Use these links to rapidly review the document
TABLE OF CONTENTS

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 Registrantý

Filed by a Party other than the Registranto

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:
         

Table of Contents

GRAPHIC


Table of Contents

GRAPHIC


Table of Contents

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

Dear Fellow Shareholder:To Our Shareholders:

On behalf of our Board of Directors, management and employees, I invite you to participate in our 20172018 Annual Meeting of Shareholders.

The meeting will be held at10:30 a.m. (MST),Wednesday, May 17, 2017. This year's Annual Meeting will be a completely virtual meeting of shareholders, which will be conducted via live webcast. You will be able to attend the Annual Meeting online by visiting www.virtualshareholdermeeting.com/PNW. You also will be able to vote your shares electronically during the Annual Meeting (other than shares held through our 401(k) Plan, which must be voted prior to the meeting).

We are looking forward to using the virtual Annual Meeting technology. For those of you who have been able to join us at the past several physical meetings, you would have seen our shareholder attendance dwindling. Holding a virtual meeting will make the Annual Meeting available to all of our shareholders from any location. A virtual meeting is also environmentally friendly and sustainable over the long-term.16, 2018. Details regarding how to attend the meeting online and the business to be conducted at the Annual Meeting are in the accompanying Notice of Annual Meeting and Proxy Statement.

Pinnacle West hadachieved another successful year of outstanding performance as we continued to focus on delivering on our commitments to the customers who depend on us, the communities we serve, our dedicated team members, and the shareholders who trust us with their investment. Operational performance at our primary subsidiary, Arizona Public Service Company ("APS"), an electric utility that serves approximately 1.2 million customers throughout Arizona and operates the largest nuclear power plant in 2016. Examplesthe United States, was strong in 2017. Included in the Proxy Statement Summary you will see a number of our successes include:shareholder value creation and operational accomplishments. It is an impressive list, and one that I and the senior management team are proud to share with you. Here are just a few of those achievements:

 

Your BoardTotal shareholder value (change in market capitalization plus dividends) increased $1.1 billion in 2017, $2.8 billion over the common dividend forlast three years, and $5.2 billion over the fifth straight year, raising it by 5%;last five years;

Our total shareholder return (stock price appreciation/depreciation plus dividends) ("TSR") for 2017 was 25.3%12.7% and 41.2%, outperforming38.4%, and 100.7%, for the S&P Composite 1500 Electric Utilities Index;2, 3, and 5-year periods, respectively;

Our share price reached a new all-time closing high, and hit new 52-week intraday highsintraday-highs on 2729 trading days, including a new all-time intraday high;

Pinnacle West increased its dividend for the 6th straight year, by 6% in 2017;

We continued to focus on hiring diverse candidates as well as hiring from our veteran community, and at the end of 2017 over 44% of our workforce was diverse and more than 20% of our team members were veterans;

We achieved top-quartile distribution reliability and had our best summer reliability in five years; and

Our total shareholder value increased $1.8 billion.We achieved a positive and collaborative outcome of our first rate review in five years, which was an important milestone for us as it allows us to continue making efficient, cost-effective investments while providing safe, reliable service for our customers.

 Additional highlighted accomplishments of our Company's 20162017 performance are set forth in the Proxy Statement beginning on page 1.2.

At this year's Annual Meeting, as explained in the attached Proxy Statement, we are asking you to: (1) elect eleven Board of Director nominees; (2) consider and vote FOR an advisory resolution to approve executive compensation; (3) consider and vote, on an advisory basis, on how frequently the Company should obtain future advisory votes on executive compensation; (4) re-approve the material terms of the performance goals under, and an amendment to, the 2012 Long-Term Incentive Plan; and (5) ratify the appointment of our independent public accounting firm for 2017.


Table of Contents

Last, but not least, your voteIn addition to delivering exceptional financial performance, we continue to focus on our sustainability efforts, fostering diversity and supporting our communities. Our usage of reclaimed water is importanta prime example of a sustainable balance and exemplifies our focus on the water-energy nexus. Thanks in large part to us. Whetherthe Palo Verde Generating Station, reclaimed water accounted for 72% of the water used in our generating facilities in 2017.

Our Executive Diversity Council worked diligently in 2017 to continue improving our workforce diversity. Over 48% of candidates hired in 2017 were ethnically or notgender diverse. As a Company we are committed to diversity, respect and inclusion as core to our culture and essential to our success.

In 2017 we remained steadfast in our commitment to our communities. We contributed more than $9.8 million to our Arizona communities, with more than $1.4 million invested in science, technology, engineering and mathematics ("STEM") education. Our men and women pledged more than $2.4 million through our Company-sponsored charitable giving program, through which the Company provides a 50% match. This year our team members donated nearly 110,000 volunteer hours to a diverse and wide-range of organizations, including Habitat For Humanity, Treasures for Teachers, Phoenix Children's Hospital and St. Mary's Food Bank Alliance. These are only a few examples of how our men and women continuously demonstrate a commitment to excellence by living the values core to our culture. In addition, APS continued to partner with the Arizona Diamondbacks Foundation to build youth baseball fields in deserving neighborhoods. In 2017 we built our 35th field. We are proud to support efforts that unite our communities and help them thrive.

As you planknow, in 2016 the Board of Directors adopted a Director Retirement Policy to participate inprovide for an orderly transition of our Board members. This year the first retirement under that policy will take place. Roy Herberger will retire from the Board effective at the Annual Meeting on the meeting day, we encourage youMeeting. Over my years at Pinnacle West, I always valued Roy's counsel, wisdom and guidance. On behalf of all of us, I extend our appreciation and thanks to vote promptly. You may vote over the Internet; by telephone; by completing, signing, datingRoy for his many years of contributions and returningdedicated service to our Company and to our shareholders.

I am both privileged and proud to lead Pinnacle West. Our men and women are working to shape a proxy card or voting instruction form; or by voting during the meeting.better, sustainable future for our customers and our communities, and in that process, they are also building a more valuable company for our shareholders.

Thank you for the confidence you place in Pinnacle West through your investment.

Sincerely,

GRAPHIC


Table of Contents

GRAPHICLOGO 
Kathryn L. Munro
Lead Director

To Our Shareholders:Dear Fellow Shareholders,

On behalf of the Board, I would like to thank you for your Board of Directors,investment in Pinnacle West. As we approach our 2018 Annual Meeting, I welcomewould like to take this opportunity to communicateprovide you with an update on how your Board is approaching and addressing key areas of shareholder interest, particularly with respect to our shareholders. In stewarding your Company,governance and compensation practices.

Driving Shareholder Value Creation and Promoting a Sustainable Energy Future

As directors of Arizona's largest and longest-serving electric company, we continually seekview operational excellence as paramount to achievelong-term value creation for our shareholders, and our long-term strategy reflects this focus. Our management team continues to drive outstanding operational execution while growing our business and leveraging technology to promote a long-term sustainable performance and create shareholder value by focusing on implementing effective business strategies, prudent risk management, and sound corporate governance practices.

Don Brandt becameenergy future. These efforts have resulted in strong returns for 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 utility. He has built a strong leadership team and our Company's performance under Don's and his team's leadership continues to be impressive. Here are several examples of our improved performance:

I would now like to take this opportunity to highlight some areas of interest to our shareholders with respect to issues more specific to the Board and our shareholders:


Table of Contents

Proxy Statement.

GRAPHICShareholder-Informed Compensation Program Changes

business,


Table of Contents

I appreciateincluding several changes made in 2016. Following shareholder discussions in 2017, we have made further changes to our program that we believe will create even greater alignment between our executives and the opportunityperformance of our Company, and changes to provide you with an updateour program and encourage you to readdisclosures that reflect the feedback we have received from our shareholders. These changes are detailed in the Compensation Discussion and Analysis of this Proxy Statement and include:

Increase in the proportion of performance shares in our CEO's and Executive Vice Presidents' 2018 long-term incentive awards from 60% to 70% (reducing the percent of restricted stock units from 40% to 30% as well);

Revised 2018 metrics in certain key business units to better align with our priorities and emphasize top-quartile or above performance;

Adoption of a formal clawback policy;

Enhanced CD&A disclosures;

Additional transparency into our metric setting practices;

Redesigned annual incentive disclosure; and

Additional detail on how we select our peer group.

These structural and disclosure enhancements are directly in response to feedback we received from our shareholders.

Thoughtful and Systematic Management Succession Planning Process

As you would expect for a company with a highly skilled and long-tenured management team, the Board is very engaged in succession planning to ensure we are building a sustainable leadership pipeline. CEO and senior leadership succession planning continues to be a focus for the Board, and we have been executing on a very deliberate succession and development plan. Our current management team, under the leadership of Don Brandt, has delivered very strong performance and the Board and its Committees are actively involved in our succession plans for our top talent to ensure we are providing development opportunities that will allow for smooth leadership transitions in the future.

Robust Board Refreshment and Succession Planning Practices

The Board has established strong practices to support regular Board evaluation and refreshment. In 2016, the Board adopted a Director Retirement Policy to facilitate an orderly transition of Board members and implemented a five-year plan to refresh the Board and its leadership. This five-year plan encompasses the following:

Development of a matrix of our Board members' current skills and experiences;

Evaluation of the skills and experience leaving our Board over the next five years;

Assessment of skills and experience needed to guide the company's future long-term plans;

Incoming committee chairs are identified one year in advance of assuming chair leadership to ensure proper transition — with Roy Herberger's retirement, Rick Fox will take over as the Chair of the Human Resources Committee effective at the Annual ReportMeeting.

This process helps guide the Board in its recruitment efforts.


Table of Contents

On behalf of the Board, I want to thank our shareholders for more information. Thank youtheir time and feedback. I am pleased to provide this additional window into the Board's activities in 2017 and express our commitment to running our business for the long-term value creation for our shareholders. We appreciate your investment in Pinnacle West Capital Corporation and your continued support.support at our 2018 Annual Meeting.

Sincerely,

GRAPHIC


Table of Contents

GRAPHICLOGO

Notice of the 20172018
Annual Meeting of Shareholders

March 31, 201729, 2018

The 20172018 Annual Meeting of Shareholders (the "Annual Meeting") of Pinnacle West Capital Corporation ("Pinnacle West", "PNW", or the "Company") will be held at 10:30 a.m., Mountain Standard Time, on Wednesday, May 17, 2017.16, 2018. The Annual Meeting may be accessed online at www.virtualshareholdermeeting.com/PNW. The purposes of the Annual Meeting are:

(1)
To elect eleventen directors to serve until the 20182019 Annual Meeting of Shareholders (Proposal 1);
(2)
To hold an advisory vote to approve executive compensation (Proposal 2); and
(3)
To hold an advisory vote on the frequency of our shareholders advisory votes on executive compensation (Proposal 3);
(4)
To re-approve the material terms of the performance goals under, and to approve an amendment to, the 2012 Long-Term Incentive Plan (Proposal 4);
(5)
To ratify the appointment of our independent accountants for the year ending December 31, 20172018 (Proposal 5); and
(6)
To transact such other business as may properly come before the Annual Meeting and at any adjournments or postponements thereof.3).

All shareholders of record at the close of business on March 9, 20172018 are entitled to notice of and to vote at the Annual Meeting. Your vote is important. Whether you plan to participate in the Annual Meeting 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

Executive Offices Address:
PINNACLE WEST CAPITAL CORPORATION
Post Office Box 53999
Phoenix, Arizona 85072-3999


Table of Contents

Table of Contents

PAGE

 

 

 
LETTER FROM DONALD E. BRANDT  

LETTER FROM KATHRYN L. MUNRO

 

 

NOTICE OF THE 20172018 ANNUAL MEETING OF SHAREHOLDERS

 

 

PROXY STATEMENT SUMMARY

 

1

2016 Performance Highlights


1
Board and Governance Highlights4
Executive Compensation Highlights4
Annual Meeting of Shareholders6
Voting Matters and Board of Directors ("Board") Recommendations6
Director Nominees7

PROXY STATEMENT — GENERAL INFORMATION

 

8

Time, Date and Place

 

8
Notice of Internet Availability 8
Record Date; Shareholders Entitled to Vote 89
Voting 89
Quorum 910
Vote Required 910
Board Recommendations 10
Delivery of Annual Reports and Proxy Statements to a Shared Address and Obtaining a Copy of the Annual Report 11
Shareholder Proposals or Director Nominations for the 20182019 Annual Meeting 11
Proxy Solicitation 12

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCE

 

13

Board Meetings and Attendance

 

13
Board Committees 13
The Board's Leadership Structure 19
Succession Planning and Board Evaluations20
The Board's Role in Risk Oversight 2021
Director Resignation Policies 2122
Director Retirement Policy 2122
Shareholder Engagement and Communications with the Board 2223
Codes of Ethics and APS Core Strategic Framework 2324
Director Qualifications and Selection of Nominees for the Board 2526

PROPOSAL 1 — ELECTION OF DIRECTORS

 

2728

Director Independence

 

3438

STOCK MATTERS


40

Ownership of Pinnacle West Stock


40
Section 16(a) Beneficial Ownership Reporting Compliance41

RELATED PARTY TRANSACTIONS


42

20172018 Proxy Statement     |     GRAPHIC      i


Table of Contents

PAGE

 

 

 

STOCK MATTERS


36

Ownership of Pinnacle West Stock


36
Section 16(a) Beneficial Ownership Reporting Compliance37

RELATED PARTY TRANSACTIONS


38

HUMAN RESOURCES COMMITTEE REPORT

 

3943

EXECUTIVE COMPENSATION

 

4044

Compensation Discussion and Analysis ("CD&A")

 

4044
Named Executive Officers44
Executive Summary45
Our Philosophy and Objectives53
Executive Compensation Components 4553
Setting Executive Compensation68
Other Considerations72
Summary Compensation Table 6775
Grants of Plan-Based Awards 6977
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table 7078
Outstanding Equity Awards at Fiscal Year-End 7380
Option Exercises and Stock Vested 7582
Pension Benefits 7784
Discussion of Pension Benefits 7785
Nonqualified Deferred Compensation 8188
Discussion of Nonqualified Deferred Compensation 8289
Potential Payments upon Termination or Change of Control 8491
Equity Compensation Plan TablePay Ratio 9198

HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

9299

DIRECTORS' COMPENSATION

 

93100

Discussion of Directors' Compensation

 

94101
Director Stock Ownership Policy 95102

PROPOSAL 2 — ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

96

PROPOSAL 3 — ADVISORY VOTE ON THE FREQUENCY OF THE ADVISORY VOTE ON EXECUTIVE COMPENSATION


97103

PROPOSAL 4 — RE-APPROVAL OF THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER, AND APPROVAL OF AN AMENDMENT TO, THE 2012 LONG-TERM INCENTIVE PLAN


98

PROPOSAL 53 — RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT ACCOUNTANTS FOR THE COMPANY

 

108104

ACCOUNTING AND AUDITING MATTERS

 

109105

The Independent Accountants

 

109105
Benefits of a Long-Tenured Independent Accountant105
Accountant's Independence Controls106
Pre-Approval Policies 109106
Audit Fees 110107

iiGRAPHIC |      2017 Proxy Statement


Table of Contents

PAGE




REPORT OF THE AUDIT COMMITTEE

 

111108

HELPFUL RESOURCES

 

112109

APPENDIX A: FIRST AMENDMENT TO 2012 LONG-TERM INCENTIVE PLAN


113

APPENDIX B: AMENDED 2012 LONG-TERM INCENTIVE PLAN


114

2017 Proxy Statement     |ii     GRAPHIC      iii|      2018 Proxy Statement


Table of Contents

Proxy Statement Summary

This summary highlights our 2016 performance, our new and continuing corporate governance and executive compensation highlights, and certain information contained elsewhere in this Proxy Statement. As it is only a summary, please read the complete Proxy Statement and 20162017 Annual Report before you vote. The Proxy Statement and form of proxy are first being made available to shareholders on or about March 31, 2017.29, 2018.

2016 Performance HighlightsAnnual Meeting Time, Date and Voting Matters
 

Our Company continued its strong performance in 2016 as evidenced by the following:GRAPHIC

Who We Are

Shareholder Value:Strategic Framework

o
Pinnacle West increased the common dividend for the fifth straight year, raising it by 5%;

o
Pinnacle West's share price reached a new all-time closing high and new 52-week intraday highs on 27 trading days, including a new all-time intraday high;

o
Pinnacle West's earnings were $442 million, or $3.95 per share;

o
Our Company's TSR was solid, as shown by the graph below, outperforming the S&P Composite 1500 Electric Utilities Index in all periods shown;

GRAPHIC

GRAPHIC

TheCore is our strategic framework. It sets forth the basis from which we operate by defining our vision, mission, critical areas of focus, and values. The framework affirms our corporate values of safety, integrity and trust, respect and inclusion, and accountability. This is the foundation from which our long term strategy is built.

For example, employees are an element of our Core and one of our greatest assets. The Core helps us focus on keeping them safe, fostering a healthy and balanced environment, supporting their development through training and mentoring and encouraging engagement. This culture not only benefits each individual employee, it also positions our Company for long-term sustainable success.

GRAPHIC

20172018 Proxy Statement     |     GRAPHIC      1


Table of Contents

Proxy Statement Summary

GRAPHICway we do business:

Operating Performance:Consumer Engagement

o
Arizona Public Service Company ("APS") operates Palo Verde Nuclear Generating Station ("Palo Verde"), — Deliver value-added programs and services that derive from consumer insights and strengthen our brand for the largest nuclear generating station in the United States. In 2016:

    Palo Verde produced approximately 80% of Arizona's carbon-free energy;future

    Palo Verde generated 32.2 million megawatt-hours of electricity, marking the third consecutive year the plant has produced more than 32 million megawatt-hours,Flexible Resources — Develop new initiatives and it remains the only U.S. generating station to produce more than 30 million megawatt-hours in a year, a feat the plant has achieved each of the past eight years; andbusinesses that leverage our core capabilities

    Palo Verde achieved an annual capacity factor of 93.2%;Employees

o
APS completed — Adopt sustainable programs to invest in our people today and in the 40 megawatt Red Rock Solar Plant — APS's largest utility-scale solar plant;future

o
APS developedInnovation — Integrate new technologies to enhance performance, reliability and the first microgrid for the U.S. Navy, providing 25 megawattsoverall experience of standby power;


our customers and employees
o

2017 Highlights and Achievements

Shareholder Value

Our diverse supplier program continues to be successful, with our 2016 spend exceeding $350 million. We were recognized as the Corporation of the Year at the 2016 Women's Business Enterprise Council — West Annual Strategic Opportunity Conference;management team has delivered superior performance:

GRAPHIC

Financial and

Operating Highlights

üPNWincreased its dividend for the 6th consecutive year, by 6%;
üMaintainedstrong credit ratings from all three rating agencies;
üAPS spent$363 million with diverse suppliers;
üAPS continued successful operation of the Palo Verde Generating Station, a nuclear energy facility that is the largestclean-air generator in the United States; and
üAchievedtop quartile distribution reliability metrics for 2017, and had the best summer reliability in 5 years.

2     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

Proxy Statement Summary

Achievements

Customer Value:

o
APS improved paperless billing adoption to 30% ofsustainable future for our Company and our customers (or 363,000) comparedwill continue to the U.S. averagelight our way to success — not just today but for years to come. We continue to make progress on ourfive critical areas of 24% and the utility average of 19%;sustainability

:
o
APS was named the Environmental Protection Agency ENERGY STAR Sustained Excellence partner for the 7th consecutive year based on the effective delivery of customer energy efficiency programs;

o
APS contributed more than $10 million to Arizona communities, $2 million of which was invested in science, technology, math and engineering education programs across Arizona; and

o
Our employees contributed 120,000 volunteer hours, and APS was ranked 2nd by thePhoenix Business Journal on its list of Arizona's top corporate volunteer programs.

Sustainability:

o
In 2016 we continued to focus on advancing our priority sustainability initiatives: safety and security, energy innovation, carbon management, water resources, and people. Examples of accomplishments in these areas include:

    Safety and Security:    In 2016 our employees achieved the fewest OSHA recordable injuries in Company history. APS continued to take actions throughout the year to improve both our cybersecurity and security hardening of physical assets;

    Energy Innovation:    APS's research and development pilot project that is studying the offset of peak energy usage with solar energy production was expanded to included four megawatts of grid scale battery storage devices;

    Carbon Management:    APS continued to build renewable assets as a means of managing carbon emissions, surpassing a milestone of one gigawatt of solar energy capacity on our system. APS expects to produce over 50% of our energy mix from carbon-free resources in 2017 from renewables, energy efficiency and nuclear generation;

    Water Resources:    APS focused on reducing the use of non-renewable water at its power generation plants. During 2016, the use of non-renewable water was 28% less than our baseline year of 2014; and

    People:    APS's efforts to improve the workplace experience of our employees yielded positive results. We improved our 2016 employee engagement survey scores in all categories, including our overall engagement score, which placed us above other benchmarked utility organizations.

20172018 Proxy Statement     |   �� GRAPHIC      3


Table of Contents

Proxy Statement Summary

Board and Governance HighlightsPractices
 

Our Board's performance andBoard remains committed to maintaining strong corporate governance remain strong.practices. Our new and continuing highlightspractices include:

o
We implemented our Director Retirement Age Policy, see page 21;

o
We increased the operational experience and diversity of the Board with the addition of Paula J. Sims;

o
We adopted proxy access;

o
We continued our focus on strengthening our shareholder engagement process, see page 22;

o
We hold annual elections of all directors (see page 7 of this Proxy Statement Summary for a list of the nominees);

o
Ten of our eleven directors are independent;

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

o
Each of our directors attended at least 90% or more of the Board meetings and any Board committee meeting on which he or she served;

o
We do not have a poison pill plan or similar anti-takeover provision in place; and

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

Executive Compensation Highlights

We continue to evaluate and improve our executive compensation program. New and continuing highlights in this area include:

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;

o
We added clawback provisions to our 2016 annual cash incentive plans and performance share equity grant agreements;

o
We limited the use of discretion to adjust incentive awards solely to the occurrence of unanticipated events that may arise during the performance period in the 2016 CEO Incentive Plan; and

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

4GRAPHIC |      2017 Proxy Statement


Table of Contents

Proxy Statement Summary

2017 Proxy Statement     |GRAPHIC 5


Table of Contents

Proxy Statement Summary

Annual Meeting of Shareholders

Date:ü May 17, 2017Adirector retirement policy at age 75;
Time:10:30 a.m. Mountain Standard Time
Place:www.virtualshareholdermeeting.com/PNW
Record Date:March 9, 2017
Delivery of Materials:ü Proxy Statement and formaccess rights allowing up to 20 shareholders owning 3% of proxy are first being made availableour outstanding stock for at least 3 years to shareholders on or about March 31, 2017.nominate up to 25% of the Board;
Virtual Meeting Admission:ü To participateStrong ongoing shareholder engagement program that expanded in 2017, including participation of the Lead Director in several shareholder meetings;
üIndependent Lead Director role with clearly defined and robust responsibilities;
üTen of our eleven current directors are independent and the members of all of the Board Committees are independent;
üAnnual Meeting, you will need the 16-digit control number included on the Internet Noticeelections of all directors (see page 8), your proxy card,5 of this Proxy Statement Summary for a list of the nominees);
üRobust board and management succession planning;
üNo poison pill plan or similar anti-takeover provision in place;
üNo supermajority provisions in our Articles of Incorporation or Bylaws;
üEach of our directorsattended at least 90% of the voting instruction form. Online check-in will begin at 10:00 a.m. Mountain Standard Time,Board meetings and you should allow ample time for the online check-in proceedings. We will have technicians standing by ready to assist you with any technical difficulties you may have accessing the virtual meeting. If you encounter any difficulties accessing the virtualBoard committee meeting during the check-in on which he or meeting time, please call: 855-449-0991.she served; and
üOur directors and officers are prohibited from pledging or hedging our stock.

Voting Matters and Board of Directors ("Board") RecommendationsShareholder Engagement
 

MATTERS
BOARD
RECOMMENDATIONS

PAGE
Election of directorsüFOR each nominee27
Advisory vote to approve executive compensationüFOR96
Advisory vote on the frequency of the advisory vote to approve executive compensationüFOR one year97
Re-approval of the material terms of the performance goals under, and approval of an amendment to, the 2012 Long-Term Incentive Plan (the "2012 Plan")üFOR98
Ratification of the appointment of Deloitte & Touche LLP ("D&T") as our independent accountants for 2017üFOR108

We have an established shareholder engagement program to maintain a dialogue with our shareholders throughout the year, which was further augmented during 2017 in response to what our Board considered a disappointing level of shareholder support for our annual advisory vote on compensation. Each year we strive to respond to shareholder questions in a timely manner, conduct extensive proactive outreach to investors, and evaluate the information we provide to investors in an effort to continuously improve our engagement. In 2017, we contacted the holders of approximately 50% of the shares outstanding and met with the holders of approximately 40% of the shares outstanding. Our Lead Director and member of the Human Resources Committee, Kathryn Munro, participated in a number of the shareholder discussions providing shareholders with direct access to the Board.

What our shareholders think is important to us and we want to ensure we have the opportunity to engage directly with our shareholders. We seek to maintain a transparent and productive dialogue with our shareholders by:

ü
Providing clear and timely information,

ü
Seeking and listening to feedback, and

ü
Being responsive.

A detailed discussion of this outreach and the Board's response can be found on pages 23-24 and 48-49 of this Proxy Statement.

64     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

Proxy Statement Summary

Director Nominees, Their Skills and Experience

GRAPHIC

(1)
Directors' ages as of February 21, 2018.

(2)
Dr. Herberger is currently the Chairman of the Human Resources Committee and will be retiring effective at the Annual Meeting. Mr. Fox will take over as the Chair of the Human Resources Committee effective at the Annual Meeting.

2018 Proxy Statement     |GRAPHIC 5


Table of Contents

Proxy Statement Summary

Board Diversity
Directors' Key Skills and Experience Matrix
GRAPHIC

Succession Planning

Director succession is overseen by the Corporate Governance Committee, which regularly assesses whether the composition of the Board reflects the knowledge, skills, expertise, and diversity appropriate to serve the needs of the Company. Since 2014 three new members have joined the Board. The Board adopted a Director Retirement Policy in 2016, which is described on page 22 of this Proxy Statement, to better facilitate board refreshment and transition.
GRAPHIC

Given our need for specialized experience, we also maintain strong management succession planning practices and are focused on developing and retaining talent within our Company. Our Board's focus on attracting, developing and retaining highly skilled and experienced executives is a core consideration in structuring our executive compensation programs.

6GRAPHIC |      2018 Proxy Statement


Table of Contents

Proxy Statement Summary

Executive Compensation Program Highlights
 

Our director nominees are:compensation program is designed to be transparent with a clear emphasis on putting pay at risk and retaining key executives. Our executive compensation philosophy centers on the core objectives of maintaining alignment with shareholder interests and retaining key management.

GRAPHICOur incentive program structure and metrics aredesigned to drive sustained value creation for shareholders, with incentive compensation tied to the Company's TSR, earnings, and the achievement of measurable and sustainable business and individual goals. See the CD&A on page 44 for further details.










Pay ElementMeasurement
Period

Performance Link
Base SalaryCash
​​
AnnualCash1 yearEarnings

CEO: 62.5%

NEOs(1): 50.0%

​  ​​
IncentivesBusiness Unit Performance

CEO: 37.5%

NEOs(1): 50.0%

​​
PerformanceRelative TSR

50%

​  ​​
Long-Term IncentivesShares
60%(2)
3 yearsRelative Operational Performance

50%

​  ​​
Restricted
Stock Units

40%(2)
Vest ratably
over
4 years
Stock Price
(1)
Named Executive Officers ("NEO") identified on page 44 of this Proxy Statement.

(2)
Long-term incentives award mix changed to 70% performance share awards and 30% restricted stock unit ("RSU") awards starting in 2018 for the CEO and Executive Vice Presidents.
2017 CEO
Total Compensation
88% at risk
2017 Average for Other NEOs'
Total Compensation
67% at risk

GRAPHIC


GRAPHIC

20172018 Proxy Statement     |     GRAPHIC      7


Table of Contents

Proxy Statement — General Information

Time, Date and Place
 

The Company's 20172018 Annual Meeting of Shareholders ("Annual Meeting") will be held at 10:30 a.m., Mountain Standard Time, on Wednesday, May 17, 2017.16, 2018. The Annual Meeting will not be held at a physical location, but will instead be held virtually, where shareholders will participate by accessing a website using the Internet. The Annual Meeting will be accessed atwww.virtualshareholdermeeting.com/PNW.PNW. To participate in the Annual Meeting, you will need the 16-digit control number included on the proxy card, the Internet Notice or the voting instruction form. Online check-in will begin at 10:15 a.m. Mountain Standard Time, and you should allow ample time for the online check-in proceedings. We will have technicians standing by ready to assist you with any technical difficulties you may have accessing the virtual meeting. If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call: 855-449-0991. An audio broadcast of the Annual Meeting will be available by telephone toll-free at 877-328-2502 (domestic) or 412-317-5419 (international). Upon dialing in, you will need to provide your 16-digit control number.

We continue to believe that the virtual-only format, which we used for the first time last year, is in the best interests of our shareholders, given the time and expense of an in-person meeting compared to the shareholder participation at those meetings. The number of non-employee shareholders actually attending our Annual Meetings of Shareholders has significantly dwindled. For the past five in-person meetings, only about 30 shareholders attended each of the meetings. The meetings, on average, lasted less than 45 minutes, including the formal business portion of the meeting, the remarks by the CEO, a video highlighting the Company's performance, and the question and answer period. A virtual meeting allows all of our shareholders, regardless of location, the ability to participate in the Annual Meeting.

Our virtual meeting will be governed by our Rules of Conduct, which we use for both in-person and virtual meetings. Shareholders at the virtual-only meeting will have the same rights as at an in-person meeting, including the rights to vote and ask questions through the virtual meeting platform.

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, or if the shareholderyou so elected, by electronic 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, 2017.29, 2018. 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, 2017.29, 2018.

8GRAPHIC |      2018 Proxy Statement


Table of Contents

Proxy Statement — General Information

Record Date; Shareholders Entitled to Vote
 

All shareholders at the close of business on March 9, 20172018 (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 111,555,682111,928,566 shares of common stock outstanding.

Voting
 

GRAPHIC Vote prior to the Annual Meeting by Internet. The website address for Internet voting is on the proxy card, the Internet Notice and the voting instruction form. Internet voting is available 24 hours a day.

GRAPHIC

 

Vote prior to the Annual Meeting by telephone. The toll-free number for telephone voting is on the proxy card, the Internet Notice and the voting instruction form. Telephone voting is available 24 hours a day.

8GRAPHIC |      2017 Proxy Statement


Table of Contents

Proxy Statement — General Information

GRAPHIC

 

Vote prior to the Annual Meeting by scanning the QR code. The QR code is on the proxy card, the Internet Notice and the voting instruction form, and is available 24 hours a day.

GRAPHIC

 

Vote prior to the Annual Meeting by mail. You may vote by mail by promptly marking, signing, dating, and mailing your proxy card or voting instruction form (a postage-paid envelope is provided for mailing in the United States).

GRAPHIC

 

Vote during the Annual Meeting over the Internet. To participate in the Annual Meeting, you will need the 16-digit control number included on the proxy card, the Internet Notice or the voting instruction form. Shares held in your name or shares for which you are the beneficial owner but not the shareholder of record may be voted electronically during the formal business portion of the Annual Meeting. Shares held in the Pinnacle West 401(k) Plan cannot be voted during the Annual Meeting. If you hold shares in the Pinnacle West 401(k) Plan, you will need to submit your vote to the plan trustee by May 14, 201713, 2018 to vote your shares.

You may change your vote by: re-voting by telephone; re-voting by Internet; or re-voting during the formal business portion of the Annual Meeting. For shares held in your name you may change your vote by re-submitting a signed proxy card. In addition, for shares held in your name, you may also revoke a previously submitted proxy card by filing with our Corporate Secretary a written notice of revocation. For shares for which you are the beneficial owner but not the shareholder of record, you may change your vote by re-submitting a signed voting instruction form to your broker. In addition, for shares for which you are the beneficial owner but not the shareholder of record, you should contact your broker if you would like to revoke your vote.

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

2018 Proxy Statement     |GRAPHIC 9


Table of Contents

Proxy Statement — General Information

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
 

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

2017 Proxy Statement     |GRAPHIC 9


Table of Contents

Proxy Statement — General Information

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 in your own name and would like to exercise your cumulative voting rights, you must do so by mail. If you hold shares beneficially through a broker, trustee or other nominee and wish to cumulate votes, you should follow the instructions on the voting instruction form.

Under the 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 and the frequency of the Say-on-Pay vote.    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 OfficersNEOs identified on page 44 — the Say-on-Paysay-on-pay vote. This resolution is not intended to address any specific item of compensation, but rather the overall compensation of the Named Executive OfficersNEOs and the compensation philosophy, policies and procedures described in this Proxy Statement. The frequency option — one year, two years, or three years — that receives the greatest number of votes cast on this proposal will be the frequency option approved by the shareholders. Because your votes on both Say-on-Pay and the frequency of the Say-on-Pay vote areis advisory, theyit will not be binding on the Board or the Company. However, theThe Board will review the voting results and take them into consideration when making future decisions regarding executive compensation and the frequency of the Say-on-Pay vote.compensation. Abstentions and broker non-votes will have no effect on the outcome of these proposals.

Re-approval of the material terms of the performance goals under the 2012 Plan and approval ofthis proposal. We will hold an amendment to placeadvisory vote on say-on-pay on an annual upper dollar limitbasis until we next hold an advisory vote of shareholders on the valuefrequency of awards to individual, non-employee directors.    Re-approval of the material terms of the performance goals under, and approval of an amendment to, the 2012 Plan requires thesuch votes cast "for" to exceed the votes cast "against" this proposal. For purposes of these approvals, abstentions have the effect of a vote against the proposal, and broker non-votes are not considered to be votes cast.as required by law.

Ratification of the appointment of the independent accountants.    The votes cast "for" must exceed the votes cast "against" to ratify the appointment of the independent accountants for the year ending December 31, 2017.2018. Abstentions and broker non-votes will have no effect on the outcome of this proposal.

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,NEOs, as disclosed in this Proxy Statement (Proposal 2);

ü
FOR, on an advisory basis, an annual advisory vote on the compensation of our Named Executive Officers (Proposal 3); and

10     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

Proxy Statement — General Information
ü
FOR re-approval of the material terms of the performance goals under the 2012 Plan and approval of the amendment to place an annual upper dollar limit on the value of awards to individual, non-employee directors (Proposal 4); and

ü
FORthe ratification of the appointment of D&T as the Company's independent accountants for the year ending December 31, 20172018 (Proposal 5)3).

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.

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. Registered 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 single or 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.

Shareholder Proposals or Director Nominations for the 20182019 Annual Meeting
 

Shareholder Proposals.    To be included in the proxy materials for the 20182019 Annual Meeting of Shareholders (the "2018"2019 Annual Meeting"), any shareholder proposal intended to be presented must be received by our Corporate Secretary no later than December 1, 2017November 29, 2018 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 2019 Annual Meeting, but does not wish it to be included in the 2019 proxy materials, must submit the proposal no earlier than January 16, 2019 and no later than the close of business on February 15, 2019.

20172018 Proxy Statement     |     GRAPHIC      11


Table of Contents

Proxy Statement — General Information

A shareholder who intends to present a proposal at the 2018 Annual Meeting, but does not wish it to be included in the 2018 proxy materials, must submit the proposal no earlier than January 17, 2018 and no later than the close of business on February 16, 2018.

Shareholder Nominations.    Shareholder nominations for a director to the Board must be received by the Corporate Secretary at the address set forth above by November 17, 201716, 2018 ("Shareholder Nomination").

Proxy Access.    In February 2017, our Board amended the Bylaws to provide, among other things, that under certain circumstances a shareholder or group of shareholders may include director candidates that they have nominated in our annual meeting proxy statement — "proxy access." Under these provisions, a shareholder or group of up to 20 shareholders seeking to include director nominees in our annual meeting proxy statement must own 3% or more of our outstanding common stock continuously for at least the previous three years. Generally the number of qualifying shareholder-nominated candidates the Company will include in its annual meeting proxy materials will be limited to the greater of 25% of the Board or two candidates. Based on the current Board size of 11 directors, the maximum number of proxy access candidates we would be required to include in our proxy materials is two.

Nominees submitted under the proxy access provisions that are later withdrawn or are included in the proxy materials as Board-nominated candidates will be counted in determining whether the 25% maximum has been reached. If the number of shareholder-nominated candidates exceeds 25%, each nominating shareholder or group of shareholders may select one nominee for inclusion in our proxy materials until the maximum number is met. The order of selection would be determined by the amount (largest to smallest) of shares of our common stock held by each nominating shareholder or group of shareholders. Requests to include shareholder-nominated candidates under proxy access must be received by our Corporate Secretary at the address set forth above not earlier than the close of business on November 1, 2017October 30, 2018 nor later than the close of business on December 1, 2017.November 29, 2018. The number of qualifying shareholder-nominated candidates the Company will include in its proxy materials under proxy access will be reduced on a one-for-one basis in the event the Company receives a Shareholder Nomination, but at least one qualifying shareholder-nominated proxy access nominee will be included in the proxy materials.

In all cases, shareholders and nominees must also comply with the applicable rules of the Securities and Exchange Commission ("SEC") and the applicable sections of our Bylaws relating to qualifications of nominees and nominating shareholders and disclosure requirements.

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 $11,000, 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.

12     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

Information About Our Board and Corporate Governance

Board Meetings and Attendance
 

In 20162017 each of our directors attended 90% or more of the Board meetings and any meetings of Board committees on which he or she served. In 2016,2017, our Board held eightseven meetings and each of our directors attended 90% or more of the Board meetings and any meetings of Board committees on which he or she served. Each director is expected to participate in the Annual Meeting. Nine of the tenAll Board members at that time attended the 20162017 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 conduct a formal review of their charters every other year and as often as any committee member deems necessary. In the years in which a formal review is not conducted, the Board has tasked management with reviewing the charters and recommending any changes management deems necessary or reflective of good corporate governance. The charters are also changed as needed to comply with any corresponding changes to any applicable rule or regulation.

20172018 Proxy Statement     |     GRAPHIC      13


Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCEInformation About Our Board and Corporate Governance

All of our committees are comprised of independent directors who meet the independence requirements of the NYSENew York Stock Exchange ("NYSE") rules, SEC rules, and the Company's Director Independence Standards, including any specific committee independence requirements. The duties and responsibilities of our committees are as follows:

AUDIT COMMITTEE
Number of Meetings in 2017: 6

RESPONSIBILITIES:




COMMITTEE MEMBERS:
     RESPONSIBILITIES
COMMITTEE MEMBERS:
Bruce J. Nordstrom,
Chair
Denis A. Cortese
Richard P. Fox
Dale E. Klein
Humberto S. Lopez
David P. Wagener


NUMBER OF
MEETINGS
DURING FISCAL
2016:
7
 

The Audit Committee:

Oversees the integrity of the Company's financial statements and internal controls;

Appoints the independent accountants and is responsible for their qualifications, independence, performance (including resolution of disagreements between the independent accountants and management regarding financial reporting), and compensation;

Participates in the selection of the independent accountants' new lead engagement partner each time a mandatory rotation occurs;

Monitors the Company's compliance with legal and regulatory requirements;

Sets policies for hiring employees or former employees of the independent accountants;

Reviews the annual audited financial statements or quarterly financial statements, as applicable, and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained therein;

Bruce J. Nordstrom, Chair

Denis A. Cortese

Richard P. Fox

Dale E. Klein

Humberto S. Lopez

David P. Wagener

"The audit function is critical
to sound risk and financial
management, and the
members of the Audit
Committee are committed
to carrying out fully our
duties to the Company and
our shareholders."

-Bruce Nordstrom

Discusses with management and the independent accountants significant financial reporting issues and judgments made in connection with the preparation of the Company's financial statements;

Reviews the Company's draft earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies;

Discusses guidelines and policies to govern the process by which risk assessment and risk management is undertaken across the Company and periodically reviews the principal risks related to the Company's financial statements, audit functions and other major financial risk exposures;
and

Reviews management's monitoring of the Company's compliance with the Company's Code of Ethics and Business Practices.

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      |      20172018 Proxy Statement


Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCEInformation About Our Board and Corporate Governance
CORPORATE GOVERNANCE COMMITTEE
Number of Meetings in 2017: 5

RESPONSIBILITIES:




COMMITTEE MEMBERS:
     RESPONSIBILITIES
COMMITTEE MEMBERS:
Kathryn L. Munro,
Chair
Michael L. Gallagher
Roy A. Herberger, Jr.
Bruce J. Nordstrom


NUMBER OF
MEETINGS
DURING FISCAL
2016:
5
 

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;

Reviews and makes recommendations to the Board regarding the selection of the CEO and CEO and senior management succession planning;

Reviews the Company's Code of Ethics and Business Practices for compliance with applicable law;

Kathryn L. Munro, Chair

Michael L. Gallagher

Roy A. Herberger, Jr.

Bruce J. Nordstrom

"The Corporate Governance
Committee is focused on
effective and accountable
governance practices in
order to maximize the
long-term value of the
Company for its
shareholders."

-Kathy Munro

Recommends a process for responding to communications to the Board by shareholders and other interested parties;

Reviews the independence of members of the Board and approves or ratifies certain types of related-party transactions;

Reviews and makes recommendations to the Board regarding shareholder proposals requested for inclusion in the Company's proxy materials;

Reviews and makes recommendations regarding proxy material disclosures related to the Company's corporate governance policies and practices;

Periodically reviews the principal risks relating to the Company's corporate governance policies and practices;

Oversees the Board and committee self-assessments on at least an annual basis;
and

Reviews and assesses the Company's Political Participation Policy, and then reviews the Company's policies and practices with respect to governmental affairs strategy and political activities in accordance with the Company's Political Participation Policy.

The Corporate Governance Committee periodically reviews and recommends to the Board amendments to the Corporate Governance Guidelines and the Political Participation Policy. The Corporate Governance Committee recommended, and the Board amended, the Corporate Governance Guidelines to further expand the qualifications required for our director candidates. The Corporate Governance Committee also recommended, and the Board amended, the Political Participation Policy to expand the list of contributions we disclose, including identifying contributions we make to entities qualified as 501(c)(3) and 501(c)(4) entities under the Internal Revenue Code (the "Code") which may have used some of the proceeds for independent political expenditures. The Corporate Governance Guidelines and the Political Participation Policy are available on the Company's website (www.pinnaclewest.com).

20172018 Proxy Statement     |     GRAPHIC      15


Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCEInformation About Our Board and Corporate Governance


FINANCE COMMITTEE
Number of Meetings in 2017: 4

RESPONSIBILITIES:




COMMITTEE MEMBERS:
     RESPONSIBILITIES
COMMITTEE MEMBERS:
Humberto S. Lopez,
Chair
Richard P. Fox
Roy A. Herberger, Jr.
Kathryn L. Munro
Paula J. Sims
David P. Wagener


NUMBER OF
MEETINGS
DURING FISCAL
2016:
4
 

The Finance Committee:

Reviews the historical and projected financial performance of the Company and its subsidiaries;

Reviews the Company's financial condition, including sources of liquidity, cash flows and levels of indebtedness;

Reviews and recommends approval of corporate short-term investment and borrowing policies;

Reviews the Company's financing plan and recommends to the Board approval of the issuance of long-term debt, common equity and preferred securities, and the establishment of credit facilities;

Reviews the Company's use of guarantees and other forms of credit support;

Reviews and monitors the Company's dividend policies and proposed dividend actions;

Establishes and selects the members of the Company's Investment Management Committee to oversee the investment programs of the Company's trusts and benefit plans;

Humberto S. Lopez, Chair

Richard P. Fox

Kathryn L. Munro

Paula J. Sims

David P. Wagener

"The Finance Committee
plays a key role in ensuring
the financial health of the
Company by providing
oversight of the Company's
financial performance,
financing strategy and
dividend policies and
actions."

-Bert Lopez

Reviews and discusses with management the Company's process for allocating and managing capital;

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

Reviews the Company's annual operations and maintenance budget and monitors throughout the year how the Company's actual spend tracks to the budget;

Reviews the Company's insurance programs;
and

Periodically reviews the principal risks relating to the Company's policies and practices concerning budgeting, financing and credit exposures.

16     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCEInformation About Our Board and Corporate Governance


HUMAN RESOURCES COMMITTEE
Number of Meetings in 2017: 7

RESPONSIBILITIES:




COMMITTEE MEMBERS:
     RESPONSIBILITIES
COMMITTEE
MEMBERS:
Roy A. Herberger, Jr.,
Chair
Denis A. Cortese
Richard P. Fox
Humberto S. Lopez
Kathryn L. Munro


NUMBER OF
MEETINGS
DURING FISCAL
2016:
5
 

The Human Resources Committee:

Reviews management's programs for the attraction, retention, succession, motivation and development of the Company's human resources needed to achieve corporate objectives;

Establishes the Company's executive compensation philosophy;

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 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;

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

Reviews and discusses with management the Compensation Discussion and Analysis on executive compensation set forth in our proxy statements;

Roy A. Herberger, Jr., Chair

Denis A. Cortese

Richard P. Fox

Humberto S. Lopez

Kathryn L. Munro

"The members of the Human
Resources Committee are
committed to the
development of vigorous and
effective practices and
programs designed to attract
and retain the talent required
to achieve the Company's
goals and objectives and
drive shareholder value."

-Roy Herberger

Reviews the number, type, and design of the Company's pension, health, welfare and benefit plans; and

Periodically reviews the principal risks relating to the Company's compensation and human resources policies and practices.

