancy created by the 2014 passing of our Board member, Phil Maslowe. After gathering recommendations for potential candidates, the NCG Committee retained a search firm to assist its efforts in accordance with the powers provided by its charter. The search firm developed position specifications as directed by the NCG Committee’s (including a preference for qualified financial experts), identified additional candidates, investigated candidate interest, provided the NCG Committee with an assessment of candidate fitness for the position, coordinated in-person interviews of finalists, and conducted background/reference checks.
Throughout the search process, the NCG Committee and other members of our Board participated in reviewing the backgrounds of potential candidates, developing a short list of candidates to interview, and conducting in-person interviews with the candidates. The search process focused on identifying an individual to fill the vacancy on the Board created by Mr. Maslowe’s passing, and, as a result of a robust search process, the Board identified an individual with the skills and qualities that the Board felt would augment the Board’s collective skill set today and into the future.
Accordingly, the search process resulted in our Board extending an invitation to Jan R. Horsfall to join our Board, subject to stockholder approval at the annual meeting. Our Board determined to fill this vacancy by conducting a stockholder vote at the annual meeting, rather than exercising the Board’s rights under our bylaws to immediately fill the Board vacancy without stockholder approval. If our stockholders do not support the nomination of Mr. Horsfall, our Board may act to reduce the size of our Board rather than fill the vacancy.
We are delighted that Mr. Horsfall accepted our Board’s invitation and recommend that you vote “For” his election at the annual meeting. A summary follows of the biography and qualifications considered by our Board in connection with its nomination of Mr. Horsfall. In short, our Board nominated Mr. Horsfall because his broad executive, entrepreneurial, marketing, financial, integration, and change management experience outside of the utility industry will provide a unique, supplemental perspective to our Board discussions and decisions.

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Jan R. Horsfall       Age 54 Nominated as Independent Director
 
 
 
 
 
 
Finance, Marketing, and Executive experience through his current position as co-founder and chief executive officer of Maxletics Corporation, a sports technology and media company and his former roles as chief executive officer of Universal Lubricants, LLC (2012-14), an oil collecting, refining, blending and distribution company; chief marketing officer of Turbine Inc., an online games company, which was sold to Warner Bros. Interactive Entertainment; founder and CEO of Gemini Voice Solutions, Inc., an experimental broadband voice (VoIP) company; vice president of marketing for LYCOS, Inc., an internet portal and search engine; and vice president of consumer brand strategy for Valvoline, a provider of automotive after-market products, among other positions.
 
 
 
 
 
 
 
 
 
Board credentials as a current and former board member of several privately held and non-profit entities.
 
 
 
 
 
 
 
 
We believe Mr. Horsfall is Qualified to Serve on our Board because of his
● Executive experience as a chief executive officer, chief marketing officer and other positions
● Financial proficiency – financially literate (NYSE)
● Marketing background
● Experience with mergers, acquisitions and the growth and development of companies
Independent Board Chair
Our Board has placed the responsibilities of Chair with an independent member of the Board, which we believe provides optimum accountability between the Board and our management team. We believe it is beneficial to have an independent Chair whose sole responsibility is leading our Board members as they provide leadership to our executive team. Our Chair is responsible for providing leadership to the Board
and facilitating communication among the directors; setting the Board meeting agendas in consultation with the President and CEO; presiding at Board meetings, executive sessions and stockholder meetings; and serving as an ex-officio member of each Board committee. This delineation of duties allows the CEO to focus his attention on managing the day-to-day business of the company. We believe this structure provides strong leadership for our Board, while positioning our CEO as the leader of the company in the eyes of our customers, employees, and other stakeholders.
 
 
 
Each regularly scheduled Board and committee meeting provides the opportunity for executive sessions of the non-employee directors without management in attendance. These executive sessions are chaired, as applicable, by our Chairman or the independent chairperson of the respective committee.
Determination of Independence and Family Relationships
All of our directors are independent, with the sole exception of our CEO. A director will be considered independent if he or she qualifies as “independent” under (1) NYSE standards and any applicable laws and (2) he or she (a) has never been an employee of the company or any of its subsidiaries, (b) is not a close relative of any management employee of the company, (c) provides no services to the company, or is not employed by any firm providing major services to the company, other than as a director, and (d) receives no compensation from the company other than director fees and benefits. The Board’s determination of independence is based upon a review of the questionnaires submitted on an annual basis by each director, the company’s relevant business records, publicly available information and the applicable SEC and NYSE requirements.
Based on its review, the Board determined that all of the non-employee directors (Messrs. Adik, Draper, Dykhouse, Peoples and Mses. Bradley and Johnson) are independent as defined in the listing standards noted above. The Board also has determined that Mr. Horsfall, if elected by stockholders at the annual meeting, will be independent. Our final director, Mr. Rowe, is an executive officer of the company and, therefore, is not independent.

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In addition to the independence assessment of our current directors and newly-nominated director, our Board reviewed the family relationships of our current directors, executive officers and newly-nominated director to determine the existence of any family relationships not more remote than first cousins. Based on this review, our Board determined that no such family relationships exist, except that current director Dana J. Dykhouse and newly-nominated director Jan R. Horsfall are first cousins.
Committees of the Board
We have three Board committees composed solely of independent directors, each with a different independent director serving as chairperson of the committee. Our Board committees are:
 Audit Committee;
 Human Resources Committee; and
 Nominating and Corporate Governance Committee.
We hold our Board committee meetings sequentially (i.e., committee meetings do not overlap with one another). As a result of holding sequential meetings, each of our Board members attends each committee meeting. We believe this practice is highly beneficial to our Board as a whole and the company in general because each of our Board members is aware of the detailed work conducted by each Board committee. This practice also affords each of our Board members the opportunity to provide input to the committee members before a committee reaches any conclusions.
The general functions of the committees are set forth in the following paragraphs. Each of these committees has a written charter that can be found on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.
Our Audit Committee assists the Board in fulfilling its responsibilities for oversight of (1) the company’s accounting and financial reporting processes, (2) the audits and integrity of the company’s financial statements, (3) the company’s compliance with legal and regulatory requirements, (4) the independent auditor’s qualifications and independence, (5) the performance of the company’s internal audit function and independent auditors, (6) preparation of the Audit Committee reports that the rules of the SEC require to be included in the company’s annual proxy statement, (7) significant financings and dividend policy and dividend payment recommendations, and (8) such other duties as directed by the Board.
The Board determined that each member of the Audit Committee qualifies as an audit committee financial expert under the applicable SEC regulations and that each member of the Audit Committee is independent, as defined in the listing standards of the NYSE and the SEC regulations, and financially literate within the meaning of the listing standards of the NYSE.
Our Human Resources Committee (HR Committee) acts on behalf of and with the concurrence of the Board with respect to compensation, benefits and other employment matters for executives; stock-based compensation plans for employees; the election and appointment of executive officers and other officers;

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the assessment of the performance of the CEO; and the compensation of non-employee members of the Board. Our HR Committee has delegated the administration of our executive compensation and benefits plans to our Compensation and Benefits Department.
Each member of our HR Committee is an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code, a “non-employee” director within the meaning of Rule 16b-3 under the Exchange Act, and independent under the standards of the NYSE.
The HR Committee has directly retained Towers Watson as its independent, external compensation consultant for the last several years. Towers Watson is an independent consulting firm that provides services in the areas of executive compensation and benefits and has specific expertise in evaluating compensation in the utility industry. Towers Watson reports directly to the HR Committee and, at the HR Committee’s request, provides an annual evaluation and analysis of trends in both executive compensation and director compensation. Towers Watson also evaluates other compensation issues at the direct request of the HR Committee.
In accordance with NYSE requirements approved by the SEC in 2013, the HR Committee evaluated the following six factors to assess independence and conflicts of interest before it engaged Towers Watson to do work in 2014 and 2015:
1.
The provision of other services to the company by Towers Watson.
2.
The amount of fees received from the company by Towers Watson, as a percentage of the firm's total revenues.
3.
The policies or procedures of Towers Watson that are designed to prevent conflicts of interest.
4.
Any business or personal relationship of a member of the HR Committee with the regular members of the Towers Watson executive compensation team serving the company.
5.
Any stock of the company owned by the regular members of the Towers Watson executive compensation team serving the company.
6.
Any business or personal relationships between the executive officers of the company and the regular members of the Towers Watson executive compensation team serving the company.
The HR Committee also obtained a representation letter from Towers Watson addressing these six factors and certain other matters related to its independence. Based on the HR Committee’s evaluation of these factors and the representations from Towers Watson, the HR Committee concluded that Towers Watson is an independent adviser and has no conflicts of interest with us.
As discussed in the “Compensation Discussion and Analysis” section of this proxy statement, the HR Committee also considers input on executive compensation from our CEO and Chief Financial Officer (CFO).
Our Nominating and Corporate Governance Committee (NCG Committee) is comprised of independent directors and assists the Board in identifying qualified individuals to become Board members, in determining the composition of the Board and its committees, in monitoring a process to assess Board effectiveness and in developing and implementing our corporate governance principles. Further, the NCG Committee reviews and oversees our position on (1) corporate social responsibilities, and (2) public policy issues that significantly affect us, our stockholders, our customers and our other key stakeholders.

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Our NCG Committee evaluates each director candidate to determine whether such candidate should be recommended to the Board as a director nominee. In considering new individuals for nomination as directors, the NCG Committee typically solicits recommendations from its current directors and is authorized to engage third-party advisers, including search firms, to assist in the identification and evaluation of candidates. The process used by the NCG Committee with respect to our proposed new director nominee is described above in the “Nomination of New Director” discussion.
Our NCG Committee also has the responsibility for considering nominees for directors properly recommended by stockholders. A stockholder who wishes to submit a candidate for consideration at the annual meeting of stockholders must notify our Corporate Secretary in writing not less than 90 days and no more than 120 days prior to the first anniversary date of the preceding year’s annual meeting. The stockholder’s written notice must include information about each proposed nominee, including name, age, business address, principal occupation and other information required in proxy solicitations. The nomination notice also must include the nominating stockholder’s name and address, the number of shares of our common stock beneficially owned by the stockholder and any arrangements or understandings between the nominee and the stockholder. The stockholder also must furnish a statement from the nominee indicating that the nominee wishes and is able to serve as a director. The manner in which the NCG Committee evaluates candidates recommended by stockholders is generally the same as candidates from other sources. However, the NCG Committee also will seek and consider information concerning the relationship between the recommending stockholder and the candidate to determine if the candidate can represent the interests of all of the stockholders. The NCG Committee will not evaluate a candidate recommended by a stockholder unless the stockholder notice states that the potential candidate has indicated a willingness to serve as a director, to comply with the expectations and requirements for Board service publicly disclosed by NorthWestern and to provide all of the information required to conduct an evaluation.
Code of Conduct
Our Board adopted a Code of Conduct and Ethics (Code of Conduct) and reviews it annually. Our Code of Conduct embodies the standards that form our culture and sets forth expectations of conduct for all of our officers, directors, and employees and those of our subsidiary companies, including all full- and part-time employees and certain persons that provide services on our behalf. Our Code of Conduct focuses on our corporate vision, mission and values through its Compliance through SERVICE theme. You may review our Code of Conduct on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance. We intend to post on our website any amendments to, or waivers from, our Code of Conduct. In addition, our Board adopted a separate Code of Ethics for the Chief Executive Officer and Senior Financial Officers that applies to our principal executive officer, principal financial officer, and principal accounting officer or controller (or persons performing similar functions), which includes complaint procedures that specifically apply to this separate code. Our Board also annually reviews this separate code of ethics, which is available on our website at the location noted above. We intend to post on our website any amendments to, or waivers from, this special code of ethics.
Risk Oversight of the Company
Our Audit Committee is primarily responsible for overseeing the company’s risk management processes on behalf of the full Board by monitoring company processes for management’s identification and control of key strategic, operational, financial, regulatory and compliance risks. The Audit Committee receives reports from management at least quarterly regarding the company’s assessment of risks. The HR Committee oversees risks in compensation plans, and the NCG Committee oversees risks in corporate governance and social responsibilities including environmental, health and safety matters. In addition, the Audit Committee reports regularly to the full Board, which also considers the company’s risk profile. The Audit Committee and the full Board focus on the most significant risks facing the company and review the corporate risk appetite in evaluating strategic alternatives. While the Board oversees the company’s risk management, our CEO and executive Enterprise Risk Management Committee act to ensure that our enterprise risk management and business continuity programs (ERM) achieve their objectives. While management is responsible for the day-to-day risk management processes, we have structured our ERM reporting relationship through our Chief Audit and Compliance Officer who reports functionally to the Audit Committee. We believe this division of

