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. )

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NorthWestern Corporation

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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	2016 Proxy Statement

IMPORTANT VOTING INFORMATION

If you owned shares of NorthWestern Corporation common stock at the close of business on February 22, 2016, you are entitled to one vote per share upon each matter presented at the annual meeting of stockholders to be held on April 20, 2016. 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 2016, 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 20, 2016

The Notice of Annual Meeting, Proxy Statement, and 2015 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 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 20, 2016.

	March 7, 2016 Notice of 2016 Annual Meeting and Proxy Statement Dear Fellow NorthWestern Corporation Stockholder: You are cordially invited to attend the 2016 Annual Meeting of Stockholders to be held on Wednesday, April 20, 2016, at 10:00 a.m. Mountain Daylight Time at the NorthWestern Energy Montana Operational Support Office, 11 East Park Street, Butte, Montana. At the meeting, stockholders will be asked to elect the Board of Directors, to ratify the appointment of our independent registered public accounting firm for 2016, to hold an advisory vote on the compensation of our named executive officers, to approve an amendment to our Certificate of Incorporation, and to transact any other matters and business as may properly come before the annual meeting or any postponement or adjournment of the annual meeting. 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
Proxy Summary ............................................................................................................		2
	Items of Business to Be Considered at the Annual Meeting................................................	2
	2015 Executive Compensation Overview.........................................................................	2
	2015 Corporate Governance Overview............................................................................	3
Proposals Requiring Your Vote ...................................................................................		4
	Proposal 1 – Election of Directors...................................................................................	4
	Proposal 2 – Ratification of Independent Registered Public Accounting Firm........................	6
	Proposal 3 – Advisory Vote to Approve Named Executive Officer Compensation...................	8
	Proposal 4 – Amend Certificate of Incorporation...............................................................	11
Compensation Discussion and Analysis ...................................................................		13
	Compensation Discussion and Analysis Table of Contents.................................................	13
	Executive Summary......................................................................................................	14
	Pay for Performance.....................................................................................................	18
	Say-on-Pay Results......................................................................................................	21
	Governance of Our Executive Compensation Program......................................................	21
	Targeted Overall Compensation and Competitive Analysis.................................................	22
	Components of Executive Compensation for 2015............................................................	26
	Other Compensation Policies.........................................................................................	35
Compensation Committee Report ..............................................................................		36
Compensation of Executive Officers and Directors .................................................		37
	2015 Summary Compensation Table...............................................................................	37
	2015 Grants of Plan-Based Awards.................................................................................	38
	2015 Stock Vested........................................................................................................	39
	Outstanding Equity Awards at 2015 Fiscal Year-End.........................................................	40
	Post-Employment Compensation....................................................................................	41
	2015 Director Compensation..........................................................................................	45
	Director Stock Ownership..............................................................................................	46
Stock Ownership Information .....................................................................................		47
	Security Ownership of Directors and Management............................................................	47
	Section 16(a) Beneficial Ownership Reporting Compliance................................................	47
	Security Ownership of Certain Beneficial Holders..............................................................	48
Other Matters ................................................................................................................		49
	Securities Authorized for Issuance Under Equity Compensation Plans.................................	49
Corporate Governance ................................................................................................		50
	Board of Directors.........................................................................................................	51
	Individual Directors.......................................................................................................	52
	Independent Board Chair...............................................................................................	55
	Determination of Independence and Family Relationships.................................................	55
	Committees of the Board...............................................................................................	56
	Code of Conduct...........................................................................................................	58
	Risk Oversight of the Company......................................................................................	58
	Transactions with Related Persons.................................................................................	59
	Hedging and Pledging Our Securities..............................................................................	59
	Political Contributions Policy..........................................................................................	59
	Communications with Our Board.....................................................................................	59
Audit Committee Report ..............................................................................................		60
Voting Procedures .......................................................................................................		60
	Appointment of Proxy Holders........................................................................................	60
	Record Date and Voting.................................................................................................	60
	Quorum.......................................................................................................................	61
	Broker Non-Votes.........................................................................................................	61
	Required Vote and Method of Counting...........................................................................	62
	Method and Cost of Soliciting and Tabulating Votes...........................................................	62
	Electronic Access to Proxy Statement and Annual Report..................................................	63
General Information .....................................................................................................		63
	Attending the Annual Meeting in Person or by Webcast.....................................................	63
	Householding; Receipt of Multiple Notices.......................................................................	63
	Available Information.....................................................................................................	64
	Future Stockholder Proposals........................................................................................	64
	Assistance...................................................................................................................	65
Proxy Statement Glossary (inside back cover)

Notice of the

2016 Annual Meeting of Stockholders

Meeting Date:	April 20, 2016
Meeting Time:	10:00 a.m. Mountain Daylight Time
Location:	NorthWestern Energy Montana Operational Support Office, 11 East Park Street, Butte, Montana
Record Date:	February 22, 2016

Purposes of the Annual Meeting:

● Election of seven individuals to serve as members of our Board of Directors for a one-year term. Each of the individuals nominated for election currently serves on our Board.

● Ratification of the appointment of Deloitte & Touche LLP as the company’s independent registered public accounting firm for 2016.

● Advisory vote on the compensation for our named executive officers.

● Approval of an amendment to the director removal provision of our Certificate of Incorporation.

● 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 22, 2016, 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 7, 2016, 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 2015 Annual Report.

By Order of the Board of Directors,

Timothy P. Olson

Corporate Secretary

2016 Proxy Statement

March 7, 2016

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 2016 Annual Meeting of Stockholders. See the Proxy Statement Glossary on the inside back cover for additional definitions used in this proxy statement.

Proxy Summary

Items of Business to Be Considered at the Annual Meeting

Our Board asks you to vote on the following items at the annual meeting:

	Election of seven individuals to serve as members of our Board for a one-year term. Each of the individuals nominated for election currently are serving on our Board, and each previously were elected by at least 99.6% of votes cast in 2015.
	Ratification of the appointment of Deloitte & Touche LLP as the company’s independent registered public accounting firm for 2016.
	Advisory vote on the compensation for our named executive officers. Our 2015 executive compensation program maintained the compensation structure previously approved by 99.4% of votes cast in 2015, while increasing “at risk” pay for executives to enhance pay for performance alignment.
	Approval of the amendment of the director removal provision of our Certificate of Incorporation. If approved, the amendment would permit removal of directors with or without cause by a majority of shares outstanding and entitled to 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.

Immediately following this Proxy Summary, the “Proposals Requiring Your Vote” section of this proxy statement provides additional details concerning the first four items of business.

2015 Executive Compensation Overview

Alignment of Compensation with Stockholder and Customer Interests

Our executive compensation program is designed to align the long-term interests of our executives, stockholders, and customers. About 74 percent of the compensation of our chief executive officer, or CEO, and about 57 percent of the compensation of our other named executive officers is at risk in the form of performance-based incentive awards. These awards use Board-established metrics that, according to our independent compensation consultant, are generally more difficult to achieve than the companies in the peer group we have utilized for executive compensation purposes. We also require our executives to retain meaningful ownership of our stock. 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. For the three-year period ended December 31, 2015, we provided a return to our stockholders higher than any of those same peer companies; during 2015, we provided an above average return relative to these peers. Our CEO to median employee pay ratio for 2015 was 19:1.

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Proxy Summary

Shareholder Feedback on Compensation

At our 2015 annual meeting, our compensation program was approved by 99.4 percent of votes cast. In light of the overwhelming approval from our stockholders, we have not changed the overall structure of our executive compensation program for 2015. We continue to use the same compensation components and operate within the parameters previously approved by our stockholders.