Under the Human Resources Committee's charter, the Human Resources Committee may delegate authority to subcommittees, but did not do so in 2016.2017. Additional information on the processes and procedures of the Human Resources Committee is provided under the heading "Compensation Discussion and Analysis ("CD&A")".

20172018 Proxy Statement     |     GRAPHIC      17


Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCEInformation About Our Board and Corporate Governance


NUCLEAR AND OPERATING COMMITTEE
Number of Meetings in 2017: 4

RESPONSIBILITIES:




COMMITTEE MEMBERS:
     RESPONSIBILITIES
COMMITTEE MEMBERS:
Michael L. Gallagher,
Chair
Denis A. Cortese
Dale E. Klein
Bruce J. Nordstrom
Paula J. Sims
David P. Wagener


NUMBER OF
MEETINGS
DURING FISCAL
2016:
4
 

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");

Monitors overall performance of the principal non-nuclear business functions of the Company and APS, including fossil energy generation, energy transmission and delivery, customer service, fuel supply and transportation, safety, legal compliance, and any significant incidents or events;

Reviews regular reports from management concerning the environmental, health and safety ("EH&S") policies and practices of the Company, and monitors compliance by the Company with such policies and applicable laws and regulations;

Reviews APS's planning for generation resources additions and significant expansions of its bulk transmission system; and

Periodically reviews the principal risks related to the Company's nuclear, fossil generation, transmission and distribution, and EH&S operations;

Michael L. Gallagher, Chair

Denis A. Cortese

Dale E. Klein

Bruce J. Nordstrom

Paula J. Sims

David P. Wagener

"In managing the oversight of
the Company's overall
operations, the N&O
Committee takes enormous
accountability ensuring that
operations are performed in
an efficient, safe, and secure
manner. Cyber and physical
security are key focus areas
of the committee."

-Mike Gallagher

Receives reports on the Company's sustainability initiatives and strategy;
and

Provides oversight of security policies, programs and controls for protection of cyber and physical assets.

In addition, the Nuclear and Operating Committee receives regular reports from the Off-Site Safety Review Committee (the "OSRC"). The OSRC provides independent assessments of the safe and reliable operations of Palo Verde. The OSRC is comprised of non-employee individuals with senior management experience in the nuclear industry and the Palo Verde Director of Nuclear Assurance.

18     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCEInformation 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 duties and responsibilities as set forth in our Corporate Governance Guidelines:

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; and

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

These duties and responsibilities do not, however, fully capture Ms. Munro's active role in serving as our Lead Director. For example, Ms. Munro regularly speakshas regular discussions with the CEO, other members of the senior management team and members of the Board in between Board meetings on a variety of topics, and she serves as a liaison between the CEO and the independent directors. Ms. Munro focuses the Board on key issues facing our Company and on topics of interest to the Board. She takes the lead on director recruitment and has a formal annual call with each non-employee director to discuss the Board, its functions, its membership, the individual's plan with respect to his or her continuing Board service, and any other topic the individual desires to discuss with our Lead Director. Her leadership fosters a Board culture of open discussion and deliberation to support sound decision-making. She also encourages communication between management and the Board to facilitate productive working relationships.

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.

20172018 Proxy Statement     |     GRAPHIC      19


Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCEInformation About Our Board and Corporate Governance

Succession Planning and Board Evaluations

Management Succession.    Our Board places a high priority on senior management development and succession planning. While the Corporate Governance Committee has principal responsibility for overseeing CEO and other senior management succession planning, the full Board is actively involved in reviewing our senior management succession plans that will allow for smooth and thoughtful leadership transitions in the future.

Executive succession planning and senior management development were specific areas of focus for the Corporate Governance Committee in 2017. The Corporate Governance Committee engaged in thorough and thoughtful discussions regarding the development and evaluation of current and potential senior leaders, as well as the development of executive succession plans, including succession plans for our CEO position.

Board Succession.    Our Board has developed a robust process to refresh the Board and its leadership significantly over the next several years and beyond. The process is designed to continue to provide for a well-qualified, diverse and highly independent Board, with the requisite experience and skills to provide effective oversight. This process includes the identification of the current key skills and experience possessed by our members. A matrix of current key skills and experience possessed by our Board is on page 5 of this Proxy Statement. The identification of these skills and experiences, combined with a comprehensive Board evaluation process, provide visibility into the skills and experience leaving our Board in the future and allows for the identification of additional skills, experience or expertise needed to facilitate the Company's long-term strategy. This information is taken into account when identifying director nominees during the recruitment process.

Board Evaluations.    The Corporate Governance Committee has established a thorough evaluation process wherein each Director completes a Board evaluation as well as an individual self-evaluation annually. The Board evaluation allows each Director the opportunity to examine and evaluate the Board's composition and effectiveness, competency, accountability, deliberations and administration, and each committee, as well as the opportunity to identify any skills, experience or expertise the Director believes should be represented, or more fully represented, on the Board. The individual self-evaluation asks each Director to evaluate different areas of their performance as a Director, including independence, expertise, judgment and skills. The Board assessment results are reviewed both on a one-year standalone basis and on a three-year basis in order to identify any year-over-year trends. The assessment results are initially reviewed by the Lead Director. The Lead Director then has a formal annual call with each Director to discuss the Board, its functions, its membership, the individual's plan with respect to his or her continuing Board service, and any other topic the individual desires to discuss with our Lead Director. The results of the evaluations and calls are presented to the Corporate Governance Committee and full Board each February. This process provides the Board the ability to assess the overall functioning of the Board as a whole, and identify any skills, experience or expertise needed to continue to provide effective oversight of the Company's long-term strategy.

20GRAPHIC |      2018 Proxy Statement


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 20162017 included cybersecurity, data privacy and ownership, physical security, and utility regulation. The Board believes it is important to look at the list fresh each year as part of a diligent risk review. 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;

Receives information about 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 activities 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.

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,the Company, 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.

202018 Proxy Statement     |     GRAPHIC      |      2017 Proxy Statement21


Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCEInformation About Our Board and Corporate Governance

Director Resignation Policies
 

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. With respect to the election of directors, 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 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 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.

2017 Proxy Statement     |22     GRAPHIC      21|      2018 Proxy Statement


Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCEInformation About Our Board and Corporate Governance

Shareholder Engagement and Communications with the Board
 

Our Goal.What our shareholders think is important to us. We seek to maintain a transparent and productive dialogue with our shareholders by:

ü
Providing clear and timely information,

ü
Seeking and listening to feedback, and

ü
Being responsive.

Our Plan.    To accomplish this goal, we have a long-standing investor outreachan established shareholder engagement program conducted throughout the yeardesigned to maintain a dialogue with currentour shareholders, which was further augmented during 2017 in response to what the Board considered a disappointing level of shareholder support for our annual advisory vote on compensation. Each year we strive to respond to shareholder questions in a timely manner, conduct extensive proactive outreach to investors, and potential shareholders.evaluate the information we provide to investors in an effort to continuously improve our engagement. In 2017, we contacted the holders of approximately 50% of the shares outstanding and met with the holders of approximately 40% of the shares outstanding. Our activeLead Director and member of the Human Resources Committee, Kathryn Munro, participated in a number of the shareholder engagement program includes a focus on ensuring that we understanddiscussions providing shareholders with direct access to the governance priorities ofBoard.

GRAPHIC

Our Results.    We listened to our shareholders. Discussion topics include governance best practices,After considering their feedback, the Board makeup, compensation policiesin late 2017 and sustainability. Feedbackearly 2018 made several changes in response:

ü
Increased the proportion of performance shares in our CEO's and Executive Vice Presidents' 2018 long-term incentive awards from investors is communicated60% to 70%;

ü
Clarified how our performance metrics support and align with our long-term strategy;

ü
Revised 2018 metrics in certain key business units to better align with our priorities and emphasize top-quartile and above performance;

2018 Proxy Statement     |GRAPHIC 23


Table of Contents

Information About Our Board and Corporate Governance

ü
Adopted a formalclawback policy;

ü
EnhancedCD&A disclosures;

ü
Redesignedannual incentive disclosure;

ü
Added detail on how we select ourpeer group;

ü
Added specificresponsibility for oversight of sustainability matters to the Boardcharter of the Nuclear and used to enhance our disclosuresOperating Committee; and governance practices. The diagram below provides an overview of our outreach program cycle:



ü
Included a director key skills and experience matrix in this Proxy Statement.

GRAPHICCommunicating with the Board.

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. The Corporate Secretary will transmit such communications, as appropriate, depending on the facts and circumstances outlined in the communications. In that regard, the Corporate Secretary has discretion to exclude communications that are unrelated to the duties and responsibilities of the Board, such as commercial advertisements or other forms of solicitations, service or billing matters and complaints related to individual employment-related actions.

22GRAPHIC |      2017 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 access to and training on the Code of Ethics when they join the Company or APS, as well as annual 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 annual 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, the President and Chief Operating Officer of APS, and other persons designated from time to time as a Financial Executive subject to the Code of Ethics for Financial Executives by the Chair of the Audit Committee.

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

2017 Proxy Statement     |24     GRAPHIC      23|      2018 Proxy Statement


Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCEInformation 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, security, 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:

GRAPHICGRAPHIC

242018 Proxy Statement     |     GRAPHIC      |      2017 Proxy Statement25


Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCEInformation About Our Board and Corporate Governance

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.

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 alignsalign 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, professional interests, and professional interests.the potential contribution of each candidate to the diversity of backgrounds, experience and competencies which the Board desires to have represented. The Corporate Governance Committee considers the following qualities as well:

Regulatory and political knowledge is relevant to the Company as the utility industry is heavily regulated and directly affected by public policy and the actions of federal, state and local governmental agencies.

Nuclear expertise at the strategic level is important to the Company as we operate, Palo Verde Generating Station, a nuclear power plant and the largest power plant in the United

2017 Proxy Statement     |26     GRAPHIC      25|      2018 Proxy Statement


Table of Contents

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCEInformation About Our Board and Corporate Governance

Understanding of the Company's business environment is a critical attribute in planning our short- and long-term business strategies. Possessing knowledge of the Company's business environment includes not only experience in the broader utility industry, but also experience with factors unique to the Southwest and Arizona, including understanding the business from the perspective of the customer.

Large organizational leadership of complex operations provides a broad range of skills and experience beneficial to our decision-making, including human resource management, business strategy, finance and capital allocation.

Public company experience, as a member of a public company board or as CEO or other senior leader, gives a director an understanding of many of the structural and business strategy challenges facing a public company. This experience provides invaluable leadership skills in auditing matters, investment strategy and corporate governance.

Risk oversight and management skills are essential to the Board's role in overseeing and managing the risk associated with operating in the utility industry.

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.

Other than Ms. Sims, all directors were elected at the 2016 Annual Meeting of Shareholders. In recruiting Ms. Sims, the Corporate Governance Committee retained the search firm of Spencer Stuart to help identify director prospects, perform candidate outreach, assist in reference and background checks, and provide related services. Candidates who passed the initial screening tests were then interviewed by members of the Corporate Governance Committee and by Mr. Brandt. The Corporate Governance Committee recommended Ms. Sims for Board membership, and Ms. Sims was added to the Board in October 2016.

262018 Proxy Statement     |     GRAPHIC      |      2017 Proxy Statement27


Table of Contents

Proposal 1 — Election of Directors

The eleventen nominees for election as directors are set forth below. All nominees will be elected for a one-year term that will expire at the 20182019 Annual Meeting. The directors' ages are as of February 24, 2017.21, 2018. All of our directors also serve as directors of APS for no additional compensation. Individuals receiving the highest number of votes will be elected.

Donald E. BrandtBACKGROUND

Age 6263

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"), Vice Chairman and a Board Member of the Institute of Nuclear Power Operations ("INPO"), and a Board Member of Nuclear Energy Insurance Limited ("NEIL") and Edison Electric Institute ("EEI"). Mr. Brandt brings the following key attributes to the Company:

Utility specific financial and operationalBusiness strategy experience

CEO/senior leadership experience

Complex operations experience

Extensive knowledge of the nuclear industryCompany's business environment

CEOGovernment/public policy/regulatory knowledge

Nuclear experience

Utility industry 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, andMr. Brandt has hands-on experience in leading a large, complex organization. This leadership, combined with nearly three decades of leadership experience in the utility industry, gives Mr. Brandt has a broad understandingextensive knowledge of the factors affecting the Company's business.business environment and business strategy, including utility-specific financial and operational experience and public policy and regulatory knowledge. Mr. Brandt also has strategic nuclear expertise and currently serves as Chairman of NEI Vice Chairman of INPO, and as a board memberBoard Member of INPO, NEIL and EEI, all major industry organizations that provide insight into nuclear, operational, financial and policy matters of great importance to the Company.

2017 Proxy Statement     |28     GRAPHIC      27|      2018 Proxy Statement


Table of Contents

PROPOSALProposal 1 — ELECTION OF DIRECTORSElection of Directors

Denis A. Cortese, M.D.BACKGROUND

Age 7273

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 experienceCustomer perspectives

CEO experienceFinance/capital allocation

Financial literacy/accounting

Government/public policy/regulatory

Human resources management/compensation

Risk oversight and management

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, a multi-state, complex hospital and medical care system, Dr. Cortese hasgained extensive experience in human resources management, risk oversight and risk management, customer perspectives, and leading complex organizations with multiple constituencies and hasconstituencies. He led an organization that delivers strong and efficient customer service, which parallels the Company's strategies. Further,Through his service at Mayo, he developed experience in finance, capital allocation, accounting, and regulation, and his background in public policy development, science and technology brings valuable perspective to issues that face the Company.

2018 Proxy Statement     |GRAPHIC 29


Table of Contents

Proposal 1 — Election of Directors


Richard P. Fox

BACKGROUND


Age 6970

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

Business strategy

Customer perspectives

Financial literacyliteracy/accounting

Human resources management/compensation

Public board service

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 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 auditing, financial and accounting matters. Mr. Fox has also served on the boards of several companies throughout his career, including seven public companies.companies, giving him extensive insights into business strategy, human resources management and compensation, risk oversight and risk management, and the customer perspective. His extensive board experience, including service on various audit committees and finance committees, including chairmanships, adds to the Board's depth and capabilities.

2830     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

PROPOSALProposal 1 — ELECTION OF DIRECTORSElection of Directors

 

Michael L. Gallagher

BACKGROUND


Age 7273

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 operationsBusiness strategy

Leadership experienceCorporate governance

Governance/legal experienceCustomer perspectives

Extensive knowledge of the Company's business environment

Finance/capital allocation

Human resources management/compensation

Risk oversight and management

Mr. Gallagher is Chairman Emeritus of Gallagher & Kennedy P.A. ("Gallagher & Kennedy") in Phoenix, Arizona (an Arizona-basedArizona 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 also a director of Werner Enterprises Inc. Within the past five years Mr. Gallagher served as a director of AMERCO, the parent company of U-HaulU Haul International, Inc., and chaired its Independent Governance Committee. He is currently serving as 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 with regard to business strategy, finance/capital allocation, human resources management and hiscompensation and risk oversight and risk management. He also has extensive experience addressing corporate governance matters, makesmaking him a good fit for ourthe Corporate Governance Committee. Mr. Gallagher's tenure with the Company and service on the Nuclear and Operating Committee has provided him extensive knowledge of the Company and its business environment and, as a long-time resident and founder of an Arizona-based business, he is familiar with the perspectives of customers in the Central Arizona service territory of APS.

20172018 Proxy Statement     |     GRAPHIC      2931


Table of Contents

PROPOSALProposal 1 — ELECTION OF DIRECTORSElection of Directors


Roy A. Herberger, Jr., Ph.D.

BACKGROUND


Age 74

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 Trustee for the Mayo Clinic. Within the past five years Dr. Herberger served as a director of the Apollo Education Group, Inc.

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 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 6970

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 experienceCEO/senior leadership

NuclearComplex operations experience

LeadershipFinancial literacy/accounting

Government/public policy/regulatory

Human resources management/compensation

Nuclear experience

Utility industry experience

Dr. Klein served as Chairman of the U.S. Nuclear Regulatory CommissionNRC 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 at the University of Texas at Austin. He has held this position since September 1977. 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


The NRC oversees nuclear power plant operations in the United States. As the former Chairman of the NRC, Dr. Klein brings expertise in all aspects of nuclear energy regulation, operation, technology and safety. His broad national and international experience in all aspects of the nuclear utility industry, nuclear energy, government and governmentregulation 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. His service with the NRC, including his tenure as Chairman, gives him senior leadership experience in operating large, complex organizations, financial literacy and human resources management and compensation experience.

3032     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

PROPOSALProposal 1 — ELECTION OF DIRECTORSElection of Directors

 

Humberto S. Lopez

BACKGROUND


Age 7172

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 analysisCustomer perspectives

Extensive knowledge of the Company's business strategiesenvironment

Finance/capital allocation

Financial literacyliteracy/accounting

LeadershipHuman resources management/compensation

Investment experience

Risk oversight and management

Mr. Lopez is Chairman of the Board of HSL Properties, Inc. (real estate development and investment), in Tucson, Arizona. He has held this position since January 2016. Mr. Lopez was President of HSL Properties, Inc. from 1975 to January 2016.

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 extensively familiar with the Company's business environment, including our customers' perspective and the State's historic economic cycles, which helpshelp the Company plan for future growth and energy needs. As an entrepreneur who built his own real estate development business, Mr. Lopez has gained essential knowledge and skills and experience in accounting, finance and capital allocation, human resources, and risk oversight and risk management.

2018 Proxy Statement     |GRAPHIC 33


Table of Contents

Proposal 1 — Election of Directors


Kathryn L. Munro

BACKGROUND


Age 6869

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:

CEOCEO/senior leadership experience

Financial literacyCorporate governance

Extensive knowledge of the Company's business environment

Human resources management/compensation

Investment experience

Public board service

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 directorChairman of Knight Transportation, Inc. ("Knight") andthe Board of Premera Blue Cross.Cross and Lead Director of Knight-Swift Transportation Holdings, Inc. ("Knight-Swift").

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 and investment acumen, and financial knowledge, and leadership skills to the Company. Her extensive knowledge of the Company's business environment includes experience with the cycles in Arizona's economy, which 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 KnightKnight-Swift and Premera Blue Cross.Cross, providing her experience in human resources management and compensation, corporate governance, and risk oversight and risk management.

2017 Proxy Statement     |34     GRAPHIC      31|      2018 Proxy Statement


Table of Contents

PROPOSALProposal 1 — ELECTION OF DIRECTORSElection of Directors


Bruce J. Nordstrom

BACKGROUND


Age 6768

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

Corporate governance

Customer perspectives

Extensive knowledge of the Company's business environment

Financial literacyliteracy/accounting

Human resources management/compensation

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 providesset, as well as familiarity with principles of risk oversight and risk management. His tenure with the Company in addition to operating an Arizona-based business has provided him with extensive knowledge of the Company's business environment. Furthermore, as an individual who built and currently heads an accounting firm in Flagstaff, Arizona, Mr. Nordstrom has obtained experience in human resources management and oversight,compensation and corporate governance as well as a familiarity with the perspectives of customers in the Northern Arizona service territory of APS.

2018 Proxy Statement     |GRAPHIC 35


Table of Contents

Proposal 1 — Election of Directors


Paula J. Sims

BACKGROUND


Age 5556

Director since 2016

Committees

Finance

Nuclear and Operating

INDEPENDENT DIRECTOR

Ms. Sims brings hands-on experience in electric utility operations, including, generation, renewable energy, energy efficiency, fuels and energy trading, and customer service, as well as an understanding of the role of management and executive oversight, and brings the following key attributes to the Company:

Extensive knowledge of electric utility business operationsBusiness strategy

ManagementCEO/senior leadership experience

RegulatoryComplex operations experience

Government/public policy/regulatory

Nuclear experience

Risk oversight and management

Utility industry experience

Ms. Sims is a Professor of Practice and Executive Coach at the University of North Carolina Kenan-Flagler Business School. She has held this position since May 2012. Ms. Sims was Senior Vice President of Corporate Development and Improvement at Progress Energy Inc. from July 2010 to June 2012 and Senior Vice President of Power Operations of Progress Energy from July 2007 to July 2010. Within the past five years, Ms. Sims was a director of Carolina Power and Light Company, a subsidiary of Progress Energy Inc.

QUALIFICATIONS


Ms. Sims worked directly in the utility industry for more than 13 years. She brings extensive leadership experience to the Company in business strategy, electric utility operations, nuclear strategy, and operating in a regulated environment. In her prior roles at Progress Energy, Ms. Sims was responsible for complex business operations such asand strategy, including new generation, supply chain and information technology, as well as overall process and efficiency improvements. Her experience gives her extensive insight into the operational, financialregulatory, and regulatoryrisk-related matters that are of ever-increasing significance to the Company.

3236     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

PROPOSALProposal 1 — ELECTION OF DIRECTORSElection of Directors

 

David P. Wagener

BACKGROUND


Age 6263

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 strategiesBusiness strategy

InvestorFinance/capital allocation

Financial literacy/accounting

Investment experience

IndustryPublic board service

Risk oversight and management

Utility 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 3035 years of experience in the power/energy industry, project finance and investment banking experience, and knowledge of utility regulation. Through his financial experience and service on boards of public companies he has developed key experience in capital allocation, accounting, and risk oversight and risk management. His participation brings value to the Company and the Board as we address structural and business strategy challenges facing the utility industry.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTEFOR THE
ELECTION OF THE NOMINATED SLATE OF DIRECTORS

Current Director Not Standing for Reelection.    Dr. Roy A. Herberger, Jr. will retire from the Board effective at the Annual Meeting. The Board recognizes Dr. Herberger's distinguished service over the years and thanks Dr. Herberger for his tireless labor, devotion and service to the Company.

20172018 Proxy Statement     |     GRAPHIC      3337


Table of Contents

PROPOSALProposal 1 — ELECTION OF DIRECTORSElection of Directors

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).

Ten of our eleven 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 Mses. Munro and Sims. Mr. Brandt is not independent under the NYSE rules or the Director Independence Standards because of his employment with the Company.

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. 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 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 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, Dr. Cortese did not and 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.

3438     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

PROPOSALProposal 1 — ELECTION OF DIRECTORSElection of Directors

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 2016;2017; (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 2016 and is expected to provide legal services to the Company in 2017. 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 2016; (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.

Mr. Gallagher is Chairman Emeritus of the law firm of Gallagher and Kennedy, P.A. The law firm did not provide any services to the Company or APS in 2017 and services that were provided to the Company and APS in 2016 and 2015 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 and Kennedy's revenues for fiscal years 2016 and 2015, respectively. 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.

20172018 Proxy Statement     |     GRAPHIC      3539


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,NEOs, 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 9, 2017,2018, the Record Date for the Annual Meeting.

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

PERCENT OF
CLASS
(%)

NUMBER OF SHARES
BENEFICIALLY OWNED(1)
(#)

PERCENT OF
CLASS
(%)

Directors:

    

Donald E. Brandt

234,853*105,291*

Denis A. Cortese, M.D.

14,001*13,968*

Richard P. Fox

5,665*6,522*

Michael L. Gallagher

26,512*20,475*

Roy A. Herberger, Jr., Ph.D.

35,014*36,859*

Dale E. Klein, Ph.D.

13,560*15,545*

Humberto S. Lopez

60,887*55,904*

Kathryn L. Munro

36,039*27,776*

Bruce J. Nordstrom

33,499*34,810*

Paula J. Sims

1,105*2,416*

David P. Wagener

7,638*9,221*

Other Named Executive Officers:

  

Other NEOs:

  

Robert S. Bement

18,226*

Randall K. Edington

53,351*37,630*

David P. Falck

55,057*52,739*

James R. Hatfield

58,407*41,710*

Mark A. Schiavoni

47,727*42,888*

All Directors and Executive Officers as a Group (22 Persons):

777,403*

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

596,829*

5% Beneficial Owners:(2)

    

BlackRock, Inc. and certain related entities(3)
40 East 52nd Street
New York, NY 10055

10,917,4279.80

11,354,30510.20%

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



6,096,8735.485,825,3975.21%

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

10,878,9379.77

12,139,06810.86%

*
Represents less than 1% of the outstanding common stock.

(1)
Includes: vested Supplemental RSUs (as defined on pages 82-83 of this Proxy Statement) for the NEOs; vested RSUs and stock units ("SU") payable in stock for the directors; and associated dividends payable in

3640     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

STOCK MATTERSStock 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 — 27,402;28,268; Mr. EdingtonBement — 15,222;7,858; Mr. Falck — 7,617;7,858; Mr. Hatfield — 7,617;7,858; Mr. Schiavoni — 7,617;7,858; Mr. Fox — 772;1,474; Mr. Gallagher — 6,713;7,688; Dr. Klein — 13,460;15,445; Dr. Herberger — 4,865;4,958; and Ms. Munro — 10,996.12,145. The following shares are held jointly: Dr. Klein — 100; and Mr. Nordstrom — 31,999.33,310. The following shares are held in joint trusts: Dr. Cortese — 14,001;13,968; Mr. Edington — 28,382;37,630; Mr. Gallagher — 19,799;12,787; Mr. Hatfield — 40,790;33,852; Dr. Herberger — 20,121;15,848; Mr. Lopez — 60,887;55,904; Ms. Munro — 23,449;13,986; and Mr. Wagener — 7,638.

9,221.

(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 25, 2017,19, 2018, relating to a parent holding company and certain affiliates, reports beneficial ownership as of 10,917,427December 31, 2017 of 11,354,305 shares, with sole voting power as to 9,886,78210,249,504 shares and sole dispositive power as to 10,917,42711,354,305 shares. The Company maintains normal commercial relationships with BlackRock, Inc. and its subsidiaries. The Company does not consider these relationships to be material.

(4)
State Street Corporation Schedule 13G filing, dated February 6, 2017,14, 2018, relating to a parent holding company and certain affiliates, reports beneficial ownership as of 6,096,873December 31, 2017 of 5,825,397 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 13, 2017,9, 2018, reports beneficial ownership as of 10,878,937December 31, 2017 of 12,139,068 shares with shared voting power as to 22,27151,289 shares, sole voting power as to 183,083168,940 shares, shared dispositive power as to 194,250201,540 shares, and sole dispositive power as to 10,684,68711,937,528 shares; Vanguard Fiduciary Trust Company as beneficial owner of 144,079120,713 shares; and Vanguard Investments Australia, Ltd., as beneficial owner of 89,175128,516 shares.

Section 16(a) Beneficial Ownership Reporting Compliance
 

Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), 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 20162017 on a timely basis.

20172018 Proxy Statement     |     GRAPHIC      3741


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 2016.2017.

3842     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

Human Resources Committee Report

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

20172018 Proxy Statement     |     GRAPHIC      3943


Table of Contents

Executive Compensation

Compensation Discussion and Analysis ("CD&A")
 

Named Executive Officers

Our NEOs for 2017 were:

Our Named Executive Officers are:

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

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


Executive Vice President and Chief Nuclear Officer of Palo Verde Generating Station, APS

​ 
Randall K. Edington,
Former Executive Vice President and Advisor to the Chief Executive Officer of APS;
APS(1)

​ 
David P. Falck,
Executive Vice President, and General Counsel ofLaw, 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:

At the 2016 Annual Meeting, our shareholders approved the compensation of our Named Executive Officers with an advisory vote of more than 93%, excluding abstentions. The Human Resources Committee (for purposes of this CD&A, the "Committee") was cognizant of this result in its consideration of the key components, design, implementation and amounts of our compensation program. Some highlights of our program are:

Change in Allocation — we increased the proportion of our annual long-term equity awards that is allocated to performance-based measures from 55% to 60%, with the remaining 40% allocated to time-based vesting;

Clawbacks — we added explicit clawback provisions to our 2016 annual cash incentive plans and performance share equity grant agreements;

40GRAPHIC |      2017 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION
Limit Discretion on Adjustments — we limited the use of discretion to adjust incentive awards solely to the occurrence of unanticipated events (there were none in 2016) that may arise during the performance period in the 2016 CEO Incentive Plan;

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;

Simple and Understandable — we focus on a few key elements for our program that are simple and understandable: base salary; an annual performance-based cash incentive; a three-year performance-based equity grant; a retention-based equity grant that releases over a four-year period; and pension and supplemental pension retirement benefits;

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.

Overview of 2016 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. Pinnacle West's 2016 earnings were $442 million, or $3.95 per share. Additional 2016 accomplishments are discussed in the Proxy Statement Summary under the heading "2016 Performance Highlights."

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.

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 Plan, and determines the awards under the 2016 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

2017 Proxy Statement     |GRAPHIC 41


Table of Contents

EXECUTIVE COMPENSATION

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 2016 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 approved the use of the same peer group that was used in setting 2015 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 2016, the Peer Group consisted of the following predominantly rate-regulated utilities (the "Peer Group"):


Peer Group

Alliant Energy CorporationAmeren CorporationConsolidated Edison, Inc.DTE Energy Company
Edison InternationalEversource Energy (formerly known as Northeast Utilities)Hawaiian Electric Industries, Inc.NiSource Inc.
OGE Energy Corp.PPL CorporationSCANA CorporationThe Southern Company
TECO Energy, Inc. (acquired by Emera, Inc. in July 2016)WEC Energy Group, Inc. (formerly known as Wisconsin Energy Corporation)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 that APS manages on behalf of itself and other owners, in addition to revenues attributable to assets that APS wholly owns, 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.

42GRAPHIC |      2017 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION
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 $5.2 billion compared to its reported twelve months ending June 30, 2015 revenues of $3.5 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 and philosophy. As part of this study, the Consultant performed competitive pay comparisons for our executive officers based on:

2014 compensation information as disclosed in 2015 SEC filings for the Peer Group;

General industry data based on surveys published by Aon Hewitt (averaging data for companies in the $2.5 billion to $5 billion revenue bracket and the $5 billion to $10 billion revenue bracket) and Towers Watson & Co. (now known as Willis Towers Watson PLC ("Towers Watson")) (averaging data for companies in the $3 billion to $6 billion revenue bracket and the $6 billion to $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 billion to $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 a weighting of 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 a weighting of one-half proxy statement data and one-half Energy Services Industry Survey. Compensation levels were updated to July 2016 based on projected executive-level market movement from major salary-planning surveys selected by the Consultant.

In providing information to the Committee with respect to setting 2016 compensation, the Consultant reviewed the total compensation of the Named Executive Officers and presented its analysis in October 2015. 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.

2017 Proxy Statement     |GRAPHIC 43


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
2014 ACTUAL
ANNUAL INCENTIVE
AS A PERCENTAGE
OF BASE SALARY

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

at the 50th
percentile

at the 50th
percentile
Mr. Hatfieldat the 50th
percentile
at the 50th
percentile
below the 25th
percentile
Mr. Edingtonabove the 75th
percentile

at the 75th
percentile

below the 25th
percentile
Mr. Falckat the 75th
percentile
at the 50th
percentile
at the 50th
percentile
Mr. Schiavoniat the 50th
percentile

at the 50th
percentile

at 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 performance-linked retention award of RSUs that were granted to Mr. Brandt in December 2012, which is discussed in "2016 Compensation — Retention Grant for Mr. Brandt" later in this CD&A; and (iii) certain arrangements with Mr. Edington and Mr. Falck under the non-qualified deferred compensation plan as described later in this CD&A.retired on March 22, 2017

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, as well 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.

44     GRAPHIC      |      20172018 Proxy Statement


Table of Contents


EXECUTIVE COMPENSATIONExecutive 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.

Executive Compensation ComponentsSummary
 

Business Overview

Pinnacle West is an electric utility holding company based in Phoenix, Arizona, one of the fastest growing metropolitan areas in the United States. Through our principal subsidiary, APS, we provide retail electricity service to approximately 1.2 million customers in 11 of Arizona's 15 counties.

APS is a vertically-integrated, regulated utility company that maintains full operational control of several power plants, including Palo Verde Generating Station, a nuclear power plant and the country's largest power producer of any kind for more than 25 years.

Plants for which APS has full operational control and responsibility include:

GRAPHIC

(1)
Net generation rating

Palo Verde is a significant source of our energy supply and while we share ownership of this plant with six other utilities, APS retains full day-to-day operational responsibility. This responsibility includes regulatory responsibility to the NRC. The Company'ssize of Palo Verde and the complexity of running a nuclear plant of this magnitude requires a highly specialized and experienced management team.

Between our CEO and our Executive Vice Presidents, we have more than 200 combined years of experience in the energy industry, including relevant specialized nuclear experience. This highly skilled team has driven strong performance and value creation for our shareholders. Given our need for specialized experience within our organization, we maintain strong succession planning practices and are focused on developing and retaining talent within our Company. Our Board's focus on attracting, developing and retaining highly skilled and experienced executives is a core consideration in structuring our executive compensation program consists of the following components:programs.

GRAPHIC

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

20172018 Proxy Statement     |     GRAPHIC      45


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

Building Shareholder Value Through Operational Excellence and a Sustainable Energy Future

The chart below indicates how each elementAs Arizona's largest and longest-serving electric company, we're proud of our 2016 executive compensation program was intendedheritage and performance. We also recognize the implications of new technologies and growing customer expectations, which are leading to achievechanges at our compensation objectives of aligning the interests of executivesCompany and shareholders, placingin our industry. Our strategy for building long-term value is driven by our core operational excellence and financial strength while also capitalizing on technology advances that promote a portion at risk, and attracting and retaining qualified, experienced executives.sustainable energy future:


2016
WHY WE PAY IT


COMPENSATIONExecuting on our financial and
ELEMENToperational objectives


 ALIGNMENTEnsuring a sustainable energy futurePAY AT
RISK
 ATTRACT
AND RETAIN
COMMENTS
Base SalaryüSalary is based on experience and responsibilities and is benchmarked to the Peer Group and market conditions to maintain competitive levels.
Annual Cash IncentiveüüüAnnual cash incentive is designed to reward achievement of annual performance objectives, which are designed to enhance shareholder value.
Performance SharesüüüPerformance 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.

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

Four-year vesting encourages retention.

BenefitsüüOur 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.

Sustaining our operational excellence

Maintaining our financial strength

Leveraging economic growth

Integrating technology to modernize the grid

Taking steps to address rate design

2017 Rate Review Order.    As an Arizona-based regulated electric utility company, APS periodically submits requests to the ACC for a comprehensive review of our electricity rates. Approval of a rate adjustment enables us to generate revenue with which we fund improvements in our operations and investments that benefit our customers. In June 2016, we initiated our first rate review in five years, and in August 2017, after working with the ACC Staff and key stakeholders, we received approval for our comprehensive rate review. This approval allows for a 3% increase in overall revenues, as well as additional funds for our AZ Sun II rooftop solar program, a refund of surplus of energy efficiency program funds to customers, increased funding for programs assisting limited-income customers, and other key investments in Arizona's energy future. This was an important milestone for us as it allows us to continue making efficient, cost-effective investments while providing safe, reliable service for our customers.

46     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

Compensation DesignTrack Record of Delivering Results

Pay at Risk.    The Company believes thatOur management team has maintained a significant portionfocus on our core business of each Named Executive Officer's total compensation opportunity should reflect both upside potentialoperating and downside risk.

The illustrations below show howinvesting in a vertically-integrated electric utility. Under the Company views the allocationleadership of the Named Executive Officers' compensation between guaranteed pay (base salary)senior officer team, since 2009 Palo Verde Generating Station has become one of the top performing nuclear power plants in the U.S., and pay at risk (annual incentive plan, other cash incentives,we have seen strong, sustained gains in shareholder returns and long-term incentives).significant improvements in our credit rating.


2016 CEO Total CompensationPerformance Transformation

GRAPHICGRAPHIC


2016 Average for Other Named Executive Officers' Total Compensation

GRAPHIC

Risk-Management

(1)
TSR reflects dividend-adjusted share price between the periods of April 30, 2002-April 30, 2009 and Assessment.    The compensation program is designedApril 30, 2009-December 31, 2017.

During 2017 we continued to rewarddeliver strong 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:and hit key milestones:

Earnings goalsTotal shareholder value increased $1.1 billion in 2017, $2.8 billion over the last three years, and award opportunities in our annual cash incentive programs are at levels intended to be challenging without$5.2 billion over the need to take inappropriate risks;last five years;

Our long-term incentives consistTSR for 2017 was 12.7%; since May 1, 2009, Pinnacle West has delivered an annualized TSR of time-based RSUs that vest over18.8%, exceeding the annualized returns of the S&P 1500 Electric Utilities Index of 11.8% and the S&P 500 Index of 16.2%;

Pinnacle West increased its dividend for the 6th straight year, by 6% in 2017;

2017 was another successful year for APS with regard to safety, remaining in the top decile for safety performance in the U.S. electric utilities industry; and

Pinnacle West obtained a multi-year period"Leadership" rating from CDP for climate change and performance shares that are earned atwater management — one of only two U.S. utilities to earn the end of a three-year period,highest rating in 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;categories.

20172018 Proxy Statement     |     GRAPHIC      47


Table of Contents

Executive Compensation

Shareholder Engagement and Board Responsiveness

2017 Shareholder Engagement.    We have an established shareholder outreach program to maintain a dialogue with our shareholders, and feedback from our shareholders informs our Human Resources Committee's (for purposes of this CD&A, the "Committee") actions. We were disappointed with the level of shareholder support for the 2017 say-on-pay vote, and during the fall following our 2017 Annual Meeting:

We specifically sought direct feedback on our compensation program from shareholders;

Our Lead Director and Human Resources Committee member, Kathy Munro, participated in a number of the meetings with our shareholders to receive their direct feedback and share it with the Board; and

We contacted the holders of approximately 50% of shares outstanding and met with the holders of approximately 40% of shares outstanding, including many of our largest institutional shareholders as well as smaller holders to collect a range of perspectives.

2017 Board Responsiveness.    As in prior years, the feedback received from shareholders during this outreach was an important input into the Committee's and Board's review process. While many of the investors that we spoke to believed our compensation structure was well-aligned with performance, we received valuable feedback about how we could improve the program and make it more transparent.

Following thoughtful discussion of shareholder feedback and a review of the compensation program, the Committee made several changes that it believes align with feedback received and further support our commitment to pay-for-performance.

48GRAPHIC |      2018 Proxy Statement


Table of Contents


Executive Compensation

2017 Shareholder Feedback and Changes Made in Response






Shareholder Feedback Themes
Human Resources Committee Actions
We can provide better and simpler disclosure

Streamlined our compensation-related disclosure

Provided additional disclosure around our goal setting processes and Committee decisions

Investors are highly focused on the performance-based aspects of our program

Increased the proportion of performance shares in our CEO's and Executive Vice Presidents' 2018 long-term incentive awards from 60% to 70%

Revised 2018 metrics in certain key business units to better align with our priorities and emphasize top quartile performance and/or improve on historical trends

Earnings goals set for 2018 reflect the August 2017 approval of our comprehensive rate review and represent meaningful year-over-year increases

Adopted a formal clawback policy covering short- and long-term incentive awards

Clarified how our performance metrics support and align with our business strategy (pages 54-56)

Questions about retention awards to our CEO

Provided additional disclosure regarding the 2017 CEO Performance-Contingent Award made to our CEO in 2017, including a more detailed discussion of the rationale for the award and the specific goals that must be achieved for payout to occur (page 65)

Provided additional information regarding our succession planning process and how our limited use of performance-contingent awards supports Pinnacle West's continued success (pages 20 and 65)

These changes follow several prior changes to our program in recent years as we seek to align our compensation structure with the evolution of our business and the feedback from our shareholders. Recent changes include:

The Committee limited its use of discretion to adjust the CEO's annual incentive awards solely to the occurrence of unanticipated events beginning in 2015;

We formally introduced detailed business unit metrics to the CEO's incentive plan to tie the incentive directly to overall operational performance and financial results beginning in 2015;

We increased the stock ownership guideline for the CEO to 5x base salary starting in 2016; and

We increased the proportion of our annual long-term equity awards allocated to performance-based measures from 55% to 60% beginning in 2016.

2018 Proxy Statement     |GRAPHIC 49


Table of Contents

Executive Compensation

2017 Compensation Design

For 2017, the Company's core executive compensation program consisted of the following key components:












Pay Element
Measurement
Period


Performance
Link


Description
​  Base SalaryCashSalary is based on experience, performance and responsibilities and is benchmarked to a peer group and market survey data to align with competitive levels.
​​​​
​  AnnualEarnings

CEO: 62.5%
NEOs: 50.0%
Universal measure of business financial performance; encourages achievement of bottom-line earnings growth goals.
​  ​​​​
​  IncentivesCash1��yearBusiness Unit
Performance
(1)

CEO: 37.5%
NEOs: 50.0%
Pre-established operational business unit performance goals that include safety, customer satisfaction and operational quality and efficiency metrics.
​​​​
​  PerformanceRelative
TSR


50%
Relative measures incentivize sustained
​  ​​​​
​  Long-Term
Incentives

Shares

60%(2)
3 yearsRelative
Operational
Performance
(3)

50%
shareholder value creation and strong performance on operational benchmarks.
​  ​​​​
​  Restricted Stock Units

40%(2)
Vest ratably over4 yearsStock PriceEncourages retention; value dependent upon share price appreciation and four-year vesting to encourage retention.
​​​​
​  BenefitsWe provide benefits, including pension and deferred compensation programs, change of control agreements and limited perquisites, designed to attract and retain our executive talent.
(1)
Based on the following business units, as applicable: Corporate Resources (Communications, Finance/Accounting, Human Resources, Information Technology, Legal, Public Policy, Resource Management, Supply Chain, Sustainability), Palo Verde, Customer Service, Fossil Generation, and Transmission and Distribution. For additional details regarding our goal-setting process and the specific business unit goals for 2017, please refer to pages 54 and 59.

(2)
Long-term incentives award mix changed to 70% performance share awards and 30% RSU awards starting in 2018 for the CEO and Executive Vice Presidents.


50GRAPHIC |      2018 Proxy Statement


Table of Contents

Executive Compensation
(3)
Based on the following benchmarks: Customer reliability, customer-to-employee improvement ratio, OSHA all-incident injury rate, nuclear generation capacity factors, coal generation capacity factors; all of which are based on comparisons to companies selected by independent, objective data providers. For additional details regarding our goal-setting process and the specific relative long-term operational goals for 2017 performance share awards, please refer to page 63.

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

The charts below illustrate the strong emphasis that we place on performance-based, shareholder-aligned incentive compensation:

2017 CEO
Total Compensation
88% at risk
2017 Average for Other NEOs'
Total Compensation
67% at risk

GRAPHIC


GRAPHIC

Key 2017 Compensation Decisions

For the year ended December 31, 2017, the Committee approved the following compensation decisions for our NEOs:

2017 Base Salary Adjustments.  For fiscal 2017, the Committee increased Mr. Brandt's salary by 3%; Messrs. Hatfield, Bement, Falck and Schiavoni received base salary increases of between 3.2%-4.4%.

2017 Annual Incentive Award.  Our 2017 annual incentive performance goals were set within the context of the business and economic circumstances known at that time. As a regulated utility, we are generally unable to adjust our base retail prices outside of a rate case. As such, in years in which we do not expect a retail rate adjustment, changes in our revenues over the previous year would depend largely on factors beyond our control, such as customer growth, weather and customer usage patterns.

2018 Proxy Statement     |GRAPHIC 51


Table of Contents

Executive Compensation

2017 CEO Performance-Contingent Award.  As previously disclosed in advance of our 2017 Annual Meeting, in March 2017 the Committee granted the CEO a two-year, performance-based cash award ("2017 CEO Performance-Contingent Award"). This award is designed to incent Mr. Brandt, a retirement eligible CEO, to remain in his current role while further emphasizing the Board's succession planning priorities. Given the specialized skill sets required of the senior management team in our industry and our Company, a major priority of the CEO is to ensure that the Company's succession strategy and workforce development pipeline is sufficiently robust and continues to be effective. The Committee believed that this award was critical to retaining a retirement-eligible CEO for what was perceived to be a multiple-year succession planning period. The 2017 CEO Performance-Contingent Award is subject to clearly-defined performance goals. The performance goals, as detailed further on page 65, are structured to incentivize continued financial performance while ensuring that succession- and development-related milestones are met. As discussed further below, for Mr. Brandt to fully realize this award, return on equity, earnings, and succession and development hurdles must be achieved in 2017 and 2018.

Compensation Governance

Our executive compensation program is overseen by the Committee. Through ongoing shareholder engagement and regular assessment of our compensation governance practices, we seek to continue to improve our compensation governance:








Compensation Governance



​  GRAPHICShareholder feedback informs compensation program design
GRAPHICSubstantial proportion of target compensationis at risk (88% for the CEO and 67% for other NEOs)
​  GRAPHICPerformance shares are 100% tied torelativeperformance (50% on relative TSR and 50% on relative operational metrics) and require 90th percentile performance for maximum payouts
GRAPHICNo excise tax gross-up provisions in new or materially amended Change of Control Agreements with our NEOs
​  GRAPHICAnti-hedging and anti-pledging policy
GRAPHICStock ownership guidelines for all NEOs (all NEOs' actual ownership levels exceed guidelines)

52GRAPHIC |      2018 Proxy Statement


Table of Contents

Executive Compensation

EXECUTIVE COMPENSATIONOur 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:

Payouts are capped under theAlignment with Shareholder Interests.  We structure our annual cash and long-term equity incentive compensation to put pay at risk and reward business performance. Payouts under these plans at no more than twiceare tied predominantly to the target amountCompany'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 award or the Base Grant (as defined in this CD&A under the heading "Long-Term Incentives");Company and are aligned with those of our shareholders.

More than one performance metric is usedKey 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 and industry experience to succeed in our long-term performance share awards,complex operating and regulatory environment, including operating the award opportunities under our annual cash incentive programPalo Verde Generating Station, and who can provide consistently strong operating and financial results.