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responsibilities is the most effective approach for addressing the risks facing our company and that our Board leadership structure supports this approach.
Transactions with Related Persons
Our Audit Committee has adopted a written Related Persons Transaction Policy. The policy requires that any related person transaction be reviewed and approved by the Audit Committee based on its consideration of all available relevant facts and circumstances. The Audit Committee should approve a related person transaction only if it determines in good faith that such transaction is in, or is consistent with, the best interests of the company and its stockholders. No material related person transactions were identified during 2014.
Under the policy, a “related person” is an officer, director, director nominee, or five percent or more stockholder of the company, as well as any immediate family member of such individuals or any entity which is owned or controlled by any of such individuals; and a “related person transaction” is a transaction involving (1) the company, (2) a related person and (3) an aggregate annual amount in excess of $120,000.
The policy also provides ratification procedures for approval of transactions that have been commenced or consummated prior to any knowledge of the involvement of a related person and for the annual review of ongoing related person transactions to ensure that such transactions continue to remain in the best interests of the company and its stockholders. The policy is available on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.
Hedging and Pledging Our Securities
Our Insider Trading Policy prohibits our directors and employees from engaging in transactions involving our securities and hedging, monetization, or publicly traded options. The Insider Trading Policy also prohibits our directors and employees from pledging any of our securities as collateral for a loan, unless pre-cleared by the insider trading compliance officer. None of our directors or executive officers have pledged any of our securities as collateral for a loan. The policy is available on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.
Political Contributions Policy
As a public utility, we are subject to various laws and regulations at the federal, state, and local levels; and changes to these laws can affect our business, employees, communities and stockholders. Accordingly, we are committed to being an active and responsible corporate citizen.
We use our resources, through legally permissible participation in the political process, to advance matters of public policy that are consistent with our values, our legal obligations and our Code of Conduct. We also encourage our employees to be active in civic and community activities, including by participating in the political and democratic process.
We have a formal political contributions policy. We do not make and our policy prohibits corporate contributions to candidates for political office, political parties, or committees, or political committees organized for the advancement of political candidates, whether federal, state, or local.
On the other hand, state and local ballot initiatives and referenda on important policy issues have the potential to impact our business and our stakeholders. Accordingly, the policy permits corporate contributions in connection with such matters, as well as lobbying efforts and contributions to trade and local associations. Finally, the policy allows individual employees to make personal contributions to political action committees. The policy is available on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.

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Communications with Our Board
Communications by an interested party to our Board, including our Chairman and the independent directors, individually or as a group, should be addressed to our Corporate Secretary at NorthWestern Corporation, 3010 West 69th Street, Sioux Falls, South Dakota 57108. The Corporate Secretary will forward directly to the Board any communication received.
Audit Committee Report
The Audit Committee operates pursuant to a charter that is reviewed annually and was last amended in October 2010. A summary of the Audit Committee’s oversight responsibilities can be found on page 15 of this proxy statement. A copy of the charter is available on NorthWestern’s website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.
In the performance of the Audit Committee’s oversight function, and in connection with the December 31, 2014, financial statements, the Audit Committee reviewed and discussed the audited financial statements with management. The Audit Committee has discussed the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board (PCAOB) in Rule 3200T. The Audit Committee received the written disclosures and the letter from Deloitte & Touche LLP (Deloitte) our independent registered public accounting firm, required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence; and the Audit Committee has discussed with Deloitte the firm’s independence. The compatibility of non-audit services was considered with the auditor’s independence.
Based on its review of the consolidated financial statements and discussions with and representations from management and Deloitte referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC.
Audit Committee
Stephen P. Adik, Chairman
Dana J. Dykhouse
Denton Louis Peoples
Compensation Committee Interlocks
and Insider Participation
Throughout 2014, Stephen P. Adik, Julia L. Johnson, and Denton Louis Peoples served on our HR Committee. During 2014, Philip L. Maslowe served as the chair of our HR Committee until his unexpected death in November. Thereafter, the Chairman of our Board, E. Linn Draper, Jr., served as interim chair of our HR Committee through the end of 2014. Each of the individuals that served on our HR Committee in 2014 is and was at all times an independent member as defined by NYSE corporate governance listing standards. None of these individuals who served as members of our HR Committee during 2014 are officers or employees or former employees of the company or any of its subsidiaries. In addition, no executive officer of NorthWestern or any of its subsidiaries served as a member of the board or compensation committee of any other entity.

19

Compensation Discussion and Analysis




Compensation Committee Report
The HR Committee reviewed and discussed the Compensation Discussion and Analysis with management. Based on this review and discussion, the HR Committee recommended to the Board that the Compensation Discussion and Analysis be included in the proxy statement and incorporated by reference into the Annual Report on Form 10-K for the year ended December 31, 2014.
Human Resources Committee
Dana J. Dykhouse, Chairman*
Stephen P. Adik
Julia L. Johnson
Denton Louis Peoples
*
Phil Maslowe was the long-standing chair of our HR Committee. Following his passing, the Chairman of our Board assumed the responsibilities through the end of 2014, and Mr. Dykhouse became HR Committee Chair, effective January 1, 2015.
Compensation Discussion and Analysis
The Compensation Discussion and Analysis (CD&A) describes our executive compensation programs, including the oversight of such programs by the HR Committee of our Board and the rationale and processes used to determine the 2014 compensation of our executive officers. This includes the objectives and specific elements of our compensation program, including cash compensation, equity compensation, and post-termination compensation. This CD&A, which may include forward-looking statements, should be read together with the compensation tables and related disclosures that follow this section. For ease of reference, a table of contents specific to this CD&A follows.
 
CD&A Table of Contents
Page
Executive Summary
21
 
2014 Results
21
 
Compensation Practices
23
 
Compensation Components
24
Pay for Performance
25
 
Value Provided to Stockholders
25
 
Performance Relative to Our Peers
26
 
Peer Group for 2014
26
Say-on-Pay Results
28
Governance of Our Executive Compensation Program
28
 
Human Resources Committee
28
 
Compensation Consultant
29
 
Decision-Making Process and Role of Executive Officers
29
Targeted Overall Compensation and Competitive Analysis
29
 
Compensation Philosophy
29
 
Compensation Consultant Data and Analysis
30
 
Internal Pay Equity and Wealth Accumulation
31
Components of Executive Compensation for 2014
32
 
Base Salary
32
 
Annual Cash Incentive Awards
33
 
Long-Term Performance-Based Equity Awards under the Equity Compensation Plan
37
 
 
2014 Long-Term Incentive Program Performance Unit Grants
38
 
 
2014 Executive Retention / Retirement Program Restricted Share Grants
39
 
 
Vesting of 2012 Long-Term Incentive Program Performance Unit Grants in 2014
40
Other Compensation Policies
41
 
Stock Ownership Guidelines
41
 
Retirement and Other Benefits
41
 
Severance and Post-Termination Benefits
42
 
Non-Qualified Deferred Compensation
42
 
No Employment Agreements
42
 
Tax Treatment of Certain Compensation
42

20

Compensation Discussion and Analysis




This CD&A is organized into the following sections:
 
 
 
Executive Summary — Highlights of our 2014 executive compensation program and results.
 
Pay for Performance — How our pay and performance, relative to our peers, provides value to our stockholders.
 
Say-on-Pay Results — Details about our Board's consideration of prior shareholder voting results concerning executive compensation.
 
Governance of Our Executive Compensation Programs — How our HR Committee oversees our executive compensation program.
 
Targeted Overall Compensation and Competitive Analysis — How our HR Committee determined 2014 compensation levels.
 
Executive Compensation Components — Details about our 2014 executive compensation program.
 
Other Compensation Policies — Information on other aspects of our compensation philosophy.
 
Executive Summary
2014 Results
In 2014, we continued to show strong operating results, which have translated into returns for our stockholders. We achieved our best ever safety results and customer satisfaction rating, while providing our customers with reliable service and our stockholders with returns among the industry leaders.
Our net income grew 28.3 percent to $120.6 million in 2014 from $94 million in 2013.
For the five-year period ending in 2014, our total shareholder return (TSR) was 167.4 percent, a return that significantly outperformed the S&P 500 index (105 percent) and the S&P utility index (87 percent) over that same time period.
Of the 48 utilities that appear in the Edison Electric Institute’s Utility Index, we are the only company with a TSR in the top ten for the one-, two-, three- and five-year periods ending December 31, 2014.
Our return on average equity (ROAE) has averaged 10.4 percent over the last three years.
For 2014, our TSR was 35 percent, which was considerably better than the industry as a whole (S&P utility index 29 percent).
In 2014, we paid an annual dividend of $1.60 per share, which provided a dividend yield of approximately 2.8 percent, based on our closing stock price of $56.58 per share on December 31, 2014.
We were able to continue to achieve these strong operating results during 2014, while simultaneously completing the acquisition of 11 hydroelectric facilities, related assets, and one storage reservoir located in Montana for a purchase price of approximately $900 million (the Hydro Transaction). In 2013 and 2014, we dedicated significant management and other resources to the Hydro Transaction to (1) ensure a smooth operational transition of the assets, (2) obtain state and federal regulatory approval of the transaction, and (3) secure financing for the acquisition.

