MDU RESOURCES GROUP, INC.
EXECUTIVE INCENTIVE COMPENSATION
PLAN
____________________________________________________________
I.
PURPOSE
The
purpose of the Executive Incentive Compensation Plan (the "Plan")
is to provide an incentive for key executives of MDU Resources
Group, Inc. (the "Company") to focus their efforts on the
achievement of challenging and demanding corporate
objectives. The Plan is designed to reward successful
corporate performance as measured against specified performance
goals as well as exceptional individual
performance. When corporate performance reaches or
exceeds the performance targets and individual performance is
exemplary, incentive compensation awards, in conjunction with
salaries, will provide a level of compensation which recognizes the
skills and efforts of the key executives.
II.
DEFINITIONS
Capitalized
terms not otherwise defined herein shall have the meanings given
them in the Company’s Executive Incentive Compensation Plan
Rules and Regulations.
III.
BASIC PLAN CONCEPT
The
Plan provides an opportunity to earn annual incentive compensation
based on the achievement of specified annual performance
objectives. A target incentive award for each individual
within the Plan is established based on the position level and
actual base salary, provided, however, that the Compensation
Committee of the Board of Directors (the “Committee”)
in its sole discretion, may, instead of actual base salary, use the
assigned salary grade market value (midpoint)
(“Salary”). The target incentive award
represents the amount to be paid, subject to the achievement of the
performance objective targets established each
year. Larger incentive awards than
target may be authorized when performance
exceeds targets; lesser or no amounts may be paid when performance
is below target.
It
is recognized that during a Plan Year major unforeseen changes in
economic and environmental conditions or other significant factors
beyond the control of management may substantially affect the
ability of the Plan Participants to achieve the specified
performance goals. Therefore, in its review of corporate
performance the Committee, in consultation with the Chief Executive
Officer of the Company, may modify the performance
targets. However, it is contemplated that such target
modifications will be necessary only in years of unusually adverse
or favorable external conditions.
IV.
ADMINISTRATION
The
Plan shall be administered by the Committee with the assistance of
the Chief Executive Officer of the Company. The
Committee shall approve annually, prior to the beginning of each
Plan Year, the list of eligible Participants, and the target
incentive award level for each position within the
Plan. The Plan’s performance targets for the year
shall be approved by the Committee no later than its regularly
scheduled February meeting during that Plan Year. The
Committee shall have final discretion to determine actual award
payment levels, method of payment, and whether or not payments
shall be made for any Plan Year.
The
Board of Directors of the Company may, at any time and from time to
time, alter, amend, supersede or terminate the Plan in whole or in
part, provided that no termination, amendment or modification of
the Plan shall adversely affect in any material way an award that
has met all requirements for payment without the written consent of
the Participant holding such award, unless such termination,
modification or amendment is required by applicable law.
V.
ELIGIBILITY
Executives
who are determined by the Committee to have a key role in both the
establishment and achievement of Company objectives shall be
eligible to participate in the Plan.
Nothing
in the Plan shall interfere with or limit in any way the right of
the Company to terminate any Participant’s employment at any
time, for any reason or no reason in the Company’s sole
discretion, or confer upon any Participant any right to continue in
the employment of the Company. No executive shall have
the right to be selected to receive an award under the Plan, or,
having been so selected, to be selected to receive a future
award.
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PLAN PERFORMANCE MEASURES
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Performance
measures shall be established that consider shareholder and
customer interests. These measures shall be evaluated
annually based on achievement of specified goals.
The performance measure reflective of shareholder’s interest
will be the percentage attainment of corporate goals, as determined
each year by the Committee. This measure may be applied
at the corporate level for individuals, such as the Chief Executive
Officer, or at the business unit level for individuals whose major
or sole impact is on business unit results.
Individual
performance will be assessed based on the achievement of annually
established individual objectives.
Threshold, target and maximum award levels will be established
annually for each performance measure and business
unit. The Committee will retain the right to make all
interpretations as to the actual attainment of the desired results
and will determine whether any circumstances beyond the control of
management need to be considered.
VII. TARGET
INCENTIVE AWARDS
Target
incentive awards will be expressed as a percentage of each
Participant’s Salary. These percentages shall vary
by position and reflect larger reward opportunity for positions
having greater effect on the establishment and accomplishment of
the Company’s or business unit’s
objectives. An exhibit showing the target awards as a
percentage of Salary for eligible positions will be attached to
this Plan at the beginning of each Plan Year.
VIII. INCENTIVE FUND
DETERMINATION
The
target incentive fund is the sum of the individual target incentive
awards for all eligible Participants. Once the incentive
targets have been determined by the Committee, a target incentive
fund shall be established and accrued ratably by the
Company. The incentive fund and accruals may be adjusted
during the year.