Executive Compensation Components

Base Salary

Base salaries are set at competitive levels to attract and retain qualified, experienced executives. Salary levels are based on multiple metrics, thereby minimizing the ability of the executiveexperience, performance and responsibilities, and benchmarked to manipulate incentive results;

The stock components inherent in our long-term incentive program, combineda peer group and market survey data to align with our stock ownership guidelines and retention requirements, align the interests of our executives with a goal of long-term appreciation of shareholder value;

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

Our Officer Stock Ownership and Retention Guidelines (the "Guidelines") prohibit our officers from pledging or hedging shares of Company common stock owned by them; and

Our program has additional features of clawback provisions in our annual cash incentive plans and performance share equity grant agreements and independent committee oversight that mitigate 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. Equity award agreements for our management employees contain a similar prohibition in respect of shares received by them under such awards.

2016 Compensation

Base Salary

competitive levels. 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.

In December of 2015,2016, the Committee, based on the considerations set forth above, made the following adjustments to the base salaries of the following Named Executive OfficersNEOs for fiscal year 2016:2017:

NAME
 2015 BASE SALARY ($)
 2016 BASE SALARY ($)
Mr. Brandt 1,277,000 1,315,000
Mr. Hatfield 593,000 620,000
Mr. Falck 544,000 565,000
Mr. Schiavoni 640,000 680,000
 
 
 
 
 
 
 
 Name
 2016 Base Salary
 2017 Base Salary
 
​  Mr. Brandt$1,315,000$1,355,000
 Mr. Hatfield $620,000 $640,000 
​  Mr. Bement$575,000$600,000
 Mr. Falck $565,000 $585,000 
​  Mr. Schiavoni$680,000$710,000

Effective January 1, 2016, Mr. Edington's baseEdington retired on March 22, 2017 and his salary increased from $1,050,000remained at $1,100,000 for 2017.

Annual Cash Incentives

Our annual cash incentives are strongly performance-based and designed to $1,100,000 pursuantboth reward achievement of pre-determined annual performance objectives that are critical to the 2014 Supplemental Agreement. The 2014 Supplemental Agreementour business operations and to attract and retain qualified, experienced executives. Performance for NEOs is definedmeasured based on relevant and objective earnings and business unit metrics.

CEO.  For fiscal year 2017, Mr. Brandt participated in the narrative disclosure accompanying the Summary Compensation Table and the Grants of Plan-Based Awards table.

CEO Incentive Plan.

482018 Proxy Statement     |     GRAPHIC      |      2017 Proxy Statement53


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation


Annual Cash Incentives
Other NEOs.

The Committee approved the CEO Incentive Plan   Messrs. Hatfield, Falck and Schiavoni participated in December 2015, which covered Mr. Brandt. Also in December 2015, acting on the recommendation of the Committee, the Board approved the APS 20162017 Annual Incentive Award Plan (the "APS Incentive Plan"), which covered and Messrs. Hatfield, Falck,Bement and Schiavoni, andEdington participated in the APS 20162017 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 "2016"2017 Incentive Plans". In December 2016, the Committee approved the CEO Incentive Plan and the Board, on the recommendation of the Committee, approved the APS Incentive Plans."


CEO2017 Incentive Plan Award OpportunityOpportunities

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

 
 
 
 
 
 
 
 
 
 
 
 
 
 NEO


 Threshold
(% of Salary)


 Target
(% of Salary)


 Maximum
(% of Salary)


 2017 Actual
(% of Salary)


 2017 Actual
($)


 
​  Mr. Brandt50%125%(1)200%170.8%$2,314,340
 Mr. Hatfield 17.5% 70% 140% 105.3% $673,994 
​  Mr. Bement18.75%75%150%132.0%$792,000
 Mr. Edington 16.25% 65% 130% 25.4% $279,264(2) 
​  Mr. Falck16.25%65%130%98.5%$576,155
 Mr. Schiavoni 18.75% 75% 150% 114.6% $813,633 
(1)
Reflects a representative target amount under the CEO Incentive Plan for Mr. Brandt in 2016 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 2016 CEO Incentive Award
Maximum Opportunity


 
200% 100%

The— the Committee structured the CEO Incentive Plan so that if Pinnacle West earnings came in at the mid-point between threshold and maximum amounts ($437 million) and each business unit achieved its target performance levels, Mr. Brandt would receive an incentive award equal to 125% of his 20162017 base salary.

(2)
Mr. Edington retired on March 22, 2017, and under the terms of the Palo Verde Incentive Plan, he received a pro-rated award for his service during the year.

Assessing Performance and Payouts

The Board oversees the Company's business strategy. The Company believedmaintains a rigorous performance goal-setting process wherein goals are set based on our annual business planning process and reviewed for relevance and appropriate alignment with our business strategy. This goal-setting approach is integrated into our performance tracking and business reporting, providing a clear line of sight across the Company on an ongoing basis.

The Committee annually reviews the metrics utilized under the annual cash incentive plans to ensure that the mid-point number represented a reasonable expectation ofthey remain relevant, with target performance goals set at levels that are intended to be challenging without incentivizing inappropriate risk taking.

Individual awards under our annual cash incentive plans are based on the achievement of relevant and objective earnings for 2016. With respect to theand business unit goals, which tie payouts directly to core measures of business performance component, the CEO Incentive Plan provided detailed metrics against which Mr. Brandt's performance was measured. The CEO Incentive Plan also limited the Committee's abilityand key operational business unit results and ultimately serve 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 (there were none in 2016) that might arise during the performance period.enhance shareholder value.

2017 Proxy Statement     |54     GRAPHIC      49|      2018 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation


2017 Annual Incentive Plan Component Summary

GRAPHIC

(1)
Weightings are shown as a percentage of total incentive opportunity

Earnings Component of the CEO Incentive Plan
Target Setting

EARNINGS PERFORMANCE MEASURE
2016 LEVELS
2016 RESULTS

PNW earnings

Threshold:    $387 million
Maximum:    $487 million
$442 million

In designing the CEO Incentive Plan,annual cash incentives, the Committee set thesets 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

Due to the threshold earnings number is not met, no incentive payment will be awarded, regardless of business unit performance.

The earnings componentregulated nature of the CEOutility industry, earnings growth is impacted by the base rates approved by regulators. Given that the rates we charge customers are generally fixed for several years, our revenue streams don't increase in a linear year-over-year fashion. As a result, our annual earnings are impacted by our ability to manage costs associated with our operations and investments while our revenues typically remain relatively flat in years following a rate adjustment. Furthermore, planned outages, weather patterns and varying electricity demand can lead to cyclical earnings fluctuations. These factors are considered in our annual business planning and ultimately reflected in the earnings targets that are approved by the Committee.

2017 Earnings Goals.    For fiscal year 2017, the Committee set threshold, target and maximum Pinnacle West and APS earnings goals above prior year goals, however, as discussed previously, target earnings were set relatively flat to achieved earnings for purposes of the 2017 Incentive Plan accounted for 62.5%Plans since at the time 2017 goals were set, the outcome of Mr. Brandt's incentive opportunity. BecauseAPS's rate review was still pending and the timing of the decision and magnitude of impact on Pinnacle West's actualrevenues was as yet undetermined. As a result, fiscal 2017 earnings of $442 million exceededgoals were set based on the threshold specified by the plan, Mr. Brandt achieved the threshold incentive opportunity of 50% of base salary. In calculating the achievementexpectation of earnings in excess of threshold, actual earnings equated to a level of 55%the context of the range between the thresholdbusiness and maximum levels. This 55% achievement applied to his remainingeconomic conditions at that time, and did not take into account any projection of revenue and earnings related opportunity of up to 75% of base salary, resulted in a 41.3%new rate environment.

The August 2017 approval of our comprehensive rate review is reflected in earnings goals set for 2018. Given the increase in revenues enabled by the rate adjustment, 2018 earnings goals represent meaningful year-over-year increases in the earnings metrics in our annual incentive award for earnings achieved in excess of the threshold level. Combined, this resulted in a 2016 earnings component award of 91.3% of Mr. Brandt's base salary, out of a maximum opportunity of 125% of base salary.plans.

50GRAPHIC |      2017 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION


Business Unit Component of the CEO Incentive Plan
Target Setting

The business unit performancemetrics component opportunity of the CEO Incentive Plan accounted for 37.5%our annual plan ensures that our compensation program appropriately focuses our employees on core measures of Mr. Brandt's incentive opportunity. This component was based on the achievementoverall Company health and performance. Our use 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 53 of this Proxy Statement. The incorporation of the business unit performance metrics into the CEO Incentive Plan was designed to tie Mr. Brandt'sin our NEOs' 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 2016 against these metrics was as follows:

BUSINESS UNIT(1)
2016 PERFORMANCE
(% OF TARGET)

Corporate Resources

134%

Customer Service

121%

Fossil Generation

152%

Palo Verde

190%

Transmission and Distribution

124%

Average of All Business Units:

144%

(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 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/Accounting, Human Resources and Information Technology are set forth under Mr. Hatfield's performance metrics; for Legal are set forth under Mr. Falck's performance metrics; and for 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 1% 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 maximum achievement opportunity and then applied to the CEO's maximum performance-related incentive opportunity for this component. This resulted in a component award of 54% of Mr. Brandt's base salary, out of a maximum opportunity of 75% of base salary. Based on the sum of the 91.3% achievement of the earnings component and the 54% achievement of the business unit performance component, Mr. Brandt's total incentive award equaled 145.3% of base salary, resulting in an award of $1,910,695.

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.plans promotes our

20172018 Proxy Statement     |     GRAPHIC      5155


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation


continued success as a safe, sustainable, and overall well-run vertically-integrated and regulated electric utility.

APS Incentive Plans Award Opportunity
Determination Process.

The award opportunity under the 2016 Incentive Plans for Messrs. Hatfield, Edington, Falck, and Schiavoni was as follows:

NAME
EARNINGS
(% OF BASE SALARY)

BUSINESS UNIT
PERFORMANCE
(% OF BASE SALARY)

TOTAL INCENTIVE
OPPORTUNITY
(% OF BASE SALARY)

Mr. Hatfield:APS EarningsCorporate Resources Business Unit (Finance/Accounting, Human Resources and Information Technology) 
Threshold17.5%17.5%
Target35.0%35.0%70.0%
Maximum70.0%70.0%140.0%
Mr. Edington:APS EarningsPalo Verde Business Unit 
Threshold16.25%16.25%
Target32.5%32.5%65.0%
Maximum65.0%65.0%130.0%
Mr. Falck:APS EarningsCorporate Resources Business Unit (Legal)
Threshold16.25%16.25%
Target32.5%32.5%65.0%
Maximum65.0%65.0%130.0%
Mr. Schiavoni:APS EarningsCorporate Resources (Resource Management, Supply Chain, and Sustainability), Customer Service, Fossil Generation, and Transmission and Distribution Business Units
(1/4 each)
 
Threshold18.75%18.75%
Target37.5%37.5%75.0%
Maximum75.0%75.0%150.0%

In addition to the specific business unit performance measures described below, the APS Incentive Plans allowed the Committee to make adjustments for individual performance (the Committee did not make any such adjustments for the Named Executive Officers in 2016). 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
2016 TARGETS
2016 RESULTS
APS earningsThreshold:    $397 million
Target:         $447 million
Maximum:    $497 million
$452 million, or 111% (100% plus 11% 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

52GRAPHIC |    2017 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

and economic conditions. The APS Incentive Plan provided that if the threshold earnings number is not met, no incentive payment will be awarded, regardlessdetermination of business unit performance.metrics and targets is a year-long, multi-step process guided by our strategic priorities. The Palo Verde Incentive Plan provided that ifBoard oversees the threshold earnings number is not met,Company's business strategy. The Company maintains a rigorous performance goal-setting process wherein goals are set based on our annual business planning process and reviewed for relevance and appropriate alignment with our business strategy. Individual business unit targets are developed using a variety of methods depending on the APS portionmetric under consideration, including internal trends, external considerations, opportunities to improve performance, and use of the incentive payment would not be awarded.

In considering the 2016 awards under the APS Incentive Plans, the Committee adjusted the APS earnings numberindustry benchmark data. Targets are intended to reflect certain costs that supported APS's positions on a solar net metering ballot initiative in Arizona and political participation costs that were incurred primarily for the benefit of APS and its customers but booked at Pinnacle West (no adjustments were made to the Pinnacle West earnings number). The net effect of these adjustments was to reduce APS earnings from $462 million to $452 million for purposes of the 2016 awards. Under the APS Incentive Plans, the calculated incentive award was proportional to the actual earnings achieved in excess of thresholdincentivize performance level. APS's earnings of $452 million exceeded both the threshold and target earnings levels.


Business Unit Components under the APS Incentive Plans

while still being attainable. The business unit performance measures were tied to operational excellence, shareholder value, environmental stewardship,metrics and targets are then shared and discussed with the Committee and the Board before final metrics tied to customers, communities and our employees. Individualtargets are approved by the Committee and the Board.

GRAPHIC

Under the 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, somecomponents 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 disclose2017 Incentive Plans, 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 2016 incentive target opportunity for Messrs. Hatfield and Falck, performance of the Palo Verde business unit was responsible for 50% of the overall 2016 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 2016 incentive target opportunity for Mr. Schiavoni.

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 2016 incentive target opportunity. The percentage of target performance achieved reflects the comparison of our actual achievement of a particular measure for 2016 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.

2017 Business Unit Goals.The Palo Verde2017 Incentive Plan provided that Palo Verde's overallPlans measured NEOs on pre-established business unit performance was requiredin up to achieve at least 100% of the target level for 2016 before Mr. Edington could receive

2017 Proxy Statement     |GRAPHIC 53


Table of Contents

EXECUTIVE COMPENSATION

any payout under the APS earnings portion. The overall Palo Verde business unit performance for 2016 was 190% of target, so this hurdle requirement was met.

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/ Accounting Measures — 16.67%:

        

Employees — 2.50%

 Total Corporate Resources OSHA Recordable Incidents (2.50%) 3 3 100%

Operational Excellence — 10.0%

 Average of All Four Business Unit Results (10.0%)(1) 100% 147% 147%

Shareholder Value — 4.17%

 Total Corporate Resources Operating and Maintenance Budget (4.17%) Budget 0.2% Under Budget 110%

Finance/Accounting Results


131%

Human Resources Performance Measures — 16.67%:

        

Employees — 2.50%

 Total Corporate Resources OSHA Recordable Incidents (2.50%) 3 3 100%

Operational Excellence — 10.0%

 Average of All Four Business Unit Results (10.0%)(1) 100% 147% 147%

Shareholder Value — 4.17%

 Total Corporate Resources Operating and Maintenance Budget (4.17%) Budget 0.2% Under Budget 110%

Human Resources Results

 131%

Information Technology Performance Measures — 16.67%:

        

Employees — 2.50%

 Total Corporate Resources OSHA Recordable Incidents (2.50%) 3 3 100%

Operational Excellence — 11.67%

 Capital Project Execution (1.67%) 90% 100% 200%

 Average of All Four Business Unit Results (10.0%)(1) 100% 147% 147%

Shareholder Value — 2.50%

 Total Corporate Resources Operating and Maintenance Budget (2.50%) Budget 0.2% Under Budget 110%

Information Technology Results

 140%

Overall Hatfield Incentive Result


134%

(1)
The average for all four business units —five key areas: Corporate Resources, Customer Service, Fossil Generation, Palo Verde, and Transmission and Distribution — results are included inDistribution. Within each of these categories are specific metrics designed to incentivize achievements in operational excellence, customer satisfaction, safety and employee performance, and cost management, ultimately resulting in shareholder value creation.

The CEO was evaluated against metrics within each of these five categories to tie the Corporate Resources areas overseen by Mr. HatfieldCEO's incentive to overall operational performance of the Company, and reflected as suchnot to emphasize any one unit's performance over the others. Other NEOs were evaluated based on performance in the table above. The weight of this metricbusiness units that correlate to their responsibilities.

See "Business Unit Components Under the 2017 Incentive Plans" on page 59 for Mr. Hatfield emphasizesadditional details regarding the goal of the various Corporate Resources areasmetrics, targets and 2017 achievement levels for each business unit. As discussed above, we have revised our 2018 metrics in supporting the Company'scertain key business units.

units to more closely align with our priorities and emphasize top quartile performance and/or improve on

5456     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

historical trends, with year-over-year backtesting conducted to ensure that we are maintaining or increasing the rigor of our goals.

2017 Annual Cash Incentive Outcomes

CEO Incentive Plan

Earnings Component.    For Mr. Falck'sBrandt, the earnings portion of the annual cash incentive was determined based on PNW earnings. The component was weighted at 62.5% of the award, with 25% of the award (50% of base salary) earned based on achievement of threshold performance. 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 metrics (50%performance.

Under the terms of the overall opportunity) were as follows:CEO Incentive Plan, earnings calculations are made excluding the impact of rate adjustments related to actions of the ACC within the plan year, and the Committee evaluates the impacts of unusual or non-recurring adjustments on actual earnings and may make adjustments to reflect such impacts. As such, the Committee adjusted the Pinnacle West earnings number to exclude primarily the impacts of the rate adjustment and the impact of the 2017 Tax Act. The net effect of these adjustments was to reduce Pinnacle West earnings from $488.5 million to $475.4 million.

CORPORATE RESOURCES PERFORMANCE MEASURES AND WEIGHTING
 MEASURE
 TARGET
 ACTUAL
RESULTS

 % OF TARGET
PERFORMANCE
ACHIEVED

Employees — 7.50%

 Total Corporate Resources OSHA Recordable Incidents (7.50%) 3 3 100%

Operational Excellence — 30.00%

 Average of all Business Units Results (30.00%) 100% 147% 147%

Shareholder Value — 12.50%

 Total Corporate Resources Operating and Maintenance Budget (12.50%) Budget 0.2% Under Budget 110%

Overall Falck Incentive Result

 131%
 
 
 
 
 
 
 
 
 
 
 
 Performance (in millions)
 Metric
 Threshold
 Midpoint
 Maximum
 2017 Actual
 

 


PNW Earnings


 


$390


 


$440(1)


 


$490


 


$475.4


 
(1)
Reflects a representative target amount under the CEO Incentive Plan — the Committee structured the CEO Incentive Plan so that if Pinnacle West earnings came in at the mid-point between threshold and maximum amounts and each business unit achieved its target performance levels, Mr. Brandt would receive an incentive award equal to 125% of his 2017 base salary.

Business Unit Component.    As noted above, Mr. Brandt was evaluated against metrics within each of the five business unit areas to tie his incentive to overall operational performance. The business unit component of the CEO Incentive Plan was weighted at 37.5% of the award.

See "Business Unit Components Under the 2017 Incentive Plans" for detailed goals and achievement levels for each business unit.


2017 CEO Incentive Plan Results

The metrics, weightings, and results for Mr. Brandt under the 2017 CEO Incentive Plan are outlined below:

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   37.5% Business Unit Performance
 NEO


 62.5% PNW
Earnings



 Corporate
Resources


 Customer
Service


 Fossil
Generation


 Palo
Verde


 Transmission /
Distribution


 2017
Total


 
​  Mr. Brandt171%(1)142%(2)94%160%190%174%152%
 Weighting (62.5%) (7.5%) (7.5%) (7.5%) (7.5%) (7.5%) (37.5%) 
(1)
As a percentage of midpoint; and as noted above, midpoint reflects a representative target amount under the CEO Incentive Plan — the Committee structured the CEO Incentive Plan so that if Pinnacle West earnings came in at the mid-point between threshold and maximum amounts and each business unit achieved its target performance levels, Mr. Brandt would receive an incentive award equal to 125% of his 2017 base salary.

(2)
Reflects the average of the following Corporate Resources business units: Communications, Finance/Accounting, Human Resources, Information Technology, Legal, Public Policy, Resource Management, Supply Chain, Sustainability.

20172018 Proxy Statement     |     GRAPHIC      5557


Table of Contents

Executive Compensation

Mr. Brandt's incentive award was determined exclusively based on the metrics set forth in the CEO Incentive Plan. Other than the earnings adjustments previously discussed that were contemplated by the terms of the CEO Incentive Plan, the Committee did not exercise any discretion to make adjustments to the award based on unanticipated events.

APS Incentive Plans

Earnings Component.    For all NEOs other than the CEO, the earnings portion of the annual cash incentive was weighted at 50% of the award and determined based on APS earnings. 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, the APS portion of the incentive payment will not be awarded. In addition, under the Palo Verde Incentive Plan, Palo Verde's overall business unit performance was required to achieve at least 100% of the target level for 2017 before Messrs. Edington and Bement could receive any payout under the APS earnings portion.

Under the terms of the APS Incentive Plans, the Committee may adjust plan targets or incentive results and may make other changes to the plan deemed necessary or appropriate due to unanticipated events that arise during the performance period or unusual or non-recurring adjustments on actual earnings that arise during the performance period, including without limitation, ACC rate-related impacts on earnings. As such, the Committee adjusted the APS earnings number to exclude primarily the impacts of the rate adjustment and the impact of the 2017 Tax Act. The net effect of these adjustments was to reduce APS earnings from $504.3 million to $483.8 million.

 

 

  Performance (in millions)
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 

 

 

Metric


 Threshold
 Target
 Maximum
 2017 Actual

 

 

APS Earnings

   

$403

   

$453

   

$503

   

$483.8

  

Business Unit Component.    As indicated above, NEOs other than the CEO are evaluated based on performance in the business units that correlate to their responsibilities. The business unit component for each NEO other than the CEO was weighted at 50%, with multiple business unit results averaged for applicable NEOs. The APS Incentive Plans allow the Committee to make adjustments for individual performance, and the Committee may exercise discretion under the APS Incentive Plans due to unanticipated events that might arise during the performance period. The Committee did not make any such adjustments for the NEOs in 2017.

See "Business Unit Components Under the 2017 Incentive Plans" for detailed goals and achievement levels for each business unit.

58GRAPHIC |      2018 Proxy Statement


Table of Contents

Executive Compensation


2017 APS Incentive Plan Results

The metrics, weightings, and results for Messrs. Hatfield, Falck, and Schiavoni under the APS Incentive Plan, and Messrs. Bement and Edington under the Palo Verde Incentive Plan, are outlined below:

​     50% APS  50% Business Unit Performance
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 
​   NEO
 Earnings
 Corporate
 Customer
 Fossil
 Palo
 Transmission /
 2017
​       Resources
 Service
 Generation
 Verde
 Distribution
 Total
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 
​   Mr. Hatfield  162%  139%(1)          139% 
  Weighting   (50.0%)   (50.0%)                   (50.0%)  
​   Mr. Bement  162%        190%    190% 
  Weighting   (50.0%)               (50.0%)       (50.0%)  
​   Mr. Edington(2)  162%        190%    190% 
  Weighting   (50.0%)               (50.0%)       (50.0%)  
​   Mr. Falck  162%  141%(3)          141% 
  Weighting   (50.0%)   (50.0%)                   (50.0%)  
​   Mr. Schiavoni  162%  146%(4)  94%  160%    174%  144% 
  Weighting   (50.0%)   (12.5%)   (12.5%)   (12.5%)       (12.5%)   (50.0%)  
(1)
Reflects the average of the following Corporate Resources business units: Finance/Accounting, Human Resources, Information Technology.

(2)
Mr. Edington retired on March 22, 2017, and under the terms of the Palo Verde Incentive Plan, he received a pro-rated award for his service during the year.

(3)
Reflects the following Corporate Resources business unit: Legal.

(4)
Reflects the average of the following Corporate Resources business units: Resource Management, Supply Chain, Sustainability.

Business Unit Components under the 2017 Incentive Plans

The following table summarizes the metrics used for each business unit, in addition to individual weightings, targets, and 2017 results. The percentage of target performance achieved reflects the comparison of our actual achievement of a particular measure for 2017 to the target established for that measure.

  Business Unit Measures
and Weighting


 Measure
 Target
 Actual
Results


 % of Target
Performance
Achieved



  Corporate Resources
 
​   (Communications; Finance/Accounting; Human Resources; Legal; Public Policy; Supply Chain)
141% 
  Employees (15%)   OSHA Recordables(1) (15%)   2   5   0%  
  Operational Excellence (60%)   Average of All Business Unit Results(2) (60%)   100%   154.6%   155%  
  Shareholder Value (25%)   Total Corporate Resources O&M Budget (25%)   Budget   1.9% Under Budget   193%  
​   Corporate Resources (Information Technology)
135% 
  Employees (15%)   OSHA Recordables(1) (15%)   2   5   0%  
  Operational Excellence (70%)   Average of All Business Unit Results(2) (60%)   100%   154.6%   155%  
      Capital Project Execution (10%)   90%   91.43%   129%  
  Shareholder Value (15%)   Total Corporate Resources O&M Budget (15%)   Budget   1.9% Under Budget   193%  

2018 Proxy Statement     |GRAPHIC 59


Table of Contents

EXECUTIVE COMPENSATIONExecutive 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 97 200%

 Site Safety (2.50%) 10 G/W; No Red 12 G/W 200%

 INPO Recordable Rate (2.50%) £ 0.110 0.05 200%

 Collective Radiation Exposure (1.75%) 70 64.4 200% Business Unit Measures
and Weighting


 Measure
 Target
 Actual
Results


 % of Target
Performance
Achieved



 Voluntary Protection Permit (2.50%) STAR 3-Year Frequency Star 5-Year Frequency 200%

Operational Excellence — 15.00%

 Site Capacity Factor (10.00%) 91.5% 93.2% 200%

 Spring Outage (2.50%) £ 31 Days 36 Days 0% Corporate Resources (Resource Management)
155% 

 Fall Outage (2.50%) £ 31 Days 29 Days 200%

Performance Improvement — 13.75%

 Equipment Reliability Index (2.50%) 93 98 200%

 Corrective Action Performance Scorecard (2.50%) 12 G/W; No Red 14 G/W 200% Employees (15%)   OSHA Recordables(1) (15%)   2   5   0%  

 Site Clock Resets (Less Safety) (2.50%) 1 0 200%

 Site Operational Focus Indicator (3.75%) 14 16 200%    ERMG Violations (20%)   5   4   150%  

 Continuous Improvement Process (2.50%) 500 922 200%

Shareholder Value — 10.00%

 Operating and Maintenance Budget (7.50%) £ Budget and 10 Months Forecast Cash Flow Performance ±5% $8.7M Under Budget and Cash Flow at Maximum Performance 200%
 Operational Excellence (60%)   Passing EIM T-55 Hourly Balancing Test (20%)   90%   94.2%   184%  

 Capital Budget (2.50%) £ Budget and 6 Months Forecast Cashflow Performance ±10% $1.1M Under Budget and Cash Flow at Maximum Performance 200%

Overall Edington Incentive Result

 190%
    Transmission Unreserved Use (20%)   $150K   $65.0   200%  
 Shareholder Value (25%)   Total Corporate Resources O&M Budget (25%)   Budget   1.9% Under Budget   193%  
 Corporate Resources (Sustainability)
142% 
 Employees (15%)   OSHA Recordables(1) (15%)   2   5   0%  
 Operational Excellence (70%)   Average of All Business Unit Results(2) (60%)   100%   154.6%   155%  
    Capital Project Execution (10%)   90%   96.77%   200%  
 Shareholder Value (15%)   Total Corporate Resources O&M Budget (15%)   Budget   1.9% Under Budget   193%  
 Palo Verde(3)(4)
190% 
    Reactivity Management (4%)   95   97.4   200%  
 Employees (22.5%)   Site Safety Index(5) (5%)   5 G/W; No Red   6 of 6 G   200%  
    INPO Recordable Rate (5%)   £ 0.110   0.256   0%  
    Collective Radiation Exposure (3.5%)   70   55.02   200%  
    Accreditation (5%)   Split Vote   Unanimous   200%  
    Site Capacity Factor (20%)   92%   93.8   200%  
 Operational Excellence (30%)   Spring Outage Days (5%)   £ 31   30D 23H   200%  
    Fall Outage Days (5%)   £ 31   30D 18H   200%  
    Equipment Reliability Index (5%)   93   98   200%  
    Corrective Action Performance Scorecard (CAP)(5) (5%)   4 G/W; No Red   5 G/W   200%  
 Performance Improvement (27.5%)   Site Clock Resets (Less Safety) (5%)   1   0   200%  
    Site Operational Focus Indicator(5) (of 8) (7.5%)   7 G/W; No Red   8 of 8 G/W   200%  
    Continuous Improvement Process (5%)   800   1,018   200%  
 Shareholder Value (20%)   O&M Budget (15%)   ³ $1.25M Under Budget & 10 Months Forecast Cashflow Performance ±5%   $6.2M Under & 12 months   200%  
    Capital Budget (5%)   £ Budget & 10 Months Forecast Cashflow Performance ±10%   $8.5M Under & 12 months   200%  
 Customer Service
94% 
 Employees (15%)   OSHA Recordable Incidents (15%)   1   3   0%  
    Self-Service Transactions per Customer (20%)   8.53   8.66   165%  
 Operational Excellence (45%)   Average Speed to Answer (in seconds) (10%)   157   234   0%  
    Percentage of Billing To-Dos Completed by Day 3 (15%)   93.71%   64.95%   0%  

5660     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

Mr. Schiavoni's

  Business Unit Measures
and Weighting


 Measure
 Target
 Actual
Results


 % of Target
Performance
Achieved



  Customer Value (15%)   Customer Outcome Satisfaction – CCT (15%)   85%   82.6%   76%  
  Shareholder Value (25%)   Customer Service O&M Budget (25%)   Budget   2.6% Under Budget   200%  
​   Fossil Generation
160% 
  Employees (15%)   OSHA Recordable Incidents (15%)   6   4   200%  
      Fleet Summertime Equivalent Availability Factor(6) (20%)   91.8%   87.44%   0%  
  Operational Excellence (70%)   G&O Start-up Reliability (20%)   98.0%   99.05%   200%  
      Capital Project Execution (20%)   95%   98.44%   200%  
      Fossil EH&S Repeat Deficiencies (10%)   16   7   200%  
  Shareholder Value (15%)   Net Operating Expense (15%)   Budget   2.4% Under Budget   200%  
​   Transmission & Distribution
174% 
      OSHA Recordable Incidents (15%)   18   15   175%  
  Employees (30%)
   Human Performance Event Clock Resets (15%)   34   31   160%  
      System Average Interruption Duration Index ("SAIDI") (15%)   82   74.53   200%  
  Operational Excellence (50%)
   System Average Interruption Frequency Index ("SAIFI") – Clear Weather (15%)   0.61   0.54   200%  
      Capital Project Execution (20%)   95%   97.5%   183%  
  Shareholder Value (20%)   Transmission & Distribution O&M Budget (20%)   Budget   0.7% Under Budget   135%  
(1)
OSHA Recordable Incidents metric is a rollup of all Corporate Resources business unitareas.

(2)
Average includes: Transmission & Distribution, Customer Service, Fossil Generation and Palo Verde.

(3)
If APS earnings threshold is not met, there can still be a payout under the Business Unit performance metrics (50%component.

(4)
Incentive budget forecast metric exclusions — One-time items that can be anticipated but timing and/or impact are unknown at the time incentive goals are set and that are outside of the overall opportunity) were as follows:control of Palo Verde should be excluded from the budget forecast metric incentive results.

(5)
The Site Safety Index, CAP Scorecard and Site Operational Focus Indicator are 6-month goals that are actualized and funded on June 30th and December 31st.

(6)
Summertime Equivalent Availability Factor (EAF) calculations from June-September.

Long-Term Incentives

PERFORMANCE MEASURES
AND WEIGHTING

 MEASURE
 TARGET
 ACTUAL
RESULTS

 % OF TARGET
PERFORMANCE
ACHIEVED

Corporate Resources Business Unit — 12.50%:

        

Business Area Performance — 12.50%

 Supply Chain (4.17%) 100% 130.6% 131%

 Sustainability (4.17%) 100% 139.55% 140%

 Resource Management (4.16%) 100% 139.6% 140%

COO Corporate Resources Business Unit Results


137%

Transmission and Distribution Business Unit — 12.50%:

        

Employees — 2.50%

 OSHA Recordable Incidents (1.25%) 18 19 92%

 Human Performance Event Clock Resets (1.25%) 29 37 0%

Operational Excellence — 6.25%

 System Average Interruption Duration Index (SAIDI) — All Weather (1.25%) 81 80 117%

 System Average Interruption Frequency Index (SAIFI) — All Weather (1.88%) 79% 84% 58%

 QA/QC Inspections (1.25%) 88% 94% 200%

 Capital Project Execution (1.87%) 90% 97% 200%

Customers & Communities — 1.88%

 JD Power & Associates Power Quality & Reliability (1.88%) Rank 9 Rank 9 100%

Shareholder Value — 1.87%

 Transmission and Distribution Operating and Maintenance Budget (1.87%) Budget 2.0% Under Budget 199%

COO Transmission and Distribution Business Unit Results


124%

Customer Service Business Unit — 12.50%:

        

Employees — 1.88%

 OSHA Recordable Incidents (1.88%) 1 2 50%

Operational Excellence — 3.74%

 Service Level Without Interactive Voice Response (1.87%) 80% 80% 100%

 Self-Service Transactions Per Customer (1.87%) 6.93 7.36 200%

Environmental Stewardship — 1.25%

 Percent of Customers with Paperless Billing (1.25%) 31% 30.86% 83%

Customers and Communities — 2.50%

 Customer Outcome Satisfaction Survey (1.25%) 89% 87% 50%

 JD Power Residential IOU Survey (1.25%) Rank 10 Rank 14 50%

Shareholder Value — 3.13%

 Customer Service Operating and Maintenance Budget (3.13%) Budget 3.9% Under Budget 200%

COO Customer Service Business Unit Results

 121%

Our long-term equity incentive compensation is intended to align the interests of executives and our shareholders and increase long-term shareholder value while also offering an award opportunity that helps attract and retain qualified, experienced executives. The Company currently uses two types of equity awards: performance shares and RSUs. Beginning with the 2016 awards, our annual long-term equity awards have been granted 60% to performance-based measures and 40% to time-based vesting. For 2018, we have increased the grant allocation to 70% performance-based measures and 30% time-based vesting for our CEO and our Executive Vice Presidents.

20172018 Proxy Statement     |     GRAPHIC      57


Table of Contents

EXECUTIVE COMPENSATION

PERFORMANCE MEASURES
AND WEIGHTING

 MEASURE
 TARGET
 ACTUAL
RESULTS

 % OF TARGET
PERFORMANCE
ACHIEVED

Fossil Generation Business Unit — 12.50%:

        

Employees — 1.88%

 OHSA Recordable Incidents (1.88%) 6 7 75%

Operational Excellence — 8.75%

 Fleet Summertime Equivalent Availability Factor (2.50%) 93.7% 91.8% 53%

 G&O Start-up Reliability (2.50%) 98% 99% 200%

 Capital Project Execution (2.50%) 90% 96% 200%

 Fossil EH&S Repeat Deficiencies (1.25%) 18 12 200%

Shareholder Value — 1.87%

 Net Operating Expense (1.87%) Budget 7.3% Under Budget 200%

COO Fossil Generation Business Unit Results

 152%

Overall Schiavoni Incentive Result


133%

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

434,000868,000530,695122%

Mr. Edington

715,0001,430,0001,076,075151%

Mr. Falck

367,250734,500443,565121%

Mr. Schiavoni

510,0001,020,000623,169122%

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 2016 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 2016; no "greater-than-green" NRC colored findings by the end of 2016; and no decline in key regulatory and oversight evaluations and assessments by the end of 2016. All of the metrics were achieved and, as such, Mr. Edington received the full award of $125,000.

58GRAPHIC |      2017 Proxy Statement61


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

2017 Long-Term IncentivesEquity Incentive Component Summary

The Company currently uses two types of equity grants: performance shares and RSUs. In 2016, awards consisted of 60% performance shares and 40% RSUs to focus the equity awards on the achievement of specific multi-year performance goals. The 2016 grants to the Named Executive Officers were as follows:

NAME
PERFORMANCE
SHARES
(#)

RSUs
(#)

TOTAL
SHARES
(#)

GRANT
DATE
VALUE
($)

Mr. Brandt

39,25826,17265,4304,373,276

Mr. Hatfield

7,5845,05612,640844,845

Mr. Edington

5,3543,5728,926596,606

Mr. Falck

6,6924,46411,156745,657

Mr. Schiavoni

9,8166,54416,3601,093,486

Vehicle

% of Target
Equity Pay Mix

Measurement
Period

Performance Link

​  


Performance


Relative TSR (50%)
​  ​​​​

​  

Shares

60%(1)3 yearsRelative Operational Performance (50%)
​​​​

RSUs

40%(1)

Vest ratably
over 4 years

Stock Price

(1)
Long-term incentives award mix changed to 70% performance share awards and 30% RSU awards starting in 2018 for the CEO and Executive Vice Presidents.

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 2016, then allocated 60% of the 2017 awards 60% to performance shares and 40% of theto RSUs.

The 2017 awards to RSUs.the NEOs were as follows:

​  

Name


Performance
Shares – 60%
(#)



RSUs – 40%
(#)


Grant Date Value
($)(1)


 

Mr. Brandt

33,09622,064$4,400,113

 

Mr. Hatfield

 6,770 4,516 $900,284 

​  

Mr. Bement

4,5143,012$600,349

 

Mr. Edington

 3,010 2,008 $400,286 

​  

Mr. Falck

5,6423,764$750,316

 

Mr. Schiavoni

 8,274 5,516 $1,100,028 
(1)
For purposes of this table, Grant Date Value is equal to the total number of shares multiplied by the Company's closing stock price on the date of grant ($79.77).

62Performance Shares.GRAPHIC |      2018 Proxy Statement


Table of Contents

Executive Compensation

Performance Shares

We granted performance shares to our Named Executive OfficersNEOs in February 20162017 for a three-year performance period (the "2016"2017 Performance Shares")., with two distinct elements — relative TSR and relative operational performance against five metrics.

The following graph illustrates how the 2016 Performance Shares work:

GRAPHIC

​  

Metrics


Weighting
Rationale &
Performance Link


​  

Relative TSR

Measures the Company's TSR performance against:

S&P 1500 Super Composite Electric Utility Index




50%

Links pay to key measure generating shareholder value relative to others in the industry
​​​​

​  

Relative Operational Performance

Measures the Company's average percentile ranking in:

-Customer reliability

-Customer-to-employee improvement ratio

-OSHA all-incident injury rate

-Nuclear generation capacity factors

-Coal generation capacity factors








50%

Metrics are direct indicators of operational performance and provide a clear barometer of performance versus external benchmarks

The Committee grants each award recipient a specified number of performance shares, which is considered the "Base Grant." Under each of the two performance elements, up to 100% of the Base Grant may be earned based on performance. The maximum award opportunity is 200% of the Base Grant. The 2016 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 lineGrant, which reflects the sum of sight to factors in the utility industry that drive management performance to increase earnings. We believe that the combination of these two elements in the same equity award provides a mix of motivationsmaximum opportunities for performance that is superior to utilizing all of one element oragainst the other.two elements:

2017 Proxy Statement     |GRAPHIC 59


Table of Contents

EXECUTIVE COMPENSATION


TSR is 50% of the Base Grant
GRAPHIC

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 Greater100% of the Base Grant
75th Percentile75% of the Base Grant
50th Percentile50% of the Base Grant
25th Percentile25% of the Base Grant
Less than 25th PercentileNone

TSR.TSR is the measure of a company's stock price appreciation plus any dividends paid during the three-year 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 2019.2020.


Operational Performance.
Performance Metrics are 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-yearsthree 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;

2018 Proxy Statement     

|
GRAPHIC 63


Table of Contents

Executive Compensation

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;

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

60GRAPHIC |      2017 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION
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.

For 2017 performance share awards, we determined not to use the J.D. Power Residential National Large Segment Survey benchmark as we had for prior awards. APS is undergoing an extensive technology upgrade to our customer service platform. This undertaking is focused on providing flexibility and scalability to respond to industry and customer demands. We believe that the J.D. Power benchmark is not an appropriate indicator of operational performance during this enterprise-wide project.

The metrics selected 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 2019.2020.

The recipient must remain employed with the Company throughout the performance period, unless the recipient meets any of the exceptions described under "Potential Payments upon Termination or Change of Control." The 2016 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 20162017 Performance Shares are not included in calculating pension benefits.

The 20162017 Performance Shares are included in the Summary Compensation Table in the column under "Stock Awards" and in the Grants of Plan-Based Awards table.

Payouts of 2014 Plan Awards.    In 2013,2014, the Committee granted performance shares to the Named Executive Officers,NEOs, based on the same performance metrics as the 2016 grant.relative TSR and relative operational performance. For the three-year period ended December 31, 2015,2016, our TSR percentile was 42.884.2% compared to the Index. For the same period, our Average Performance percentile with respect to the performance metrics was 76.873.5% compared to the companies included in the performance metrics. The actual payout to each Named Executive OfficerNEO is identified in the Option Exercises and Stock Vested table.

RSUs.RSUs

We granted RSUs to our Named Executive OfficersNEOs in February 2016.2017. RSUs are incentive awards that vest in equal 25% installments over four-yearsfour years if the award recipient remains employed by the Company or one of its subsidiaries unless the recipient meets any of the exceptions described under "Potential Payments upon Termination or Change of Control."

64GRAPHIC |      2018 Proxy Statement


Table of Contents

Executive Compensation

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 2016 RSUs work:

GRAPHIC

2017 Proxy Statement     |GRAPHIC 61


Table of Contents

EXECUTIVE COMPENSATION

The 20162017 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, or 100% in cash, 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.

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 includedstock, or 100% in cash based on the calculation of pension benefits. 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.participant's election as discussed above.

The 20162017 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 20162017 are identified in the Option Exercises and Stock Vested table.

Supplemental Awards

Retention Grant for Mr. Brandt.2017 CEO Performance-Contingent Award.    In December 2012,As previously disclosed in advance of our 2017 Annual Meeting, in March 2017, the Committee madegranted the CEO a special performance-linked retention granttwo-year, performance-based cash award. This award is designed to incent Mr. Brandt, a retirement eligible CEO, to remain in his current role while further emphasizing the Board's succession planning priorities. Given the specialized skill sets required of RSUsthe senior management team in our industry and our Company, a major priority of the CEO is to ensure that the Company's existing succession strategy and workforce development pipeline is sufficiently robust and continues to be effective. The Committee believed that this award was critical to retaining a retirement-eligible CEO for what was perceived to be a multiple-year succession planning period.

The award is comprised of two tranches that are performance-conditioned on specific return on equity, earnings, and succession planning goals, with a maximum potential payout to Mr. Brandt (the "CEO Retention Grant"). This grant recognized his important contributions asof $4 million:


Structure and Performance Criteria of 2017 CEO Performance-Contingent Award

​  

Hurdle


Tranche 1
Tranche 2
Performance Link

No portion of award payable if

Minimum 8.00% ROE condition (2017)


2017 earnings threshold(1)

(2017 calendar year)




2018 earnings threshold(1)

(2018 calendar year)



neither earnings thresholds are met

If only one earnings threshold is met, 50% of the award may be earned subject to additional adjustments based on succession planning & development performance
​​​​​​​​​​​​

No portion of award payable if ROE condition not met

Succession planning and development — year 1 milestonesSuccession planning and development goalsFull award subject to goals being satisfied
(1)
The 2017 earnings threshold and was intendedthe 2018 earnings threshold are equal to provide a strong incentive for his continued retention in a competitive market for executivesthe threshold earnings level in the utility industry. The size of the ultimate award varied, depending upon the Company's performance and Mr. Brandt's performance over the performance period, so that the grant incentivized continued levels of strong performance. Under the CEO Retention Grant, Mr. Brandt could, depending on Company and individual performance, receive up to 84,362 RSUs plus any accrued notional dividends if he was employed through December 31, 2016, which employment condition he met.

The performance criteria linked to the number of shares to be received by Mr. Brandt under the CEO Retention Grant were the following:

if the Company's average return on equity over the period from December 19, 2012 until December 31, 2016 (the "Performance Period") met or exceeded 8.75% (the "Target ROE"), Mr. Brandt would be entitled to receive 67,489 shares (the "Target Grant"). In addition, the Committee could,Incentive Plan in its discretion, award Mr. Brandt up to another 25% of the Target Grant (16,873 shares (the "Discretionary Grant")) for a maximum total of 84,362 shares, based upon the Committee's evaluation of Mr. Brandt's overall leadership during the Performance Period, including his management of executive retirement and successions and rate case resolutions; and

if the Company's average return on equity over the Performance Period was less than the Target ROE, Mr. Brandt would receive 75% of the Target Grant (50,617 shares).their respective years.

On February 21, 2017, the Committee determined that the Company's average return on equity under the CEO Retention Grant was 9.6%, which exceeded the Target ROE by 85 basis points and therefore, Mr. Brandt was entitled to receive the Target Grant. In assessing whether Mr. Brandt should receive any shares under the Discretionary Grant, the Committee reviewed

622018 Proxy Statement     |     GRAPHIC      |      2017 Proxy Statement65


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

The payment date of the 2017 CEO Performance-Contingent Award is February 28, 2019 (the "Award Payment Date"), provided that Mr. Brandt's overall leadership duringBrandt is still employed by Pinnacle West on that date. In the Performance Period, with particular referenceevent of death or disability, retirement or termination of employment, Mr. Brandt may be entitled to receive all or a portion of the following:2017 CEO Performance-Contingent Award earlier than the Award Payment Date depending on the circumstances and subject to performance goal achievements, as follows:

Effective managementIf Mr. Brandt's employment with the Company terminates by reason of death or if the transition of leadership at Palo Verde duringCommittee determines that Mr. Brandt is suffering from a Disability (as defined in the Performance Period. Indicators of effective leadership transition included:Award Agreement):

o
INPO ratings resulting from evaluations conducted duringPrior to March 1, 2018, Mr. Brandt would have been eligible to receive at least 50% of the Performance Period were achieved at2017 CEO Performance-Contingent Award as determined by the highest possible level;Committee in its discretion with due regard to the progress toward meeting the applicable award conditions.

o
There were no major adverse regulatory findings reported as a result of INPO evaluations;Between March 1, 2018 and

o
Palo Verde performance relative to INPO Index was at the median or better duringAward Payment Date, Mr. Brandt will receive the Performance Period and consistently achieved performance at or near the top quartile since the beginning of 2015.full CEO Performance-Contingent Award.

