DEF 14A 1 a2227621zdef14a.htm DEF 14A

Use these links to rapidly review the document
TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.           )

Filed by the Registrant ý

Filed by a Party other than the Registrant o

Check the appropriate box:

o


Preliminary Proxy Statement

o


Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

ý


Definitive Proxy Statement

o


Definitive Additional Materials

o


Soliciting Material under §240.14a-12

 

Pinnacle West Capital Corporation

(Name of Registrant as Specified In Its Charter)

 

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

Payment of Filing Fee (Check the appropriate box):

ý


No fee required.

o


Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1) Title of each class of securities to which transaction applies:
        
  (2) Aggregate number of securities to which transaction applies:
        
  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
        
  (4) Proposed maximum aggregate value of transaction:
        
  (5) Total fee paid:
        

o


Fee paid previously with preliminary materials.

o


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

 


(1)


Amount Previously Paid:
        
  (2) Form, Schedule or Registration Statement No.:
        
  (3) Filing Party:
        
  (4) Date Filed:
        

GRAPHIC


Table of Contents

GRAPHIC Donald E. Brandt
Chairman of the Board, President
and Chief Executive Officer

Dear Fellow Shareholder:

On behalf of our Board of Directors, management and employees, I invite you to attend our 2016 Annual Meeting of Shareholders.

The meeting will be held at 10:30 a.m. (MST), Wednesday, May 18, 2016, at the Heard Museum, located at 2301 North Central Avenue in Phoenix, Arizona, 85004.

In 2015, our continued focus on managing costs and creating a sustainable energy future for Arizona enabled us to meet or exceed our goals, thus marking another successful year for Pinnacle West and your investment in our Company. In 2015:

Your Board increased the common dividend for the fourth straight year, raising it by 5%;

Our earnings were $437 million, or $3.92 per share, which is a 9.5% increase over our 2014 earnings per share; and

Our share price reached a new all-time high and new 52-week intraday highs on four trading days.

Additional highlighted accomplishments of our Company's 2015 performance are set forth in the Proxy Statement beginning on page 1.

At this year's Annual Meeting, we will share additional updates with you on the Company's recent performance and operations. As explained in the attached Proxy Statement, we are asking you to: (1) elect ten Board of Director nominees; (2) consider and vote FOR an advisory resolution to approve executive compensation; (3) ratify the appointment of our independent public accounting firm for 2016; and (4) consider a shareholder proposal, if properly presented at the meeting.

Last, but not least, your vote is important to us. Whether or not you plan to attend the Annual Meeting in person, we encourage you to vote promptly. You may vote over the Internet; by telephone; by completing, signing, dating and returning a proxy card or voting instruction form; or by voting in person at the meeting.

Thank you for the confidence you place in Pinnacle West through your investment. We look forward to seeing you at this year's Annual Meeting.

Sincerely,

GRAPHIC


Table of Contents

GRAPHIC
Kathryn L. Munro
Lead Director

To Our Shareholders:

First and foremost, on behalf of your Board of Directors, we would like to take this opportunity to tell our fellow shareholders how honored we are to represent your interests as your Board. This is not a commitment we take lightly, and we want you to be assured that we are dedicated to our Company and its continued success.

Don Brandt became our Chairman of the Board and Chief Executive Officer in April 2009. He brought to the Company a focus on returning to our core business of operating and investing in a vertically integrated electric utility. He has built a strong leadership team, and the results are impressive. Here are several examples of our improved performance:

    Total Shareholder Return.  Since April 2009, our Company's total shareholder return (stock price appreciation plus dividends) ("TSR") has outperformed that of the S&P 1500 Electric Utility Index by over 111%. Also during this period, the Company has delivered an annualized TSR of 18.8%, and ranked 6th out of 15 in our Peer Group (as defined on page 40 of the Proxy Statement) in annualized TSR;

    Earnings Performance.   The compounded annual growth rate of Pinnacle West's earnings from 2009 to 2015 was 36.4% compared to –19.0% from 2003 to 2009;

    Return on Equity.  Pinnacle West's average return on equity from 2010 to 2015 was 9.6% compared to 7.1% from 2003 to 2009:

    Dividend.  Since 2012, the Company has raised the dividend as follows: 2012 by 3.8%; 2013 by 4.1%; 2014 by 4.8%; and 2015 by 5%; and

    APS's Credit Rating.  Standard and Poor's senior unsecured credit rating for APS was upgraded three levels since 2009 improving from BBB– to the current A–.

The Board's most significant priorities in 2015 included a continued focus on setting a sustainable long-term view for the success of the Company. This focus includes the reliability and security of the electric power grid, the changing needs and preferences of our customers, and the continued successful operation of our generation, transmission and distribution assets, including Palo Verde Nuclear Generating Station, the largest nuclear generating station in the United States. We also addressed leadership development, succession planning and aligning our compensation programs with performance.

I would like to take this opportunity to highlight some areas of interest to our shareholders that we specifically addressed:

    Revised CEO Incentive Plan.  Through the Company's ongoing shareholder engagement, we received feedback regarding the Human Resources Committee's ability to exercise discretion with respect to the CEO Incentive Plan. We have amended the CEO Incentive Plan to provide detailed metrics against which his performance will be measured and to limit the exercise of discretion solely to the occurrence of unanticipated events that might arise during the performance period.

Table of Contents

    Increased Performance Component in Equity Awards.  In prior years, the value of our annual long-term equity incentive awards were 55% performance-based and 45% time-based. Starting in 2016, we have revised that ratio to be 60% performance-based and 40% time-based to more closely align pay with long-term performance.

    CEO Stock Ownership Guidelines.  We have increased the CEO's formal stock ownership guideline requirement to a level corresponding more closely with our peers. As noted on pages 33 and 64 of the Proxy Statement, our Chief Executive Officer maintains a substantial ownership stake in our stock exceeding the formal guideline, aligning his interests with our shareholders.

    Clawbacks.  We have included compensation clawback provisions in our 2016 performance share equity awards and annual cash incentive plans. These provisions will be fully compliant with the final rules adopted by the Securities and Exchange Commission and the New York Stock Exchange.

    Retirement Age for Directors.  We have adopted a Director Retirement Policy that provides that no individual may be nominated for election to the Board of Directors who has attained the age of 75 years at the time of the nomination.

    Shareholder Engagement.   Your views are important to us. Over the past several years we have formalized and intensified our shareholder engagement program. You will find the details on page 20 of the Proxy Statement.

Thank you for your trust and support. Together we have a tremendous Company.

Sincerely,

GRAPHIC


Table of Contents

GRAPHIC

Notice of the 2016
Annual Meeting of Shareholders

March 31, 2016

The 2016 Annual Meeting of Shareholders (the "Annual Meeting") of Pinnacle West Capital Corporation ("Pinnacle West", "PNW", or the "Company") will be held at the Heard Museum, 2301 North Central Avenue, Phoenix, Arizona 85004, at 10:30 a.m., Mountain Standard Time, Wednesday, May 18, 2016. The purposes of the Annual Meeting are:

(1)
To elect ten directors to serve until the 2017 Annual Meeting of Shareholders (Proposal 1);
(2)
To hold an advisory vote to approve executive compensation (Proposal 2);
(3)
To ratify the appointment of our independent accountants for the year ending December 31, 2016 (Proposal 3);
(4)
To consider a shareholder proposal, if properly presented at the Annual Meeting (Proposal 4); and
(5)
To transact such other business as may properly come before the Annual Meeting and at any adjournments or postponements thereof.

All shareholders of record at the close of business on March 10, 2016 are entitled to notice of and to vote at the Annual Meeting. Your vote is important. Whether you plan to attend the Annual Meeting in person or not, please promptly vote by telephone, over the Internet, by proxy card, or by voting instruction form.

By order of the Board of Directors,

GRAPHIC

DIANE WOOD
Corporate Secretary

PINNACLE WEST CAPITAL CORPORATION
Post Office Box 53999
Phoenix, Arizona 85072-3999


Table of Contents

Table of Contents

PAGE

 


 
LETTER FROM DON BRANDT  

LETTER FROM KATHRYN L. MUNRO


 

NOTICE OF THE 2016 ANNUAL MEETING OF SHAREHOLDERS


 

PROXY STATEMENT SUMMARY


1

2015 Highlights: Performance


1
2015 Highlights: Board and Governance 4
2015 Highlights: Compensation 4
Annual Meeting of Shareholders 6
Voting Matters and Board of Directors ("Board") Recommendations 6
Director Nominees 7

PROXY STATEMENT — GENERAL INFORMATION


8

Place, Date and Time


8
Notice of Internet Availability 8
Record Date; Shareholders Entitled to Vote 8
Voting 8
Quorum 9
Vote Required 9
Board Recommendations 10
Attendance at the Annual Meeting 11
Delivery of Annual Reports and Proxy Statements to a Shared Address and Obtaining a Copy of the Annual Report 12
Shareholder Proposals or Director Nominations for the 2017 Annual Meeting 13
Proxy Solicitation 13

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCE


14

Board Meetings and Attendance


14
Board Committees 14
The Board's Leadership Structure 17
The Board's Role in Risk Oversight 18
Director Resignation Due to a Substantial Change in their Primary Business Position 19
Director Retirement Policy 19
Shareholder Engagement and Communications with the Board 20
Codes of Ethics and APS Core Strategic Framework 21
Director Qualifications and Selection of Nominees for the Board 22

PROPOSAL 1 — ELECTION OF DIRECTORS


25

Director Independence


31
2016 Proxy Statement      |      GRAPHIC      i

Table of Contents

PAGE

 


 

STOCK MATTERS


33

Ownership of Pinnacle West Stock


33
Section 16(a) Beneficial Ownership Reporting Compliance 34

RELATED PARTY TRANSACTIONS


35

REPORT OF THE HUMAN RESOURCES COMMITTEE


36

EXECUTIVE COMPENSATION


37

Compensation Discussion and Analysis ("CD&A")


37
Executive Compensation Components 43
Summary Compensation Table 65
Grants of Plan-Based Awards 67
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table 68
Outstanding Equity Awards at Fiscal Year-End 71
Option Exercises and Stock Vested 73
Pension Benefits 75
Discussion of Pension Benefits 76
Nonqualified Deferred Compensation 79
Discussion of Nonqualified Deferred Compensation 80
Potential Payments upon Termination or Change of Control 82

HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION


87

DIRECTORS' COMPENSATION


88

Discussion of Directors' Compensation


89
Director Stock Ownership Policy 90

PROPOSAL 2 — ADVISORY VOTE ON EXECUTIVE COMPENSATION


91

PROPOSAL 3 — RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT ACCOUNTANTS FOR THE COMPANY


92

 


 
ii      GRAPHIC       |      2016 Proxy Statement

Table of Contents

2016 Proxy Statement      |      GRAPHIC      iii

Table of Contents

Proxy Statement Summary

This summary highlights our 2015 performance and certain information contained in this Proxy Statement. As it is only a summary, please read the complete Proxy Statement and 2015 Annual Report before you vote. The Proxy Statement and form of proxy are first being made available to shareholders on or about March 31, 2016.

First, here is an overview of what our Company accomplished in 2015:

2015 Highlights: Performance
 

Our Company continued its strong performance in 2015 as evidenced by the following:

Shareholder Value:

o
Pinnacle West increased the dividend for the fourth straight year by 5.0%;

o
Pinnacle West's share price reached a new all-time high and new 52-week intraday highs on four trading days;

o
Pinnacle West's earnings of $437 million, or $3.92 per share, represented an increase of 9.5% over 2014 earnings per share;

o
Since April of 2009, our Company's TSR has outperformed that of the S&P 1500 Electric Utility Index by over 111%. Also during this period, the Company has delivered an annualized TSR of 18.8% and ranked 6th in annualized TSR compared to our Peer Group; and
2016 Proxy Statement      |      GRAPHIC      1

Table of Contents

Proxy Statement Summary
    o
    Our stock continues its competitive performance, as shown by comparing our stock's performance to companies in the Edison Electric Institute Index and in the Standard and Poor's 500 Index:

GRAPHIC

Operating Performance:

o
Arizona Public Service Company ("APS") operates Palo Verde Nuclear Generating Station ("Palo Verde"), the largest nuclear generating station in the United States. In 2015:

    Palo Verde generated more electricity than in any year since it began operating in 1986, 32.5 million megawatt-hours, and it remains the only U.S. generating station to produce more than 30 million megawatt-hours in a year; and

    Palo Verde achieved a capacity factor of 94.3%, and a record capacity factor of 100.2% between June and September;

o
APS crews restored service to more than 50,000 customers after one of the most severe monsoon seasons on record, including the replacement of more than 568 damaged poles;

o
Our diverse supplier program continues to be successful, with our 2015 spend exceeding $380 million — the highest total in the program's 23-year history. We were recognized by Edison Electric Institute's Supplier Diversity Executive Council for program innovation and excellence; and

o
APS achieved gas fleet commercial availability of 97.1% during the summer months, exceeding the fleet goal.
2      GRAPHIC       |     2016 Proxy Statement

Table of Contents

Proxy Statement Summary
Customer Value:

o
APS announced plans to join the Energy Imbalance Market administered by the California Independent System Operator;

o
APS improved paperless billing adoption, and now has one of the highest adoption levels at 28% of customers (or 330,000) compared to the North American average of 21%;

o
We ranked in the top ten nationally among large, investor-owned utilities in the 2015 J.D. Power residential customer satisfaction study; and

o
APS was named the Environmental Protection Agency ENERGY STAR Sustained Excellence partner for the 6th consecutive year based on the effective delivery of customer energy efficiency programs.

Sustainability:

o
We assessed our sustainability actions to identify our highest priority elements. These elements are: Energy Innovation, Water Resources, Carbon Management, People, and Safety and Security. Examples of 2015 accomplishments in these areas include:

    Energy Innovation:    APS launched one of the nation's first utility-owned research and development pilot projects to study the offset of peak energy usage with solar energy production. This project makes solar available to a limited number of APS customers who are not typical customers for rooftop solar or have limited income. The approximate ten megawatt project provides a monthly savings on each participant's electric bill for the use of their rooftop;

    Water Resources:    We generated over 37 million megawatt hours of energy using reclaimed water, our highest amount ever;

    Carbon Management:    Forty-seven percent of our energy mix was from carbon-free resources;

    People:    APS focused on improving the engagement of our employees through over 30 individual business unit and department action plans implemented to enhance employee engagement; and

    Safety and Security:    APS had its second lowest number of OSHA recordables and expects to remain within the top decile for electric utilities; additionally, APS continued to implement physical enhancements and cyber security defenses to protect our people and assets.
2016 Proxy Statement      |      GRAPHIC      3

Table of Contents

Proxy Statement Summary

2015 Highlights: Board and Governance
 

Governance Changes in 2015:

o
Last year our directors received an average 97% shareholder vote in favor of their election and no director received a vote of less than 91%;

o
We adopted a Director Retirement Age Policy, see page 19;

o
We increased the CEO stock ownership requirement to five times base salary; and

o
We enhanced our shareholder engagement process, see page 20.

Continuing Governance Highlights:

o
Annual election of all directors (see page 7 of this Proxy Statement Summary for a list of the nominees);

o
Nine of our ten directors are independent;

o
All members of the committees of our Board are independent;

o
Our independent Lead Director has clearly defined and robust responsibilities;

o
Each of our directors attended at least 75% of the Board meetings and any Board committee meeting on which he or she served; all of our directors attended the 2015 Annual Meeting of Shareholders;

o
We do not have a poison pill plan;

o
Our directors and officers are prohibited from pledging or hedging our stock; and

o
We have director and officer stock ownership guidelines.

2015 Highlights: Compensation
 

Compensation Changes in 2015:

o
Starting with the 2015 Annual CEO Incentive Plan Award (the "CEO Incentive Plan") and continuing with the 2016 Annual CEO Incentive Plan Award, we limit the use of discretion to adjust incentive awards solely to the occurrence of unanticipated events that may arise during the performance period;

o
We changed the allocation of the value of our annual long-term equity awards to 60% performance-based and 40% time-based vesting beginning with the 2016 awards; and

o
We added clawback provisions to our 2016 annual cash incentive plans and performance share equity grant agreements.
4      GRAPHIC       |      2016 Proxy Statement

Table of Contents

Proxy Statement Summary
Continuing Compensation Highlights:

o
We continued our executive compensation program's focus on being transparent with a clear emphasis on rewarding performance by putting pay at risk and retaining key executives. Our executive compensation philosophy incorporates the following core principles and objectives:

    Alignment with shareholder interests;

    Key management retention;

    A focus on a few key elements that are simple and understandable: base salary; annual performance-based cash incentive; three-year performance-based equity grant; a retention-based equity grant that releases over a four-year period; pension and supplemental pension retirement benefits; and limited perquisites;

    A significant portion of our Named Executive Officers' (as defined on page 37 of this Proxy Statement) compensation is at risk and based on performance — our annual cash incentive plans are 100% tied directly to earnings, business unit performance and individual performance, and our performance shares are based on TSR and value-driving business metrics; and

    We use multiple business performance metrics, capped payouts and other features that are designed to reward performance but not encourage unacceptable risk taking.

o
Please see our "Compensation Discussion and Analysis" beginning on page 37 of this Proxy Statement for a detailed explanation of our executive compensation program.
2016 Proxy Statement      |      GRAPHIC      5

Table of Contents

Annual Meeting of Shareholders
 

Date: May 18, 2016
Time: 10:30 a.m. Mountain Standard Time
Place: Heard Museum
2301 North Central Avenue
Phoenix, Arizona 85004
Record Date: March 10, 2016
Admission to the Meeting: An admission card will be required to attend the Annual Meeting. See page 11 of this Proxy Statement under the heading "Attendance at the Annual Meeting" to obtain an admission card.
Delivery of Materials: Proxy Statement and form of proxy are first being made available to shareholders on or about March 31, 2016.