21

Compensation Discussion & Analysis


In spite of this strong operating performance and completion of the Hydro Transaction, the overall compensation of our executives ranks near the bottom of our peer group, which is identified on page 26 of this proxy statement. In summary, for 2013 (the most recent year for which our peer group executive compensation is publicly available):
Our named executive officers had an average compensation (as published in the 2014 proxy statement Summary Compensation Table for each respective company, excluding change in pension value) that was less than all but four of the other 14 companies in our peer group, with our average compensation per named executive officer of approximately $856,000 versus our peer group median average compensation per named executive officer of approximately $1.3 million.
Our CEO’s total compensation was approximately 63 percent of the median total compensation of CEOs in our peer group.
Relative to our peers, we are providing strong financial results, with our TSR over the past one- and three-year periods in the top quartile. Meanwhile, our CEO pay has been among the lowest in our peer group, ranking third lowest over the same periods. Later in this CD&A, we provide additional details concerning (1) the compensation of our executives in comparison to our peers as summarized above, (2) the graphics below, and (3) the members of our peer group.
3-YEAR
3rd Lowest CEO Pay
2nd Highest TSR
                                    of 15 Peers
                         of 15 Peers
 
 
1-YEAR
3rd Lowest CEO Pay
3rd Highest TSR
                                    of 15 Peers
                         of 15 Peers
We consider our executive compensation program to be instrumental in helping us achieve our business objectives and effective in rewarding our executive officers for their role in achieving strong financial and operational performance. Based on our performance and our compensation outcomes, we are requesting your support of Proposal No. 3 — Advisory Vote to Approve Named Executive Officer Compensation.

22

Compensation Discussion and Analysis




Our overarching philosophy concerning executive compensation is that it should be structured to be market competitive and to align the long-term interests of our executives, our stockholders and our customers so that the compensation appropriately reflects performance in achieving financial and non-financial operating objectives. In order to live up to our philosophy, we believe that a significant portion of an executive’s compensation should be “at-risk” in the form of performance-based incentive awards that are paid, if earned, as a result of individual and company performance.
Our executive compensation program is designed to:
Attract and retain a high-quality executive team by providing competitive compensation and benefits that reflect our financial and operational size;
Reward executives for both individual and company performance (based on financial, reliability, customer care, and safety metrics) through performance-based, at-risk compensation; and
Maximize long-term stockholder value by putting a significant emphasis on:
financial performance, reliability, safety, and customer satisfaction; and
annual and long-term at-risk, performance-based compensation.
Compensation Practices
Our executive compensation program accomplishes our goals by incorporating certain compensation practices while avoiding other, more problematic or controversial compensation practices.
 
 
 
 
What We Do
 
Place a significant portion of executive compensation at risk in the form of incentive awards that are paid, if earned, based on continuing annual and long-term individual and company performance.
 
Utilize multiple performance metrics for long-term incentive awards that align executive and stockholder interests.
 
Target executive compensation around the median of our peers, while also considering trade area economics, turn-over, tenure, experience, and other factors.
 
 
 
 
What We Don’t Do
 
Use employment or golden parachute agreements.
 
Provide change in control payments exceeding three times base salary and target bonus. Our only change in control provision appears in the NorthWestern Corporation Amended and Restated Equity Compensation Plan (Equity Compensation Plan) and provides for the immediate vesting or cash payment of any unvested equity awards upon a change in control.
 
Grant stock options. No stock options are currently outstanding, and none have been issued under our Equity Compensation Plan.
 
Allow option repricing or liberal share recycling. Each of these compensation practices are expressly prohibited under our Equity Compensation Plan.
 
Promise multi-year guarantees for salary increases.
 
Provide perquisites for executives that differ materially from those available to employees generally.
 
Maintain non-performance-based top hat plan or separate retirement plan available only to our executive officers. We do maintain a performance-based executive retirement / retention program, with five-year cliff vesting and a five-year payout period after the recipient’s separation from service.
 
Pay tax gross-ups to our named executive officers.
 
Pay dividends or dividend equivalents on unvested performance shares or units.
 
Allow our executives or directors to hedge or pledge company securities.
 
 
 

23

Compensation Discussion & Analysis


Compensation Components
For 2014, our executive compensation package included the same components as in 2013 — base salary, annual cash incentive awards, and long-term equity incentive stock awards. All of the incentive awards (annual and long-term) were performance-based. The annual incentive award utilized financial and operational measures and were issued under our annual incentive plan. The long-term incentive stock awards were issued under our Equity Compensation Plan, targeted multi-year financial performance goals, and consisted of two components. The first component, our long-term incentive program (LTIP), was an award of performance units that cliff vest after a three-year performance period tied 50 percent to TSR (relative to our peer group) and 50 percent to earnings per share (EPS) growth and ROAE. The second component, executive retirement / retention program (ERRP), was an award of restricted share units that cliff vest after a five-year performance period that is tied to improved net income and, if earned, will be paid out over a five-year period after the executive separates from service with the company. Unlike many other companies, we do not offer a non-performance-based supplemental executive retirement plan.
Component
Description
Why we include this component
How we determine amount
Decisions for 2014
Reason for
Change
Base
Salary
Short-term fixed cash compensation
Provide a base level of compensation for executive talent
Target middle of competitive range of peer group, with adjustments for trade area economics, turnover, tenure, and experience
Consistent with the salary adjustment generally provided to all employees, executives received a three percent increase to base salary for 2014
To remain market competitive and provide cost of living adjustment
Annual
Cash
Incentive
Short-term variable cash compensation, based on corporate performance against annually established metrics (financial, safety, reliability, and customer satisfaction) and individual performance
Motivate employees to meet and exceed annual company objectives that are part of our strategic plan
Target middle of competitive range of peer group, with adjustments for trade area economics, turnover, tenure, and experience
One executive received a 12.5 percent increase to annual cash incentive target; targets unchanged for other executives
To increase the compensation opportunity for a strategic position to align with market median
Added natural gas reliability metrics and additional customer satisfaction metrics
To appropriately motivate employees serving our natural gas customers and to capture customer viewpoints from independent custom survey results
Performance Unit Awards under
Long-Term Incentive Program (LTIP)
Long-term variable equity compensation, paid following three-year vesting period if corporate performance metrics (EPS, ROAE, and TSR) are achieved
Provide market-competitive, performance-based compensation opportunities while aligning interests of executives and stockholders
Market survey of similar peer group roles and responsibilities and assessment of the strategic value of each position
Increased target opportunity for three executives
To increase the compensation opportunity for strategic positions to align with market median
Changed one of three performance measures to earnings per share instead of net income
To align performance results with the experience of equity investors and to capture the dilutive impact of additional equity to finance the hydro and any future transactions
Restricted Share Grants under Executive Retention / Retirement Program (ERRP)
Long-term variable, equity compensation, with corporate performance metrics over a five-year vesting period; paid over five-year period following separation from service
In lieu of a non-performance based supplemental retirement benefit, provide market-competitive, performance-based compensation opportunity that aligns interests of executives and stockholders, while encouraging retention and the continuity of our strategic plan
Peer group and competitive survey data and judgment on internal equity of positions and scope of responsibilities, as well as an assessment of the strategic value of each position
Target opportunities doubled for all executives
To remain competitive with the market median for long-term incentive compensation opportunity

24

Compensation Discussion and Analysis




Pay for Performance
Our HR Committee has designed our compensation program to align pay with performance. Our executives are rewarded for providing value to stockholders and performing relative to our peer group, which is summarized on page 26 of this proxy statement.
Value Provided to Stockholders
As highlighted above in the Executive Summary of this CD&A, the value we have provided to our stockholders over the past one-, two-, three- and five-year periods has been among the industry leaders and, for the past five years, has surpassed the S&P 500 index and the S&P utility index. An investment
in our stock of $100 at the beginning of 2014 would have turned into $135 by the end of 2014.
These results we achieved for our stockholders are consistent with the results obtained under our incentive plans. With respect to our annual cash incentive plan for 2014, our financial results combined with the results of our reliability, safety, and customer satisfaction goals resulted in a 125 percent funding of our annual incentive target for 2014.
The grants of long-term performance units that were made in 2012 vested on December 31, 2014. The performance measures associated with those grants were measured over a three-year
 
 
 
RESULT OF INVESTING $100 IN
NORTHWESTERN STOCK FOR 2014
 
 
 
vesting period and were tied to net income growth, ROAE, and TSR. The company had solid results over the three-year vesting period, attaining 10.1 percent average net income growth, 10.4 percent ROAE, and 70.8 percent TSR. Our TSR ranked second highest when compared with our 14 other peer companies. Based on these results, the awards paid out at 168.4 percent of target.
The chart below shows the total return on an investment made over that same three-year vesting period and highlights our stock price performance with the S&P 500 and our peer group. Total return is computed assuming reinvestment of dividends.
3 YEAR TSR
 

25

Compensation Discussion & Analysis


The charts below provide another example of pay for performance by illustrating the directional relationship between the compensation of our CEO and company performance over a five-year period based on the three performance metrics utilized in our LTIP performance units.
5-YEAR CEO PAY ALIGNMENT
 VS. NET INCOME
VS. ROAE
VS. CUMULATIVE TSR
Net Income is stated in millions. TSR illustrates the growth of $100 invested in our common stock on December 31, 2009, assuming reinvestment of dividends. CEO Compensation is total compensation (excluding change in pension value) as published in the proxy statement Summary Compensation Table. In 2011, 2012, and 2013, the CEO received the same adjustment to base pay for which other non-represented employees were eligible. The CEO first received a long-term stock-based incentive in 2012 (for the 2009-2011 plan), and has participated in the plan since then.
Performance Relative to Our Peers
As detailed below, relative to our peers, we are producing high performance for low pay. Over the past three years, our TSR is in the first quartile of our peer group, while our CEO’s compensation falls to the low end of the peer group range in the fourth quartile. In addition, the aggregate compensation provided to our named executive officers and the pay multiple of our CEO to the second highest paid named executive officer both lag the median of our peer group.
We also provide value to shareholders by maintaining a relatively small executive team. We currently have nine members on our executive team. As of the record date, three of our 14 peers also have nine executives, eight of our peers have larger executive teams of ten or more members, and three of our peers have fewer than nine executive officers. We believe that having a relatively small executive team creates efficiencies and a stronger team that is more effective as a group.
 
 
Peer Group for 2014
 
 
ALLETE, Inc.
 
Empire District Electric Company
 
Portland General Electric Company
Avista Corp.
 
Great Plains Energy Incorporated
 
UIL Holdings Corporation
Black Hills Corporation
 
IDACORP, Inc.
 
Vectren Corporation
Cleco Corporation
 
MGE Energy Inc.
 
Westar Energy, Inc.
El Paso Electric Co.
 
PNM Resources Inc.
 