Successful managementIf Mr. Brandt's employment with the Company terminates by reason of officer level retirements and successions through 2016. A reviewnormal retirement (as defined in the Pinnacle West Capital Corporation Retirement Plan):

o
Prior to March 1, 2018, Mr. Brandt would have forfeited the right to receive any of the 20 management transitionsCEO Performance-Contingent Award.

o
Between March 1, 2018 and the Award Payment Date, Mr. Brandt will receive (i) 50% of the award subject to a determination by the Committee that the (A) ROE condition, (B) 2017 earnings threshold, and (C) year 1 succession milestones each have been met, plus (ii) up to an additional 50% of the award as the Committee may determine if at the time of the normal retirement, the Board has selected and elected the CEO's successor.

If Mr. Brandt is terminated by the Board for Cause (as defined in the Award Agreement) during the performance period, indicated that 80%Mr. Brandt will forfeit the right to receive any of the successors came from2017 CEO Performance-Contingent Award.

If Mr. Brandt's employment as CEO is terminated by the development of internal talent, surpassing the internal target set for this indicator.

Based on the successful achievementBoard without Cause:

o
Prior to March 1, 2018, Mr. Brandt would have received 50% of the performance criteria,award subject to a determination by the Committee approved awardingthat the ROE condition had been met.

o
Between March 1, 2018 and the Award Payment Date, Mr. Brandt would receive the full Discretionary Grant of 16,873 shares. In addition,CEO Performance-Contingent Award subject to a determination by the Committee acknowledged that Mr. Brandt was entitled to the accrued notional dividends under the terms of the CEO Retention Grant.

The Discretionary Grant and the accrued notional dividends on the Discretionary Grant as of December 31, 2016 that were earned by Mr. Brandt are included in the Summary Compensation Table in the column under "Stock Awards" and in the Grants of Plan-Based Awards table. The Target Grant, Discretionary Grant and the accrued notional dividends as of December 31, 2016 are reported in the Option Exercises and Stock Vested Table. The Target Grant was previously reported in the Summary Compensation Table, Grants of Plan-Based Awards Table and the Outstanding Equity Awards at Fiscal Year-End Table and described in the CD&A of the 2013 Proxy Statement.

ROE condition has been met.


Benefits

Pension Programs.    The Named Executive OfficersNEOs participate in the Pinnacle West Capital Corporation Retirement Plan (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.

66GRAPHIC |      2018 Proxy Statement


Table of Contents

Executive Compensation

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. FalckBement and EdingtonFalck are discussed under the heading "Discussion of Nonqualified

2017 Proxy Statement     |GRAPHIC 63


Table of Contents

EXECUTIVE COMPENSATION

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.NEOs. 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 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.NEOs. 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.

In addition to the Change of Control Agreements described above, under the terms of our 2012 Long-Term Incentive Plan, as amended (the "2012 Plan") awards are accelerated upon a change of control only if the Board chooses not to exercise its override authority. In exercising its override authority, the Board must conclude, in good faith, that participants' awards shall remain outstanding, be assumed, or be exchanged for new awards pursuant to a change of control, and that there will be no material impairment to either the value of the awards or the opportunity for future appreciation in respect of the awards.

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 OfficersNEOs in footnote 4 to the Summary Compensation Table.

Taxation Considerations Regarding Executive Compensation2018 Proxy Statement     |GRAPHIC 67


Pursuant

Table of Contents

Executive Compensation

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 Section 162(m)specified labor markets, the mix of compensation components, performance requirements, the Code, publicly-traded corporations generally are not permittedportion of pay at risk and tied to deduct, for federal income tax purposes, annualperformance, and individual performance evaluations. From December through February, the Committee considers and approves executive officer compensation, in excess of $1 million paidincluding salary and cash and non-cash incentives. The Committee makes all compensation decisions relating to any of certain top executives, except toour CEO's compensation, makes awards under the extent the compensation qualifies as "performance-based" under rules set forth in the Code. The Company does not use the deduction as a justification for awarding compensation below $1 million. To the extent2012 Plan, and determines 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 (other than a portion of the CEO Retention Grant) do not qualify as performance-based compensation under the applicable tax provisions.2017 Incentive Plans. The Committee recommends other executive officer compensation decisions, which are approved by the Board for Pinnacle West officers and the Board may weighof Directors of APS for APS officers.

Role of Executive Officers in Determining Executive Compensation.    Management works with the taxCommittee in establishing the agenda for Committee meetings and accounting consequencesin preparing meeting information. Management conducts evaluations and provides information on the performance of the totalexecutive 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 2017 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.

Pay Comparisons

In evaluating compensation for the NEOs, the Committee takes into account analysis provided by the Consultant and its recommendations regarding the competitiveness and structure of compensation. 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 components of compensation when setting total compensationexecutives and determiningtheir responsibilities, skills, expertise, value added, as well as the individual elements of an officer's compensation package. However, the Committee and the Board do not routinely applycompetitive marketplace for executive talent.

6468     GRAPHIC      |      2018 Proxy Statement


Table of Contents

Executive Compensation

Consultant's Report.    The Consultant reviewed our executive compensation practices and considered the extent to which these practices support our executive compensation objectives and philosophy. As part of this study, the Consultant performed competitive pay comparisons for our executive officers based on three data sets:

GRAPHIC

(1)
Reflects weightings used for Messrs. Brandt, Hatfield, Falck, and Schiavoni. Weightings for Messrs. Bement and Edington are discussed below.

From these sources, the Consultant developed a consensus in which the competitive industry comparison for Messrs. Brandt, Hatfield, Falck, and Schiavoni reflects a weighting of one third peer group proxy statement data, one third Energy Services Industry Survey, and one third general industry surveys. Messrs. Bement and Edington did not have a general industry survey match, so the competitive industry comparison for Mr. Bement's position reflects a 100% weighting of Energy Services Industry Survey data for Top Nuclear Executives and the competitive industry comparison for Mr. Edington's position reflects a 100% weighting of peer group proxy statement data. Compensation levels were updated to July 2017 based on projected executive level market movement from major salary planning surveys selected by the Consultant.

In providing information to the Committee with respect to setting 2017 compensation, the Consultant reviewed the total compensation of the NEOs and presented its analysis in October 2016. 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.

In its analysis, the Consultant looked at competitive findings for base salary, annual incentive, long-term equity incentives and target total direct compensation for the NEOs as compared with the 25th, 50th and 75th percentile (compensation data was considered at the 25th, 50th or

2018 Proxy Statement     |GRAPHIC 69


Table of Contents

Executive Compensation

the 75th percentile if it was within +/– 10%). The conclusions of the report as to competitive pay comparisons of the NEOs for these three compensation elements are as follows:










​  Name
Target Annual
Cash
(Salary + Target
Annual
Incentives)




Long-Term
Incentives(1)

Target Total
Direct
Compensation(1)


​  Mr. Brandt75th percentile50th percentile50th percentile
Mr. Hatfield50th percentile25th percentile25th percentile
​  Mr. Bement75th percentile<25th percentile50th percentile
Mr. Edington75th percentile<25th percentile50th-75th percentile
​  Mr. Falck75th percentile50th percentile50th percentile
Mr. Schiavoni50th percentile50th percentile50th percentile
(1)
Long-term incentive comparison excludes the special performance-linked award of RSUs that were granted to Mr. Brandt in December 2012 and certain arrangements for Messrs. Edington and Bement under the non-qualified deferred compensation plan as described later in this Proxy Statement.

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 NEOs. 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, as well as the competitive marketplace for executive talent.

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 NEOs. 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, although the Committee does allocate long-term awards between the two forms of equity grants.

Determining the Peer Group.    The Peer Group used as one input in our pay comparison process is reviewed annually for its continued appropriateness. The Committee takes into consideration the scope and complexity of the Company's management responsibility and liability needs, including the following factors:

Pinnacle West's operating subsidiary APS operates Palo Verde Generating Station, the largest nuclear power plant in the U.S., which has a $1B annual budget, employs one-third of APS employees, and is subject to comprehensive and complex nuclear and environmental regulation

o
The management scope of Palo Verde Generating Station operations necessitates that the Company seeks talent from larger utilities, including those with significant nuclear operations and similar regulatory and business challenges

70GRAPHIC |      2018 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation
APS has full operational control and legal responsibility for Palo Verde Generating Station, Four Corners Generating Station and Cholla Power Plant. This is an important factor because APS does not have 100% ownership of these stations and this operational responsibility would not be accounted for in standard measures of Pinnacle West's or APS's size.

Given these factors, we make certain adjustments to our size measure to account for our operational responsibilities, rather than solely ownership, to allow for more appropriate comparability of Pinnacle West to potential peer companies. In determining the tax-deductibility rulescomposition of the Peer Group, we adjust our revenues to limit what they determine otherwisereflect our control and responsibility for Palo Verde Generating Station, Four Corners Generating Station and Cholla Power Plant. The number used for APS revenues is adjusted to be necessarytake into account the revenues that are attributable to co-owned assets over which APS maintains full operational control and appropriatelegal compliance responsibility. This adjustment resulted in a number of $5.2 billion compared to its reported twelve months ended June 30, 2016 revenues of $3.5 billion.

Within the range of potential peers based on adjusted revenues, the Peer Group below is then determined based on additional factors including:

Scope of management complexity

Nuclear operations

Top industry talent (related to management complexity)

Regulated vs. non-regulated operations

Complexities of a challenging regulatory environment

CEO/senior management leadership

As a result of such review, the Committee approved the use of the same peer group that was used in setting 2016 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 above).

As outlined previously, peer proxy data is only one third of the compensation awards.information that is referenced for our NEOs (except for Messrs. Bement and Edington, where peer proxy statement data is weighted at 0% and 100%, respectively). For 2017, the Peer Group consisted of the following predominantly rate-regulated utilities (the "Peer Group"):


Peer Group

Alliant Energy CorporationAmeren CorporationConsolidated Edison, Inc.DTE Energy Company
Edison InternationalEversource Energy (formerly known as Northeast Utilities)Hawaiian Electric Industries, Inc.NiSource Inc.
OGE Energy Corp.PPL CorporationSCANA CorporationThe Southern Company
TECO Energy, Inc. (acquired by Emera, Inc. in July 2016)WEC Energy Group, Inc.Xcel Energy, Inc.

2018 Proxy Statement     |GRAPHIC 71


Table of Contents

Executive Compensation

Risk-Management and Assessment.    The Committee reviewed a compensation risk assessment conducted independently by the Consultant. The assessment focused on the design and application of the Company's executive compensation programs and whether such programs encourage excessive risk taking by executive officers. In addition, management advised the Committee that management has reviewed the overall compensation programs for the Company's employees and has concluded that the programs are balanced and do not encourage imprudent risk-taking. Management advised the Committee that non-executive employee compensation programs generally consist of the compensation components contained in the executive compensation programs. Based on the outcome of the Consultant assessment and the information from management, the Committee believes that the Company's compensation programs (i) do not motivate our executive officers or our non-executive employees to take excessive risks, (ii) are well designed to encourage behaviors aligned with the long-term interests of stockholders and (iii) are not reasonably likely to have a material adverse effect on the Company.

Other Considerations

Stock Ownership and Retention Guidelines/Prohibition on Hedging and PledgingGuidelines

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.

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



​  

Officer

Multiple of Base Salary(1)

​  

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

(1)
Each officer was 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 thesethe 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 sharesMr. Edington retired in March 2017 and is no longer subject to the extent such transaction would not causeGuidelines. All of the officer's share ownershipother NEOs are in compliance with the Guidelines.

72GRAPHIC |      2018 Proxy Statement


Table of Contents

Executive Compensation

The following graphs illustrate how our NEOs' holdings compare to fall below his or her applicable requirement. The retention requirement applies both duringthe Guidelines:

GRAPHIC

(1)
Based on the 12-month average stock price as of the Record Date.

(2)
Excluding Mr. Edington, who retired in March 2017.

Prohibition on Hedging and after the Phase-in Period. In addition, officersPledging

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.

Clawback Policy

Pinnacle West has adopted a clawback policy that applies to specified current or former executive officers, including our NEOs (an "Executive"). Under the policy, in the event of any material restatement of the consolidated financial statements of the Company and its subsidiaries within three years of the first public release or filing with the SEC, the Committee may, within 12 months after the material restatement, require forfeiture and/or return to the Company of all or a portion of the compensation vested, awarded or received under any bonus award, short-term incentive award, equity award (including any award of restricted stock, performance shares, phantom stock, deferred stock units or restricted stock units) or other award during the period subject to restatement and the 12-month period following the first public issuance or filing with the SEC of the financial statements that were restated, by any Executive that the Committee determines has personally engaged in intentional misconduct that caused or partially caused the need for such restatement. Any forfeiture and/or return of compensation by an Executive under the policy will be limited to the portion that the Executive would not have received if the consolidated financial statements had been reported properly at the time of first public release or filing with the SEC. By accepting any award as to which this policy applies, each Executive agrees to forfeit and/or return compensation to the Company as provided by the policy. The policy does not limit the ability of the Company to pursue forfeiture or reclaim payments under other legal rights.

20172018 Proxy Statement     |     GRAPHIC      6573


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

AllTaxation Considerations Regarding Executive Compensation

Pursuant to Section 162(m) of the Named Executive OfficersInternal Revenue Code (the "Code"), for federal income tax purposes, publicly-traded corporations generally are not permitted to deduct annual compensation in complianceexcess of $1 million paid to any of certain top executives. The Committee and the Board may weigh the tax consequences of the total compensation program when setting the total compensation package for an officer. 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 or as a justification for awarding compensation below $1 million.

As a result of changes made by the 2017 Tax Act, certain "performance-based" compensation, which was excludible from the scope of 162(m) under prior law, must now be included in determining the $1 million limitation unless it qualifies under a transition rule applicable to certain compensation arrangements in place as of November 2, 2017. The Company believes that performance-based awards granted to our executive officers, and in place as of November 2, 2017, will continue to be deductible under this transition rule. However, because of current ambiguities regarding the scope of this transition rule, no assurance can be given that compensation intended to satisfy the requirements for this transition rule will in fact be deductible. Further, the Committee reserves the right to modify compensation that was initially intended to be exempt from Section 162(m) if it determines that such modifications are consistent with the Guidelines. The following graphs illustrate how our Named Executive Officers' holdings compare to the Guidelines:Company's business needs.

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.

6674     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

Summary Compensation Table
 

The following table provides information concerning the total compensation earned or paid to the Company's Named Executive Officers:NEOs:

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
($)

 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,

 2016 1,315,000 0 5,908,828 1,910,695 2,199,029 25,675 11,359,227 2017 1,355,000 0 4,374,133 2,314,340 2,462,556 27,410 10,533,439

Chairman of the Board,

 2015 1,277,000 0 4,400,029 2,066,186 1,567,172 27,183 9,337,570 2016 1,315,000 0 5,908,828 1,910,695 2,199,029 25,675 11,359,227

President and CEO of

 2014 1,240,000 0 4,199,976 1,852,560 2,009,011 26,729 9,328,276 2015 1,277,000 0 4,400,029 2,066,186 1,567,172 27,183 9,337,570

the Company and APS

                                

James R. Hatfield,

 2016 620,000 0 844,845 530,695 546,693 25,901 2,568,134 2017 640,000 0 894,969 673,994 599,183 28,177 2,836,323

Executive Vice

 2015 593,000 0 750,144 548,572 458,772 30,492 2,380,980 2016 620,000 0 844,845 530,695 546,693 25,901 2,568,134

President and Chief Financial Officer of the Company and APS

 2014 570,000 0 750,320 502,603 465,143 24,050 2,312,116 2015 593,000 0 750,144 548,572 458,772 30,492 2,380,980

Randall K. Edington,

 2016 1,100,000 0 596,606 1,202,275 3,560,478 821,925 7,281,284

Robert S. Bement,

 2017 600,000 0 596,805 793,800 662,448 35,108 2,688,161

Executive Vice

                

President and Chief Nuclear Officer of APS

                

Randall K. Edington,(5)

 2017 244,110 0 397,923    279,464 2,590,863 1,076,323 4,588,683

Executive Vice

 2015 1,050,000 0 600,063 1,228,738 1,164,712 28,593 4,072,106 2016 1,100,000 0 596,606 1,202,275 3,560,478    821,925 7,281,284

President and Advisor

 2014 960,511 0 500,031 1,050,775 2,130,198 1,072,586 5,714,101 2015 1,050,000 0 600,063 1,228,738 1,164,712       28,593 4,072,106

to the Chief Executive Officer of APS

                                

David P. Falck,

 2016 565,000 0 745,657 443,565 395,787 129,674 2,279,683 2017 585,000 0 745,887 576,155 494,307   35,690 2,437,039

Executive Vice

 2015 544,000 0 750,144 478,437 368,182 25,675 2,166,438 2016 565,000 0 745,657 443,565 395,787 129,674 2,279,683

President and General Counsel of the Company and APS

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

President, Law, PNW

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

Mark A. Schiavoni,

 2016 680,000 0 1,093,486 623,169 491,023 23,850 2,911,528 2017 710,000 0 1,093,532 813,633 628,701 25,663 3,271,529

Executive Vice President

 2015 640,000 0 1,000,148 668,416 432,764 25,675 2,767,003 2016 680,000 0 1,093,486 623,169 491,023 23,850 2,911,528

and Chief Operating

 2014 563,958 0 750,320 558,031 424,749 27,419 2,324,477 2015 640,000 0 1,000,148 668,416 432,764 25,675 2,767,003

Officer of APS

                                

(1)
The amounts in this column reflect the aggregate grant date fair value of performance shares and RSUs computed in accordance with FASB ASC Topic 718. For performance shares, 50% of the value reported is based on the probable outcome of the performance conditions as of the grant date using a Monte Carlo simulation model (50% of grant value)($78.20) and 50% is based on the closing price on the date of grant (50% of grant value)($79.77). The amounts in the column are allocated between the various equity grants as follows:
NAME
RSUs
($)

PERFORMANCE SHARES
($)

Mr. Brandt1,760,0452,614,088
Mr. Hatfield360,241534,728
Mr. Bement240,267356,538
Mr. Edington160,178237,745
Mr. Falck300,254445,633
Mr. Schiavoni440,011653,521
NAME
RSUs
($)

PERFORMANCE SHARES
($)

CEO RETENTION GRANT
($)

Mr. Brandt1,760,0672,613,2091,535,552
Mr. Hatfield340,016504,8290
Mr. Edington240,217356,3890
Mr. Falck300,204445,4530
Mr. Schiavoni440,084653,4020


The aggregate grant date fair value of the performance shares grant in 20162017 assuming the highest level of performance is achieved is as follows: Mr. Brandt — $5,226,418;$5,228,175; Mr. Hatfield — $1,009,658;$1,069,457; Mr. EdingtonBement — $712,779; Mr. Falck — $890,906; and Mr. Schiavoni — $1,306,804. 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, 2016 (the "2016 Form 10-K").

20172018 Proxy Statement     |     GRAPHIC      6775


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation


The terms of the CEO Retention Grant for

    $713,077; Mr. Brandt are discussed in the CD&A under the heading "Long-Term Incentives." The amount in the column associated with the CEO Retention Grant reflects the Discretionary GrantEdington — $475,490; Mr. Falck — $891,266; and the accrued notional dividends on the Discretionary Grant as of December 31, 2016 that were earned by Mr. Brandt. The Discretionary Grant and the accrued notional dividends on the Discretionary Grant are also reported in the Grants of Plan-Based Awards Table, and the Target Grant, Discretionary Grant and the accrued notional dividends as of December 31, 2016 are reported in the Option Exercises and Stock Vested Table. The Target Grant was previously reported in the Summary Compensation Table, Grants of Plan-Based Awards Table and the Outstanding Equity Awards at Fiscal Year-End Table and described in the CD&A of the 2013 Proxy Statement.Schiavoni — $1,307,044. There were no forfeitures in 2016.

2017.

(2)
These amounts represent the payments described under "2016"Executive Compensation Components — Annual Cash Incentives" in the CD&A, and, with respect to Mr.Messrs. Edington $1,200 forand Bement, incentive payments received in connection with the outage incentive plans as follows: for Mr. Edington, $200 in connection with the 2016 Fall refueling outage for Palo Verde Unit 2, and for Mr. Bement, $1,800 for the 2015 Fall and 2016, 2017 Spring and 2017 Fall refueling outages for Palo Verde Units 2, and 1 and 3, respectively (collectively, the "Refueling Outages").

(3)
The amounts in this column for 20162017 consist of: (i) the estimated aggregate change in the actuarial present value from December 31, 20152016 to December 31, 20162017 of each of the Named Executive Officer'sNEO's accumulated benefits payable under all defined benefit and actuarial pension plans (including supplemental plans and employment agreements) as follows: Mr. Brandt — $2,118,857$2,371,770 (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 — $539,885;$591,114; Mr. Bement — $544,112; Mr. Edington — $3,238,357;$2,223,143; Mr. Falck — $367,524;$466,514; and Mr. Schiavoni — $470,149;$605,180; and (ii) the above-market portion of interest accrued under the deferred compensation plan as follows: Mr. Brandt — $80,172;$90,786; Mr. Hatfield — $6,808;$8,069; Mr. Bement — $118,336; Mr. Edington — $322,121;$367,720; Mr. Falck — $28,263;$27,793; and Mr. Schiavoni — $20,874.$23,521. 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 OfficersNEOs for 2016:2017:
 Mr. Brandt:    
 

Company's contribution under the 401(k) plan

 11,92512,150 
 

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

  13,75015,260 
         
 Mr. Hatfield:    
 

Company's contribution under the 401(k) plan

 11,92512,150 
 

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

  13,97616,027
Mr. Bement:

Company's contribution under the 401(k) plan

12,150

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

22,958 
         
 Mr. Edington:    
 

Company's contribution under the 401(k) plan

 11,92512,150 
 

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

  10,00012,874 
 

Vested 2014 Edington DCP Discretionary Credits discussed in the narrative disclosure to the Summary Compensation Table and Grants of Plan-Based Awards table

 800,000500,000

Pursuant to a 2012 agreement discussed below, this amount reflects recovery of original purchase price of Arizona home ($295,000) plus associated tax liability ($256,299). No other current NEOs are eligible for similar benefits.

551,299 
         
 Mr. Falck:    
 

Company's contribution under the 401(k) plan

 11,92512,150 
 

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

  17,749

Vested portion of the Falck DCP Discretionary Credits discussed under the heading "Discussion of Nonqualified Deferred Compensation"

100,00023,540 
         
 Mr. Schiavoni:    
 

Company's contribution under the 401(k) plan

 11,25012,150 
 

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

  12,60013,513 
(5)
Mr. Edington retired from APS in March 2017.

6876     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

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

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

Donald E. Brandt

657,5002,066,186   2,630,000   677,5001,910,695   2,710,000   

02/16/2016(4)19,63039,25878,5162,613,20902/21/2017(4)16,54833,09666,1922,614,088

(PS)(PS)

02/16/2016(5)26,1721,760,06702/21/2017(5)22,0641,760,045

(RSU)(RSU)

12/31/2016(6)19,6791,535,55203/29/2017(6)4,000,000

(RSU)(Performance-
Contingent
Award)


  

James R. Hatfield

     2,170  434,000     868,000             2,240  448,000     896,000        

02/16/2016(4)     3,792  7,58415,168    504,82902/21/2017(4)     3,385  6,77013,540    534,728

(PS)        (PS)        

02/16/2016(5)        5,056   340,01602/21/2017(5)        4,516   360,241

(RSU)        (RSU)        

Randall K. Edington

3,575  715,000   1,430,000   

Robert S. Bement

2,250  450,000   900,000   

02/16/2016(4)  2,678  5,35410,708  356,38902/21/2017(4)  2,257  4,5149,028  356,538

(PS)(PS)

02/16/2016(5)  3,572   240,21702/21/2017(5)  3,012   240,267

(RSU)(RSU)

1(7)   125,000(7)   125,000(7)       1,000(7)

       1,200(8)       1,000(7)

       1,200(8)

David P. Falck

 1,836   367,250      734,500        

Randall K. Edington

     793  158,672     317,343        

02/16/2016(4)     3,346  6,69213,384    445,45302/21/2017(4)     1,505  3,0106,020    237,745

(PS)        (PS)        

02/16/2016(5)        4,464   300,20402/21/2017(5)        2,008   160,178

(RSU)        (RSU)        1,000(7)      

Mark A. Schiavoni

2,550   510,000   1,020,000   

David P. Falck

1,901   380,250      760,500   

02/16/2016(4)  4,908  9,81619,632  653,40202/21/2017(4)  2,821  5,64211,284   445,633

(PS)(PS)

02/16/2016(5)  6,544   440,08402/21/2017(5)  3,764   300,254

(RSU)(RSU)

Mark A. Schiavoni

 2,663   532,500   1,065,000        

         02/21/2017(4)     4,137  8,27416,548   653,521

(PS)        

02/21/2017(5)        5,516   440,011

(RSU)        

         

(1)
In this column the abbreviation "PS" means performance share awards and "RSU" means restricted stock unit awards.

(2)
As required by SEC rules, the "Estimated Possible Payouts" represent the "threshold," "target," and "maximum" payouts the Named Executive OfficersNEOs were eligible to receive under the 20162017 Incentive Plans. The actual awards paid to the Named Executive OfficersNEOs under the 20162017 Incentive Plans are disclosed in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table. With respect to Messrs. Hatfield, Falck and Schiavoni, the minimum amount each officer would have been eligible to receive was calculated based on earnings achieving 1% and no achievement of the business unit performance metrics. The minimum amountamounts for Mr.Messrs. Edington and Bement would have been eligible to receive waswere calculated based on the business unit

2018 Proxy Statement     |GRAPHIC 77


Table of Contents

Executive Compensation

    performance metrics achieving 1% and no achievement of the APS earnings goals under the Palo Verde Plan. The CEO Incentive Plan does not specify a target opportunity. We calculated a representative target amount for Mr. Brandt by using the final results of the earnings and business unit components from 20152016 (each of which were factors in Mr. Brandt's 20152016 incentive award) to compute a hypothetical payout under the current 20162017 CEO Incentive Plan. That hypothetical payout is used as a representative target

2017 Proxy Statement     |GRAPHIC 69


Table of Contents

EXECUTIVE COMPENSATION

    amount. See "2016"Executive Compensation Components — Annual Cash Incentives" in the CD&A for additional information about the 20162017 Incentive Plans.

(3)
The amounts in this column reflect the aggregate grant date fair value of performance shares and RSUs computed in accordance with FASB ASC Topic 718.

(4)
This amount represents the 20162017 Performance Shares described under "2016"Executive Compensation Components — Long-Term Incentives — Performance Shares" in the CD&A. In accordance with FASB ASC Topic 718, 50% of the value is based on the probable outcome of the performance conditions as of the grant date using a Monte Carlo simulation model ($65.88)78.20), while the other 50% is based on the closing stock price on the date of grant ($67.25)79.77). There were no forfeitures in 2016.2017.

(5)
This amount represents the 20162017 RSU awards described under "2016"Executive Compensation Components — Long-Term Incentives — RSUs" in the CD&A. In accordance with FASB ASC Topic 718, we valued the RSUs using the number of RSUs awarded multiplied by the closing stock price on the date of the grant ($67.25)79.77). There were no forfeitures in 2016.2017.

(6)
This amount represents the Discretionary Grant and the accrued notional dividends on the Discretionary Grant as of December 31, 2016 that were earned by Mr. Brandt. We valued the Discretionary Grant and the accrued notional dividends on the Discretionary Grant as of December 31, 2016 using the number of RSUs awarded multiplied by the closing stock price on December 30, 2016 ($78.03). The2017 CEO Retention Grant and accrued notional dividends as of December 31, 2016 were paid in February 2017.

(7)
This amount represents the dollar value of the 2016 Palo Verde Specific Compensation OpportunityPerformance-Contingent Award described under "2016"Executive Compensation Components — Annual Cash Incentives"Long-Term Incentives — Supplemental Awards" in the CD&A. The actual amount paid to Mr. Edington is included in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table.

(8)(7)
These amounts represent the payout opportunity under the outage incentive plans for the Refueling Outages. These incentive plans do not provide for a threshold or maximum payment.

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
 

See the CD&A for further information regarding the terms of awards reported in the Summary Compensation Table and the Grants of Plan-Based Awards table, and for discussions regarding the formulas or criteria to be applied in determining the amounts payable, vesting schedules, and the treatment of dividends.

The Company does not have formal employment agreements with its Named Executive Officers;NEOs; however, we typically enter into offer letters with new executive officers. Deferred compensation credits granted

Mr. Edington joined APS as Chief Nuclear Officer ("CNO") in December 2006, relocating to Mr. Falck are discussed underArizona from Arkansas. He served as CNO through October 2016. At the heading "Discussion of Nonqualified Deferred Compensation."

APS andtime Mr. Edington joined APS, although the Palo Verde Generating Station was being operated safely, performance problems had been identified by the Company, and then later by the NRC, that needed to be corrected. Mr. Edington and his management team not only corrected those performance problems but led the plant to become one of the strongest performing plants in the United States.

Mr. Edington and APS executed an offer letter dated December 20, 2006. Mr. Edington retired from APS on March 22, 2017.2006, and entered into three supplemental agreements, one in 2008 (the "2008 Agreement"), one in 2012 (the "2012 Supplemental Agreement") and one in 2014 (the "2014 Supplemental Agreement"). The remaining portions of these agreements that letterwere still in effect are lifetime medical coverage forat the time of Mr. Edington and his spouse and aEdington's retirement were:

A total pension benefit (including the benefit due under the Company's qualified plan and general non-qualified plan) that will accrue at 10% per year, upincreased over time pursuant to the terms of the various agreements with Mr. Edington, but which resulted in a maximum of 60%, and whichtotal annual pension benefit vested in January 2012. The percentage isequal to 69.3% applied to his final average wage (highest 3 years in the final 10 years of employment and includes both base salary and annual incentives) to determine his lifetime benefit. In addition, retention units granted to him in January 2007 are also included in the calculation of pension benefits. The vested pension benefit will be paid to Mr. Edington in two forms: one-half of the benefit will be paid to him in a lump sum; and the second half of the benefit will be paid in a 100% joint and survivor annuity. The terms of the vested pension benefit and the lifetime medical coverage for Mr. Edington and his spouse are set forth in the

7078     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

    2008 Agreement (defined below). Mr. Edington's offer letter also provides that he will participate in specific Palo Verde annual incentive opportunities. The specific incentive opportunity for 2016 is set forth in the CD&A under "2016 Compensation — Annual Cash Incentives."

    On July 18, 2008, APS and Mr. Edington entered into a letter agreement. In December 2008, APS and Mr. Edington entered into a supplemental agreement further defining Mr. Edington's pension benefits and the lifetime medical coverage as set forth in the December 20, 2006 offer letter and formally memorializing certain provisions of the July 18, 2008 letter agreement (the "2008 Agreement"). The provisions of the 2008 Agreement still in effect are (i) the supplementalvested pension benefit and (ii) lifetime medical coverage for Mr. Edington and his spouse.

    In June 2012, the Committee approved a supplemental agreement foris payable to Mr. Edington in order to incentivizetwo forms: one-half in a lump sum at the retentiontime of his critical skillsretirement; and nuclear expertise (the "2012 Supplemental Agreement"). The provisions of the 2012 Supplemental Agreement that are stillsecond half over time in effect are the following:a 100% joint and survivor annuity.

The Company has provided interest-bearing, deferredDeferred compensation credits tothat Mr. Edington consisting ofreceived and that vested as follows: (a) $350,000 as of January 1, 2012;2012, $350,000 as of January 1, 2013;2013, and $350,000 as of January 1, 2014. The discretionary credits2014, all of which vested on December 31, 2014 and will be payable over a 10-year period following his retirement from APS in March 2017 (the "2012 Edington DCP Discretionary Credits");

As of December 31, 2013, Mr. Edington's existing supplemental pension benefit set forth in the 2008 Agreement increased by an amount equal to 5% of the benefit otherwise payable; and as of December 31, 2014, the supplemental pension benefit increased by an amount equal to 10% (inclusive of the preceding 5% increase) of the benefit otherwise payable; and

Within six months after Mr. Edington's retirement in March 2017, if he decides to relocate from Arizona, and is unable to recover the original purchase price on the sale of his residence in Arizona (after making reasonable efforts to do so), the Company will purchase his home for the original purchase price. The Company will then resell the home, so the Company's financial exposure, if any, will be the difference between the sales price and the original purchase price. The Company believed the terms of this home purchase arrangement, including its conditions, appropriately balanced the desire to retain Mr. Edington's services compared to the modest economic cost to the Company, if any.

In October 2014, the Committee approved a supplemental agreement for Mr. Edington that provides for additional compensation terms supplemental to those set forth in the 2012 Supplemental Agreement to incentivize the retention of his critical skills and nuclear expertise (the "2014 Supplemental Agreement"). The provisions of the 2014 Supplemental Agreement that are still in effect are the following:

Mr. Edington's base salary increased to $1,000,000 effective September 30, 2014, increased to $1,050,000 effective January 1, 2015 and increased to $1,100,000 effective January 1, 2016;

The Company provided interest-bearing, deferred compensation credits to Mr. Edington consisting of (b) $200,000 as of July 1, 2014, $300,000 as of January 1, 2015, and $300,000 as of January 1, 2016. These discretionary credits2016, all of which vested on June 30, 2016, because Mr. Edington was actively employed by the Company on that date, and will be payable over a 10-year period following his retirement from APS in March 2017. Additionally, the Company provided interest-bearing, deferred compensation credits to Mr. Edington

2017 Proxy Statement     |GRAPHIC 71


Table of Contents

EXECUTIVE COMPENSATION

    consisting of $500,000 as of September 30, 2014. These discretionary credits will vest2014, which vested September 30, 2017 because a requirement that certain key performance metrics for Palo Verde did not decline during the period September 30, 2014 to the date 180 days after Mr. Edington's retirement from APS in March 2017 provided that Palo Verde's key regulatory and oversight evaluations and assessments have not declined during the period beginning September 30, 2014 and ending as of the date 180 days after Mr. Edington's retirement. These credits will be payable over a 10-year period following his retirement from APS in March 2017was met (collectively, the "2014 Edington DCP Discretionary Credits" and together with the 2012 Edington DCP Discretionary Credits, the "Edington DCP Discretionary Credits");

As of June 30, 2016, Mr. Edington's existing supplemental pension benefit set forth in the 2008 Agreement as increased by the 2012 Supplemental Agreement, increased by an amount equal to 5%. All of the benefit that would have otherwise been payable;

Mr. Edington's award opportunity target for the Palo Verde Incentive Plan for 2016 was increased to 65% of his base salary, depending on the achievement of the earningsdeferred compensation credits are interest-bearing and business unit performance goals, separately or in combination, and before adjustment for individual performance; and

Mr. Edington's equity awards that were granted by the Company to Mr. Edington in February 2015 and February 2016 hadwill be paid over a grant date fair value of $600,000 for each year. Mr. Edington's 2015 and 2016 RSU grants vested in full on10 year period following Mr. Edington's retirement from APS in March 2017.

In 2012, as part of the 2012 Supplemental Agreement, the Company entered into an agreement whereby the Company agreed to make Mr. Edington whole in the event that, following his retirement, he decided to relocate from Arizona back to Arkansas, where his family was located, and was not able to recover the original purchase price of his home upon its sale. Following retirement Mr. Edington did relocate from Arizona back to Arkansas. After an active marketing period, the home sold for $495,000, which was its fair market value based on an independent, third-party appraisal. The amount the Company paid to Mr. Edington consisted of $295,000, which was the difference between the sales price and the original purchase price of $790,000, plus $256,299 to cover the associated tax liability on this payment that would not have been incurred if Mr. Edington had been able to sell the home for its original purchase price.

APS pays 29.1% of Mr. Edington's compensation expense. The balance is reimbursed to APS by the other owners of Palo Verde.

722018 Proxy Statement     |     GRAPHIC      |      2017 Proxy Statement79


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

Outstanding Equity Awards at Fiscal Year-End
 

 STOCK AWARDS STOCK AWARDS
NAME NUMBER OF
SHARES OR UNITS
OF STOCK THAT
HAVE NOT VESTED
(#)
 MARKET VALUE OF
SHARES OR UNITS
OF STOCK THAT
HAVE NOT VESTED
($)(1)
 EQUITY INCENTIVE
PLAN AWARDS:
NUMBER OF
UNEARNED SHARES,
UNITS OR OTHER
RIGHTS THAT HAVE
NOT VESTED
(#)
 EQUITY INCENTIVE PLAN
AWARDS: MARKET OR PAYOUT
VALUE OF UNEARNED
SHARES, UNITS OR OTHER
RIGHTS THAT HAVE NOT
VESTED
($)(1)
 NUMBER OF
SHARES OR UNITS
OF STOCK THAT
HAVE NOT VESTED
(#)
 MARKET VALUE OF
SHARES OR UNITS
OF STOCK THAT
HAVE NOT VESTED
($)(1)
 EQUITY INCENTIVE
PLAN AWARDS:
NUMBER OF
UNEARNED SHARES,
UNITS OR OTHER
RIGHTS THAT HAVE
NOT VESTED
(#)
 EQUITY INCENTIVE PLAN
AWARDS: MARKET OR PAYOUT
VALUE OF UNEARNED
SHARES, UNITS OR OTHER
RIGHTS THAT HAVE NOT
VESTED
($)(1)
Donald E. Brandt 26,497(2)
(RSUs)

 
2,067,561 80,468(6)
(PS at maximum)

 
6,278,918 22,064(2)
(RSUs)

 
1,879,412 33,889(7)
(PS at target)

 
2,886,665
 23,520(3)
(RSUs)

 
1,835,266 78,821(7)
(PS at maximum)

 
6,150,403 20,177(3)
(RSUs)

 
1,718,677 82,904(8)
(PS at maximum)

 
7,061,763
 18,018(4)
(RSUs)

 
1,405,945 91,931(8)
(PS at maximum)

 
7,173,376 15,907(4)
(RSUs)

 
1,354,958 81,038(9)
(PS at maximum)

 
6,902,817
 8,696(5)
(RSUs)

 
678,549   9,132(5)
(RSUs)

 
   777,864  
James R. Hatfield 5,119(2)
(RSUs)
    399,436 15,545(6)
(PS at maximum)
 1,212,976 4,570(2)
(RSUs)
    389,273 6,932(7)
(PS at target)
 590,468
 4,010(3)
(RSUs)
    312,900 13,437(7)
(PS at maximum)
 1,048,489 3,898(3)
(RSUs)
    332,032 16,016(8)
(PS at maximum)
 1,364,243
 3,361(4)
(RSUs)
    262,258 16,417(8)
(PS at maximum)
 1,281,018 2,712(4)
(RSUs)
    231,009 13,815(9)
(PS at maximum)
 1,176,762
 1,611(5)
(RSUs)
 125,706     1,724(5)
(RSUs)
    146,850    
Randall K. Edington 3,616(2)
(RSUs)

 
   282,156 10,974(6)
(PS at maximum)

 
   856,301
Robert S. Bement 3,012(2)
(RSUs)

 
   256,562 4,622(7)
(PS at target)

 
   393,702
 3,207(3)
(RSUs)

 
   250,243 10,750(7)
(PS at maximum)

 
   838,823 1,835(3)
(RSUs)

 
   156,305 7,539(8)
(PS at maximum)

 
   642,172
 2,146(4)
(RSUs)

 
   167,453 10,943(8)
(PS at maximum)

 
   853,882 1,265(4)
(RSUs)

 
   107,753 6,449(9)
(PS at maximum)

 
   549,326
 1,152(5)
(RSUs)

 
89,891   653(5)
(RSUs)

 
   55,623  
Randall K. Edington 0(6)                 0(6)3,082(7)
(PS at target)
    262,525
     11,306(8)
(PS at maximum)
    963,045
     11,052(9)
(PS at maximum)
    941,410
David P. Falck 4,519(2)
(RSUs)
    352,618 13,717(6)
(PS at maximum)
 1,070,338 3,809(2)
(RSUs)

 
   324,451 5,777(7)
(PS at target)

 
   492,085
 3,442(3)
(RSUs)

 
   293,190 14,132(8)
(PS at maximum)

 
1,203,764
 2,712(4)
(RSUs)

 
   231,009 13,815(9)
(PS at maximum)

 
1,176,762
 1,632(5)
(RSUs)

 
   139,014  
Mark A. Schiavoni 5,516(2)
(RSUs)
    469,853 8,472(7)
(PS at target)
    721,645
 4,010(3)
(RSUs)
    312,900 13,437(7)
(PS at maximum)
 1,048,489 5,182(3)
(RSUs)
    441,402 20,729(8)
(PS at maximum)
 1,765,696
 3,221(4)
(RSUs)
    251,334 16,417(8)
(PS at maximum)
 1,281,018 3,768(4)
(RSUs)
    320,959 18,419(9)
(PS at maximum)
 1,568,931
 1,521(5)
(RSUs)
    118,684     1,724(5)
(RSUs)
    146,850    
Mark A. Schiavoni 6,686(2)
(RSUs)

 
   521,708 20,120(6)
(PS at maximum)

 
1,569,964
 5,498(3)
(RSUs)

 
   429,009 17,915(7)
(PS at maximum)

 
1,397,907
 3,361(4)
(RSUs)

 
   262,258 16,417(8)
(PS at maximum)

 
1,281,018
 1,611(5)
(RSUs)

 
   125,706  

(1)
The amount in this column is calculated by multiplying the closing market price of our common stock at the end of 20162017 ($78.0385.18 per share as of December 30, 2016)29, 2017) by the number of RSUs, performance shares ("PS") and corresponding dividend rights (and interest thereon) that will be paid in stock to the extent the underlying RSU's and PS's actually vest, listed for the specified officer.

(2)
This amount represents (i) the RSUs awarded in 2017 that are described, with their vesting and release schedule, under "Executive Compensation Components — Long-Term Incentives — RSUs" in the CD&A as follows: Mr. Brandt — 22,064;

2017 Proxy Statement     |80     GRAPHIC      73|      2018 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

(2)
This amount represents (i) the RSUs awarded in 2016 that are described, with their vesting and release schedule, under "2016 Compensation — Long-Term Incentives — RSUs" in the CD&A as follows: Mr. Brandt — 26,172;

    Mr. Hatfield — 5,056;4,516; Mr. EdingtonBement — 3,572;3,012; Mr. Falck — 4,464;3,764; and Mr. Schiavoni — 6,544;5,516; and (ii) accrued dividend rights (and interest thereon) that will be paid in stock to the extent the underlying RSU's actually vest, as follows: Mr. Hatfield — 54 and Mr. Falck — 45.

(3)
This amount represents (i) the remaining RSUs awarded in 2016 as follows: Mr. Brandt — 325;19,629; Mr. Hatfield — 63;3,792; Mr. EdingtonBement — 44;1,785; Mr. Falck — 55;3,348; and Mr. Schiavoni — 142.4,908; and (ii) accrued dividend rights (and interest thereon) that will be paid in stock to the extent the underlying RSU's actually vest, as follows: Mr. Brandt — 548; Mr. Hatfield — 106; Mr. Bement — 50; Mr. Falck — 94; and Mr. Schiavoni — 274. The 2016 RSUs vest and are released in 25% increments beginning on February 17, 2017, so they will be fully vested on February 20, 2020.

(3)(4)
This amount represents (i) the remaining RSUs awarded in 2015 as follows: Mr. Brandt — 22,857;15,238; Mr. Hatfield — 3,897;2,598; Mr. EdingtonBement — 3,117;1,212; Mr. Falck — 3,897;2,598; and Mr. Schiavoni — 5,196;3,464; and (ii) accrued dividend rights (and interest thereon) that will be paid in stock to the extent the underlying RSU's actually vest, as follows: Mr. Brandt — 663;669; Mr. Hatfield — 113;114; Mr. EdingtonBement — 90;53; Mr. Falck — 113;114; and Mr. Schiavoni — 302.304. The 2015 RSUs vest and are released in 25% increments beginning on February 19, 2016, so they will be fully vested on February 20, 2019.

(4)(5)
This amount represents (i) the remaining RSUs awarded in 2014 as follows: Mr. Brandt — 17,232;8,616; Mr. Hatfield — 3,080;1,540; Mr. EdingtonBement — 2,052;616; Mr. Falck — 3,080;1,540; and Mr. Schiavoni — 3,080;1,540; and (ii) accrued dividend rights (and interest thereon) that will be paid in stock to the extent the underlying RSU's actually vest, as follows: Mr. Brandt — 786;516; Mr. Hatfield — 281;184; Mr. EdingtonBement — 94;37; Mr. Falck — 141;92; and Mr. Schiavoni — 281.184. The 2014 RSUs vest and are released in 25% increments beginning on February 20, 2015, so they will be fully vested on February 20, 2018.

(5)(6)
This amount represents (i) the remaining RSUs awarded in 2013 as follows: Mr. Brandt — 8,186; Mr. Hatfield — 1,432; Mr. Edington — 1,024; Mr. Falck — 1,432; and Mr. Schiavoni — 1,432; and (ii) accrued dividend rights (and interest thereon) that will be paidretired in stock as follows: Mr. Brandt — 510; Mr. Hatfield — 179; Mr. Edington — 128; Mr. Falck — 89; and Mr. Schiavoni — 179. The 2013 RSUs vest and are released in 25% increments beginning on February 20, 2014, so theyMarch 2017. Upon his retirement, he became fully vested on February 17, 2017.in all outstanding RSU grants.