Voting Matters and Board of Directors ("Board") Recommendations
 

MATTERS
BOARD
RECOMMENDATIONS

PAGE
Election of directors ü FOR each nominee 25
Advisory vote to approve executive compensation ü FOR 91
Ratification of Deloitte & Touche LLP ("D&T") as our independent accountants for 2016 ü FOR 92
Shareholder proposal, if properly presented at the Annual Meeting X AGAINST 96
6      GRAPHIC       |      2016 Proxy Statement

Table of Contents

Director Nominees
 

Our director nominees are:

GRAPHIC

2016 Proxy Statement      |      GRAPHIC      7

Table of Contents

Proxy Statement — General Information

Place, Date and Time
 

The Company's 2016 Annual Meeting of Shareholders ("Annual Meeting") will be held at the Heard Museum, 2301 North Central Avenue, Phoenix, Arizona 85004, at 10:30 a.m., Mountain Standard Time, on Wednesday, May 18, 2016.

Notice of Internet Availability
 

Unless you elected to receive printed copies of the proxy materials in prior years, you will receive a Notice of Internet Availability of Proxy Materials by mail (the "Internet Notice"). The Internet Notice will tell you how to access and review the proxy materials. If you received an Internet Notice by mail and would like to receive a printed copy of the proxy materials, you should follow the instructions included on the Internet Notice.

The Internet Notice is first being sent to shareholders on or about March 31, 2016. The Proxy Statement and the form of proxy relating to the Annual Meeting are first being made available to shareholders on or about March 31, 2016.

Record Date; Shareholders Entitled to Vote
 

All shareholders at the close of business on March 10, 2016 (the "Record Date") are entitled to vote at the meeting. Each holder of outstanding Company common stock is entitled to one vote per share held as of the record date on all matters on which shareholders are entitled to vote, except for the election of directors, in which case "cumulative" voting applies (see "Vote Required — Election of directors"). At the close of business on the Record Date, there were 111,138,441 shares of common stock outstanding.

Voting
 

GRAPHIC Vote by Internet. The website address for Internet voting is on the proxy card and the Internet Notice. Internet voting is available 24 hours a day.

GRAPHIC


Vote by telephone. The toll-free number for telephone voting is on your proxy card. Telephone voting is available 24 hours a day.

GRAPHIC


Scan this QR device. The QR system is available 24 hours a day.

GRAPHIC


Vote by mail. You may vote by mail by promptly marking, signing, dating, and mailing your proxy card (a postage-paid envelope is provided for mailing in the United States).
8      GRAPHIC       |      2016 Proxy Statement

Table of Contents

PROXY STATEMENT — GENERAL INFORMATION

GRAPHIC Vote in person. You may come to and vote at the Annual Meeting. If you hold your shares in street name, you must obtain a proxy, executed in your favor, from the holder of record if you wish to vote these shares at the meeting. Please also review the requirements for attending the Annual Meeting under the heading "Attendance at the Annual Meeting" on page 11.

If you vote by telephone or Internet, DO NOT mail a proxy card.

You may change or revoke your vote at any time before the proxy is exercised by: filing with our Corporate Secretary either a notice of revocation or a signed proxy card bearing a later date; re-voting by telephone; or re-voting by Internet. Your proxy will be suspended with respect to your shares if you attend the meeting in person and so request, although attendance at the meeting will not by itself revoke a previously-granted proxy.

Your vote is confidential. Only the following persons have access to your vote: election inspectors; individuals who help with the processing and counting of votes; and persons who need access for legal reasons. All votes will be counted by an independent inspector of elections appointed for the Annual Meeting.

Quorum
 

The presence, in person or by proxy, of a majority of the outstanding shares of our common stock is necessary to constitute a quorum at the Annual Meeting. In counting the votes to determine whether a quorum exists, shares that are entitled to vote but are not voted at the direction of the beneficial owner (called abstentions) and votes withheld by brokers in the absence of instructions from beneficial owners (called broker non-votes) will be counted for purposes of determining whether there is a quorum. Shares owned by the Company are not considered outstanding or present at the meeting.

Vote Required
 

We employ a plurality voting standard with a director resignation policy because we believe a majority voting policy is inconsistent with cumulative voting, which is mandated by the Arizona Constitution. Election of directors. Individuals receiving the highest number of votes will be elected. The number of votes that a shareholder may, but is not required to, cast is calculated by multiplying the number of shares of common stock owned by the shareholder, as of the Record Date, by the number of directors to be elected. Any shareholder may cumulate his or her votes by casting them for any one nominee or by distributing them among two or more nominees. Abstentions will not be counted toward a nominee's total and will have no effect on the election of directors. You may not cumulate your votes against a nominee. If you hold shares beneficially through a broker, trustee or other nominee and wish to cumulate votes, you should contact your broker, trustee or nominee. If you would like to exercise your cumulative voting rights, you must do so by mail. The Company's Bylaws provide that in an uncontested election, a director nominee who receives a greater number of votes cast "withheld" for his or her election than "for" such election will promptly tender his or her resignation to the Corporate Governance Committee. The Corporate
2016 Proxy Statement      |      GRAPHIC      9

Table of Contents

PROXY STATEMENT — GENERAL INFORMATION

  Governance Committee is required to evaluate the resignation, taking into account the best interests of the Company and its shareholders, and will recommend to the Board whether to accept or reject the resignation.

 


Under the current rules of the New York Stock Exchange ("NYSE"), your broker is not able to vote on your behalf in any director election unless you give your broker specific voting instructions. We encourage you to provide instructions so that your shares will be counted in the election of directors.

Say-on-Pay.    The votes cast "for" must exceed the votes cast "against" to approve the advisory resolution on the compensation disclosed in this Proxy Statement of our Named Executive Officers — the Say-on-Pay vote. This resolution is not intended to address any specific item of compensation, but rather the overall compensation of the Named Executive Officers and the compensation philosophy, policies and procedures described in this Proxy Statement. Because your vote is advisory, it will not be binding on the Board or the Company. However, the Board will review the voting results and take them into consideration when making future decisions regarding executive compensation. Abstentions and broker non-votes will have no effect on the outcome of this proposal. We will hold an advisory vote on Say-on-Pay on an annual basis until we next hold an advisory vote of shareholders on the frequency of such votes as required by law.

Ratification of the appointment of the independent accountants and approval of the shareholder proposal.    The votes cast "for" must exceed the votes cast "against" to ratify the appointment of the independent accountants for the year ending December 31, 2016 and for the approval of the shareholder proposal. Abstentions and broker non-votes will have no effect on the outcome of these proposals. With respect to the shareholder proposal, because your vote is advisory, it will not be binding on the Board or the Company. However, the Board will review the voting results and take into consideration our shareholders' views.

Board Recommendations
 

Board Recommendations.    The Board recommends a vote:

ü
FOR the election of the nominated slate of directors (Proposal 1);

ü
FOR the approval, on an advisory basis, of the resolution approving the compensation of our Named Executive Officers, as disclosed in this Proxy Statement (Proposal 2);

ü
FOR the ratification of the appointment of D&T as the Company's independent accountants for the year ending December 31, 2016 (Proposal 3); and

X       AGAINST the approval of the shareholder proposal (Proposal 4).

The Board is not aware of any other matters that will be brought before the shareholders for a vote. If any other matters properly come before the meeting, the proxy holders will vote on those matters in accordance with the recommendations of the Board or, if no recommendations are given, in accordance with their own judgment.

10      GRAPHIC       |      2016 Proxy Statement

Table of Contents

PROXY STATEMENT — GENERAL INFORMATION

Attendance at the Annual Meeting
 

Only shareholders as of the Record Date, or a validly designated proxy, are invited to attend the Annual Meeting. We have implemented the following procedures for attendance at the Annual Meeting:

Security.  You will need both an admission card and a current government-issued picture identification (such as a driver's license or a passport) to enter the meeting. Please follow the instructions below and an admission card will be mailed to you. Please do not carry items such as large handbags and packages to the meeting, as we reserve the right to inspect any items brought into the meeting. Weapons are prohibited in the meeting. We also reserve the right to prohibit bringing cell phones, pagers, cameras, recording devices, banners, signs, and other items into the meeting room.

Who can attend the meeting and how to obtain an admission card.  Attendance is limited to Pinnacle West shareholders as of the Record Date or their validly designated proxy. You must pre-register and obtain an admission card in advance if you plan to attend the meeting. Please follow the instructions below that correspond to how you hold your Pinnacle West stock:

    o
    If you hold your Pinnacle West shares directly with the Company and you received a proxy card or you hold your Pinnacle West shares through the Pinnacle West Capital Corporation Savings Plan: Please follow the advance registration instructions set forth on your proxy card, which was included in the mailing from the Company;

    o
    If you hold your Pinnacle West shares directly with the Company and you received a Notice of Internet Availability of Proxy Materials or you received your proxy materials by e-mail: Please follow the advance registration instructions provided when you vote by mobile device or the Internet or, if you vote by telephone, please follow the steps below for submitting an advance registration request and include a copy of your Notice of Internet Availability of Proxy Materials or e-mail, as applicable, as your proof of ownership;

    o
    If you hold your Pinnacle West shares through a broker, bank or other institutional account: Please send an advance registration request containing the information listed below to:

Pinnacle West Capital Corporation
Shareholder Services Department
P.O. Box 53999, Mail Station 8602
Phoenix, AZ 85072-3999

    PLEASE INCLUDE THE FOLLOWING INFORMATION IN A REQUEST FOR AN ADMISSION CARD:

    o
    Your name and complete mailing address;

    o
    The name of any other shareholder who will accompany you (the other shareholder's name must appear on the documentation showing ownership of the stock);
2016 Proxy Statement      |      GRAPHIC      11

Table of Contents

PROXY STATEMENT — GENERAL INFORMATION
      o
      If you will be sending a validly designated proxy to attend the meeting on your behalf, the name, address and telephone number of that individual; and

      o
      Proof that you own Pinnacle West shares as of the Record Date (such as a letter from your bank or broker, or a photocopy of your voting instruction form or Notice of Internet Availability of Proxy Materials).

Admission cards will be mailed to shareholders who register before May 12, 2016. Admission cards for requests submitted after May 12, 2016 will be available the day of the Annual Meeting.

Delivery of Annual Reports and Proxy Statements to a Shared Address and Obtaining a Copy of the Annual Report
 

If you and one or more shareholders share the same address, it is possible that only one Internet Notice, Annual Report or Proxy Statement was delivered to your address. Registered shareholders at the same address who wish to receive separate copies of the Internet Notice, the Annual Report or Proxy Statement may:

Call the Company's Shareholder Services Department at 1-602-250-5511;

Mail a request to Shareholder Services at P.O. Box 53999, Mail Station 8602, Phoenix, Arizona, 85072-3999; or

E-mail a request to: shareholderdept@pinnaclewest.com.

The Company will promptly deliver to you the information requested. Shareholders who share the same address but wish to receive one Internet Notice, Annual Report or Proxy Statement may contact the Company through the same methods listed above. Shareholders who own Company stock through a broker and who wish to receive separate copies of the Internet Notice, Annual Report or Proxy Statement should contact their broker.

You may access our Annual Report and Proxy Statement via the Internet. Copies of the Annual Report and Proxy Statement are available on the Company's website (www.pinnaclewest.com) and will be provided to any shareholder promptly upon request. Shareholders may request copies from Shareholder Services at the telephone number or addresses set forth above, or as described on the Internet Notice.

12      GRAPHIC       |      2016 Proxy Statement

Table of Contents

PROXY STATEMENT — GENERAL INFORMATION

Shareholder Proposals or Director Nominations for the 2017 Annual Meeting
 

To be included in the proxy materials for the 2017 Annual Meeting of Shareholders (the "2017 Annual Meeting"), any shareholder proposal intended to be presented must be received by our Corporate Secretary no later than December 1, 2016 at the following address:

Corporate Secretary
Pinnacle West Capital Corporation
400 North Fifth Street, Mail Station 8602
Phoenix, Arizona 85004

A shareholder who intends to present a proposal at the 2017 Annual Meeting, but does not wish it to be included in the 2017 proxy materials, must submit the proposal no earlier than January 18, 2017 and no later than the close of business on February 17, 2017. Nominations for the Board must be received by November 19, 2016. In all cases, shareholders must also comply with the applicable rules of the Securities and Exchange Commission ("SEC") and our Bylaws.

Proxy Solicitation
 

The Board is soliciting the enclosed proxy. The Company may solicit shareholders over the Internet, by telephone or by mail. The Company has retained D.F. King & Co., Inc. to assist in the distribution of proxy solicitation materials and the solicitation of proxies for $10,500, plus customary expenses. The costs of the solicitation will be paid by the Company. Proxies may also be solicited in person, by telephone or electronically by Company personnel who will not receive additional compensation for such solicitation. As required, the Company will reimburse brokerage houses and others for their out-of-pocket expenses in forwarding documents to beneficial owners of our stock.

2016 Proxy Statement      |      GRAPHIC      13

Table of Contents

Information About Our Board and Corporate Governance

Board Meetings and Attendance
 

In 2015 our Directors had perfect (100%) attendance. In 2015, our Board held seven meetings and all of our directors attended 100% of the Board meetings and any meetings of Board committees on which he or she served. Each director is expected to be present at the Annual Meeting. All of the Board members attended the 2015 Annual Meeting.

Board Committees
 

The Board has the following standing committees: Audit; Corporate Governance; Finance; Human Resources; and Nuclear and Operating. All of the charters of the Board's committees are publicly available on the Company's website (www.pinnaclewest.com). All of our committees are comprised of independent directors who meet the independence requirements of the NYSE rules, SEC rules, and the Director Independence Standards, including any specific committee independence requirements.

 
RESPONSIBILITIES
NUMBER OF
MEETINGS
DURING
FISCAL 2015

AUDIT
COMMITTEE:
Bruce J. Nordstrom,
Chair
Denis A. Cortese
Richard P. Fox
Dale E. Klein
Humberto S. Lopez
David P. Wagener
The Audit Committee:

Oversees the integrity of the Company's financial statements;

Appoints the independent accountants and is responsible for their qualifications, independence, performance, and compensation;

Reviews the performance of the Company's internal audit function; and

Monitors the Company's general compliance with legal and regulatory requirements.


6
The Board has determined that each member of the Audit Committee meets the NYSE experience requirements and that Mr. Nordstrom, the Chair of the Audit Committee, and Mr. Fox are "audit committee financial experts" under applicable SEC rules. None of the members of our Audit Committee, other than Mr. Fox, currently serve on more than three public company audit committees. Mr. Fox currently serves on the audit committees of four public companies, including Pinnacle West. Our Board has discussed with Mr. Fox the time and effort required to be devoted by Mr. Fox to his service on these committees and has affirmatively determined that such services do not impair Mr. Fox's ability to serve as an effective member of our Audit Committee.  
14      GRAPHIC       |      2016 Proxy Statement

Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCE

 
RESPONSIBILITIES
NUMBER OF
MEETINGS
DURING
FISCAL 2015

CORPORATE
GOVERNANCE
COMMITTEE:
Kathryn L. Munro,
Chair
Michael L. Gallagher
Roy A. Herberger, Jr.
Bruce J. Nordstrom
The Corporate Governance Committee:

Reviews and assesses the Corporate Governance Guidelines;

Develops and recommends to the Board criteria for selecting new directors;

Identifies and evaluates individuals qualified to become members of the Board, consistent with the criteria for selecting new directors;

Recommends director nominees to the Board;

Recommends to the Board who should serve on each of the Board's committees;

Reviews the results of the Annual Meeting shareholder votes; and

Reviews and makes recommendations to the Board regarding the selection of the CEO and CEO succession planning.

5
The Corporate Governance Guidelines are available on the Company's website (www.pinnaclewest.com).  
     

 


 


 
FINANCE
COMMITTEE:
Humberto S. Lopez,
Chair
Richard P. Fox
Roy A. Herberger, Jr.
Kathryn L. Munro
David P. Wagener
The Finance Committee:

Reviews the Company's historical and projected financial performance and the Company's financing plan and recommends approval of credit facilities and the issuance of long-term debt, common equity and preferred securities;

Reviews and recommends approval of the Company's annual capital budget and reviews the annual operations and maintenance budget;

Reviews and recommends approval of short-term investments and borrowing policies; and

Reviews and recommends to the Board the Company's dividend actions.


4
2016 Proxy Statement      |      GRAPHIC      15

Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCE

 
RESPONSIBILITIES
NUMBER OF
MEETINGS
DURING
FISCAL 2015

HUMAN
RESOURCES
COMMITTEE:
Roy A. Herberger, Jr.,
Chair
Denis A. Cortese
Richard P. Fox
Humberto S. Lopez
Kathryn L. Munro
The Human Resources Committee:

Reviews management's programs for the attraction, retention, and development of the Company's human resources;

Recommends to the Board persons for election as officers;

Annually reviews the goals and performance of the officers of the Company and APS;

Approves corporate goals and objectives relevant to the compensation of the Company's CEO, assesses the CEO's performance in light of these goals and objectives, and sets the CEO's compensation based on this assessment;

Makes recommendations to the Board with respect to non-CEO executive compensation and director compensation; and

Acts as the "committee" under the Company's long-term incentive plans.