At
the close of each Plan Year, the Chief Executive Officer of the
Company will prepare an analysis showing the Company's or business
unit's performance in relation to each of the performance measures
employed. This will be provided to the Committee for
review and comparison to threshold, target and maximum performance
levels. In addition, any recommendations of the Chief
Executive Officer will be presented at this time. The
Committee will then determine the amount of the target incentive
fund earned.
IX. INDIVIDUAL
AWARD DETERMINATION
Each
individual Participant's award will be based first upon the level
of performance achieved by the Company or business unit and
secondly based upon the individual's performance. The
performance measures applicable for assessing individual
performance will be established at the beginning of each
Plan
Year. The assessment by the
Committee, after consultation with the Chief Executive Officer, of
achievement relative to the established performance measures, as
determined by a percentage from 0 percent to 200 percent, will be
applied to the Participant's target incentive award which has been
first adjusted for Company or business unit performance.
X.
PAYMENT OF AWARDS
Except
as provided below or as otherwise determined by the Committee, in
order to receive an award under the Plan, the Participant must
remain in the employment of the Company or business unit for the
entire Service Year. If a Participant terminates
employment with the Company pursuant to Section 5.01 of the
Company’s Bylaws which provides for mandatory retirement for
certain officers on their 65th birthday (or terminates employment
with a subsidiary of the Company pursuant to a similar subsidiary
Bylaw provision) and if the Participant’s 65th birthday
occurs during the Service Year, determination of whether the
performance measures have been met will be made at the end of the
Service Year, and to the extent met, payment of the award will be
made to the Participant, prorated. Proration of awards
shall be based upon the number of full months elapsed from and
including January to and including the month in which the
Participant’s 65th birthday occurs. The prorated
award shall be paid as soon as practicable in the year following
the Service Year, but in all events between January 1 and March
10.
An
individual Participant who transfers between the Company and
business units may receive a prorated award at the discretion of
the Committee. Payments made under this Plan will not be
considered part of compensation for pension
purposes. Payments will be made in cash as soon as
practicable in the year following the Service Year, but in all
events between January 1 and March 10.
Incentive
awards may be deferred if the appropriate elections have been
executed prior to the beginning of the Service Year. A
deferral election will be effective only for the incentive award
earned in the Service Year following the Plan Year in which the
election is made. Deferral elections may not be changed
or revoked after the Service Year begins. Deferred
amounts shall be subject to the terms of the Plan and the Rules and
Regulations as amended, and, to the extent not inconsistent
therewith, the deferral election forms pursuant to which the
amounts were deferred. Deferred amounts will accrue
interest at a rate determined annually by the Committee and
specified in the Rules and Regulations.
In
the event of a "Change in Control" (as defined by the Committee in
its Rules and Regulations) then any award deferred by each
Participant shall become immediately payable to the Participant in
cash, together with accrued interest thereon to the date of
payment. In the event the Participant files suit to
collect the Participant's deferred award then all of the court
costs, other expenses of litigation, and attorneys' fees shall be
paid by the Company in the event the Participant prevails upon any
of the Participant's claims for payment of a deferred
award.
XI.
ACCOUNTING RESTATEMENTS
This Section XI shall apply to
incentive awards granted to all Participants in the
Plan. Notwithstanding anything in the Plan or the Plan's
Rules and Regulations to the contrary, if the Company's audited
financial statements are restated, the Committee may, in accordance
with the Company's Guidelines for Repayment of Incentives Due to
Accounting Restatements , take such actions as it deems
appropriate (in its sole discretion) with respect to
(a) unpaid
incentive awards under the Plan (including incentive awards
relating to completed Plan Years, but with
respect to which payments have not yet been made
or deferred) ("Outstanding Awards") and
(b) prior
incentive awards that were paid (or deferred) within the three-year
period preceding the restatement ("Prior Awards"), provided such
Prior Awards were not paid prior to the date the Plan was amended
to add this Section XI,
if the calculation of the amounts payable, paid
or deferred under such awards are, or would have been, directly
impacted by the restatement, including, without limitation, (i)
securing (or causing to be secured) repayment of some or all
payments made pursuant to (or deferrals relating to) Prior Awards,
(ii) making (or causing to be made) additional payments (or
crediting additional deferrals), (iii) reducing or otherwise
adjusting the amount payable pursuant to Outstanding Awards and/or
(iv) causing the forfeiture of Outstanding Awards. The
Committee may, in its sole discretion, take different actions
pursuant to this Section XI with respect to different awards,
different Participants (or beneficiaries) and/or different classes
of awards or Participants