(6)(7)
This amount represents: (i) the 20162017 Performance Shares — SEC rules require us to assume a number of shares equal to the maximum (200%target (100% of Base Grant) payout level of these performance shares, although the actual number of shares awarded, if any, will not be determined until after the end of the performance period, which ends on December 31, 2018;2019; and (ii) accrued dividend rights (and interest thereon) that will be paid in stock to the extent the underlying performance shares actually vest and are paid out, as follows: Mr. Brandt — 1,952;793; Mr. Hatfield — 377;162; Mr. Bement — 108; Mr. Edington — 266;72; Mr. Falck — 333;135; and Mr. Schiavoni — 488.198. The 20162017 Performance Shares are described with their vesting schedule under "2016"Executive Compensation Components — Long-Term Incentives — Performance Shares" in the CD&A. If the 2016 performance share grant pays at the target (100% of Base Grant) level, including dividends and interest thereon payable in stock, the amounts would be as follows:

NAME
UNITS AT
TARGET
(#)

PAYOUT
VALUE
($)

Donald E. Brandt

40,2343,139,459

James R. Hatfield

7,773606,528

Randall K. Edington

5,487428,151

David P. Falck

6,858535,130

Mark A. Schiavoni

10,060784,981
(7)(8)
This amount represents: (i) the performance shares issued in 20152016 — SEC rules require us to assume a number of shares equal to the maximum (200% of the Base Grant) payout level of these performance shares, although the actual number of shares awarded, if any, will not be determined until after the end of the performance period, which ends on December 31, 2017;2018; and (ii) accrued dividend rights (and interest thereon) that will be paid in stock to the extent the underlying performance shares actually vest and are paid out, as follows: Mr. Brandt — 4,325;4,388; Mr. Hatfield — 737;848; Mr. Bement — 399; Mr. Edington — 590;598; Mr. Falck — 737;748; and Mr. Schiavoni — 983.1,097. If the 20152016 performance share grant pays at the target (100% of Base Grant) level, including dividends and interest thereon payable in stock, the amounts would be as follows:
NAME
UNITS AT
TARGET
(#)

PAYOUT
VALUE
($)

NAME
UNITS AT
TARGET
(#)

PAYOUT
VALUE
($)

Donald E. Brandt

39,4103,075,162

Donald E. Brandt

41,4523,530,881

James R. Hatfield

6,719524,284

James R. Hatfield

8,008682,121

Randall K. Edington

5,375419,411

Robert S. Bement

3,769321,044

David P. Falck

6,719524,284

Randall K. Edington

5,653481,523

Mark A. Schiavoni

8,957698,915

David P. Falck

7,066601,882

Mark A. Schiavoni

10,365882,891

74GRAPHIC |      2017 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION
(8)(9)
This amount represents the performance shares issued in 2014.2015. The performance period for these performance shares ended December 31, 2016;2017; however, the payout was not determined until February 20172018 for the portion tied to TSR and the payout, if any, for the portion tied to the six operational performance metrics will not be determined until October 2017,2018, which is when the Company anticipates that we will have the information necessary to determine whether, and to what extent, the six performance metrics were met. SEC rules require us to (i) assume a number of shares equal to the maximum (200% of Base Grant) payout level for the 20142015 performance shares; and (ii) accrued dividend rights (and interest thereon) that will be paid in stock to the extent the underlying performance shares actually vest and are paid out, as follows: Mr. Brandt — 7,687;6,542; Mr. Hatfield — 1,373;1,115; Mr. Bement — 521; Mr. Edington — 915;892; Mr. Falck — 1,373;1,115; and

2018 Proxy Statement     |GRAPHIC 81


Table of Contents

Executive Compensation

NAME
UNITS AT
TARGET
(#)

PAYOUT
VALUE
($)

NAME
UNITS AT
TARGET
(#)

PAYOUT
VALUE
($)

Donald E. Brandt

45,9663,586,727

Donald E. Brandt

40,5193,451,409

James R. Hatfield

8,208640,471

James R. Hatfield

6,908588,423

Randall K. Edington

5,472426,980

Robert S. Bement

3,224274,621

David P. Falck

8,208640,471

Randall K. Edington

5,526470,704

Mark A. Schiavoni

8,208640,471

David P. Falck

6,908588,423

Mark A. Schiavoni

9,209784,423

Option Exercises and Stock Vested
 

STOCK AWARDSSTOCK AWARDS

NAME

NUMBER OF SHARES
ACQUIRED ON VESTING
(#)(1)
VALUE REALIZED
ON VESTING
($)(2)
NUMBER OF SHARES
ACQUIRED ON VESTING
(#)(1)
VALUE REALIZED
ON VESTING
($)(2)

Donald E. Brandt

187,85314,003,035109,9709,020,587

James R. Hatfield

15,6431,106,51119,7571,620,485
​​​​​​​​

Robert S. Bement

8,200672,897

Randall K. Edington

11,890840,65321,4931,774,574
​​​​

David P. Falck

15,9301,126,10119,4351,595,145
​​​​

Mark A. Schiavoni

15,6941,109,99320,6401,689,979
(1)
The amount in this column consists of: (i) RSUs that were granted to all of the Named Executive OfficersNEOs in February 2016 that vested and were released in part on February 17, 2017 as follows: Mr. Brandt — 6,543; Mr. Hatfield — 1,264; Mr. Bement — 595; Mr. Edington — 893; Mr. Falck — 1,116; and Mr. Schiavoni — 1,636; dividend rights (and interest thereon) payable in stock earned on RSUs granted in February 2016 and released in part on February 17, 2017 as follows: Mr. Brandt — 108; Mr. Hatfield — 21; Mr. Bement — 10; Mr. Edington — 15; Mr. Falck — 19; and Mr. Schiavoni — 27; (ii) RSUs that were granted to all of the NEOs in February 2015 that vested and were released in part on February 19, 201617, 2017 as follows: Mr. Brandt — 7,619; Mr. Hatfield — 1,299; Mr. Bement — 606; Mr. Edington — 1,039; Mr. Falck — 1,299; and Mr. Schiavoni — 1,732; dividend rights (and interest thereon) payable in stock earned on RSUs granted in February 2015 and released in part on February 19, 201617, 2017 as follows: Mr. Brandt — 139;253; Mr. Hatfield — 24;43; Mr. Bement — 20; Mr. Edington — 19;34; Mr. Falck — 24;43; and Mr. Schiavoni — 63; (ii)115; (iii) RSUs that were granted to all of the Named Executive OfficersNEOs in February 2014 that vested and were released in part on February 19, 201617, 2017 as follows: Mr. Brandt — 8,616; Mr. Hatfield — 1,540; Mr. Bement — 616; Mr. Edington — 1,026; Mr. Falck — 1,540; and Mr. Schiavoni — 1,540; dividend rights (and interest thereon) payable in stock earned on RSUs granted in February 2014 and released in part on February 19, 201617, 2017 as follows: Mr. Brandt — 314;429; Mr. Hatfield — 112;153; Mr. Bement — 31; Mr. Edington — 37;51; Mr. Falck — 56;77; and Mr. Schiavoni — 112; (iii)153; (iv) RSUs that were granted to all of the Named Executive OfficersNEOs in February 2013 that vested and were released in part on February 19, 201617, 2017 as follows: Mr. Brandt — 8,186; Mr. Hatfield — 1,432; Mr. Bement — 614; Mr. Edington — 1,024; Mr. Falck — 1,432; and Mr. Schiavoni — 1,432; dividend rights (and interest thereon) payable in stock earned on RSUs granted in February 2013 and released on February 17, 2017 as follows: Mr. Brandt — 545; Mr. Hatfield — 191; Mr. Bement — 41; Mr. Edington — 136; Mr. Falck — 95; and Mr. Schiavoni — 191; (v) 2,008 RSUs granted to Mr. Edington in February 2017; 2,679 RSUs granted to Mr. Edington in February 2016; 2,078 RSUs granted to Mr. Edington in February 2015; 1,026 RSUs granted to Mr. Edington in February 2014; dividend rights (and interest thereon) payable in stock earned on those RSUs consisting of 84 on the 2016 RSUs, 130 on the 2015 RSUs; and 97 on the 2014 RSUs, in all cases that vested (but were not released) on March 22, 2017 (vi) additional RSUs resulting from notional dividends on the one-time award of supplemental grants of RSUs that were granted in February 2011 for performance prior to

2017 Proxy Statement     |82     GRAPHIC      75|      2018 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

NAME
MARCH 1
JUNE 1
SEPTEMBER 1
DECEMBER 1
NAME
MARCH 1
JUNE 1
SEPTEMBER 1
DECEMBER 1

Donald E. Brandt

241223224241

Donald E. Brandt

216201201212

James R. Hatfield

68616368

James R. Hatfield

60565660

Randall K. Edington

135124124135

Robert S. Bement

60565660

David P. Falck

68616368

Randall K. Edington

120

Mark A. Schiavoni

68616368

David P. Falck

60565660

Mark A. Schiavoni

60565660

(vi)

    (The Supplemental RSUs vested 50% on February 15, 2013, 25% on February 14, 2014, and 25% on February 13, 2015. The Supplemental RSUs are not released to the recipient until the recipient's retirement, death, disability or separation of employment from the Company. Mr. Edington's vested Supplemental RSUs were released in March 2017 when he retired); (vii) performance shares that were granted to all of the Named Executive OfficersNEOs in February 2013,2014, which were based on a performance period of January 1, 20132014 to December 31, 2015,2016, and which were released in 20162017 when the Company had the information needed to determine whether, and to what extent, the applicable performance criteria were met, as follows: performance shares related to TSR were released on February 16, 201621, 2017 as follows: Mr. Brandt — 17,125;38,036; Mr. Hatfield — 2,997;6,792; Mr. Bement — 2,718; Mr. Edington — 2,140;4,527; Mr. Falck — 2,997;6,792; and Mr. Schiavoni — 2,997;6,792; dividend rights (and interest thereon) payable in stock on the performance shares released on February 16, 201621, 2017 as follows: Mr. Brandt — 1,905;3,738; Mr. Hatfield — 333;668; Mr. Bement — 267; Mr. Edington — 238;445; Mr. Falck — 333;668; and Mr. Schiavoni — 333;668; and performance shares related to the six operational performance metrics were released on October 19, 201617, 2017 as follows: Mr. Brandt — 31,250;30,959; Mr. Hatfield — 5,470;5,528; Mr. Bement — 2,212; Mr. Edington — 3,906;3,685; Mr. Falck — 5,470;5,528; and Mr. Schiavoni — 5,470;5,528; and dividend rights (and interest thereon) payable in stock on the performance shares released on October 19, 201617, 2017 as follows: Mr. Brandt — 3,752;3,327; Mr. Hatfield — 657;594; Mr. Bement — 238; Mr. Edington — 469;396; Mr. Falck — 657;594; and Mr. Schiavoni — 657;594; and (vii) the Target Grant — 67,489, Discretionary Grant — 16,873 and accrued notional dividends on the Target Grant and Discretionary Grant2012 special performance-linked retention grant of RSUs granted to Mr. Brandt (the "2012 Brandt RSU Award") — 14,034 as781 in respect of December 31, 2016 under the CEO Retention Grant. This amount wasFebruary 1, 2017 record date that were paid in Februaryon March 1, 2017.

(2)
The values realized for the RSUs, Supplemental RSUs and the performance shares are calculated by multiplying the number of shares of stock or units released or vested by the market value of the common stock on the release or vesting date, which: (i) for the RSUs released on February 19, 201617, 2017 was $68.25;$78.70; (ii) for the Supplemental RSUs vested on March 1, 20162017 was $67.92;$82.40; (iii) for the RSUs vested on March 22, 2017 was $83.66; (iv) for the Supplemental RSUs vested on June 1, 20162017 was $74.33; (iv)$89.03; (v) for the Supplemental RSUs vested on September 1, 20162017 was $74.81; (v)$89.86; (vi) for the Supplemental RSUs vested on December 1, 20162017 was $73.13; (vi)$91.01; (vii) for the performance shares released on February 16, 201621, 2017 was $67.25; (vii)$79.77; (viii) for the performance shares released on October 19, 201617, 2017 was $74.96;$87.76; and (viii)(ix) for the Target Grant, Discretionary Grant and accrued notional dividends as of December 30, 2016on the 2012 Brandt RSU Award paid on March 1, 2017 was $78.03.$82.40.

762018 Proxy Statement     |     GRAPHIC      |      2017 Proxy Statement83


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

Pension Benefits
 

The Pension Benefits table below includes estimates of the potential future pension benefits for each Named Executive OfficerNEO based on the actuarial assumptions used for financial reporting purposes, such as the life expectancy of each Named Executive OfficerNEO and his spouse and "discount rates."

NAME
PLAN NAME
NUMBER OF YEARS
CREDITED SERVICE
(#)

PRESENT VALUE OF
ACCUMULATED
BENEFITS
($)(1)

PAYMENTS
DURING LAST
FISCAL YEAR
($)

PLAN NAME
NUMBER OF YEARS
CREDITED SERVICE
(#)

PRESENT VALUE OF
ACCUMULATED
BENEFITS
($)(1)

PAYMENTS
DURING LAST
FISCAL YEAR
($)

Donald E. Brandt(2)Retirement Plan14424,8870Retirement Plan15474,5510
Supplemental Plan1411,224,3590Supplemental Plan1513,546,4650
James R. Hatfield(3)Retirement Plan9173,6390Retirement Plan10202,4640
Supplemental Plan92,694,2080Supplemental Plan103,256,4970
Randall K. Edington(4)Retirement Plan10217,6390
Robert S. Bement(4)Retirement Plan11234,2060
Supplemental Plan105,110,1100Supplemental Plan112,517,9430
Employment AgreementsN/A13,173,8190
David P. Falck(5)Retirement Plan8162,0760
Randall K. Edington(5)Retirement Plan100249,490(8)
Supplemental Plan102,864,7892,904,156(8)
Supplemental Plan81,998,2650Employment AgreementsN/A6,688,8358,017,441(8)
Mark A. Schiavoni(6)Retirement Plan8159,0560
David P. Falck(6)Retirement Plan9194,9410
Supplemental Plan82,079,8300Supplemental Plan92,431,9140
Mark A. Schiavoni(7)Retirement Plan9192,3880
Supplemental Plan92,651,6780

(1)
See Note 7 of the Notes to Consolidated Financial Statements in the 2016Pinnacle West/APS Annual Report on Form 10-K for the fiscal year ended December 31, 2017 for additional information about the assumptions used by the Company in calculating pension obligations.

(2)
The amounts shown are the present values of Mr. Brandt's accumulated benefits to be paid as an annuity and lump sum for the Retirement Plan and as an annuity to be paid under the Supplemental Plan, both at age 65, which is the earliest Mr. Brandt could retire with no reduction in benefits. See the following "Discussion of Pension Benefits."

(3)
The amounts shown are the present values of Mr. Hatfield's accumulated benefits to be paid as an annuity and lump sum for the Retirement Plan and as an annuity to be paid under the Supplemental Plan.

(4)
The amounts shown are the present values of Mr. Edington'sBement's accumulated benefits to be paid as an annuity and lump sum for the Retirement Plan and as an annuity to be paid under the Supplemental Plan.

(5)
The amounts shown are the present values of Mr. Edington's accumulated benefits to be paid as an annuity for the Retirement Plan, his employment agreements, and as an annuity for the Supplemental Plan. Mr. Edington's employment agreements are described in the narrative disclosure accompanying the Summary Compensation Table and the Grants of Plan-Based Awards table.

(5)(6)
The amounts shown are the present values of Mr. Falck's accumulated benefits to be paid as an annuity and lump sum for the Retirement Plan and as an annuity to be paid under the Supplemental Plan.

(6)(7)
The amounts shown are the present values of Mr. Schiavoni's accumulated benefits to be paid as an annuity and lump sum for the Retirement Plan and as an annuity to be paid under the Supplemental Plan.

(8)
The amounts shown reflect the following payments made to Mr. Edington during 2017: (i) a lump sum payment of $249,490 for the Retirement Plan on April 1, 2017; (ii) an annuity payment of $129,003 for the Supplemental Plan on October 1, 2017; (iii) a lump sum payment of $2,775,153 for the Supplemental Plan on October 1, 2017; (iv) an annuity payment of $301,202 for his employment agreements on October 1, 2017 and (v) a lump sum payment of $7,716,239 for his employment agreements on October 1, 2017. Mr. Edington's employment agreements are described in the narrative disclosure accompanying the Summary Compensation Table and the Grants of Plan-Based Awards table.

84GRAPHIC |      2018 Proxy Statement


Table of Contents

Executive Compensation

Discussion of Pension Benefits
 

Retirement Plan and Supplemental Plan.    The Company's Retirement Plan is a tax-qualified, non-contributory retirement plan for salaried and hourly employees. The Supplemental Plan provides retirement benefits for key salaried employees, in addition to those provided under the Retirement Plan. The Supplemental Plan pays only the difference between the total benefit payable under the Supplemental Plan and the benefit payable under the Retirement Plan. As a

2017 Proxy Statement     |GRAPHIC 77


Table of Contents

EXECUTIVE COMPENSATION

result, an executive who participates in the Supplemental Plan does not receive duplicative benefits.

Prior to April 1, 2003, benefits under the Retirement Plan and the Supplemental Plan (the "Traditional Formula Benefit") accrued in accordance with a traditional retirement plan formula based on average annual compensation and years of service (the "Traditional Formula"). Effective April 1, 2003, the Company changed the benefit accrual formula for both the Retirement Plan and the Supplemental Plan (the "Account Balance Benefit") to a retirement account balance formula (the "Account Balance Formula"). As part of the modification, all then current participants were able to elect to either (1) continue to earn benefits calculated under the Traditional Formula, or (2) earn benefits calculated (a) under the Traditional Formula for service through March 31, 2003, and (b) under the Account Balance Formula for service after that date. Mr. Brandt's benefits are calculated under the combined Traditional Formula/Account Balance Formula. Messrs. Hatfield's, Bement's, Edington's, Falck's and Schiavoni's benefits are calculated under the Account Balance Formula. Mr. Edington's benefits under the Supplemental Plan are calculated in accordance with his employment agreements with the Company, which are described in the narrative disclosure accompanying the Summary Compensation Table and the Grants of Plan-Based Awards table.

Under the Traditional Formula of the Supplemental Plan, a participant's monthly benefit for life beginning at normal retirement age (age 65 or age 60 with 20 years of service) is equal to the following:

3% of the participant's average monthly compensation multiplied by the participant's first 10 years of service, plus

2% of the participant's average monthly compensation multiplied by the participant's next 15 years of service, minus

benefits payable under the Retirement Plan.

A participant's Traditional Formula Benefit under the Retirement Plan is a monthly benefit for life beginning at normal retirement age and is equal to the participant's average monthly compensation multiplied by 1.65% for the first 33 years of service, plus 1% of average monthly compensation for each year of service credited in excess of 33 years. A participant's Traditional Formula Benefit begins when the participant reaches age 65 with 5 years of service or age 60 with 33 years of service. The maximum Traditional Formula Benefit a participant may receive under both the Retirement Plan and the Supplemental Plan is a monthly benefit of 60% of the participant's average monthly compensation.

Under both the Supplemental Plan and the Retirement Plan, a participant may elect to begin receiving the Traditional Formula Benefit after attaining early retirement age, which is defined as age 55 with 10 years of service. The Traditional Formula Benefit of an individual who makes this election is reduced to reflect the early commencement of benefits. Under the Supplemental Plan, the reduction equals 3% per year for each year for which the individual receives benefits prior to normal retirement and under the Retirement Plan, if the individual has more than 20 years of service, the reduction equals 3% per year for each year for which the individual

782018 Proxy Statement     |     GRAPHIC      |      2017 Proxy Statement85


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

20 years of service, the reduction equals 3% per year for each year for which the individual receives benefits prior to normal retirement, and if the individual has less than 20 years of service, the benefit is actuarially reduced for each year for which the individual receives benefits prior to normal retirement. Messrs. Brandt, Hatfield and EdingtonBement currently qualify for early retirement, but not normal retirement, under the Retirement Plan and the Supplemental Plan. Messrs. Hatfield,Mr. Falck currently qualifies for normal retirement under the Retirement Plan and the Supplemental Plan. Mr. Schiavoni dodoes not currently qualify for early or normal retirement under either the Supplemental Plan or the Retirement Plan.

Under the Account Balance Formula, a notional account is established for each eligible participant and benefits are generally payable at termination of employment. The Company credits monthly amounts to a participant's account.

Under the Supplemental Plan, Company credits are based on the following formula:

AGE AT END OF PLAN YEAR
PERCENT OF MONTHLY
COMPENSATION CONTRIBUTION RATE
(%)

Less than 3512
35-3914
40-4416
45-4920
50-5424
55 and over28

Company credits under the Supplemental Plan stop at the end of the year in which a participant attains 25 years of service (the "25-Year Cap").

Under the Retirement Plan, Company credits are based on the following formula:

AGE PLUS WHOLE YEARS OF SERVICE AT
END OF PLAN YEAR

PERCENT OF MONTHLY
COMPENSATION CONTRIBUTION RATE
(%)

Less than 40

4

40-49

5

50-59

6

60-69

7

70-79

9

80 and over

11

In addition, participants in the Retirement Plan on December 31, 2002 are eligible for up to 10 years of transition credits based on age and years of service (with the maximum transition credit being equal to 2.75% of average monthly compensation).

For purposes of calculating the Traditional Formula Benefit and the Account Balance Benefit under the Retirement Plan, compensation consists solely of base salary up to $265,000,$270,000, including any employee contributions under the Company's 401(k) plan, flexible benefits plan and qualified transportation arrangement under Section 132(f) of the Code. Amounts voluntarily deferred under other deferred compensation plans, bonuses and incentive pay are not taken

2017 Proxy Statement     |86     GRAPHIC      79|      2018 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

deferred under other deferred compensation plans, bonuses, incentive pay and long-term equity awards are not taken into account under the Retirement Plan. The Supplemental Plan takes these amounts into account (with certain exceptions) plus base salary beyond the $265,000$270,000 limit. In addition, retention units (as described above in the Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table) are included in compensation under the Supplemental Plan.

For purposes of the Traditional Formula under the Retirement Plan, the average monthly compensation is the average of the highest 36 consecutive months of compensation in the final 10 years of employment; under the Supplemental Plan, the average monthly compensation is the average of the highest 36 consecutive months of compensation during employment. For purposes of the Account Balance Formula, contributions are based on the participant's then current monthly compensation calculated as described above.

A participant's years of service begin accruing on the date of employment. However, benefits do not vest until the completion of three-years of service. Under both the Retirement Plan and the Supplemental Plan, benefits are generally payable, as the participant elects, in the form of a level annuity, with or without survivorship, or a lump sum. However, Traditional Formula Benefits generally are not available as a lump sum, but are paid in the form of an annuity. Optional benefit forms are of relatively equal actuarial value under the Retirement Plan. Under the Supplemental Plan, the 50% joint and survivor benefit form is fully subsidized, and the other benefit forms are partially subsidized. The Supplemental Plan offers an optional five-year certain form of payment (payable in 60 monthly installments).

Effective January 1, 2011, the Supplemental Plan was amended to reduce the Company credits for individuals who became participants on or after January 1, 2011 to the levels listed in the following table:

AGE AT END OF PLAN YEAR
PERCENT OF MONTHLY
COMPENSATION CONTRIBUTION RATE
(%)

Less than 35

8

35-39

9

40-44

10

45-49

12

50-54

15

55 and over

18

In addition, individuals who became participants in the Supplemental Plan on or after January 1, 2011 are no longer entitled to receive a fully subsidized 50% joint and survivor annuity form of benefit, but the 25-Year Cap has been eliminated. Prior to the amendment, participants who were promoted to officer status were entitled to retroactive treatment as an officer for their entire period of employment. This feature has been eliminated for individuals promoted to officer status on or after January 1, 2011.

80GRAPHIC |      2017 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

Pursuant to Mr. Edington'sThe 2008 Agreement, the 2012 Supplemental Agreement as of December 31, 2013, the supplemental pension benefit amount calculated in accordance with the 2008 Agreement increased by an amount equal to 5% of the benefit that would have otherwise been payable and as of December 31, 2014, the supplemental pension benefit amount increased by an amount equal to 10% (inclusive of the preceding 5% increase) of the benefit that would have otherwise been payable. Pursuant to the 2014 Supplemental Agreement as of June 30, 2016,resulted in a total pension benefit (including the benefit due under the Company's qualified plan and non-qualified plan) equal to 69.3% applied to Mr. Edington's existing supplemental pension benefit set forthfinal average wage to determine his lifetime benefit. These agreements are discussed in the 2008 Agreement as increased bynarrative disclosure accompanying the 2012 Supplemental Agreement, increased by an amount equal to 5%Summary Compensation Table and the Grants of the benefit that would have otherwise been payable.Plan-Based Awards table.

Benefits under the Retirement Plan are paid from a tax-exempt trust. Benefits under the Supplemental Plan are paid from the general assets of the Company.

2018 Proxy Statement     |GRAPHIC 87


Table of Contents

Executive Compensation

Nonqualified Deferred Compensation
 

NAME
EXECUTIVE
CONTRIBUTIONS
IN LAST
FISCAL YEAR
($)(1)

REGISTRANT
CONTRIBUTIONS
IN LAST
FISCAL YEAR
($)

AGGREGATE
EARNINGS
IN LAST
FISCAL YEAR
($)(2)

AGGREGATE
WITHDRAWALS/
DISTRIBUTIONS
($)

AGGREGATE
BALANCE
AT LAST
FISCAL YEAR
END
($)(3)

EXECUTIVE
CONTRIBUTIONS
IN LAST
FISCAL YEAR
($)(1)

REGISTRANT
CONTRIBUTIONS
IN LAST
FISCAL YEAR
($)

AGGREGATE
EARNINGS
IN LAST
FISCAL YEAR
($)(2)

AGGREGATE
WITHDRAWALS/
DISTRIBUTIONS
($)

AGGREGATE
BALANCE
AT LAST
FISCAL YEAR
END
($)(3)

Donald E. Brandt:

          

DCP & 2005 Plan

131,5100126,25501,820,468326,4160158,62802,305,512

Supplemental RSUs(4)

00002,121,32400002,386,403

James R. Hatfield:

          

2005 Plan

30,984011,1490170,75731,962014,4750217,194

Supplemental RSUs(4)

0000589,6730000663,467

Robert S. Bement:

     

2005 Plan

140,6220119,35301,682,375

Supplemental RSUs(4)

0000663,467

Bement DCP Discretionary
Credits(5)


075,00081,62301,133,799

Randall K. Edington:

          

2005 Plan

550,3910294,22404,274,367269,0190327,0221,393,6383,476,770

Supplemental RSUs(4)

00001,178,4090001,322,0310

Edington DCP Discretionary
Credits(5)


0300,000209,59202,909,419

Edington DCP Discretionary
Credits(6)

00219,589398,0652,730,943

RSUs(7)

0000677,812

David P. Falck:

          

Supplemental RSUs(4)

0000589,6730000663,467

Falck DCP Discretionary Credits(6)

0043,5060603,917

Falck DCP Discretionary Credits(8)

0046,8770650,794

Mark A. Schiavoni:

          

2005 Plan

0032,1340446,10193,475040,5720580,148

Supplemental RSUs(4)

0000589,6730000663,467

(1)
The amount of the executive contribution is solely from the voluntary deferral by the executive of the executive's designated compensation and does not include any separate Company contribution. These deferred amounts are included in the "Salary" and "Non-Equity Incentive Plan Compensation" columns in the Summary Compensation Table.

(2)
A portion of the amounts reported in this column is the above-market portion of interest accrued under the deferred compensation plan (also reported as compensation in the Summary Compensation Table), including: Mr. Brandt — $80,172;$90,786; Mr. Hatfield — $6,808;$8,069; Mr. Bement — $118,336; Mr. Edington — $322,121;$367,720; Mr. Falck — $28,263;$27,793; and Mr. Schiavoni — $20,874.$23,521.

(3)
The historical contributions of each Named Executive OfficerNEO to his aggregate balance at December 31, 2016,2017, including "market rate" interest (as defined by the SEC) from the date of each contribution, is as follows: Mr. Brandt — $1,333,117;$1,711,974; Mr. Hatfield — $141,270;$178,706; Mr. Bement — $1,334,579; Mr. Edington — $3,550,078;$2,502,104; Mr. Falck — $0; and Mr. Schiavoni — $375,810.$484,114. Of the totals in this column, the following amounts have been reported in the Summary Compensation Table in this Proxy Statement or in the Company's prior Proxy Statements: Mr. Brandt — $1,370,337;$1,787,539; Mr. Hatfield — $148,377;$188,408; Mr. Bement — $258,958; Mr. Edington — $4,045,121;$4,681,860; Mr. Falck — $140,953;$168,746; and Mr. Schiavoni — $269,319.$386,315.

2017 Proxy Statement     |88     GRAPHIC      81|      2018 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

(4)
Supplemental RSUs were granted to each of the Named Executive OfficersNEOs in 2011 and vested over a four-year period and earned additional Supplemental RSU's resulting from notional dividends on the vested Supplemental RSU's.underlying awards. The amount in the "Aggregate Balance at Last Fiscal Year End" column is calculated by multiplying the closing market price of our common stock at the end of 20162017 ($78.0385.18 per share as of December 30, 2016)29, 2017) by the number of vested Supplemental RSUs. Mr. Edington's vested Supplemental RSUs were released in 2017, the year he retired. The amount in the "Aggregate Withdrawals/Distributions "column is the number of vested Supplemental RSUs released multiplied by the closing price of our common stock on the date of release ($86.85 per share as of September 25, 2017).The following table shows historical vesting by year:

SUPPLEMENTAL
RSUs

NOTIONAL
SUPPLEMENTAL
RSUs

SUPPLEMENTAL
RSUs

NOTIONAL
SUPPLEMENTAL
RSUs

 

2013
2014
2015
2013
2014
2015
2016
2013
2014
2015
2013
2014
2015
2016
2017

Donald E. Brandt

10,7905,3955,3951,3391,4121,92692910,7905,3955,3951,3391,4121,926929830

James R. Hatfield

2,9981,4991,4993723935362602,9981,4991,499372393536260232

Robert S. Bement

2,9981,4991,499372393536260232

Randall K. Edington

5,9945,99407451,2905615185,9945,99407451,290561518120

David P. Falck

2,9981,4991,4993723935362602,9981,4991,499372393536260232

Mark A. Schiavoni

2,9981,4991,4993723935362602,9981,4991,499372393536260232
(5)
The terms of the Bement DCP Discretionary Credits are discussed under "Discussion of Nonqualified Deferred Compensation — DCP and 2005 Plan" below.

(6)
The terms of the 2012 Edington DCP Discretionary Credits are also discussed under the narrative disclosure accompanying the Summary Compensation Table and Grants of Plan-Based Awards table.
vested RSUs.

(6)(8)
Pursuant to Mr. Falck's offer letter, the terms of which are described under "Discussion of Nonqualified Deferred Compensation — DCP and 2005 Plan" below, the Company granted the Falck DCP Discretionary Credits to Mr. Falck. The remaining $100,000 of the Falck DCP Discretionary Credits vested on July 29, 2016 and have been included in the Summary Compensation Table since the performance condition was met.

Discussion of Nonqualified Deferred Compensation
 

DCP and 2005 Plan.    Effective January 1, 1992, the Company established The Pinnacle West Capital Corporation, Arizona Public Service Company, SunCor Development Company, and El Dorado Investment Company Deferred Compensation Plan (the "DCP"). Under the DCP, a participant who is an employee is allowed to defer up to 50% of annual base salary and up to 100% of year-end bonus, which would include awards under regular annual incentive plans, but not special incentive payments. A participant who is a member of the Board is allowed to defer up to 100% of the annual cash fees payable to the participant. Amounts deferred by participants are credited with interest at various rates in substantially the same manner as interest is credited pursuant to the 2005 Plan, as described below. Distributions may be made (1) within 60 days after the fifth year an amount was deferred, (2) on account of an unforeseen emergency, (3) on account of retirement after attaining age 65 with five years of service or after attaining age 55 with 10 years of service ("Retirement Benefit"), (4) on account of termination prior to retirement ("Termination Benefit"), (5) on account of disability, or (6) on account of death before termination of employment.

The Retirement Benefit and Termination Benefit are payable in a lump sum or in 5, 10, or 15 equal annual installments, as elected by the participant. Other benefits are generally paid in a lump sum. The method of crediting interest on lump sum and installment payments under the DCP is substantially the same as the method used in the 2005 Plan, as described below.

2018 Proxy Statement     |GRAPHIC 89


Table of Contents

Executive Compensation

On December 15, 2004, the Board authorized the adoption of a new nonqualified deferred compensation plan for post-2004 deferrals (the "2005 Plan"). No future deferrals will be permitted under the DCP. The 2005 Plan, effective as of January 1, 2005, is based in large part on the DCP as described above. The 2005 Plan was adopted to comply with the requirements of Section 409A of the Code.

82GRAPHIC |      2017 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

Under the 2005 Plan, a participant who is an employee is allowed to defer up to 50% of the participant's base salary and up to 100% of the participant's bonus, including regular awards under annual incentive plans, but not special awards. A participant who is a member of the Board is allowed to defer up to 100% of the annual cash fees payable to the participant. Amounts deferred by participants are credited with interest at various rates, as described below. Deferral elections of base salary and director's fees must be made prior to the calendar year in which such base salary or director's fees will be paid. A deferral election with respect to a bonus must be made before the first day of the calendar year in which the bonus is earned. When making a deferral election, a participant also makes an election regarding the time and form of the participant's distributions from the 2005 Plan. Distributions from the 2005 Plan must be made in accordance with Section 409A of the Code. Distributions may be made (1) in January of the fifth year following the year in which an amount was deferred, (2) on account of an unforeseeable financial emergency, (3) either (i) termination of employment or (ii) the later of termination of employment or attainment of age 55, or (4) on account of death before termination of employment.

In the event of termination of employment, attainment of age 55 or death, the benefit is payable in a lump sum or in 5, 10 or 15 equal annual installments, as elected by the participant. Benefits in the other circumstances are generally paid in a lump sum.

The 2005 Plan provides for a single rate of interest that will be determined by the plan committee, but which rate shall in no event be less than the rate of interest equal to the 10-year U.S. Treasury Note rate as published on the last business day of the first week of October preceding a plan year. The plan committee set the rate at 7.5% for 2016.2017.

Effective January 1, 2009, the Company amended the 2005 Plan to permit the Company, in its discretion, to award discretionary credits to participants. Discretionary credits generally will be paid at the time and in the form provided in the written award agreement.

The Company agreed in Mr. Falck's offer letter to make a $350,000 discretionary credit award to Mr. Falck in 2009, pursuant to the 2005 Plan (the "Falck DCP Discretionary Credits"). The first $250,000 vested on July 29, 2014 and the remaining $100,000 vested on July 29, 2016. The discretionary credit award earns interest in accordance with the 2005 Plan.

The Company agreed in Mr. Edington's 2012 Supplemental Agreement to the 2012 Edington DCP Discretionary Credits. All of the 2012 Edington DCP Discretionary Credits vested on December 31, 2014. The Company also agreed in Mr. Edington's 2014 Supplemental Agreement to the 2014 Edington DCP Discretionary Credits. Eight hundred thousand dollars of the 2014 Edington DCP Discretionary Credits vested on June 30, 2016. The remaining unvested $500,000 of the 2014 Edington DCP Discretionary Credits vest and become payable if the Company terminates Mr. Edington's employment without cause, or in the event of his death or disability. These awards are also described in the narrative disclosure accompanying the Summary Compensation Table and the Grants of Plan-Based Awards table.

The Company made a discretionary credit award to Mr. Bement in 2008 pursuant to the 2005 Plan consisting of $350,000 as of December 17, 2008, $70,000 as of January 1, 2010 and an additional $70,000 on January 1 of each of the next four years thereafter (the "2008 Bement DCP Discretionary Credits"). The 2008 Bement DCP Discretionary Credits earn interest in accordance with the 2005 Plan. The 2008 Bement DCP Discretionary Credits vested on December 31, 2014 and will be payable to Mr. Bement following his termination from the Company in such form as elected by Mr. Bement.

90GRAPHIC |      2018 Proxy Statement


Table of Contents

Executive Compensation

Additionally, the Company made a discretionary credit award to Mr. Bement in 2014 pursuant to the 2005 Plan consisting of $75,000 as of January 1, 2015 and an additional $75,000 on January 1 of each of the next four years thereafter (the "2014 Bement DCP Discretionary Credits" and together with the 2008 Bement DCP Discretionary Credits, the "Bement DCP Discretionary Credits"). The 2014 Bement DCP Discretionary Credits earn interest in accordance with the 2005 Plan. The full amount of the 2014 Bement DCP Discretionary Credits vest and become payable if, prior to December 31, 2018, the Company terminates Mr. Bement's employment without cause, or in the event of his death or disability. If Mr. Bement terminates employment, for any reason other than those discussed above, prior to December 31, 2018, he forfeits the 2014 Bement DCP Discretionary Credits.

Participation in both the DCP and the 2005 Plan is limited to officers, the Company's senior management group and directors of the Company and participating affiliates. The Company's obligations under the DCP and the 2005 Plan are unfunded (except in the limited change of control circumstance discussed below) and unsecured.

2017 Proxy Statement     |GRAPHIC 83


Table of Contents

EXECUTIVE COMPENSATION

Potential Payments upon Termination or Change of Control
 

This section describes the potential payments that each of the Named Executive OfficersNEOs could receive following termination of employment, including through death, disability, retirement, resignation, involuntary termination (with or without cause) or a change of control of the Company (each, a "Termination Event"). We describe plans, agreements, or arrangements under which each Named Executive OfficerNEO could receive payments following a Termination Event, excluding those that do not discriminate in favor of our executive officers and that are available generally to all salaried employees and awards that are already vested ("Termination Plans"). The description of payments to the Named Executive OfficersNEOs under the various Termination Event scenarios described in this section are not intended to affect the Company's obligations to the Named Executive Officers.NEOs. Those obligations are subject to, and qualified by, the contracts or arrangements giving rise to such obligations. Unless we note otherwise, the discussion below assumes that any Termination Event took place on December 31, 20162017 for each Named Executive Officer.NEO.

The Company does not have a severance plan that covers the Named Executive Officers.NEOs. We also do not have traditional severance agreements or arrangements with our Named Executive Officers.NEOs. We do have Change of Control Agreements, which are discussed below.

In addition to the termination payments set forth below, the Named Executive OfficersNEOs would also receive a full distribution under the 2005 Plan (except in the case of the unvested 2014 Edington DCP Discretionary Credits, which are discussed separately below) and pension benefits. Amounts payable to Messrs. Brandt, Hatfield, Bement, Edington, Falck and Schiavoni under the 2005 Plan are set forth in the Nonqualified Deferred Compensation table, which also shows which part of the payment is interest paid by the Company and which part is the executive's contribution.

With respect to pension benefits, the amounts that each of the Named Executive OfficersNEOs would receive under the Supplemental Plan in the event of a Termination Event are set forth in the Pension Benefits table; however, assuming that the Named Executive OfficerNEO (excluding Mr. Edington who retired in March 2017) had died on December 31, 2016,2017, the amounts payable under the Supplemental Plan, (and in the case of Mr. Edington, under the Supplemental Plan and his employment agreements), would have been as follows: Mr. Brandt — $9,908,187;$11,379,622; Mr. Hatfield — $2,240,074;$2,662,223; Mr. EdingtonBement — $17,216,390;$2,056,350; Mr. Falck — $1,898,446;$2,258,009; and Mr. Schiavoni — $1,930,108.$2,379,438. These amounts are based on the following assumptions: (1) the Traditional Formula Benefit is paid in the form of a monthly annuity to the Named Executive Officer'sNEO's spouse for life following his death and benefit payments commence immediately;immediately and (2) the Account Balance Benefit is paid in the form of an

2018 Proxy Statement     |GRAPHIC 91


Table of Contents

Executive Compensation

immediate lump sum to his spouse; and (3) in the case of Mr. Edington, 50% of the benefit is paid as an annuity and 50% of the benefit is paid as a lump sum to his spouse as provided in his employment agreements.spouse. Messrs. Brandt, Hatfield and EdingtonBement would have received $12,016,201$13,988,527, $3,256,497 and $18,283,929$2,517,943, respectively, in the event of a Termination Event other than death due to their qualification for early retirement on December 31, 2016,2017, and these amountamounts are based on the assumption that the benefit would be payable as a monthly annuity beginning on January 1, 2017.2018.

The unvested 2014 EdingtonBement DCP Discretionary Credits would trigger a payment in connection with certain Termination Events, which are identified below. The agreements areagreement is discussed in

84GRAPHIC |      2017 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

the narrative disclosure accompanying the Summary Compensation Table and the Grants of Plan-Based Awards table and in the Discussion of Nonqualified Deferred Compensation.

With respect to the performance share awards, the recipient must remain employed with the Company throughout the performance period, unless the recipient meets any of the following exceptions, which would trigger a payment in connection with those certain Termination Events. In the case of the recipient's retirement while qualifying for Early Retirement or Normal Retirement (the "Retirement Qualified Employee") under the Retirement Plan, the employee is deemed to have been employed through the end of the performance period (with payout based on actual performance results). 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 (with payout based on actual performance results). 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 2017 Performance Shares 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.

With respect to RSUs, the recipient must remain employed with the Company through the applicable vesting date, unless the recipient meets any of the following exceptions, which would trigger a payment in connection with those certain Termination Events. 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 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 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.

92GRAPHIC |      2018 Proxy Statement


Table of Contents

Executive Compensation

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

2017 Proxy Statement     |GRAPHIC 85


Table of Contents

EXECUTIVE COMPENSATION

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 Company has entered into identical Change of Control Agreements with each of its executive officers, including each of the Named Executive Officers.NEOs. The Company believes that these agreements provide stability for its key management in the event the Company experiences a change of control. The agreements contain a "double-trigger" that provides for certain payments if, during the two-year period following a change of control of the Company (the "first trigger"), the Company terminates the officer's employment for any reason other than death, disability or cause or the executive terminates his or her own employment following a significant and detrimental change in the executive's employment (the "second trigger"). In case of an officer's retirement, death or disability, no payments are made under the officer's Change of Control Agreement, except for the payment of accrued benefits; however, if the officer dies following the officer's receipt of a second trigger termination notice, the officer's estate will receive the change of control payments the officer would have received if the officer had survived. Pursuant to the Change of Control Agreement, each of the Named Executive OfficersNEOs is obligated to hold in confidence any and all information in his possession as a result of his employment, during and after the Named Executive Officer'sNEO's employment with the Company is terminated.

The termination payment, if required, is an amount equal to 2.99 times the sum of the executive's annual salary at the time of the change of control plus the annual bonus (including incentive plan payments), as determined by an average over the last four-years preceding termination. In addition, the executive is entitled to continued medical, dental, and group life insurance benefits at a shared cost until the end of the second year following the calendar year of termination. Outplacement services are also provided. The executive officer may also be entitled to the acceleration of benefits as set forth in the 2012 Plan, the 2007 Long-Term Incentive Plan, or any related award agreement. If the limitations described in Section 280G of

2018 Proxy Statement     |GRAPHIC 93


Table of Contents

Executive Compensation

the Code are exceeded, the Company will not be able to deduct a portion of its payments. In addition, if these limitations are exceeded, Section 4999 of the Code imposes an excise tax on all or part of the total payments. In certain of the agreements, an additional gross-up payment equal to the excise tax (plus any penalties and interest) imposed on or with respect to the total payments is provided.

In May 2009, the Company determined that, on a going-forward basis, it would no longer provide excise tax gross-up payments in new and materially amended agreements with its Named Executive Officers.NEOs. In unusual circumstances where the Company believes that accommodations have to be made to recruit a new executive to the Company, limited

86GRAPHIC |      2017 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

reimbursement for taxes payable may be included in an executive's contract; but even in those circumstances, the excise tax gross-ups will be subject to a three-year sunset provision.

A change of control under the Change of Control Agreement includes: (1) an unrelated third-party's acquisition of 20% or more of the Company's or APS's voting stock; (2) a merger or consolidation where either the Company or APS combines with any other corporation such that the Company's or APS's outstanding voting stock immediately prior to merger or consolidation represents less than 60% of the voting stock of the Company or APS immediately after the merger or consolidation, but excluding a merger or consolidation effected to implement a recapitalization in which no unrelated third-party acquires more than 20% of the voting stock of the Company or APS; (3) a sale, transfer, or other disposition of all or substantially all of the assets of the Company or APS to an unrelated third-party; or (4) the case where the composition of either the Board of the Company or of APS changes such that the members of the Board of the Company (the "Company Incumbent Board") or of APS (the "APS Incumbent Board"), as of July 31, 2007 (and with respect to Messrs. Hatfield, Falck, and Schiavoni as of July 31, 2008) no longer comprises at least two-thirds of the Company's or APS's Board of Directors. For purposes of this later provision, a person elected to either Board is treated as a member of the Company Incumbent Board or APS Incumbent Board if his or her nomination or election by shareholders was approved by a two-thirds vote of the members then comprising the Company Incumbent Board or APS Incumbent Board, and it does not include anyone who became a director in an actual or threatened election contest relating to the election of directors.

Each of the agreements terminates on December 31st of each year upon six months advance notice by the Company to the executive officer; if the six months advance notice is not given, the agreements will continue for successive one-year periods until the notice is given. The Company is required to deposit into a trust sufficient funds to pay obligations under the DCP, 2005 Plan and the Supplemental Plan in the case of an actual or potential change of control.