Executive Compensation Components at a Glance

		Percent of Total Compensation
Component	Description	CEO	Other NEO Avg.	Changes for 2015
Base Salary Fixed, paid in cash	Target middle of competitive range of peer group, with adjustments for trade area economics, turnover, tenure, and experience	26%	43%	Executives received cost of living adjustment provided to all employees; five executives received additional increases to remain market competitive
Annual Cash Incentive Variable, paid in cash	Based on net income, safety, reliability, and customer satisfaction metrics and individual performance	21%	18%	No change for 2015
Long-Term Incentive Program Awards Variable, paid in equity	Based on EPS, ROAE, and TSR performance over three-year vesting period	40%	30%	Increased target opportunity for two executives to align with market median
Executive Retention / Retirement Program Awards Variable, paid in equity	Based on net income performance over a five-year vesting period; paid over five-year period following separation from service	13%	9%	No change for 2015

Performance Against Targets

2015 Annual Cash Incentive Outcome*			2013 Long-Term Incentive Program Vesting
Financial (55%) – % of Target Achieved	99.6	%	ROAE / Avg. Net Inc. Growth – % of Target Achieved	154.5	%
Safety** (15%) – % of Target Achieved	125.0	%	Relative TSR– % of Target Achieved	180.0	%
Reliability (15%) – % of Target Achieved	64.7	%	Total Payout to Participants*	167.3	%
Customer Sat. (15%) – % of Target Achieved	106.7	%
Total Funding for Executives	80	%	* Each component weighted 50% for total payout
* Also subject to individual performance multiplier ** Safety component forfeited due to employee fatality

2015 Corporate Governance Overview

As previously announced, one of our Board members, Denton Louis Peoples, will be retiring at the end of his current annual term. We will be reducing the size of our Board to seven members effective upon his retirement. The seven nominees for director currently serve on our Board and were elected in 2015 by at least 99.6 percent of the votes cast. Each of our Board members is independent, with the sole exception of our CEO. Our Board is led by an independent chair, and our three Board committees – Audit; Human Resources; and Governance and Innovation – are chaired by and composed entirely of independent directors.

We made no material changes to our corporate governance practices for 2015. We are proposing an amendment to our Certificate of Incorporation which, if approved by stockholders, would permit the removal of directors, with or without cause, by a majority of the shares outstanding and entitled to vote. Currently, our Certificate of Incorporation provides that the removal of directors is permitted only for cause by a supermajority (two-thirds) vote. If the proposed amendment is approved, our Board intends to adopt a conforming change to our bylaws.

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Proposals Requiring Your Vote

At the annual meeting, our Board will present and ask you to vote on four proposals: the election of seven directors, the ratification of the appointment of our independent registered public accounting firm, an advisory vote on executive compensation, and the amendment of our Certificate of Incorporation. These four proposals are discussed individually in more detail on the following pages of this proxy statement.

The Board of Directors recommends a vote “FOR” Proposals 1, 2, 3, and 4.

When voting by internet or telephone, you will be instructed how to cast your vote for or against or to abstain from voting on these proposals. If you received a printed copy of your proxy materials, space is provided on the proxy card to vote for or against or abstain from voting on each of the proposals.

Proposal 1

Election of Directors

Our Board is nominating seven individuals for election as directors at the annual meeting. All nominees are currently serving as directors of the company. In accordance with our certificate of incorporation and our bylaws, all members of our Board are elected annually, to serve until the next annual meeting of stockholders and until their successors are duly elected and qualified. Our bylaws currently authorize a Board consisting of not fewer than five nor more than 11 persons. We currently have eight seats on our Board. However, as previously announced, one of our current directors, Denton Louis Peoples, will be retiring as of the Annual Meeting. Effective as of that date, the Board will reduce the number of directors to seven. If any director is not elected or is unable to complete his or her term, the Board, by resolution, may further reduce the number of directors or choose a substitute to fill the vacant position.

The nominees for election to the seven positions on our Board, selected by our Governance and Innovation Committee, or Governance Committee, and proposed by our Board to be voted upon at the annual meeting, are:

Biographical information and the individual qualifications of each nominee are described beginning on page 52 of this proxy statement.

Our goal is to maintain a diverse Board that operates cohesively and challenges management in a constructive way. The Governance Committee has not established specific minimum qualifications for director nominees or set forth specific qualities or skills that the committee believes are necessary for one or more directors to

4

Proposal 1 — Election of Directors

possess. Instead, in considering director candidates, the Governance Committee considers the diversity of our Board and takes into account whether the Board as a whole has the skills, experience, and background that add to and complement the range of skills, experience, and background of each director, based on the following: integrity, accomplishments, business judgment, experience and education, commitment, representation of stockholders, industry knowledge, independence, financial literacy, race, and gender. With the exception of the company’s CEO, all of our directors are independent, as required by our Corporate Governance Guidelines. Our Board also determined that no family relationships exist with any current directors, executive officers or newly-nominated directors, except that current directors Dana Dykhouse and Jan Horsfall are first cousins.

When nominating persons to serve on our Board, the Governance Committee considers individuals who can add value to the strategic policymaking and oversight responsibilities of the Board and provide skills and personal experiences that add to and complement the skills, experience, and background of the Board as a whole and are needed to achieve the company’s corporate objectives. A director’s ability to contribute to the Board, the time he or she has available and his or her participation on other boards also are considered because we believe these are important factors that enhance the quality of the Board’s decision-making, its oversight of management, and our business overall. The Governance Committee believes that our incumbent Board members collectively possess the experience, skills, and attributes necessary to lead the company to a long and successful future.

Unless authority to vote for the election of directors has been specifically withheld, the persons named in the accompanying proxy intend to vote “FOR” the election of director nominees Adik, Bradley, Draper, Dykhouse, Horsfall, Johnson, and Rowe to hold office as directors until the next annual meeting of stockholders in 2017 and until their successors are duly elected and qualified. All nominees have advised the Board that they are able and willing to serve as directors.

If any nominee becomes unavailable for any reason (which is not anticipated), the shares represented by the proxies may be voted for such other person or persons as may be determined by the holders of the proxies (unless a proxy contains instructions to the contrary). In no event will the proxy be voted for more than seven nominees.

Directors will be elected by a favorable vote of a plurality of the shares of voting stock present and entitled to vote, in person or by proxy, at the annual meeting. You may vote “FOR” all of the nominees or you may “WITHHOLD AUTHORITY” for one or more of the nominees. Withheld votes will not count as votes cast for the nominee, but will count for purposes of determining whether a quorum is present. Stockholders do not have the right to cumulate their vote for directors. Abstentions or broker non-votes as to the election of directors will not affect the election of the candidates receiving a plurality of votes; however, under our Majority Plus Resignation Vote Policy described below, if a nominee for director receives more “WITHHOLD AUTHORITY” votes than “FOR” votes, such nominee shall immediately tender his or her resignation under the procedures in the policy.

Director Resignation Vote Policy

The Board has in place a Majority Plus Resignation Vote Policy for the election of directors. The policy provides that, in an uncontested election, any nominee for director who receives a greater number of “WITHHOLD AUTHORITY” votes from his or her election than votes “FOR” such election (or a Majority Withheld Vote) shall promptly tender his or her resignation following certification of the stockholder vote.

Under this policy, the Governance Committee shall promptly consider the resignation offer and a range of possible responses based on the circumstances that led to the Majority Withheld Vote, if known, and make a recommendation to the Board. The Board will act on the Governance Committee’s recommendation within 90 days following certification of the stockholder vote. Thereafter, the Board will promptly disclose its decision-making process and decision regarding whether to accept the director’s resignation offer (or the reason(s) for rejecting the resignation offer, if applicable) in a Current Report on Form 8-K furnished to the SEC.

Any director who tenders his or her resignation pursuant to this policy shall not participate in the Governance Committee’s recommendation or Board action regarding whether to accept the resignation offer.

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Proposal 1 — Election of Directors

However, if each member of the Governance Committee receives a Majority Withheld Vote at the same election, then the independent directors who did not receive a Majority Withheld Vote shall appoint a committee among themselves to consider the resignation offers and recommend to the Board whether to accept them. If the only directors who did not receive a Majority Withheld Vote in the same election constitute three or fewer directors, all directors may participate in the action regarding whether to accept the resignation offers, with each director recusing himself or herself from consideration of his or her resignation offer.

The Board of Directors recommends a vote “FOR” the election of each of our director nominees.

Proposal 2

Ratification of Independent Registered Public Accounting Firm

Our Audit Committee has appointed Deloitte & Touche LLP (Deloitte) as our independent registered public accounting firm to audit our financial statements for the year ending December 31, 2016, and recommends that stockholders vote for ratification of such appointment. Although action by the stockholders is not required by law, the Audit Committee and the Board have determined that it is desirable to request approval of this selection by the stockholders. Notwithstanding the appointment, the Audit Committee, in its discretion, may direct the appointment of a new independent registered public accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best interests of the company and its stockholders. The Audit Committee is not required to take any action as a result of the outcome of the vote on this matter. However, in the event of a negative vote on ratification, the Audit Committee will reconsider its appointment.

Representatives of Deloitte will be present at the annual meeting and will be given the opportunity to make a statement if they so desire and to respond to appropriate questions. The table below presents a summary of the fees billed to us by Deloitte for professional services for the fiscal years ended December 31, 2014 and 2015.