 
 
 
 
 
 
 
 
 
Our HR Committee, in consultation with its independent compensation consultant, selects the members of our peer group and periodically examines whether the members continue to meet the criteria for inclusion. The HR Committee uses the following financial criteria to select our peer group: (1) a market capitalization of less than $3 billion, (2) total revenue between $100 million and $5 billion, and (3) energy-related revenue of at least 75 percent of total revenue. The HR Committee also requires that peer group companies either be located near our existing service territory or have both electric and gas customers.
For 2014, we removed one company, Unisource Energy Corporation, from our peer group because it was acquired by another company.
 
 

26

Compensation Discussion and Analysis




The following pay-for-performance charts and tables below reflect relative values for CEO pay and TSR of us and our peers that are expressed as a percentage of the highest value in the category. The charts and tables demonstrate that, over the past three years, our CEO is generally being compensated at a lower level than the CEOs of our peers (in the fourth quartile), while leading strong performance for stockholders (in the first quartile) relative to our peers.
Datapoints within the shaded pay-for-performance alignment band reflect a strong correlation between pay and performance. Datapoints to the left and above the band suggest lower pay for higher performance; while those to the right and below the band suggest higher pay for lower performance.
CEO PAY FOR PERFORMANCE VS. PEERS
1-YEAR
3-YEAR
 
 
Relative 1-Year CEO Pay*
 
Relative 1-Year TSR*
 
Relative 3-Year CEO Pay*
 
Relative 3-Year TSR*
Vectren Corporation
100%
 
El Paso Electric Co.
100%
 
Cleco Corporation
100%
 
PNM Resources Inc.
100%
Cleco Corporation
99%
 
Vectren Corporation
96%
 
PNM Resources Inc.
94%
 
NorthWestern Corporation
100%
Great Plains Energy
89%
 
NorthWestern Corporation
96%
 
Great Plains Energy
93%
 
Black Hills Corporation
98%
UIL Holdings Corporation
88%
 
Westar Energy, Inc.
91%
 
Vectren Corporation
86%
 
Vectren Corporation
96%
Avista Corp.
77%
 
IDACORP, Inc.
87%
 
UIL Holdings Corporation
75%
 
IDACORP, Inc.
93%
PNM Resources Inc.
77%
 
Avista Corp.
84%
 
Avista Corp.
71%
 
Portland General Electric
87%
Black Hills Corportation
74%
 
Portland General Electric
81%
 
El Paso Electric Co.
68%
 
Westar Energy, Inc.
82%
Westar Energy, Inc.
72%
 
PNM Resources Inc.
72%
 
Westar Energy, Inc.
66%
 
El Paso Electric Co.
80%
IDACORP, Inc.
68%
 
MGE Energy Inc.
60%
 
IDACORP, Inc.
66%
 
MGE Energy Inc.
78%
Portland General Electric
62%
 
Great Plains Energy
59%
 
Black Hills Corporation
64%
 
Cleco Corporation
74%
ALLETE, Inc.
48%
 
Cleco Corporation
56%
 
Portland General Electric
56%
 
Avista Corp.
74%
El Paso Electric Co.
46%
 
UIL Holdings Corporation
48%
 
ALLETE, Inc.
44%
 
ALLETE, Inc.
63%
NorthWestern Corporation
45%
 
Empire District Electric
48%
 
NorthWestern Corporation
40%
 
Great Plains Energy
61%
Empire District Electric
34%
 
ALLETE, Inc.
41%
 
MGE Energy Inc.
29%
 
UIL Holdings Corporation
54%
MGE Energy Inc.
31%
 
Black Hills Corportation
11%
 
Empire District Electric
21%
 
Empire District Electric
35%
 
 
 
 
 
 
 
 
 
* Expressed as a percentage of the highest value in the category.
Source: CEO Pay for the one-year period is the 2013 total compensation and for the three-year period is the 2011-13 total compensation, as published in the, as applicable, 2012, 2013, and 2014 proxy statement Summary Compensation Tables for each respective company. We have excluded any change in pension value from the total compensation calculation because its inclusion could lead to inconsistent comparisons from company to company based upon differing pension plan provisions, length of employee tenure, and other factors. Total Stockholder Return is from SNL Financial for the one- and three-year periods ended December 31, 2014.

27

Compensation Discussion & Analysis


As with our CEO’s total compensation package, the total compensation provided to our named executive officers, as a group, relative to our peers also demonstrates a strong pay-for-performance alignment for our stockholders. As shown in the charts below, our named executive officer group lags the median total compensation provided to our peer group named executive officers. The summary also depicts that the multiple of our CEO’s compensation compared with our next most highly compensated named executive officer is significantly less than our peer group median.
NAMED EXECUTIVE OFFICER PAY VS. PEERS
PAY MULTIPLE OF CEO TO SECOND HIGHEST PAID NAMED EXECUTIVE OFFICER
 
 
Source: Total compensation (excluding change in pension value) as published in the proxy statement summary compensation table for each respective company. We excluded change in pension value because its inclusion could lead to inconsistent comparisons from company to company based upon differing pension plan provisions, length of employee tenure, and other factors.
Say-on-Pay Results
At our annual meeting in 2014, we asked our stockholders to approve, on an advisory basis, a say-on-pay resolution regarding the compensation of our named executive officers as disclosed in the proxy statement for that meeting. Our say-on-pay resolution and the 2013 compensation of our named executive officers was approved by 94.7 percent of the shares present and entitled to vote on the matter.
The HR Committee and the full Board reviewed the voting results received at the 2014 annual meeting concerning our say-on-pay resolution and have taken the results into account when establishing compensation for the named executive officers for 2015. The HR Committee believes the results from our 2014 annual meeting affirm our stockholders’ support of the company’s approach to executive compensation. Thus, we believe our executive compensation programs appropriately align the long-term interests of management and our stockholders.
Governance of Our Executive Compensation Program
Human Resources Committee
The HR Committee, composed solely of independent directors, acts on behalf of and with the concurrence of the Board with respect to compensation, benefits, and other employment matters for executives; stock-based compensation plans for employees; the election and appointment of executive officers and other officers; the assessment of the performance of the CEO; and the compensation of non-employee members of the Board. The HR Committee considers several factors including but not limited to (1) the desire to align management (and employee) interests with those of stockholders and customers, (2) the desire to link management pay to both annual and long-term performance, (3) the need to attract talent from both within and outside the utility industry, (4) economic circumstances including turnover and retention considerations, (5) pay for performance (financial and operational) in all areas of compensation, and (6) executives participate in same base plans available to all non-union employees, with no additional perquisites — all of which ultimately influence our executive compensation program.

28

Compensation Discussion and Analysis




Compensation Consultant
In its governance of our executive compensation program, the HR Committee works with an independent compensation consultant, Towers Watson, and, to a lesser extent, our CEO and CFO. Towers Watson, who reports directly to and is retained directly by the HR Committee, advises the HR Committee on an ongoing basis with regard to the general competitive landscape and trends in compensation and executive and director compensation matters, including (1) competitive analysis, (2) incentive plan design, (3) updates on trends in executive and director compensation, (4) peer group composition, and (5) handling other matters requested by the HR Committee. A Towers Watson representative attends meetings of the HR Committee as necessary and communicates directly with the chairman of the HR Committee.
Decision-Making Process and Role of Executive Officers
The HR Committee works with Towers Watson to analyze competitive market data to determine appropriate base salary levels, annual incentive target levels, and long-term incentive target levels for all of our executive officers. With respect to our CEO’s compensation, the HR Committee conducts an annual performance assessment of the CEO and determines appropriate adjustments to all elements of his total compensation based on individual and company performance, taking into consideration our CEO’s preference to have a larger percentage of his pay be at-risk in the form of performance-based compensation and his overall compensation to be below the median of his peers. For the other executive officers, the CEO and CFO make recommendations to the HR Committee for all elements of compensation based on individual performance, market data from our peer group and published survey data. The HR Committee reviews, discusses, modifies, and approves, as appropriate, these compensation recommendations. The HR Committee recommends both CEO and executive officer compensation to the Board for approval. The CEO is not a member of the HR Committee and does not vote on Board matters concerning executive compensation.
Targeted Overall Compensation and Competitive Analysis
Compensation Philosophy
We target base salary, annual cash incentive awards, and long-term equity grants, as well as total compensation, to be market competitive for our executive officers. However, because comparative data is one of several tools that are used in determining executive officer compensation, competitiveness of compensation may fluctuate based on:
    The level of achievement of our pre-established performance goals;
    Our TSR compared against our peer group;
    Individual performance and scope of job responsibilities;
    Internal equity considerations;
    Market competitiveness and internal executive turnover; and
    The executive’s industry and position experience and tenure.
In order to appropriately align the long-term interests of our executives, stockholders, and customers, we structure our executive compensation so that a significant component of an executive’s compensation is at risk in the form of performance-based incentive awards. Our HR Committee and Board establish metrics for our performance based incentive awards that, in general, are more difficult to achieve than our peers, based
on an analysis our independent compensation consultant conducted. This structure influences our executives to focus on both short- and long-term performance and provides a reward to our executives, stockholders, and customers when we achieve both our financial and operating objectives.
The target compensation mix for our named executive officers changed in 2014 from 2013. As part of the overall compensation package for our named executive officers in 2014, our HR Committee increased the targeted long-term incentive opportunity for three of our named executive officers as described below in the 2014
 
 
 
Performance Unit Grants section. The result of these changes to the target compensation mix was an increase in the percentage of at-risk compensation for all of our named executive officers to 63 percent from 60 percent.

29

Compensation Discussion & Analysis


For our CEO, 72 percent of the overall targeted compensation (base salary and targeted annual and long-term incentives) relates to performance-based incentive awards. For our named executive officers other than the CEO, that percentage averages 55 percent. The charts below depict the target total compensation mix for our CEO and the average of our other named executive officers.
CEO PAY MIX
 
 
OTHER NAMED EXECUTIVE OFFICER
AVERAGE PAY MIX
 
 
 
 
 
 
Charts represent target level for each component of compensation.
Compensation Consultant Data and Analysis
As a component of the HR Committee’s review of executive compensation matters, Towers Watson provides an analysis of the pay levels of a peer group, as well as published survey data that focuses on the energy and  utility industry, which is size-adjusted based on our revenues for appropriate market comparison. For 2014, the published survey data included the Towers Watson Compensation DataBank, William M. Mercer’s Executive Benchmark Database and Towers Watson Survey Report on Top Management Compensation. The peer group data is a primary basis for setting compensation for our CEO and CFO because these positions are common among our peers. Both the peer group and survey data are analyzed and considered in setting compensation levels for the remaining named executive officers because these positions or division of responsibilities may not be common among each of our peers.
For long-term incentive purposes, Towers Watson performs its analysis using the published survey data and focuses on companies in the energy services industry, specifically with annual revenues less than $3 billion. The HR Committee considers the responsibilities of the job performed by each of our executive officers and
his or her performance, and adjusts each executive’s targeted compensation amounts accordingly. As further detailed below, internal comparison with other officer positions also is considered.
In addition to these efforts, Towers Watson prepares an analysis of market data compiled from the Towers Watson Compensation DataBank for energy services executives. The analysis examines the target direct compensation opportunity for energy services executives, including base salary, target annual incentives, and the expected value of long-term incentives. Using regression analysis, Towers Watson size-adjusts the data to reflect our revenue scope.
Based on Towers Watson’s analysis and as illustrated in the chart to the right, the direct compensation opportunity for our highest-paid employees is below the market median of the direct compensation opportunity for the highest-paid employees for energy services companies. For the top five highest-paid employees, our employees’
 
 
 
AGGREGATE COMPENSATION OPPORTUNITY
FOR HIGHEST-PAID EMPLOYEES
 
 
*Top 5 is based on 2014 proxy data of energy services companies. Top 10, Top 15, and Top 20 are based on a survey of energy services companies completed by Towers Watson. Values exclude any change in pension value.

30

Compensation Discussion and Analysis




compensation opportunity is 63 percent of the median; while our top 10, 15, and 20 highest-paid employees have a compensation opportunity that is 69 percent, 68 percent and 68 percent, respectively, of the median.
We also conducted a separate analysis of the 2013 executive compensation of the 14 other companies in our peer group. This internal analysis, which was based on proxy data, examined base salary, bonus, other annual compensation, equity awards, and non-equity incentive plan compensation (and excluded change in pension value). Using this analysis, our named executive officers had an average compensation that was less than all but four of the companies in our peer group, with an average compensation per named executive officer of approximately $856,000 versus the average compensation per named executive officer of the median of our peer group of approximately $1.3 million. For 2013, our CEO’s total compensation was approximately 63 percent of the median total compensation of CEOs in our peer group.
These analyses demonstrate that, on average, we currently are below the middle of the competitive range. We also are cognizant of prevailing economic conditions, internal pay equity, and executive turnover, which our HR Committee takes into account when determining executive compensation.
Internal Pay Equity and Wealth Accumulation
We believe our executive compensation program must be internally consistent and equitable to motivate our employees to create stockholder value. We are committed to internal pay equity, and the HR Committee monitors the relationship between the compensation of our executive officers and the compensation of our non-managerial employees. In 2014, the HR Committee reviewed a comparison of CEO pay (base salary and incentive compensation) to the pay of all our employees. The compensation for our CEO in 2014 was approximately 24 times the median pay of our full-time employees.
Our CEO to median employee pay ratio calculation includes all components of compensation available to our CEO and the median employee, as summarized in the table below. We have included incentive compensation in the calculation at the targeted level (i.e., 100 percent of the incentive). Our calculation includes full-time employees and excludes part-time employees. The calculation also excludes benefits (which do not differ materially between executives and employees generally) and any overtime pay that the median employee may receive.
 
 
 
President
and CEO
 
Median Employee
2014 Base Salary
 
$
561,389

 
$
77,938

Annual Cash Incentive
 
 
 
 
 
Percent of base salary
 
80
%
 
6
%
 
Targeted annual cash incentive
 
$
449,111


$
4,676

Performance Unit Awards under
Long-Term Incentive Program
 
 
 
 
 
Percent of base salary
 
150
%
 
%
 
Targeted long-term incentive
 
$
842,084

 
$

Restricted Share Grants under
Executive Retention / Retirement Program
 
 
 
 
 
Percent of base salary
 
25
%
 
%
 
Targeted executive retention / retirement incentive
 
$
140,347

 
$

2014 Total Target Direct Compensation
 
$
1,992,931

 
$
82,614

 
 
 
 
 
Pay as Multiple of Median Employee
 
24
 
1
The HR Committee reviews annually the wealth accumulation of our executives, considering all of the elements of total compensation paid to each executive officer during the prior five-year period, including base salaries, annual cash incentive bonuses, the value of long­-term incentive awards and any special payments made to an individual executive. The HR Committee also reviews the projected value of each executive officer’s accumulated equity grants over the subsequent five-year period based upon various stock appreciation and “stay to normal retirement” scenarios. This is done to analyze not only the amount of compensation each executive officer has accumulated to date, but also to better understand how current equity grants may affect the amount of wealth the executive officers accumulate in the future.

31

Compensation Discussion & Analysis


Components of Executive Compensation for 2014
 
 
 
 
The primary components of total compensation for our executive officers for 2014 were:
 
Base Salary
 
Annual performance-based cash incentive awards; and
 
Long-term performance-based equity incentive awards in the form of performance units and ERRP restricted share units.
 
 
 
The HR Committee believes these compensation components align the interests of our executives and our stockholders by basing a significant portion of total compensation on performance and achievement of our short- and long-term goals. The specific mix among the individual components reflects market compensation arrangements and individual position and performance. Base salary represents 28 percent of our CEO’s targeted total compensation and, on average, 45 percent of our other named executive officers’ targeted total compensation. Performance-based awards (annual and long-term incentive) represent the remaining portion of targeted total compensation.
The HR Committee also believes that our executive compensation program appropriately mitigates the risk associated with incentive-based pay. The HR Committee has designed the entire program and the metrics under our annual and long-term performance-based incentive components to curb inappropriate risk taking. For example, we do not offer guaranteed bonuses. In addition, our annual and long-term performance-based incentive awards utilize multiple performance metrics which vary from plan to plan, and rewards under those plans are aligned with the interests of our stockholders. If our stockholders benefit from our performance, our executive officers are rewarded. Our ERRP restricted share units also benefit our long-term succession and strategic plan by providing for payment only after the recipient leaves employment with us, and then over a five-year period. Furthermore, we have limited severance packages, we do not maintain a non-performance-based supplemental executive retirement plan, and our retirement, healthcare, and welfare benefit programs for executives are generally the same as for all employees and are discussed in the “Compensation of Executive Officers and Directors” section of this proxy statement. Finally, we maintain robust stock ownership guidelines. In light of these pay practices, the HR Committee believes that our executive compensation program appropriately address the risks associated with performance-based incentives.
Base Salary
The general guideline for determining salary levels for our executive officers, including the CEO, is to be around the middle of the competitive range, adjusted for other factors such as trade area economics, turn-over, tenure, and experience. Adjustments from market levels are made based on experience in the position, industry experience, and individual performance and responsibilities. While we are cognizant of the competitive range, our primary goal is to compensate our executives at a level that best achieves our compensation philosophy, whether or not this results in actual pay for some positions that may be higher or lower than the market median. We find that survey results for particular positions can vary from year to year. Thus, we consider market trends for certain positions over a period of several years rather than a one-year period in setting compensation for such positions.
The HR Committee considers adjustments to base salaries for the executive officers on an annual basis. For 2014, the HR Committee felt that an increase to the base salaries of our executive officers in line with the industry average and the increases provided to our employees generally was reasonable in light of the
company’s strong operating results and increased stockholder returns in 2013. The HR Committee also considered that our executive officer base salaries remained below the median compensation of our peers even with the increase. The table to the right sets forth the base salaries for our named executive officers. The base salary adjustments for 2014 were effective April 1, 2014.
 
 
 
 
 
 
 
 
 
 
 
Annualized Base Salary
 
Increase
(%)
 
Name
 
2014
($)
 
2013
($)
 
 
Robert C. Rowe
 
561,389

 
545,038

 
3.00
 
Brian B. Bird
 
368,280

 
357,553

 
3.00
 
Heather H. Grahame
 
335,127

 
325,366

 
3.00
 
Curtis T. Pohl
 
263,853

 
256,168

 
3.00
 
Kendall G. Kliewer
 
243,414

 
236,324

 
3.00

32

Compensation Discussion and Analysis




Annual Cash Incentive Awards
The overall design of our 2014 annual incentive plan was the same as our previous year’s plan. However, as described in detail in the annual incentive plan performance metrics discussion below, the HR Committee included additional performance metrics in 2014, with the addition of two reliability metrics related to our natural gas business and two new customer satisfaction metrics.
Annual cash incentive awards are used to motivate employees to meet and exceed annual company objectives that are a part of our strategic plan. All regular, non-represented employees, including executive officers, participate in the same plan described in this section, and regular, represented employees participate in a separate, but similar, management-designed program. Actual payouts for annual cash incentive awards reflect both (1) company performance based on financial and operational measures and (2) the employee’s individual performance.
There are four factors that determine the amount of the final payout under the annual incentive plan:
(1)
Base salary;
(2) 
Target incentive percentage of base salary;
(3)
The annual incentive plan funding percentage (based on financial, safety, reliability, and customer care performance metrics); and
(4)
The individual’s performance multiple.
Actual payouts of annual cash incentive awards are calculated pursuant to the following formula:
Each year, the HR Committee approves a target incentive percentage of base salary for each executive based on the internal and external factors previously noted. Management also annually proposes specific performance targets for the company’s financial and operational measures, which are reviewed, and, after considerable discussion and usually some modification, approved by the HR Committee as well as the Board. At the end of the fiscal year, the HR Committee reviews data submitted by management on company performance against each of the specific performance targets and determines the degree to which each financial and operational measure was met during the year, subject to Board approval. The aggregate percentage of financial and operational measures met during the year represents the plan funding percentage for the annual incentive plan.
The funding (as a percentage of target) under the annual incentive plan has ranged from 94 percent to 108 percent for the four previous years, as set forth in the table to the right.
 
Historical Funding (as a percentage of target)
 
2010
2011
2012
2013
 
94%
101%
98%
108%
The HR Committee may use discretion in increasing or decreasing the plan funding percentage from actual performance due to specific facts and circumstances, such as current economic conditions as well as unusual one-time events that significantly impact financial or non-financial results. The HR Committee exercises this discretion only for unusual, non-operational items. As described further below, each executive’s annual individual performance is then evaluated in order to determine a performance multiple, which is factored into the incentive payout calculation.
The target annual incentive opportunities for our executive officers are derived in part from peer group and competitive survey analysis data and in part by the HR Committee’s judgment on the internal equity of the positions, scope of job responsibilities, and the executives’ industry experience and tenure. Potential adjustments to the annual incentive target for the executive officers are considered by the HR Committee on an annual basis.

33

Compensation Discussion & Analysis


As reflected in the table to the right, our HR Committee adjusted the 2014 target annual incentive opportunity for one named executive officer by increasing the target opportunity to 45 percent from 40 percent. This adjustment was based upon a variety of factors including market competitiveness.
The HR Committee did not adjust the 2014 target annual incentive opportunity for any of our other named executive officers (or any of our other executive officers) because the HR Committee believed the annual incentive targets were appropriate and commensurate with the responsibilities of those executives. The table to the right sets forth the 2014 annual incentive opportunity for our named executive officers.
 
 
 
 
 
 
 
 
 
 
 
Target Incentive Opportunity
(% of base salary)
 
Increase
(%)
 
Name
 
2013
 
2014
 
 
Robert C. Rowe
 
80
 
80
 
 
Brian B. Bird
 
50
 
50
 
 
Heather H. Grahame
 
40
 
45
 
12.5
 
Curtis T. Pohl
 
40
 
40
 
 
Kendall G. Kliewer
 
35
 
35
 
 
 
 
 
 
 
 
 
As more fully described below, the actual amount of money available for awards (the award pool) is based on overall plan funding. Each year, the HR Committee determines funding of the award pool based on its assessment of overall company performance during the year, measured against pre-established financial and operational metrics.
The HR Committee determined that the metrics and relative weightings focus the organization on desired performance for the following reasons:
Net income, 55 percent of the funding opportunity – Net income was chosen as the financial metric because it is a financial measure that investors consider significant to evaluate company performance, and net income can be directly affected by individual employee and team performance.
Operational targets related to safety, reliability, and customer satisfaction, 45 percent of the funding opportunity – We believe that employee safety and providing reliable service to our customers’ satisfaction over the long term are critical to our customer commitment and regulatory obligations, which ultimately supports our financial goals and enhances stockholder value.
In order for any awards under the 2014 annual incentive plan to be earned and paid out, a minimum of 90 percent of the company’s budgeted net income target must have been attained, which coincides with the threshold net income target for the plan. This metric for determining performance against our financial goal is derived from our audited financial statements. However, the HR Committee, in its discretion, may consider certain items or events as unusual when determining performance against the metric and make what it deems to be appropriate adjustments. In addition, the 2014 annual incentive plan provided that the 2014 safety portion would be forfeited in the event of a work-related fatality, unless the HR Committee determined that no actions on the part of the employee or the Company contributed to the incident.
 
Annual Incentive Plan Metrics
 
For 2014, based on company performance for all of the metrics, the annual incentive plan was funded at 125 percent of target. The narrative which follows highlights some of the results we achieved under the individual performance metrics, followed by a table with the specific results for each metric.
Net Income. In calculating performance under the net income metric, the HR Committee exercised its discretion to exclude two non-budgeted items from such calculation because the net income target is set at our budgeted net income.
First, the HR Committee excluded the revenue and expenses we incurred in connection with our acquisition of hydroelectric facilities and related assets located in Montana, which closed on November 18, 2014. The effect of excluding these transaction-related items (approximately $4.1 million after tax) increased our net income for purposes of the annual incentive plan calculation.

34

Compensation Discussion and Analysis




Second, the HR Committee excluded the tax benefit from the 2014 release of previously unrecognized tax benefits. The effect of excluding these tax benefits (approximately $12.6 million) decreased our net income for purpose of the annual incentive plan calculation.
If the HR Committee had not exercised its discretion to exclude these two non-budgeted items from net income, our annual incentive plan would have been funded at 131 percent, or six percent higher than the actual annual incentive plan funding of 125 percent. Thus, the HR Committee’s exercise of discretion resulted in a lower plan funding amount.
Safety. We achieved our best performance in company history from a safety perspective. Our two performance metrics – lost time incident rate and operation safety and health administration (OSHA) recordable rate – reflected our best historical safety performance, which is a tribute to the dedication and diligence of our employees to recognize the importance of working safely every day.
Reliability. Our ability to provide reliable utility service to our customers improved over prior years. Both of our electric reliability metrics exceeded target, while one of our gas reliability metrics exceeded target and the other fell short of target.
Customer Satisfaction. In 2014, we achieved our highest ever JD Powers overall customer satisfaction score. This independent verification of our efforts to serve our customers to their satisfaction is important. However, we failed to meet threshold on two separate, customer satisfaction measures.
The table that follows shows the associated performance metrics (including threshold, target, and maximum levels), weighting and plan payout percentage for each of the 2014 performance measures, which resulted in the plan funding at 125 percent of target.
 
 
2014 Annual Incentive Plan Information
Performance Measures
 
Weight
(% of Total Plan Payout)
 
Performance Level
 
Target % Achieved
 
Final Funding % of Total
Threshold
 
Target
 
Maximum
 
Actual Achieved
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial (55%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Net Income ($ in millions) (1)
 
55
%
 
$85.4
 
$94.9
 
$104.4
 
$112.2
 
139.5
%
 
76.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Safety (15%) (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lost Time Incident Rate
 
7.5
%
 
1.0

 
0.8

 
0.6

 
0.5

 
150.0
%
 
11.3

Total Recordable Incident Rate
 
7.5
%
 
2.8

 
2.5

 
2.2

 
2.0

 
150.0
%
 
11.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Reliability (15%) (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SAIDI (excluding major event days)
 
5.0
%
 
120.0

 
111.0

 
101.0

 
110.2

 
104.2
%
 
5.2

SAIDI (including major event days)
 
5.0
%
 
192.0

 
127.0

 
113.0

 
111.5

 
150.0
%
 
7.5

Gas -- Leaks per 100 Miles of Main
 
2.5
%
 
8.0

 
5.6

 
4.7

 
6.3

 
85.4
%
 
2.1

Gas -- Damages per 1000 Locates
 
2.5
%
 
3.3

 
2.7

 
2.2

 
2.2

 
150.0
%
 
3.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Customer Satisfaction (15%) (4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
JD Power Residential Electric and
Gas Survey Performance Ranking
 
5
%
 
629

 
640

 
645

 
649.4

 
150.0
%
 
7.5

Operational Performance –
Customer Survey by Flynn Wright
 
5
%
 
39.55

 
40.32

 
40.47

 
38.5

 
%
 

Reputational Perceptions –
Customer Survey by Flynn Wright
 
5
%
 
39.03

 
39.82

 
39.98

 
38.6

 
%
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL FUNDING PERCENTAGE
 
 
125
%
(1)
Net Income. The actual net income achieved of $112.2 million excluded the impact from two significant non-budgeted items described above.
(2)
Safety. Safety performance is calculated by us and participating Edison Electric Institute (EEI) utilities as defined by Occupational Safety and Health Administration (OSHA). OSHA specifically defines what workplace injuries and illnesses should be recorded and, of those recorded, which must be considered lost time incidents. The threshold level for the safety measures represents our five-year average performance for these metrics, which is significantly above our EEI peer group average; the target level represents top tier performance for our EEI peer group and a 15 percent improvement over our five-year average performance for lost time incident rate and a ten percent improvement over our five-year average performance for total recordable incident rate; and the

35

Compensation Discussion & Analysis


maximum represents top tier performance for our EEI peer group, significant improvement over historical company performance, and is significantly higher than our EEI peer group average.
(3)
Reliability.
SAIDI (excluding major event days). System Average Interruption Duration Index (SAIDI) is a system reliability index used by us and participating Institute of Electrical and Electronic Engineers, Inc., utilities to measure the duration of interruptions on a utility’s electric system. SAIDI indicates the total duration of interruption for the average customer during a predefined period of time. The threshold level for SAIDI, excluding major event days, represents first quartile performance within rural and suburban medium sized investor owned utilities; the target level represents a 20 percent improvement over the difference of the company’s five-year average results and the maximum level; and the maximum level is equal to the company’s best SAIDI performance (excluding major event days) in the last five years.
SAIDI (including major event days). The threshold for SAIDI, including major event days, represents first quartile performance within rural and suburban medium sized investor owned utilities; the target level represents a 20 percent improvement over the gap of the company’s five-year average results and the maximum level; and the maximum level is equal to the company’s best SAIDI, including major event days, in the last five years.
Leaks per 100 Miles of Main. This natural gas reliability metric assesses the overall performance of the company’s natural gas system. The threshold level represents second quartile performance as reported by the AGA; the target level represents a ten percent improvement over the company’s two-year average; and the maximum level represents a 25 percent improvement over the company’s two-year average.
Damages per 1000 Locates. This natural gas reliability metric assesses the effectiveness of the company’s programs to prevent damage to its natural gas system. The threshold level represents first quartile performance as reported in a leak reporting survey conducted by the American Gas Association (AGA); the target level represents a ten percent improvement over the company’s
two-year average; and the maximum level represents a 25 percent improvement over the company’s two-year average.
(4)
Customer Satisfaction.
JD Power. One customer satisfaction metric is measured by the broadly utilized JD Power residential electric and gas customer satisfaction surveys and studies, which include the following components: communications, corporate citizenship, billing and payment, price, power quality and reliability (electric) or field service (gas) and customer service. The threshold level represents the company’s three-year average; the target level is an improvement of five points over 2013; and the maximum level is first quartile performance and is an improvement of ten points over 2013.
Flynn Wright Surveys. The remaining two customer satisfaction metrics are measured based on the results of a 2014 customer tracking survey conducted on our behalf by Flynn Wright. For both of these metrics, the threshold level represents the company’s baseline score from research conducted in 2013; the target level represents an improvement from 2013 that is statistically significant at the 90 percent confidence level; and the maximum level represents an improvement is statistically significant at the 95 percent confidence level.
 
 
 
 
Clawback of Annual Cash Incentive Awards
 
Although we have not adopted a formal clawback policy, the annual cash incentive awards are specifically made subject to any formal clawback policy that we may adopt in the future.
 
 
 
Individual Performance
The HR Committee analyzes the total mix of available information (including performance against any quantitative performance goals) on a qualitative and not strictly quantitative basis in making annual cash incentive determinations. Although actual performance measured against pre-established goals is the key component in determining both company and individual performance, the HR Committee may use judgment when determining whether company or individual goals have been attained.
For 2014, our net income increased by 28.3 percent over 2013, while our non-GAAP diluted adjusted earnings per share increased by 22 percent over 2013, adjusting for normal weather and other discrete events. Other significant achievements for 2014 included:
Completion of the Hydro Transaction, which increased our rate base by approximately $870 million;
Successfully accessing the capital markets to fund:
The Hydro Transaction, by issuing approximately 7.77 million shares of common stock with net proceeds of approximately $386 million and $450 million of first mortgage bonds at 4.176 percent, maturing in 2044; and

36

Compensation Discussion and Analysis




Growth projects, by issuing approximately 296,000 shares of common stock with net proceeds of approximately $13.4 million and $30 million of first mortgage bonds at 4.22 percent, maturing in 2044.
These efforts were successful due to the substantial efforts of our executive officers and many other employees across all departments of the company. As a result of the factors noted above, the HR Committee determined that it was appropriate to award each named executive officer (and the other executive officers) the annual cash incentive award as provided by the 2014 annual cash incentive plan,
without the addition of any performance multiplier. In addition, no named executive officer and no other executive officer received any supplemental compensation or incentive as a reward for the completion of the Hydro Transaction. Actual 2014 annual cash incentive awards for the named executive officers are reflected in the table to the right.
 
 
 
 
 
 
 
 
 
Name
 
Annual Target Incentive as Percent of Base Salary
(%)
 
2014 Actual Incentive as Percent of Base Salary
(%)
 
Incentive Award
 ($)
 
Robert C, Rowe
 
80
 
100.0
 
561,389

 
Brian B. Bird
 
50
 
62.5
 
230,175

 
Heather H. Grahame
 
45
 
56.3
 
188,509

 
Curtis T. Pohl
 
40
 
50.0
 
131,927

 
Kendall G. Kliewer
 
35
 
43.8
 
106,494

Long-Term Performance-Based Equity Awards Under the Equity Compensation Plan
We have used our Equity Compensation Plan to provide for the award of long-term, performance-based incentive awards to our executive officers. These performance-based awards help us achieve our compensation philosophy of being market competitive while simultaneously aligning the interests of our executives and stockholders.
The Equity Compensation Plan authorizes several types of stock-based awards, including restricted stock and a variety of performance-based awards. In 2014, the HR Committee granted two types of long-term, equity incentive awards to our executives under the Equity Compensation Plan: (1) LTIP performance units with cliff vesting after a three-year performance period; and (2) a smaller award of ERRP restricted share units with cliff vesting after a five-year performance period and a payout over five years following the executive’s separation from service with the company. All of these 2014 awards are performance-based and payable, if and when earned, in shares of our common stock.
LTIP Performance Units. The HR Committee determines the terms and restrictions applicable to grants of LTIP performance units. After the company’s financial results are available for the prior year, the HR Committee approves the annual grant of LTIP performance units to our executive officers (and approximately 100 other participants) and selects a date (usually the date of the HR Committee’s action) when the awards will be granted, typically in February of each year. The awards of LTIP performance units are intended to provide a link between executive officer compensation and long-term stockholder interests as reflected in changes in our stock price, and to motivate and reward achievement of pre-established corporate financial goals and relative TSR. The HR Committee believes that making an annual grant of LTIP performance units motivates our executive officers (and the other participants) to focus on long-term, sustainable improvement in stockholder value because (1) the award payout is tied to financial performance and continued service over a three-year period with cliff vesting at the end of such period, and (2) the ultimate value delivered is dependent upon the value of our stock.
During the performance periods summarized in the table below, the performance measures for the LTIP awards included (1) a combined financial metric comprised of ROAE and either average earnings per share or net income growth, contributing 50 percent of the payout, and (2) TSR relative to our peer group, also contributing 50 percent of the payout. The table below shows, for the past four completed performance
periods, the contribution of these two performance measures (and our relative TSR ranking within our peer group) to the overall payout (expressed as a percentage of target).
 
 
 
 
 
 
 
 
Performance Period
 
 
2009-2011
2010-2012
2011-2013
2012-2014
 
Financial Measures Payout Percentage
135.3%
143.2%
59.9%
156.7%
 
Relative TSR
2nd of 12
4th of 12
4th of 12
2nd of 15
 
Relative TSR Payout Percentage
175.0%
125.0%
125.0%
180.0%
 
Total Payout Percentage
155.2%
134.1%
92.5%
168.4%

37

Compensation Discussion & Analysis


ERRP Restricted Share Units. In 2011, the HR Committee made the first annual grants of ERRP restricted share units. The HR Committee instituted the practice of granting ERRP restricted share units to bring the long-term incentive component of our executives’ compensation in line with the median of our peers, while simultaneously encouraging retention with the five-year cliff vesting component and providing retirement benefits, along with succession planning and continuity of our strategic plan through the five-year payout of vested awards following the executive officer’s separation from service with the company. The key distinction between these awards and the non-performance-based supplemental executive retirement plans that certain of our peers and many other companies provide is that our ERRP restricted share units are earned based upon company performance.
The number of ERRP restricted share units that the HR Committee has granted annually has been considerably fewer than the grants of performance units. Like the performance units described above, these restricted share units are intended to provide a link between executive officer compensation and retirement planning and long-term stockholder interests and to motivate and reward achievement of pre-established corporate financial goals. The HR Committee believes that an annual grant of restricted share units motivates our executive officers to focus on long-term, sustainable improvement in our business because (1) vesting of the award is tied to financial performance and continued service over a five-year period and (2) payout of the vested award occurs over a five-year period following the executive officer’s separation from service with the company. The ERRP also encourages retention due to its five-year cliff vesting. The first opportunity for grants to vest under the ERRP is on December 31, 2016.
2014 Long-Term Incentive Program Performance Unit Grants
In February 2014, the HR Committee approved grants of LTIP performance units subject to a three-year performance period with cliff vesting at the end of such period. The target long-term equity opportunities are derived from peer group and competitive survey data and from the HR Committee’s judgment on the internal equity of the positions and scope of job responsibilities. To determine the target value of each executive officer’s LTIP performance unit awards, the HR Committee considered the range for comparable roles within our peer group, with consideration given to the strategic value of each position. Based on these considerations, in 2014, the HR Committee increased the targeted opportunity (expressed as a percentage of base salary) associated with the LTIP awards for three of our named executive officers to align with the market median.
Each executive officer’s targeted opportunity is converted into specific LTIP performance unit grants by dividing the total targeted value (the targeted percentage of base salary) by the fair market value of a share of our stock on the grant date. The resulting calculation represents the number of LTIP performance units that were granted and will vest on December 31, 2016, if all performance goals are met at the target performance level.
After the performance period, the HR Committee calculates the actual company performance relative to the performance goals and determines the number of LTIP performance units that vest based on such performance. Depending on the calculated company performance, the exact number of LTIP performance units that vest will vary from zero to 200 percent of the target award. In addition, if earned, the value of the award on the vesting date, based on the fair market value of our stock on that future date, likely will differ from the value at target as reflected in the following table, which is based on the fair market value of a share of our stock on the grant date.
The target equity opportunities for the 2014 grants of LTIP performance units are shown in the table to the right. The table also compares the target opportunities (expressed as a percentage of base salary) applicable to the 2013 and 2014 awards.
 
 
 
 
 
Target LTIP Performance Unit Opportunity for 2014
 
Name
 
2013
Base Salary
(%)
 
2014
Base Salary
(%)
 
2014
Value at Target
 ($)
 
LTIP
Stock Awards
(#) (1)
 
Robert C. Rowe
 
125
 
150
 
817,557

 
21,329

 
Brian B. Bird
 
85
 
92.5
 
330,737

 
8,629

 
Heather H. Grahame
 
60
 
65
 
211,488

 
5,518

 
Curtis T. Pohl
 
60
 
60
 
153,701

 
4,010

 
Kendall G. Kliewer
 
40
 
40
 
94,530

 
2,466

(1)
Based on a weighted average grant date fair value of $38.33, which was calculated using the closing stock price of $46.47 on February 18, 2014, less the present value of expected dividends.

38

Compensation Discussion and Analysis




These LTIP performance unit awards contain market- and performance-based components. The performance goals for these awards are independent of each other and are equally weighted. Vesting of awards is also contingent on maintaining investment grade credit ratings on both a secured and unsecured basis.
The following table summarizes the performance measures for the 2014 LTIP performance unit awards.
Performance Measures — 2014-2016
 
Threshold
 
Target
 
Maximum
Financial Goals – 50%
 
 
 
 
 
 
   ROAE
 
9
%
 
10
%
 
11
%
  Simple Average EPS Growth
 
3.3
%
 
6.3
%
 
9.3
%
TSR – 50%
 
 
 
 
 
 
   Relative Average vs. Peers
 
13th

 
6th

 
1st

In general, based on a market analysis conducted by Towers Watson, our metrics for relative TSR are established at levels higher than our peers and the market. For example, according to this market analysis, we use a ranking of 1st for maximum, while the market uses 3rd; we use a ranking of 6th for target, while the market uses 8th; and our threshold of 13th pays at ten percent, and 9th pays at 50 percent, while the market threshold of 12th pays at 50 percent.
The ROAE and simple average EPS growth levels are tied to management performance as this goal relates to revenue enhancement and cost containment. The EPS performance measure is a new measure for our performance unit awards in 2014. In prior years, the awards utilized a performance measure tied to net income. With the then-pending hydro acquisition, which would significantly increase the size of our company and our net income, the HR Committee determined to include a different measure that it believed would more closely reflect the earnings growth experienced by our stockholders. A switch to EPS as a measure also captures the dilutive impact of additional equity to finance the hydro or any future transactions. TSR is determined by our common stock price change and dividends paid over the performance period. We then compare our TSR with the total stockholder returns achieved by our peers over the same three-year period and determine our ranking.
2014 Executive Retention / Retirement Program Restricted Share Unit Grants
In December 2014, the HR Committee approved performance-based ERRP restricted share unit grants. These restricted share unit awards are subject to a five-year performance and five-year cliff vesting period and, once vested, will be paid out in shares of the company’s common stock over a five-year period after a recipient has separated from service with the company.
Our overall compensation program does not provide any non-performance-based supplemental executive retirement benefit. The HR Committee designed and implemented the ERRP in lieu of a traditional supplemental executive retirement plan which is not performance-based but is offered by many of our peers and other companies to increase overall competitiveness. The ERRP restricted share units help to achieve our compensation philosophy of being market competitive while aligning the interests of our executives and stockholders. It also promotes retention through the five-year cliff vesting component and benefits succession planning and continuity of our strategic plan through its fiver-year payout following separation from service.
The long-term equity opportunity for the ERRP is derived from peer group and competitive survey data and from the HR Committee’s judgment on the internal equity of the positions and scope of job responsibilities. To determine the value of each executive officer’s ERRP restricted share unit award, the HR Committee considered the range for comparable roles within our peer group, with consideration given to each position’s strategic value, and the overall long-term equity opportunity offered to that group. For 2014, the HR Committee increased the ERRP restricted share unit award for each of our executive officers. The  HR Committee made this determination following its analysis of equity incentive opportunities provided by our peer group and increased the ERRP award to approximate the market median.
The equity opportunities for the 2014 ERRP restricted share unit grants to our named executive officers and the 2013 ERRP target opportunity are shown in the table on the following page. Each executive officer’s award value was then converted into specific equity grants by dividing the total potential value of the award by the fair market value of a share of our stock on the grant date. This represents the number of restricted share

39

Compensation Discussion & Analysis


units that will vest on December 31, 2019, if the company’s net income for three of the five calendar years 2015 – 2019 exceeds the company’s net income for 2014. If earned, the value of the award on the vesting date, based on the fair market value of our stock on that future date, likely will differ from the fair value of the award on the grant date, as reflected in the following table, which is based on the closing market price of our stock on the grant date, less the present value of expected dividends.
 
 
 
 
2014 Target ERRP Opportunity
Name
 
2013
Base Salary (%)
 
2014
Base Salary (%)
 
Value at Grant Date
 ($)
 
ERRP
 Stock Awards (1) (#)
Robert C. Rowe
 
25.0
 
50.0
 
280,695

 
6,410

Brian B. Bird
 
12.5
 
25.0
 
92,070

 
2,103

Heather H. Grahame
 
10.0
 
20.0
 
67,025

 
1,531

Curtis T. Pohl
 
10.0
 
20.0
 
52,771

 
1,205

Kendall G. Kliewer
 
7.5
 
15.0
 
36,512

 
834

(1)
Based on a weighted average grant date fair value of $43.79, which was calculated using the closing stock price of $53.02 on December 16, 2014, less the present value of expected dividends, calculated using a 1.53 percent five-year Treasury rate and assuming quarterly dividends of $0.48 for the five-year vesting period.
Vesting of 2012 Long-Term Incentive Program Performance Unit Grants in 2014
In February 2012, the HR Committee approved grants of LTIP performance units, subject to a three-year performance period. The 2012 LTIP performance unit grants vested on December 31, 2014.
The 2012 LTIP performance unit grants contained both market- and performance-based components. The performance goals were independent of each other and equally weighted. The following table summarizes the performance measures which governed these 2012 grants.
Performance Measures — 2012-2014
 
Threshold
 
Target
 
Maximum
 
Actual
Financial Goals – 50%
 
 
 
 
 
 
 
 
   ROAE
 
7.9
%
 
9.9
%
 
11.9
%
 
10.4
%
   Average Net Income Growth
 
%
 
4.0
%
 
8.0
%
 
10.1
%
Market Goal – 50%
 
 
 
 
 
 
 
 
   Relative TSR Average vs. Peers
 
13th

 
6th

 
1st

 
2nd

Depending upon actual company performance relative to these performance goals, the exact number of shares that could have vested varied from zero to 200 percent of the target award. As summarized above in the 2014 LTIP Performance Unit Grants section, our relative TSR metrics are established at levels higher than our peers according to a market analysis conducted by the HR Committee’s independent compensation consultant. At the conclusion of the performance period, the HR Committee calculated the company’s performance relative to these goals during the three-year performance period to determine the vesting percentage for the 2012 LTIP performance unit grants.
During the performance period, for the financial goals, ROAE was 10.4 percent and average net income growth was 10.1 percent. This financial performance resulted in a 78.4 percent vesting percentage for that half of the program. For our market goal, TSR was 70.8 percent, resulting in a ranking of 2nd with respect to our peers, and contributing 90.0 percent with respect to that half of the program. Based on the HR Committee’s calculation of these performance measures, the 2012 LTIP performance unit grants vested at 168.4 percent.
The following table summarizes the performance results with respect to each of the performance measures applicable to the 2012 LTIP performance unit grants and the corresponding contributions to the vesting percentage.
Performance Measures — 2012-2014
 
Result
 
Weight
 
Vesting
Financial Goals – ROAE and Average Net Income Growth
 
156.7
%
 
50
%
 
78.4
%
Market Goal – TSR
 
180.0
%
 
50
%
 
90.0
%
 
 
 
 
TOTAL

 
168.4
%

40

Compensation Discussion and Analysis




The following table summarizes the number of shares awarded by the 2012 LTIP performance unit grants and the number of shares paid out in 2014 with respect to such grants for our named executive officers, based on the 168.4 percent vesting percentage approved by the HR Committee.
 
 
Vesting of 2012 Performance Unit Grants
Name
 
Amount at
Grant Date
(#)
 
Vesting
Percentage
(%)
 
Amount upon Vesting
(#)
Robert C. Rowe
 
14,763

 
168.4
%
 
24,861

Brian B. Bird
 
7,264

 
168.4
%
 
12,233

Heather H. Grahame
 
4,847

 
168.4
%
 
8,162

Curtis T. Pohl
 
3,816

 
168.4
%
 
6,426

Kendall G. Kliewer
 
2,274

 
168.4
%
 
3,829

Other Compensation Policies
Stock Ownership Guidelines
Our Corporate Governance Guidelines require our executive officers to meet and maintain a specified stock ownership level. Stock ownership guidelines range from a multiple of six times base salary for the CEO, four times base salary for the CFO, three times base salary for our Vice President and General Counsel and our Vice President - Distribution, and two times base salary for our Vice President and Controller. Each executive is restricted, absent a hardship and prior Board approval, from selling stock until his or her guideline amount is achieved and must continue to maintain the required ownership level once it is obtained. More specific details of our officer stock ownership guidelines are available in our Corporate Governance Guidelines located on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.
Our Board instituted these guidelines to require our executives to hold a meaningful financial stake in the company to align our executive’s interests with those of our stockholders. As summarized below, all of our named executive officers have satisfied the applicable stock ownership guideline, as have our other executive officers.
Name
 
Multiple of Base Pay
 
Percent of Guideline Achieved
as of December 31 (1)
2013
 
2014
Robert C. Rowe (2)
 
6x
 
133
%
 
215
%
Brian B. Bird
 
4x
 
156
%
 
240
%
Heather H. Grahame
 
3x
 
51
%
 
167
%
Curtis T. Pohl
 
3x
 
68
%
 
138
%
Kendall G. Kliewer
 
2x
 
152
%
 
229
%
(1)
Percent of guideline achieved uses the closing stock prices of $43.32 and $56.58 as of December 31, 2013, and 2014, respectively.
(2)
Effective February 18, 2014, our Board increased the stock ownership guideline for our CEO to a multiple of six times base salary from five times base salary. The calculation reflected in this table uses the six times base pay multiple for each year, even though our CEO was required to hold five times his base pay in 2013. A substantial percentage of the CEO’s guideline achieved has been the result of voluntary deferrals of annual and long-term incentive compensation into company stock, which will ensure alignment of his interest with company performance for a number of years beyond his departure.
Retirement and Other Benefits
Retirement benefits are offered to employees hired prior to January 1, 2009, through tax-qualified company-funded pension plans and to all eligible employees through a 401(k) defined contribution plan. Both pension plans and 401(k) plans are common benefits provided in the utility and energy industry. Our executive officers, including the CEO, participate in some or all of these plans, and the terms governing the retirement benefits under these plans are the same as those available to substantially all employees. We do not offer any supplemental retirement benefits to our executive officers other than the performance-based ERRP restricted share units described above. Our healthcare, insurance, and other welfare and employee-benefit programs are generally the same for substantially all employees, including the CEO and executive officers. We share the cost of health and welfare benefits with our employees, which is dependent on the benefit

41

Compensation Discussion & Analysis


coverage option that each employee elects. Our executive officers do not receive any material perquisites or special benefits that differ materially from those available to employees generally.
Severance and Post-Termination Benefits
We provide severance and post-termination benefits to our executive officers under our severance plan. Severance and post-termination benefits are explained in detail under the “Compensation of Executive Officers and Directors—Post Employment Compensation” section, starting on page 47 of this proxy statement.
Non-qualified Deferred Compensation
The company provides a non-qualified deferred compensation plan, which is intended to be an unfunded plan. The 2009 Officer Deferred Compensation Plan (officer deferred plan) allows eligible officers to defer up to 100 percent of certain compensation, including base salary (subject to compliance with Section 409A of the Internal Revenue Code compensation limit), short-term incentive awards and awards earned under our Equity Compensation Plan. There are no company contributions to the officer deferred plan. Participants in the officer deferred plan may elect to have deferrals credited to their account in company stock (in the form of deferred share units issued under the Equity Compensation Plan) or cash investment options that substantially mirror the qualified employee 401(k) plan investment options. The value of each deferred compensation account is adjusted periodically to reflect the gains, losses, and dividends associated with the designated investments. Officer deferred plan participants do not pay income taxes on amounts deferred or earnings thereon until those amounts are distributed from the officer deferred plan. A participant’s benefits under the officer deferred plan are fully vested and are payable after terminating employment. Benefits are paid in a lump sum unless a participant elects annual installments.
No Employment Agreements
We currently do not have employment agreements with any of our executives. We generally believe that ongoing employment agreements are not necessary to retain talented executives; however, agreements may  be appropriate on a case-by-case basis, such as when an executive begins employment with us. Due to the changing marketplace in which we compete for talent, the HR Committee regularly reviews this practice to help ensure that we remain competitive in our industry.
Tax Treatment of Certain Compensation
Section 162(m) of the Internal Revenue Code limits the company deductibility of executive compensation paid to certain named executive officers to $1 million per year, but contains an exception for certain performance-based compensation. Compensation that qualifies as “performance-based compensation” is not subject to the $1 million deduction limit if, at least every five years, stockholders approve the material terms of such performance-based compensation. The Equity Compensation Plan is structured to enable grants of equity-based incentive awards to be deductible under Section 162(m), and the material terms of the Equity Compensation Plan were approved by stockholders at last year’s annual meeting. The HR Committee generally seeks ways to limit the impact of Section 162(m). However, the HR Committee believes that the tax deduction limitation should not compromise our ability to establish and implement incentive programs that support the compensation objectives discussed above. Accordingly, achieving these objectives and maintaining required flexibility in this regard may result in payments of compensation or grants of awards that are not deductible for federal income tax purposes.

42

 

Compensation of Executive Officers and Directors
The following tables, footnotes, and narratives provide information regarding the compensation, benefits, and equity holdings in the company for the named executive officers during the years ended December 31, 2014, 2013, and 2012. Please see the CD&A on the previous pages for a description of our executive compensation program necessary to gain an understanding of the information disclosed below.
2014 Summary Compensation Table
The following table sets forth the compensation earned during 2014, 2013, and 2012 for services in all capacities by the named executive officers:
Name and
Principal Position
 
Year
 
Salary
 ($)
 
Bonus
($)
 
Stock Awards
(1)
($)
 
Non-Equity Incentive Plan Compensation
 (2)
 ($)
 
Change in Pension Value and Nonqualified Deferred Compensation Earnings
(3)
($)
 
All Other Compen- sation
 (4)
($)
 
Total
($)
Robert C. Rowe
 
2014
 
556,924

 

 
1,098,234

 
561,389

 
104,139

 
22,155

 
2,342,841

President and
 
2013
 
540,764

 

 
666,183

 
470,913

 
26,461

 
20,577

 
1,724,898

Chief Executive Officer
 
2012
 
525,013

 

 
476,307

 
414,864

 
63,143

 
19,364

 
1,498,691

Brian B. Bird
 
2014
 
365,351

 

 
422,840

 
230,175

 
32,002

 
49,005

 
1,099,373

Vice President and
 
2013
 
354,749

 

 
281,088

 
193,079

 

 
43,055

 
871,971

Chief Financial Officer
 
2012
 
344,417

 

 
217,210

 
170,098

 
29,744

 
42,280

 
803,749

Heather H. Grahame
 
2014
 
332,462

 

 
278,547

 
188,509

 

 
46,629

 
846,147

Vice President and
 
2013
 
322,815

 

 
184,382

 
140,558

 

 
44,903

 
692,658

General Counsel
 
2012
 
313,412

 

 
147,022

 
123,828

 

 
44,095

 
628,357

Curtis T. Pohl
 
2014
 
261,754

 

 
206,470

 
131,927

 
64,786

 
62,079

 
727,016

Vice President -
 
2013
 
254,159

 

 
145,163

 
110,665

 

 
48,646

 
558,633

Retail Operations
 
2012
 
246,757

 

 
115,747

 
97,493

 
62,888

 
40,089

 
562,974

Kendall G. Kliewer
 
2014
 
241,478

 

 
131,043

 
106,494

 
36,373

 
46,366

 
561,754

Vice President and
 
2013
 
234,471

 

 
91,234

 
89,330

 

 
43,020

 
458,055

Controller
 
2012
 
228,528