The following tables quantify the amounts that would have been payable to each Named Executive OfficerNEO if the indicated Termination Event had taken place on December 31, 2016.2017, and with respect to Mr. Edington, the table reflects amounts resulting from his retirement in March 2017. In the tables:

We assume full vesting of outstanding performance shares (at the target level), RSUs and RSUsthe 2017 CEO Performance-Contingent Award upon a change of control. The performance shares, RSUs and RSUsthe 2017 CEO Performance-Contingent Award for the named Executive OfficersNEOs vest upon a change of control whether or not there is a subsequent termination of employment (subject however, to the Board's ability to override the vesting), plus, where applicable, dividend equivalents.

94GRAPHIC |

      2018 Proxy Statement


Table of Contents

Executive Compensation
Retirement benefits payable to Mr.Messrs. Brandt, Hatfield and Mr. EdingtonBement include full vesting of outstanding performance shares (at the target level) and RSUs, retirement benefits payable to Mr. Falck and Mr. Schiavoni include a pro-rata vesting of outstanding performance shares (at the target level) and RSUs, plus, in all cases where applicable, dividend equivalents. Mr. Edington retired in March 2017 so this reflects actual amounts that were triggered upon his retirement.

Death or disability benefits payable to Messrs. Brandt, Edington,Hatfield, Bement, Falck and Schiavoni include full vesting of outstanding performance shares (at the target level) and RSUs, and $500,000$300,000 of the 2014 EdingtonBement DCP Discretionary Credits plus interest.interest and the 2017 CEO Performance-Contingent Award for Mr. Brandt.

The amounts in the "All Other Termination Events" columns consist of (i) a payment upon termination without cause of $500,000$300,000 of the 2014 EdingtonBement DCP Discretionary Credits plus interest for Mr. EdingtonBement because the remaining unvested $500,000$300,000 of the 2014 Edington

2017 Proxy Statement     |GRAPHIC 87


Table of Contents

EXECUTIVE COMPENSATION

cause; and (ii) a payment upon termination without cause of $2,000,000 of the 2017 CEO Performance-Contingent Award for Mr. Brandt because $2,000,000 of the performance cash award becomes payable if the Company terminates Mr. Brandt's employment without cause prior to March 1, 2018, subject to the Committee determining that the ROE condition was met.

Subject to the foregoing, the following tables describe the amounts that would have been payable to each Named Executive OfficerNEO if a Termination Event had taken place on December 31, 2016:2017:

Donald E. Brandt:

COMPONENT OF PAY
QUALIFYING
TERMINATION
OF EMPLOYMENT
IN CONNECTION
WITH A CHANGE
OF CONTROL
($)

DEATH OR
DISABILITY
($)

RETIREMENT
($)

ALL OTHER
TERMINATION
EVENTS
($)

QUALIFYING
TERMINATION
OF EMPLOYMENT
IN CONNECTION
WITH A CHANGE
OF CONTROL
($)

DEATH OR
DISABILITY
($)

RETIREMENT
($)

ALL OTHER
TERMINATION
EVENTS
($)

Performance Shares

9,801,345(1)6,663,3056,663,30509,868,897(1)6,855,2996,855,2990

RSUs

6,165,757(1)6,165,7576,425,94205,923,602(1)5,923,6026,160,5220

2017 CEO Performance-Contingent Award

4,000,000(1)4,000,000(2)0(2)2,000,000(2)

Severance Benefits

9,619,2200009,824,718000

Present Value of Medical, Dental, and Life Insurance Benefits

34,73900034,444000

Outplacement Services

10,00000010,000000

TOTAL:

25,631,06112,829,06213,089,247029,661,66116,778,90113,015,8212,000,000
(1)
The Performance Shares, RSUs and the 2017 CEO Performance-Contingent Award are accelerated upon a change of control only if the Board does not exercise its override authority.

(2)
The terms of the 2017 CEO Performance-Contingent Award are discussed under "Executive Compensation Components — Long-Term Incentives — Supplemental Awards" in the CD&A.

2018 Proxy Statement     |GRAPHIC 95


Table of Contents

Executive Compensation

James R. Hatfield:

COMPONENT OF PAY
QUALIFYING
TERMINATION
OF EMPLOYMENT
IN CONNECTION
WITH A CHANGE
OF CONTROL
($)

DEATH OR
DISABILITY
($)

RETIREMENT
($)

ALL OTHER
TERMINATION
EVENTS
($)

Performance Shares

1,860,975(1)1,360,0451,360,0450

RSUs

1,122,554(1)1,122,5541,168,7510

Severance Benefits

3,459,042000

Present Value of Medical, Dental, and Life Insurance Benefits

38,380000

Outplacement Services

10,000000

Excise Tax Gross-Up

2,219,089000

TOTAL:

8,710,0402,482,5992,528,7960
(1)
The Performance Shares and RSUs are accelerated upon a change of control only if the Board does not exercise its override authority.

James R. Hatfield:Robert S. Bement:

COMPONENT OF PAY
 
 
QUALIFYING
TERMINATION
OF EMPLOYMENT
IN CONNECTION
WITH A CHANGE
OF CONTROL
($)

ALL OTHER
TERMINATION
EVENTS
($)

QUALIFYING
TERMINATION
OF EMPLOYMENT
IN CONNECTION
WITH A CHANGE
OF CONTROL
($)

DEATH OR
DISABILITY
($)

RETIREMENT
($)

ALL OTHER
TERMINATION
EVENTS
($)

Performance Shares

1,771,247(1)0989,441(1)766,140766,1400

RSUs

  1,113,999(1)0594,308(1)594,308620,6600

Severance Benefits

3,296,10203,020,242000

Present Value of Medical, Dental, and Life Insurance Benefits

  41,921038,156000

Outplacement Services

10,000010,000000

Bement DCP Discretionary Credits

093,172093,172

Excise Tax Gross-Up

  2,190,08701,831,273000

TOTAL:

8,423,35606,483,4201,453,6201,386,80093,172
(1)
The Performance Shares and RSUs are accelerated upon a change of control only if the Board does not exercise its override authority.

8896     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

Randall K. Edington:

COMPONENT OF PAY
RETIREMENT
($)

Performance Shares

792,253

RSUs

677,812

Severance Benefits

0

Present Value of Medical, Dental, and Life Insurance Benefits

0

Retiree Medical Benefits

0

Outplacement Services

0

Edington DCP Discretionary Credits

0

TOTAL:

1,470,065

David P. Falck:

COMPONENT OF PAY
QUALIFYING
TERMINATION
OF EMPLOYMENT
IN CONNECTION
WITH A CHANGE
OF CONTROL
($)

DEATH OR
DISABILITY
($)

RETIREMENT
($)

ALL OTHER
TERMINATION
EVENTS
($)

QUALIFYING
TERMINATION
OF EMPLOYMENT
IN CONNECTION
WITH A CHANGE
OF CONTROL
($)

DEATH OR
DISABILITY
($)

RETIREMENT
($)

ALL OTHER
TERMINATION
EVENTS
($)

Performance Shares

1,274,591(1)908,751908,75101,682,365(1)1,168,605600,6230

RSUs

807,586(1)807,586 842,34401,017,031(1)1,017,031390,4110

Severance Benefits

5,758,9030003,094,469000

Present Value of Medical, Dental, and Life Insurance Benefits

30,4420 0027,175000

Retiree Medical Benefits

45,79037,410(Death)071,442

Outplacement Services

10,000000

TOTAL:

5,831,0402,185,636991,0340

71,442(Disability)

Outplacement Services

10,0000 00

Edington DCP Discretionary Credits

0588,3540588,354

TOTAL:

7,927,3122,342,101(Death)1,751,095659,796

 2,376,133(Disability)  
(1)
The Performance Shares and RSUs are accelerated upon a change of control only if the Board does not exercise its override authority.

20172018 Proxy Statement     |     GRAPHIC      8997


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

David P. Falck:Mark A. Schiavoni:

COMPONENT OF PAY
QUALIFYING
TERMINATION
OF EMPLOYMENT
IN CONNECTION
WITH A CHANGE
OF CONTROL
($)

DEATH OR
DISABILITY
($)

RETIREMENT
($)

ALL OTHER
TERMINATION
EVENTS
($)

QUALIFYING
TERMINATION
OF EMPLOYMENT
IN CONNECTION
WITH A CHANGE
OF CONTROL
($)

DEATH OR
DISABILITY
($)

RETIREMENT
($)

ALL OTHER
TERMINATION
EVENTS
($)

Performance Shares

1,699,914(1)1,135,895563,10902,388,969(1)1,713,967881,1410

RSUs

1,066,657(1)1,066,657396,94001,390,390(1)1,390,390499,0260

Severance Benefits

2,967,8470003,839,037000

Present Value of Medical, Dental, and Life Insurance Benefits

27,22700036,922000

Outplacement Services

10,00000010,000000

Excise Tax Gross-Up

2,848,361000

TOTAL:

5,771,6452,202,552960,049010,513,6793,104,3571,380,1670
(1)
The Performance Shares and RSUs are accelerated upon a change of control only if the Board does not exercise its override authority.

Mark A. Schiavoni:

COMPONENT OF PAY
QUALIFYING
TERMINATION
OF EMPLOYMENT
IN CONNECTION
WITH A CHANGE
OF CONTROL
($)

DEATH OR
DISABILITY
($)

RETIREMENT
($)

ALL OTHER
TERMINATION
EVENTS
($)

Performance Shares

2,124,437(1)1,592,363776,9710

RSUs

1,340,240(1)1,340,240464,6920

Severance Benefits

3,522,106000

Present Value of Medical, Dental, and Life Insurance Benefits

36,276000

Outplacement Services

10,000000

Excise Tax Gross-Up

2,689,168000

TOTAL:

9,722,2272,932,6031,241,6630

Pay Ratio

As required by Item 402(u) of Regulation S-K, we are providing the annual disclosure of the ratio of the median employee's annual total compensation to the total annual compensation of Mr. Brandt, our CEO. For 2017 the median of the annual total compensation of all employees of our Company (other than our CEO) was $128,140 and the annual total compensation of our CEO, as reported in the Summary Compensation Table in this Proxy Statement, was $10,533,439. Based on this information and using the required calculation methodology defined in Item 402(u) of Regulation S-K, for 2017, the ratio of the annual total compensation of our CEO to our median employee's annual total compensation was 82 to 1.

To identify the median employee from our employee population, as well as to determine the annual total compensation of our median employee and our CEO, we took the following steps:

(1)
The Performance SharesWe determined that, as of December 31, 2017, our employee population consisted of approximately 6,303 individuals, all of which were located in the United States. This population consisted of our full-time, part-time, temporary and RSUsseasonal employees.

To identify the median employee from our employee population, we compared the total amount of salary, wages, overtime and premium pay, and an estimated cash incentive assuming a target payout under the APS Incentive Plans of our employees as reflected in our payroll records on December 31, 2017.

We identified our median employee using this compensation measure, which was consistently applied to all our employees included in the calculation. Since all our employees are accelerated upon a change of control only iflocated in the Board doesUnited States, as is our CEO, we did not exercise its override authority.make any cost-of living adjustments in identifying the median employee.

9098     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATIONExecutive Compensation

Equity Compensation Plan Table

Securities AuthorizedOnce we identified our median employee, we combined all of the elements of such employee's compensation for Issuance Under Equity Compensation2017 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $128,140. The difference between such employee's salary, wages, overtime and premium pay, and an estimated cash incentive assuming a target payout under the APS Incentive Plan and the employee's annual total compensation includes the amount the Company contributed under the 401(k) plan for the employee, the actual amount paid under the APS Incentive Plans

The following table sets forth information as of and the estimated aggregate change in the actuarial present value from December 31, 2016 withto December 31, 2017 of the employee's accumulated benefits payable under all defined pension plans.

With respect to the 2012 Plan andannual total compensation of our CEO, we used the 2007 Long-Term Incentive Plan ("2007 Plan"), under whichamount reported in the "Total" column of our equity securities are currently authorized for issuance.

Equity2017 Summary Compensation Plan Information

Plan Category
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(1)

Weighted-average
exercise price
of outstanding
options, warrants
and rights
(2)

Number of
securities remaining
available for future
issuance under
equity
compensation plans
(excluding
securities reflected
in column (a))
(3)

Equity compensation plans approved by security holders

1,570,4852,469,157

Equity compensation plans not approved by security holders

Total

1,570,4852,469,157
(1)
This amount includes shares subject to outstanding performance share awards and restricted stock unit awards at the maximum amount of shares issuable under such awards. However, payout of the performance share awards is contingent on the Company reaching certain levels of performance during a three-year performance period. If the performance criteria for these awards are not fully satisfied, the award recipient will receive less than the maximum number of shares available under these grants and may receive nothing from these grants.

(2)
The weighted-average exercise priceTable included in this column does not take performance share awards or restricted stock unit awards into account, as those awards have no exercise price.

(3)
Awards under the 2012 Plan can take the form of options, stock appreciation rights, restricted stock, performance shares, performance share units, performance cash, stock grants, stock units, dividend equivalents, and restricted stock units. Additional shares cannot be awarded under the 2007 Plan. If an award under the 2012 Plan is forfeited, terminated or canceled, expires, the shares subject to such award, to the extent of the forfeiture, termination, cancellation or expiration, may be added back to the shares available for issuance under the 2012 Plan.Proxy Statement.


Equity Compensation Plans Approved By Security Holders

Amounts in column (a) in the table above include shares subject to awards outstanding under two equity compensation plans that were previously approved by our shareholders: (a) the 2007 Plan, which was approved by our shareholders at our 2007 Annual Meeting of Shareholders and under which no new stock awards may be granted; and (b) the 2012 Plan, which was approved by our shareholders at our 2012 Annual Meeting of Shareholders (the "2012 Annual

2017 Proxy Statement     |GRAPHIC 91


Table of Contents

EXECUTIVE COMPENSATION

Meeting"). See Note 15 of the Notes to Consolidated Financial Statements in the 2016 Form 10-K for additional information regarding these plans.


Equity Compensation Plans Not Approved by Security Holders

The Company does not have any equity compensation plans under which shares can be issued that have not been approved by the shareholders.

Human Resources Committee Interlocks
and Insider Participation

The members of the Human Resources Committee in 20162017 were Ms. Munro, Drs. Cortese and Herberger and Messrs. Fox and Lopez. None of the members of the Human Resources Committee is or has been an officer or employee of the Company or any of its subsidiaries and no executive officer of the Company served on the compensation committee or board of any company that employed, or had as an officer, any member of the Human Resources Committee or the Board.

922018 Proxy Statement     |     GRAPHIC      |      2017 Proxy Statement99


Table of Contents

Directors' Compensation

Compensation of the directors for 20162017 was as follows:

NAME
FEES EARNED
OR PAID
IN CASH
($)

STOCK
AWARDS
($)(1)

CHANGE IN
PENSION
VALUE AND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS
($)(2)

ALL OTHER
COMPENSATION
($)

TOTAL
($)

FEES EARNED
OR PAID
IN CASH
($)

STOCK
AWARDS
($)(1)

CHANGE IN
PENSION
VALUE AND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS
($)(2)

ALL OTHER
COMPENSATION
($)

TOTAL
($)

Donald E. Brandt(3)

0000000000

Denis A. Cortese, M.D.

98,333106,76200205,095100,000110,25500210,255

Richard P. Fox

98,333106,76215520206,647100,000110,2555,4550215,710

Michael L. Gallagher

110,833106,76283,8450301,440112,500110,25597,3840320,139

Roy A. Herberger, Jr., Ph.D.

110,833106,76239,9270257,522112,500110,25547,6260270,381

Dale E. Klein, Ph.D.

98,333106,76200205,095100,000110,25500210,255

Humberto S. Lopez

110,833106,76295,1870312,782112,500110,255112,1370334,892

Kathryn L. Munro

121,667106,76217,3370245,766125,000110,25519,6670254,922

Bruce J. Nordstrom

110,833106,76244,7220262,317112,500110,25554,1340276,889

Paula J. Sims(4)

16,66775,1640091,831100,000110,25500210,255

David P. Wagener

98,333106,76200205,095100,000110,25500210,255

(1)
In accordance with FASB ASC Topic 718, this amount reflects the aggregate grant date fair value of the stock awards. On May 18, 2016,17, 2017, all of the directors at that time received a grant of either common stock or stock units ("SUs"), based on an election previously delivered to the Company. All directors received common stock except for Messrs. Fox and Gallagher, Drs. Herberger and Klein, and Ms. Munro, who each received SUs. Under the terms of the SUs, Messrs. FoxDr. Klein will receive 100% of the SUs in cash and Gallagher and Dr. Herbergerthe other directors will receive 50% of the SUs in cash and 50% of the SUs in common stock and Dr. Klein and Ms. Munro will receive one share of common stock for each SU. Messrs. Fox and Gallagher, Dr. Klein and Ms. Munro will receive the cash or stock, as applicable, on the last business day of the month following the month in which they separate from service on the Board, and Dr. Herberger will receive the cash and stock on January 2, 2018.Board. The number of shares of common stock or SUs granted was 1,509,1,311, and the grant date fair value of each share of common stock or SU is $70.75,$84.10, which was the closing stock price on May 18, 2016.16, 2017. As of December 31, 2016,2017, the following directors had the following outstanding RSU or SU awards: Mr. Fox — 1,509;2,820; Mr. Gallagher — 11,927;13,238; Dr. Herberger — 8,577;9,888; Dr. Klein — 11,978;13,289; and Ms. Munro — 9,933. Ms. Sims received a pro-rata grant of common stock based on her service on the Board starting in October 2016 in the amount of 1,005; the shares have a grant date fair value of $74.79.11,244.

(2)
The Company does not have a pension plan for directors. The amount in this column consists solely of the above-market portion of annual interest accrued under a deferred compensation plan pursuant to which directors may defer all or a portion of their Board fees. See the discussion of the rates of interest applicable to the deferred compensation program under "Discussion of Nonqualified Deferred Compensation".

(3)
Mr. Brandt is a Named Executive OfficerNEO and his compensation is set forth in the Summary Compensation Table. Only non-management directors are compensated for Board service.

(4)
Ms. Sims joined the Board in October 2016.

2017 Proxy Statement     |100     GRAPHIC      93|      2018 Proxy Statement


Table of Contents

DIRECTORS' COMPENSATIONDirectors' Compensation

Discussion of Directors' Compensation
 

The Human Resources Committee makes recommendations to the Board for compensation, equity participation, and other benefits for directors. The director compensation program consists of the following components:

COMPENSATION COMPONENT
 AMOUNT
($)

Annual Retainer

 100,000

Audit Committee, Human Resources Committee, Finance Committee, and Nuclear and Operating Committee Chairs Annual Retainers

 12,500

Lead Director Annual Retainer (Lead Director serves as Chair of Corporate Governance Committee for no additional compensation)

 25,000

Annual Equity Grant

 Shares with a value of approximately $110,000 on the grant date

If the shareholders approve Proposal 4 — Re-Approval of the Material Terms of the Performance Goals under, and an Approval of an Amendment to, the 2012 Long-Term Incentive Plan, the value of future awards to the non-employee directors may not exceed $500,000 per fiscal year per individual.

Directors had an option to either receive the stock grant on May 18, 201617, 2017 or defer the receipt until a later date. A director who elected to defer his or her receipt of stock received SUs in lieu of the stock grant. Those directors who elected to receive SUs were able to elect to receive payment for the SUs in either (1) stock or (2) 50% in stock and 50% in cash. The directors also elected whether to receive these payments either (1) as of the last business day of the month following the month in which the director separates from service on the Board, or (2) as of a date specified by the director, which date must be after December 31 of the year in which the grant was received. The SUs accrue dividend rights equal to the amount of dividends the director would have received if the director had directly owned one share of our common stock for each SU held, plus interest at the rate of 5% per annum, compounded quarterly. The manner of payment for the dividends and interest will be based on the director's election for payment of the SUs.

Directors of Pinnacle West also serve on the APS Board of Directors for no additional compensation. The Company reimburses Board members for expenses associated with Board meetings and director education programs.

The 2012 Plan was amended in 2017 to add an overall limit to non-employee directors' compensation. The value of equity grants (based on the grant date value) plus the aggregate amount of cash fees earned or paid is limited to $500,000 per calendar year.

A comparison against the compensation programs of our current Peer Groupa peer group is generally performed every two years, and a study was last performed in December 2015,2017 using the peer group that we used in setting 2018 executive compensation, at which time the Board approved increasing the value of the annual retainer from $95,000$100,000 to $100,000,$105,000, the annual equity grant from $100,000$110,000 to $110,000,$120,000, the committee chair retainers from $12,500 to $15,000 including instituting a committee chair retainer for the chair of the Corporate Governance Committee, and the Lead Director annual retainer from $20,000$25,000 to $25,000.$30,000. These changes wentwill go into effect in May 2016.2018. The Consultant reviewed the study, validated the methodology, and concluded that the new amounts were within the competitive range.

942018 Proxy Statement     |     GRAPHIC      |      2017 Proxy Statement101


Table of Contents

DIRECTORS' COMPENSATIONDirectors' Compensation

Director Stock Ownership Policy
 

The Company believes that directors should have a meaningful financial stake in the Company to align their personal financial interests with those of the Company's shareholders.

In January 2010, the Board adopted a revised stock ownership policy for non-management directors. Each director is required to hold or control Company common stock, RSUs, or SUs with a value of at least three times the annual cash retainer fee paid to directors. Directors will have until the later of January 2013 or three-years following the date they become a director to reach the required ownership level. A director may not pledge, margin, hypothecate, hedge, or otherwise grant an economic interest in any shares of Company stock while serving as a director whether or not his or her ownership requirement is met. This restriction shall extend 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. The Corporate Governance Committee may grant exceptions to this policy for hardship or other special circumstances.

All of the directors are in compliance with the Director Stock Ownership Policy.

2017 Proxy Statement     |102     GRAPHIC      95|      2018 Proxy Statement


Table of Contents

Proposal 2 — Advisory Vote on Executive Compensation

Section 14A of the Exchange Act requires U.S. public corporations to provide for an advisory (non-binding) vote on executive compensation ("Say-on-Pay").

compensation. As discussed in more detail in our CD&A and the accompanying tables and narrative, the Company has designed its executive compensation program to align executives' interests with those of our shareholders, make executives accountable for business and individual performance by putting pay at risk, and attract, retain and reward the executive talent required to achieve our corporate objectives and to increase long-term shareholder value. We believe that our compensation policies and practices promote a pay at risk philosophy and, as such, are aligned with the interests of our shareholders.

In deciding how to vote on this say-on-pay proposal, the Board points out the following factors, many of which are more fully discussed in the CD&A:

Our Human Resources Committee has designed the compensation packages for our Named Executive OfficersNEOs to depend significantly on putting pay at risk by tying pay to the achievement of goals that the Human Resources Committee believes drive long-term shareholder value;

The Company had a highly successful year in 2016,2017, as discussed under "2016 Performance Highlights" in the Proxy Statement Summary;

Our pay practices are designed to encourage management to not take unacceptable risks;

We engage in continual benchmarking in order to confirm thatperiodic structural reviews of our compensation programs are comparable to the companies in our Peer Group;and policies; and

We believe that the Company's executive compensation program is well suited to promote the Company's objectives in both the short- and long-term.

The Board strongly endorses the Company's executive compensation program and recommends that the shareholders vote in favor of the following resolution:

      RESOLVED, that the compensation paid to the Company's Named Executive Officers as disclosed in this Proxy Statement in the CD&A, the compensation tables and the narrative discussion, is hereby approved.

Because your vote is advisory, it will not be binding upon the Human Resources Committee or the Board. However, we value our shareholders' opinions, and we will consider the outcome of the vote when determining future executive compensation arrangements.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTEFOR THE APPROVAL OF THE COMPANY'S EXECUTIVE COMPENSATION

962018 Proxy Statement     |     GRAPHIC      |      2017 Proxy Statement103


Table of Contents

ProposalPROPOSAL 3 — Advisory Vote on the Frequency of the Advisory Vote on Executive Compensation

Section 14A of the Exchange Act requires U.S. public corporations to provide for an advisory (non-binding) vote on the frequency of holding advisory Say-on-Pay votes every six years. As such, the Company is presenting this proposal, which gives you as a shareholder the opportunity to express your view on whether Say-on-Pay votes should occur every one, two or three years. You have the option to vote for any one of the three options, or to abstain from the matter.

As discussed above, the Company has designed its executive compensation program to align executives' interests with those of our shareholders, make executives accountable for business and individual performance by putting pay at risk, and attract, retain and reward executive talent required to achieve our corporate objectives and to increase long-term shareholder value.

Starting with our annual meeting held in 2011, we have held annual Say-on-Pay advisory votes. The Board of Directors has determined that continuing the annual advisory Say-on-Pay vote is the best approach for the Company because:

It provides contemporaneous and more direct feedback from our shareholders regarding our compensation practices and policies;

It provides a higher level of accountability to the shareholders;

An annual vote furthers our commitment to maintaining high standards of corporate governance; and

If we receive a negative response to our "Say-on-Pay" vote, we will be able to make changes to our practices quickly and receive shareholder feedback on those changes within a year.

Similar to the Say-on-Pay vote, because your vote is advisory, it will not be binding upon the Human Resources Committee or the Board. However, we value our shareholders' opinions and will consider the outcome of the vote in determining how often we will hold a Say-on-Pay vote.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTERATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT ACCOUNTANTS FOR A ONE-YEAR ADVISORY VOTE ON SAY-ON-PAY

2017 Proxy Statement     |GRAPHIC 97


Table of Contents

Proposal 4 — Re-Approval of the Material Terms of the Performance Goals under, and Approval of an Amendment to, the 2012 Long-Term Incentive Plan

We are asking our shareholders for (a) re-approval of the material terms of the performance goals under the 2012 Plan in order to satisfy the shareholder approval requirements of Section 162(m) of the Code ("Section 162(m)") and (b) approval of the First Amendment to the 2012 Plan (the "First Amendment"), which limits the value of awards that may be granted to non-employee Board members of the Company.

For purposes of this proposal, the term "Amended 2012 Plan" refers to the 2012 Plan as amended by the First Amendment, which is attached as Appendix A. If approved by our shareholders, the First Amendment would be effective as of May 17, 2017.

SHAREHOLDERS ARENOT BEING ASKED TO:

APPROVE ANY ADDITIONAL SHARES FOR ISSUANCE UNDER THE 2012 PLAN;

EXTEND THE TERM OF THE PLAN;

TO MODIFY THE TERMS OF THE 2012 PLAN (OTHER THAN TO APPROVE THE NEW LIMIT ON THE VALUE OF AWARDS GRANTED TO NON-EMPLOYEE BOARD MEMBERS OF THE COMPANY AS SET FORTH IN THE FIRST AMENDMENT); OR

TO APPROVE ANY INCREASE TO ANY OF THE ANNUAL LIMITS ON AWARDS THAT CURRENTLY EXIST IN THE 2012 PLAN.

Section 162(m) Provisions

The 2012 Plan allows the Human Resources Committee (for purposes of this Proposal 4, the "Committee") to grant awards that are intended to qualify for the "performance-based compensation" exception to the $1,000,000 limitation on the deduction of compensation imposed by Section 162(m). In order to continue to grant awards that are intended to qualify for the performance-based compensation exception, the material terms of the performance goals under the 2012 Plan must be disclosed to, and approved by, our shareholders every five years. For this purpose, the material terms of the performance goals include the class of person eligible to receive awards under the 2012 Plan, the performance criteria on which the 162(m) performance goals are based, and the maximum performance-based award payable to any one participant under the 2012 Plan. These material terms of the performance goals are described below under "Eligibility," "Limitation on Awards to Participants," and "Performance-Based Awards."

Our shareholders last approved the material terms of the performance goals under the 2012 Plan at our 2012 Annual Meeting. Accordingly, in order to allow the Committee to continue to grant awards that are intended to qualify for the "performance-based compensation" exception

98GRAPHIC |      2017 Proxy Statement


Table of Contents

PROPOSAL 4 — APPROVAL OF AMENDED 2012 PLAN

to the limitation on the deduction of compensation imposed by Section 162(m), our Board is asking our shareholders to re-approve the material terms of the performance goals under the Amended 2012 Plan.

Limit on the Value of Awards Granted to Non-Employee Board Members of the Company

The 2012 Plan provides our Committee with the discretion to grant awards to Board members of the Company. The 2012 Plan does not currently impose any special limit on the value of awards that may be granted to non-employee Board members other than the limits that are generally applicable to awards (these general limits are described below under "Limitation on Awards to Participants"). In February 2017, our Board approved the First Amendment, which imposes a limit on the value of awards that may be granted to any one non-employee Board member in any one calendar year (based on the grant date value of such awards), plus the aggregate amount of all cash fees earned and paid or payable to any one non-employee Board member for the same year, in a total amount of $500,000. By this proposal, our Board is asking our shareholders to approve the First Amendment to impose a special limit on the value of awards that may be granted to non-employee Board members of the Company.

Effect of Shareholder Approval

If this proposal is approved, (a) the material terms of the performance goals under the Amended 2012 Plan will be re-approved, which will allow the Committee to continue to grant performance-based awards intended to qualify for the "performance-based compensation" exception to the limitation on the deduction of compensation imposed by Section 162(m) and (b) the Amended 2012 Plan will impose a limit on the value of awards that may be granted to individual non-employee Board members of the Company per calendar year (based on the grant date value of the awards), plus the aggregate amount of all cash fees earned and paid or payable to an individual non-employee Board member for the same year, in a total amount of $500,000. If this proposal is not approved, (a) the material terms of the performance goals under the Amended 2012 Plan will remain as they exist in the 2012 Plan today but some of the compensation paid to the Company's most highly-compensated executives may not be deductible under Section 162(m), resulting in additional costs to the Company, and (b) an individual limit will not be imposed on annual grants to non-employee Board members of the Company.

Summary Description of the Amended 2012 Plan

Set forth below is a summary of the material features of the Amended 2012 Plan. The summary is qualified in its entirety by the full text of the First Amendment and the Amended 2012 Plan, which is attached to this Proxy Statement as Appendix B and is marked to show the changes to be made pursuant to the First Amendment. Other than the proposed $500,000 limit on grants and cash fees to non-employee Board members of the Company, the terms of the Amended 2012 Plan are identical to the terms of the 2012 Plan that were approved by our shareholders at the 2012 Annual Meeting.

Administration.    The Amended 2012 Plan will be administered by the Committee. The Committee shall consist of at least two directors each of whom qualifies as a "non-employee director" as defined in Rule 16b-3(b)(3) of the Exchange Act, and an "outside director" under Section 162(m) of the Code. The Committee's powers are described in Section 3.3 of the Amended 2012 Plan and include, but are not limited to, determining eligibility to receive an

2017 Proxy Statement     |GRAPHIC 99


Table of Contents

PROPOSAL 4 — APPROVAL OF AMENDED 2012 PLAN

award, determining the amount and types of awards that may be granted to a participant, and determining all other terms and conditions that apply to awards.

Eligibility.    Persons eligible to participate in the Amended 2012 Plan include all employees, officers and Board members of the Company and its affiliates. In addition, on a case-by-case basis, the Committee may grant awards to consultants and advisors to the Company and its affiliates subject to terms and conditions determined by the Committee. Awards may also be made to prospective members of the Board, employees, officers, consultants or advisors. Such awards must specifically provide that no portion of the award will vest, become exercisable or be issued prior to the date on which the individual becomes employed or begins providing services to the Company or its subsidiaries.

Shares Available Under the Amended 2012 Plan.    The original aggregate number of shares of stock reserved and available for issuance pursuant to the 2012 Plan was 4,595,500 shares of the Company's common stock (subject to reduction by one share for each share that was subject to any award granted under any prior plan in the period beginning on January 1, 2012 and ending on the date the shareholders approved the 2012 Plan). Shareholders are not being asked to approve any additional shares for issuance under the Amended 2012 Plan. The amount of stock reserved for issuance pursuant to the Amended 2012 Plan is subject to proportionate adjustment by the Committee in the event of any issuance of rights or warrants to purchase securities, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other distribution with respect to the shares of stock, or any similar corporate transaction or event in respect of the stock.

For purposes of calculating the number of shares of stock available for awards under the Amended 2012 Plan, the following share counting rules shall apply:

Shares of stock that are potentially deliverable under any award granted under the Amended 2012 Plan, or any award outstanding under any prior plan on or after December 31, 2011, that expires or is canceled, forfeited, or otherwise terminated without a delivery of such shares will not be counted against the limit of shares available for issuance under the Amended 2012 Plan and will again be available for grant under the Amended 2012 Plan.

Shares of stock that could have been issued in connection with an award but are not delivered because such award is settled in cash, will not be counted against the limit of shares available for issuance under the Amended 2012 Plan and will again be available for grant under the Amended 2012 Plan.

Dividend equivalent awards that are paid in cash will not be counted against the limit of shares available for issuance under the Amended 2012 Plan.

The exercise of a stock-settled Stock Appreciation Rights ("SAR") or net-cashless exercise of an option (or a portion thereof) will reduce the number of shares of stock available for issuance under the Amended 2012 Plan by the entire number of shares of stock subject to that SAR or option (or applicable portion thereof), even though a smaller number of shares of stock will be issued upon such an exercise.

Shares of stock tendered to pay the exercise price of an option or tendered or withheld to satisfy a tax withholding obligation arising in connection with an award will not become available for grant or sale under the Amended 2012 Plan.

Shares of stock purchased on the open market with cash proceeds generated by the exercise of an option will not increase or replenish the number of shares available for grant.

100GRAPHIC |      2017 Proxy Statement


Table of Contents

PROPOSAL 4 — APPROVAL OF AMENDED 2012 PLAN

The Committee may adopt such other reasonable rules and procedures as it deems to be appropriate for purposes of determining the number of shares of stock that are available for awards under the Amended 2012 Plan.

Limitation on Awards to Participants.    No more than 500,000 shares of stock may be subject to stock option or SAR awards granted to any one participant during any one calendar year. The maximum number of shares of stock that may be issued as incentive stock options under the Amended 2012 Plan is 1,000,000. The maximum performance-based award (other than a performance cash award) payable to any one participant pursuant to the Amended 2012 Plan during a 12-month performance period is 500,000 shares of stock or the cash equivalent. The maximum performance cash award payable to any one participant pursuant to the Amended 2012 Plan for any 12-month performance period is $10,000,000. If a performance period is less than or exceeds 12 months, the limitations described in the two preceding sentences will be reduced or increased proportionately, as the case may be. In addition, if this proposal is approved, the Amended 2012 Plan would impose a limit on the value of grants (based on the grant date value of the awards) to any individual non-employee Board member of the Company, plus the aggregate amount of all cash fees earned and paid or payable to any one non-employee Board member for the same year, in a total amount of $500,000 per calendar year . As of March 9, 2016, the stock's closing price on the New York Stock Exchange was $80.87 per share.

Awards.    Each of the following types of awards may be granted pursuant to the Amended 2012 Plan:

Restricted Stock.    A restricted stock award gives the participant the right to receive a specified number of shares of stock at a purchase price determined by the Committee (including and typically zero). Restricted stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose. Except as otherwise provided by the Committee, during the restriction period, participants holding shares of restricted stock may not exercise voting rights with respect to such shares. These restrictions may lapse separately or in combination at such times, in such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the award or thereafter. As a general rule, if a participant terminates employment when the stock is subject to restrictions, the participant forfeits the unvested restricted stock. The Committee may, in its discretion, waive the restrictions in whole or in part in the event of a termination of employment.

Restricted Stock Units.    A restricted stock unit award gives the participant the right to receive stock, or a cash payment equal to the fair market value of the stock (determined as of a specified date), subject to any vesting or other restrictions the Committee deems appropriate. The restrictions will lapse in accordance with a schedule or other conditions as determined by the Committee. As a general rule, if a participant terminates employment when the restricted stock units are subject to restrictions, the participant forfeits the unvested restricted stock units. The Committee may, in its discretion, waive the restrictions in whole or in part.

Stock Grant Awards.    A stock grant award gives the participant the right to receive, or the right to purchase at a predetermined price, shares of stock free from vesting restrictions. The purchase price, if any, for a stock grant award shall be payable in cash or other form of consideration acceptable to the Committee. A stock grant award may be granted or sold as consideration for past services, other consideration or in lieu of cash compensation due to any participant.

2017 Proxy Statement     |GRAPHIC 101


Table of Contents

PROPOSAL 4 — APPROVAL OF AMENDED 2012 PLAN

Stock Unit Awards.    A stock unit award gives the participant the right to receive a designated number of shares of stock, or a cash payment equal to the fair market value (determined as of a specified date) of a designated number of shares of stock, in the future free of any vesting restrictions. A stock unit award may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to any participant.

Dividend Equivalent Awards.    A dividend equivalent award gives the participant the right to receive a credit when a dividend is declared on the Company's stock. Dividend equivalents are credited as of dividend payment dates during the period between the date of grant and the date the award is exercised, vests or expires. In no event may a dividend equivalent award made with respect to a restricted stock unit award that vests based on the achievement of performance goals, or with respect to a performance share unit or performance share award, be paid unless and until such award vests or is earned by satisfaction of the applicable performance goals. A dividend equivalent award shall initially be expressed in terms of cash or shares of stock, depending on the way in which the dividends to which it relates are declared. The Committee will specify when the dividend equivalents will be converted to cash or stock, the formula for conversion and any restrictions or limitations on the conversion. Dividend equivalents will not be granted with respect to options or SARs.

Performance Share Awards.    A performance share award gives the participant the right to receive a specified number of shares of stock if one or more performance goals specified by the Committee are satisfied. Performance may be measured on a specific date or dates or over any period or periods as determined by the Committee.

Performance Share Units.    A performance share unit award gives the participant the right to receive a specified number of shares of stock or cash in an amount equal to the fair market value of the stock (determined as of a specified date) if one or more performance goals specified by the Committee are satisfied. Performance may be measured on a specified date or dates or over any period or periods as determined by the Committee.

Performance Cash.    A performance cash award gives the participant the right to receive a cash payment if certain performance goals as specified by the Committee are satisfied. Performance may be measured on a specified date or dates or over any period or periods determined by the Committee.

Stock Options.    An option entitles the participant to purchase shares of stock in the future at a specified price. The Committee may grant both incentive stock options and nonqualified stock options under the Amended 2012 Plan. Incentive stock options will only be granted to participants who are employees. The exercise price of all stock options granted under the Amended 2012 Plan will be at least 100% of the fair market value of the stock on the date that the option is granted. Stock options may be exercised as determined by the Committee provided that the term of any option granted under the Amended 2012 Plan shall not exceed ten years from the date of grant. The exercise price for any option shall be paid in cash or shares of stock held longer than six months, however, the Committee may prescribe other methods by which the exercise price of an option may be paid and the methods by which shares of stock may be delivered to participants; however, the exercise price may not be paid with a promissory note. The Committee may not reprice options previously granted under the Amended 2012 Plan.

102GRAPHIC |      2017 Proxy Statement


Table of Contents

PROPOSAL 4 — APPROVAL OF AMENDED 2012 PLAN

Stock Appreciation Rights.    A SAR entitles the participant to share in the appreciation on one share of stock. Appreciation is calculated as the excess of (i) the fair market value on the date of exercise over (ii) the base value of the SAR as determined by the Committee, which shall not be less than the fair market value on the date of grant (or such higher amount determined by the Committee). Unless otherwise provided by the Committee, SARs shall vest and become exercisable in three equal installments on the first, second and third anniversaries of the date of grant, expire on the earlier of a participant's termination of employment or the tenth anniversary of the date of grant and payment for SARs shall be made in stock. The Committee will determine the terms and conditions of any SAR at the time of the grant. A SAR may not be amended, modified or repriced to reduce the exercise price after the date of grant.

Performance-Based Awards.    When the Committee grants restricted stock, restricted stock units, stock grants, stock units, dividend equivalent awards, performance shares, performance share units, and performance cash awards, it may designate the awards as "performance-based awards." Performance-based awards are subject to the provisions of Article 13 of the Amended 2012 Plan, which are intended to qualify the awards for the "performance-based compensation" exception to the limitations on the deduction of compensation imposed by Section 162(m). Section 162(m) only applies to "covered employees," as defined in Section 162(m). Therefore, only covered employees will receive awards that will be classified as performance-based awards. If the Committee designates a particular award as a performance-based award, the Committee will administer the award in a manner that will allow the award to qualify for the "performance-based compensation" exception to Section 162(m). Nevertheless, the requirements of this exception are complex and in some respects vague and difficult to apply. Consequently, we cannot guarantee that compensation that is intended to qualify for the "performance-based compensation" exception under Section 162(m) will in fact so qualify.

A covered employee is only entitled to receive payment for a performance-based award for a given performance period to the extent that pre-established performance goals set by the Committee for the performance period are satisfied. The Committee will establish the performance goals for a particular performance period in writing no later than ninety days after the commencement of the performance period for a given award, provided that the outcome is substantially uncertain at the time the Committee establishes the performance goal. In no event will the Committee establish a performance goal for a given award after 25% of the performance period for such award has elapsed.

The pre-established performance goals must be based on one or more of the following performance criteria: EBITDA; EBIT; costs; operating income; net income; cash flow; operating cash flow; net cash flow; fuel cost per million BTU; costs per kilowatt hour; retained earnings; budget achievement; return on equity; return on assets; return on capital employed; return on invested capital; cash available to the Company from an affiliate or affiliates; expense spending; O&M expense; O&M or capital per kilowatt hour; gross margin; net margin; market capitalization; customer satisfaction; revenues; financial return ratios; market share; shareholder return and/or value (including but not limited to total shareholder return); operating profits (including earnings before or after income taxes, depreciation and amortization); net profits; earnings per share; earnings per share growth; profit returns and margins; stock price; working capital; business trends; production cost; project milestones; capacity utilization; quality; economic value added; plant and equipment performance; operating efficiency; diversity; debt; dividends; bond ratings; corporate governance; and health and safety (including environmental health and safety). Any of the performance criteria may be measured either in absolute terms or

2017 Proxy Statement     |GRAPHIC 103


Table of Contents

PROPOSAL 4 — APPROVAL OF AMENDED 2012 PLAN

as compared to any incremental increase or as compared to results of a peer group, indices, or any other basket of companies. The Committee shall, within the time periods prescribed by Section 162(m), define in an objective fashion the manner of calculating the performance criteria it selects to use for a particular performance period for a particular participant.

With respect to any performance-based award granted to a covered employee, the Committee has the discretion to select the length of the performance period (which may be one or more periods of time of varying and overlapping durations, over which the attainment of one or more performance goals will be measured), the type of performance-based award to be issued, the kind and/or level of performance goal or goals and whether the performance goal or goals apply to the Company, an affiliate or any division or business unit of any of them, or to the individual participant or any group of participants. The Committee also has the discretion to evaluate the achievement of the performance goals in a manner that includes or excludes certain events that may occur during the performance period, as described in Section 13.5 of the Amended 2012 Plan. The Committee has the sole discretion to decrease the amount of compensation payable pursuant to any performance-based award, but the Committee may not increase the compensation payable pursuant to any performance-based award. The Committee must certify in writing prior to the payment of any performance-based award that the performance goals and any other material terms and conditions precedent to such payment have been satisfied.

Prohibition on Repricing.    The Amended 2012 Plan includes provisions that prohibit the Committee from directly or indirectly repricing previously granted options or SARs (reduction in option exercise price or SAR grant price, surrender in exchange for cash or another award under the Amended 2012 Plan, or surrender or exchange for another option or SAR with a lower exercise or grant price) without shareholder approval.

Non-Transferability.    As a general rule, awards granted pursuant to the Amended 2012 Plan may not be transferred by a participant, except by will or by the laws of descent or distribution. The Committee, in its discretion, may permit the transfer of any award to a family member or family trust.

Clawback of Awards.    The award agreement for any award granted pursuant to the Amended 2012 Plan will provide for the recapture or clawback of all or any portion of the award to comply with applicable law in effect on the date of the award agreement, including, but not limited to, the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Committee also may include other clawback provisions in the award agreement as it determines to be appropriate. By accepting an award, each participant in the Amended 2012 Plan agrees to be bound by, and comply with, the terms of any such recapture or clawback provisions and with any Company request or demand for recapture or clawback.

Change of Control.    Unless the Committee, with the approval of the Board, provides otherwise in an award agreement, if a change of control occurs, immediately prior to the change of control:

Any time-based or other restrictions imposed on restricted stock or restricted stock unit awards shall lapse and all restricted stock units and stock units shall become immediately payable and shall be paid in stock or cash, in accordance with the terms of the applicable award agreement.

104GRAPHIC |      2017 Proxy Statement


Table of Contents

PROPOSAL 4 — APPROVAL OF AMENDED 2012 PLAN
Performance shares or performance share unit awards that are payable in stock shall be converted to stock grant awards, which shall be immediately vested. In converting performance shares or performance share units to a stock grant, the participants shall receive the number of shares of stock 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.

Any performance share unit awards that are payable in cash shall become immediately vested. Participants then shall generally receive a cash payment equal to the fair market value of the specified number of shares of stock payable pursuant to the award 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.

Performance cash awards shall generally be deemed to be satisfied and 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.

Any dividend equivalent awards shall be paid in cash or stock as determined in accordance with the applicable award agreement.

If an award is subject to Section 409A of the Code, a change of control may not result in the acceleration of the timing of any payment unless the transaction that results in the change of control also constitutes a "change of control event" as such term is used in the applicable Treasury Regulations. If due to the above provisions the payment of an award may not be accelerated, the Board, prior to the change of control, shall take such action as it in good faith determines to be necessary to assure that there will be no material impairment to either the value of the award to the participant or the participant's opportunity for future appreciation in respect of such award.

Any and all options and SARs shall become exercisable immediately before the closing of the change of control transaction. If pursuant to the terms of the award agreement, a SAR is to be paid in cash, the SAR will be deemed to be exercised on the closing of the transaction that results in the change of control and a participant will receive the resulting cash payment within ten days following the closing of the change of control transaction.