4
Under the Human Resources Committee's charter, the Human Resources Committee may delegate authority to subcommittees, but did not do so in 2015. Additional information on the processes and procedures of the Human Resources Committee is provided under the heading "Compensation Discussion and Analysis ("CD&A")".  
     

 


 


 
NUCLEAR AND
OPERATING
COMMITTEE:
Michael L. Gallagher,
Chair
Denis A. Cortese
Dale E. Klein
Bruce J. Nordstrom
David P. Wagener
The Nuclear and Operating Committee:

Receives regular reports from management and monitors the overall performance of Palo Verde;

Reviews the results of major Palo Verde inspections and evaluations by external oversight groups, such as the Institute of Nuclear Power Operations ("INPO") and the Nuclear Regulatory Commission ("NRC");

Reviews and monitors the power plant operations, energy transmission and delivery, and customer service functions of the Company; and

Reviews and monitors the Company's compliance with environmental, health and safety policies.

4
In addition, the Nuclear and Operating Committee receives regular reports from the Offsite Safety Review Committee (the "OSRC"). The OSRC provides independent assessments of the safe and reliable operations of Palo Verde. Pursuant to Palo Verde's operating licenses, the OSRC focuses its assessment on operations, engineering, maintenance, safety, security and other support functions. The OSRC is comprised of non-employee individuals with senior management experience in the nuclear industry and the Palo Verde Director of Nuclear Assurance. The OSRC meets periodically throughout the year.  
16      GRAPHIC       |      2016 Proxy Statement

Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCE

The Board's Leadership Structure
 

Lead Director.    Kathryn L. Munro serves as the Company's Lead Director and chairs the Corporate Governance Committee. The Lead Director performs the following functions:

Serves as a liaison between the Chairman of the Board (the "Chairman") and the independent directors;

Advises the Chairman as to an appropriate schedule of Board meetings, reviews and provides the Chairman with input regarding agendas for the Board meetings and, as appropriate or as requested, reviews and provides the Chairman with input regarding information sent to the Board;

Presides at all meetings at which the Chairman is not present, including executive sessions of the independent directors (which are regularly scheduled as part of each Board meeting) and calls meetings of the independent directors when necessary and appropriate;

Oversees the Board and Board committee self-assessment process;

Is available for appropriate consultation and direct communication with the Company's shareholders and other interested parties;

Performs such other duties as the Board may from time to time delegate; and

Reviews the results of the Annual Meeting shareholder votes.

Chairman and CEO Positions.    The Chairman is Donald E. Brandt, the Company's President and CEO. The independent directors believe that Mr. Brandt, as an experienced leader with extensive knowledge of the Company and our industry, serves as a highly effective conduit between the Board and management and that Mr. Brandt provides the vision and leadership to execute on the Company's strategy and create shareholder value. The Board believes that separating the roles of the CEO and Chairman and appointing an independent Board Chairman at this time would simply create an additional level of unneeded hierarchy that would only duplicate the activities already being vigorously carried out by our Lead Director.

2016 Proxy Statement      |      GRAPHIC      17

Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCE

The Board's Role in Risk Oversight
 

Top risks discussed by the Board and its committees in 2015 included cyber security, data privacy and utility regulation. The Board believes it is important to look at the list fresh each year as part of a diligent risk review. The ultimate responsibility for the management of the Company's risks rests with the Company's senior management team. The Board's oversight of the Company's risk management function is designed to provide assurance that the Company's risk management processes are well adapted to and consistent with the Company's business and strategy, and are functioning as intended. The Board focuses on fostering a culture of risk awareness and risk-adjusted decision-making and ensuring that an appropriate "tone at the top" is established. The Board regularly discusses and updates a listing of areas of risk and a suggested allocation of responsibilities for such risks among the Board and the Board committees. The charter for each of our committees requires each committee to periodically review risks in their respective areas. Each committee:

Receives periodic presentations from management about its assigned risk areas;

Considers the effectiveness of the risk identification and mitigation measures being employed; and

Discusses their risk reviews with the Board at least annually.

Consistent with the requirements of the NYSE's corporate governance standards, the Audit Committee periodically reviews the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures. The Audit Committee also reviews the comprehensiveness of the Board's risk oversight and the Company's risk assessment process, and plays a coordinating role designed to ensure that no gaps exist in the coverage by the Board committees of risk areas. In recommending the composition of the Board's committees and the selection of committee Chairs, the Corporate Governance Committee takes into account the effective functioning of the risk oversight role of each Board committee and the risk areas assigned to it.

The Executive Risk Committee is comprised of senior level officers of the Company and is chaired by the Chief Financial Officer. Among other responsibilities, this Committee is responsible for ensuring that the Board receives timely information concerning the Company's material risks and risk management processes. The Executive Risk Committee provides the Board with a list of the Company's top risks on an annual basis. The internal enterprise risk management group reports to the Vice President, Controller and Chief Accounting Officer, who reports to the Executive Vice President and Chief Financial Officer. The internal risk management group is responsible for (1) implementing a consistent risk management framework and reporting process across APS, and (2) ensuring that the Executive Risk Committee is informed of those processes and regularly apprised of existing material risks and the emergence of additional material risks.

18      GRAPHIC       |      2016 Proxy Statement

Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCE

Director Resignation Due to a Substantial Change in their Primary Business Position
 

Under the Company's Corporate Governance Guidelines, upon a substantial change in a director's primary business position from the position the director held when originally elected to the Board, a director is required to apprise the Corporate Governance Committee and to offer his or her resignation for consideration to the Corporate Governance Committee. The Corporate Governance Committee will recommend to the Board the action, if any, to be taken with respect to the tendered resignation.

Director Retirement Policy
 

Under the Company's Corporate Governance Guidelines, an individual shall not be eligible to be nominated for election or re-election as a member of the Board of the Company or APS if, at the time of the nomination, the individual has attained the age of 75 years. This policy shall apply regardless of the source of the nomination or whether the nomination was made at a meeting of the Board of Directors, at an Annual Meeting or otherwise.

2016 Proxy Statement      |      GRAPHIC      19

Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCE

Shareholder Engagement and Communications with the Board
 

What our shareholders think is important to us. We have a long-standing investor outreach program conducted throughout the year to maintain a dialogue with current and potential shareholders. For the last several years, we have also had an increasingly active proxy engagement program in support of the Annual Meeting, in order to understand the governance priorities of our shareholders. Discussion topics include governance best practices, Board makeup, compensation policies and sustainability. The diagram below provides an overview of our outreach program cycle:

GRAPHIC

Shareholders and other parties interested in communicating with the Board may do so by writing to the Corporate Secretary, Pinnacle West Capital Corporation, 400 North Fifth Street, Mail Station 8602, Phoenix, Arizona 85004, indicating who should receive the communication. The Corporate Secretary will transmit communications not otherwise specifically addressed and that raise substantial issues to the Lead Director and to the Chair of the Board Committee most closely associated with the matter. The Corporate Secretary has discretion to exclude communications that are commercial advertisements or other forms of solicitations, service or billing complaints and complaints related to individual employment-related actions.

20      GRAPHIC       |      2016 Proxy Statement

Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCE

Codes of Ethics and APS Core Strategic Framework
 

To ensure the highest levels of business ethics, the Board has adopted the Code of Ethics and Business Practices, which applies to all employees, officers and directors, and the Code of Ethics for Financial Executives, both of which are described below:

Code of Ethics and Business Practices ("Code of Ethics").    Employees, directors and officers receive the Code of Ethics when they join the Company or APS, as well as any subsequent updates. The Code of Ethics helps ensure that employees, directors and officers of the Company and APS act with integrity and avoid any real or perceived violation of the Company's policies and applicable laws and regulations. The Company provides periodic online training and examination covering the principles in the Code of Ethics. This training includes extensive discussion of the Company's values, an explanation of Company ethical standards, application of ethical standards in typical workplace scenarios, information on reporting concerns, assessment questions to measure understanding, and an agreement to abide by the Code of Ethics. All employees of the Company and APS and all of our directors complete the training.

Code of Ethics for Financial Executives.    The Company has adopted a Code of Ethics for Financial Executives, which is designed to promote honest and ethical conduct and compliance with applicable laws and regulations, particularly as related to the maintenance of financial records, the preparation of financial statements, and proper public disclosure. "Financial Executive" means the Company's CEO, Chief Financial Officer, Chief Accounting Officer, Controller, Treasurer, General Counsel, President and Chief Operating Officer of APS, and other persons designated from time to time as a Financial Executive subject to this policy by the Chair of the Audit Committee.

Both codes are available on the Company's website (www.pinnaclewest.com).

2016 Proxy Statement      |      GRAPHIC      21

Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCE

Core.    The Company and APS have adopted Core, which is a strategic framework that sets forth the foundation from which we operate. It defines our vision, mission, critical areas of focus, and values. APS's vision is to create a sustainable energy future for Arizona. APS's mission is to safely and efficiently deliver reliable energy to meet the changing needs of our customers. The critical areas of focus are employees, operational excellence, environment, customer value, community, and shareholder value. The framework affirms our corporate values of safety, integrity and trust, respect and inclusion, and accountability. Here is our Core:

GRAPHIC

Director Qualifications and Selection of Nominees for the Board
 

Director Qualifications.    The Bylaws and the Corporate Governance Guidelines contain Board membership criteria that apply to nominees recommended for a position on the Board. Under the Bylaws, a director must be a shareholder of the Company. In determining whether an individual should be considered for Board membership, the Corporate Governance Committee considers the following core characteristics:

High Standards:  We look for directors that set high standards and expectations for themselves and others and the accomplishment of those standards and expectations.

Informed Judgment:  Directors should be thoughtful in their deliberations. We look for directors who demonstrate intelligence, wisdom and thoughtfulness in decision-making.
22      GRAPHIC       |      2016 Proxy Statement

Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCE

    Their decision-making process should include a willingness to thoroughly discuss issues, ask questions, express reservations and voice dissent.

Integrity and Accountability:  Directors should act with integrity. We look for directors who have integrity and strength of character in their personal and professional dealings. Our directors should be prepared to be, and are held, accountable for their decisions.

Time and Effort:  Directors should spend the necessary time to properly discharge their responsibilities as directors, including reviewing written materials provided to the Board or committee in advance of Board or committee meetings. Directors are expected to be present at all Board meetings, the Annual Meeting of Shareholders, and meetings of committees on which they serve. We also expect our directors to make themselves accessible to management upon request.

Other Commitments:  We expect our directors to monitor their other commitments to assure that these other commitments do not impact their service to our Company. Directors may not serve on more than three other boards of public companies in addition to the Pinnacle West Board without the prior approval of the Corporate Governance Committee. A director may not serve as a member of the Audit Committee if they serve on the audit committees of more than three public companies (including the Company) unless the Board determines that such simultaneous service would not impair the ability of such member to effectively serve on the Company's Audit Committee.

Stock Ownership:  We expect our directors to have investments in the Company's stock that aligns with our shareholders. Our directors are expected to comply with our Director Stock Ownership Policy.

In addition, the Corporate Governance Committee considers the following qualities, among others: knowledge, including regulatory and political knowledge, and nuclear expertise at the strategic level; understanding of the Company's business environment; and the potential contribution of each candidate to the diversity of backgrounds, experience and competencies which the Board desires to have represented, including large organizational leadership, public company experience and risk oversight skills. The Corporate Governance Committee considers diversity in its selection of nominees utilizing a broad meaning to include not only factors such as race and gender, but also background, experience, skills, accomplishments, financial expertise, and professional interests.

Selection of Nominees for the Board.    The Corporate Governance Committee uses a variety of methods to identify and evaluate nominees for a director position. The Corporate Governance Committee regularly assesses the appropriate size of the Board, whether any vacancies on the Board are expected due to retirement or otherwise, and whether the Board reflects the appropriate balance of knowledge, skills, expertise, and diversity required for the Board as a whole. In the event that vacancies are anticipated, or otherwise arise, the Corporate Governance Committee may consider various potential candidates. Candidates may be considered at any point during the year and come to the attention of the Corporate Governance Committee through current Board members, professional search firms or shareholders. The Corporate Governance Committee evaluates all nominees from these sources against the same criteria. Any shareholder nominations proposed for consideration by the Corporate Governance

2016 Proxy Statement      |      GRAPHIC      23

Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCE

Committee should include the nominee's name and qualifications for Board membership and should be addressed to:

Corporate Secretary
Pinnacle West Capital Corporation
400 North Fifth Street, Mail Station 8602
Phoenix, Arizona 85004

Any shareholder who wishes to submit a nomination for a director to the Board must deliver that nomination to our Corporate Secretary by November 19, 2016 and comply with the information requirements in the Company's Bylaws.

24      GRAPHIC       |      2016 Proxy Statement

Table of Contents

Proposal 1 — Election of Directors

The ten nominees for election as directors are set forth below. All nominees will be elected for a one-year term that will expire at the 2017 Annual Meeting. The directors' ages are as of February 20, 2016. All of our directors also serve as directors of APS for no additional compensation.

Donald E. Brandt

BACKGROUND


Age 61

Director since 2009

Chairman of the Board, President and CEO
of the Company and APS

Mr. Brandt not only serves as our Chairman of the Board, President and CEO, he has been recognized as a leader in the industry, currently serving as Chairman of Nuclear Energy Institute ("NEI") and Nuclear Energy Insurance Limited ("NEIL"), Vice Chairman of the Institute of Nuclear Power Operations ("INPO"), and a Board Member of Edison Electric Institute ("EEI"). Mr. Brandt brings the following key attributes to the Company:

Utility specific financial and operational experience

Extensive knowledge of the nuclear industry

CEO experience

Mr. Brandt has been Chairman of the Board and CEO of the Company since April 2009 and President of the Company since March 2008. He has been President of APS since May 2013, Chairman of the Board of APS since April 2009, and CEO of APS since March 2008. Mr. Brandt also served as President of APS from December 2006 to January 2009. Mr. Brandt has served as an officer of the Company in the following additional capacities: March 2008 to April 2009 as Chief Operating Officer; September 2003 to March 2008 as Executive Vice President; December 2002 to September 2003 as Senior Vice President; and December 2002 to March 2008 as Chief Financial Officer.

QUALIFICATIONS


As Chairman of the Board, President and CEO of the Company and APS, and with nearly three decades of experience in the utility industry, Mr. Brandt has a broad understanding of the factors affecting the Company's business. Mr. Brandt currently serves as Chairman of NEI and NEIL, Vice Chairman of INPO, and as a board member of EEI, all major industry organizations that provide insight into operational, financial and policy matters of great importance to the Company.

2016 Proxy Statement      |      GRAPHIC      25

Table of Contents

PROPOSAL 1 — ELECTION OF DIRECTORS

Denis A. Cortese, M.D.

BACKGROUND


Age 71

Director since 2010

Committees

Audit

Human Resources

Nuclear and Operating

INDEPENDENT DIRECTOR

Dr. Cortese, former President and CEO of Mayo Clinic, a worldwide leader in medical care with operations located throughout the United States, brings the following key attributes to the Company:

Complex operations experience

Risk oversight and management experience

CEO experience

Dr. Cortese is the Director of the ASU Health Care Delivery and Policy Program and a Foundation Professor in the Department of Biomedical Informatics, Ira A. Fulton School of Engineering and in the School of Health Management and Policy, W.P. Carey School of Business. He has held these positions since February 2010. Dr. Cortese has been Emeritus President and Chief Executive Officer of the Mayo Clinic (medical clinic and hospital services) since November 2009, and was President and Chief Executive Officer of the Mayo Clinic from March 2003 until his retirement in November 2009. Dr. Cortese is also a director of Cerner Corporation.

QUALIFICATIONS


As former President and Chief Executive Officer of the Mayo Clinic, Dr. Cortese has extensive experience in leading complex organizations with multiple constituencies and has led an organization that delivers strong and efficient customer service, which parallels the Company's strategies. Further, his background in public policy development, science and technology brings valuable perspective to issues that face the Company.

Richard P. Fox

BACKGROUND


Age 68

Director since 2014

Committees

Audit

Finance

Human Resources

INDEPENDENT DIRECTOR

As a former Managing Partner of Ernst and Young, one of the "Big Four" auditing firms with multinational operations, Mr. Fox brings the following key attributes to the Company:

Audit expertise

Financial literacy

Risk oversight and management experience

Mr. Fox has served as a consultant and independent board member since 2001 for companies in various industries. Mr. Fox previously held executive, operational and financial positions at CyberSafe Corporation ("CyberSafe"), Wall Data, Incorporated ("Wall Data") and PACCAR Inc., and is a former Managing Partner of Ernst and Young's Seattle office. Mr. Fox is also a director of Acxiom Corporation, Univar, Inc., and ServiceMaster Global Holdings. Within the past five years, Mr. Fox has served as a director of FLOW International Corporation, Orbitz Worldwide, and Pendrell Corporation.

QUALIFICATIONS


As a former Managing Partner of Ernst and Young and as former Chief Financial Officer of Wall Data and President and Chief Operating Officer of CyberSafe, Mr. Fox has a deep understanding of financial and accounting matters. Mr. Fox has also served on the boards of several companies throughout his career, including seven public companies. His extensive board experience, including service on various audit committees and finance committees, including chairmanships, adds to the Board's depth and capabilities.

26      GRAPHIC       |     2016 Proxy Statement

Table of Contents

PROPOSAL 1 — ELECTION OF DIRECTORS

Michael L. Gallagher

BACKGROUND


Age 71

Director since 1999

Committees

Nuclear and Operating (Chair)

Corporate Governance

INDEPENDENT DIRECTOR

As a founding member of Gallagher & Kennedy, Mr. Gallagher built a successful law practice in Arizona. In his role as Chair of the Nuclear and Operating Committee, Mr. Gallagher has devoted significant time in becoming familiar with the Company's generation, transmission and distribution operations. Mr. Gallagher has represented the Company before the NRC and has participated on the Company's behalf in meetings of the World Organization of Nuclear Operators. Mr. Gallagher brings the following key attributes to the Company:

Extensive knowledge of the Company's business operations

Leadership experience

Governance/legal experience

Mr. Gallagher is Chairman Emeritus of Gallagher & Kennedy P.A. ("Gallagher & Kennedy") in Phoenix, Arizona (an Arizona-based law firm). He has held this position since 2001. Mr. Gallagher served as President of Gallagher & Kennedy from 1978 through 2000. Mr. Gallagher is a director of AMERCO, the parent company of U-Haul International, Inc., and chairs its Independent Governance Committee. He is also a Trustee of the Peter Kiewit Foundation.

QUALIFICATIONS


Mr. Gallagher has represented a broad and diverse spectrum of corporate clients. Mr. Gallagher provides guidance and judgment gained through advising senior management and boards of directors on the varied issues regularly considered by the Board. His knowledge and experience from participating on the boards of other publicly-traded and private companies provides valuable perspective to the Company, and his extensive experience addressing corporate governance matters makes him a good fit for our Corporate Governance Committee.

2016 Proxy Statement      |      GRAPHIC      27

Table of Contents

PROPOSAL 1 — ELECTION OF DIRECTORS


Roy A. Herberger, Jr., Ph.D.

BACKGROUND


Age 73

Director since 1992

Committees

Human Resources (Chair)

Corporate Governance

Finance

INDEPENDENT DIRECTOR

As the former President of Thunderbird, a graduate school of global management, Dr. Herberger brings the following key attributes to the Company:

Leadership experience

Complex operations experience

Marketing experience

Dr. Herberger is President Emeritus of the Thunderbird School of Global Management (graduate management school) ("Thunderbird"). He has held this position since November 2004. Dr. Herberger was President of Thunderbird from 1989 until August 2004. Dr. Herberger is also a director of the Apollo Education Group, Inc. ("Apollo Group") and a Trustee for the Mayo Clinic.

QUALIFICATIONS


Dr. Herberger has both management experience and a strong understanding of business and economic trends. He also has extensive corporate board service, which aids in his contributions to the Company's Board. Dr. Herberger's service as the Lead Director and Chair of the Compensation Committee of the Apollo Group, a Fortune 500 company, and his service as a Trustee for the Mayo Clinic, contributes to the strength of the Company's governance and human resources processes.

 

Dale E. Klein, Ph.D.

BACKGROUND


Age 68

Director since 2010

Committees

Audit

Nuclear and Operating

INDEPENDENT DIRECTOR

As former Chairman of the NRC, the entity that formulates policies and regulations governing nuclear reactor and materials safety, issues orders to licensees, and adjudicates legal matters brought before it, Dr. Klein brings the following key attributes to the Company:

Regulatory experience

Nuclear operations experience

Leadership experience

Dr. Klein served as Chairman of the U.S. Nuclear Regulatory Commission from July 2006 to May 2009, and thereafter continued as a Commissioner until March 2010. He was Assistant to the Secretary of Defense for Nuclear, Chemical and Biological Defense Programs from November 2001 to July 2006. Dr. Klein is a Professor of Mechanical Engineering and Associate Director of the Energy Institute at the University of Texas at Austin. He has held these positions since April 2010. Dr. Klein is also Associate Vice Chancellor for Research at the University of Texas System. He has held this position since January 2011. He is also a director of Southern Company.

QUALIFICATIONS


Dr. Klein brings expertise in all aspects of nuclear energy regulation, operation, technology and safety. His broad national and international experience in nuclear energy and government brings value to the Board, not only from the perspective of our operations at Palo Verde, but also as the Company and APS look at new opportunities in our evolving utility business.

28      GRAPHIC       |     2016 Proxy Statement

Table of Contents

PROPOSAL 1 — ELECTION OF DIRECTORS


Humberto S. Lopez

BACKGROUND


Age 70

Director since 1995

Committees

Finance (Chair)

Audit

Human Resources

INDEPENDENT DIRECTOR

Mr. Lopez is an accomplished real estate developer throughout Arizona and brings the following key attributes to the Company:

Strategic oversight and analysis of business strategies

Financial literacy

Leadership experience

Mr. Lopez is President of HSL Properties, Inc. (real estate development and investment), in Tucson, Arizona. He has held this position since 1975.

QUALIFICATIONS


In addition to management and business knowledge, Mr. Lopez brings extensive investment and real estate development expertise to the Company. His understanding of real estate and associated markets has proven to be a valuable asset to the Company due to the importance of those markets in Arizona. Mr. Lopez is also familiar with the State's historic economic cycles, which helps the Company plan for future growth and energy needs.

 

Kathryn L. Munro

BACKGROUND


Age 67

Director since 2000

Lead Director

Committees

Corporate Governance (Chair)

Finance

Human Resources

INDEPENDENT DIRECTOR

As a former CEO of BofA's Southwest Banking Group, Ms. Munro brings a wealth of experience to the Company, including the following key attributes:

CEO experience

Financial literacy

Risk oversight and management experience

Ms. Munro is a principal of BridgeWest, LLC (an investment company). She has held this position since July 2003. Ms. Munro was Chairman of BridgeWest, LLC from February 1999 until July 2003. From 1996 to 1998, Ms. Munro served as Chief Executive Officer of Bank of America's ("BofA") Southwest Banking Group and was President of BofA Arizona from 1994 to 1996. Prior to that, Ms. Munro held a variety of senior positions during her 20-year career with BofA. Ms. Munro is also a director of Knight Transportation, Inc. ("Knight") and Premera Blue Cross. Within the past five years, Ms. Munro was a director of FLOW International Corporation.

Ms. Munro is the Company's Lead Director.

QUALIFICATIONS


As principal of an investment company, and as former Chief Executive Officer of BofA's Southwest Banking Group and President of BofA Arizona, Ms. Munro brings business acumen and financial knowledge to the Company. Her experience with the cycles in Arizona's economy assists a growing infrastructure company like Pinnacle West in accessing capital and meeting its financing needs. Ms. Munro is an experienced director, currently serving on the boards of Knight and Premera Blue Cross.

2016 Proxy Statement      |      GRAPHIC      29

Table of Contents

PROPOSAL 1 — ELECTION OF DIRECTORS


Bruce J. Nordstrom

BACKGROUND


Age 66

Director since 2000

Committees

Audit (Chair)

Corporate Governance

Nuclear and Operating

INDEPENDENT DIRECTOR

As the President of Nordstrom and Associates and a practicing CPA, Mr. Nordstrom brings the following key attributes to the Company:

Audit expertise

Financial literacy

Risk oversight and management experience

Mr. Nordstrom is President of and a certified public accountant at the firm of Nordstrom & Associates, P.C., in Flagstaff, Arizona. He has held this position since 1988.

QUALIFICATIONS


As the president of an accounting firm, Mr. Nordstrom has an extensive accounting, auditing and financial skill set. Additionally, he provides familiarity with principles of risk management and oversight, and the perspectives of customers in the Northern Arizona service territory of APS.

 

David P. Wagener

BACKGROUND


Age 61

Director since 2014

Committees

Audit

Finance

Nuclear and Operating

INDEPENDENT DIRECTOR

As the Managing Partner of Wagener Capital Management, Mr. Wagener is experienced at analyzing business strategies, and brings the following key attributes to the Company:

Strategic oversight and analysis of business strategies

Investor experience

Industry experience

Mr. Wagener is the Managing Partner of Wagener Capital Management, an investment and advisory firm serving utility and private equity companies. He has held this position since June 1995. Mr. Wagener previously held executive positions at Salomon Brothers and Goldman, Sachs & Co. Within the past five years, Mr. Wagener served as director of Ormat Technologies. Mr. Wagener served as a director of SunCor Development Company from January 2011 to March 2013.

QUALIFICATIONS


Mr. Wagener brings to the Board over 30 years of experience in the power/energy industry, project finance and investment banking experience, and knowledge of utility regulation. His participation brings value to the Company and the Board as we address structural and business challenges facing the utility industry.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
ELECTION OF THE NOMINATED SLATE OF DIRECTORS

30      GRAPHIC       |      2016 Proxy Statement

Table of Contents

DIRECTOR INDEPENDENCE

Director Independence
 

NYSE rules require companies whose securities are traded on the NYSE to have a majority of independent directors. These rules describe certain relationships that prevent a director from being independent and require a company's board of directors to make director independence determinations in all other circumstances. The Company's Board has also adopted Director Independence Standards to assist the Board in making independence determinations. These Director Independence Standards are available on the Company's website (www.pinnaclewest.com).

Nine of our ten directors are independent. Based on the Board's review, the Board has determined that one of the Company's directors is not independent and that all of the other directors are independent. The independent directors are Messrs. Fox, Gallagher, Lopez, Nordstrom, and Wagener, Drs. Cortese, Herberger and Klein, and Ms. Munro. Mr. Brandt is not independent under the NYSE rules or the Director Independence Standards because of his employment with the Company. Ms. Susan Clark-Johnson passed away in January 2015. She was independent while she was a member of the Board.

In accordance with the NYSE rules and the Director Independence Standards, the Board undertakes an annual review to determine which of its directors are independent. The review generally takes place in the first quarter of each year; however, directors are required to notify the Company of any changes that occur throughout the year that may impact their independence.


Dr. Cortese is independent under the tests imposed by the NYSE rules and our Director Independence Standards.


Dr. Cortese is an employee of Arizona State University ("ASU") in his capacity as the Director of the ASU Health Care Delivery and Policy Program and a Foundation Professor in the Department of Biomedical Informatics, Ira A. Fulton School of Engineering and in the School of Health Management and Policy, W.P. Carey School of Business. Ms. Clark-Johnson was also an employee of ASU in her capacity as a Professor of Practice at ASU's Walter Cronkite School of Journalism. ASU is considered a part of the reporting entity for the State of Arizona (the "State") for financial reporting purposes and, as such, the State is the entity considered in applying the independence tests. In considering the independence of Ms. Clark-Johnson and Dr. Cortese, the Board considered the fact that transactions between the State and the Company and its affiliates consist of providing electric service, the payment of various State fees, taxes, memberships, licenses, sponsorships and donations, and the payment by each party of utility-related costs. The Board determined that these matters did not impact Ms. Clark-Johnson's and do not impact Dr. Cortese's independence, since amounts paid to or received from the State are less than the dollar thresholds set forth in the NYSE rules and the Director Independence Standards. In addition, neither of these directors benefitted, and in the case of Dr. Cortese does not benefit, financially, directly or indirectly, from ASU's business relationships with the Company, most of which consist of receiving electric service at regulated rates.
2016 Proxy Statement      |      GRAPHIC      31

Table of Contents

DIRECTOR INDEPENDENCE

Mr. Fox is independent under the tests imposed by the NYSE rules and our Director Independence Standards. Mr. Fox serves as a director of Univar, Inc. APS purchases chemicals that are used in the operation and maintenance of our power plants, primarily in controlling our water chemistry, from Univar. However, since: (a) the amounts paid to Univar were less than the dollar thresholds set forth in the NYSE rules and our Director Independence Standards and were less than one percent of the Company's and Univar's revenues for fiscal year 2015; (b) the relationship between APS and Univar pre-dates Mr. Fox joining the Board; and (c) our purchases from Univar are negotiated at arm's length, the Board determined that these transactions do not impact Mr. Fox's independence.

Mr. Gallagher is independent under the tests imposed by the NYSE rules and our Director Independence Standards. Mr. Gallagher has no involvement in legal services provided to the Company.


In considering the independence of Mr. Gallagher, the Board considered that the law firm of Gallagher & Kennedy, where Mr. Gallagher is Chairman Emeritus, provided legal services to the Company in 2015 and is expected to provide legal services to the Company in 2016. However, since: (a) the amounts paid to Gallagher & Kennedy were less than the dollar thresholds set forth in the NYSE rules and the Director Independence Standards, and were less than one percent of the Company's and Gallagher & Kennedy's revenues for fiscal year 2015; (b) Mr. Gallagher does not furnish legal services to the Company; and (c) he has advised the Company that he receives no compensation or benefits from Gallagher & Kennedy as a result of the firm providing legal services to the Company, the Board determined that Mr. Gallagher was independent.

With respect to all of the directors, the Board considered that many of the directors and/or businesses of which they are officers, directors, shareholders, or employees are located in APS's service territory and purchase electricity from APS at regulated rates in the normal course of business. The Board considered these relationships in determining the directors' independence, but, because the rates and charges for electricity provided by APS are fixed by the Arizona Corporation Commission (the "ACC"), and the directors satisfied the other independence criteria specified in the NYSE rules and the Director Independence Standards, the Board determined that these relationships did not impact the independence of any director. The Board also considered contributions to charitable and non-profit organizations where a director also serves as a director of such charity or organization. However, since no director is also an executive officer of such charitable or non-profit organization, the Board determined that these payments did not impact the independence of any director.

32      GRAPHIC       |      2016 Proxy Statement

Table of Contents

Stock Matters

Ownership of Pinnacle West Stock
 

The following table shows the amount of Pinnacle West common stock owned by the Company's directors, the Named Executive Officers, our directors and executive officers as a group, and those persons who beneficially own more than 5% of the Company's common stock. Unless otherwise indicated, each shareholder listed below has sole voting and investment power with respect to the shares beneficially owned.

The address of each of the listed shareholders not otherwise set forth below is P.O. Box 53999, Mail Station 8602, Phoenix, Arizona 85072-3999. Unless otherwise indicated, all information is as of March 10, 2016, the Record Date for the Annual Meeting.

NAME
NUMBER OF SHARES
BENEFICIALLY OWNED(1)
(#)

PERCENT OF
CLASS
(%)

Directors:

       

Donald E. Brandt

  230,038   *

Denis A. Cortese, M.D.

  14,025   *

Richard P. Fox

  4,731   *

Michael L. Gallagher

  29,991   *

Roy A. Herberger, Jr., Ph.D.

  33,168   *

Dale E. Klein, Ph.D.

  11,763   *

Humberto S. Lopez

  62,641   *

Kathryn L. Munro

  33,451   *

Bruce J. Nordstrom

  31,990   *

David P. Wagener

  5,891   *

Other Named Executive Officers:

       

Randall K. Edington

  63,379   *

David P. Falck

  51,159   *

James R. Hatfield

  66,060   *

Mark A. Schiavoni

  34,410   *

All Directors and Executive Officers as a Group (23 Persons):

  787,166   *

5% Beneficial Owners:(2)

       

BlackRock, Inc. and certain related entities(3)
40 East 52nd Street
New York, NY 10022



  9,967,430   9.0

State Street Corporation and certain related entities(4)
One Lincoln Street
Boston, MA 02111

  5,803,655   5.2

The Vanguard Group Inc.(5)
100 Vanguard Boulevard
Malvern, PA 19355



  9,550,910   8.6

*
Represents less than 1% of the outstanding common stock.
2016 Proxy Statement      |      GRAPHIC      33

Table of Contents

STOCK MATTERS
(1)
Includes vested Supplemental RSUs (as defined later in the CD&A) for the Named Executive Officers; vested restricted stock units ("RSUs") and stock units ("SU") payable in stock for the directors; and associated dividends payable in stock; as follows: Mr. Brandt — 26,498; Mr. Edington — 14,719; Mr. Falck — 7,365; Mr. Hatfield — 7,365; Mr. Schiavoni — 7,365; Mr. Gallagher — 5,820; Dr. Klein — 11,663; Dr. Herberger — 4,016; and Ms. Munro — 9,237. The following shares are held jointly: Dr. Klein — 100; and Mr. Nordstrom — 30,490. The following shares are held in joint trusts: Dr. Cortese — 14,025; Mr. Edington — 38,913; Mr. Gallagher — 24,171; Mr. Hatfield — 48,695; Dr. Herberger — 19,529; Mr. Lopez — 62,641; Ms. Munro — 22,673; and Mr. Wagener — 5,891.

(2)
The Company makes no representations as to the accuracy or completeness of the information in the filings reported in footnotes 3-5.

(3)
BlackRock, Inc. Schedule 13G/A filing, dated January 22, 2016, a parent holding company and certain affiliates, reports beneficial ownership of 9,967,430 shares, with sole voting power as to 8,982,985 shares and sole dispositive power as to 9,967,430 shares.

(4)
State Street Corporation Schedule 13G filing, dated February 12, 2016, a parent holding company and certain affiliates, reports beneficial ownership of 5,803,655 shares, with shared voting and dispositive power. The Company maintains normal commercial relationships with State Street Corporation and its subsidiaries. The Company does not consider these relationships to be material.