Fee Category	Fiscal 2014 Fees ($)	Fiscal 2015 Fees ($)
Audit fees	1,322,600	1,285,875
Audit-related fees	—	—
Tax fees	367,325	168,628
All other fees	—	—
Total fees	1,689,925	1,454,503

Audit Fees

Audit fees consist of fees billed for professional services rendered for the audit of our financial statements, internal control over financial reporting, review of the interim financial statements included in quarterly reports, services in connection with debt and equity securities offerings, and services that are normally provided by Deloitte in connection with statutory and regulatory filings or engagements. For 2015, this amount includes estimated billings for the completion of the 2015 audit, which Deloitte rendered after year-end.

Audit-related Fees

Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” There were no audit-related fees in fiscal 2014and 2015.

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Proposal 2 — Ratification of Independent Registered Public Accounting Firm

Tax Fees

Tax fees consist of fees billed for tax compliance, tax advice and tax planning.

All Other Fees

All other fees consist of fees for products and services other than the services reported above. In fiscal years 2014and 2015, there were no other fees.

Pre-approval Policies and Procedures

Rules adopted by the SEC in order to implement requirements of the Sarbanes-Oxley Act of 2002 require public company audit committees to pre-approve audit and non-audit services. Our Audit Committee follows procedures pursuant to which audit, audit-related, and tax services and all permissible non-audit services, are pre-approved by category of service. The fees are budgeted, and actual fees versus the budget are monitored throughout the year. During the year, circumstances may arise when it may become necessary to engage the independent public accountants for additional services not contemplated in the original pre-approval. In those instances, we will obtain the specific pre-approval of the Audit Committee before engaging the independent public accountants. The procedures require the Audit Committee to be informed of each service, and the procedures do not include any delegation of the Audit Committee’s responsibilities to management. The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated will report any pre-approval decisions to the Audit Committee at its next scheduled meeting.

Pursuant to the provisions of the Audit Committee Charter, before Deloitte is engaged to render audit or non-audit services, the Audit Committee must pre-approve such engagement. For 2015, the Audit Committee (or the Chair of the Audit Committee pursuant to delegated authority) pre-approved 100 percent of the tax fees.

Leased Employees

In connection with their audit of our 2015 annual financial statements, more than 50 percent of Deloitte’s work was performed by full-time, permanent employees of Deloitte.

The affirmative vote of the holders of a majority in voting power of the shares of our common stock which are present in person or represented by proxy and entitled to vote thereon is required to ratify the appointment of Deloitte. Brokers may vote a client’s proxy in their own discretion on this proposal. Abstentions will have the same effect as a vote against the proposal. Unless instructed to the contrary in the proxy, the shares represented by the proxies will be voted “FOR” the proposal to ratify the selection of Deloitte to serve as the independent registered public accounting firm for NorthWestern Corporation for the fiscal year ending December 31, 2016.

The Board of Directors recommends a vote “FOR” the ratification of Deloitte & Touche LLP as our independent registered public accounting firm.

7

Proposal 3 — Advisory Vote to Approve Named Executive Officer Compensation

Proposal 3

Advisory Vote to Approve Named Executive Officer Compensation

The company is providing stockholders an opportunity to provide an advisory vote to approve named executive officer compensation (or a say-on-pay vote), as required by Section 14A of the Exchange Act. Through the say-on-pay vote, we are asking you to support the compensation of our named executive officers as we have described it in this proxy statement. We hold advisory votes on executive compensation every year. Our Board decided on annual votes after most of our stockholders voted for that preference in 2011. We will continue to hold annual advisory votes on executive compensation until our next vote on the frequency of stockholder votes on executive compensation, which will occur at our 2017 annual meeting.

At our annual meeting in 2015, 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 2014 compensation of our named executive officers was approved by 99.4 percent of the shares present and entitled to vote on the matter.

Your say-on-pay vote will provide insight and guidance to us and our Board regarding your sentiment about our executive compensation philosophy, policies and practices. While the say-on-pay vote is advisory and not binding on our company, we and our Board will consider the guidance received by the vote when determining executive compensation for the remainder of 2016 and beyond. For the reasons summarized below, we ask that you support our executive compensation and vote in favor of the say-on-pay proposal outlined below.

We consider our executive compensation programs to be instrumental in helping us achieve strong financial performance and other key non-financial objectives, such as safety, reliability, and customer satisfaction. Our programs are designed to attract, motivate, and retain a highly qualified executive team that is able to achieve corporate objectives and create long-term stockholder value. Our Human Resources Committee, or HR Committee, and our Board believe the company’s overall executive compensation program is structured to reflect a strong pay-for-performance philosophy and aligns the long-term interests of our executives and our stockholders. The “Compensation Discussion and Analysis,” or CD&A, section, starting on page 13 of this proxy statement, and the “Compensation of Executive Officers and Directors” section, starting on page 37, provide more detailed discussions of our specific executive compensation programs.

Our compensation programs are substantially tied to our key business objectives and the success of our stockholders. As described in the “Compensation Discussion and Analysis” section, one component of our compensation philosophy is that a significant portion of our executives’ compensation should be at-risk in the form of incentive awards that are paid, if earned, based on individual and company performance. Our short-term and long-term incentive programs demonstrate this philosophy. More than half (55 percent) of the weighting of the potential annual incentive payment an executive may earn is tied to the company’s success in achieving a net income target established by our HR Committee and approved by our Board. The remainder of the potential annual incentive payment is focused on achieving excellence in operations. With respect to our long-term incentive program, the number of shares actually earned pursuant to long-term incentive awards is based on ROAE, earnings per share growth (prior to 2014 our long-term incentive programs used net income growth instead of earnings per share growth) and TSR relative to the peer group we utilize for executive compensation purposes. If the value we deliver to our stockholders declines, so, too, does the compensation we deliver to our executives.

In addition, we have designed the framework of our short-term and long-term incentive programs for the long haul. Our Board established the framework for our short-term incentive program in 2005. Since establishment, the primary revisions to the program have been with respect to annual targets, generally, to require improvement on a year-over-year basis. Our Board established a long-term incentive plan in 2005, our Equity Compensation Plan. In 2009, our Board granted the first of annual, performance-based awards to the

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Proposal 3 — Advisory Vote to Approve Named Executive Officer Compensation

company’s senior employees whose work directly affects our financial results and incorporated performance-based metrics over a three-year period with cliff vesting at the end of that period. The first payouts under such awards occurred in early 2012. In addition, payout of our executive retention / retirement program restricted share units are conditioned on the company’s financial performance over a five-year period with cliff vesting at the end of such period and, if earned, are paid out over a five-year period after the executive’s separation from service with the company.

We believe this framework has contributed greatly to aligning the interests of our stockholders and executives. As illustrated by the following graphics, relative to the companies in the peer group we have utilized for executive compensation purposes, we are providing strong financial results. According to SNL financial and assuming reinvestment of dividends, we have the highest TSR of any of those peer companies over the past three years and a TSR better than the average of those peer companies in 2015. Meanwhile, based on proxy statement disclosures of those companies, our CEO pay has been below average, ranking tenth highest over the past one- and three-year periods for which proxy compensation data is available. The CD&A contains additional details concerning our performance and compensation relative to these peer companies as depicted in the graphics below.

3-YEAR
10th Highest CEO Pay	Highest TSR
of 15 Peers	of 15 Peers
1-YEAR
10th Highest CEO Pay	7th Highest TSR
of 15 Peers	of 15 Peers

Another component of our compensation philosophy is to target compensation around the middle of the competitive total compensation range, while also considering various factors, including trade area economics, turn-over, tenure, experience and other factors. Our HR Committee closely monitors the compensation programs and pay levels of executives from similar companies as to size and complexity with the assistance of an independent compensation consultant, Willis Towers Watson.

9

Proposal 3 — Advisory Vote to Approve Named Executive Officer Compensation

Our compensation philosophy also is reflected in what we don’t do:

● We do not make multi-year guarantees for salary increases to our named executive officers.

● We do not have perquisites for current, former, and/or retired executives that differ materially from those available to employees generally.

● We do not have any change in control payments exceeding three times base salary and target bonus. Our only change in control provision appears in the Equity Compensation Plan and provides for the immediate vesting or cash payment of any unvested equity awards upon a change in control.

● We do not have employment or golden parachute agreements with any of our executive officers.

● We do not have a non-performance-based top hat plan or separate retirement plan available only to our executive officers. We do maintain a performance-based executive retention / retirement program.

● We do not provide tax gross-ups to our named executive officers.

● We do not pay dividends or dividend equivalents on unvested performance shares or units.

● We do not allow our executives to hedge or pledge company securities.

Finally, we believe our compensation philosophy is reflected in the high level of corporate governance we maintain over our executive compensation programs. Our HR Committee consists entirely of independent members. Moreover, our HR Committee, our CEO, and our executive in charge of human resources engage in an annual talent review process to address succession and executive development for our CEO and other key executives. Our HR Committee also conducts an annual performance assessment of our CEO and determines appropriate adjustments to all elements of his total compensation based on individual and company performance.