Notwithstanding the foregoing change of control provisions, 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 participants described above 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, as constituted prior to the change of control, reasonably concludes, in good faith, that: (i) participants 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 or (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 (ii) changes in the terms of the award resulting from such transactions will

2017 Proxy Statement     |GRAPHIC 105


Table of Contents

PROPOSAL 4 — APPROVAL OF AMENDED 2012 PLAN

not materially impair the value of the awards to the participants or their opportunity for future appreciation in respect of such awards. The Board may exercise such override authority with respect to an award which the Company concludes is subject to (and not excepted from) the requirements of Section 409A of the Code only in a manner and to the extent permissible under Section 409A.

Amendment and Termination.    The Committee, with the Board's approval, may terminate, amend, or modify the Amended 2012 Plan at any time, except where shareholder approval for an amendment is required by applicable law, regulation or stock exchange rule. Except as provided in the next sentence, no amendment, modification, or termination of the Amended 2012 Plan or any award agreement shall in any material manner adversely affect any award previously granted under the Amended 2012 Plan without the consent of the participant. The participant's consent is unnecessary if, among other things, the change is required to cause the benefits under the Amended 2012 Plan to (a) qualify as performance-based compensation within the meaning of Section 162(m) of the Code and applicable regulations or other interpretive authority or (b) comply with the provisions of Section 409A of the Code.

The Amended 2012 Plan will terminate on January 18, 2022. In no event may an award be granted under the Amended 2012 Plan on or after January 18, 2022. Awards outstanding on January 18, 2022 will remain in effect according to the terms of the award agreement and the Amended 2012 Plan.

Tax Withholding.    The Company will have the power to withhold, or require a participant to remit to the Company, an amount sufficient to satisfy federal, state, and local withholding tax requirements on any award under the Amended 2012 Plan.

Federal Income Tax Consequences

This is a brief summary of the principal federal income tax consequences of certain transactions under the Amended 2012 Plan based on federal income tax laws in effect on January 1, 2017. This summary is not intended to be exhaustive and does not describe state, local and foreign income taxes which may also be applicable.

As a general rule, with the exception of a stock grant, a participant will not recognize taxable income with respect to any award at the time of grant. A participant will recognize ordinary taxable income on a stock grant award at the time of grant.

Upon exercise of a nonqualified stock option, the lapse of restrictions on restricted stock, or upon the payment of SARs, restricted stock units, stock grants, stock units, performance shares, performance share units, performance cash, or dividend equivalents, the participant will recognize ordinary taxable income in an amount equal to the difference between the amount paid for the award, if any, and the fair market value of the stock or amount received on the date of exercise, lapse of restriction, or payment. The Company will be entitled to a concurrent deduction equal to the ordinary income recognized by the participant.

A participant who is granted an incentive stock option will not recognize taxable income at the time of exercise. However, the excess of the stock's fair market value over the option price could be subject to the alternative minimum tax in the year of exercise (assuming the stock received is not subject to a risk of forfeiture and is not transferable). If stock acquired upon exercise of an incentive stock option is held for a minimum of two years from the date of grant and one year from the date of exercise, the gain or loss (in an amount equal to the difference between the sales price and the exercise price) upon disposition of the stock will be treated as

106GRAPHIC |      2017 Proxy Statement


Table of Contents

PROPOSAL 4 — APPROVAL OF AMENDED 2012 PLAN

a long-term capital gain or loss, and the Company will not be entitled to any deduction. If the holding period requirements are not met, the incentive stock option will not meet the requirements for this favored tax treatment and the tax consequences described for nonqualified stock options will apply.

Section 409A of the Code, among other things, expanded the definition of deferred compensation arrangements to include, for example, below market option and SAR grants, restricted stock units, performance shares, performance share units, performance cash, dividend equivalents (in some circumstances) and stock unit awards. If awards that are subject to Section 409A of the Code fail to comply with Section 409A, a participant must include in ordinary income all deferred compensation conferred by the award, pay interest from the date of the deferral and pay an additional 20% tax. The Company intends (but does not and cannot guarantee) that awards granted under the Amended 2012 Plan will comply with the requirements of Section 409A or an exception thereto and intends to administer and interpret the Amended 2012 Plan in such a manner. The Patient Protection and Affordable Care Act introduced a new net investment income tax that could impact the taxation of awards granted under the Amended 2012 Plan. Effective January 1, 2013, dividends paid to and capital gains recognized by individuals with incomes over certain threshold amounts may be subject to an additional 3.8% tax on net investment income.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL TO (A) RE-APPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE AMENDED 2012 PLAN IN ORDER TO SATISFY THE SHAREHOLDER APPROVAL REQUIREMENTS OF SECTION 162(m) OF THE CODE AND (B) APPROVE THE FIRST AMENDMENT IMPOSING A LIMIT ON THE VALUE OF AWARDS THAT MAY BE GRANTED TO NON-EMPLOYEE BOARD MEMBERS OF THE COMPANY UNDER THE AMENDED 2012 PLAN

2017 Proxy Statement     |GRAPHIC 107


Table of Contents

Proposal 5 — Ratification of the Appointment of Deloitte & Touche LLP as the Independent Accountants for the Company

The Audit Committee has appointed D&T as the Company's independent accountants for the year ending December 31, 20172018 and, as a matter of good corporate governance, has directed management to submit such appointment for ratification by the shareholders at the Annual Meeting. In the event the shareholders fail to ratify the appointment, the Audit Committee may reconsider this appointment. Even if the appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent accounting firm at any time during the year if the Audit Committee determines that such a change would be in the Company's and the shareholders' best interests.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTEFOR RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP
AS THE COMPANY'S INDEPENDENT ACCOUNTANTS
FOR THE YEAR ENDING DECEMBER 31, 20172018

108104     GRAPHIC      |      20172018 Proxy Statement


Table of Contents

Accounting and Auditing Matters

The Independent Accountants
 

The Audit Committee evaluates the selection of the independent accountants each year, and has appointed D&T, independent accountants, to examine the Company's financial statements for the year ending December 31, 2017,2018, and, pursuant to Proposal 5,3, has requested shareholder ratification of this appointment. The Audit Committee has discussed the qualifications and performance of D&T and believes that the continued retention of D&T to serve as the Company's independent accountants is in the best interest of the Company and its shareholders.

In making the determination to retain D&T for 2017,2018, the Audit Committee considered:considered, among other things:

The oversight of, and requirements and regulations imposed by, the PCAOB, including the PCAOB requirements for audit partner rotation;

Limitations imposed by regulation on non-audit services performed by D&T;

D&T's technical expertise, particularly with respect to the complicatedcomplex area of utility regulatory accounting;

Management's and D&T's review of D&T's historical and recent performance;

The quality and candor of D&T's communications with the Audit Committee and management;

D&T's independence;

Management'sindependence and tenure as our auditor, including the internal auditors' reviewbenefits and independence risks of having a long-tenured auditor and controls and processes that help ensure D&T's performance;independence (see the additional information below);

How effectively D&T demonstrated its independent judgment, objectivity, and professional skepticism;

External data on audit quality and performance, including the annual PCAOBPublic Company Accounting Oversight Board ("PCAOB") report on D&T, which is reported on by D&T, and reviewed by the Audit Committee; and

The fees paid to D&T, which are reviewed and approved by the Audit Committee and then monitored by the Audit Committee throughout the year.

D&T Servedserved as the Company's independent accountants for the year ended December 31, 2016.2017. Representatives of that firm are expected to participate in the Annual Meeting. These representatives will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

Benefits of a Long-Tenured Independent Accountant

D&T has served as the independent accountant for Pinnacle West since its inception in 1985, and APS since 1932. The Committee carefully considered the tenure of D&T as our

2018 Proxy Statement     |GRAPHIC 105


Table of Contents

Accounting and Auditing Matters

independent accountants in making its decision to select D&T as the independent accountant for 2018, including the following benefits that come with long-tenure:

Through more than 80 years of experience with the Company and APS, Deloitte has gained institutional knowledge of and deep expertise regarding our business operations, including the complexities of a business that is highly regulated at both the state and federal level, our accounting policies and practices and our internal controls over financial reporting; and

Bringing on a new auditor requires a significant time commitment that could result in additional costs to the Company as well as distract management's focus on financial reporting and internal controls.

Accountant's Independence Controls

In further making its selection of D&T as the independent accountant for 2018, the Committee took into account the following controls over D&T:

The Audit Committee's oversight of D&T, which included meeting with D&T at every regular in-person meeting in 2017, private meetings from time to time as requested by the Audit Committee members, and a committee-directed process for selecting the lead partner;

Pre-approval policies of all services performed by D&T for the Company, and allowing the engagement of D&T only when the Audit Committee or its Chair believes D&T is best suited for the job;

D&T conducts periodic internal quality reviews of its audit work and rotates lead partners every five years; and

As an independent public accounting firm, D&T is subject to PCAOB inspections, independent peer reviews, and PCAOB and SEC oversight.

Pre-Approval Policies
 

As part of its oversight responsibility with respect to the independent accountants and in order to assure that the services provided by the independent accountants do not impair the independent accountants' independence, the Audit Committee has established pre-approval policies with respect to work performed by D&T for the Company. Under that policy, the Audit Committee pre-approves each audit service and non-audit service to be provided by D&T. The

2017 Proxy Statement     |GRAPHIC 109


Table of Contents

Accounting and Auditing Matters

Audit Committee has delegated to the Chair of the Audit Committee the authority to pre-approve audit and non-audit services to be performed by D&T if the services are not expected to cost more than $50,000. Each audit and non-audit service presented to the Chair for pre-approval must be described in sufficient detail so that the Chair knows precisely what services the Chair is being asked to pre-approve so that he can make a well-reasoned assessment of the impact of the service on the independent accountants' independence. The Chair must report any pre-approval decisions to the Audit Committee at its next scheduled meeting. All of the services performed by D&T in 20162017 for the Company were pre-approved by either the Audit Committee or the Chair of the Audit Committee consistent with the pre-approval policy.

106GRAPHIC |      2018 Proxy Statement


Table of Contents

Accounting and Auditing Matters

Audit Fees
 

The following fees were paid to D&T for the last two fiscal years:

TYPE OF SERVICE
 2015
($)

 2016
($)

  2016
($)

 2017
($)

 

Audit Fees(1)

 2,454,372 2,687,407  2,687,407 2,813,182 

Audit-Related Fees(2)

 291,689 351,121  351,121 366,083 

Tax Fees

 0 0  0 0 

All Other Fees(3)

 10,000 0  0 0 
(1)
The aggregate fees billed for services rendered for the audit of annual financial statements and for review of financial statements included in reportsReports on Form 10-Q.

(2)
The aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the financial statements thatand are not included in the Audit Fees reported above, which primarily consist of fees for employee benefit plan audits performed in 20152017 and 2016.

(3)
The aggregate fees billed for advice relating to the development of a statement of work for the Company's system integrator for its new Customer Information System.

1102018 Proxy Statement     |     GRAPHIC      |      2017 Proxy Statement107


Table of Contents

Report of the Audit Committee

The Audit Committee is comprised solely of independent directors. Each member meets the NYSE financial literacy requirements, and Messrs. Fox and Nordstrom are "audit committee financial experts" under the SEC rules.

In accordance with its written charter adopted by the Board, the primary function of the Audit Committee is to assist Board oversight of: (a) the integrity of the Company's financial statements; (b) the independent accountants' qualifications and independence; (c) the performance of the Company's internal audit function and independent accountants; and (d) compliance by the Company with legal and regulatory requirements.

The Audit Committee reports as follows:

1.
The Audit Committee has discussed and reviewed the audited financial statements of the Company as of and for the fiscal year ended December 31, 2016,2017, with the Company's management and the independent accountants, D&T. The Audit Committee is directly responsible for the oversight of the Company's independent accountants. Management is responsible for the Company's financial reporting process, including the Company's system of internal controls and for the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America. The independent accountants are responsible for auditing and rendering an opinion on those financial statements, as well as auditing certain aspects of the Company's internal controls. The Audit Committee's responsibility is to monitor these processes.

2.
The Audit Committee has discussed with D&T the matters required to be discussed by the statement on Auditing Standards No. 16,1301, Communications with Audit Committees, as amended, and as adopted by the PCAOB.

3.
The Audit Committee has obtained from D&T and reviewed the written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent accountants' communications with the Audit Committee concerning independence. The Committee discussed with D&T any relationships that may impact D&T's objectivity and independence and satisfied itself as to the accountants' independence.

4.
Based on the foregoing, the Audit Committee has recommended to the Board that the Company's audited financial statements be included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2017, for filing with the SEC.
AUDIT COMMITTEE CHAIR
Bruce J. Nordstrom
 AUDIT COMMITTEE MEMBERS
Denis A. Cortese, M.D.
Richard P. Fox
Dale E. Klein, Ph.D.
Humberto S. Lopez
David P. Wagener

2017 Proxy Statement     |108     GRAPHIC      111|      2018 Proxy Statement


Table of Contents

HELPFUL RESOURCES
Our Company
Pinnacle West Capital Corporation:

http://www.pinnaclewest.com


APS:


http://www.APS.com


Annual Meeting

 

 
Annual meeting online:

http://www.virtualshareholdermeeting.com/PNW


Proxy materials:

 

 

http://www.proxyvote.com


Board of Directors

 

 
Pinnacle West Board:  

http://www.pinnaclewest.com/about-us/corporate-governance/board-of-directors/


Board Committees:

 

 

Audit Committee Charter:

http://www.pinnaclewest.com/about-us/corporate-governance/committee-summary/audit-committee/

Corporate Governance Committee Charter:

http://www.pinnaclewest.com/about-us/corporate-governance/committee-summary/corporate-governance-committee

Finance Committee Charter:

http://www.pinnaclewest.com/about-us/corporate-governance/committee-summary/finance-committee

Human Resources Committee Charter:

http://www.pinnaclewest.com/about-us/corporate-governance/committee-summary/human-resources-committee/

Nuclear and Operating Committee Charter:

http://www.pinnaclewest.com/about-us/corporate-governance/committee-summary/nuclear-and-operating-committee/


Governance Documents

 

 
Code of Ethics and Business Practices:

http://www.pinnaclewest.com/about-us/corporate-governance/code-of-ethics-and-business-practices/


Code of Ethics for Financial Executives:

http://www.pinnaclewest.com/about-us/corporate-governance/code-of-ethics-for-financial-executives/


Corporate Governance Guidelines:

http://www.pinnaclewest.com/about-us/corporate-governance/corporate-governance-guidelines/


Other

 

 
Corporate Responsibility Report:

http://www.pinnaclewest.com/corporate-responsibility/


Political Participation Policy:

http://www.pinnaclewest.com/about-us/corporate-governance/Political-Participation-Policy/Political-Participation-Policy

112GRAPHIC |      2017 Proxy Statement


Table of Contents

Appendix A: First Amendment to
2012 Long-Term Incentive Plan


FIRST AMENDMENT TO THE
PINNACLE WEST CAPITAL CORPORATION
2012 LONG-TERM INCENTIVE PLAN

            Pinnacle West Capital Corporation, an Arizona corporation (the "Company"), previously established,The information contained in these documents and the shareholders previously approved, the Pinnacle West Capital Corporation 2012 Long-Term Incentive Plan (the "Plan"). By adoption of this First Amendment, the Company desires to amend the Plan as set forth below.

            1.         This First Amendment shall be effective as of the date on which it is approvedwebsites are not incorporated by the Company's shareholders at the Company's 2017 Annual Meeting.

            2.         Article 4 Plan (Shares Subject to the Plan) is hereby amended by adding the following new Section to the end thereof to read as follows:

                      4.7MAXIMUM AWARD PAYABLE TO NON-EMPLOYEE DIRECTORS.    Notwithstanding any other provision in the Plan to the contrary, the aggregate grant date fair value (computed as of the Date of Grant in accordance with applicable financial accounting rules) of all Awards granted to any non-employee member of the Board during any single calendar year, plus the aggregate amount of all cash fees earned and paid or payable to such director for services rendered for the same year, shall not exceed $500,000.

            3.         This First Amendment amends only the provisions of the Plan referred to above, and those provisions not amended by this First Amendment shall continue in full force and effect. Notwithstanding the foregoing, this First Amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions and the intent of this First Amendment.reference.

20172018 Proxy Statement     |     GRAPHIC      113


Table of Contents

Appendix B: Amended 2012
Long-Term Incentive Plan


PINNACLE WEST CAPITAL CORPORATION
2012 LONG-TERM INCENTIVE PLAN
(AS AMENDED BY THE FIRST AMENDMENT)


EFFECTIVE DATE: January 18, 2012
APPROVED BY SHAREHOLDERS: May 16, 2012
TERMINATION DATE: January 18, 2022


ARTICLE 1
ESTABLISHMENT; PURPOSE; GLOSSARY

            1.1ESTABLISHMENT; IMPACT ON PRIOR PLANS.    Pinnacle West Capital Corporation, an Arizona corporation (the "Company") hereby establishes the Pinnacle West Capital Corporation 2012 Long-Term Incentive Plan (the "Plan"). Effective on its approval by the shareholders of the Company, the Plan will supersede and replace the Pinnacle West Capital Corporation 2007 Long-Term Incentive Plan (the "2007 Plan") and all other Prior Plans. No awards will be made pursuant to any of the Prior Plans after the approval of this Plan by the shareholders, but the Prior Plans shall remain in effect until all awards granted under such Prior Plans have been exercised, forfeited or canceled or have otherwise expired or terminated in accordance with the terms of such awards.

            1.2PURPOSE.    The purpose of the Plan is to permit the Committee to grant Awards, thereby giving the Participants a stake in the growth and prosperity of the Company and encouraging the continuance of their service with or to the Company or its Affiliates. The Awards that may be granted pursuant to the Plan are Restricted Stock, Restricted Stock Units, Performance Share Units, Performance Shares, Performance Cash, Stock Grants, Stock Units, Dividend Equivalents, Options and Stock Appreciation Rights.

            1.3GLOSSARY.    Defined terms used in this Plan are set forth in the attached Glossary, which is incorporated into and made part of this Plan.


ARTICLE 2
EFFECTIVE DATE; EXPIRATION DATE

            2.1EFFECTIVE DATE.    The Plan is effective as of the date it is approved by the Board (the "Effective Date"), but is subject to approval by the Company's shareholders at its 2012 Annual Meeting. Any Awards granted prior to shareholder approval shall be expressly conditioned upon shareholder approval.

            2.2EXPIRATION DATE.    The Plan will expire on, and no Award may be granted under the Plan after, the tenth anniversary of the Effective Date. Any Awards that are outstanding on the tenth anniversary of the Effective Date shall remain in force according to the terms of the Plan and the Award Agreement.

114GRAPHIC |      2017 Proxy Statement109


Table of Contents

AMENDED 2012 PLAN


ARTICLE 3
ADMINISTRATION

            3.1.COMMITTEE.    The Plan shall be administeredThis Proxy Statement contains forward-looking statements based on current expectations. These forward-looking statements are often identified by the Human Resources Committee of the Board. The Committee shall consist of at least two individuals, each of whom qualifieswords such as (a) a "non-employee director" as defined in Rule 16b-3(b)(3) of the General Rules"estimate," "predict," "may," "believe," "plan," "expect," "require," "intend," "assume" and Regulations of the Exchange Act, and (b) an "outside director" as defined in Section 162(m) of the Code and the regulations issued thereunder.

            3.2.ACTION BY THE COMMITTEE.similar words. Because actual results may differ materially from expectations, we caution you not to place undue reliance on these statements. A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by all of the members of the Committee in lieu of a meeting, shall be deemed the acts of the Committee.

            3.3.AUTHORITY OF COMMITTEE.    The Committee has the power and authority to take the following actions:

                        (a)        Designate Participants to receive Awards;

                        (b)        Determine the type or types of Awards and the times when Awards are to be granted to each Participant;

                        (c)        Determine the number of Awardsfactors could cause future results to be granteddiffer materially from historical results, or from outcomes currently expected or sought by us. A discussion of some of these risks and the number of shares of Stockuncertainties is contained in our Annual Report on Form 10-K and is available on our website at pinnaclewest.com, which you should review carefully before placing any reliance on our forward-looking statements or disclosures. We assume no obligation to which an Award will relate;

                        (d)        Determine the terms and conditions ofupdate any Award, including, but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of restrictions or limitations, and accelerations or waivers thereof, based in each case on such considerations as the Committee determines; provided, however, thatforward-looking statements, even if our internal estimates change, except as provided inSection 15.1 the Committee shall not have the authority to accelerate the vesting or waive the forfeiture restrictions of any Performance-Based Awards;

                        (e)        Determine whether, to what extent, and in what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or whether an Award may be canceled, forfeited, exchanged or surrendered;

                        (f)         Prescribe the form of each Award Agreement, which need not be identical for each Participant;

                        (g)        Decide all other matters that must be determined in connection with an Award;

                        (h)        Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;

                        (i)         Subject to the provisions ofSection 3.3(d),Section 15.1,Section 16.2 andSection 16.3, amend or modify any outstanding Award to the extent the terms of such Award are within the power and authority of the Committee as provided under the Plan;

                        (j)         Interpret the terms of, and determine any matter arising pursuant to, the Plan or any Award Agreement; and

                        (k)        Make all other decisions or determinations that may be required pursuant to the Plan or an Award Agreement as the Committee deems necessary or advisable to administer the Plan.by applicable law.

2017 Proxy Statement     |GRAPHIC 115


Table of Contents

AMENDED 2012 PLAN

Any action authorized to be taken by the Committee pursuant to the Plan may be taken or not taken by the Committee in the exercise of its discretion as long as such action or decision not to act is not inconsistent with a provision of this Plan.

            3.4.DECISIONS BINDING.    The Committee's interpretation of the Plan or any Award Agreement and all decisions and determinations by the Committee with respect to the Plan and any Award are final, binding, and conclusive on all parties. All authority of the Board and the Committee with respect to Awards issued pursuant to this Plan, including the authority to amend outstanding Awards, shall continue after the term of this Plan so long as any Award remains outstanding.

            3.5.DELEGATION.    As permitted by law and the rules of the New York Stock Exchange or any other established securities market on which the Stock is traded, the Committee may delegate any authority granted to it pursuant to this Plan; provided, however, that the Committee may not delegate to the Company's executive officers the power and authority to make, cancel, or suspend Awards to executive officers or members of the Board.


ARTICLE 4
SHARES SUBJECT TO THE PLAN

            4.1NUMBER OF SHARES.    Subject to the possible increases provided bySection 4.2 with respect to shares of Stock that become available under the Prior Plans and adjustments as provided inSection 4.4, the aggregate number of shares of Stock reserved and available for grant (or to be used to determine the value of an Award payable in cash) pursuant to the Plan shall be 4,595,500. The number of shares authorized for issuance shall be reduced by one share for each share that is subject to any award granted under any Prior Plan in the period beginning on January 1, 2012 and ending on the date the shareholders approve the Plan.

            4.2SHARE COUNTING.    For purposes of determining the number of shares of Stock available for Award under the Plan from time-to-time:

                        (a)        In the event any Award granted under this Plan, or any award outstanding under any Prior Plan on or after December 31, 2011, shall be forfeited, terminate or be canceled or expire, the number of shares of Stock subject to such Award or Prior Plan award, to the extent of any such forfeiture, termination, cancellation or expiration, shall thereafter be available for grant under the Plan.

                        (b)        If shares of Stock are not delivered in connection with any Award because the Award is settled in cash, such shares shall not be deemed to have been delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan and will again be available for grant.

                        (c)        The exercise of a stock-settled SAR or broker-assisted "cashless" exercise of an Option (or a portion thereof) will reduce the number of shares of Stock available for issuance by the entire number of shares of Stock subject to that SAR or Option (or applicable portion thereof), even though a smaller number of shares of Stock will be issued upon such an exercise.

                        (d)        Dividend Equivalent Awards paid in Stock shall be counted against the shares available for issuance under the Plan by the number of shares of Stock used to satisfy such Dividend Equivalent Award.

116110     GRAPHIC      |      2017 Proxy Statement


Table of Contents

AMENDED 2012 PLAN

                        (e)        Shares of Stock tendered to pay the exercise price of an Option or tendered, withheld or otherwise relinquished by the Participant to satisfy a tax withholding obligation arising in connection with any Award will not become available for grant under the Plan. Moreover, shares of Stock purchased on the open market with cash proceeds generated by the exercise of an Option will not increase or replenish the number of shares available for grant.

                        (f)         If the provisions of thisSection 4.2 are inconsistent with the requirements of any regulations promulgated by the Internal Revenue Service pursuant to Section 422 of the Code, the provisions of such regulations shall control over the provisions of thisSection 4.2, but only as thisSection 4.2 applies to Incentive Stock Options.

                        (g)        The Committee may adopt such other reasonable rules and procedures as it deems to be appropriate for purposes of determining the number of shares of Stock that are available for grant pursuant toSection 4.1.

            4.3STOCK DISTRIBUTED.    Any shares of Stock delivered pursuant to an Award may consist, in whole or in part, of authorized but unissued Stock or treasury Stock or Stock purchased on the open market.

            4.4ADJUSTMENTS.    In the event of any issuance of rights or warrants to purchase securities, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other distribution with respect to the shares of Stock, or any similar corporate transaction or event in respect of the Stock, then the Committee shall, in the manner and to the extent that it deems appropriate and equitable to the Participants and not inconsistent with the terms of this Plan, cause a proportionate adjustment to be made in (i) the maximum numbers of shares of Stock provided inSection 4.1, (ii) the maximum numbers of shares of Stock set forth inSections 11.1, 11.2, 12.1 and 13.9 and any other similar numeric limit expressed in the Plan, (iii) the number of shares of Stock, units, or other rights subject to the then-outstanding Awards, (iv) the price, if applicable, for each share of Stock or unit or other right subject to then outstanding Awards without change in the aggregate purchase price or value as to which such Awards remain exercisable or subject to restrictions, (v) the performance targets or goals appropriate to any outstanding Awards (subject to such limitations as appropriate for Performance-Based Awards), or (vi) any other terms of an Award that are affected by the event. Moreover, in the event of any such transaction or occurrence, the Committee may provide in substitution for any or all outstanding Awards such alternative consideration (including cash) as it, in good faith, may determine to be equitable under the circumstances and may require in connection therewith the surrender of all Awards so replaced. The foregoing provisions of thisSection 4.4 also apply to any merger, consolidation, liquidation, spin-off or split-off of the Company or any Affiliate, but only to the extent that the application of the provisions of thisSection 4.4 are consistent with the provisions ofArticle 15 if such transaction constitutes a Change of Control. Any adjustments made pursuant to thisSection 4.4 shall be made in a manner consistent with the requirements of Section 409A of the Code and, in the case of Incentive Stock Options, any such adjustments shall be made in a manner consistent with the requirements of Section 424(a) of the Code.

            4.5NO OTHER RIGHTS.    Except as expressly provided inArticle 9 orArticle 15, no Participant shall have any rights by reason of any merger, consolidation, liquidation, issuance of rights or warrants to purchase securities, recapitalization, reclassification, stock dividend, spin-off, split-off, stock split, reverse stock split or other distribution with respect to the shares

2017 Proxy Statement     |GRAPHIC 117


Table of Contents

AMENDED 2012 PLAN

of Stock, or any similar corporate transaction or event in respect of the Stock. Except as expressly provided inArticle 15, no issuance by the Company of shares of Stock of any class, or securities convertible into shares of Stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Stock subject to an Award or the exercise price of any Award.

            4.6REPLACEMENT AWARDS.    In the event of any corporate transaction in which the Company or an Affiliate acquires a corporate entity which, at the time of such transaction, maintains an equity compensation plan pursuant to which awards of stock options, stock appreciation rights, restricted stock, performance shares, performance share units, stock grants, stock units, dividend equivalents, restricted stock units or any other form of equity based compensation are then outstanding (the "acquired plan"), the Committee may make Awards to assume, substitute or convert such outstanding awards in such manner as may be determined to be appropriate and equitable by the Committee; provided, however, that the number of shares of Stock subject to any Award shall always be a whole number by rounding any fractional share to the nearest whole share. Options or SARs issued pursuant to thisSection 4.6 shall not be subject to the requirement that the exercise price of such Award not be less than the Fair Market Value of Stock on the date the Award is granted. Shares used in connection with an Award granted in substitution for an award outstanding under an acquired plan under thisSection 4.6 shall not be counted against the number of shares of Stock reserved under this Plan underSection 4.1. Any shares of Stock authorized and available for issuance under the acquired plan shall, subject to adjustment as described inSection 4.4, be available for use in making Awards under this Plan with respect to persons eligible under such acquired plan, by virtue of the Company's assumption of such acquired plan, consistent with Rule 303A(8) of the New York Stock Exchange Listed Company Manual, as such Rule may be amended or replaced from time to time.

            4.7MAXIMUM AWARD PAYABLE TO NON-EMPLOYEE DIRECTORS.Notwithstanding any other provision in the Plan to the contrary, the aggregate grant date fair value (computed as of the Date of Grant in accordance with applicable financial accounting rules) of all Awards granted to any non-employee member of the Board during any single calendar year, plus the aggregate amount of all cash fees earned and paid or payable to such director for services rendered for the same year, shall not exceed $500,000.


ARTICLE 5
ELIGIBILITY AND PARTICIPATION

            5.1ELIGIBILITY.    Persons eligible to participate in this Plan include members of the Board and employees and officers of the Company; members of the board of directors (or other governing board), officers and employees of any Affiliate; and members of the board of directors (or other governing board), officers and employees of any entity of which the Company or an Affiliate, directly or indirectly, owns 20% or more of the voting or economic interest. The Committee may determine on a case-by-case basis to make Awards under the Plan to consultants and advisers to the Company or any Affiliate on such terms as it may determine, consistent with the provisions of the Plan. Prospective Participants to whom Awards are granted in connection with written offers of an employment or service agreement with the Company or an Affiliate also may be granted Awards. The provisions of any Award granted to a prospective Participant must specifically provide that no portion of the Award will vest, become

118GRAPHIC |      2017 Proxy Statement


Table of Contents

AMENDED 2012 PLAN

exercisable or be issued prior to the date on which such individual becomes employed by or begins providing services to the Company or any Affiliate.

            5.2ACTUAL PARTICIPATION.    Subject to the provisions of the Plan, the Committee may, from time to time, select from among all eligible Participants those to whom Awards shall be granted and shall determine the nature and amount of each Award. No individual shall have any right to be selected to receive an Award, or having been so selected, to be selected to receive a future Award, except as otherwise provided by an agreement, the relevant provisions of which have been approved by the Committee.


ARTICLE 6
GENERAL RULES APPLICABLE TO ALL AWARDS

            6.1AWARD AGREEMENTS.    All Awards shall be evidenced by an Award Agreement. The Award Agreement shall include such terms and provisions as the Committee determines to be appropriate. The terms of the Award Agreement may vary depending on the type of Award, the employee or classification of the employee to whom the Award is made and such other factors as the Committee determines to be appropriate.

            6.2STAND-ALONE AND TANDEM AWARDS.    Awards granted pursuant to the Plan may be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan or any Prior Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.

            6.3TERM OF AWARD.    The term of each Award shall be for the period determined by the Committee, provided that in no event shall the term of any Option or Stock Appreciation Right exceed a period of ten years from the Date of Grant.

            6.4TERMINATION OF SERVICE.    Subject to the provisions of this Plan, the Committee shall determine and set forth in the applicable Award Agreement the extent to which a Participant shall have the right to retain and/or exercise an Award following Termination of Employment (or Termination of Service in the case of a member of the Board). Such provisions need not be uniform among all types of Awards and may reflect distinctions based on the reasons for such terminations, including but not limited to, death, Disability, a Change of Control, a termination for cause or reasons relating to the breach or threatened breach of restrictive covenants.

            6.5FORM OF PAYMENT FOR AWARDS.    Subject to the terms of the Plan, the Award Agreement and any applicable law, payments or transfers to be made by the Company or an Affiliate on the grant, exercise or settlement of an Award may be made in such forms as the Committee determines at or after the time of grant, including, without limitation, cash, Stock, other Awards, or other property, or any combination, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case determined in accordance with rules adopted by the Committee.

2017 Proxy Statement     |GRAPHIC 119


Table of Contents

AMENDED 2012 PLAN


ARTICLE 7
RESTRICTED STOCK AND RESTRICTED STOCK UNIT AWARDS

            7.1GRANT OF RESTRICTED STOCK.

                        (a)Issuance and Restrictions.    Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to receive dividends or vote the Restricted Stock). These restrictions may lapse separately or in combination at such times, in such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter. Except as otherwise provided in the Award Agreement, Participants holding shares of Restricted Stock may not exercise voting rights with respect to the shares of Restricted Stock during the restriction period.

                        (b)Forfeiture.    Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon a Termination of Employment (or Termination of Service in the case of a member of the Board) during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited; provided, however, that the Committee may provide in any Restricted Stock Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of a Termination of Employment (or Termination of Service in the case of a member of the Board) resulting from specified causes. The Committee also may waive in whole or in part any other restrictions or forfeiture conditions relating to a Restricted Stock Award.

                        (c)Certificates for Restricted Stock.    Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing shares of Restricted Stock are registered in the name of the Participant, the certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company may retain physical possession of the certificate until such time as all applicable restrictions lapse.

            7.2RESTRICTED STOCK UNIT AWARDS.    Restricted Stock Unit Awards will grant the Participant the right to receive a specified number of shares of Stock, or a cash payment equal to the Fair Market Value (determined as of a specified date) of a specified number of shares of Stock, subject to any vesting or other restrictions deemed appropriate by the Committee. These restrictions may lapse separately or in combination at such times, in such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter. Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon a Termination of Employment (or Termination of Service in the case of a member of the Board) during the applicable restriction period, Restricted Stock Units that are at that time subject to restrictions shall be forfeited; provided, however, that the Committee may provide in any Restricted Stock Unit Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock Units will be waived in whole or in part in the event of a Termination of Employment (or Termination of Service in the case of a member of the Board) resulting from specified causes. The Committee also may waive in whole or in part any other restrictions or forfeiture conditions relating to a Restricted Stock Unit Award. Payment for Restricted Stock Units shall be made in the manner and at the time designated by the Committee in the Award Agreement. In the Award Agreement, the Committee may provide that payment will be made in cash or Stock, or in a combination thereof.

120GRAPHIC |      2017 Proxy Statement


Table of Contents

AMENDED 2012 PLAN


ARTICLE 8
STOCK GRANT AND STOCK UNIT AWARDS

            8.1STOCK GRANT AWARDS.    A Stock Grant Award grants the Participant the right to receive (or purchase at such price as determined by the Committee) a designated number of shares of Stock free of any vesting restrictions. The purchase price, if any, for a Stock Grant Award shall be payable in cash or other form of consideration acceptable to the Committee. A Stock Grant Award may be granted or sold as described in the preceding sentence in respect of past services or other valid consideration, or in lieu of any cash compensation due to such Participant.

            8.2STOCK UNIT AWARDS.    A Stock Unit Award grants the Participant the right to receive a designated number of shares of Stock, or a cash payment equal to the Fair Market Value (determined as of a specified date) of a designated number of shares of Stock, in the future free of any vesting restrictions. A Stock Unit Award may be granted as described in the preceding sentence in respect of past services or other valid consideration, or in lieu of any cash compensation due to such Participant.


ARTICLE 9
DIVIDEND EQUIVALENT AWARDS

            9.1DIVIDEND EQUIVALENT AWARDS.    A Dividend Equivalent Award will grant the Participant the right to receive a payment based on the dividends declared on the shares of Stock that are subject to any Restricted Stock Unit, Stock Unit, Performance Share Unit or Performance Share Award, to be credited as of dividend payment dates during the period between the Date of Grant and the date the Award is exercised, vests or expires, as determined by the Committee. In no event may a Dividend Equivalent Award made with respect to a Restricted Stock Unit Award that vests based on the achievement of Performance Goals, or with respect to a Performance Share Unit or Performance Share Award, be paid unless and until such Award vests or is earned by satisfaction of the applicable Performance Goals. A Dividend Equivalent Award shall initially be expressed in terms of cash or shares of Stock, depending on the way in which the dividends to which it relates are declared. Such Award shall be converted to cash or additional shares of Stock, as the case may be, by such formula and at such time and subject to such limitations as may be determined by the Committee. A Dividend Equivalent Award may not be made in connection with any Option or SAR. A Dividend Equivalent may be paid with interest if so provided in an Award Agreement.


ARTICLE 10
PERFORMANCE SHARES; PERFORMANCE SHARE UNITS; AND PERFORMANCE CASH AWARDS

            10.1PERFORMANCE SHARE AWARDS.    A Performance Share Award grants the Participant the right to receive a specified number of shares of Stock depending on the satisfaction of any one or more Performance Goals. Performance may be measured on a specified date or dates or over any period or periods determined by the Committee. Subject toArticle 15, payment for vested Performance Shares shall be made in Stock.

            10.2PERFORMANCE SHARE UNIT AWARDS.    A Performance Share Unit Award grants the Participant the right to receive a specified number of shares of Stock or a cash payment equal to the Fair Market Value (determined as of a specified date) of a specified

2017 Proxy Statement     |GRAPHIC 121


Table of Contents

AMENDED 2012 PLAN

number of shares of Stock depending on the satisfaction of any one or more Performance Goals. Performance may be measured on a specified date or dates or over any period or periods determined by the Committee. Payment for Performance Share Unit Awards shall be made in Stock or cash, or in a combination thereof, as specified in the Award Agreement.

            10.3PERFORMANCE CASH AWARDS.    A Performance Cash Award grants the Participant the right to receive an amount of cash depending on the satisfaction of any one or more Performance Goals. Performance may be measured on a specified date or dates or over any period or periods determined by the Committee.

            10.4PERFORMANCE CRITERIA.    The Performance Criteria applicable to any Performance Share, Performance Share Unit or Performance Cash Award shall be based on the Performance Criteria selected by the Committee and designated in the Award Agreement. The Performance Criteria applicable to any Performance Share, Performance Share Unit or Performance Cash Award granted to a Covered Employee that is designated as, or deemed to be, a Performance-Based Award pursuant toSection 13.1 shall be limited to the Performance Criteria specifically listed in the Glossary, as adjusted in accordance withSection 13.5, if applicable. The Performance Criteria applicable to any other Performance Share, Performance Share Unit or Performance Cash Award shall include the Performance Criteria specifically listed in the Glossary and such other criteria or factors as may be determined by the Committee and specified in the Award Agreement.


ARTICLE 11
STOCK OPTIONS

            11.1GENERAL.    Option Awards are subject to the following terms and conditions:

                        (a)Exercise Price.    The exercise price per share of Stock pursuant to an Option shall be equal to the Fair Market Value of one share of Stock as of the Date of Grant unless the Committee sets a higher exercise price in the Award Agreement.

                        (b)Time and Conditions of Exercise.    Unless the Committee specifies otherwise in the Award Agreement, the Option shall become exercisable in three equal annual installments on the first, second and third anniversaries of the Date of Grant and shall expire on the earlier of the Participant's Termination of Employment (or Termination of Service in the case of a member of the Board) or the tenth anniversary of the Date of Grant. The Committee also may prescribe performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised.

                        (c)Payment.    The exercise price for any Option shall be paid in cash or shares of Stock held for longer than six months (through actual tender or by attestation). In the Award Agreement, the Committee also may prescribe other methods by which the exercise price of an Option may be paid and the form of payment (except payment may not be made in the form of a promissory note) including, without limitation, any net-issuance arrangement or other property acceptable to the Committee (including broker-assisted "cashless exercise" arrangements), and the methods by which shares of Stock shall be delivered or deemed to be delivered to Participants.

                        (d)Repricing of Options.    Notwithstanding any other provision in the Plan to the contrary, without approval of the Company's shareholders, an Option may not be amended, modified or repriced to reduce the exercise price after the Date of Grant. In addition, an Option

122GRAPHIC |      2017 Proxy Statement


Table of Contents

AMENDED 2012 PLAN

may not be surrendered in consideration of or exchanged for cash, other Awards or a new Option having an exercise price below the exercise price of the Option being surrendered or exchanged, except in connection with a Change of Control or as otherwise provided inSection 4.4 with respect to an adjustment in capitalization.

                        (e)Limitation on Number of Shares Subject to Awards.    Subject to the adjustment provided inSection 4.4, the maximum number of shares (counted as described inSections 4.1 and 4.2 above) of Stock with respect to one or more Option Awards that may be granted to any one Participant during any calendar year shall be 500,000.

            11.2INCENTIVE STOCK OPTIONS.    Incentive Stock Options, which are Options intended to meet the requirements of Section 422 of the Code, shall be granted only to Participants who are employees. The terms of any Incentive Stock Options granted pursuant to the Plan must comply with the requirements ofSection 11.1 and the following additional provisions:

                        (a)Exercise.    In no event may any Incentive Stock Option be exercisable for more than ten years from the Date of Grant.

                        (b)Lapse of Option.    An Incentive Stock Option shall lapse in the following circumstances:

                                    (1)         The Incentive Stock Option shall lapse ten years from the Date of Grant, unless an earlier time is specified in the Award Agreement;

                                    (2)         The Incentive Stock Option shall lapse upon a Termination of Employment for any reason other than the Participant's death or Disability, unless otherwise provided in the Award Agreement; and

                                    (3)         If the Participant incurs a Termination of Employment on account of death or Disability before the Option lapses pursuant to paragraph (1) or (2) above, the Incentive Stock Option shall lapse on the earlier of (i) the scheduled expiration date of the Option, or (ii) 12 months after the date of the Participant's Termination of Employment on account of death or Disability. Upon the Participant's death or Disability, any Incentive Stock Options exercisable at the Participant's death or Disability may be exercised by the Participant's legal representative or representatives, by the person or persons entitled to do so pursuant to the Participant's last will and testament in the case of death, or, if the Participant fails to make testamentary disposition of such Incentive Stock Option or dies intestate, by the person or persons entitled to receive the Incentive Stock Option pursuant to the applicable laws of descent and distribution.

                        (c)Individual Dollar Limitation.    The aggregate Fair Market Value (determined as of the time an Award is made) of all shares of Stock with respect to which Incentive Stock Options are first exercisable by a Participant in any one calendar year may not exceed $100,000 or such other limitation as may then be imposed by Section 422(d) of the Code or any successor provision. To the extent that Incentive Stock Options are first exercisable by a Participant in excess of such limitation, the excess shall be considered Non-Qualified Stock Options.

                        (d)Ten Percent Owners.    An Incentive Stock Option may be granted to any employee who, at the Date of Grant, owns stock possessing more than ten percent of the total combined voting power of all classes of Stock of the Company only if such Option is granted

2017 Proxy Statement     |GRAPHIC 123


Table of Contents

AMENDED 2012 PLAN

at a price that is not less than 110% of Fair Market Value on the Date of Grant and the Option is exercisable for no more than five years from the Date of Grant.

                        (e)Right to Exercise.    Except as provided inSection 11.2(b)(3), during a Participant's lifetime, an Incentive Stock Option may be exercised only by the Participant.

                        (f)Limitations on Number of Shares Subject to Awards.    The maximum number of shares that may be issued under the Plan as Incentive Stock Options is 1,000,000.


ARTICLE 12
STOCK APPRECIATION RIGHTS

            12.1GENERAL.    SAR Awards are subject to the following terms and conditions:

                        (a)Time and Conditions of Exercise.    Unless the Committee specifies otherwise in the Award Agreement, the SAR shall become exercisable in three equal annual installments on the first, second and third anniversaries of the Date of Grant and shall expire on the earlier of the Participant's Termination of Employment (or Termination of Service in the case of a member of the Board) or the tenth anniversary of the Date of Grant. The Committee also may prescribe performance or other conditions, if any, that must be satisfied before all or part of an SAR may be exercised.

                        (b)Payment of SAR Amount.    Upon exercise of the SAR, the Participant shall be entitled to receive payment of an amount determined by multiplying (a) the excess, if any, of the Fair Market Value of a share of Stock on the date of exercise over the Fair Market Value (or such higher amount determined by the Committee at the Date of Grant) of a share of Stock on the Date of Grant by (b) the number of shares with respect to which the SAR is exercised. Unless the Committee provides otherwise in the Award Agreement, payment for the SAR shall be made in shares of Stock having a Fair Market Value as of the date of exercise equal to the amount of the payment due. The Committee may provide in the Award Agreement that payment for the SARs will be made in cash within 30 days following the date of exercise.

                        (c)Repricing of SARs.    Notwithstanding any other provision in the Plan to the contrary, without approval of the Company's shareholders, a SAR may not be amended, modified or repriced to reduce the exercise price after the Date of Grant. In addition, a SAR may not be surrendered in consideration of or exchanged for cash, other Awards or a new SAR having an exercise price below the exercise price of the SAR being surrendered or exchanged, except in connection with a Change of Control or as otherwise provided inSection 4.4 with respect to an adjustment in capitalization.

                        (d)Limitations on Number of Shares Subject to Awards.    Subject to the adjustment provided inSection 4.4, the maximum number of shares (counted as described inSections 4.1 and 4.2 above) of Stock with respect to one or more Stock Appreciation Rights Awards that may be granted to any one Participant during any calendar year shall be 500,000.


ARTICLE 13
PERFORMANCE-BASED AWARDS

            13.1PURPOSE.    Section 162(m) of the Code limits the amount of the Company's deductions for compensation payable to Covered Employees to a specified amount per year. "Performance-based compensation" that meets the requirements set forth in Section 162(m) and the applicable regulations is not subject to this limitation. The purpose of thisArticle 13 is

124GRAPHIC |      2017 Proxy Statement


Table of Contents

AMENDED 2012 PLAN

to enable the Committee to qualify some or all of the Awards granted pursuant toArticles 7, 8, 9 and 10 as "performance-based compensation" pursuant to Section 162(m) of the Code.