(5)
The Vanguard Group, Inc. Schedule 13G/A, dated February 10, 2016, reports beneficial ownership of 9,550,910 shares with shared voting power as to 10,100 shares, sole voting power as to 209,610 shares, shared dispositive power as to 211,310 shares, and sole dispositive power as to 9,339,600 shares; Vanguard Fiduciary Trust Company as beneficial owner of 171,610 shares; and Vanguard Investments Australia, Ltd., as beneficial owner of 77,700 shares.

Section 16(a) Beneficial Ownership Reporting Compliance
 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors and executive officers, and persons who own more than 10% of the Company's common stock to file reports of ownership and changes of ownership with the SEC. Based solely on the Company's review of these reports, the Company believes that its directors, executive officers, and greater than 10% beneficial owners complied with their respective Section 16(a) reporting requirements for fiscal year 2015 on a timely basis.

34      GRAPHIC       |      2016 Proxy Statement

Table of Contents

Related Party Transactions

The Corporate Governance Committee is responsible for reviewing and approving all transactions with any related party, which consists of any of our directors, director nominees, executive officers, shareholders owning more than 5% of the Company's common stock and, with respect to each of them, their immediate family members and certain entities in which they are an officer or a shareholder, partner, member or other participant who, directly or indirectly, has a substantial ownership interest in or otherwise substantially controls or shares control of such entity (a "Related Party"). This obligation is set forth in writing in our Statement of Policy Regarding Related Party Transactions (the "Policy").

To identify Related Party Transactions, as defined in the Policy, each year the Company requires our directors and officers to complete director and officer questionnaires identifying any transactions with the Company in which a Related Party has an interest. We review Related Party Transactions due to the potential for a conflict of interest. A conflict of interest occurs when an individual's private interest interferes, or appears to interfere, in any way with our interests. The Code of Ethics requires all directors, officers, and employees who may have a potential or apparent conflict of interest to notify the Company's management. In addition, the Policy specifically provides that any Related Party Transaction must be approved or ratified by the Corporate Governance Committee. A "Related Party Transaction" is any transaction or a series of similar transactions in which the Company or any of its subsidiaries is or was a participant, where the amount involved exceeds $120,000 in the aggregate, and in which any Related Party has a direct or indirect material interest, other than:

Transactions in which rates or charges are fixed in conformity with law or governmental authority (such as APS rates approved by the ACC);

Transactions in which the rates or charges are determined by competitive bid; or

The payment of compensation by the Company to the executive officers, directors, or nominees for directors.

Based on the Policy, SEC rules, and our review, we had no Related Party Transactions in 2015.

2016 Proxy Statement      |      GRAPHIC      35

Table of Contents

Report of the Human Resources Committee

The Human Resources Committee submitted the following report:

The Human Resources Committee is composed of non-employee directors, each of whom is independent as defined by NYSE rules and the Company's Director Independence Standards.

In accordance with SEC rules, the Human Resources Committee discussed and reviewed the Compensation Discussion and Analysis with management and, based on those discussions and review, the Human Resources Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

HUMAN RESOURCES COMMITTEE CHAIR
Roy A. Herberger, Jr., Ph.D.
HUMAN RESOURCES COMMITTEE MEMBERS
Denis A. Cortese, M.D.
Richard P. Fox
Humberto S. Lopez
Kathryn L. Munro
36      GRAPHIC       |     2016 Proxy Statement

Table of Contents

Executive Compensation

Compensation Discussion and Analysis ("CD&A")
 

Our Named Executive Officers are:

Donald E. Brandt, Chairman of the Board, President and Chief Executive Officer of PNW and APS;

James R. Hatfield, Executive Vice President and Chief Financial Officer of PNW and APS;

Randall K. Edington, Executive Vice President and Chief Nuclear Officer of APS;

David P. Falck, Executive Vice President and General Counsel of PNW and APS; and

Mark A. Schiavoni, Executive Vice President and Chief Operating Officer of APS.

Executive Summary

Our Philosophy and Objectives. Our compensation program is designed to be transparent with a clear emphasis on putting pay at risk and retaining key executives. Our executive compensation philosophy incorporates the following core principles and objectives:

Alignment with Shareholder Interests. We structure our annual cash and long-term equity incentive compensation to put pay at risk and reward performance. Payouts under these plans are tied predominantly to the Company's total return to shareholders, earnings, and the achievement of measurable and sustainable business and individual goals, so that executives' interests are tied to the success of the Company and are aligned with those of our shareholders.

Key Management Retention. We structure our program to provide compensation at levels necessary to attract, engage and retain an experienced management team who have the skill sets to succeed in our complex operating and regulatory environment, including operating Palo Verde, and to provide consistently strong operating and financial results.

Highlights of our Compensation Program:

Pay for Performance — a significant portion of our Named Executive Officers' compensation is at risk and based on performance — our annual cash incentive plans are 100% tied directly to earnings, business unit performance and individual performance, and our performance shares are based on total shareholder return and value-driving business metrics;

Limited Perquisites — we offer limited perquisites; and

No Excessive Risk-Taking — we use multiple business performance metrics, capped payouts and other features that are intended to reward performance but not encourage unacceptable risk taking.
2016 Proxy Statement      |      GRAPHIC      37

Table of Contents

EXECUTIVE COMPENSATION

Key Changes made to our Compensation Program:

At the 2015 Annual Meeting, our shareholders approved the compensation of our executive officers. Following the Annual Meeting, the Human Resources Committee (for purposes of the CD&A, the "Committee") reviewed and discussed developments in executive compensation practices and the feedback we received from our shareholders. The Committee approved the following changes to our compensation program:

Changed the allocation of long-term equity grants from 55% performance-based and 45% time-based to 60% performance-based and 40% time-based beginning with the awards made in 2016;

Starting with the 2015 CEO Incentive Plan and continuing with the Pinnacle West 2016 Annual CEO Incentive Award Plan, we limit the use of discretion solely to the occurrence of unanticipated events that might arise during the performance period;

Added clawback provisions to our cash incentive plans and performance share award agreements that make the awards subject to potential forfeiture or recovery; and

Increased the stock ownership guideline for the CEO.

Overview of 2015 Company Performance.    Pinnacle West is a holding company that derives essentially all of its revenues and earnings from our wholly-owned subsidiary, APS, a vertically-integrated electric utility. Our 2015 accomplishments included:

Pinnacle West increased the dividend for the fourth straight year by 5.0%;

Pinnacle West share price reached a new all-time high and new 52-week intraday highs on four trading days;

Pinnacle West's earnings of $437 million, or $3.92 per share, represented an increase of 9.5% over 2014 earnings per share;

APS operates Palo Verde, the largest nuclear generating station in the United States. In 2015:

    o
    Palo Verde generated more electricity than in any year since it began operating in 1986, 32.5 million megawatt-hours, and it remains the only U.S. generating station to produce more than 30 million megawatt-hours in a year;

    o
    Palo Verde achieved a capacity factor of 94.3% and a record capacity factor of 100.2% between June and September; and

APS had its second lowest number of OSHA recordables and expects to remain within the top decile for electric utilities; additionally, APS continued to implement physical enhancements and cyber security defenses to protect our people and assets.

Setting Executive Compensation

The Human Resources Committee.    The Committee monitors executive officer compensation throughout the year and undertakes a thorough analysis of our executive officer compensation each Fall. This review includes consideration of competitive positions relative to specified labor markets, the mix of compensation components, performance requirements, the portion of pay at risk and tied to performance, and individual performance evaluations. From December through February, the Committee considers and approves executive officer compensation, including salary and cash and non-cash incentives.

38      GRAPHIC       |      2016 Proxy Statement

Table of Contents

EXECUTIVE COMPENSATION

Role of Executive Officers in Determining Executive Compensation.    The Committee makes all compensation decisions relating to our CEO's compensation, makes awards under the 2012 Long-Term Incentive Plan (the "2012 Plan"), and determines the awards under the 2015 Incentive Plans, as defined later in this CD&A. The Committee recommends other executive officer compensation decisions, which are approved by the Board for Pinnacle West officers and the Board of Directors of APS for APS officers. Management works with the Committee in establishing the agenda for Committee meetings and in preparing meeting information. Management conducts evaluations and provides information on the performance of the executive officers for the Committee's consideration and provides such other information as the Committee may request. Management also assists the Committee in recommending: salary levels; annual incentive plan structure and design, including earnings and business unit performance targets or other goals; long-term incentive plan structure and design, including award levels; and the type, structure, and amount of other awards. The executive officers are available to the Committee's compensation consultant to provide information as requested by the consultant. At the request of the Chair of the Committee, the CEO or other officers may attend and participate in portions of the Committee's meetings.

Role of Compensation Consultants.    The Committee's charter gives the Committee the sole authority to retain and terminate any consulting firm used by the Committee in evaluating non-employee director and officer compensation. The Committee engaged Frederick W. Cook & Co. to assist the Committee in its evaluation of 2015 compensation for our executive officers (the "Consultant"). The Consultant does not provide any other services to the Company or its affiliates. The Committee has assessed the independence of the Consultant and has concluded that the Consultant is an independent consultant to the Committee as determined under the NYSE rules. The Committee instructed the Consultant to prepare a competitive analysis of the compensation of the executive officers of the Company and of APS, and to make recommendations for changes to the existing compensation program, if warranted.

Determining The Peer Group.    As a regular part of the executive compensation review process, the Committee reviews the peer group annually for its continued appropriateness. As a result of such review, the Committee made changes to the peer group that was used in setting 2015 executive compensation. The Committee removed Entergy Corporation and NextEra Energy, Inc. due to their focus on unregulated operations and also removed NV Energy, Inc. and Progress Energy, Inc., which had been acquired and ceased to be public companies. The removed companies were replaced with Edison International, Consolidated Edison, NiSource Inc. and Hawaiian Electric Industries, each of which was more comparable to the Company based on several factors including being highly or mostly regulated, nuclear ownership, comparable regulatory environment and headquartered in a major metropolitan area.

The utility industry has been in a period of consolidation for several years. Corporate transactions such as acquisitions and mergers can have the effect of compromising the comparability of Pinnacle West's performance versus a number of the firms in the peer group in a given period. Over the last 3-year period, companies which appeared in the peer group were involved in acquisition or merger transactions, several of which involved companies with market capitalizations similar to Pinnacle West. These companies were no longer included in the peer group subsequent to the completion of the transactions.

2016 Proxy Statement      |      GRAPHIC      39

Table of Contents

EXECUTIVE COMPENSATION

The Peer Group is broadly similar to the Company in scope and complexity of operations (taking into account nuclear operations, regulatory profile, and other quantitative and qualitative considerations) and positions the Company close to the median with respect to revenues (adjusted as explained below). For 2015, the Peer Group consisted of the following predominantly rate-regulated utilities (the "Peer Group"):


Peer Group

Alliant Energy Corporation Ameren Corporation Consolidated Edison, Inc. DTE Energy Company
Edison International Hawaiian Electric Industries, Inc. NiSource Inc. Northeast Utilities (now Eversource Energy)
OGE Energy Corp. PPL Corporation SCANA Corporation The Southern Company
TECO Energy, Inc. Wisconsin Energy Corporation (now WEC Energy Group, Inc.) Xcel Energy, Inc.  

In determining both the composition of the Peer Group and the Company's relative position to that group, the number used for APS revenues was adjusted to take revenues attributable to managed assets, in addition to owned assets, into account. This adjustment was based on the following:

Palo Verde is the United States' largest nuclear generating facility, with a net generation rating of approximately 4,000 megawatts. Palo Verde has seven utility owners. APS owns or leases the largest share of the station (29.1%). APS is responsible for the operation of 100% of the facility.

Four Corners is a 2-unit coal-fired plant located in New Mexico, with a net generation rating of approximately 1,540 megawatts, of which APS owns 63%. Similar to Palo Verde, APS is responsible for the operation of 100% of the facility.

While APS contracts with the other owners of these power stations for reimbursement of costs attributable to their ownership shares, as the sole operator APS is subject to additional business and legal risks and operational requirements. Some of these risks and requirements include plant-wide procurement activities, legal and regulatory compliance, safety and security assurance and programs, and hiring and supervising the large workforces necessary to operate these facilities.

To reflect this expanded scope of responsibility and risk, APS used a number of $5.5 billion compared to its reported twelve months ending June 30, 2014 revenues of $3.4 billion for determining the Peer Group and its position in the Peer Group. The adjustment placed APS near the median of the Peer Group for revenues. The Committee believes that the senior executives of the Company face challenges in the operation of Palo Verde that require skill sets similar to those of executives at larger Peer Group companies with significant nuclear operations.

Consultant's Report.    The Consultant reviewed our executive compensation practices and considered the extent to which these practices support our executive compensation objectives

40      GRAPHIC       |      2016 Proxy Statement

Table of Contents

EXECUTIVE COMPENSATION

and philosophy. As part of this study, the Consultant performed competitive pay comparisons for our executive officers based on:

2013 compensation information as disclosed in 2014 SEC filings for the Peer Group;

General industry data based on surveys published by Aon Hewitt (averaging data for companies in the $2.5 — $5 billion revenue bracket and the $5 — $10 billion revenue bracket) and Towers Watson & Co. ("Towers Watson") (averaging data for companies in the $3 — $6 billion revenue bracket and the $6 — $10 billion revenue bracket); and

Industry-specific survey data from the Towers Watson Energy Services Industry Survey (reflecting the average between companies in the $3 — $6 billion revenue bracket and companies with revenues greater than $6 billion).

From these sources, the Consultant developed a consensus in which the competitive industry comparison for Messrs. Brandt, Hatfield, Falck, and Schiavoni reflects one-third proxy statement data, one-third Energy Services Industry Survey, and one-third general industry surveys. Mr. Edington did not have a general industry survey match, so his competitive industry comparison reflects one-half proxy statement data and one-half Energy Services Industry Survey. Compensation levels were updated to July 2015 using a 3% annual growth factor that the Consultant indicated reflected projected executive-level market movement from major salary-planning surveys selected by the Consultant.

In providing information to the Committee with respect to setting 2015 compensation, the Consultant reviewed the total compensation of the Named Executive Officers and presented its analysis in October 2014. The Consultant also reviewed the individual elements of compensation, including the type of annual incentives and long-term incentives, and evaluated the competitiveness of the individual elements of compensation of each such officer based on the survey data discussed above.

2016 Proxy Statement      |      GRAPHIC      41

Table of Contents

EXECUTIVE COMPENSATION

In its analysis, the Consultant looked at competitive findings for base salary, annual incentive, and long-term equity incentives to the Named Executive Officers as compared to the 25th, 50th and 75th percentile (compensation data was treated at the 25th, 50th or the 75th percentile if it was within +/– 10%). The conclusions of the report as to competitive pay comparisons of the Named Executive Officers for these three compensation elements are as follows:

OFFICER
BASE SALARY
2013 ACTUAL
ANNUAL INCENTIVE
AS A PERCENTAGE
OF BASE SALARY

LONG-TERM INCENTIVE(1)
Mr. Brandt at the 75th
percentile

at the 75th
percentile

at the 50th
percentile
Mr. Hatfield at the 50th
percentile
at the 50th
percentile
at the 25th
percentile
Mr. Edington above the 75th
percentile

at the 50th
percentile

below the 25th
percentile
Mr. Falck at the 50th
percentile
at the 50th
percentile
above the 25th
percentile but below the 50th percentile
Mr. Schiavoni at the 50th
percentile

at the 50th
percentile

below the 25th
percentile

(1)
Long-term incentive comparison excludes: (i) the one-time award of the supplemental grants of RSUs that were granted in February 2011 for performance prior to 2011 (the "Supplemental RSUs"), which are discussed in footnote 1 to the Option Exercises and Stock Vested table; (ii) the special retention award of RSUs that were granted to Mr. Brandt in December 2012 (the "Retention Grant"), which is discussed in footnote 3 to the Outstanding Equity Awards at Fiscal Year-End table; and (iii) certain arrangements with Mr. Edington and Mr. Falck under the non-qualified deferred compensation plan as described later in this CD&A.

Application of the Committee's Judgment.    The analysis in the Consultant's report and its recommendations regarding the competitiveness and structure of compensation are factors that the Committee takes into account in its evaluation of compensation for the Named Executive Officers. The Committee considers the competitive market data presented by the Consultant as an important reference point to assure the Committee of the reasonableness of compensation levels and programs provided to executive management; however, actual compensation levels also take into account the individual executives and their responsibilities, skills, expertise, value added, and other external factors, such as the competitive marketplace for executive talent.

In setting Mr. Edington's compensation and entering into his 2012 Supplemental Agreement and 2014 Supplemental Agreement, which are discussed later in the narrative disclosure to the Summary Compensation Table and the Grants of Plan-Based Awards table, the Committee took into account Mr. Edington's critical skills, nuclear expertise, the demand in the competitive marketplace for Chief Nuclear Officers, and his demonstrated performance in significantly improving the operating performance of Palo Verde.

42      GRAPHIC       |      2016 Proxy Statement

Table of Contents

EXECUTIVE COMPENSATION

Company, business unit, and individual officer performance, as well as compensation competitiveness, are the primary factors in determining the level of total direct compensation for the Named Executive Officers. While the Committee considers internal pay equity in making compensation decisions, we do not have a policy requiring any set levels of internal pay differentiation. Finally, the Committee evaluates other factors that it considers relevant, such as the financial condition of the Company and APS. The Company does not have a pre-established policy or target for allocation between cash and non-cash compensation or between short-term and long-term incentive compensation. The Committee does allocate between the two forms of equity grants as stated under the heading "Executive Summary" in this CD&A.

As noted above, at our 2015 Annual Meeting, the shareholders cast an advisory vote on our executive compensation. The vote was not binding upon the Company, our directors or the Committee. Of the shareholder votes cast, more than 84% were "FOR" the compensation of the executives as disclosed in our 2015 Proxy Statement, excluding abstentions. The Committee was cognizant of this result in its consideration of the key components, design, implementation and amounts of our compensation program.

Executive Compensation Components
 

The Company's core executive compensation program consists of the following components:

GRAPHIC

In addition, the Company provides pension programs, a deferred compensation program, change of control arrangements and limited perquisites.

2016 Proxy Statement      |      GRAPHIC      43

Table of Contents

EXECUTIVE COMPENSATION

The chart below indicates how each element of our 2015 executive compensation program was intended to achieve our compensation objectives of aligning the interests of executives and shareholders, placing a portion at risk, and attracting and retaining qualified, experienced executives.

2015 WHY WE PAY IT
 
COMPENSATION
ELEMENT
ALIGNMENT PAY AT
RISK
ATTRACT
AND RETAIN
COMMENTS
Base Salary ü Salary is based on experience and responsibilities and is benchmarked to the Peer Group and market conditions to maintain competitive levels.
Annual Cash Incentive ü ü ü Annual cash incentive is designed to reward achievement of annual performance objectives, which are designed to enhance shareholder value.
Performance Shares ü ü ü Performance shares reward achievement of long-term performance objectives — payout is tied to seven performance metrics that are intended to enhance shareholder value and the payout is determined at the end of a three-year performance cycle.

Performance shares also encourage retention.

RSUs ü ü ü The value of RSUs is dependent upon share price appreciation, which reflects Company performance and enhances alignment with shareholder interests.

Four-year vesting encourages retention.

Benefits ü ü Our pension programs and deferred compensation program are designed to attract and retain talented executives.

Our change of control agreements provide alignment in change of control situations by removing job loss concern and promoting executive retention.

Because the Company offers limited perquisites, we do not believe that they are a material component of our compensation program. We provide them to attract and retain key management.

Compensation Design

Pay at Risk.    The Company believes that a significant portion of each Named Executive Officer's total compensation opportunity should reflect both upside potential and downside risk.

44      GRAPHIC       |      2016 Proxy Statement

Table of Contents

EXECUTIVE COMPENSATION

The illustrations below show how the Company views the allocation of the Named Executive Officers' compensation between guaranteed pay (base salary) and pay at risk (annual incentive plan, other cash incentives, and long-term incentives).


2015 CEO Total Compensation(1)

GRAPHIC

(1)
Annual Incentive: See the description of the CEO Incentive Plan on page 47 of this Proxy Statement.


2015 Average for Other Named Executive Officers' Total Compensation

GRAPHIC

Risk-Taking.    The compensation program is designed to reward performance but not encourage unacceptable risk-taking. The Committee evaluates the potential for unacceptable risk-taking in compensation design on an ongoing basis. We believe that the design of our executive compensation program does not unduly incentivize our executives to take actions that may conflict with our risk-based decision-making. Material risk in our compensation design is mitigated in several ways:

Earnings goals and award opportunities in our annual cash incentive programs are at levels intended to be challenging without the need to take inappropriate risks;

Our long-term incentives consist of time-based RSUs that vest over a multi-year period and performance shares that are earned at the end of a three-year period, both of which provide upside potential and downside risk; moreover, the use of RSUs in our long-term incentive program mitigates the likelihood of risk-taking because RSUs, as opposed to stock options, for example, retain some value even in a depressed market;

Payouts are capped under the annual cash and long-term incentive plans at no more than twice the target amount of the award or the Base Grant (as defined in this CD&A under the heading "Long-Term Incentives");
2016 Proxy Statement      |      GRAPHIC      45

Table of Contents

EXECUTIVE COMPENSATION
More than one performance metric is used in our long-term performance share awards, and the award opportunities under our annual cash incentive program are based on multiple metrics, thereby minimizing the ability of the executive to manipulate incentive results;

The stock components inherent in our long-term incentive program, combined with our stock ownership guidelines and retention requirements, align the interests of our executives with a goal of long-term appreciation of shareholder value; and

Our program is consistent throughout the Company so that no one area or group is incentivized in a manner that would encourage risk-taking.

In addition, the Committee has reviewed the overall compensation program for the Company's employees and has concluded that its program is balanced and does not encourage imprudent risk-taking. Employee compensation generally consists of some or all of the compensation components described in this CD&A. Our Officer Stock Ownership and Retention Guidelines (the "Guidelines") prohibit our officers from pledging or hedging shares of Company common stock owned by them. Equity award agreements for our management employees contain a similar prohibition in respect of shares received by them under such awards.

2015 Compensation

Base Salary

The Committee reviews competitive salary information and individual salaries for executive officers on an annual basis. In considering individual salaries, the Committee reviews the scope of job responsibilities, individual contributions, business performance, retention concerns, and current compensation compared to market practices. In setting base salaries, the Committee also considers that base salary is used as the basis for calculating annual incentive awards. The base salaries for Messrs. Brandt, Hatfield, Falck and Schiavoni were within plus or minus 15% of the median of the peer group data and, based on competitive considerations, Mr. Edington's base salary was set above the 75th percentile.

In December of 2014, the Committee, based on the considerations set forth above, made the following adjustments to the base salaries of the following Named Executive Officers for fiscal year 2015:

NAME
2014 BASE SALARY ($)
2015 BASE SALARY ($)
Mr. Brandt 1,240,000 1,277,000
Mr. Hatfield 570,000 593,000
Mr. Falck 522,000 544,000
Mr. Schiavoni 600,000 640,000

Effective January 1, 2015, Mr. Edington's base salary increased from $1,000,000 to $1,050,000 pursuant to the 2014 Supplemental Agreement. The 2014 Supplemental Agreement is defined in the narrative disclosure accompanying the Summary Compensation Table and the Grants of Plan-Based Awards table.


Annual Cash Incentives

The Committee approved the CEO Incentive Plan in December 2014, which covered Mr. Brandt. Also in December 2014, acting on the recommendation of the Committee, the Board approved the APS 2015 Annual Incentive Award Plan (the "APS Incentive Plan"), which covered

46      GRAPHIC       |      2016 Proxy Statement

Table of Contents

EXECUTIVE COMPENSATION

Messrs. Hatfield, Falck, and Schiavoni, and the APS 2015 Annual Incentive Award Plan for Palo Verde Employees (the "Palo Verde Incentive Plan"), which covered Mr. Edington. The APS Incentive Plan and the Palo Verde Incentive Plan are collectively referred to as the "APS Incentive Plans," and the APS Incentive Plans and the CEO Incentive Plan are collectively referred to as the "2015 Incentive Plans."


CEO Incentive Plan Award Opportunity

The CEO Incentive Plan provided the CEO an incentive opportunity based on specific achievements of both Pinnacle West earnings goals and performance goals across APS's operating business units. The award opportunity under the CEO Incentive Plan for Mr. Brandt in 2015 was as follows:

INCENTIVE AWARD COMPONENT
INCENTIVE
OPPORTUNITY
(% OF BASE SALARY)

% WEIGHTING

Achievement of Threshold PNW Earnings

50% 25%

PNW Earnings in Excess of Threshold

Up to 75% 37.5%

Total Earnings Component Opportunity

Up to 125% 62.5%

 


 


 

Total Business Unit Performance Component Opportunity (consists of performance of the Corporate Resources, Customer Service, Fossil Generation, Palo Verde, and Transmission and Distribution business units under the APS Incentive Plans, each weighted equally)

Up to 75% 37.5%

 


 


 

Total 2015 CEO Incentive Award Maximum Opportunity

200% 100%

The Committee structured the CEO Incentive Plan so that if Pinnacle West earnings came in at the mid-point between threshold and maximum amounts ($417 million) and each business unit achieved its target performance levels, Mr. Brandt would receive an incentive award equal to 125% of his 2015 base salary. The Company believed that the mid-point number represented a reasonable expectation of the achievement of earnings for 2015. Through the Company's ongoing shareholder engagement program, we received feedback regarding the Committee's ability to exercise discretion with respect to the CEO Incentive Plan. As a result, we amended the plan to provide detailed metrics against which his performance would be measured. The 2015 plan limited the Committee's ability to exercise discretion to increase Mr. Brandt's award beyond the parameters described in the table above so that discretion could only be exercised to account for unanticipated events that might arise during the performance period.

2016 Proxy Statement      |      GRAPHIC      47

Table of Contents

EXECUTIVE COMPENSATION


Earnings Component of the CEO Incentive Plan

EARNINGS PERFORMANCE MEASURE
2015 LEVELS
2015 RESULTS
PNW earnings Threshold:    $   369 million
Maximum:    $437.3 million
$465 million

In designing the CEO Incentive Plan, the Committee set the earnings levels above based on a reasonable range of expectations for the year, while taking into account prior year performance and economic conditions. The CEO Incentive Plan provided that if the threshold earnings number is not met, no incentive payment will be awarded, regardless of business unit performance.

The earnings component of the CEO Incentive Plan accounted for 62.5% of Mr. Brandt's incentive opportunity. Because Pinnacle West's actual earnings of $437.3 million exceeded the threshold specified by the plan, Mr. Brandt achieved the threshold incentive opportunity of 50% of base salary. In calculating the achievement of earnings in excess of threshold, actual earnings equated to a level of 71% of the range between the threshold and maximum levels. This 71% achievement applied to his remaining earnings-related opportunity of up to 75% of base salary, resulted in a 53.3% incentive award for earnings achieved in excess of the threshold level. Combined, this resulted in a 2015 earnings component award of 103.3% of Mr. Brandt's base salary, out of a maximum opportunity of 125% of base salary.


Business Unit Component of the CEO Incentive Plan

The business unit performance component opportunity of the CEO Incentive Plan accounted for 37.5% of Mr. Brandt's incentive opportunity. This component was based on the achievement of specific performance goals established for the Corporate Resources, Customer Service, Fossil Generation, Palo Verde, and Transmission and Distribution business units, each weighted equally. The details about these performance metrics are set forth in the Business Unit Components of the APS Incentive Plans section on page 50 of this Proxy Statement. The incorporation of the business unit performance metrics into the CEO Incentive Plan was designed to tie Mr. Brandt's incentive to the overall operational performance of the business units, and not to emphasize any one unit's performance over the others. The performance of the business units in 2015 against these metrics was as follows:

BUSINESS UNIT(1)
2015 PERFORMANCE
(% OF TARGET)

Corporate Resources 169%
Customer Service 168%
Fossil Generation 146%
Palo Verde 178%
Transmission and Distribution 120%

Average of All Business Units:

156%
(1)
The specific performance metrics for Customer Service, Fossil Generation, and Transmission and Distribution business units are set forth below under Mr. Schiavoni's performance metrics. The specific performance
48      GRAPHIC       |      2016 Proxy Statement

Table of Contents

EXECUTIVE COMPENSATION

    metrics for the Palo Verde business unit are set forth under Mr. Edington's performance metrics. Corporate Resources is divided into nine functional operational areas, and the specific performance metrics for: Finance, Human Resources/Ethics and Information Technology are set forth under Mr. Hatfield's performance metrics; Legal are set forth under Mr. Falck's performance metrics; and Resource Management, Supply Chain, and Sustainability, are set forth under Mr. Schiavoni's performance metrics. Corporate Resources also included the Communications and Public Policy functional operating areas; however, each of the metrics for these two areas contributed to less than 2% of Mr. Brandt's incentive opportunity and are omitted.

Under the terms of the CEO Incentive Plan, the business unit performance results were averaged, converted to a percentage of the earnings cap and then applied to the CEO's maximum performance-related incentive opportunity for this component. This resulted in a component award of 58.5% of Mr. Brandt's base salary, out of a maximum opportunity of 75% of base salary. Based on the sum of the 103.3% achievement of the earnings component and the 58.5% achievement of the business unit performance component, Mr. Brandt's total incentive award equaled 161.8% of base salary, resulting in an award of $2,066,186.

The Committee determined Mr. Brandt's incentive award exclusively on the metrics set forth in the CEO Incentive Plan, and did not exercise any discretion to make adjustments to the award based on unanticipated events.


APS Incentive Plans Award Opportunity

The award opportunity under the 2015 Incentive Plans for each of the Named Executive Officers was as follows:

NAME
EARNINGS
(% OF BASE SALARY)

BUSINESS UNIT
PERFORMANCE
(% OF BASE SALARY)

TOTAL INCENTIVE
OPPORTUNITY
(% OF BASE SALARY)

Mr. Hatfield: APS Earnings Corporate Resources Business Unit (Finance, Human Resources/Ethics and Information Technology)
Threshold 15.0%   15.0%
Target 30.0% 30.0%   60.0%
Maximum 60.0% 60.0% 120.0%
Mr. Edington: APS Earnings Palo Verde Business Unit  
Threshold 16.25%   16.25%
Target 32.5% 32.5%   65.0%
Maximum 65.0% 65.0% 130.0%
Mr. Falck: APS Earnings Corporate Resources Business Unit (Legal)
Threshold 15.0%   15.0%
Target 30.0% 30.0%   60.0%
Maximum 60.0% 60.0% 120.0%
Mr. Schiavoni: APS Earnings Corporate Resources (Resource Management, Supply Chain, and Sustainability), Customer Service, Fossil Generation, and Transmission and Distribution Business Units
(1/4 each)
 
Threshold 17.5%   17.5%
Target 35.0% 35.0%   70.0%
Maximum 70.0% 70.0% 140.0%
2016 Proxy Statement      |      GRAPHIC      49

Table of Contents

EXECUTIVE COMPENSATION

In addition to the specific business unit performance measures described below, the APS Incentive Plans allowed the Committee to consider shareholder value creation, customer service, financial strength, operating performance, and safety, and to make adjustments for individual performance. The Committee could also exercise discretion under the APS Incentive Plans due to unanticipated events that might arise during the performance period.


Earnings Components of the APS Incentive Plans

EARNINGS PERFORMANCE MEASURE
2015 TARGETS
2015 RESULTS
APS earnings Threshold:    $378 million
Target:           $426 million
Maximum:    $474 million
$447.4 million, or 145% (100% plus 45% of the potential earnings range between target and maximum)

In designing the APS Incentive Plans, the Committee set the earnings levels above based on a reasonable range of expectations for the year, while taking into account prior year performance and economic conditions. The APS Incentive Plan provided that if the threshold earnings number is not met, no incentive payment will be awarded, regardless of business unit performance. The Palo Verde Incentive Plan provided that if the threshold earnings number is not met, no APS portion of the incentive payment would be awarded.

In considering the 2015 awards under the APS Incentive Plans, the Committee adjusted the APS earnings number to reflect certain costs incurred primarily for the benefit of APS and its customers but booked at Pinnacle West. The net effect of these adjustments was to reduce APS earnings from $450.3 million to $447.4 million for purposes of the 2015 awards. Under the APS Incentive Plans, the calculated incentive award was proportional to the actual earnings achieved in excess of threshold performance level. APS's earnings of $447.4 million exceeded both the threshold and target earnings levels.


Business Unit Components under the APS Incentive Plans

The business unit performance measures were tied to operational excellence, shareholder value, environmental stewardship, and metrics tied to customers, communities and our employees. Individual business unit measures that could be directly correlated to earnings were set at levels that, if achieved at target, would contribute to earnings being achieved at target. However, some of the measures, like safety and customer satisfaction, were not directly correlated to earnings, and were instead set with reference to prior year performance and a reasonable range of expectations of performance of comparable companies in our industry. The following tables disclose the performance targets, actual results, and the percentage of target performance achieved for the Corporate Resources, Customer Service, Fossil Generation, Palo Verde, and Transmission and Distribution business units. Performance of the applicable functional operational units of the Corporate Resources business unit was responsible for 50% of the overall 2015 incentive target opportunity for Messrs. Hatfield and Falck, performance of the Palo Verde business unit was responsible for 50% of the overall 2015 incentive target opportunity for Mr. Edington, and the performance of the applicable functional operational units of the Corporate Resources, Customer Service, Fossil Generation, and Transmission and Distribution business units were each weighted equally and, together comprised 50% of the overall 2015 incentive target opportunity for Mr. Schiavoni.

50      GRAPHIC       |      2016 Proxy Statement

Table of Contents

EXECUTIVE COMPENSATION

Business Unit Metrics Calculations.    The range of potential achievement for each business unit metric was zero to 200% of the target level. The percentages attributable to weighting in the tables below reflect the weight of each measure as a percentage of the applicable Named Executive Officer's 2015 incentive target opportunity. The percentage of target performance achieved reflects the comparison of our actual achievement of a particular measure for 2015 to the target established for that measure. In addition to a target level, some of the performance measures also provided for a threshold level (equal to 50% of target) and a maximum level (equal to 200% of target). Performance above the maximum level resulted in achievement of 200% of target. If performance fell between threshold and target or between target and maximum, linear interpolation was used to determine the actual percentage of target performance achieved.

The Palo Verde Incentive Plan provided that Palo Verde's overall business unit performance was required to achieve at least 100% of the target level for 2015 before Mr. Edington could receive any payout under the APS earnings portion. The overall Palo Verde business unit performance for 2015 was 178% of target, so this hurdle requirement was met.

2016 Proxy Statement      |      GRAPHIC      51

Table of Contents

EXECUTIVE COMPENSATION

Mr. Hatfield's business unit performance metrics (50% of the overall opportunity) were as follows:

CORPORATE RESOURCES PERFORMANCE MEASURES AND WEIGHTING
MEASURE
TARGET
ACTUAL
RESULTS

% OF TARGET
PERFORMANCE
ACHIEVED

Finance Performance Measures — 16.67%:

       

Employees — 4.17%

OSHA Recordables (4.17%) 3 2 150%

Operational Excellence — 8.33%

Finance Operating and Maintenance Budget (2.50%) Budget 0.6% Under Budget 129%

Average of All Four Business Unit Results (5.83%)(1) 100% 153% 153%

Shareholder Value — 4.17%

Total Corporate Resources Operating and Maintenance Budget (4.17%) Budget 4.5% Under Budget 200%

Finance Results


160%

Human Resources/Ethics Performance Measures — 16.67%:

       

Employees — 4.17%

OSHA Recordables (4.17%) 3 2 150%

Operational Excellence — 8.33%

HR/Ethics Operating and Maintenance Budget (2.50%) Budget 3.0% Under Budget 200%

Average of All Four Business Unit Results (5.83%)(1) 100% 153% 153%

Shareholder Value — 4.17%

Total Corporate Resources Operating and Maintenance Budget (4.17%) Budget 4.5% Under Budget 200%

Human Resources/Ethics Results

171%

Information Technology Performance Measures — 16.67%:

       

Employees — 4.17%

OSHA Recordable Incidents (1.67%) 3 2 150%

Human Performance Event Clock Resets (2.50%) 19 9 200%

Operational Excellence — 8.33%

Capital Project Execution (3.33%) 80% 73.1% 65%

Capital Budget Adherence (1.67%) 7.5% ± Budget 2.0% Under Budget 200%

Average of All Four Business Unit Results (3.33%)(1) 100% 153% 153%

Shareholder Value — 4.17%

Operating and Maintenance Budget (4.17%) Budget 4.5% Under Budget 200%

Information Technology Results


159%

Overall Hatfield Incentive Result

163%
(1)
The average for all four business units — Customer Service, Fossil Generation, Palo Verde, and Transmission and Distribution — results are included in each of the Corporate Resources areas overseen by Mr. Hatfield and reflected as such in the table above. The weight of this metric for Mr. Hatfield emphasizes the goal of the various Corporate Resources areas in supporting the Company's business units.
52      GRAPHIC       |      2016 Proxy Statement

Table of Contents

EXECUTIVE COMPENSATION

Mr. Falck's business unit performance metrics (50% of the overall opportunity) were as follows:

CORPORATE RESOURCES PERFORMANCE MEASURES AND WEIGHTING
MEASURE
TARGET
ACTUAL
RESULTS

% OF TARGET
PERFORMANCE
ACHIEVED

Employees — 12.50%

OSHA Recordable Incidents (12.50%) 3 2 150%

Operational Excellence — 27.50%

Critical Legal Outcomes (10.00%) 8 8 100%

Legal Operating and Maintenance Budget (7.50%) Budget 0.7% Under Budget 134%

Average of all Business Units Results (10.00%) 100% 153% 153%

Shareholder Value — 10.00%

Total Corporate Resources Operating and Maintenance Budget (10.00%) Budget 4.5% Under Budget 200%

Overall Falck Incentive Result

148%
2016 Proxy Statement      |      GRAPHIC      53

Table of Contents

EXECUTIVE COMPENSATION

Mr. Edington's business unit performance metrics (50% of the overall opportunity) were as follows:

PALO VERDE
PERFORMANCE MEASURES AND WEIGHTING

MEASURE
TARGET
ACTUAL
RESULTS

% OF TARGET
PERFORMANCE
ACHIEVED

Employees — 11.25%

Reactivity Management (2.00%) 95 96 150%

Site Safety (5.00%) 10 G/W; No Red 12 Green 200%

INPO Recordable Rate (2.50%) £ 0.110 0.210 0%

Collective Radiation Exposure (1.75%) 75 57.9 200%

Operational Excellence — 15.00%

Site Capacity Factor (10.00%) 91.5% 94.3% 200%

Spring Outage (2.50%) £ 31 Days 29 Days,
19 Hours
200%

Fall Outage (2.50%) £ 31 Days 36 Days 0%

Performance Improvement — 13.75%

Equipment Reliability Index (2.50%) 89 95 200%

Corrective Action Performance Scorecard (2.50%) 12 G/W; No Red 14 G/W;
No Red

200%

Site Clock Resets (Less Safety) (2.50%) 2 0 200%

Site Operational Focus Indicator (3.75%) 14 16 200%

Continuous Improvement Process (2.50%) 450 642 200%

Shareholder Value — 10.00%

Operating and Maintenance Budget (7.50%) £ Budget and 6 Months Cash Flow $21M Under Budget and 11 Months Cash Flow 200%

Capital Budget (2.50%) £ Budget and 6 Months Cash Flow $0.6M Under Budget and 12 Months Cash Flow 200%

Overall Edington Incentive Result


178%
54      GRAPHIC       |     2016 Proxy Statement

Table of Contents

EXECUTIVE COMPENSATION

Mr. Schiavoni's business unit performance metrics (50% of the overall opportunity) were as follows:

PERFORMANCE MEASURES AND WEIGHTING
MEASURE
TARGET
ACTUAL
RESULTS

% OF TARGET
PERFORMANCE
ACHIEVED

Corporate Resources Business Unit — 12.50%:

       

Business Area

Supply Chain (4.17%) 100% 183.2% 183%

Performance — 12.50%

Sustainability (4.17%) 100% 183.0% 183%

Resource Management (4.16%) 100% 173.7% 174%

COO Corporate Resources Business Unit Results
180%

Transmission and Distribution Business Unit — 12.50%:

       

Employees — 3.12%

OSHA Recordable Incidents (1.87%) 18 24 50%

Human Performance Event Clock Resets (1.25%) 29 32 63%

Operational Excellence — 7.50%

System Average Interruption Duration Index (SAIDI) — All Weather (1.88%) 72 77 75%

System Average Interruption Frequency Index (SAIFI) — All Weather (1.88%) 0.79 0.79 100%

QA/QC Inspections (1.87%) 85% 87.4% 148%

Capital Project Execution (1.87%) 80% 88.6% 186%

Shareholder Value — 1.87%

Operating and Maintenance Budget (1.87%) Budget 2.0% Under Budget 200%

COO Transmission and Distribution Business Unit Results 120%

Customer Service Business Unit — 12.50%:

       

Employees — 2.50%

Human Performance Event Clock Resets (2.50%) 13 9 200%

Operational Excellence — 2.50%

Service Level Without Interactive Voice Response (2.50%) 80% 80.8% 116%

Environmental Stewardship — 1.25%

Number of Customers with Paperless Billing (1.25%) 326,000 330,515 200%

Customers and Communities — 3.13%

Customer Contact Survey (1.25%) 88% 88.9% 145%

Customer Satisfaction Survey (0.63%) 84% 85% 150%

JD Power Residential IOU Survey (1.25%) Rank 9 Rank 8 125%

Shareholder Value — 3.13%

Customer Service Operating and Maintenance Budget (3.13%) Budget 2.7% Under Budget 200%

COO Customer Service Business Unit Results
168%
2016 Proxy Statement      |      GRAPHIC      55

Table of Contents

EXECUTIVE COMPENSATION

PERFORMANCE MEASURES AND WEIGHTING
MEASURE
TARGET
ACTUAL
RESULTS

% OF TARGET
PERFORMANCE
ACHIEVED

Fossil Generation Business Unit — 12.50%:

       

Employees — 2.50%

OHSA Recordable Incidents (2.50%) 7 7 100%

Operational Excellence(2) — 6.25%

Varies by Plant/Engineering (6.25%) 100% 142% 142%

Shareholder Value — 2.50%

Net Operating Expense
(2.50%)

Budget 12.8% Under Budget 200%

Environmental Stewardship — 1.25%

Reportable Environmental Incidents — Plants only (1.25%) 4 3 150%

Fossil Generation Business Unit Results


146%

Overall Schiavoni Incentive Result

153%
(2)
This performance measure consists of 23 measures across seven plants and an engineering group, none of which were responsible for more than 1% of Mr. Schiavoni's total opportunity. The primary purpose of these measures is to determine incentive compensation for the employees at the plants and in the engineering group.

The following chart summarizes the target and maximum award opportunities and the actual amount awarded to Messrs. Hatfield, Edington, Falck and Schiavoni under the APS Incentive Plans:

NAME
TARGET
AWARD
OPPORTUNITY
($)

MAXIMUM
AWARD
OPPORTUNITY
($)

ACTUAL
AWARD
AMOUNT
($)

ACTUAL AMOUNT
AS A PERCENT
OF TARGET
(%)

Mr. Hatfield

355,800   711,600   548,572 154%

Mr. Edington

682,500 1,365,000 1,102,238 162%

Mr. Falck

326,400   652,800   478,437 147%

Mr. Schiavoni

448,000   896,000   668,416 149%

Under the APS Incentive Plans, the earnings achievement combined with the applicable business unit performance results resulted in the indicated incentive awards, without further adjustment for individual performance, for Messrs. Hatfield, Edington, Falck, Hatfield and Schiavoni.

APS adopted the 2015 Palo Verde Specific Compensation Opportunity, which provided Mr. Edington the opportunity to receive an amount of up to $125,000 upon the achievement of the following Palo Verde operational and performance targets: the achievement of a site capacity factor greater than 92%; no substantive cross-cutting issues existing by the end of 2015; and no "greater-than-green" NRC colored findings by the end of 2015. All of the metrics were achieved and, as such, Mr. Edington received the full award of $125,000.

56      GRAPHIC       |      2016 Proxy Statement

Table of Contents

EXECUTIVE COMPENSATION

Long-Term Incentives

The Company currently uses two types of equity grants: performance shares and RSUs. In 2015, awards consisted of 55% performance shares and 45% RSUs to focus the equity awards on the achievement of specific multi-year performance goals. The 2015 grants to the Named Executive Officers were as follows:

NAME
PERFORMANCE
SHARES
(#)

RSUs
(#)

TOTAL
SHARES
(#)

TOTAL
VALUE(1)
($)

Mr. Brandt

37,248 30,476 67,724 4,400,029

Mr. Hatfield

6,350 5,196 11,546 750,144

Mr. Edington

5,080 4,156 9,236 600,063

Mr. Falck

6,350 5,196 11,546 750,144

Mr. Schiavoni

8,466 6,928 15,394 1,000,148

(1)
Based on the closing price of Pinnacle West common stock on the date of grant of $64.97 per share and the 2015 Performance Shares valued at 100% of the Base Grant, as defined below.

To determine the amount of performance share and RSU awards, the Committee first establishes a target compensation value for each officer that it wants to deliver through long-term equity award opportunities. The Committee considers various factors, including the retention value of the total compensation package, the long-term equity component in light of the competitive environment, and individual performance. The Committee also considers target value in light of the Company's achievement of earnings targets and overall performance. Once the target value is established, the Committee determines the number of shares subject to the awards by reference to the then-current market value of the Company's common stock and for 2015, then allocated 55% of the awards to performance shares and 45% of the awards to RSUs.

Performance Shares.    We granted performance shares to our Named Executive Officers in February 2015 for a three-year performance period (the "2015 Performance Shares").

The following graph illustrates how the 2015 Performance Shares work:

GRAPHIC

The Committee grants each award recipient a specified number of performance shares, which is considered the "Base Grant." The maximum award opportunity is 200% of the Base Grant. The 2015 Performance Shares have two distinct elements — TSR and six operational performance metrics. The TSR metric provides a well-understood linkage to overall shareholder return. The operational performance metrics provide a clear line of sight to factors in the utility industry that drive management performance to increase earnings. We believe that the

2016 Proxy Statement      |      GRAPHIC      57

Table of Contents

EXECUTIVE COMPENSATION

combination of these two elements in the same equity award provides a mix of motivations for performance that is superior to utilizing all of one element or the other.


50% of the Base Grant

IF THE COMPANY'S TSR OVER THE
PERFORMANCE PERIOD AS COMPARED
TO THE TSR OF THE COMPANIES IN THE
S&P 1500 SUPER COMPOSITE ELECTRIC
UTILITY INDEX (THE "INDEX") IS:

THE NUMBER OF
PERFORMANCE SHARES WILL BE:

90th Percentile or Greater 100% of the Base Grant
75th Percentile 75% of the Base Grant
50th Percentile 50% of the Base Grant
25th Percentile 25% of the Base Grant
Less than 25th Percentile None

TSR is the measure of a company's stock price appreciation plus any dividends paid during the performance period. We believe using TSR strengthens the link between officer performance and shareholder return. Additionally, TSR is the most prevalent long-term incentive metric used among the Peer Group. We anticipate that the common stock payout, if any, related to this element will be made in February 2018.


50% of the Base Grant

IF THE COMPANY'S AVERAGE
PERFORMANCE WITH RESPECT TO
THE PERFORMANCE METRICS IS:

THE NUMBER OF
PERFORMANCE SHARES WILL BE:

90th Percentile or Greater

100% of the Base Grant

75th Percentile

75% of the Base Grant

50th Percentile

50% of the Base Grant

25th Percentile

25% of the Base Grant

Less than 25th Percentile

None

The Company's "Average Performance" with respect to the metrics listed below will be the average of the Company's percentile ranking for each of these metrics during each of the three-years of the performance period:

The J.D. Power Residential National Large Segment Survey for investor-owned utilities percentile ranking of the Company relative to other participating companies;

The Company's percentile ranking based on customer reliability results relative to other companies reported in the Edison Electric Institute ("EEI") data;

The Company's ranking for a customer-to-employee improvement ratio, based on data provided by SNL Financial ("SNL"), an independent third-party data system, relative to other companies reported in the SNL data;
58      GRAPHIC       |      2016 Proxy Statement

Table of Contents

EXECUTIVE COMPENSATION
The Company's percentile ranking based on the OSHA rate (All Incident Injury Rate) relative to other companies reported in the EEI data;

The Company's percentile ranking based on nuclear generation capacity factors relative to other companies reported in the SNL data; and

The Company's percentile ranking based on coal generation capacity factors relative to other companies reported in the SNL data.

The metrics selected encompass performance inclusive of all departments and are direct indicators of key business performance success. The metrics can be readily benchmarked and will provide a clear barometer of top-tier performance excellence. We believe a focus on these performance metrics over a three-year period aligns long-term compensation with key operational goals, thereby enhancing overall Company performance. We anticipate that the common stock payout, if any, related to this performance element will be made in October 2018.

The recipient must remain employed with the Company throughout the performance period, unless the recipient meets any of the following exceptions. In the case of the recipient's retirement while qualifying for Early Retirement or Normal Retirement (the "Retirement Qualified Employee") under the Pinnacle West Capital Corporation Retirement Plan (the "Retirement Plan"), the employee is deemed to have been employed through the end of the performance period. In the case of the recipient's retirement after reaching age 60 with five years of service, but not otherwise qualifying for Early Retirement or Normal Retirement under the Retirement Plan (a "Late Career Employee"), any performance share payout will vest pro-rata based on the number of days the recipient was employed during the performance period compared to the total number of days in the period. In the event the recipient is terminated for cause (regardless of the recipient's retirement date), the recipient shall not be deemed to have been employed through the end of the performance period and will forfeit the right to receive any payout. In the event of the death or disability of a Retirement Qualified Employee or a Late Career Employee, the employee is deemed to have been employed through the end of the performance period. In the event the recipient's employment is terminated without cause during the performance period, the CEO in his discretion and with the Committee's approval may determine if, to what extent, and when, any unvested portion of the grant may vest. The 2015 Performance Shares also contain confidentiality protections that apply during employment and survive termination, and non-competition and employee solicitation restrictions that survive for a period of one year following termination of employment.

A recipient of performance shares will receive additional shares of common stock equal to the amount of dividends that the recipient would have received had the recipient directly owned the shares from the date of grant to the date of payment, plus interest on such dividends at the rate of 5% per annum, compounded quarterly, divided by the fair market value of one share of stock on the date of the stock payout. This common stock is paid out when and only if the related common stock payout is made. The 2015 Performance Shares are not included in calculating pension benefits.

As described in the next paragraph, if a participant's rights are adequately protected, a change of control will not result in any acceleration of the participant's shares. However, if a change of control occurs and the conditions of the following paragraph are not met, immediately prior to the change of control, the performance shares will convert to either cash or RSUs payable in stock, at the election of the recipient, and shall immediately vest. In converting the performance

2016 Proxy Statement      |      GRAPHIC      59

Table of Contents

EXECUTIVE COMPENSATION

shares, the recipient will receive the number of shares of stock or the cash equivalent that would have been earned at the target level of performance, unless the Committee determines that a higher level of attained performance is reasonably ascertainable as of a specified date prior to the closing of the change of control transaction. The dividend equivalent awards will be paid in cash or stock as determined in accordance with the applicable award agreement.

Prior to a change of control, the Board may determine that no change of control shall be deemed to have occurred or that some or all of the enhancements to the rights of the recipient shall not apply to specified awards. The Board may exercise such override authority only if, before or immediately upon the occurrence of the specified event that would otherwise constitute a change of control, the Board reasonably concludes in good faith, that: (1) recipients holding awards affected by action of the Board override shall be protected by legally binding obligations of the Company or the surviving entity or the parent thereof because such awards (A) shall remain outstanding following consummation of all transactions involved in or contemplated by such change of control, (B) shall be assumed and adjusted by the surviving entity resulting from such transactions or the parent thereof, or (C) shall be exchanged for new awards issued by the surviving entity resulting from such transaction or the parent thereof; and (2) changes in the terms of the award resulting from such transactions will not materially impair the value of the awards to the participants or their opportunity for future appreciation in respect of such awards.

The 2015 Performance Shares are included in the Summary Compensation Table in the column under "Stock Awards" and in the Grants of Plan-Based Awards table. In 2012, the Committee granted performance shares to the Named Executive Officers, based on the same performance metrics as the 2015 grant. For the three-year period ended December 31, 2014, our TSR percentile was 65.0 compared to the Index. For the same period, our Average Performance percentile with respect to the performance metrics was 78.9 compared to the companies included in the performance metrics. The actual payout to each Named Executive Officer is identified in the Option Exercises and Stock Vested table.

RSUs.    We granted RSUs to our Named Executive Officers in February 2015. RSUs are incentive awards that vest in equal 25% installments over four-years if the award recipient remains employed by the Company or one of its subsidiaries. Each RSU represents the fair market value of one share of our common stock on the applicable vesting date, and the value rises and falls with the Company's stock price. Since a portion of multiple RSU awards may vest each February, the Committee selected February 20 as the vesting date for all RSUs as an administrative convenience. The following graph illustrates how the 2015 RSUs work:

GRAPHIC

The 2015 RSUs are payable at the election of the participant made shortly after the date of the initial grant, either 100% in stock or 50% in cash and 50% in stock and will vest each February 20 in an amount equal to the number of RSUs vesting on such date multiplied by the closing price of a share of our common stock on that date. If a Retirement Qualified Employee retires, the RSUs will fully vest and will be payable on the dates and in the percentages specified in the vesting schedule. If a Retirement Qualified Employee or a Late Career Employee dies or becomes disabled before the end of the vesting period, any outstanding

60      GRAPHIC       |      2016 Proxy Statement

Table of Contents

EXECUTIVE COMPENSATION

RSUs will fully vest and will be payable no later than March 15 of the year following the year in which the event occurs. If a Late Career Employee retires, the recipient will receive a pro-rata payout of the portion that would have released on the next vesting date based on the number of days the recipient was employed from the last vesting date. In the event a recipient is terminated for cause, any award the recipient would otherwise be entitled to receive following the date of termination is forfeited. In the event a recipient is terminated without cause, the CEO in his discretion and with the Committee's approval may determine if, and to what extent, any unvested portion of the grant will vest.

The RSUs accrue dividend rights on the vested RSUs, equal to the amount of dividends that the participant would have received had the participant directly owned stock equal to the number of vested RSUs from the date of grant to the date of payment, plus interest at the rate of 5% per annum, compounded quarterly, with such amount paid either 100% in stock or 50% in cash and 50% in stock. The RSUs are not included in the calculation of pension benefits. In the event of a change of control, the extent, if any to which the time-based restriction imposed on the RSUs will lapse, will be determined in the same manner as discussed above with respect to the performance shares. The RSUs contain confidentiality protections that apply during employment and survive termination, and non-competition and employee solicitation restrictions that survive for a period of one year following termination of employment.

The 2015 RSUs are included in the Summary Compensation Table in the column under "Stock Awards" and in the Grants of Plan-Based Awards table. RSUs granted in previous years that vested in 2015 are identified in the Option Exercises and Stock Vested table.


Benefits

Pension Programs.    The Named Executive Officers participate in the Retirement Plan and the Supplemental Excess Benefit Retirement Plan (the "Supplemental Plan"). We describe these plans in more detail under "Discussion of Pension Benefits." The Company believes that the pension programs are important recruitment and retention tools.

Deferred Compensation Program.    The Company offers to its executive officers the ability, if the officer so chooses, to participate in a deferred compensation program. We describe our deferred compensation program in more detail under "Discussion of Nonqualified Deferred Compensation." We offer our deferred compensation program because the Committee believes that it is standard market practice to permit officers to defer some portion of their cash compensation. However, we generally consider the value in the deferred compensation plan to be the participant's own money and do not give this amount significant weight in making compensation decisions. Discretionary credits under the deferred compensation plan for Messrs. Falck and Edington are discussed under the heading "Discussion of Nonqualified Deferred Compensation" and for Mr. Edington, under the narrative disclosure to the Summary Compensation Table and Grants of Plan-Based Awards table.

Change of Control Agreements.    The Company maintains Key Executive Employment and Severance Agreements (the "Change of Control Agreements") for our officers, including the Named Executive Officers. Similar to our deferred compensation programs, Change of Control Agreements do not have a significant impact on compensation design. However, in setting annual incentives, we do consider that the change of control payment, if triggered, would be based on the average of the incentives for the prior four years. We discuss our Change of Control Agreements in more detail under "Potential Payments upon Termination or Change of Control." Our Change of Control Agreements are "double trigger" agreements that provide

2016 Proxy Statement      |      GRAPHIC      61

Table of Contents

EXECUTIVE COMPENSATION

severance benefits if, during a specified period following a change of control, the Company terminates an employee without "cause" or the employee terminates employment "for good reason." We believe that the possibility of strategic transactions or unsolicited offers creates job uncertainty for executives, and that the Change of Control Agreements are effective tools to provide incentives for executives to stay with the Company in light of these uncertainties. In addition, we believe that if the agreements are appropriately structured, they do not deter takeovers or disadvantage shareholders. Each agreement is terminable on notice given six months prior to each anniversary of the agreement.

In May 2009, in connection with a review of its executive compensation practices, the Company determined that, on a going-forward basis, it would no longer provide excise tax gross-up payments in new and materially amended Change of Control Agreements with its Named Executive Officers. In unusual circumstances where the Company believes that accommodations have to be made to recruit a new executive to the Company, limited reimbursement for taxes payable on change of control payments may be included in executives' contracts, but even in those circumstances, the excise tax gross-ups will be limited to payments triggered by both a change of control and termination of employment and will be subject to a three-year sunset provision.

Perquisites.    We have had a long-standing practice of providing only limited perquisites to our executive officers. We describe our perquisites paid to each of the Named Executive Officers in footnote 4 to the Summary Compensation Table.

Taxation and Accounting Considerations Regarding Executive Compensation

Publicly-traded corporations generally are not permitted to deduct, for federal income tax purposes, annual compensation in excess of $1 million paid to any of certain top executives, except to the extent the compensation qualifies as "performance-based" under rules set forth in the Internal Revenue Code (the "Code"). The Company does not use the deduction as a justification for awarding compensation below $1 million. To the extent the awards do exceed $1 million, the Company believes that it is in the shareholders' best interests to not only consider what components qualify for the deduction, but also preserve flexibility in designing a compensation program. For example, the RSUs described above do not qualify as performance-based compensation under the applicable tax provisions. The Committee and the Board may weigh the tax and accounting consequences of the total compensation program and the individual components of compensation when setting total compensation and determining the individual elements of an officer's compensation package. However, the Committee and the Board do not routinely apply the tax-deductibility rules to limit what they determine otherwise to be necessary and appropriate compensation awards.

Stock Ownership and Retention Guidelines

We believe that linking a significant portion of an officer's current and potential future net worth to the Company's success, as reflected in our stock price, helps to ensure that officers have a stake similar to that of our shareholders. Stock ownership guidelines also encourage the long-term management of the Company for the benefit of the shareholders.

62      GRAPHIC       |     2016 Proxy Statement

Table of Contents

EXECUTIVE COMPENSATION

The Company's Guidelines are based on the officer's position and his or her base salary. The ownership requirements are shown below in respect of the indicated officer position:

OFFICER
MULTIPLE OF BASE SALARY

Chief Executive Officer

5 times Base Salary

APS President and all Executive and Senior Vice Presidents

2 times Base Salary

All other Vice Presidents and Officers

1 times Base Salary

Each officer is expected to meet his or her ownership requirement within five years following the later of January 2010 or such officer's election (the "Phase-in Period"). In the event of (1) a promotion or a change in these Guidelines that would cause the officer to move into a higher multiple level or (2) a base salary increase of more than 20% over the officer's previous base salary, an officer will have an additional three-years to meet his or her applicable ownership requirement.

The types of ownership arrangements counted toward the Guidelines are: common stock, whether held individually, jointly, or in trust with or for the benefit of an immediate family member; shares issued upon the vesting of RSUs or the payout of performance shares; and unvested RSUs to the extent they will result in the issuance of common stock to the officer.

Officers may not sell or otherwise transfer ("Dispose") any shares of Company stock received by them pursuant to any of the Company's compensation or benefit programs (net of shares sold or surrendered to meet tax withholding or exercise requirements) until his or her ownership requirement has been met. Thereafter, the officer may Dispose of any shares to the extent such transaction would not cause the officer's share ownership to fall below his or her applicable requirement. The retention requirement applies both during and after the Phase-in Period. In addition, officers may not pledge, margin, hypothecate, hedge, or otherwise grant an economic interest in any shares of Company stock whether or not his or her ownership requirement has been met. This restriction extends to the purchase or creation of any short sales, zero-cost collars, forward sales contracts, puts, calls, options or other derivative securities in respect of any shares of Company stock. If the officer does not attain compliance with his or her ownership requirement by the end of the Phase-in Period, any subsequent grants of equity compensation to such officer will be payable solely in shares of stock until the ownership requirement is met. Under the Guidelines, the CEO may grant exceptions for hardship and other special circumstances.

2016 Proxy Statement      |      GRAPHIC      63

Table of Contents

EXECUTIVE COMPENSATION

All of the Named Executive Officers are in compliance with the Guidelines. The following graphs illustrate how our Named Executive Officers' holdings compare to the Guidelines:

CEO Ownership(1): Average Ownership for
the Other NEO's(1):


GRAPHIC



GRAPHIC
(1)
Based on the 12-month average stock price as of the Record Date.
64      GRAPHIC       |      2016 Proxy Statement

Table of Contents

EXECUTIVE COMPENSATION

Summary Compensation Table
 

The following table provides information concerning the total compensation earned or paid to the Company's 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
COMPENSATION ($)(4)

TOTAL
($)

Donald E. Brandt,

2015 1,277,000 0 4,400,029 2,066,186 1,567,172 27,183 9,337,570

Chairman of the Board,

2014 1,240,000 0 4,199,976 1,852,560 2,009,011 26,729 9,328,276

President and CEO of

2013 1,203,300 0 4,000,235 1,893,994 1,020,892 26,344 8,144,765

the Company and APS

               

James R. Hatfield,

2015 593,000 0 750,144 548,572 458,772 30,492 2,380,980

Executive Vice

2014 570,000 0 750,320 502,603 465,143 24,050 2,312,116

President and Chief Financial Officer of the Company and APS

2013 540,000 0 700,005 485,611 347,743 23,621 2,096,980

Randall K. Edington,

2015 1,050,000 0 600,063 1,228,738 1,164,712 28,593 4,072,106

Executive Vice

2014 960,511 0 500,031 1,050,775 2,130,198 1,072,586 5,714,101

President and Chief

2013 925,000 0 500,208 814,505 96,488 21,708 2,357,909

Nuclear Officer, APS

               

David P. Falck,

2015 544,000 0 750,144 478,437 368,182 25,675 2,166,438

Executive Vice

2014 522,000 0 750,320 423,697 419,745 278,991 2,394,753

President and General Counsel of the Company and APS

2013 502,000 0 700,005 454,059 303,367 28,764 1,988,195

Mark A. Schiavoni,

2015 640,000 0 1,000,148 668,416 432,764 25,675 2,767,003

Executive Vice President

2014 563,958 0 750,320 558,031 424,749 27,419 2,324,477

and Chief Operating

2013 485,000 0 700,005 446,219 275,670 25,373 1,932,267

Officer, APS

               

(1)
This column reflects the aggregate grants of performance shares and RSUs, which are discussed under "2015 Compensation — Long-Term Incentives" in the CD&A and which are shown by individual grant on the Grants of Plan-Based Awards table. This column represents the grant date fair value computed in accordance with FASB ASC Topic 718. The assumptions made in our valuations are set forth in Note 15 of the Notes to Consolidated Financial Statements in the Pinnacle West/APS Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the "2015 Form 10-K"). These amounts are allocated between the various equity grants as follows:

NAME
RSUs
($)

PERFORMANCE SHARES
($)

Mr. Brandt 1,980,026 2,420,003
Mr. Hatfield    337,584    412,560
Mr. Edington    270,015    330,048
Mr. Falck    337,584    412,560
Mr. Schiavoni    450,112    550,036

2016 Proxy Statement      |      GRAPHIC      65

Table of Contents

EXECUTIVE COMPENSATION

The amounts included in the Summary Compensation Table for the 2015 Performance Shares, based on the probable outcome at the time of the grant, assume that the 2015 Performance Shares will be paid at 100% of the Base Grant. The 2015 Performance Shares amounts are calculated as follows:

NAME
GRANT NUMBER OF
PERFORMANCE SHARES
(#)

AWARD VALUE
REFLECTED IN TABLE
($)

MAXIMUM
AWARD VALUE
($)

Mr. Brandt 37,248 2,420,003 4,840,005
Mr. Hatfield   6,350    412,560    825,119
Mr. Edington   5,080    330,048    660,095
Mr. Falck   6,350    412,560    825,119
Mr. Schiavoni   8,466    550,036 1,100,072

There were no forfeitures in 2015.

(2)
These amounts represent the payments described under "2015 Compensation — Annual Cash Incentives" in the CD&A and, with respect to Mr. Edington, $1,500 for incentive payments received in connection with the outage incentive plans for the 2014 Fall and 2015 Spring and Fall refueling outages for Palo Verde Units 2, 1 and 3, respectively (collectively, the "Refueling Outages").

(3)
The amounts in this column for 2015 consist of: (i) the estimated aggregate change in the actuarial present value from December 31, 2014 to December 31, 2015 of each of the Named Executive Officer's accumulated benefits payable under all defined benefit and actuarial pension plans (including supplemental plans and employment agreements) as follows: Mr. Brandt — $1,503,619 (Mr. Brandt is currently eligible for retirement at a reduced retirement benefit; however, this amount represents the amount he would be entitled to receive at age 65, at which time he would receive the full retirement benefit); Mr. Hatfield — $453,537; Mr. Edington — $927,182; Mr. Falck — $342,163; and Mr. Schiavoni — $415,899; (ii) the above-market portion of interest accrued under the deferred compensation plan as follows: Mr. Brandt — $63,553; Mr. Hatfield — $5,235; Mr. Edington — $237,530; Mr. Falck — $26,019; and Mr. Schiavoni — $16,865. We describe the special agreements we have with Mr. Edington regarding his benefits in the narrative disclosure accompanying this Summary Compensation Table and the Grants of Plan-Based Awards table. The actuarial present value provided in this footnote is driven by certain assumptions including, the discount rate and the mortality assumption.

(4)
The amounts in this column include the following amounts for each of the Named Executive Officers for 2015:

Mr. Brandt:  

Company's contribution under the 401(k) plan

11,925

Perquisites and personal benefits consisting of a car allowance, executive physical, and financial planning

15,258
   
Mr. Hatfield:  

Company's contribution under the 401(k) plan

11,925

Perquisites and personal benefits consisting of a car allowance, executive physical, and financial planning

18,567
   
Mr. Edington:  

Company's contribution under the 401(k) plan

11,925

Perquisites and personal benefits consisting of a car allowance and executive physical

16,668
   
Mr. Falck:  

Company's contribution under the 401(k) plan

11,925

Perquisites and personal benefits consisting of a car allowance and financial planning

13,750
   
Mr. Schiavoni:  

Company's contribution under the 401(k) plan

11,925

Perquisites and personal benefits consisting of a car allowance and financial planning

13,750
66      GRAPHIC       |      2016 Proxy Statement

Table of Contents

EXECUTIVE COMPENSATION

Grants of Plan-Based Awards
 

NAME

GRANT
DATE(1)
ESTIMATED POSSIBLE PAYOUTS
UNDER NON-EQUITY INCENTIVE
PLAN AWARDS(2)
ESTIMATED FUTURE PAYOUTS
UNDER EQUITY INCENTIVE
PLAN AWARDS
ALL
OTHER
STOCK
AWARDS:
NUMBER OF
SHARES OF
STOCK OR
UNITS
(#)
GRANT DATE
FAIR VALUE
OF STOCK
AND OPTION
AWARDS(3)
($)

  THRESHOLD
($)
TARGET
($)
MAXIMUM
($)
THRESHOLD
(#)
TARGET
(#)
MAXIMUM
(#)
   

Donald E. Brandt

638,500    1,852,560    2,554,000   

02/17/2015(4) 18,624 37,248 74,496 2,420,003

(PS)

02/17/2015(5) 30,476 1,980,026

(RSU)

James R. Hatfield

      1,779      355,800      711,600             

02/17/2015(4)         3,175   6,350 12,700      412,560

(PS)                

02/17/2015(5)               5,196    337,584

(RSU)                

Randall K. Edington

    3,413       682,500    1,365,000   

02/17/2015(4)   2,540   5,080 10,160    330,048

(PS)

02/17/2015(5)   4,156    270,015

(RSU)

           1(6)