We believe that the summary information we have provided with this proposal and the more detailed descriptions provided elsewhere in this proxy statement demonstrate that we and our HR Committee have designed our executive compensation programs appropriately to align the long-term interests of management and stockholders.

For all of these reasons, including what we do and don’t do, your vote in support of the compensation of our named executive officers is requested. Accordingly, the Board recommends that stockholders approve our executive compensation program by voting “FOR” the following advisory resolution:

RESOLVED, that the compensation paid to the company’s named executive officers (as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation tables and any related material disclosed in the company’s 2016 proxy statement) is hereby APPROVED.

This advisory vote to approve named executive officer compensation is not binding on the company. However, we and our Board will take into account the result of the vote when determining future executive compensation arrangements.

The affirmative vote of the holders of a majority in voting power of the shares of our common stock which are present in person or represented by proxy and entitled to vote thereon is required to approve the say-on-pay resolution set forth above. If your shares are held through a broker, bank, or other nominee and you do not vote your shares, your bank, broker, or other nominee may not vote your shares in this proposal. Assuming a quorum is present, broker non-votes or the failure to vote – either by not returning a properly executed proxy card or not voting in person at the annual meeting – will have no effect on the outcome of the voting on this proposal. Abstentions will have the same effect as a vote against the proposal. Unless instructed to the contrary in the proxy, the shares represented by the proxies will be voted “FOR” the proposal to approve, on an advisory basis, the compensation of the company’s named executive officers, as set forth in the company’s 2016 proxy statement.

The Board of Directors recommends a vote “FOR” adoption of the resolution approving, on an advisory basis, the compensation of the company’s named executive officers, as described in this proxy statement.

10

Proposal 4 — Approve Amendment of Certificate of Incorporation

Proposal 4

Approve Amendment of Certificate of Incorporation

The Board proposes to amend Section 5.3 of our Amended and Restated Certificate of Incorporation, or Certificate of Incorporation, which governs the removal of directors. Currently, such section requires that directors may only be removed for cause and only upon a supermajority vote of two-thirds of all stockholders. The Board is recommending that stockholders approve an amendment to such provision to eliminate the “for cause” removal restriction and to change the supermajority vote requirement to a simple majority. If the proposed amendment to the Certificate of Incorporation is approved by stockholders, the Board will adopt conforming amendments to our Bylaws.

Rationale for the Amendment

On December 21, 2015, the Delaware Chancery Court issued an opinion in In re VAALCO Energy, Inc. Stockholder Litigation, Consol. C.A. No. 11775-VCL, invalidating as a matter of law provisions of the certificate of incorporation and bylaws of VAALCO Energy, Inc., a Delaware corporation, which permitted the removal of VAALCO’s directors by its stockholders only for cause. The Chancery Court held that, in the absence of a classified board or cumulative voting, VAALCO’s “only-for-cause” director removal provisions conflict with Section 141(k) of the Delaware General Corporation Law and are therefore invalid.

Article 5, Section 5.3 of our Certificate of Incorporation contains similar “only-for-cause” director removal provisions, and we do not have a classified board of directors or cumulative voting. In light of the VAALCO decision, our Board considered this provision and a similar provision in Section 3.6 of our Bylaws and concluded that the “only-for-cause” restriction with respect to removal of directors should be eliminated.

The Board also considered the supermajority approval requirement in Section 5.3 of our Certificate of Incorporation and Section 3.6 of our Bylaws. The Board considered the advantages of maintaining supermajority approval in light of our current circumstances, including that the supermajority requirement promotes Board continuity and stability. The Board also understands that the supermajority requirement provides protection against certain abusive takeover tactics and more time to solicit higher bids in a hostile takeover situation because it is more difficult to change a majority of directors on the board prior to the end of their annual terms.

While the Board continues to believe that these are important considerations, the Board also considered the potential advantages of removing supermajority approval in light of our current circumstances, including that our Board is unclassified and that our directors serve annual terms at the pleasure of stockholders. In other words, our stockholders already evaluate directors on an annual basis.

After carefully weighing all of these considerations, the Board approved the proposed amendment to the Certificate of Incorporation, the text of which is provided below, and a recommendation that stockholders adopt this amendment by voting in favor of this proposal. The Board also approved a conforming amendment to our Bylaws, and the Company previously announced it would not attempt to enforce the “only-for-cause” director removal provisions in the Certificate of Incorporation or Bylaws.

Proposed Amendment

If the proposed amendment to the Certificate of Incorporation is approved, Section 5.3 of the Certificate of Incorporation, and only Section 5.3, would be amended to remove the “only-for-cause” restriction on removal of directors and to replace such section’s supermajority approval requirement with a majority approval requirement. All other sections of the Certificate of Incorporation would be maintained in their current form.

11

Proposal 4 — Approve Amendment of Certificate of Incorporation

With respect to the proposed modifications to Section 5.3 of the Certificate of Incorporation, if stockholders approve this proposal, Section 5.3 would be revised as follows (new language is indicated by underlined text; language to be deleted is indicated by strikethrough):

Section 5.3 Removal of Directors. Except for directors elected by a series of Preferred Stock then outstanding, any Director or the entire Board of Directors may be removed, but only forwith or withoutcause, and only by the affirmative vote of theholders of a majorityat least sixty six and two-thirds percent (66 2/3%)of the voting power of all of the then outstanding shares of the capital stock of the Corporation then entitled to vote at an election of Directors, voting together as a single class. Nothing in this Section 5.3 shall be deemed to affect any rights of the holders of any series of Preferred Stock to remove Directors pursuant to any applicable provision of the Certificate of Incorporation.

If the proposed amendment to the Certificate of Incorporation is approved by stockholders, the Board will adopt conforming amendments to our Bylaws.

Required Stockholder Approval

Under the Certificate of Incorporation, the proposed amendment to the Certificate of Incorporation must be approved by the affirmative vote of the holders of a majority of the voting power of the outstanding shares of capital stock of the Company. Accordingly, this proposal will be approved upon the affirmative vote of the holders of 50% of our outstanding common stock. Abstentions and broker non-votes will have the same effect as an “Against” vote with respect to this proposal.

Legal Effectiveness

If the proposed amendment to the Certificate of Incorporation is approved by the requisite vote of our stockholders, the modification will become effective upon the filing of an appropriate amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware, which we would file promptly after the 2016 Annual Meeting of Stockholders.

The Board of Directors recommends a vote “FOR” approval of the amendment to our Certificate of Incorporation.

12

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 2015 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 is provided below.

This CD&A is organized into the following sections:

● Executive Summary— Highlights of our 2015 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 2015 compensation levels.

● Executive CompensationComponents— Details about our 2015 executive compensation program.

● Other Compensation Policies — Information on other aspects of our compensation philosophy.

CD&A Table of Contents			Page
Executive Summary.........................................................................................................................................			14
	2015 Results .................................................................................................................................................		14
	Compensation Practices .................................................................................................................................		16
	Compensation Components ............................................................................................................................		17
Pay for Performance ......................................................................................................................................			18
	Value Provided to Stockholders .......................................................................................................................		18
	Performance Relative to Our Peers .................................................................................................................		19
	Peer Group for 2015 ......................................................................................................................................		19
Say-on-Pay Results ........................................................................................................................................			21
Governance of Our Executive Compensation Program .............................................................................			21
	Human Resources Committee ........................................................................................................................		21
	Independent Compensation Consultant ...........................................................................................................		22
	Decision-Making Process and Role of Executive Officers ...................................................................................		22
Targeted Overall Compensation and Competitive Analysis .......................................................................			22
	Compensation Philosophy ..............................................................................................................................		22
	Independent Compensation Consultant Data and Analysis .................................................................................		23
	CEO Pay Ratio and Wealth Accumulation .........................................................................................................		24
Components of Executive Compensation for 2015 .....................................................................................			26
	Base Salary ..................................................................................................................................................		26
	Annual Cash Incentive Awards ........................................................................................................................		27
	Long-Term Performance-Based Equity Awards under the Equity Compensation Plan .............................................		31
		2015 Long-Term Incentive Program Performance Unit Grants ......................................................................	32
		2015 Executive Retention / Retirement Program Restricted Share Grants ......................................................	33
		Vesting of 2013 Long-Term Incentive Program Performance Unit Grants in 2015 ............................................	34
Other Compensation Policies .......................................................................................................................			35
	Stock Ownership Guidelines ...........................................................................................................................		35
	Retirement and Other Benefits ........................................................................................................................		35
	Severance and Post-Termination Benefits ........................................................................................................		36
	Non-Qualified Deferred Compensation .............................................................................................................		36
	No Employment Agreements ...........................................................................................................................		36
	Tax Treatment of Certain Compensation ...........................................................................................................		36

13

Compensation Discussion and Analysis

Executive Summary

2015 Results

In 2015, 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 25.4 percent to $151.2 million in 2015 from $120.6 million in 2014.

● For the three-year period ending December 31, 2015, our total shareholder return (TSR) was 73.9 percent (as calculated by SNL Financial and assuming reinvestment of dividends), a return that was the highest in our peer group and significantly above our peer group average (50 percent), the S&P utility index (39 percent), and the S&P 500 index (53 percent), over that same time period.

● Our return on average equity (ROAE) has averaged 10.1 percent over the last three years.

● In 2015, we paid an annual dividend of $1.92 per share, which provided a dividend yield of approximately 3.5 percent, based on our closing stock price of $54.25 per share on December 31, 2015.

We were able to continue to achieve these strong operating results during 2015, while successfully completing our first general electric rate case in South Dakota since 1980 and simultaneously acquiring the 80 megawatt Beethoven wind project located near Tripp, S.D., for approximately $143 million. As a result of the South Dakota electric rate case, the South Dakota Public Utilities Commission authorized NorthWestern to increase base rates by $20.2 million annually, based on an overall rate of return of 7.24%, and to collect approximately $9 million annually related to the Beethoven wind project, even though the acquisition occurred after NorthWestern filed the general electric rate case.

In spite of this strong operating performance and completion of the South Dakota electric rate case and the Beethoven wind project acquisition, the overall compensation of our executives ranks near the bottom of our peer group, which is identified on page 19 of this proxy statement. In summary, for 2014 (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 $1.07 million versus the median of the average compensation per named executive officer of our peer group of approximately $1.35 million.

● Our CEO’s total compensation was approximately 75 percent of the median total compensation (excluding change in pension value) of the CEOs in our peer group.

Named Executive Officers for 2015
Robert C. Rowe	Brian B. Bird
President and Chief Executive Officer	Vice President and Chief Financial Officer
Heather H. Grahame	Curtis T. Pohl
Vice President and General Counsel	Vice President - Distribution
Bobbi L. Schroeppel
Vice President - Customer Care, Communications and Human Resources

14

Compensation Discussion and Analysis

Relative to our peers, we are providing strong financial results, with the highest TSR of any of our peers from 2013 to 2015 (according to SNL Financial and assuming reinvestment of dividends) and a TSR better than the average of our peer group in 2015. Meanwhile, our CEO pay has been below average, ranking tenth highest over the last one- and three-year periods for which proxy compensation data is available. 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
10th Highest CEO Pay	Highest TSR
of 15 Peers	of 15 Peers
1-YEAR
10th Highest CEO Pay	7th 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.

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.

15

Compensation Discussion and Analysis

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.

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 by granting 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 our 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.

16

Compensation Discussion and Analysis

Compensation Components

For 2015, our executive compensation package included the same components as in 2014 — 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 programs. The first program, our long-term incentive program, or 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 program, our 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 2015	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	Our CEO and three other executives received the three percent increase generally provided to all employees; our five other executives received additional increases in base salary	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	There were no changes to the annual cash incentive component for 2015	Not applicable.
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 two executives	To increase the compensation opportunity for strategic positions to align with market median
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	There were no changes to the restricted share grants under the Executive Retention / Retirement Program	Not applicable.

17

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 19 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-, and three-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.

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 2015, our financial results were at 99.6 percent of target and our customer satisfaction results were at an all-time high. When combined with our reliability and safety results that were down from prior years due to an extreme weather event and a work-related fatality, our annual cash incentive plan was funded at 80 percent of target for 2015 for executives (due to the work-related fatality) and 88 percent of target for other employees.

The grants of long-term performance units that were made in 2013 pursuant to the LTIP vested on December 31, 2015. The performance measures associated with those grants were measured over a three-year vesting period and were tied to net income growth, ROAE, and TSR. The company had solid results over the three-year vesting period with respect to the LTIP metrics, attaining 16.4 percent average net income growth, 10.1 percent ROAE, and 67.4 percent TSR (second highest of our peers when calculated as required by the LTIP). Based on these results, the LTIP awards paid out at 167.3 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. TSR in the chart below is computed by SNL Financial and assumes reinvestment of dividends. The chart below shows our TSR of 73.9 percent. However, the calculation required by the LTIP results in a TSR of 67.4 percent for the same period. The difference in these TSRs is the method of calculation required by the terms of our LTIP, which uses a 20-day average stock price at the beginning and end of the performance period and does not assume reinvestment of dividends.

THREE-YEAR TSR

Source: SNL FInancial LC

18

Compensation Discussion and 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.

Performance Relative to Our Peers

As detailed below, relative to our peers, we are producing high performance for low pay. For the three-year period ending December 31, 2015, our TSR was the highest in our peer group (according to SNL Financial and assuming reinvestment of dividends), while our CEO’s compensation was the tenth highest of our 15-member peer group. 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 February 11, 2016, ten of our peers have larger executive teams of eleven or more members; while, four 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 2015
ALLETE, Inc.	Empire District Electric Company	PNM Resources Inc.
Avista Corp.	Great Plains Energy Incorporated	Portland General Electric Company
Black Hills Corporation	IDACORP, Inc.	Questar Corporation
Cleco Corporation	MGE Energy Inc.	Vectren Corporation
El Paso Electric Co.	NorthWestern Corporation	Westar Energy, 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 2015, our HR Committee, upon the advice of its independent compensation consultant, added Questar Corporation as an additional peer based on the criteria enumerated above.

19

Compensation Discussion and Analysis

The following pay-for-performance charts and tables below reflect relative values for CEO pay that is expressed as a percentage of the highest value in the category and TSR expressed as a percentile of the range between the highest and lowest peer TSRs. 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 most of our peers, while leading strong performance for stockholders relative to our peers, including achievement of the highest TSR for the three-year period ending December 31, 2015 (assuming reinvestment of dividends).

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*
Questar Corporation	100%	Westar Energy, Inc.	100%	Questar Corporation	100%	NorthWestern Corporation	100%
Westar Energy, Inc.	96%	PNM Resources Inc.	97%	Westar Energy, Inc.	92%	IDACORP, Inc.	97%
Avista Corp.	94%	IDACORP, Inc.	96%	PNM Resources Inc.	87%	Westar Energy, Inc.	90%
PNM Resources Inc.	82%	MGE Energy Inc.	92%	Great Plains Energy	84%	Avista Corp.	88%
Black Hills Corporation	81%	Avista Corp.	90%	Avista Corp.	77%	PNM Resources Inc.	82%
Vectren Corporation	80%	Great Plains Energy	74%	Vectren Corporation	76%	Vectren Corporation	81%
Great Plains Energy	73%	NorthWestern Corporation	72%	Black Hills Corporation	73%	Empire District Electric	74%
IDACORP, Inc.	71%	Portland General Electric	72%	IDACORP, Inc.	67%	Great Plains Energy	64%
Portland General Electric	71%	El Paso Electric Co.	72%	Portland General Electric	61%	MGE Energy Inc.	61%
NorthWestern Corporation	55%	Empire District Electric	69%	NorthWestern Corporation	45%	Portland General Electric	59%
ALLETE, Inc.	46%	ALLETE, Inc.	59%	Empire District Electric	44%	Black Hills Corporation	49%
Empire District Electric	46%	Vectren Corporation	56%	ALLETE, Inc.	43%	ALLETE, Inc.	47%
El Paso Electric Co.	33%	Black Hills Corporation	39%	MGE Energy Inc.	29%	El Paso Electric Co.	36%
MGE Energy Inc.	29%	Questar Corporation	0%	El Paso Electric Co.	28%	Questar Corporation	0%
* Relative CEO pay is expressed as a percentage of the highest CEO pay. Relative TSR is expressed as a percentile of the range between the highest and lowest peer TSRs.
Source: CEO Pay for the one-year period is the 2014 total compensation and for the three-year period is the 2012-14 total compensation, as published in the 2013, 2014, and 2015 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. We also excluded Cleco Corporation’s data; due to its pending merger, compensation information for 2014 was not available. Total Stockholder Return is from SNL Financial for the one- and three-year periods ended December 31, 2015, and assumes reinvestment of dividends.

20

Compensation Discussion and 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 2015, 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 2015 say-on-pay resolution and the 2014 compensation of our named executive officers was approved by 99.4 percent of the shares present and entitled to vote on the matter.

Although the results of the vote at the 2015 annual meeting occurred after the HR Committee took action to approve 2015 compensation, the HR Committee and the full Board reviewed the 2015 voting results concerning our say-on-pay resolution and have taken the results into account when establishing compensation for the named executive officers for 2016. The HR Committee believes the results from our 2015 annual meeting affirm our stockholders’ continuing 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.

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Compensation Discussion and Analysis

Independent Compensation Consultant

In its governance of our executive compensation program, the HR Committee works with Willis Towers Watson, and, to a lesser extent, our CEO and chief financial officer (CFO). Willis 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 Willis Towers Watson representative attends meetings of the HR Committee as necessary and communicates directly with the chair of the HR Committee.

Decision-Making Process and Role of Executive Officers

The HR Committee works with Willis 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. The HR Committee considers 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.

The HR Committee’s annual process for determining executive compensation generally begins in July with a review and discussion of the overall timeline for compensation analysis and decision. In October, the HR Committee receives an overview on executive compensation, including a peer compensation analysis, from its independent compensation consultant, which includes preliminary analysis of the design of upcoming annual and long-term incentive opportunities. In December, the HR Committee evaluates the overall executive compensation program, reviews the company’s preliminary five-year financial plan, approves the annual cash incentive plan for the following year, reviews the proposed LTIP for the following year, and approves ERRP grants. In February, the HR Committee reviews the company’s final five-year financial plan, approves executive compensation and approves LTIP grants. In February, the HR Committee also reviews the company’s results under the performance metrics for the annual incentive plan for the prior year and for the LTIP which vested at the end of the prior year and approves payouts under such plans. At each of its regularly scheduled meetings throughout the year, the HR Committee reviews the company’s performance under all outstanding annual and long-term incentive plans.

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.

22

Compensation Discussion and Analysis

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 slightly in 2015 from 2014. As part of the overall compensation package for our named executive officers in 2015, our HR Committee increased the targeted long-term incentive opportunity for two of our named executive officers as described below in
the 2015 Long-Term Incentive Program Performance Unit Grants section. As a result, the percentage of at-risk compensation component of the target compensation mix increased for our named executive officers, as a whole, to 64 percent from 62 percent.

For our CEO, 74 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 57 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.

Independent Compensation Consultant Data and Analysis

As a component of the HR Committee’s review of executive compensation matters, Willis 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 2015, the published survey data included the Willis Towers Watson Compensation DataBank, William M. Mercer’s Executive Benchmark Database and Willis 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, Willis 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.

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Compensation Discussion and Analysis

In addition to these efforts, Willis Towers Watson prepares an analysis of market data compiled from the Willis 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, Willis Towers Watson size-adjusts the data to reflect our revenue scope. Based on this 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’ compensation opportunity is 77 percent of the median; while our top 10, 15, and 20 highest-paid employees have a compensation opportunity that is 89 percent, 85 percent and 84 percent, respectively, of the median.	AGGREGATE COMPENSATION OPPORTUNITY FOR HIGHEST-PAID EMPLOYEES
	*Top 5 is based on 2015 proxy data of energy services companies. Top 10, Top 15, and Top 20 are based on a survey of energy services companies completed by Willis Towers Watson. Values exclude any change in pension value.

We also conducted a separate analysis of the 2014 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 three of the companies in our peer group, with an average compensation per named executive officer of approximately $1.07 million versus the average compensation per named executive officer of the median of our peer group of approximately $1.35 million. For 2014, our CEO’s total compensation was approximately 75 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.

CEO Pay Ratio 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. The HR Committee reviewed a comparison of CEO pay (base salary and incentive compensation) to the pay of all our employees in 2015. The compensation for our CEO in 2015 was approximately 19 times the median pay of our full-time employees.

For several years, we have voluntarily disclosed our CEO to median employee pay ratio in our proxy statement. To determine the median for our prior calculation, we considered only full-time employees as of the last day of the calendar year. Our prior calculation of the ratio included all components of compensation available to our CEO and other employees – base salary, annual cash incentive (at the targeted level), and long-term incentive awards (at the targeted level) – and excluded any benefits (which do not differ materially between executives and employees generally) and any overtime pay that employees received.

As a result of the recently adopted rules under Dodd-Frank Act, beginning with our 2018 proxy statement, the SEC will require disclosure of the CEO to median employee pay ratio for 2017 compensation. The method of calculating the required disclosure for 2017 compensation will differ from the method we previously used in calculating our ratio. Among other differences, we will be required to include: (i) part-time and full-time employees to determine the median employee; and (ii) overtime pay and the value of benefits in the calculation of total compensation.

24

Compensation Discussion and Analysis

Accordingly, in the pay ratio table below, we have presented two calculations of our CEO to median employee pay ratio. The first ratio is calculated using the methodology we have used in our prior proxy statements. We will refer to this ratio as the NorthWestern Calculation. The second ratio is calculated in accordance with what the SEC will require in the future pursuant to Item 402(u) of Regulation S-K. We will refer to the second ratio as the Dodd-Frank Calculation. We believe presentation of these two ratios this year will provide an informative bridge from our practice of voluntarily disclosing our CEO to median employee pay ratio using the NorthWestern Calculation these past several years to the required disclosure of such ratio in the future using the Dodd-Frank Calculation.

With respect to the Dodd-Frank Calculation, we identified the median employee by examining the 2015 total cash compensation for all individuals, excluding our CEO, who were employed by us on December 18, 2015, the last day of our payroll year (whether employed on a full-time, part-time, or seasonal basis). For such employees, we did not make any assumptions, adjustments, or estimates with respect to total cash compensation, and we did not annualize the compensation for any full-time employees that were not employed by us for all of 2015. After identifying the median employee, we calculated annual total compensation for such employee using the same methodology we use for our named executive officers as set forth in the 2015 Summary Compensation Table later in this proxy statement.

As illustrated in the table below, our CEO to median employee pay ratio is 19:1 when calculated using the Dodd-Frank Calculation and 26:1 when using the NorthWestern Calculation.

		NorthWestern Calculation							Dodd-Frank Calculation
		President and CEO				Median Employee			President and CEO			Median Employee
Base Salary		$	578,231			$	79,539		$	573,567		$	86,838
Annual Cash Incentive
	Percent of base salary	80		%		6		%
	Targeted annual cash incentive	$	462,585			$	4,772
Non-Equity Incentive Plan Compensation									$	370,068		$	1,703
Performance Unit Awards under Long-Term Incentive Program
	Percent of base salary	150		%		—		%
	Targeted long-term incentive	$	867,347			$	—
Restricted Share Grants under Executive Retention / Retirement Program
	Percent of base salary	50		%		—		%
	Targeted executive retention / retirement incentive	$	289,116			$	—
Stock Awards									$	1,131,121		$	—
Change in Pension Value and Nonqualified Deferred Compensation Earnings (1)									$	39,285		$	2,755
All Other Compensation									$	41,564		$	22,734
TOTAL		$	2,197,279			$	84,311		$	2,155,605		$	114,030
CEO Pay as Multiple of Median Employee		26			:	1			19		:	1

(1) These amounts are attributable to a change in the value of each individual’s defined benefit pension account balance and do not represent earned or paid compensation. Pension values are dependent on many variables including years of service, earnings, and actuarial assumptions.

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.

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Compensation Discussion and Analysis

Components of Executive Compensation for 2015

The primary components of total compensation for our executive officers for 2015 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 26 percent of our CEO’s targeted total compensation and, on average, 43 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 stock ownership guidelines for our executives. 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 2015, 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 2014. The HR Committee also considered that our executive officer base salaries remained below the median compensation of our peers
even with the increase and determined to increase the base salaries of certain of our executive officers, including two of our named executive officers, beyond the three percent increases provided to our employees generally. The table to the right sets forth the base salaries for our named executive officers. The base salary adjustments for 2015 were effective April 1, 2015.
		Annualized Base Salary		Increase (%)
	Name	2014 ($)	2015 ($)
	Robert C. Rowe	561,389	578,231	3.0
	Brian B. Bird	368,280	399,952	8.6
	Heather H. Grahame	335,127	350,208	4.5
	Curtis T. Pohl	263,853	271,769	3.0
	Bobbi L. Schroeppel	243,253	250,551	3.0

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Compensation Discussion and Analysis

Annual Cash Incentive Awards

The overall design of our 2015 annual incentive plan was the same as our previous year’s plan.

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. Following 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 98 percent to 125 percent for the four previous years, as set forth in the table below.

Historical Funding of Annual Cash Incentive (as a percentage of target)
2011	2012	2013	2014
101%	98%	108%	125%

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.

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Compensation Discussion and Analysis

The HR Committee did not adjust the 2015 target annual incentive opportunity for any of our 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 2015 annual incentive opportunity for our named executive officers.		2015
	Name	Base Salary	Target Incentive Opportunity (% of base salary)	Target Incentive Opportunity ($)
	Robert C. Rowe	$578,231	80	$462,585
	Brian B. Bird	$399,952	50	$199,976
	Heather H. Grahame	$350,208	45	$157,594
	Curtis T. Pohl	$271,769	40	$108,708
	Bobbi L. Schroeppel	$250,551	35	$87,693

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 2015 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 2015 annual incentive plan provided that the 2015 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 2015, based on company performance, the annual incentive plan was funded at 80 percent of target for our executives (for non-executive employees, the plan was funded at 88 percent). 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 determined that actual net income for 2015 was $151.2 million, against a target of $151.4 million, resulting in a funding of 99.6 percent for our net income metric.

Safety. In 2015, our employees achieved safety performance above targeted levels. However, we also experienced the tragic death of one of our employees in a work-related accident. Despite our otherwise good safety performance in 2015, due to this work-related fatality, the 2015 safety portion of the incentive was forfeited for all of our executives, pursuant to the terms of the 2015 annual incentive plan.

Reliability. Our ability to provide reliable utility service to our customers is important. However, both of our electric reliability metrics failed to achieve target, in part due to a significant wind storm affecting our Montana operations, while one of our gas reliability metrics exceeded target and the other fell short of target. When the HR Committee initially adopted the 2015 annual incentive plan, the electric reliability metrics were based upon historical results that inadvertently included planned outages. The HR Committee determined that

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Compensation Discussion and Analysis

including planned outages in the metrics would create the wrong incentive (by penalizing necessary reliability maintenance) and exercised its discretion to exclude planned outages from the calculation of performance under the electric reliability metrics.

Customer Satisfaction. In 2015, we achieved our highest ever J.D. Power overall customer satisfaction score. This independent verification of our efforts to serve our customers to their satisfaction is important. We also met 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 2015 performance measures, which resulted in the plan funding at 80 percent of target for our named executive officers.

	2015 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	%	$	136.3	$	151.4	$	166.5	$151.2	99.5	%	54.7
Safety (15%) (2)
Lost Time Incident Rate	7.5	%	0.9		0.7		0.5		0.7	—	%	—
Total Recordable Incident Rate	7.5	%	2.6		2.3		2.0		1.8	—	%	—
Reliability (15%) (3)
SAIDI (excluding major event days)	5.0	%	120.0		112.0		101.0		115.1	80.5	%	4.0
SAIDI (including major event days)	5.0	%	185.0		128.0		113.0		236.7	—	%	—
Gas – Damages per 1000 Locates	2.5	%	2.7		2.2		1.7		2.3	90.0	%	2.3
Gas – Leaks per 100 Miles of Main	2.5	%	7.5		6.2		4.9		5.3	134.6	%	3.4
Customer Satisfaction (15%) (4)
JD Power Residential Electric and Gas Survey Performance Ranking	5	%	635		650		655		655.3	150.0	%	7.5
Operational Performance – Customer Survey by Flynn Wright	5	%	36.87		38.81		40.75		38.2	83.8	%	4.2
Reputational Perceptions – Customer Survey by Flynn Wright	5	%	36.78		38.72		40.65		38.1	85.1	%	4.3
							TOTAL FUNDING PERCENTAGE					80	%

(1) Net Income. The net income target is based upon the Board approved budget for the plan year, and the actual achieved is determined by what is reported in our annual report on Form 10-K for the plan year.

(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 20 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 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) which was achieved in 2009.

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.

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 the company’s three-year average and is approximately 10 percent

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Compensation Discussion and Analysis

better than second quartile performance as reported in a leak reporting survey conducted by the American Gas Association (AGA); the target level represents a twenty percent improvement over the company’s three-year average; and the maximum level represents a 35 percent improvement over the company’s three-year average.

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 a 50 percent improvement above second quartile average performance as reported by the AGA; the target level represents the company’s three-year average, which is first quartile performance; and the maximum level represents a 20 percent improvement over the company’s three-year average.

(4) Customer Satisfaction.

J.D. Power. One customer satisfaction metric is measured by the broadly utilized J.D. 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 one point over our best ever score, which we achieved in 2014; and the maximum level is a five improvement of ten points over 2015 target, which would be first quartile performance based on 2014 data.

Flynn Wright Surveys. The remaining two customer satisfaction metrics are measured based on the results of a 2015 customer tracking survey conducted on our behalf by Flynn Wright. For both of these metrics, the threshold level is set five percent below target; the target level represents our average scores for 2013 and 2014; and the maximum level is set at five percent above target.

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 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 2015, our net income increased by 25.4 percent over 2014, while our non-GAAP diluted adjusted earnings per share increased by six percent over 2014, adjusting for normal weather and other discrete events. Other significant achievements for 2015 included:

● Acquiring the Beethoven wind project in South Dakota, which increased our rate base by approximately $140 million;

● Completing our first general electric rate case in South Dakota in over 34 years, increasing base rates by approximately $20.2 million annually;

● Successfully accessing the equity capital markets to partially finance the Beethoven wind project acquisition with the issuance of 1.1 million shares of common stock with net proceeds of approximately $57 million; and

● Successfully accessing the debt capital markets to finance the remainder of Beethoven wind project acquisition through the issuance of $70 million of 25-year first mortgage bonds and to fund other growth projects with $75 million of 10-year first mortgage bonds and $125 million of 30-year first mortgage bonds.

30

Compensation Discussion and Analysis

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 2015 annual cash incentive plan, without the addition of any performance multiplier. Actual 2015 annual cash incentive awards for the named executive officers are reflected in the table to the right.
	Name	2015 Target Cash Incentive, as Percent of Base Salary (%)	2015 Actual Cash Incentive, as Percent of Base Salary (%)	2015 Cash Incentive Award  ($)
	Robert C, Rowe	80	64	370,068
	Brian B. Bird	50	40	159,981
	Heather H. Grahame	45	36	126,075
	Curtis T. Pohl	40	32	86,966
	Bobbi L. Schroeppel	35	28	70,154

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 2015, 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 2015 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 115 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 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 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 five completed performance periods, the contribution of these two performance measures (and our relative TSR ranking within our peer group when calculated as required by the LTIP) to the overall payout (expressed as a percentage of target).

	Performance Period
	2009-2011	2010-2012	2011-2013	2012-2014	2013-2015
Financial Measures Payout Percentage	135.3%	143.2%	59.9%	156.7%	154.5%
Relative TSR	2nd of 12	4th of 12	4th of 12	2nd of 15	2nd of 15
Relative TSR Payout Percentage	175.0%	125.0%	125.0%	180.0%	180.0%
Total Payout Percentage	155.2%	134.1%	92.5%	168.4%	167.3%

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

31

Compensation Discussion and Analysis

benefits. The ERRP share units also encourage 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 first opportunity for grants to vest under the ERRP is on December 31, 2016.

2015 Long-Term Incentive Program Performance Unit Grants

In February 2015, 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 2015, the HR Committee increased the targeted opportunity (expressed as a percentage of base salary) associated with the LTIP awards for two 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 31, 2017, if all performance goals are met at the target performance level. The target equity opportunities for the 2015 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 2014 and 2015 awards.
			Target LTIP Performance Unit Opportunity for 2015
	Name	2014 Base Salary (%)	2015 Base Salary (%)	2015 Value at Target  ($)	LTIP Stock Awards (#) (1)
	Robert C. Rowe	150	150	842,084	19,828
	Brian B. Bird	92.5	100	368,280	8,672
	Heather H. Grahame	65	70	234,589	5,524
	Curtis T. Pohl	60	60	158,312	3,728
	Bobbi L. Schroeppel	40	40	97,366	2,293
	(1) Based on a weighted average grant date fair value of $42.47, which was calculated using the closing stock price of $54.64 on February 11, 2015, less the present value of expected dividends

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.

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.

32

Compensation Discussion and Analysis

The following table summarizes the performance measures for the 2015 LTIP performance unit awards.

Performance Measures — 2015-2017	Threshold		Target		Maximum
Financial Goals – 50%
ROAE	9.25	%	10	%	10.75	%
Simple Average EPS Growth	1.6	%	4.6	%	7.6	%
TSR – 50%
Relative Average vs. Peers	13th		6th		1st

In general, based on a market analysis conducted by Willis 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. 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.

2015 Executive Retention / Retirement Program Restricted Share Unit Grants

In December 2015, 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 five-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 2015, the HR Committee reviewed the equity incentive opportunities provided to our peer group to analyze whether the targeted ERRP restricted share unit awards to our executive officers approximated the market median. Based on its review, the HR Committee determined that no changes were required for the 2015 ERRP restricted share unit awards.

The equity opportunities for the 2015 ERRP restricted share unit grants to our named executive officers and the 2014 ERRP target opportunity are shown in the table below. 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 units that will vest on December 31, 2020, if the company’s net income for three of the five calendar years 2016 – 2020 exceeds the company’s net income for 2015. 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.

33

Compensation Discussion and Analysis

		2015 Target ERRP Opportunity
Name	2014 Base Salary (%)	2015 Base Salary (%)	Value at Grant Date  ($)	ERRP  Stock Awards (1) (#)
Robert C. Rowe	50.0	50.0	289,116	6,458
Brian B. Bird	25.0	25.0	99,988	2,233
Heather H. Grahame	20.0	20.0	70,042	1,564
Curtis T. Pohl	20.0	20.0	54,354	1,214
Bobbi L. Schroeppel	15.0	15.0	37,583	839

(1) Based on a grant date fair value of $44.77, which was calculated using the closing stock price of $54.35 on December 9, 2015, less the present value of expected dividends, calculated using a 1.64 percent five-year Treasury rate and assuming quarterly dividends of $0.50 for the five-year vesting period.

Vesting of 2013 Long-Term Incentive Program Performance Unit Grants in 2015

In February 2013, the HR Committee approved grants of LTIP performance units, subject to a three-year performance period. The 2013 LTIP performance unit grants vested on December 31, 2015.

The 2013 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 2013 grants.

Performance Measures — 2013-2015	Threshold		Target		Maximum		Actual
Financial Goals – 50%
ROAE	8.3	%	9.8	%	11.3	%	10.1	%
Average Net Income Growth	—	%	3.0	%	6.0	%	16.4	%
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 ranged from zero to 200 percent of the target award. As summarized above in the 2015 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 2013 LTIP performance unit grants.

During the performance period, for the financial goals, ROAE was 10.1 percent and average net income growth was 16.4 percent. This financial performance resulted in a 154.5 percent vesting percentage for that half of the program. For our market goal, TSR was 67.4 percent, resulting in a ranking of second with respect to our peers, and contributing 180.0 percent with respect to that half of the program.

For purposes of our LTIP, we calculate TSR by comparing the average closing price for a share of common stock of us and our peers during the period beginning 10 days prior to the end of the performance period and ending 10 days after the performance period plus the cumulative dividends earned during the performance period, to the average closing price of a share of common stock of us and our peers during the period beginning 10 days prior to the start of the performance period and ending 10 days after the start of the performance period. Our HR Committee believes that calculating relative TSR using the 20-day average share price around the beginning and end of the performance period results in a more accurate reflection of return for the period that is less impacted by stock market activity on the first and last days of the performance period.

Based on the HR Committee’s calculation of these performance measures, the 2013 LTIP performance unit grants vested at 167.3 percent. The following table summarizes the performance results with respect to each of the performance measures applicable to the 2013 LTIP performance unit grants and the corresponding contributions to the vesting percentage.

Performance Measures — 2013-2015	Result		Weight		Vesting
Financial Goals – ROAE and Average Net Income Growth	154.5	%	50	%	77.3	%
Market Goal – TSR	180.0	%	50	%	90.0	%
			TOTAL		167.3	%

34

Compensation Discussion and Analysis

The following table summarizes the number of shares awarded for the 2013 LTIP performance unit grants and the number of shares paid out in 2015 with respect to such grants for our named executive officers, based on the 167.3% percent vesting percentage approved by the HR Committee.

	Vesting of 2013 Performance Unit Grants
Name	Units at Grant Date (#)	Vesting Percentage (%)	Units upon Vesting (#)
Robert C. Rowe	17,261	167.3%	28,878
Brian B. Bird	7,700	167.3%	12,882
Heather H. Grahame	4,946	167.3%	8,275
Curtis T. Pohl	3,894	167.3%	6,515
Bobbi L. Schroeppel	2,395	167.3%	4,007

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 - Customer Care, Communications and Human Resources. 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 / CorporateGovernance.

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)
		2014		2015
Robert C. Rowe	6x	215	%	230	%
Brian B. Bird	4x	240	%	201	%
Heather H. Grahame	3x	167	%	161	%
Curtis T. Pohl	3x	138	%	142	%
Bobbi L. Schroeppel	2x	229	%	205	%

(1) Percent of guideline achieved uses the closing stock prices of $56.58 and $54.25 as of December 31, 2014, and 2015, respectively.

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 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.

35

Compensation Discussion and Analysis

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. In 2014, we incurred compensation for our Named Executive Officers of approximately $118,000 that may not be tax deductible for tax purposes.

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, 2015.

Human Resources Committee

Dana J. Dykhouse, Chair

Stephen P. Adik

Dorothy M. Bradley

Julia L. Johnson

36

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, 2015, 2014, and 2013. 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.

2015 Summary Compensation Table

The following table sets forth the compensation earned during 2015, 2014, and 2013 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	2015	573,567	—	1,131,121	370,068	39,285	41,564	2,155,605
President and	2014	556,924	—	1,098,234	561,389	104,139	22,155	2,342,841
Chief Executive Officer	2013	540,764	—	666,183	470,913	26,461	20,577	1,724,898
Brian B. Bird	2015	391,181	—	468,227	159,981	9,264	49,677	1,078,330
Vice President and	2014	365,351	—	422,840	230,175	32,002	49,005	1,099,373
Chief Financial Officer	2013	354,749	—	281,088	193,079	—	43,055	871,971
Heather H. Grahame	2015	346,032	—	304,597	126,075	—	48,360	825,064
Vice President and	2014	332,462	—	278,547	188,509	—	46,629	846,147
General Counsel	2013	322,815	—	184,382	140,558	—	44,903	692,658
Curtis T. Pohl	2015	269,577		212,661	86,966	5,814	59,702	634,720
Vice President -	2014	261,754	—	206,470	131,927	64,786	62,079	727,016
Retail Operations	2013	254,159	—	145,163	110,665	—	48,646	558,633
Bobbi L. Schroeppel	2015	248,530	—	134,849	70,154	5,012	49,823	508,368
Vice President - Customer
Care, Comm. and HR	Ms. Schroeppel did not meet the criteria in 2013 or 2014 to be included as a named executive officer.

(1) These values reflect the grant date fair value of these awards as calculated utilizing the provisions of Accounting Standards Codification 718, Stock Compensation, and do not represent earned or paid compensation as the shares are subject to performance and vesting conditions. The values in the table above assume 100 percent payout based on grant date fair value. The exact number of shares issued will vary from zero to 200 percent of the target award, depending on actual company performance relative to the performance goals. See Note 16 to the consolidated financial statements in our 2015 Annual Report on Form 10-K for further information regarding assumptions underlying the valuation of equity awards. The value of awards for each named executive officer assuming a maximum payout based on grant date fair value would be $1,973,117 for Mr. Rowe; $836,484 for Mr. Bird; $539,174 for Ms. Grahame; $370,970 for Mr. Pohl; and $232,137 for Ms. Schroeppel.

(2) The Non-Equity Incentive Plan Compensation column reflects cash incentive awards earned pursuant to our annual incentive plan as previously described. These awards are earned during the year reflected and paid in the following fiscal year.

(3) These amounts are attributable to a change in the value of each named executive officer’s defined benefit pension account balances and do not represent earned or paid compensation. Pension values are dependent on many variables including years of service, earnings and actuarial assumptions. Our pension plans were closed prior to Ms. Grahame joining the company; therefore, she is not eligible to participate in a pension plan.

(4) The table on the top of the following page identifies the items included in the All Other Compensation column for 2015. Employee benefits include employer contributions, as applicable, for health benefits (medical, dental, vision, employee assistance plan and health savings account), group term life and 401(k) plan, which are generally available to all employees on a nondiscriminatory basis. Life insurance also includes imputed income consistent with IRS guidelines for coverage amounts in excess of $50,000 for each of the named executive officers. Mr. Rowe’s and Mr. Pohl’s other income for 2015 is from vacation sold back to the company at a rate of 75 percent.

	Health Benefits		Life Insurance		401(k) Contributions		Other Income		Total All Other Compensation
Robert C. Rowe	$	7,299	$	6,014	$	10,600	$	17,651	$	41,564
Brian B. Bird	21,200		1,977		26,500		—		49,677
Heather H. Grahame	18,384		3,476		26,500		—