            If the Committee decides that a particular Award to a Covered Employee should qualify as "performance-based compensation," the Committee will provide in the Award Agreement or otherwise that the Award is intended to be a Performance-Based Award.

            13.2APPLICABILITY.    ThisArticle 13 shall apply only to Performance-Based Awards. If thisArticle 13 applies, its provisions control over any contrary provision contained in any other section of this Plan or any Award Agreement. The provisions of thisArticle 13 and any Award Agreement for a Performance-Based Award shall be interpreted in a manner consistent with the requirements of Section 162(m) and the applicable regulations. If any provision of this Plan or any Award Agreement for a Performance-Based Award does not comply with or is inconsistent with the requirements of Section 162(m) or the applicable regulations, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements.

            13.3DISCRETION OF COMMITTEE WITH RESPECT TO PERFORMANCE-BASED AWARDS.     With regard to a particular Performance Period, the Committee may select the length of such Performance Period, the type of Performance-Based Awards to be issued, the kind and/or level of the Performance Goal or Goals, and whether the Performance Goal or Goals is or are to apply to the Company, an Affiliate or any division or business unit thereof or the Participant or any group of Participants. Depending on the Performance Criteria used to establish the Performance Goals, the Performance Goals may be stated in terms of absolute levels or relative to another company or to an index or indices.

            13.4ESTABLISHMENT OF PERFORMANCE GOALS.    A Performance-Based Award shall provide for payment only upon the attainment of one or more pre-established, objective Performance Goals. The Performance Goals, and the process by which they are established, shall satisfy all of the requirements of Section 162(m) and the applicable regulations. By way of illustration, but not limitation, the following requirements must be satisfied:

                        (a)        The Performance Goals shall be based solely on the Performance Criteria specifically identified in the Glossary;

                        (b)        The Performance Goals shall be considered to be pre-established only if the Performance Goals are established by the Committee in writing not later than ninety (90) days after the commencement of the Performance Period for such Award; provided that (i) the outcome must be substantially uncertain at the time the Committee establishes the Performance Goals, and (ii) in no event may the Committee establish the Performance Goals for any Performance-Based Award after 25% of the Performance Period for such Award has elapsed;

                        (c)        A Performance Goal will be considered to be objective only if a third party having knowledge of the relevant facts could determine whether the Performance Goal has been met;

                        (d)        The Performance Goal must state, in terms of an objective formula or standard, the method for computing the amount of compensation payable to the Covered Employee if the Goal is attained. For this purpose, the formula will be considered to be objective only if a third party having knowledge of the relevant performance results could calculate the amount to be paid to the Covered Employee; and

2017 Proxy Statement     |GRAPHIC 125


Table of Contents

AMENDED 2012 PLAN

                        (e)        The objective formula or standard must preclude discretion to increase the amount of compensation payable that would otherwise be due upon attainment of the Performance Goal.

            13.5PERFORMANCE EVALUATION; ADJUSTMENT OF GOALS.    At the time that a Performance-Based Award is first issued, the Committee, in the Award Agreement or in another written document, shall specify whether performance will be evaluated including or excluding the effect of any of the following events that occur during the Performance Period, as the Committee deems appropriate:

                        (a)        Decisions entered or settlements reached in litigation or regulatory proceedings;

                        (b)        The write down or sale of assets;

                        (c)        The impact of discontinued operations or any reorganization, liquidation or restructuring;

                        (d)        The impact of changes in tax laws, accounting principles, regulatory actions or other laws affecting reported results;

                        (e)        Extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30 and/or in management's discussion and analysis of financial condition and results of operations appearing in the Company's annual or quarterly reports filed with the Securities and Exchange Commission in respect of the applicable year;

                        (f)         The impact of any mergers, acquisitions, spin-offs or other divestitures; and

                        (g)        Foreign exchange gains and losses.

The inclusion or exclusion of these items shall be expressed in a form that satisfies the requirements of Section 162(m) and the applicable regulations. The Committee also may, within the time prescribed by Section 162(m) and the applicable regulations, adjust or modify the calculation of Performance Goals for such Performance Period in order to prevent the dilution or enlargement of the rights of Participants (i) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event, or development, or (ii) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions.

            13.6ADJUSTMENT OF PERFORMANCE-BASED AWARDS.    The Committee may adjust the determinations of the degree of attainment (taking into account any adjustments required pursuant toSection 13.5) of the pre-established Performance Goals. Notwithstanding any provision herein to the contrary, the Committee may not make any adjustment or take any other action with respect to any Performance-Based Award that will increase the amount payable under any such Award. The Committee shall retain the power to adjust Performance-Based Awards downward or to otherwise reduce the amount payable with respect to any Performance-Based Award.

            13.7CONTINUED EMPLOYMENT REQUIRED.    Unless otherwise provided in the relevant Award Agreement, a Participant must be an employee of the Company or an Affiliate on the day a Performance-Based Award for such Performance Period is paid to the Participant.

126GRAPHIC |      2017 Proxy Statement


Table of Contents

AMENDED 2012 PLAN

            13.8CERTIFICATION BY COMMITTEE.    The payment for a Performance-Based Award shall not occur until the Committee certifies, in writing, that the pre-established Performance Goals and any other material terms and conditions precedent to such payment have been satisfied. Committee certification is not required for compensation that is attributable solely to the increase in the value of the Company's Stock.

            13.9MAXIMUM AWARD PAYABLE.    The maximum Performance-Based Award (other than a Performance Cash Award) payable to any one Participant pursuant to the Plan for any Performance Period is 500,000 shares of Stock or the equivalent cash value. The maximum Performance Cash Award payable to any one Participant for any Performance Period is $10,000,000. If the Performance Period is less than or exceeds 12 months, the dollar and share limits expressed in the preceding sentences shall be reduced or increased proportionately, as the case may be. For example, if the Performance Period is three years, the limit shall be increased by multiplying it by three.

            13.10MISCELLANEOUS.    The designation of a Covered Employee as a Participant for any Performance Period shall not in any manner entitle the Participant to receive a Performance-Based Award for such Performance Period. Moreover, designation of a Covered Employee as a Participant for a particular Performance Period shall not require designation of such Covered Employee as a Participant for any subsequent Performance Period.


ARTICLE 14
OTHER PROVISIONS APPLICABLE TO ALL AWARDS

            14.1LIMITATION ON AWARDS WITH RAPID OR NO VESTING.    No more than five percent in the aggregate of the shares of Stock available for grant or reference purposes pursuant toSection 4.1 may be subject to the following types of Awards:

                        (a)        Stock Grants or Stock Units other than those awarded to members of the Board or members of the board of directors of APS pursuant to regular retainer arrangements;

                        (b)        Options that become fully vested prior to the third anniversary of the Date of Grant;

                        (c)        SARs that becomes fully vested prior to the third anniversary of the Date of Grant;

                        (d)        Restricted Stock or Restricted Stock Units with respect to which the restrictions lapse solely based on the passage of time and which vest in less than three years;

                        (e)        Restricted Stock or Restricted Stock Units with respect to which the restrictions lapse based on the satisfaction of Performance Goals and that fully vest before the expiration of the one-year period following the Date of Grant; and

                        (f)         Performance Shares or Performance Share Units that fully vest before the expiration of the one-year period following the Date of Grant.

An Award will not be included in the aggregate Awards subject to the requirements of this Section solely because the Award Agreement provides for the immediate vesting of the Award upon a Participant's death or Disability or upon the occurrence of a Change of Control. In addition, replacement Awards granted pursuant toSection 4.6 shall be disregarded in calculating compliance with the limitations of this Section. In addition, an Award will not be included in the aggregate Awards subject to the requirements of this Section solely because the

2017 Proxy Statement     |GRAPHIC 127


Table of Contents

AMENDED 2012 PLAN

Award Agreement provides that an incremental portion of the Award may become vested proportionally during the vesting periods described above. For example, an Option or SAR that becomes vested in equal monthly, quarterly or annual increments over a period of three years will not be subject to the limitations of this Section.

            14.2LIMITS ON TRANSFER.

                        (a)General.    Except as provided inSection 14.2(b) orSection 14.3, no right or interest of a Participant in any Award may be pledged, encumbered, or hypothecated to, or in favor of, any party other than the Company or an Affiliate, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or an Affiliate. Except as provided inSection 14.2(b) orSection 14.3, and except as otherwise provided by the Committee, no Award shall be assigned, transferred, or otherwise disposed of by a Participant other than by will or the laws of descent and distribution or pursuant to a domestic relations order (that would otherwise qualify as a qualified domestic relations order as defined in the Code or Title I of ERISA but for the fact that the order pertains to an Award) in favor of a spouse or, if applicable, until the expiration of any period during which any restrictions are applicable or any Performance Period as determined by the Committee.

                        (b)Transfers to Family Members.    The Committee shall have the authority to adopt a policy that is applicable to existing Awards, new Awards, or both, which permits a Participant to transfer Awards during his or her lifetime to any Family Member. In the event an Award is transferred as permitted by such policy, such transferred Award may not be subsequently transferred by the transferee (other than another transfer meeting the conditions set forth in the policy) except by will or the laws of descent and distribution. A transferred Award shall continue to be governed by and subject to the terms and limitations of the Plan and relevant Award Agreement, and the transferee shall be entitled to the same rights as the Participant, as if the transfer had not taken place.

            14.3BENEFICIARIES.    NotwithstandingSection 14.2, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant's death, and, in accordance withSection 11.2(b)(3), upon the Participant's Disability. A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If the Participant is married and resides in a community property state, a designation of a person other than the Participant's spouse as his beneficiary with respect to more than 50% of the Participant's interest in the Award shall not be effective without the prior written consent of the Participant's spouse. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to the Participant's will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is provided to the Company.

            14.4STOCK CERTIFICATES.    Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing shares of Stock pursuant to the exercise of any Award, unless and until the Board has determined, with advice of counsel, that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of

128GRAPHIC |      2017 Proxy Statement


Table of Contents

AMENDED 2012 PLAN

any exchange or quotation system on which the shares of Stock are listed, quoted or traded. All Stock certificates delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with Federal, state, or foreign jurisdiction, securities or other laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Committee may place legends on any Stock certificate to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Board may require that a Participant make such reasonable covenants, agreements, and representations, as the Board deems advisable in order to comply with any such laws, regulations, or requirements.

            14.5DEFERRAL PURSUANT TO DEFERRED COMPENSATION PLAN.    The Award Agreement for any Award other than an Option or Restricted Stock Award may allow the Participant to defer receipt of any compensation attributable to the Award pursuant to the terms and provisions of the Deferred Compensation Plan of 2005 for Employees of Pinnacle West Capital Corporation and Affiliates or any successor or other nonqualified deferred compensation plan. Any such Award Agreement shall comply with the requirements of Section 409A of the Code.

            14.6CLAWBACK.    Notwithstanding any provision of the Plan to the contrary, in an Award Agreement, the Committee shall include provisions calling for the recapture or clawback of all or any portion of an Award to the extent necessary to comply with applicable law in effect on the date of the Award Agreement, including, but not limited to, the final rules issued by the Securities and Exchange Commission and the New York Stock Exchange pursuant to Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Committee also may include other clawback provisions in the Award Agreement as it determines to be appropriate. By accepting an Award, each Participant agrees to be bound by, and comply with, the terms of any such recapture or clawback provisions and with any Company request or demand for recapture or clawback.


ARTICLE 15
CHANGE OF CONTROL

            15.1GENERAL RULE.    Unless the Committee with the approval of the Board provides otherwise in an Award Agreement, if a Change of Control occurs, immediately prior to the Change of Control:

                        (a)        Any and all Options and SARs granted hereunder shall become exercisable immediately before the closing of the transaction that will result in the Change of Control and all necessary steps shall be taken to allow the Participants to immediately exercise such Options or SARs so that any Stock issued upon such exercise shall be able to participate in the transaction that results in the Change of Control. If pursuant to the terms of the Award Agreement, an SAR is to be paid in cash, the SAR will be deemed to be exercised on the closing of the transaction that results in the Change of Control. The cash payment then will be made within ten days following the closing of the transaction that results in the Change of Control.

                        (b)        Any time based or other restrictions imposed on Restricted Stock or Restricted Stock Units shall lapse. All Restricted Stock Units and Stock Units shall become immediately payable and shall be paid in Stock or cash, in accordance with the terms of the

2017 Proxy Statement     |GRAPHIC 129


Table of Contents

AMENDED 2012 PLAN

applicable Award Agreement. All necessary steps shall be taken to allow any Stock issued in payment for the Restricted Stock Units or Stock Units (and any shares of Restricted Stock that become unrestricted) to participate in the transaction that results in the Change of Control. If pursuant to the terms of the Award Agreement, a Restricted Stock Unit is to be paid in cash, the Restricted Stock Unit will be settled as of the closing of the transaction that results in the Change of Control and the cash payment then will be made within ten days following the closing of the transaction that results in the Change of Control.

                        (c)        Any Awards of Performance Shares or Performance Share Units that are payable in Stock shall be converted to Stock Grants, which shall be immediately vested. All Stock payable in connection with the Stock Grant shall be issued immediately before the closing of the transaction that will result in the Change of Control and all necessary steps shall be taken to allow any Stock so issued to participate in the transaction that result in the Change of Control. In converting Performance Shares or Performance Share Units to a Stock Grant, the Participants shall receive the number of shares of Stock that would have been earned at the target level of performance; provided, however, that if, in the judgment of the Committee, the level of performance as of the last day of the month that is at least 30 days prior to the closing of the transaction that results in the Change of Control is reasonably ascertainable and such performance exceeds the target level of performance, the Participants shall receive the number of shares of Stock that would have been earned at such attained level of performance rather than the target level of performance. Whether the attained level of performance exceeds the target level will be determined on a goal-by-goal basis. For example, if four equally weighted goals are established in connection with a particular Award, and the attained level of performance exceeds the target level for one of such goals, 25% of the Award will be earned at the attained level and the remaining 75% will be earned at the target level.

                        (d)        Any Awards of Performance Share Units that are payable in cash shall become immediately vested. The Participants then shall receive a cash payment equal to the Fair Market Value of the specified number of shares of Stock payable pursuant to the Award at the target level of performance; provided, however, that if, in the judgment of the Committee, the level of performance as of the last day of the month that is at least 30 days prior to the closing of the transaction that results in the Change of Control is reasonably ascertainable and such performance exceeds the target level of performance, such attained level of performance shall be used. Whether the attained level of performance exceeds the target level will be determined on a goal-by-goal basis as further described inSection 15.1(c). The cash payment then will be made within ten days following the closing of the transaction that results in the Change of Control.

                        (e)        Performance Cash Awards shall be deemed to be satisfied and earned at the target level of performance; provided, however, that if, in the judgment of the Committee, the level of performance as of the last day of the month that is at least 30 days prior to the closing of the transaction that results in the Change of Control is reasonably ascertainable and such level and such performance exceeds the target level of performance, such attained level of performance shall be used. Whether the attained level of performance exceeds the target level will be determined on a goal-by-goal basis as further described inSection 15.1(c). Performance Cash Awards then shall be paid within ten days following the closing of the transaction that results in the Change of Control.

130GRAPHIC |      2017 Proxy Statement


Table of Contents

AMENDED 2012 PLAN

                        (f)         Any Dividend Equivalent Awards shall be paid in cash or Stock as determined in accordance with the applicable Award Agreement. All Stock payable in connection with the Dividend Equivalent shall be issued immediately before the closing of the transaction that will result in the Change of Control and all necessary steps shall be taken to allow any Stock so issued to participate in the transaction that result in the Change of Control. Any cash payment shall be made within ten days following the closing of the transaction that results in the Change of Control.

                        (g)        With respect to an Award that the Company concludes is subject to Section 409A of the Code, a Change of Control may not result in the acceleration of the timing of any payment unless the transaction that results in the Change of Control also constitutes a "change of control event" as such term is used in Treasury Regulation Section 1.409A-3(i)(5). Such transaction shall be considered to be a Change of Control for all other purposes of such an Award, however, unless prohibited by regulations issued pursuant to Section 409A. For example, such transaction will result in the lapse of any time based or other restrictions on a Restricted Stock or Restricted Stock Unit Award. If due to the above provisions the payment of an Award may not be accelerated, the Board, prior to the Change of Control, shall take such action as it in good faith determines to be necessary to assure that there will be no material impairment to either the value of the Award to the Participant or the Participant's opportunity for future appreciation in respect of such Award.

            15.2BOARD OVERRIDE.    Notwithstanding the foregoing provisions ofSection 15.1, the Board, prior to a Change of Control, 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 Participants under all or a portion of the outstanding Awards upon a Change of Control, as provided underSection 15.1 or the Award Agreement, 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, as constituted prior to the Change of Control, reasonably concludes, in good faith, that: (i) Participants holding Awards affected by action of the Board under thisSection 15.2 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 or (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 (ii) 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 Board may exercise such override authority with respect to an Award which the Company concludes is subject to (and not excepted from) the requirements of Section 409A of the Code only in a manner and to the extent permissible under Section 409A.

            15.3PARTICIPANT CONSENT NOT REQUIRED.    Nothing in thisArticle 15 or any other provision of this Plan is intended to provide any Participant with any right to consent to or object to any transaction that might result in a Change of Control and each provision of this Plan shall be interpreted in a manner consistent with this intent. Similarly, nothing in thisArticle 15 or any other provision of this Plan is intended to provide any Participant with any right to consent to or object to any action taken by the Board pursuant toSection 15.2.

2017 Proxy Statement     |GRAPHIC 131


Table of Contents

AMENDED 2012 PLAN


ARTICLE 16
AMENDMENT, MODIFICATION, AND TERMINATION

            16.1AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN.    With the approval of the Board, at any time and from time to time, the Committee may terminate, amend or modify the Plan; provided, however, that any such action of the Committee shall be subject to the approval of the shareholders to the extent necessary to comply with any applicable law, regulation, or rule of the stock exchange on which the shares of Stock are listed, quoted or traded. Except as provided inSection 4.4, neither the Board nor the Committee may, without the approval of shareholders, (i) increase the number of shares available for grant under the Plan, (ii) permit the Committee to grant Options with an exercise price that is below Fair Market Value on the Date of Grant, (iii) permit the Committee to extend the exercise period for an Option beyond ten years from the Date of Grant, (iv) amendSection 11.1(d) to permit the Committee to reprice previously granted Options, or (v) amendSection 12.1(c) to permit the Committee to reprice previously granted SARs.

            16.2AWARDS PREVIOUSLY GRANTED.    Except as provided in the next sentence, no termination, amendment, or modification of the Plan or any Award Agreement shall adversely affect in any material way the rights of the holder under any Award previously granted pursuant to the Plan without the prior written consent of the holder of the Award. The consent of the holder of an Award is not needed if the change (i) is required by law or regulation, (ii) does not adversely affect in any material way the rights of the holder, or (iii) is required to cause the benefits under the Plan to qualify as performance-based compensation within the meaning of Section 162(m) of the Code or to comply with the provisions of Section 409A of the Code and applicable regulations or other interpretive authority. Additional rules relating to amendments to the Plan or any Award Agreement to assure compliance with Section 409A of the Code are set forth inSection 17.15.

            16.3PERFORMANCE-BASED AWARDS.    Except as provided inSection 15.1, the Committee shall not have the authority to amend an Award Agreement to accelerate the vesting or waive the forfeiture restrictions of any Performance-Based Awards. In addition, the Committee shall not take any other action that would cause a Performance-Based Award to fail to satisfy the requirements of the performance-based compensation exception to the deduction limitations imposed by Section 162(m) of the Code unless the Committee concludes that the deduction limitations will not become applicable or that the amendment is appropriate despite the deduction limitations imposed by Section 162(m) of the Code.


ARTICLE 17
GENERAL PROVISIONS

            17.1NO RIGHTS TO AWARDS.    No Participant, employee, or other person shall have any claim to be granted any Award, and neither the Company nor the Committee is obligated to treat Participants, employees, and other persons uniformly.

            17.2NO SHAREHOLDERS RIGHTS.    No Award gives the Participant any of the rights of a shareholder of the Company unless and until unrestricted shares of Stock are issued to the Participant or the restrictions on any shares previously issued lapse, except as specifically otherwise provided in the Plan or the Award Agreement.

            17.3WITHHOLDING.    The Company or any Affiliate shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount

132GRAPHIC |      2017 Proxy Statement


Table of Contents

AMENDED 2012 PLAN

sufficient to satisfy Federal, state, and local taxes (including the Participant's FICA obligation) required by law to be withheld with respect to any taxable event concerning a Participant arising as a result of this Plan. With the Committee's consent as expressed in an Award Agreement or in any policy adopted by the Committee, the Company may permit the Participant to satisfy a tax withholding requirement by (a) directing the Company to withhold shares of Stock to which the Participant is entitled pursuant to the Award in an amount necessary to satisfy the Company's applicable federal, state, local or foreign income and employment tax withholding obligations with respect to such Participant, (b) tendering previously-owned shares of Stock held by the Participant for six months or longer to satisfy the Company's applicable federal, state, local, or foreign income and employment tax withholding obligations with respect to the Participant, (c) a broker-assisted "cashless" transaction, or (d) personal check or other cash equivalent acceptable to the Company.

            17.4NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE.    Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Company or any Affiliate to terminate any Participant's employment or services at any time, nor confer upon any Participant any right to continue in the employ or service of the Company or any Affiliate.

            17.5UNFUNDED STATUS OF AWARDS.    The Plan is intended to be an "unfunded" plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Affiliate. Neither the Participant nor any other persons shall have any interest in any fund or in any specific asset or assets of the Company or any other entity by reason of any Award, except to the extent provided hereunder.

            17.6RELATIONSHIP TO OTHER BENEFITS.    No payment pursuant to the Plan shall be taken into account in determining any benefits pursuant to any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Affiliate, except as otherwise provided in such plan.

            17.7EXPENSES.    The expenses of administering the Plan shall be borne by the Company.

            17.8TITLES AND HEADINGS.    The titles and headings of the sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.

            17.9FRACTIONAL SHARES.    No fractional shares of Stock shall be issued pursuant to the Plan. Unless the Committee specifies otherwise in the Award Agreement or pursuant to any policy adopted by the Committee, cash will be given in lieu of fractional Shares.

            17.10SECURITIES LAW COMPLIANCE.    With respect to any person who is, on the relevant date, obligated to file reports pursuant to Section 16 of the Exchange Act, transactions pursuant to this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors pursuant to the Exchange Act. Notwithstanding any other provision of the Plan, the Committee may impose such conditions on the exercise of any Award as may be required to satisfy the requirements of Rule 16b-3 or its successors pursuant to the Securities Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be void to the extent permitted by law and voidable as deemed advisable by the Committee.

2017 Proxy Statement     |GRAPHIC 133


Table of Contents

AMENDED 2012 PLAN

            17.11GOVERNMENT AND OTHER REGULATIONS.    The obligation of the Company to make payment of awards in Stock or otherwise shall be subject to all applicable laws, rules and regulations, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register pursuant to the Securities Act of 1933, as amended, any of the shares of Stock paid pursuant to the Plan. If the shares paid pursuant to the Plan may in certain circumstances be exempt from registration pursuant to the Securities Act of 1933, as amended, the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption. The Committee shall impose such restrictions on any Award as it may deem advisable, including without limitation, restrictions under applicable federal securities law, under the requirements of the New York Stock Exchange or any other exchange or automated quotation system upon which the Stock is then listed, quoted or traded and under any blue sky or state securities laws applicable to such Award.

            17.12GOVERNING LAW.    The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the jurisdiction of incorporation of the Company.

            17.13SUCCESSORS.    All obligations of the Company under the Plan with respect to Awards shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect merger, consolidation, purchase of all or substantially all of the business and/or assets of the Company or otherwise.

            17.14SURVIVAL OF PROVISIONS.    The rights, remedies, agreements, obligations and covenants contained in or made pursuant to this Plan, any Award Agreements and any notices or agreements made in connection with this Plan shall survive the execution and delivery of such notices and agreements and the delivery and receipt of such shares of Stock.

            17.15COMPLIANCE WITH SECTION 409A.

                        (a)General Compliance.    Some of the types of Awards that may be granted pursuant to the Plan (including, but not necessarily limited to, Restricted Stock Unit Awards, Performance Share Awards, Performance Share Unit Awards, Performance Cash Awards and Stock Unit Awards) may be considered to be "non-qualified deferred compensation" subject to the requirements of Section 409A of the Code. If an Award is subject to the requirements of Section 409A of the Code, the Company intends (but cannot and does not guarantee) that the Award Agreement and this Plan comply fully with and meet all of the requirements of Section 409A of the Code or an exception thereto and the Award Agreement shall include such provisions, in addition to the provisions of this Plan, as may be necessary to assure compliance with Section 409A of the Code or an exception thereto. An Award subject to Section 409A of the Code also shall be administered in good faith compliance with the provisions of Section 409A of the Code as well as applicable guidance issued by the Internal Revenue Service and the Department of Treasury. To the extent necessary to comply with Section 409A of the Code, any Award that is subject to Section 409A of the Code may be modified, replaced or terminated by the Committee. Notwithstanding any provision of this Plan or any Award Agreement to the contrary, in the event that the Committee determines that any Award is or may become subject to Section 409A of the Code, the Company may adopt such amendments to the Plan and the related Award Agreements, without the consent of the Participant, or adopt other policies and procedures (including amendments, policies and procedures with retroactive effective dates), or take any other action that the Committee determines to be necessary or

134GRAPHIC |      2017 Proxy Statement


Table of Contents

AMENDED 2012 PLAN

appropriate to either comply with Section 409A of the Code or to exclude or exempt the Plan or any Award from the requirements of Section 409A of the Code.

                        (b)Delay for Specified Employees.    If, at the time of a Participant's Separation from Service, the Company has any Stock which is publicly traded on an established securities market or otherwise, and if the Participant is considered to be a Specified Employee, to the extent any payment for any Award is subject to the requirements of Section 409A of the Code and is payable upon the Participant's Separation from Service, such payment shall not commence prior to the first business day following the date which is six months after the Participant's Separation from Service (or if earlier than the end of the six-month period, the date of the Participant's death). Any amounts that would have been distributed during such six-month period will be distributed on the day following the expiration of the six-month period.

                        (c)Prohibition on Acceleration or Deferral.    Under no circumstances may the time or schedule of any payment for any Award that is subject to the requirements of Section 409A of the Code be accelerated or subject to further deferral except as otherwise permitted or required pursuant to regulations and other guidance issued pursuant to Section 409A of the Code. If the Company fails to make any payment pursuant to the payment provisions applicable to an Award that is subject to Section 409A of the Code, either intentionally or unintentionally, within the time period specified in such provisions, but the payment is made within the same calendar year, such payment will be treated as made within the specified time period. In addition, in the event of a dispute with respect to any payment, such payment may be delayed in accordance with the regulations and other guidance issued pursuant to Section 409A of the Code.


GLOSSARY

            (a)        "2007 Plan" means the Pinnacle West Capital Corporation 2007 Long-Term Incentive Plan.

            (b)        "Affiliate" means any subsidiary or parent of the Company that is: (i) a member of a "controlled group of corporations" (within the meaning of Section 414(b) of the Code as modified by Section 415(h) of the Code) that includes the Company as a member of the group; or (ii) a member of a group of trades or businesses under common control (within the meaning of Section 414(c) of the Code as modified by Section 415(h) of the Code) that includes the Company as a member of the group. In applying Section 1563(a)(1), (2) and (3) of the Code for purposes of determining the members of a controlled group of corporations under Section 414(b) of the Code, the language "at least 50%" shall be used instead of "at least 80%" each place it appears in Section 1563(a)(1), (2) and (3) and in applying Treasury Regulation Section 1.414(c)-2 for purposes of determining the members of a group of trades or businesses (whether or not incorporated) that are under common control for purposes of Section 414(c) of the Code, the language "at least 50%" shall be used instead of "at least 80%" each place it appears in Treasury Regulation Section 1.414(c)-2. For purposes of determining whether an event constitutes a Change of Control as defined below, "Affiliate" status shall be determined on the day immediately preceding the date of the transaction or event.

2017 Proxy Statement     |GRAPHIC 135


Table of Contents

AMENDED 2012 PLAN

            (c)        "APS" shall mean Arizona Public Service Company, an Affiliate of the Company and (except for purposes of determining whether a Change of Control has occurred) any successor corporation.

            (d)        "Award" means any Restricted Stock, Restricted Stock Unit, Performance Share, Performance Share Unit, Performance Cash, Stock Grant, Stock Unit, Dividend Equivalent, Option or Stock Appreciation Right granted to a Participant under the Plan.

            (e)        "Award Agreement" means any written agreement, contract, or other instrument or document, including an electronic agreement or document, evidencing an Award.

            (f)         "Beneficial Owner" shall have the same meaning as given to that term in Rule 13d-3 of the General Rules and Regulations of the Exchange Act, provided that any pledgee of the voting securities of the Company or APS shall not be deemed to be the Beneficial Owner thereof prior to its disposition of, or acquisition of voting rights with respect to, such securities.

            (g)        "Board" means the Board of Directors of the Company.

            (h)        "Change of Control" means and shall be deemed to have occurred as of the date of the occurrence of any of the following events:

                        (1)        Any person, other than an Affiliate, through a transaction or series of transactions, is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company or APS representing 20% or more of the combined voting power of the then outstanding securities of the Company or APS, as the case may be; provided, however, that, for purposes of this clause (1), any acquisition directly from the Company of (A) securities of the Company or (B) securities of APS representing 40% or less of the voting power of the then outstanding securities of APS, shall not constitute a Change of Control;

                        (2)        The closing of a merger or consolidation of (A) the Company with any other corporation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or an Affiliate, less than 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) APS with any other corporation which would result in the voting securities of APS outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or an Affiliate, less than 60% of the combined voting power of the securities of APS or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; provided that, for purposes of this subparagraph (2), a merger or consolidation effected to implement a recapitalization of the Company or of APS (or similar transaction) in which no person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company or of APS representing 20% or more of the combined voting power of the then outstanding securities of the Company or of APS (excluding any securities acquired by that person directly from the Company or an Affiliate) shall not result in a Change of Control;

136GRAPHIC |      2017 Proxy Statement


Table of Contents

AMENDED 2012 PLAN

                        (3)        The sale, transfer or other disposition of all or substantially all of the assets of either the Company or APS to a person other than the Company or an Affiliate; or

                        (4)        Individuals who, as of July 31, 2008, constitute the board of directors of the Company (the "Company Incumbent Board") or of APS (the "APS Incumbent Board") cease for any reason to constitute at least two-thirds of the members of the Company or APS board of directors, as the case may be; provided, however, that for purposes of this subparagraph (4), (A)(1) any person becoming a member of the Company board of directors after July 31, 2008 whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the members then comprising the Company Incumbent Board will be considered as though such person were a member of the Company Incumbent Board and (2) the Company Incumbent Board shall not include a director whose initial assumption of office as a director was in connection with an actual or threatened election contest relating to the election of directors, and (B)(1) any person becoming a member of the APS board of directors after July 31, 2008 whose election, or nomination for election by APS' shareholder(s), was approved by a vote of at least two-thirds of the members then comprising the APS Incumbent Board or by the Company, as a majority shareholder of APS, considered as though such person were a member of the APS Incumbent Board and (2) the APS Incumbent Board shall not include a director whose initial assumption of office as a director was in connection with an actual or threatened election contest relating to the election of directors.

            Notwithstanding the foregoing, a Change of Control will not be deemed to have occurred until (i) any required regulatory approval has been obtained, and (ii) the transaction that would otherwise be considered a Change of Control closes.

            (i)         "Code" means the Internal Revenue Code of 1986, as amended.

            (j)         "Committee" means the committee of the Board designated to administer the Plan pursuant toSection 3.1.

            (k)        "Company" means Pinnacle West Capital Corporation, an Arizona corporation and (except for purposes of determining whether a Change of Control has occurred) any successor corporation.

            (l)         "Covered Employee" means an employee who is, or could be, a "covered employee" within the meaning of Section 162(m) of the Code.

            (m)       "Date of Grant" means, as determined by the Committee, the latest to occur of (i) the date as of which the Committee approves an Award, (ii) the date on which an Award to a prospective employee, officer, or non-employee member of the Board first becomes effective, or (iii) such other date as may be specified by the Committee in the Award Agreement.

            (n)        "Disability" means "disability" as that term is defined in Section 22(e)(3) of the Code unless a different definition is provided in the Award Agreement.

            (o)        "Dividend Equivalent" means a right granted to a Participant pursuant toArticle 9.

            (p)        "Exchange Act" means the Securities Exchange Act of 1934, as amended.

            (q)        "ERISA" means the Employee Retirement Income Security Act of 1974, as amended.

            (r)         "Fair Market Value" means the closing price for the Stock as reported on the New York Stock Exchange (or on any national securities exchange on which the Stock is then listed)

2017 Proxy Statement     |GRAPHIC 137


Table of Contents

AMENDED 2012 PLAN

for that date or, if no such prices are reported for that date, the closing price on the next preceding date for which such prices were reported.

            (s)        "Family Member" means a Participant's spouse and any parent, stepparent, grandparent, child, stepchild, or grandchild, including adoptive relationships or a trust or any other entity in which these persons (or the Participant) have more than 50% of the beneficial interest.

            (t)         "Incentive Stock Option" means an Option granted pursuant to and in compliance withSection 11.2.

            (u)        "Non-Qualified Stock Option" means an Option granted pursuant toSection 11.1 that is not intended to be an Incentive Stock Option.

            (v)        "Option" means a right granted to a Participant pursuant toArticle 11. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option.

            (w)       "Participant" means a person who has been granted an Award.

            (x)        "Performance-Based Award" means an Award intended to satisfy the requirements of the performance-based compensation exception to the limitations imposed by Section 162(m) of the Code on the tax deductibility of compensation payable to Covered Employees.

            (y)        "Performance Cash" means a right granted to a Participant pursuant toSection 10.3.

            (z)        "Performance Criteria" means the criteria, or any combination of the criteria, that the Committee selects for purposes of establishing the Performance Goal or Performance Goals for a Participant for a Performance Period. The Performance Criteria that will be used to establish Performance Goals for Performance-Based Awards are limited to the following: EBITDA; EBIT; costs; operating income; net income; cash flow; operating cash flow; net cash flow; fuel cost per million BTU; costs per kilowatt hour; retained earnings; budget achievement; return on equity; return on assets; return on capital employed; return on invested capital; cash available to the Company from an Affiliate or Affiliates; expense spending; O&M expense; O&M or capital per kilowatt hour; gross margin; net margin; market capitalization; customer satisfaction; revenues; financial return ratios; market share; shareholder return and/or value (including but not limited to total shareholder return); operating profits (including earnings before or after income taxes, depreciation and amortization); net profits; earnings per share; earnings per share growth; profit returns and margins; stock price; working capital; business trends; production cost; project milestones; capacity utilization; quality; economic value added; plant and equipment performance; operating efficiency; diversity; debt; dividends; bond ratings; corporate governance; and health and safety (including environmental health and safety). The Performance Criteria that will be used to establish performance goals with respect to any Award other than a Performance-Based Award that is subject toArticle 13 will include the above-listed Performance Criteria and such other criteria as may be set forth in the applicable Award Agreement. Any of the Performance Criteria may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group, indices, or any other basket of companies. Financial Performance Criteria may, but need not, be calculated in accordance with generally accepted accounting principles ("GAAP") or any successor method to GAAP, including International Financial Reporting Standards. The Committee shall, within the time prescribed by Section 162(m) of the Code, define in an

138GRAPHIC |      2017 Proxy Statement


Table of Contents

AMENDED 2012 PLAN

objective fashion the manner of calculating the Performance Criteria it selects to use for a particular Performance Period for a particular Participant.

            (aa)      "Performance Goals" means, for a Performance Period, the goals established in writing by the Committee for the Performance Period based upon the Performance Criteria. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance or the performance of a division, business unit, plant, or an individual. The Performance Goals may be stated in terms of absolute levels or relative to another company or companies or to an index or indices.

            (bb)     "Performance Period" means the one or more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant's right to, and the payment of, an Award.

            (cc)      "Performance Share" means a right granted to a Participant pursuant toSection 10.1.

            (dd)     "Performance Share Unit" means a right granted to a Participant pursuant toSection 10.2.

            (ee)      "Plan" means this Pinnacle West Capital Corporation 2012 Long-Term Incentive Plan, as it may be amended from time to time.

            (ff)        "Prior Plans" means the Pinnacle West Capital Corporation 2002 Long-Term Incentive Plan, the 2007 Plan and any other similar plan adopted by the Company at any time in the past, which has not yet lapsed or expired.

            (gg)     "Restricted Stock" means Stock granted to a Participant pursuant toSection 7.1.

            (hh)     "Restricted Stock Unit" means a right granted to a Participant pursuant toSection 7.2.

            (ii)        "Separation from Service" is a term that applies only in the context of an Award that the Company concludes is subject to Section 409A of the Code. In that limited context, the term "Separation from Service" means either: (i) the termination of a Participant's employment with the Company and all Affiliates due to death, retirement or other reasons; or (ii) a permanent reduction in the level of bona fide services the Participant provides to the Company and all Affiliates to an amount that is less than 50% of the average level of bona fide services the Participant provided to the Company and all Affiliates in the immediately preceding 36 months, with the level of bona fide service calculated in accordance with Treasury Regulation Section 1.409A-1(h)(1)(ii).

            Solely for purposes of determining whether a Participant has a "Separation from Service," a Participant's employment relationship is treated as continuing while the Participant is on military leave, medical or sick leave, or other bona fide leave of absence (if the period of such leave does not exceed six months, or if longer, so long as the Participant's right to reemployment with the Company or an Affiliate is provided either by statute or contract). If the Participant's period of leave exceeds six months and the Participant's right to reemployment is not provided either by statute or by contract, the employment relationship is deemed to terminate on the first day immediately following the expiration of such six-month period. Whether a Termination of Employment has occurred will be determined based on all of the facts

2017 Proxy Statement     |GRAPHIC 139


Table of Contents

AMENDED 2012 PLAN

and circumstances and in accordance with regulations issued by the United States Treasury Department pursuant to Section 409A of the Code.

            In the case of a non-employee member of the Board, Separation from Service means that such member has ceased to be a member of the Board. Whether an independent contractor consultant has incurred a Separation from Service will be determined in accordance with Treasury Regulation Section 1.409A-1(h).

            (jj)        "Specified Employee" means an employee who, as of the date of his or her Separation from Service, is (i) an officer of the Company or any Affiliate having an annual compensation greater than $160,000, (ii) a five-percent owner of the Company or any Affiliate, or (iii) a one-percent owner of the Company or any Affiliate having an annual compensation from the Company and all of Affiliates of more than $150,000. The dollar limitations set forth above shall be adjusted to reflect cost of living increases in accordance with Section 416(i)(1)(A) of the Code. An employee will be treated as a Specified Employee for a particular calendar year if the employee meets any of the above requirements (applied in accordance with regulations issued pursuant to Section 416 of the Code and disregarding Section 416(i)(5)) at any time during the 12-month period ending on December 31 of the prior calendar year. Whether an employee is a Specified Employee will be determined exclusively in accordance with regulations issued pursuant to Section 409A of the Code and the minutes of the October 17, 2007 meeting of the Board, as such minutes may be amended, replaced or superseded from time to time.

            (kk)      "Stock" means the common stock of the Company or any security that may be substituted for Stock or into which Stock may be changed pursuant toArticle 4.

            (ll)        "Stock Appreciation Right" or "SAR" means a right granted to a Participant pursuant toArticle 12.

            (mm)   "Stock Grant Award" means the grant of Stock to a Participant pursuant toSection 8.1.

            (nn)     "Stock Unit" means a right granted to a Participant pursuant toSection 8.2.

            (oo)     "Termination of Employment" or "Termination of Service" means the cessation of performance of services for the Company. For this purpose, transfer of a Participant among the Company and any Affiliate, or transfer from a position as a member of the Board to Employee, shall not be considered a Termination of Service or a Termination of Employment with the Company. In the context of an Award that is subject to the requirements of Section 409A of the Code, the terms "Termination of Service" and "Termination of Employment" mean a Separation from Service.

140GRAPHIC |      20172018 Proxy Statement


 

VIEW MATERIALS & VOTE SCAN TO PINNACLE WEST CAPITAL CORPORATION ATTN: JACQUE PATTERSON 400 NORTH FIFTH STREET, STA 8602 PHOENIX, AZ 85004 VOTE BY INTERNET Before The Meeting - Go to www.proxyvote.com or scan the QR Barcode above Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. During The Meeting - Go to www.virtualshareholdermeeting.com/PNW You may attend the Meeting via the Internet and vote during the Meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E18004-P85518E36330-P01184-Z71649 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. PINNACLE WEST CAPITAL CORPORATION The Board of Directors recommends you vote FOR the following: For All Withhold All For All ExceptAllAllExcept To withhold authority to vote for any individual nominee(s), mark “For"For All Except”Except" and write the number(s) of the nominee(s) on the line below. ! ! ! 1. Election of Directors Nominees: 01) 02) 03) 04) 05) 06) Donald E. Brandt Denis A. Cortese, M.D. Richard P. Fox Michael L. Gallagher R.A. Herberger, Jr., Ph.D. Dale E. Klein, Ph.D. 06) 07) 08) 09) 10) 11) Humberto S. Lopez Kathryn L. Munro Bruce J. Nordstrom Paula J. Sims David P. Wagener The Board of Directors recommends you vote FOR proposal 2: For Against Abstain The Board of Directors recommends you vote FOR proposal 4:2: ! For ! Against Abstain ! ! ! ! ! ! 4. Vote on re-approval of the material terms of the performance goals under, and approval of an amendment to, the 2012 Long-Term Incentive Plan.Abstain 2. Advisory vote to approve executive compensation as disclosed in the 20172018 Proxy Statement. The Board of Directors recommends you vote 1 Year FOR 1 YEAR on the following proposal: 2 Years 3 Years Abstain The Board of Directors recommends you vote FOR proposal 5: For Against Abstain3: ! ! ! ! ! ! ! 3. Advisory vote on the frequency of the advisory vote on executive compensation. 5. Ratify the appointment of the independent accountants for the year ending December 31, 2017.2018. ! For address changes and/or comments, please check this box and write them on the back where indicated. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature (Joint Owners) Date Signature [PLEASE SIGN WITHIN BOX] Date V.1.1Signature (Joint Owners) Date

 


Dear Shareholders, The 20172018 Annual Meeting of Shareholders of Pinnacle West Capital Corporation will be held on May 17, 2017,16, 2018, at 10:30 a.m., Mountain Standard Time. Shareholders may participate in the Annual Meeting by logging into the following web site www.virtualshareholdermeeting.com/PNW. At the meeting, shareholders will be asked to: (i) elect eleven (11)ten (10) directors to serve on the Board until the 20182019 Annual Meeting; (ii) vote on an advisory resolution to approve executive compensation as disclosed in the 20172018 Proxy Statement; (iii) vote on an advisory resolution on the frequency of future advisory votes on executive compensation; (iv) vote on re-approving of the material terms of the performance goals under, and approving of an amendment to, the 2012 Long-Term Incentive Plan; and (v)(iii) ratify the appointment of the independent accountants for the year ending December 31, 2017.2018. Your vote is important and you may vote this proxy in one of three ways - by Internet, by telephone, or by mail. The reverse side of this letter provides voting information for all three methods. Sincerely, Diane Wood Corporate Secretary IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. E18005-P85518 P_R_O X_Y_— Pi_n_n_a_c_le W_e_s_t_C_a_p_it_a_l_C_o_r_p_o_ra_t_io_nE36331-P01184-Z71649 P_R_O_X_Y — P_in_n_a_cl_e_W_e_s_t_C_a_p_it_al_C_o_r_p_o_ra_t_io_n Notice of the 20172018 Annual Meeting of Shareholders Proxy Solicited on behalf of the Board of Directors for the Annual Meeting on May 17, 201716, 2018 The undersigned hereby appoints Donald E. Brandt and David P. Falck,Jeffrey B. Guldner, individually and together, as proxies for the undersigned, each with full power of substitution, to attend the Annual Meeting of Shareholders of Pinnacle West Capital Corporation (the "Company") to be held on May 17, 201716, 2018 at ten-thirty a.m. (10:30 a.m.), Mountain Standard Time, and at any adjournment or postponement thereof, and to vote as specified in this proxy all the shares of stock of the Company which the undersigned would be entitled to vote if personally present. The proxies of the undersigned may vote according to their discretion on any other matter that may properly come before the meeting. If the undersigned has voting rights with respect to shares of Company common stock under the Pinnacle West Capital Corporation Savings Plan (the "Plan"), then the undersigned hereby directs the trustee of the Plan to vote the shares equal to the number of share equivalents allocated to the undersigned's account under the Plan on all matters properly coming before the Annual Meeting, and at any adjournment or postponement thereof, in accordance with the instructions given herein. Shares under the Plan for which instructions are not received by midnight on May 14, 2017,13, 2018, will be voted by the trustee in accordance with the plan and trust documents. This proxy will be considered to be confidential voting instructions to the Plan trustee and to any entity acting as tabulating agent for the Plan trustee. ALL SHARES OF COMMON STOCK REPRESENTED HEREBY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THOSE SHARES WILL BE VOTED FOR THE NOMINEES LISTED IN PROPOSAL 1 FOR PROPOSAL 2, FOR 1 YEAR FOR PROPOSAL 3, AND FOR PROPOSALS 42 AND 5.3. In their discretion, the proxies are authorized to vote on such other matters as may properly come before the meeting or any adjournment or postponement thereof. (If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.) (Items to be voted appear on reverse side.) V.1.1Address Changes/Comments: