Notice of 20142016 Annual Meeting of Shareholders
and Proxy Statement
Annual Meeting 20142016
May 8, 20144, 2016 – Las Vegas, Nevada
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant x Filed by a Party other than the Registrant ¨
Check the appropriate box:
| Preliminary Proxy Statement | ||
| ¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
| Definitive Proxy Statement | ||
| ¨ | Definitive Additional Materials | |
| ¨ | Soliciting Material Under Rule 14a-12 | |
Southwest Gas Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. | |||
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Notice of and Proxy Statement
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Annual Meeting
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SOUTHWEST GAS CORPORATION
5241 Spring Mountain Road
Las Vegas, Nevada 89150
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held Thursday,Wednesday, May 8, 20144, 2016
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Southwest Gas Corporation (the “Company”) will be held on Thursday,Wednesday, May 8, 2014,4, 2016, at 10:4:00 a.m.p.m. PDT, at Cili Restaurant at Bali Hai Golf Club, 5160 Las Vegas Blvd. South, Las Vegas, Nevada 89119, for the following purposes:
| (1) | To elect |
| (2) | To amend and reapprove the Company’s Restricted Stock/Unit Plan; |
| (3) | To approve an amendment to the Company’s Bylaws to reduce the upper and lower limits of the range of required directors; |
| (4) | To approve, on an advisory basis, the Company’s executive compensation; |
| To |
| To transact such other business as may properly come before the meeting or any adjournment thereof. |
The Board of Directors of the Company established March 11, 2014,8, 2016, as the record date for the determination of shareholders entitled to vote at the Annual Meeting and to receive notice thereof.
Shareholders are cordially invited to attend the Annual Meeting in person. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE VOTE THE ACCOMPANYING PROXY BY TELEPHONE, INTERNET OR MAIL AT YOUR EARLIEST CONVENIENCE. IF YOU MAIL IN YOUR PROXY, PLEASE USE THE ENCLOSED POSTAGE-PAID ENVELOPE ACCOMPANYING YOUR PROXY CARD.
The Securities and Exchange Commission rules allow the Company to furnish its proxy materials via the internet. This process reduces the costs of printing and distributing our proxy materials. Therefore, we are mailing to most of our shareholders a Notice of Internet Availability of Proxy Materials instead of a paper copy of this Proxy Statement and our 2013 Annual Report to Shareholders. The Notice contains instructions on how to access those documents via the internet. The Notice also contains instructions on how to request a paper or e-mail copy of our proxy materials, including this Proxy Statement, our Annual Report to Shareholders and a Proxy Card. All shareholders who do not receive a Notice of Internet Availability of Proxy Materials will receive a paper copy of the proxy materials by mail.
The Annual Report to Shareholders for the year ended December 31, 2013, is either enclosed or2015, and the Proxy Statement and accompanying Proxy Card are enclosed.
Directions to attend the Annual Meeting and vote in person are included on the map on page M-1 of the Notice of 2016 Annual Meeting of Shareholders and Proxy Statement.
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be held on May 4, 2016:The proxy statement, the accompanying form of proxy card, and our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, including financial statements, are available on the Internet athttp://www.swgas.com/proxymaterials.. Under rules issued by the SEC, we are providing access to our proxy materials both by sending you this full set of proxy materials and by notifying you of the availability of our proxy materials on the Internet.
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| Karen S. Haller |
| Senior Vice President/General Counsel and Corporate Secretary |
March 26, 2014
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS·
SOUTHWEST GAS CORPORATION, 2016
5241 Spring Mountain Road
Las Vegas, Nevada 89150
Important Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to Be Held on May 8, 2014
The Proxy Statement and Annual Report to Shareholders are available at
http://www.swgas.com/proxymaterials
The Annual Meeting of Shareholders of Southwest Gas Corporation (the “Company”) will be held on Thursday, May 8, 2014, at 10:00 a.m. PDT, at Cili Restaurant at Bali Hai Golf Club, 5160 Las Vegas Blvd. South, Las Vegas, Nevada 89119.
At the meeting you will be asked to elect 12 directors, to approve, on an advisory basis, the Company’s executive compensation, to reapprove and amend the Company’s Management Incentive Plan, to ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal year 2014 and to transact such other business as may properly come before the meeting or any adjournment thereof. The Company’s Board of Directors is asking for your support of the director nominees, the advisory approval of executive compensation, the reapproval and amendment of the Management Incentive Plan and the selection of PricewaterhouseCoopers LLP.
The following materials are available at the web address provided above.
Directions to attend the Annual Meeting and vote in person are included on the map on page M-1 of the Notice of 2014 Annual Meeting of Shareholders and Proxy Statement.
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What happens if the Annual Meeting is postponed or adjourned? | ||||
Compensation Program Objectives, Key Considerations and Principles | 19 | |||
Elements of Compensation Program and Why We Pay Each Element | ||||
How We Determine Amounts Paid For Each Element of Compensation Program | 22 | |||
Interaction of the Compensation Elements in Relation to the Compensation Objectives | 28 | |||
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Summary Compensation and Grants of Plan-Based Awards Tables Narrative | 32 | |||
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Jeffrey W. Shaw,John P. Hester, President and Chief Executive Officer
March 26, 2014·, 2016
Dear Shareholders:
You are cordially invited to the Annual Meeting of Shareholders of Southwest Gas Corporation (the “Company”) scheduled to be held on Thursday,Wednesday, May 8, 2014,4, 2016, at Cili Restaurant at Bali Hai Golf Club, 5160 Las Vegas Blvd. South, Las Vegas, Nevada 89119, commencing at 10:4:00 a.m.p.m. PDT. Your Board of Directors looks forward to greeting personally those shareholders able to attend.
At the meeting you will be asked to elect 1211 directors, to amend and reapprove the Company’s Restricted Stock/Unit Plan, to approve an amendment to the Company’s Bylaws to reduce the upper and lower limits of the range of required directors, to approve, on a non-binding advisory basis, the Company’s executive compensation, to reapprove and amend the Company’s Management Incentive Plan, to ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal year 2014,2016 and to transact such other business as may properly come before the meeting or any adjournment thereof. Your Board of Directors asks you to support the director nominees cast an affirmative voteand to approve the amendments to the stock plan and Bylaws, executive compensation reapprove and amend the Management Incentive Plan and ratify the selectionratification of PricewaterhouseCoopers LLP.our auditor.
It is important that your shares are represented and voted at the meeting regardless of the number of shares you own and whether or not you plan to attend. Accordingly, we request you vote the accompanying proxy by telephone, internet or mail at your earliest convenience.
Your interest and participation in the affairs of the Company are greatly appreciated.
Sincerely,
M-1
SOUTHWEST GAS CORPORATION
5241 Spring Mountain Road •· P.O. Box 98510
·Las Vegas, Nevada 89193-8510·
March 26, 2014·, 2016
We are providing these proxy materials to you in connection with the solicitation of proxies by the Board of Directors (the “Board”) of Southwest Gas Corporation (the “Company”) for the 20142016 Annual Meeting of Shareholders and for any adjournment or postponement of the Annual Meeting.
We intend to mail a Notice of Internet Availability and make this Proxy Statement and a Proxy Card available to shareholders on our website athttp://www.swgas.com/proxymaterials on or about March 26, 2014. We also will be mailing the materials to certain shareholders on or about March 26, 2014, and to those shareholders who request paper or e-mail copies of the proxy materials.•, 2016.
What is the purpose of the Annual Meeting?
At the Annual Meeting, shareholders will act upon the matters outlined in the notice of meeting and described in these materials, including the election of directors, the amendment and reapproval of the Company’s Restricted Stock/Unit Plan, the amendment of the Company’s Bylaws to reduce the limits of the range of required directors, the advisory approval of executive compensation, the reapproval and amendment of the Management Incentive Plan, the ratification of the selection of our independent registered public accounting firm and the transaction of other business, if properly presented at the meeting.
Who is entitled to vote at the Annual Meeting?
Only shareholders of record at the close of business on March 11, 2014,8, 2016, the record date for the Annual Meeting, are entitled to receive notice of and vote at the meeting. If you were a shareholder of record on that date, you are entitled to vote all of the shares that you held on that date at the meeting, or any adjournment or postponement of the meeting.
If your shares are registered directly in your name, you are the holder of record of those shares. As the holder of record, you are receiving these proxy materials directly from us and have the right to vote by mailing your Proxy Card directly to us, submitting your voting instructions via the Internet or by telephone or voting in person at the Annual Meeting. If you wish to vote in person at the Annual Meeting, you must provide proof of identification, e.g., driver���sdriver’s license, state picture identification or passport.
If you hold your shares in a brokerage account or through a bank or other holder of record, you are the beneficial owner of the shares, and the shares are held in “street name.” Your broker, bank or other holder of record (collectively referred to as “broker”) is sending these proxy materials to you. As the beneficial owner, you have the right to direct your broker how to vote by following the instructions that accompany these proxy materials or to vote in person at the Annual Meeting. If you wish to vote in person at the Annual Meeting, you must provide proof of identification, e.g., driver’s license, state picture identification or passport, and proof that you were the owner of the shares on March 11, 2014,8, 2016, e.g., original brokerage statement.
If you hold your shares indirectly in the Southwest Gas Corporation Employees’ Investment Plan (the “EIP”), you have the right to direct the EIP trustee how to vote your shares by following the instructions from the EIP trustee accompanying the Proxy Statement. If you do not direct the EIP trustee how to vote your shares, then the EIP trustee will vote your shares in the same proportion as the shares for which timely instructions were received from other EIP participants.
You have one vote for each share of the Company’s common stock (“Common Stock”) you owned as of the record date for the Annual Meeting.
If you are a registered shareholder, you can vote either in person at the Annual Meeting or by proxy whether or not you attend the meeting. To vote by proxy, you must either:
| * | Vote over the Internet at |
| * | Vote by telephone by calling toll-free 1-800-883-3382 on a touch-tone telephone and following the instructions on the enclosed Proxy Card; or |
| * | Complete the enclosed Proxy Card, sign it and return it in the enclosed postage-paid envelope. |
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If your shares are held in street name, you should follow the voting instructions provided by your bank or broker.
Can I revoke or change my vote?
Yes, you can revoke or change your vote at any time prior to the voting of your shares at the Annual Meeting by (a) casting a new vote by telephone or over the internet; (b) sending a new Proxy Card with a later date; (c) sending a written notice of revocation that is received on or prior to May 7, 20143, 2016, by mail to Wells Fargo Shareowner Services, Southwest Gas Corporation, P.O. Box 64873,64945, Saint Paul, MN 55164-9397, or by facsimile at 651-450-4026;55164-0945; or (d) voting by ballot at the Annual Meeting.
What are the Board’s recommendations?
The Board’s recommendations are set forth with the description of each proposal in this Proxy Statement. In summary, the Board recommends a vote:
| * | FOR election of the nominated slate of directors (see Proposal 1); |
| * | FOR |
| * | FOR |
| * | FOR approval, on an advisory basis, of executive compensation (see Proposal 4); and |
| * | FOR ratification of the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal year |
With respect to any other matter that properly comes before the Annual Meeting, LeRoy C. Hanneman, Jr. and Michael J. Melarkey, the proxies designated by the Board and identified in the accompanying Proxy Card, will vote all proxies granted to them at their discretion.
How many votes must be present to hold the Annual Meeting?
We will have a quorum, and will be able to conduct the business of the Annual Meeting, if the holders of a majority of the shares entitled to vote are represented in person or by proxy at the meeting. As of the record date, 46,492,91047,464,353 shares of Common Stock were outstanding and the
presence, in person or by proxy, of the holders of at least 23,246,45623,732,177 shares of Common Stock will be required to establish a quorum. Proxies received but marked as abstentions and broker non-votes will be included in the calculation of the votes considered being present at the meeting.
A “broker non-vote” occurs when a broker lacks discretionary voting power to vote on a “non-routine” proposal and a beneficial owner fails to give the broker voting instructions on that matter. The rules of the New York Stock Exchange (the “NYSE”) determine whether matters presented at the Annual Meeting are “routine” or “non-routine” in nature. The election of directors is not considered a “routine” matter. Similarly, the amendment and reapproval of the Restricted Stock/Unit Plan, the amendment to our Bylaws to reduce the limits of the required number of directors and the advisory vote to approve executive compensation and the vote on reapproval and amendment of the Management Incentive Plan are not considered “routine” matters. Therefore, beneficial owners that hold in “street name” will have to give voting instructions to their brokers in order for a broker to vote on the election of directors, the advisory vote to approve executive compensation and the reapproval and amendment of the Management Incentive Plan.those matters. The ratification of the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal year 20142016 is considered a “routine” matter, and brokers have the discretionary voting power to vote on this matter without any instructions from the beneficial owners.
What vote is required to approve each Proposal?
Directors are elected by a plurality of the votes cast. The affirmative vote of a majority of shares of Common Stock represented and voting at a duly held Annual Meeting at which a quorum is present (which shares of Common Stock voting affirmatively also constitute at least a majority of the required quorum) is necessary to amend and reapprove and amend the Management IncentiveRestricted Stock/Unit Plan, to ratify PricewaterhouseCoopers LLP’s selection as the independent registered public accounting firm for the Company for fiscal year 20142016 and to approve, on an advisory basis, the Company’s executive compensation. Although the result of the vote to approve executive compensation is non-binding, the Board will consider the outcome of the vote when making future executive compensation decisions. The affirmative vote of a majority of the outstanding shares of Common Stock is necessary to approve the proposal to amend the Company’s Bylaws to reduce the upper and lower limits of the range of required directors.
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Do I have an opportunity to cumulate my votes for director nominees?
Shareholders have cumulative voting rights for the election of directors if certain conditions are met. Shareholders entitled to vote may cumulate their votes for a candidate or candidates placed in nomination at the meeting if, prior to the voting at the meeting, notice has been given that a shareholder intends to cumulate his or her votes. A shareholder deciding to cumulate his or her votes may cast as many votes as there are directors to be elected, multiplied by the number of shares of Common Stock held by such shareholder on the record date. The votes may be cast for one candidate or allocated among two or more candidates in any manner the shareholders choose. If any shareholder has given notice of cumulative voting, all shareholders may cumulate their votes for candidates in nomination. Note, however, that cumulativeCumulative voting will have no impact on the result of the election of directors at the Annual Meeting because there is only one nominee for each of the 1211 seats on the Board.
If our proxies determine that a sufficient number of shareholders exercise cumulative voting rights to elect one or more candidates, our proxies will:
| * | determine the number of directors they can elect; |
| * | select such number from among the named candidates; |
| * | cumulate their votes; and |
| * | cast their votes for each candidate among the number they can elect. |
| * | Election of Directors: You may vote “FOR |
| * | Amendment and Reapproval of Restricted Stock/Unit Plan: You may vote “FOR,” “AGAINST,” or “ABSTAIN” with respect to the amendment and reapproval of the Restricted Stock/Unit Plan. If you “ABSTAIN” or if your shares are treated as a broker non-vote, your votes will be counted for purposes of establishing a quorum and will have no effect on the approval of the proposal. |
| * | Bylaw Amendment To Reduce Upper and Lower Limits of Range of Required Directors: You may vote “FOR,” “AGAINST,” or “ABSTAIN” with respect to the proposal to amend the Bylaws. If you “ABSTAIN” or if your shares are treated as a broker non-vote, your votes will be counted for purposes of establishing a quorum and will have the effect of a vote against the approval of the proposal. |
| * | Advisory Vote To Approve Executive Compensation: You may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to the advisory vote to approve executive compensation. The result of the vote to approve executive compensation is non-binding, and the Board will consider the outcome of the vote when making future executive compensation decisions. If you “ABSTAIN” or if your shares are treated as a broker non-vote, your votes will be counted for purposes of establishing a quorum and will have no effect on the approval of the proposal. |
| * |
| Ratification of the selection of PricewaterhouseCoopers LLP: You may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to the ratification of the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal year |
We will appoint either one or three inspectors of election in advance of the meeting to tabulate votes, to ascertain whether a quorum is present and to determine the voting results on all matters presented to Company shareholders.
What if I do not vote for any or all of the matters listed on my Proxy Card?
If you return a signed Proxy Card without indicating your vote on any or all of the matters to be considered at the Annual Meeting, your shares will be voted “FOR” the director nominees listed on the Proxy Card, “FOR” the amendment and reapproval of the Restricted Stock/Unit Plan, “FOR” the proposal to amend the Bylaws to reduce the upper and lower limits of the range of required directors, “FOR” the advisory vote to approve executive compensation “FOR” the reapproval and amendment of the Management Incentive Plan and “FOR” the ratification of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal year 2014.2016. If you
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hold your shares in “street name” and do not provide instructions to your broker, your shares will not be voted in the election of directors, in the advisory vote to approve executive compensation, with respect to the Restricted Stock/Unit Plan or with respect to the Management Incentive Planproposal to amend the Bylaw’s and will be voted inat your broker’s discretion on the ratification of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal year 2014.2016.
Are proxy materials available on the Internet?
The Notice of 20142016 Annual Meeting of Shareholders and Proxy Statement and the 20132015 Annual Report to Shareholders are available athttp://www.swgas.com/proxymaterials.
Why did I receive a Notice of Internet Availability of Proxy Materials instead of a full set of the proxy materials?
The Securities and Exchange Commission (“SEC”) rules allow us to furnish our proxy materials via the internet. Accordingly, we sent to the majorityinstead of our shareholders a Notice of Internet Availability of
Proxy Materials for this year’s Annual Meeting of Shareholders. Instructions on how to access the proxy materials via the internet or to request a paper or e-mail copy can be found in the Notice of Internet Availability of Proxy Materials athttp://www.swgas.com/proxymaterials. In addition, shareholders may request to receive proxy materials in printed form by mail or e-mail on an ongoing basis by submitting a request to us at eitherwww.investorelections.com/swx orhttp://www.swgas.com/proxymaterials. A shareholder’s election to receive proxy materials by mail or e-mail will remain in effect until the shareholder terminates it.
Why didn’t I receive a Notice of Internet Availability of Proxy Materials?
WeThis year, for our Annual Meeting, all shareholders are providing certain shareholders, including shareholders who have requested to receivebeing delivered paper copies of our proxy materials. In the past, we have, from time to time, utilized SEC rules that allow companies to furnish their proxy materials with paper copiesover the Internet, and accordingly, have sent to our shareholders an Internet Availability Notice regarding Internet availability of proxy materials for those years’ annual meetings. In the future, we may again take advantage of the proxy materials instead of, orSEC rules, and in additionsuch years, will send to a Notice ofour shareholders an Internet Availability of Proxy Materials.
Can I vote my shares by completing and returning the Notice of Internet Availability of Proxy Materials?
No. The Notice of Internet Availability of Proxy Materials does, however, provide instructions on how to vote your shares.for those years’ annual meetings.
Can the shares that I hold in a brokerage account or the EIP be voted if I do not instruct my broker or the EIP trustee?
| * | Shares held in street name: If you do not instruct your broker to vote your shares of Common Stock held in street name, your broker has the discretion to vote your shares on all routine matters scheduled to come before the Annual Meeting. If any matters to be considered at the meeting are viewed as “non-routine,” your broker does not have discretion to vote your shares and, if you do not give your broker voting instructions, your broker will vote your shares as broker non-votes. The election of directors, the advisory vote to approve executive compensation, the amendment and reapproval of the Restricted Stock/Unit Plan and the |
| * | Shares held in the EIP: If you do not provide instructions to the EIP trustee for the shares of Common Stock that you hold in the EIP, then the EIP trustee will vote your shares in the same proportion as the shares for which timely instructions were received from other EIP participants. |
Could other matters be decided at the Annual Meeting?
We do not know of any other matters that will be considered at the Annual Meeting. However, if you give your proxy and other matters are properly brought before the meeting, your shares will be voted at the discretion of the proxies, unless otherwise instructed.
What Rules of Conduct will govern the Annual Meeting?
To ensure that our Annual Meeting is conducted in an orderly fashion and the shareholders wishing to speak at the meeting have a fair opportunity to do so, we will have certain guidelines and rules for the conduct of the meeting, which we will provide to those attending the meeting.
What happens if the Annual Meeting is postponed or adjourned?
If the Annual Meeting is postponed or adjourned, your proxy will still be goodvalid and may be voted at the postponed or adjourned meeting. You will still be able to change or revoke your proxy until it is voted.
Your proxy is being solicited by the Board, and the Company will bear the entire cost of the proxy solicitation. Morrow & Co., LLC (“Morrow”), 470 West Avenue, Stamford, CT 06902 has been employed to assist in obtaining proxies from certain shareholders at an estimated cost of $8,500,$9,000, plus certain expenses. Arrangements have also been made with brokerage houses and other custodians, nominees and fiduciaries to send proxies and proxy materials to you, if your shares are held in “street name.” Morrow will reimburse them for their expenses in providing the materials to you. In addition, solicitation by our
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directors, officers or employees in person or by telephone, e-mail or facsimile may supplement solicitation of proxies. No additional compensation will be paid for such services.
Under the provisions of the California Corporations Code and the Company’s Bylaws, the Company’s business, property and affairs are managed by or under the direction of the Board. The Board is kept informed of the Company’s business through discussions with the Chief Executive Officer and other officers, by reviewing materials provided by management and by participating in Board and committee meetings.
Independence
The Board has determined that directors Boughner, Cárdenas, Chestnut, Comer, Hanneman, Maffie, Mariucci, Melarkey, Thoman, Thomas and Wright have no material relationships with the Company and are independent (“Independent Directors”). The Board has also determined that all of the members of the Audit, Compensation and Nominating and Corporate Governance Committees are independent.
In making these determinations, the Board reviewed all transactions or relationships with the Company using a definition of “material relationships” that (i) includes the criteria listed in Section 303A of the listing requirements of the NYSE and (ii) presumes that matters not subject to disclosure pursuant to Item 404 of Regulation S-K of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and matters above the Item 404 threshold which are authorized by the Company’s regulatory tariffs, are not “material relationships.” The definition of “material relationships” for directors on the Audit Committee also includes the criteria listed in Section 10A(m)(3) of the Exchange Act. The definition of “material relationships” for directors serving on the Compensation Committee also includes the criteria listed in Section 16(b) of the Exchange Act and Section 162(m) of the Internal Revenue Code (the “Code”). The independence criteria used are included in the Company’s Corporate Governance Guidelines, which are available on the Company’s website at:athttp://www.swgas.com.
The Board based its independence determination primarily on a review of the responses of the directors and officers to questions regarding employment and compensation history, affiliations and family relationships and on discussions with directors.
In concluding that the directors listed above are independent, the Board reviewed transactions involvinga transaction between the Company and Switch Ltd., a company in which director Thomas has an interest. The Nominating and Corporate Governance Committee, excluding director Thomas, has reviewed the Switch transaction annually since 2011 under the Company’s policy for related person transactions, taking into account all relevant information, and as discussed further below, has determined each year that director Maffie’s status asThomas does not have a retired executive officerdirect or indirect material interest in the transaction. The primary considerations in this determination are that the transaction represents much less than 1% of Switch’s annual revenues and director Thomas’ minority ownership position in Switch. Based on the committee’s recommendation and its own review, the Board has determined that director Thomas is an Independent Director.
The Switch transaction involves the purchase by the Company of datacenter and communications-related products and services from Switch Ltd. and certain of its affiliates (“Switch”). Director Thomas owns, either directly or indirectly, an approximate 6.6% equity interest in Switch. Director Thomas’ family members own collectively, either directly or indirectly, approximately 16.25% of the Company.equity interests of Switch. We expect to pay Switch approximately $600,000 in 2016, with the potential for increased payments thereafter. In its review of the transaction, in addition to the bases for determining that director Thomas has no direct or indirect material interest in the transaction, the Nominating and Corporate Governance Committee and the Board concluded that the following facts and circumstances further support director Thomas’ independence: (i) that the commercial relationship with Switch was negotiated on an arm’s-length basis, in the ordinary course of business; (ii) that Switch is a leading provider of the services it provides to the Company and was selected by the Company’s information services department through an RFP process, without any involvement by director Thomas; (iii) the passive nature of director Thomas’ involvement in Switch, including that he is neither an officer nor employee of Switch, he is a non-managing member of Switch, and he does not have an active role in providing services to Switch; and (iv) the immaterial dollar amounts that we have paid (or are expected to pay in fiscal year 2016) to Switch and the competitive rates at which such amounts were paid (as validated by the RFP process and the rates paid for comparable services form a third party at the Company’s other datacenter facility). Additionally, the board of directors considered the nature and scope of the relationship of director Thomas’ family with Switch, which is passive in nature and does not involve any relative of director Thomas acting as an officer or employee of Switch or in any similar capacity.
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Board Meetings
Regular Board meetings for 2014 are scheduled for the fifth Friday of January, the fourth Wednesday of February, the first Friday of August, the third Tuesday of September, the second Friday of November, and the Wednesday before the Annual Meeting of Shareholders in May. Additional meetings are called on an as-needed basis and the Board sometimes acts by written consent without a meeting. An organizational meeting is also held immediately following the Annual Meeting of Shareholders. The Board held six regular meetings one special meetingin 2015 and onean organizational meeting in 2013.immediately following the 2015 Annual Meeting of Shareholders. Each incumbent director attended more than 75% of the Board and committee meetings on which he or she served during 2013.2015. Non-management directors are expected to meet in an executive session at least four times a year, and the Independent Directors are expected to meet at least once a year. These sessions are presided over by Michael J. Melarkey, Chairman of the Board (the “Chair”), who is the current “Presiding Director.”
The policy of the Board is that the role of Chair should be separate from that of the Chief Executive Officer (“CEO”). The Chair is elected annually, at the organizational meeting, by the full Board. Every three years or upon a Chair’s resignation, retirement, or failure to be re-elected to the Board by shareholders, the Board doesconducts an in-depth assessment of potential candidates for that position. The Board believes that this leadership structure is the appropriate structure for the Company sincebecause it allows the Board to exercise true independent oversight of management. It is the Board’s intention to reelect Mr.director Melarkey as Chair, subject to his reelection as a director at the Annual Meeting of Shareholders.
The entire Board is responsible for reviewing and overseeing the Company’s internal risk management processes and policies to help ensure that the Company’s corporate strategy is functioning as directed and that necessary steps are taken to foster a culture of risk-aware and risk-adjusted decision making throughout the Company.
Regulation by various state and federal utility regulatory commissions is one of the key risks that is accepted as a part of being a public utility. The limits imposed on the Company as a public utility permeate its business operating model (including the pricing of services, the authorized areas of service and the obligations to serve the public). Other risks are associated with credit, liquidity and operational matters and have evolved with changes in the natural gas industry.
The nature of these risks and the continuing obligations imposed on the Company, as a public utility, resulted in the integration of risk assessment in the normal business oversight process. The Board receives regular reports from management in areas of material risk to the Company, including credit risk, liquidity risk and operational risk. Credit and liquidity risks are addressed in the review of capital budgets and ongoing capital requirements. Liquidity risks are also addressed in the review of gas supply acquisition and related regulatory cost recovery. Operational risks are addressed in the review of operating budgets and related regulatory compliance requirements, including pipeline safety requirements. The full Board receives these reports, as well as regular reports on the Company’s enterprise risk management program, from management to help enable it to oversee and manage the Company’s risks in these areas. This oversight responsibility rests with the full Board and is not assigned to any of the permanent committees.
The permanent Board committees are the Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee and Pension Plan Investment Committees.Committee. Each committee has established responsibilities, and the Audit, Compensation and Nominating and Corporate Governance Committees have detailed charters designed to satisfy applicable legal and regulatory requirements. The Audit, Compensation and Nominating and Corporate Governance Committees are composed solely of independent directors as outlined above. We refer to the committees of the Board by the name of the specific committee or, where it is clear by the context of the discussion, simply as the “committee.”
TheAudit Committee, whose functions are discussed here and below under the caption “Audit Committee Information,” is a separately designated standing committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. It consists of directors ComerThoman (Chair), Boughner, Chestnut, Comer, Hanneman Thoman and Thomas. The committee meets periodically with management to consider, among other things, the adequacy of the Company’s internal controls and financial reporting process. The committee also discusses these matters with the Company’s independent registered public accounting firm, internal auditors and Company financial personnel. The Board has determined that directors Comer and Thoman each qualify as an “audit committee financial expert,” as the term is defined in Item 407(d)(5)(ii) of Regulation S-K under the Exchange Act.
TheCompensation Committee is responsible for determining CEO compensation and making recommendations to the Board annually on such matters as directors’ fees and benefit programs, executive compensation and benefits and compensation and benefits for all other Company employees. The committee’s responsibilities, as outlined in its charter, cannot be delegated without Board approval. The committee receives recommendations from management on the amount
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and form of executive and director compensation; however, the committee has the ability to directly employ consultants to assess the executive compensation program. The committee is also responsible for the “Compensation Committee Report” and related disclosures contained in this Proxy Statement. The committee consists of directors Boughner (Chair), Cárdenas,Chestnut, Comer, Melarkey Thoman and Wright.
TheNominating and Corporate Governance Committee is responsible for making recommendations to the Board regarding nominees to be proposed for election as directors; evaluating the Board’s size, composition, organization, processes, practices and number of committees; and developing the criteria for the selection of directors. The committee considers written suggestions from shareholders regarding potential nominees for election as directors. The process for selecting directors
is addressed in more detail below under the caption “Selection of Directors.” The committee is also charged with the responsibility of developing and recommending to the Board corporate governance principles and implementing and monitoring compliance programs forwith the Company.Company’s Code of Business Conduct and Ethics. The committee consists of directors Hanneman (Chair), Cárdenas, Mariucci, Melarkey, ThomasThoman and Wright.
ThePension Plan Investment Committeeestablishes, monitors and oversees, on a continual basis, asset investment policy and practices for the Company’s defined benefit retirement plan. The committee consists of directors Mariucci (Chair), Cárdenas, Chestnut, ComerShaw and Maffie.Thomas.
During 2013,2015, the Audit Committee held six meetings, the Compensation Committee held four meetings, the Nominating and Corporate Governance Committee held threefour meetings and the Pension Plan Investment Committee held fourthree meetings.
The charters for the Audit, Compensation and Nominating and Corporate Governance Committees, the Company’s Corporate Governance Guidelines and the Company’s codeCode of business conductBusiness Conduct and Ethics that applies to all employees, officers and directors are available on the Company’s website at:athttp://www.swgas.com. Print versions of these documents are available to shareholders upon request directed to the Corporate Secretary, Southwest Gas Corporation, 5241 Spring Mountain Road, Las Vegas, NV 89150.
We believe the Board should be composed of individuals with varied, complementary backgrounds, who possess certain core competencies, some of which may include broad experience in business, finance or administration, and familiarity with national and international business matters and the energy industry. Additional factors that will be considered in the selection process include the following:
| * | Independence from management; |
| * | Diversity, age, education and geographic location; |
| * | Knowledge and business experience; |
| * | Integrity, leadership, reputation and ability to understand the Company’s business; |
| * | Existing commitments to other businesses and boards; and |
| * | The current number and competencies of our existing directors. |
We define “diversity” in a broad sense, i.e., age, race, color, gender, nationalgeographic origin, ethnic background, religion, disability and disability.professional experience. Neither the Nominating and Corporate Governance Committee nor the Board has a policy with regard to the consideration of diversity in identifying director nominees. However, the Nominating and Corporate Governance Committee takes diversity into consideration as it does the other factors listed above in selecting the director nominees for approval by the Board. The Nominating and Corporate Governance Committee does not assign a specific weight to any one factor.
The Nominating and Corporate Governance Committee will consider director candidates suggested by shareholders by applying the criteria for candidates described above and considering the additional information referred to below. Shareholders who would like to suggest a candidate should write to the Company’s Corporate Secretary and include:
| * | A statement that the writer is a shareholder and is proposing a candidate for consideration as a director nominee; |
| * | The name of and contact information for the candidate; |
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| * | A statement of the candidate’s business and educational experience; |
| * | Information regarding each of the factors listed above, sufficient to enable the committee to evaluate the candidate; |
| * | A statement detailing any relationship between the candidate and the Company, Company affiliates and any competitor of the Company; |
| * | Detailed information about any relationship or understanding between the proposing shareholder and the candidate; |
| * | Information on the candidate’s share ownership in the Company; and |
| * | The candidate’s written consent to being named a nominee and serving as a director, if elected. |
When seeking a candidate for director, the Nominating and Corporate Governance Committee may solicit suggestions from incumbent directors, management or others. The committee may also retain a search firm to identify potential candidates.
The Nominating and Corporate Governance Committee has an ongoing program of identifying potential director candidates throughout the Company’s service territories. As candidates are identified, their qualifications are reviewed in light of the selection criteria, as outlined above. Whether any of such candidates are selected depends upon the current director composition, the dynamics of the Board and the ongoing requirements of the Company.
Shareholders may also nominate a person for election to the Board at an annual meeting by giving written notice to the Company not less than 120 days prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting, or within 10 days after notice is mailed or public disclosure is made regarding either a change of the annual meeting by more than 30 days or a special meeting at which directors are to be elected. In order to make such a nomination, a shareholder is required to include in the written notice the following:
| * | As to each person whom the shareholder proposes to nominate for election or reelection as a director, all the information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required pursuant to Regulation 14A of the Exchange Act; |
| * | Each person’s written consent to being named a nominee and serving as a director, if elected; |
| * | The name and address of the proposing shareholder or beneficial owner; and |
| * | The class and number of shares of the Company’s Common Stock held directly or indirectly by the proposing shareholder. |
There have been no director nominees submitted by shareholders for consideration for election at this year’s Annual Meeting of Shareholders, and the deadline for submissions has passed.
Transactions with Related Persons
The Company has written policies and procedures for the review, approval and ratification of transactions with related persons. The policy addresses transactions in which the Company was or is a participant, the amount exceeds $120,000 and a related person had or will have a direct or indirect material interest. The definition of “related person” includes any director, officer, nominee for director or five percent beneficial owner and any of their immediate family members. These transactions will be reported to the Company’s General Counsel, reviewed by the Nominating and Corporate Governance Committee and approved or ratified only if the committee determines that the transaction is not inconsistent with the best interests of the Company. The policy, included in the Company’s Corporate Governance Guidelines, is available on the Company’s website at:athttp://www.swgas.com.
Each transaction with a related person is unique and must be assessed on a case-by-case basis. In determining whether or not a transaction is inconsistent with the best interests of the Company, the Nominating and Corporate Governance Committee considers all of the relevant facts and circumstances available to the committee, including without limitation:
| * | The related person’s interest in the proposed transaction; |
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| * | The approximate dollar value of the amount involved in the proposed transaction; |
| * | The approximate dollar value of the amount of the related person’s interest in the proposed transaction without regard to the amount of any profit or loss; |
| * | Whether the transaction is proposed to be, or was, undertaken in the ordinary course of business of the Company; |
| * | Whether the transaction is proposed to be, or was, entered into on terms no less favorable to the Company than terms that could have been reached with an unrelated third party; |
| * | The purpose of, and the potential benefits to the Company from, the transaction; |
| * | The impact on a director’s independence in the event the related person is a director, an immediate family member of a director or an entity in which a director is a partner, shareholder or executive officer; and |
| * | Any other information regarding the transaction or the related person in the context of the proposed transaction that would be material to investors in light of the circumstances of the particular transaction. |
The Company was engaged in three transactions withone reportable related personsperson transaction during 2013. One involves a commercial lease for a Company payment center with an entity in which Mr. Thomas has an interest.2015. The second involves the purchase of communications-related products and services from Switch, a company in which Mr. Thomas has an interest. The thirdtransaction involves a consulting agreement with an entity owned by Dr. Joseph W. Haller, the spouse of Karen S. Haller, the Company’s General Counsel and Corporate Secretary.
The lease of commercial property for a Company payment center is for five years and began in 2009 at an initial monthly rental rate of approximately $6,500. There are approximately 2 months left on the lease term, and the Company has decided not to renew the lease. The current monthly rental rate is approximately $7,500 following the application of the annual minimum rent increase, and the total lease payments over the life of the lease will be approximately $450,000, plus a pro rata share of
operating and other expenses. Mr. Thomas and his siblings have a 20% interest in the entity that is leasing the commercial property to the Company, through their ownership in Thomas & Mack Co., LLC. The amount of property subject to the lease and annual revenues flowing through to Thomas & Mack Co., LLC, is insignificant in relation to its commercial property holdings and associated annual revenues. The Nominating and Corporate Governance Committee determined that the lease transaction was not material.
The Company purchases, in arm’s length negotiated, ordinary course commercial transactions, communications-related products and services from Switch pursuant to an agreement that became effective in 2011. Mr. Thomas owns, either directly or indirectly, an approximate 6.6% equity interest as a passive investor in SCG. Mr. Thomas’ family members own collectively, either directly or indirectly, approximately 16.25% of the equity interests of SCG. Mr. Thomas does not actively engage in the management of SCG or SBS. Mr. Thomas’ sibling, who is affiliated with SCG, is not involved in the daily business operations or decisions of SCG and does not perform any policy-making functions for SCG. Additionally, Mr. Thomas’ sibling is not and never has been an employee of SCG and none of the employees or contractors of SCG report to him. We expect to pay Switch approximately $525,000 in 2014, with incremental annual increases thereafter. The transaction with Switch is expected to represent less than 1% of Switch’s consolidated revenue in each year over the life of the agreement. The Nominating and Corporate Governance Committee determined that this transaction was not material.
The agreement the Company entered into with Dr. Haller in 2008 was designed to secure computer application development/support for the Company’s transmission pipeline integrity management program and engineering data analysis services. The agreement has been extended multiple times, including in November 2012 for calendar year 2013, at anCompany’s actual cost of $155,000, and inunder the agreement for 2015 was $150,583. In December 20132015, the agreement was renewed for the calendar year 2014,2016 at an expected cost of $175,000. The Nominating and Corporate Governance Committee determined that Ms. Haller has a direct material interest in the transaction; however, consistent with the Company’s related person transaction policy, the committee determined that entering into and continuing the agreement is not inconsistent with the best interests of the Company. Given the valuable skill set that Dr. Haller possesses, the Company anticipates that the agreement may continue to be extended periodically.
Directors and Officers Share Ownership Guidelines
In order to better align the interests of management and the Board with that of all shareholders, the Company has adopted Common Stock ownership guidelines for directors and officers.
Each outside director is required to retain at least five times the value of his or her annual cash retainer in Company Common Stock (or equivalents), and a portion of this ownership requirement equal to at least two times the annual cash retainer must be Company Common Stock purchased by the outside director. Each outside director is required to fulfill the purchase requirement within two years of beginning service on the Board. All equity compensation received by each outside director must be held until end of service on the Board. All outside directors are currently in compliance with these guidelines.
Each Company officer is required to accumulate Company Common Stock with a target value equal to a multiple of the officer’s base salary, ranging from one times base salary for vice presidents, three times base salary at the senior vice president level and above and five times base salary for the Chief Executive Officer. If an officer has not yet reached the applicable target ownership requirement, he or she is required to retain a portion of the shares of Company Common Stock acquired from any stock option exercise or the vesting of restricted stock units or performance shares. The applicable retention rate is 75% for the Chief Executive Officer and 50% for all other officers. Qualified shares
include Common Stock owned directly by the officer or his or her spouse, Company Common Stock held by the officer or his or her spouse in the Company’s 401(k) or Dividend Reinvestment Plan and performance-based restricted stock units and performance shares which have been granted but are subject to time vesting requirements. All officers are currently in compliance with these guidelines.
Compensation Committee Interlocks and Insider Participation
Board members who served on the Compensation Committee during 20132015 were directors Boughner, Cárdenas,Chestnut, Comer, Melarkey, Thoman and Wright. None of the membersthese directors has ever been an officer or employee of the Company or any of its subsidiaries, and no “compensation committee interlocks” existed during 2013.2015. No member of the Compensation Committee had any relationship requiring disclosure under any paragraph of Item 404 of Regulation S-K of the Exchange Act.
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Director Attendance at Annual Meetings
We normally schedule Board meetings in conjunction with each Annual Meetingannual meeting of Shareholdersshareholders and each director nominee is expected to attend the Board meetings and the Annual Meetingannual meeting of Shareholders.shareholders. Last year, all of the directors attended the 20132015 Annual Meeting of Shareholders.
Any shareholder and other interested parties who would like to communicate with the Board, the Presiding Director or any individual director can write to:
Southwest Gas Corporation
Corporate Secretary
5241 Spring Mountain Road
P.O. Box 98510
Las Vegas, NV 89193-8510
Depending on the subject matter, the Corporate Secretary will either:
| * | Forward the communication to the director or directors to whom it is addressed; |
| * | Attempt to handle the inquiry directly, for example, where it is a request for information about the Company or a stock-related matter; or |
| * | Not forward the communication, if it is primarily commercial in nature, or if it relates to an improper or irrelevant topic. |
If the communication is addressed to the Presiding Director, the communication will be forwarded directly to the Presiding Director and will not be processed by the Corporate Secretary. At each regular Board meeting, management presents a summary of all communications received since the last Board meeting which were not previously forwarded and such communications are made available to all of the directors.
(Proposal 1 on the Proxy Card)
The Board of Directors Recommends a Vote FOR Election of the Director Nominees.
Names, Qualifications and Reasons for Selection of Nominees
Each director elected at an annual meeting will serve until the next annual meeting and until his or her successor is elected and qualified. Each of the nominees was elected to his or her present term of office at the 20132015 Annual Meeting. The authorized number of directors is currently fixed at 12. Mr. Shaw will not be nominated for reelection at this year’s Annual Meeting. As a result, the Board has determined to fix the number of authorized directors at 11, effective upon the election of directors at the Annual Meeting.
The director nominees, as outlined below, possess core competencies in the areas of business, finance and administration and have a familiarity with regional and national business matters and the energy industry. The nominees, as a group, have integrity, varying ages, experience in accounting and construction in both residential and commercial markets and reside or do business in a cross-section of the Company’s service territories.
The 1211 nominees for director receiving the highest number of votes, a plurality, will be elected to serve until the next Annual Meeting. The names of the nominees, their principal occupation and the Board’s reasons for their selection are set forth on the following pages. Except as noted, each of the nominees has held the position below his or her name for at least the past five years.
Robert L. Boughner
Executive Vice President and Chief Business Development Officer
Boyd Gaming Corporation
Director Since: 2008
Board Committees: Audit, Compensation (Chair)
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Mr. Boughner, 61,63, has also beenserved as a director of the Boyd Gaming Corporation (“Boyd”) since April 1996 a company with which heand has more than 25 years of senior management experience.experience with Boyd. Mr. Boughner announced that he will retire, effective summer 2016, from serving as Boyd’s Executive Vice President and Chief Business Development Officer, a position he has held since December 2009, but he will remain a member of Boyd’s board of directors following his retirement. Additionally, from January 2009 through November 2012, Mr. Boughner served as the President and Chief Operating Officer of Marina District Development Company LLC (“MDDC”), the limited liability company formed as part of a 50-50 joint venture betweenof Boyd and MGM Resorts International. MDDC owns and operates the Borgata Hotel Casino and Spa and the Water Club in Atlantic City, New Jersey. He also served as President and Chief Executive Officer of Boyd’s Echelon Place project, from July 2005 through the sale of the project in March 2013. Prior to his work on Echelon, Mr. Boughner held the position of Chief Executive Officer of MDDC from January 1999 through June 2006. Prior to his initial service with MDDC, Mr. Boughner served as Chief Operating Officer and Senior Executive Vice President of Boyd, from April 1990 and May 1998, respectively, through October 2001. He is active in civic and industry affairs and currently servesrecently served on the board of directors of Bank of Nevada.Western Alliance Bank.
The Board determined that Mr. Boughner should serve as a director of the Company because of his business and leadership experience with Boyd both in Nevada and nationally, as well as his experience as a director of Boyd and the Bank of Nevada.
José A. Cárdenas
Senior Vice President and General Counsel
Arizona State University
Director Since: 2011
Board Committees: Compensation,Nominating and Corporate Governance, Pension Plan Investment
Mr. Cárdenas, 61,63, has been Senior Vice President and General Counsel for Arizona State University (“ASU”) since January 2009. In addition to serving as chief legal officer of the University, he serves as a University representative on and to the boards of directors of ASU affiliated and related entities such as the ASU Foundation. From 1982 through 2008, Mr. Cárdenas was a partner in the Phoenix based law firm of Lewis and Roca. He was the firm’s Managing Partner (CEO)managing partner (chief executive) from 1999 to 2003 and then the firm’s Chairmanchairman from 2003 through 2008.
Mr. Cárdenas is a native of Las Vegas, Nevada. He received his undergraduate degree from the University of Nevada, Las Vegas in 1974 and a law degree from Stanford University Law School in 1977. Mr. Cárdenas has been admitted to practice law in Arizona, California, the Ninth Circuit Court of Appeals and the United States Supreme Court and is a member of various bar associations, including the Hispanic National Bar Association. Mr. Cárdenas is a member of the board of directors of Meridian Bank N.A. His manySwift Transportation Company (NYSE: SWFT). He is active in community and charitable activities, include hisincluding service as a trustee of the Virginia G. Piper Charitable Trust. He is a past chairman of the boards of Greater Phoenix Leadership, Valley of the Sun United Way, the Translational Genomics Research Institute and O’Connor House.
The Board determined that Mr. Cárdenas should serve as a director because of his business and legal experience and his leadership abilitiesexperience as a director of Swift Transportation Company and as a trustee or chairman for a number of private foundations and institutes and his diversity.institutes.
Thomas E. Chestnut
Retired Construction Executive
Director Since: 2004
Board Committees: Audit, Pension Plan InvestmentCompensation
Mr. Chestnut, 63,65, was the owner, President and Chief Executive Officer of Chestnut Construction Company from 1990 until 2013. After serving in Vietnam with the U.S. Army, he began a career in the construction industry in 1972 with Del Webb Corporation. Leaving Del Webb in 1980 as Manager of Commercial Operations, Mr. Chestnut took a position with The Wray Company, a commercial contractor and wholly owned subsidiary of Weyerhaeuser Company. He remained with Wray until 1990 when he founded Chestnut Construction Company in Tucson, Arizona. Mr. Chestnut is a past president and life director of the Arizona Builders Alliance and a past president of the Arizona Building Chapter of the Associated General Contractors of America. He is a past chair and life trustee of the Carondelet Foundation, a member and past president of the Tucson Conquistadors and a member and past director of the Centurions of St. Mary’s Hospital. Mr. Chestnut was named the 2001 Tucson Small Business Leader of the Year by the Tucson Metropolitan Chamber of Commerce and the 2002 Arizona Small Business Person of the Year by the United States Small Business Administration.
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The Board determined that Mr. Chestnut should serve as a director of the Company because of his business experience in the residential and commercial construction businesses, his leadership experience in managing his construction business and his commitment to civic and charitable organizations in southern Arizona. In addition, the Board has based its recommendation on his knowledge of the business and operations of the Company, resulting from his service as a director since 2004.
Stephen C. Comer
Retired Managing Partner
Deloitte & Touche LLP
Director Since: 2007
Board Committees: Audit, (Chair), Pension Plan InvestmentCompensation
Mr. Comer, 64,66, received his degree in business administration from California State University Northridge in 1972. He began his career with Arthur Andersen LLP in Los Angeles and established Arthur Andersen’s Las Vegas office, as its managing partner, in 1985. Leaving Arthur Andersen in 2002, Mr. Comer took a position as partner with Deloitte & Touche LLP and was promoted to managing partner of its Nevada practice in 2004. He retired in 2006. He serves as a director of Pinnacle Entertainment, Inc. (NYSE: PNK). He is a member of the American Institute of Certified Public Accountants and the Nevada Society of Certified Public Accountants and holds professional CPA licenses in the states of California (inactive) and Nevada. He is also involved in numerous civic, educational and charitable organizations.
The Board determined that Mr. Comer should serve as a director of the Company because of his business, accounting and auditing experience with Arthur Andersen LLP and Deloitte & Touche LLP and his leadership positions with both entities, as well as his experience as a director of Pinnacle Entertainment, Inc.
LeRoy C. Hanneman, Jr.
Retired Construction Executive
Private Investor
Director Since: 2009 (also Director September 2003 to March 2008)
Board Committees: Audit, Nominating and Corporate Governance (Chair)
Mr. Hanneman, 67,69, received his undergraduate degree in construction engineering from Arizona State University. From 2002 until his retirement in 2010, he was the Chief Executive Officer and managing member of Element Homes, L.L.C., a homebuilding and real estate development company with projects in the metropolitan Phoenix, Arizona area. Mr. Hanneman is a 35-year veteran of the housing industry and former President, Chief Operating and Executive Officer of Del Webb Corporation. Mr. Hanneman left Del Webb Corporation after its merger with Pulte Homes Corporation in 2001. He has served on a number of charitable organization boards including United Way, Boy Scouts of America and Boys & Girls Clubs of America.
The Board determined that Mr. Hanneman should serve as a director of the Company because of his business and leadership experience in the housing industry with Del Webb Corporation throughout the Company’s service territory.
Michael O. MaffieJohn P. Hester
RetiredPresident and Chief Executive Officer
Southwest Gas Corporation
Director Since: 19882015
Board Committees: Pension Plan InvestmentNone
Mr. Maffie, 66, joined the Company in 1978 as Treasurer after seven years with Arthur Andersen & Co. He was named Vice President/Finance and Treasurer in 1982, Senior Vice President and Chief Financial Officer in 1984, Executive Vice President in 1987, President and Chief Operating Officer in 1988, andHester, 53, has been President and Chief Executive Officer since March 2015 and was named President in 1993.August 2014. Mr. Maffie continuedHester joined the Company in 1989, and has been named to servevarious positions at the Company, such as ChiefDirector/Regulatory Affairs and Systems Planning in 2002, Vice President/Regulatory Affairs and Systems Planning in 2003, Senior Vice President/Regulatory Affairs and Energy Resources in 2006, and Executive Officer until his retirementVice President in 2004.2013. Prior to joining Southwest Gas, he worked at the Illinois Department of Energy and Natural Resources, as well as the Illinois Commerce Commission. He received his undergraduate degreebachelor’s and master’s degrees in accounting and his MBA in financeeconomics from Northern Illinois University. Mr. Hester currently serves on the UniversityOpportunity Village Foundation Board of Directors, the Catholic Charities of Southern California. He previously served as a directorNevada Board of Boyd Gaming Corporation, Del Webb Corporation and Wells Fargo Bank/Nevada Division. A member of various civic and professional organizations, he served as chairman ofTrustees, the board of trustees of the UNLV Foundation and is a past chairman of the board of United WayCollege of Southern Nevada. He was formerly a directorNevada Foundation Board of the Western Energy InstituteTrustees and the American Gas Association.Las Vegas Metro Chamber of Commerce Board of Trustees.
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The Board determined that Mr. MaffieHester should serve as a director because, as President and Chief Executive Officer of the Company, becausehe has an intimate working knowledge of his business and leadership experience in all aspects of the Company’s operations, his experience as a director of the Company since 1988 and other public companies, as well as his commitment to civic and charitable organizations in southern Nevada.operations.
Anne L. Mariucci
Retired Construction Executive
Private Investor
Director Since: 2006
Board Committees: Nominating and Corporate Governance, Pension Plan Investment (Chair)
Ms. Mariucci, 56,58, has over 30 years of experience in homebuilding and real estate. Prior to 2003, Ms. Mariucci held a number of senior executive management roles with Del Webb Corporation and was responsible for its large-scale community development and homebuilding business. She also served as President of Del Webb following its merger with Pulte Homes, Inc. in 2001 until 2003. Since 2003, she has been affiliated with the private equity firms Hawkeye Partners (Austin, Texas) and Glencoe Capital (Chicago, Illinois). Ms. Mariucci received her undergraduate degree in accounting and finance from the University of Arizona and completed the corporate finance program at the Stanford University Graduate School of Business. She spent the majority of her professional career in the large-scale community development and homebuilding business. Ms. Mariucci was employed by Del Webb Corporation in 1984 and served in a variety of senior management capacities, culminating in President. She retired from Del Webb’s successor Pulte Homes, Inc. in 2003, became a private investor and, together with two partners, founded lnlign Capital Partners, a private equity firm investing in privately held companies. She is also affiliated with private equity firms Hawkeye Partners in Austin, Texas and Glencoe Capital in Chicago, Illinois.
Ms. Mariucci serves on the Arizona Board of Regents and is its former chairman. She also serves as a director of Corrections Corporation of America (NYSE:CXE), Taylor Morrison Home Corporation (NYSE:TMHC), the University of ArizonaBanner Health, Network (UAHN), the Arizona State University Foundation and the Fresh Start Women’s Foundation. Ms. Mariucci is a past chairman of the Arizona Board of Regents and served on the board from 2006 to 2014. She is a past director of the Arizona State Retirement System, Scottsdale Healthcare and Action Performance Companies, as well as a past Trusteetrustee of the Urban Land Institute.
The Board determined that Ms. Mariucci should serve as a director of the Company because of her diversityexperience as a director of other publicly traded companies and her business and financial experience in the housing industry with Del Webb Corporation and Pulte Homes throughout the Company’s service territories, as well as her commitment to government, civic and charitable organizations throughout Arizona.
Michael J. Melarkey
Retired Partner
Avansino, Melarkey, Knobel, Mulligan & McKenzie
Chairman and Manager
Pioneer Crossing Casinos
Director Since: 2004
Chairman of the Board
Board Committees: Compensation, Nominating and Corporate Governance
Mr. Melarkey, 64,66, was a partner in the law firm of Avansino, Melarkey, Knobel, Mulligan & McKenzie for more than 35 years until the firm’s merger in July 2015 with McDonald, Carano and Wilson, a statewide Nevada law firm (MCW). He received his undergraduate degree from the University of Nevada, Reno, his law degree from the University of San Francisco and his masters in laws in taxation from New York University. He has beenMr. Melarkey was actively engaged in private legal practice in Reno, Nevada since 1976.from 1976 until his firm’s merger with MCW. Following the merger, Mr. Melarkey was named Of Counsel with MCW and also became employed by the Pioneer Crossing Casinos as Chairman and Manager. Mr. Melarkey is a former member of the American Bar Association and the International Association of Gaming Lawyers and is licensed to practice law in the State Bar of Nevada. He is a trustee of the Bretzlaff Foundation, the Robert S. and Dorothy J. Keyser Foundation, the Roxie and Azad Joseph Foundation and the E. L. Wiegand Trust. He is Vice President of Miami Oil Producers, Inc. and has ownership interests in the Pioneer Crossing Casino in Fernley, Nevada, the Pioneer Crossing Casino in Dayton, Nevada, and the Pioneer Crossing Casino in Yerington, Nevada. He also serves as a director of the Bancroft Fund, Ltd., the Ellsworth Growth and Income Fund, Ltd., the Gabelli Dividend & Income Trust, the Gabelli Global Utility and Income Trust, GDL Fund, the GAMCO Global Gold, Natural Resources & Income Trust by Gabelli, and the GAMCO Natural Resources, Gold & Income Trust by Gabelli, all closed-end mutual funds.
The Board determined that Mr. Melarkey should serve as a director because of his business and legal experience, his leadership abilities as a trustee for a number of private foundations and as a director of a number of closed-end mutual funds. In addition, the Board has based its recommendation on his knowledge of the business and operations of the Company, resulting from his service as a director since 2004.
Jeffrey W. Shaw
President and Chief Executive Officer
Southwest Gas Corporation
Director Since: 200413
Board Committees: None
Mr. Shaw, 55, received his degree in accounting from the University of Utah. He has been President and Chief Executive Officer since July 2012. He was named Chief Executive Officer and a director of the Company in 2004. Previously, Mr. Shaw, a CPA, held various positions at the Company, including Director of Internal Audit, Controller and Chief Accounting Officer, Vice President/Controller and Chief Accounting Officer, Vice President and Treasurer, Senior Vice President/Finance and Treasurer, Senior Vice President/Gas Resources and Pricing, and President. Mr. Shaw worked for Arthur Andersen & Co. in its Dallas and Las Vegas offices prior to joining Southwest Gas. He is a member of the American Institute of Certified Public Accountants, the Nevada Society of CPAs and the Leadership Las Vegas Alumni Association. Mr. Shaw serves on the boards of the American Gas Association, the UNLV Foundation, the Council for a Better Nevada and the Las Vegas Economic Club and is a past President and current board member of both the Western Energy Institute and the Las Vegas Area Council of the Boy Scouts of America. In March 2014, Mr. Shaw was elected to the board of directors of National Fuel Gas Company (NYSE:NFG).
The Board determined that Mr. Shaw should serve as a director because, as President and Chief Executive Officer of the Company, he has an intimate working knowledge of all aspects of the Company’s operations.
A. Randall Thoman
Retired Partner
Deloitte & Touche LLP
Director Since: 2010
Board Committees: Audit Compensation(Chair), Nominating and Corporate Governance
Mr. Thoman, 62,64, received his degree in accounting from the University of Utah and has been a Certified Public Accountant for more than 30 years. He began his career with Deloitte & Touche LLP and became a Partner in June 1991. For 15 years, Mr. Thoman was the Partner with primary responsibility for the technical interpretation and application of accounting principles and audit standards and the review of all reporting issues and financial statements for Nevada-based companies registered with the SEC. Mr. Thoman retired from Deloitte & Touche LLP in October 2009. He currently serves on the Audit Committee of SLS Hotel & Casino Las Vegas. Mr. Thoman also served on the board of SHFL Entertainment, Inc. until its acquisition in 2013.
The Board determined that Mr. Thoman should serve as a director of the Company because of his business, accounting and auditing experience with Deloitte & Touche LLP and his leadership positions at the firm, his experience with SEC reporting and compliance, as well as his experience as a former director of several non-profit entities.
Thomas A. Thomas
Managing Partner
Thomas & Mack Co. LLC
Director Since: 2008
Board Committees: Audit, Nominating and Corporate GovernancePension Plan Investment
Mr. Thomas, 56,58, received his undergraduate degree in Financefinance and his juris doctorate from the University of Utah. After obtaining his law degree, he joined Valley Bank of Nevada and held various executive positions with the bank until its merger with Bank of America in 1992. After the merger, he became managing partner of Thomas & Mack Co., an investment management and commercial real estate development company with properties and developments in Nevada, California, Arizona, and Utah. Mr. Thomas is actively involved in numerous charitable organizations including the Opportunity Village Foundation, the UNLV Foundation Advisory Board, the Las Vegas Rotary Club and the Las Vegas Area Council of the Boy Scouts of America. He is a member of the Nevada Bar Association and was instrumental in establishing the Thomas & Mack Legal Clinic and Moot Court Facility at the UNLV Boyd School of Law.
The Board determined that Mr. Thomas should serve as a director because of his banking and business experience, his familiarity with the commercial markets throughout the Company’s service territories and his commitment to civic and charitable organizations in southern Nevada.
Terrence “Terry” L. Wright
Owner/Chairman of the Board of Directors
Nevada Title Company
Director Since: 1997
Board Committees: Compensation, Nominating and Corporate Governance
Mr. Wright, 64,66, received his undergraduate degree in business administration and his juris doctorate from DePaul University. He joined Chicago Title Insurance Company while in law school and after graduation remained with the company and eventually moved to its Las Vegas, Nevada office. In 1978, he acquired the assets of Western Title to form what is now Nevada Title Company. Mr. Wright is the chairman of the board and majority owner of Westcor Land Title Insurance Company, which is licensed to issue policies of title insurance in 4348 states. He is a member of the California and Illinois bar associations and has served on the board of directors for Nevada Land Title Association and the Tournament Players Club at Summerlin. He is a past chairman of the Nevada Development Authority, the Nevada Chapter of the Young President’sPresidents’ Organization, the UNLV Foundation and the Council for a Better Nevada. Mr. Wright also serves on the board of directors of Golden Entertainment (NASDAQ: GDEN).
The Board determined that Mr. Wright should serve as a director because of his business and leadership experience with Nevada Title Company and Westcor Land Title Insurance Company, his familiarity with residential and commercial markets throughout the Company’s service territories, as well as his commitment to civic and charitable organizations in
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southern Nevada. In addition, the Board has based its recommendation on his knowledge of the business and operations of the Company, resulting from his service as a director since 1997.
Securities Ownership by Directors, Director Nominees, Executive Officers, and Certain Beneficial Owners
Directors, Director Nominees and Executive Officers. The following table discloses all Common Stock beneficially owned by the Company’s directors, the nominees for director and the executive officers of the Company, as of March 1, 2014.8, 2016.
Directors, Nominees & Executive Officers | No. of Shares Beneficially Owned(1) | Percent of Outstanding Common Stock(2) | ||||||
Robert L. Boughner | * | |||||||
José A. Cárdenas | * | |||||||
Thomas E. Chestnut | * | |||||||
Stephen C. Comer | (3) | * | ||||||
LeRoy C. Hanneman, Jr. | (4) | * | ||||||
| (5)(6) | * | ||||||
Anne L. Mariucci | * | |||||||
Michael J. Melarkey | * | |||||||
Jeffrey W. Shaw | (7) | * | ||||||
A. Randall Thoman | * | |||||||
Thomas A. Thomas | * | |||||||
Terrence L. Wright | * | |||||||
Roy R. Centrella | ||||||||
| * | |||||||
William N. Moody | (9) | * | ||||||
Karen S. Haller | 25,511 | (6)(10) | * | |||||
Eric DeBonis | * | |||||||
Other Executive Officers | * | |||||||
|
|
|
| |||||
All Directors and Executive Officers | % | |||||||
|
|
|
| |||||
| (1) | Common Stock holdings listed in this column include performance shares granted to the Company’s executive officers under the Company’s Management Incentive Plan in |
| (2) | “*”No individual officer or director owned more than 1% of outstanding Common Stock. |
| (3) | The holdings include 3,500 shares over which Mr. Comer has shared voting and investment power with his spouse through a family trust. |
| (4) | The holdings include 4,190 shares over which Mr. Hanneman has shared voting and investment control with his spouse through a family trust. |
| (5) | The holdings include |
| (6) |
| Number of shares does not include 28,018 shares held by the Southwest Gas Corporation Foundation, which is a charitable trust. Messrs. |
| (7) | The holdings include 96,393 shares over which Mr. Shaw has shared voting and investment power with his spouse through a family trust. |
| (8) | The holdings include |
| (9) | The holdings include |
| (10) | The holdings include |
| The holdings of other executive officers include |
| The holdings of the directors and executive officers combined include |
Beneficial Owners. BlackRock Inc. reported on Schedule 13G, filed on January 30, 2014,27, 2016, ownership in excess of 5% of the Company’s Common Stock. The Vanguard Group, Inc. reported on Schedule 13G, filed on February 11, 2014,2016, ownership in excess of 5% of the Company’s Common Stock. GAMCO Investors, Inc. et. al. and Gabelli Funds, LLC reported on two separate Forms 13F-HR,Form 13D, filed on February 7, 2014, ownership in excess of 5% of the Company’s Common Stock. T. Rowe Price Associates, Inc. reported on Schedule 13G, filed on February 13, 2014,August 11,
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2015, ownership in excess of 5% of the Company’s Common Stock. The holdings of these entities on the dates noted in the filings and as a percentage of the shares outstanding on March 1, 20148, 2016, are as follows:
Beneficial Owner | No. of Shares Beneficially Owned | Percent of Outstanding Common Stock | No. of Shares Beneficially Owned | Percent of Outstanding Common Stock | ||||||||||||
BlackRock Inc.(1) | 4,367,175 | 9.39 | % | 4,536,057 | 9.56 | % | ||||||||||
40 East 52nd Street New York, New York 10022 | ||||||||||||||||
55 East 52nd Street New York, New York 10055 | ||||||||||||||||
The Vanguard Group, Inc.(2) | 3,350,518 | 7.21 | % | 3,511,354 | 7.40 | % | ||||||||||
100 Vanguard Blvd. Malvern, Pennsylvania 19355 | ||||||||||||||||
GAMCO Investors, Inc. et. al.(3) | 3,242,855 | 6.97 | % | 3,044,315 | 6.41 | % | ||||||||||
One Corporate Center Rye, New York 10580 | ||||||||||||||||
T. Rowe Price Associates, Inc.(4) | 3,046,920 | 6.55 | % | |||||||||||||
100 E. Pratt Street Baltimore, Maryland 21202 | ||||||||||||||||
| (1) | BlackRock Inc. has sole voting power over |
| (2) | The Vanguard Group, Inc. has sole voting power over |
| (3) | GAMCO Investors, Inc. et. al. has sole voting power over |
Section 16(a) Beneficial Ownership Reporting Compliance
The Company has procedures in place to assist directors and executive officers in complying with Section 16(a) of the Exchange Act, which includes the preparation of forms for filing. Based upon a review of filings with the SEC and written representations that no other reports were required, we believe that all of our directors and executive officers complied during 20132015 with the reporting requirements of Section 16(a) of the Exchange Act, except the exercise of stock options with respect to 3,000 shares of Company Common Stock by director Mariucci on April 3, 2013 that was reported on Form 4 on April 9, 2013.
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis describes our 20132015 executive compensation program, the compensation decisions made by the Compensation Committee (the “committee”) under our executive compensation program and the factors considered in making such decisions. This section focuses on the compensation of the Company’s named executive officers (“NEOs”) for fiscal 2013,2015, who were:
| * |
| * | Roy R. Centrella, Senior Vice President/Chief Financial Officer |
| * |
| William N. Moody, Executive Vice President |
| * | Karen S. Haller, Senior Vice President/General Counsel and Corporate Secretary |
| * | Eric DeBonis, Senior Vice President/Operations |
| * | Jeffrey W. Shaw, former Chief Executive Officer (retired March 1, 2015) |
Objectives
The objectives of our executive compensation program are to:
| * | Align the interests of the NEOs with those of the Company, its customers and its shareholders; |
| * | Recruit, retain and motivate executive talent; |
| * | Be fair and competitive; and |
| * | Recognize and reward performance that meets or exceeds the Company’s |
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The Company’s 20132015 Incentive Compensation and Performance
ResultsOur annual incentive compensation plan (the Management Incentive Program or “MIP”) is based on performance in the five core areas set forth below, and our long-term incentive program (the Restricted Stock/Unit Plan or “RSUP”) is based on the average MIP payout for the key performance measureslast three years. If awards are earned, the MIP pays out in a range between 70% and 140% of our natural gas operations usedthe target award amount for each officer, and RSUP awards can range from between 50% to 150% of target awards. In 2015, the results in the Company’s incentive-based compensation programsfive core performance areas, each of which is weighted 20% in the overall MIP payout percentage, were as follows:
| * |
| * | Customer Satisfaction. We achieved 92.75% customer satisfaction |
| * |
| * | Operating |
| * | Safety. Damage per 1,000 tickets was 1.78 (better than our maximum goal of 1.80), and response time within 30 minutes was 67.4% (above our target of |
Based on our achievements, the annual incentive compensation plan paid out at 114%For most officers, including Ms. Haller and Messrs. Moody and DeBonis, these results aggregated for a MIP payout of 103% of target and an RSUP payout of 132.5% of target (based on a three-year MIP average of 113%). In addition to the long-termfive core measures set forth above, the 2015 incentive program, which isprograms for Messrs. Hester and Centrella and Shaw also included a performance measure based on our Canadian construction services operations. For these executives ROE and construction services were each weighted as 10% of the total MIP payout percentage, and each of the other four measures was weighted 20%. Below threshold results for the construction services performance overmeasure negatively impacted payouts for these NEOs, which were 93% of target for the last three years, paid out at 147.5%MIP and 125% of target.target for the RSUP (based on a three-year MIP average of 110%).
We believe that our compensation program, is successful at motivating the creation of shareholder value. The Company performed well in 2013 and has a solid record of success over the last five years. Performance continues to be driven by management’s steadfast focusfocusing on the core fundamentals of our businesses. Operating cash flows have remainedbusiness, has been and continues to be successful at motivating the operational and strategic achievements that foster the creation of shareholder value over the long term. 2015 was another year of strong results for the metrics emphasized by the MIP and RSUP, and the committee sees significant linkage between the Company’s common equity to total capitalization has improved steadilyachievements in recentthese areas and the impressive record of shareholder returns over the last several years. Other recentRecent accomplishments include the following:
| * | Basic earnings per share |
| * | Dividends declared per share were |
| * |
| * |
| * | We received approval of a $43.5 million infrastructure replacement mechanism in |
| * | Centuri Construction Group, our primary construction services subsidiary (Centuri), successfully completed the integration of the Link-Line Group of Companies following their fourth quarter 2014 acquisition, including implementing the Company’s internal control structure over the acquired operations. |
| * | In 2015, Centuri’s combined operations produced record revenues of $1 billion and contributed record net income of $26.7 million. |
Past performance has established a strong financial platform for sustainable growth into the future, and these recent accomplishments are expected to contribute to our ability to provide total shareholder returns over the long term. Going forward, we expect further alignment between executive compensation and shareholder returns as our NEOs are currently
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working through RSUP performance periods that will be subject to the total shareholder return (TSR) modifier recently implemented by the committee. The TSR modifier applies to each RSUP performance period starting with the period beginning in 2015 (to modify awards payable from and after the end of 2017).
Program Design
Compensation for NEOs includes:
| * | Cash in the form of base salary; |
| * | Annual at-risk variable incentive compensation in the form of cash and stock-based |
| * | Long-term at-risk variable incentive compensation in the form of restricted stock |
| * | Cash bonuses, under exceptional circumstances; |
| * | Perquisites in the form of car allowances, cable internet access, allowances for annual physical examinations, life insurance and financial and estate planning allowances; and |
| * | Other benefits that include the same group health and welfare benefit programs and tax-qualified retirement plans available to all employees, as well as executive nonqualified retirement plans. |
None of the NEOs has anhave employment agreementagreements with the Company. Long-term incentive compensation and a significant portion of annual incentive compensation, when earned, are delivered as stock-based awards to align management interests with those of shareholders. Service vesting of these stock-based awards, in addition to retirement benefits, promotes long-term employment commitments. The performance measures selected to drive achievements in the core areas of our business are designed to create appropriate alignment between the interests of management and those of our customers.
Base salary is designed to approximate the median (50th percentile) of the amounts paid by peer group companies (as discussed below), and we seek to set overall compensation to be competitive in a range between the 35th and the 65th percentilesof plus or minus 15% of the peer group (plus or minus 15 from the median).median. For 2013,2015, overall total direct compensation for the NEOs, as a group, was below the median of the peer group.
Current vs. At-Risk Compensation
Total direct compensation of the Company’s NEOs, other than base salary, is at risk and must be earned by achieving annual and long-term performance goals. The portion of total direct compensation designed to be paid in base salary versus variable pay depends upon the NEO’s position and the ability of that position to influence outcomes, as well as compensation market factors and risk mitigation considerations. The principal executive officer (“PEO”) has the largest portion of pay at risk. In 2015, the percentage of targeted total direct compensation opportunity at risk or earned by achieving performance goals was approximately 64% for the PEO, and, for the other NEOs, the average percentage of such compensation at risk was approximately 52%.
Commitment to Best Practices
We believeare committed to adopting executive compensation policies that the Company has adoptedare consistent with best practices for executive compensation.practices. We annually review all elements of NEO pay and, where appropriate for the business and shareholders, make changes to incorporate current best practices. Shareholders responded with over 97% of the votes cast on “Say on Pay” at our 2013 Annual Meeting in favor of the compensation of the NEOs. In keeping with best practices, we have:
| * | Adopted stock ownership guidelines for all NEOs and directors, with retention thresholds set at a meaningful factor times annual |
| * | Aligned pay practices with shareholder and customer interests, with an eye toward remaining |
| * | Reviewed, analyzed and considered whether the Company’s compensation policies and practices create risks that are reasonably likely to have a material adverse effect on |
| * | A compensation committee that is composed of only independent directors; |
| * | An independent compensation consultant retained by, and which reports to, the committee and has no other business with the Company; |
| * | Annual reviews of our compensation peer group; |
| * | Regular briefings from the committee’s compensation consultant regarding key trends; |
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| * | An annual review of PEO performance; |
| * | No employment agreements between the Company and the NEOs; |
| * | Change in control agreements with the NEOs, which do not provide for tax gross-ups or severance amounts that exceed more than three times base pay and bonus, and which do include double trigger vesting provisions for equity awards; |
| * | No cash dividends paid on unvested stock-based |
| * | No tax reimbursements or gross-ups for life insurance, bonus, trusts or stock vesting. |
Summary of Key Changes in 2013 and 2014to Compensation Program
Shareholders supported the Company’s executive compensation practices with a positive say-on-pay“say-on-pay” vote of over 97%98% of the votes cast at our 20132015 Annual Meeting. In light of this support, the Company did notcommittee determined to make any materialonly limited changes to the executive compensation programs described in 2013 or 2014. Key developments during this period include:
The PEO’s Letter Agreement, which contained limited post-termination benefits inour 2015 Proxy Statement. Notably, however, the eventcommittee revised how the Company’s incentive compensation plans measure performance of the Company’s construction services segment. For plan year 2016, the construction services performance measure will be based on the performance of the Company’s entire construction services segment (Centuri). This is a termination priordeparture from the approach to plan year 2015, when the PEO’s 55th birthday inconstruction services performance measure was focused exclusively on Canadian construction operations to stress the absenceimportance of a change in control, expiredthe integration of the Link-Line Group of Companies following their acquisition in the fourth quarter of 2013. By way2014. As in 2015, for plan year 2016, the construction services performance measure will only factor into the incentive compensation awards of background, in late 2011a select group of the committee, withNEOs, which will include Messrs. Hester and Centrella and Ms. Haller. For these executives, the assistanceweighting of Pay Governance, an independent consultantROE will be reduced to the committee, evaluated market practices related to post-termination benefits and those that would10%, construction services will be appropriate for the PEO. As a result of such evaluation, in 2012 the committee recommendedweighted 10%, and the Board approved the option not to renew the PEO’s employment agreement (the “Expired Employment Agreement”) and new arrangements between the Company and the PEO, including a change in control agreement in substantially the same form as the change in control agreements with the other NEOs and the Letter Agreement.
The PEO’s Letter Agreement, which became effective June 1, 2012, provided post-termination benefits payable in the absence of a change in control of the Company upon a separation from service resulting from (i) termination without cause or (ii) as a result of a significant reduction in his duties, responsibilities, location or compensation. Upon such a termination event, the PEO would have received a lump sum cash payment equal to 12 months of base salary, plus incentive compensation for
the period during the applicable plan year preceding the date of termination and for a period of 12 months following the date of such termination. In addition, all unvested stock-based awards would have vested and stock options would have remained exercisable for 90 days after the termination event. Up to an additional year would have been provided towards the age assumption for eligibility, vesting and calculation of benefits under the Supplemental Executive Retirement Plan (“SERP”). The Letter Agreement terminated on November 9, 2013, the PEO’s 55th birthday. Potential benefits under the change in control agreement and the Letter Agreement, respectively, were substantially less favorable to the PEO than the comparable benefits provided under the PEO’s Expired Employment Agreement.
With the termination of the Letter Agreement, the PEO’s only contractual arrangement with the Company providing for compensation following a termination event is a change in control agreement.
Key features of the PEO’s change in control agreement include:
On November 15, 2013, the Board approved revisions to the form of change in control agreement for officers (the “New Change in Control Agreement”). Except for the length of duration, the material terms and conditions of the New Change in Control Agreement are the same as those in the Company’s former change in control agreement. The Company’s former change in control agreement provided for a fixed term of three (3) years. The New Change in Control Agreement provides for a term that commences upon execution of the agreement and terminates twelve (12) months following written notice from the Company to the officer of the termination of the agreement. Pursuant to the terms of the New Change in Control Agreement, any notice of termination of the agreementfour core areas will each be deemed null and void if, prior to the proposed termination date, an event that was expected to result in a change in control of the Company occurs. The Company amended and restated each of the existing change in control agreements with its officers to conform to the terms and conditions of the New Change in Control Agreement.
In both January 2013 and January 2014, the committee approved incremental 2006 Restricted Stock/Unit Plan (“RSUP”) awards for each senior officer equal to 15% of base salary.weighted 20%.
The remainder of this Compensation Discussion and Analysis offers a detailed explanation of the Company’s compensation policies and decisions with respect to the NEOs.
Compensation ObjectivesProgram Administration
The objectives of the Company’s compensation program are to recruit, retain, reward, and motivate talented executives and to align their interests with our customers and shareholders. Our executive compensation program is designed to reward performance, “know-how,” “problem solving” and “accountability” and to elicit long-term employment commitments. We strive to set salary at levels that ensure reasonableness, market competitiveness and internal equity for each position. Performance awards, retirement benefit opportunities and post-termination benefits support our goal of
attracting and retaining talented executives over long-term employment commitments, while at the same time increasing shareholder value, achieving operational efficiencies and providing continued exceptional customer satisfaction.
As a public utility, the Company is a highly-regulated entity, and the compensation it provides is evaluated as a part of the regulatory review process. Our compensation program must be responsive to market conditions and the regulatory environment we face as a public utility. Compensation costs, like all Company operating expenses, are subject to reasonableness reviews by the regulatory bodies in the states and jurisdictions in which we operate. In addition, the regulatory review process recognizes the value of providing incentives for operational efficiencies and overall customer satisfaction.
The long-term nature of the Company’s customer service obligations shapes the overall structure ofcommittee administers the executive compensation program. We seek to ensure that long-term corporate and customer goals of safe, continuous service at reasonable rates are achieved. We also recognize that we are in a competitive environment for executives, and the compensation program has to recognize and reward performance. Non-equity incentive compensation and restricted stock-based awards are designed to address performance and provide significant support for long-term employment commitments.
The executive compensation program is prospective. The results of previously earned performance awards and the deferral of cash compensation are not taken into consideration in establishing the appropriate level of future compensation. The Company’s past performance, however, is taken into consideration in determining the long-term performance awards and in setting new performance targets.
The executive compensation program is administered by the committee. The committee annually reviews and approves the corporate goals and objectives relevant to the PEO’s compensation, the PEO’s performance in relation to such goals and objectives and, together with the other Independent Directors of the Board of Directors, the PEO’s actual compensation. The committee also reviews, together with the PEO, and approves the salaries and incentive compensation for the other executive officers.
Management, annually provides information to the committee regarding what it believes to be appropriate compensation levels and performance programs and awards. This information is gathered from external independent surveys and publicly available compensation comparisons. Consultants may also be retained by management to independently assess the compensation program. Management, including the NEOs, provides guidance to, and receives direction from, the committee regarding the executive compensation program. Management annually provides information to the committee regarding what it believes to be appropriate levels of the various elements of direct compensation (including target awards for incentive compensation), as well as the thresholds, targets and maximums of the performance measures used in the MIP. Information is gathered from Company operating data, external independent surveys and publicly available compensation comparisons.
In addition,While consultants may be retained by management to assess the compensation program, the committee has the authority, independent of management, to employ and retain consultants to assist it in establishing the executive compensation program objectives and in determining whether the objectives have been satisfied. The methodology used by the Company for determining executive salaries and pay increases has been reviewed bycommittee engaged Pay Governance as an independent consultant to perform a competitive pay benchmarking analysis of the committee.officers, independent from management’s recommendations. Pay Governance’s engagement with the committee also included a review encompassed all officers and indicated general approval of the methodology used. There were no changes to the methodology used byCompany’s internal director compensation comparison. Pay Governance did not receive any fees from the Company during 2013.for services other than the fees paid with respect to executive and director compensation services.
For 2015, the committee also analyzed whether the work of any executive compensation advisor raised any conflict of interest, taking into consideration all relevant factors, including those set forth in Rule 10C-1(b)(4)(i) through (vi) under the Exchange Act. The committee determined, based on its analysis of all relevant factors, that no conflicts of interest were present.
Elements of Compensation Program Objectives, Key Considerations and Principles
The executiveobjectives of the compensation program consistsare to recruit, retain, reward and motivate talented executives and to align their interests with our customers and shareholders, while eliciting long-term employment commitments. We also aim to set
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NEO salaries and incentive compensation opportunities at levels that ensure reasonableness, market competitiveness and internal equity for each position. The Company’s customer service obligations shape the overall structure of the following elements:program, and the committee developed the program to address the key business considerations and related compensation principles discussed below:
| * |
| * |
| * |
| * |
| * |
| * |
| * | Long-term corporate goals require long-term executive employment commitments.The Company’s deep understanding of the utility industry and its regulatory landscape, peer company connections, reputation and institutional knowledge are chiefly derived from long-tenured executives. Because these attributes enhance our ability to increase shareholder value, achieve operational efficiencies and provide continued exceptional customer satisfaction over the long-term, we utilize awards subject to service vesting, retirement benefit opportunities and post-termination benefits |
| * | The executive compensation program should be prospective. The committee does not take into consideration the results of previously earned performance awards and the deferral of cash compensation in establishing the appropriate level of future compensation. The committee does, however, take into consideration the Company’s past performance in determining the long-term performance awards and in setting new performance targets. |
Welfare benefits, including group life, health, hospitalization, and medical reimbursement programs, availableWe discuss the elements of compensation employed to executive officers areachieve our objectives, consistent with the same in scope, terms and operation as the benefits available to all Company employees. Retirement benefits include both tax-qualified and nonqualified defined benefit and contribution retirement plans. Post-termination benefits are governed by change in control agreements.foregoing compensation principles, below.
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Decision toElements of Compensation Program and Why We Pay Each Element of Compensation
The primary objectivenature of the executiveCompany’s operations and competitive considerations have led the committee to design and employ a compensation program that we believe is comparable to elicit strong performance for customerscompensation programs widely used in the industry by public utilities and shareholders through the use of competitive performance-based compensation that attracts, retains and motivates high caliber executive talent.accepted by various utility regulatory agencies. To accomplish this,our objectives, the program is designed to respond to changing market conditions and to offer a broad spectrum of compensation opportunities. Performance is the critical component of the program, and both individual and overall Company performance can impact an officer’s level of compensation on an annual basis. The elements of the executive compensation program for the NEOs and the purpose for providing each element are set forth below:
Element | Purpose | Summary of Features | ||
Base Salary | * Recognize NEO leadership responsibilities and value of executive’s position to the Company. * Serve as a competitive compensation foundation. | * Targeted at 50th percentile of peer group companies. * Adjustments are made based upon the value of the position to the business, the performance of the individual and pay relative to the appropriate comparison market. | ||
Annual Incentive Plan (MIP) | * Encourage and reward NEO contributions in achieving performance goals through cash and equity incentives based on performance. * Align management interests with customers and shareholders. * Mitigate risk through selection of interdependent performance measures. * Address individual performance goals for the NEOs. * Retain management with awards subject to service vesting. * Support Board’s dividend policy. | * Awards are earned based on achievement of interdependent customer and shareholder performance goals. * Awards paid out annually 60% in cash and 40% in equity subject to service vesting. * Equity awarded cliff vests three years after the award date, assuming continued service. * NEO award values are subject to downward adjustment for failure to satisfy individual goals. * No awards paid if annual dividends do not meet or exceed those of prior year. | ||
Long-Term Incentive Plan (RSUP) | * Provide executives with an incentive to work toward. * Align management interests with customers and shareholders. * Mitigate risk though selection of interdependent performance measures. * Retain management with awards subject to service vesting. | * Awards are earned based on three-year average of MIP performance achievements. * Awards paid out 100% in equity subject to service vesting. * Restricted stock awards vest 40% one year after the award date and 30% following each of the next two years, assuming continued service. * Starting with awards payable for plan year 2017, value of awards earned based onthree-year MIP performance average may be adjusted (up or down) based on total shareholder return versus peer companies. | ||
Bonuses | * Recognize exceptional performance or significant achievements that fall outside of an NEO’s core responsibilities. | * Paid in cash in extraordinary circumstances. | ||
Executive Health, Welfare and Retirement Benefits | * Provide executives reasonable and competitive benefits. * Encourage savings for retirement. * Retain executives with pension benefits subject to service vesting. * Deemphasize direct compensation. * Mitigate the impact of limits on qualified plan benefits imposed by the Internal Revenue Code. | * Health and welfare benefits consistent with standard benefits provided to all employees. * 401(k) plan and non-qualified deferred compensation plans allow for deferral of compensation and certain Company matching contributions on such deferrals. * Qualified and supplemental non-qualified pension benefits. |
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Element | Purpose | Summary of Features | ||
Change-In-Control Arrangements | * Ensure attention and dedication to performance without distraction in the circumstance of a potential change in control of Southwest Gas. * Enables executives to maintain objectivity with respect to merger or acquisition offers considered by the Board. | * Double trigger change-in-control severance agreements without any tax gross up. * Severance payment of three times annual compensation for PEO. * Accelerated vesting of equity awards. * Potential increase to supplemental pension benefit. |
Salaries and performance-based compensation are linked to recognize each officer’s responsibilities and individual contribution to the success of the Company. As explained in greater detail below, an officer’s award opportunity is based on a percentage of salary and, as a result, will move in relation to changes in salary. How an officer satisfies his or her direct individual responsibilities can also impact the level of an individual officer’s performance-based compensation. Exemplary performance is expected and rewarded with the compensation elements of the program, while poor performance willmay result in the reduction or possible elimination of an award under our Management the MIP. Exceptional individual performance or significant achievements that fall outside of an NEO’s core responsibilities may warrant cash bonuses on occasion.
Incentive Plan (“MIP”).award opportunities under both the MIP and RSUP increase with the ability of a position to influence outcomes. Risk mitigation is achieved by capping incentive award payouts and setting target opportunities at levels that strike a reasonable balance among base salary and both annual and long-term incentives. Long-term incentive compensation and a significant portion of annual incentive compensation is awarded, when earned, in the form of stock-based compensation to align management interests with those of shareholders. Full value share awards, such as restricted stock and performance shares, are granted instead of stock options based on accounting considerations and because their value is more tangible to management. When awards are earned through performance, equity compensation granted to executives is subject to service vesting requirements to promote long-term employment commitments.
The availability of pension benefits allows the Company to deemphasize the salary component of an executive officer’s overalltotal direct compensation package while still remaining competitive. The level of deferral opportunities under the Company’s qualified and nonqualified plans, however, do not influence the committee’s decisions regarding the appropriate level of overall compensation. Welfare benefits and perquisites are also viewed by the committee on a stand-alone basis, whilebasis. The Company has not entered into employment agreements with any of the NEOs. However, post-termination benefits, which are influenced by current salary levels.levels, are provided by change in control agreements, as applicable.
How we determine the amounts paid for each element of compensation, including additional discussion of certain key features of these elements, is set forth below.
Determination of the Amount to beHow We Determine Amounts Paid for Each Element of Compensation Program
The nature of the Company’s operations and competitive considerations have led the committee to design and employ a compensation program that is comparable to compensation programs widely used in the industry by public utilities and accepted by various utility regulatory agencies. Salaries and performance-based compensation paid to the NEOs are determined by using a variety of sources, including Kenning Consulting for salary design and compensation surveys prepared by the American Gas Association, Towers Watson, the HayGroup and Mercer for the components of compensation and competitive market compensation levels. Each source discussed below serves as only one component of the committee’s analysis, and no one resource is weighted more heavily than any other in the committee’s analysis or decisions.
Compensation is reviewed annually and is subject to mid-year adjustment. In determining compensation for July 1, 20122015 through June 30, 2013,2016, the committee, used ain consultation with Pay Governance, referenced an internal annual compensation comparison and analysis performed by Towers Watsonthe Company (“Towers WatsonCompany Study”). Pay Governance also conducted its own study (“Pay Governance Study”), the consultant
engaged by management. The Towers Watson Studywhich compared the Company’s compensation packages, including base salary, total cash compensation and total direct compensation (which also includes stock-based awards under the MIP and the RSUP), to compensation data from two primary sources: (i)1) published compensation surveys that best represent the Company in the marketplace, and (ii)2) peer company proxy filings, from a peer group of comparable companies chosenprimarily developed by Towers Watson.Watson and the Company (as described below). The structures of the incentive, compensation, deferred compensation and supplemental retirement programs of the Company were also reviewed in comparison to structures of peers. Methods similar to those used in the Towers WatsonPay Governance Study were employed for thein annual compensation comparisoncomparisons and analysisanalyses performed by the Company and Towers Watson in 2013,2014, which the committee used in determining compensation for July 1, 20132014 through June 30, 2014.2015.
In addition to reviewing nationalpublished market surveys, the Towers WatsonPay Governance Study and the Company Study included compensation comparison and analysis using proxy peer data. The peer group isfor both studies was composed of 18
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16 companies in the utility industry that are deemed to be of comparable size and to have similar basic structure and operational complexity, and excludes companies withwhich at the time of selection had no less than half orand no more than twice the reported revenue of the Company. The peer group which was selected by Towers Watson, includesincluded the following companies:
* AGL Resources, Inc. | * ONE Gas | |
* Atmos Energy Corporation | * Piedmont Natural Gas Co., Inc. | |
* Avista Corporation | * Pinnacle West Capital Corporation | |
* Black Hills Corporation | * PNM Resources, Inc. | |
* Great Plains Energy, Inc. | * Portland General Electric Company | |
* The Laclede Group Inc. | * Questar Corporation | |
* |
| |
| * Vectren Corporation | |
* Northwestern Corporation | * Westar Energy, Inc. | |
|
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We setThe committee sets base salaries for the NEOs at amounts that approximate the 50th percentile of the amounts paid by the peer group of companies discussed above (“relevant market”). We setabove. The committee’s goal is for overall compensation at target to be competitive in a range between the 35th and the 65th percentiles ofplus or minus 15% from the peer group (plus or minus 15 from the median)median (“target range”). The selection of these parametersthis range is designed to be comparable and competitive with the relevant market,peer group, to address the regulatory environment in which the Company operates and to provide a reasonable range of incentives to reward performance. For 2015, however, total direct compensation of each of our NEOs was at or below the bottom end of the target range. As a result, the committee is considering adjustments to NEO incentive opportunities that would bring overall compensation at target within the target range.
Other elements of overall compensation (perquisites, welfare benefits, retirement benefits and post-termination benefits) were implemented at various times over the past several years to remain competitive with the relevant market. In determining the Company’s overall compensation, we annually compare the Company’s elements of compensation and the level of benefits with those of the relevant market to ensure the Company remains competitive. For 2013, target total direct compensation, in aggregate, for the NEOs was below the median of the peer group selected for the Towers Watson Study.
The material elements of management’s directions to Towers Watson in connection with their engagement for the Towers Watson Study included providing (i) management with basic market data on compensation practices, both from peer companies in the utility industry and among general industry, (ii) commentary on the current policies with respect to market practices, and (iii) options to consider if it is determined that changes to current practices are needed. The committee engaged Pay Governance as an independent consultant to perform a competitive pay benchmarking analysis of the officers, independent of the Towers Watson Study. Pay Governance’s engagement with the committee also included a review of the Company’s internal director compensation comparison and analysis and
the terms of management’s change in control agreements. The Company determined that the committee’s compensation consultant did not receive fees for services, in addition to executive and director compensation services, in excess of $120,000.
For 2013, the committee analyzed whether the work of any compensation advisor raised any conflict of interest, taking into consideration all relevant factors, including those set forth in Rule 10C-1(b)(4)(i) through (vi) under the Exchange Act. The committee determined, based on its analysis of all relevant factors, that no conflicts of interest were present.
Current vs. At-Risk Compensation
Total direct compensation of the Company’s NEOs, other than base salary, is at risk and must be earned by achieving annual and long-term performance goals. The portion of total direct compensation designed to be paid in base salary versus variable pay depends upon the NEO’s position and the ability of that position to influence outcomes, as well as market factors. The PEO has the largest portion of pay at risk. In 2013, the percentage of targeted total direct compensation opportunity at risk or earned by achieving performance goals was approximately 69% for the PEO, and, for the other NEOs, the average percentage of such compensation at risk was approximately 60%.
Salaries
Salaries for the Company’s NEOs are established based on the scope of their responsibilities, taking into account competitive market compensation paid by the peer group and additional salary survey data for similar positions. Salary design is established using the Hay Group method. The Hay Group method values the substance of the positions based on “know-how,” “problem solving,” and “accountability.” InputData from the Kenning Consulting (regarding salary design), the Towers Watson StudyPay Governance and Company Studies and utility and general industry surveys arewere used by the committee to help ensure that salaries are reasonable, competitive and properly address position responsibility. The range of salaries available through this review provides an objective standard to determine the appropriate level of salary for a given executive position. Salaries are reviewed annually and are subject to mid-year adjustment to realign salaries with market levels after taking into consideration individual responsibilities, performance, inflation and experience. Mid-year salary increases were provided to the NEOs in 20132015 based on the Company’s established compensationthis methodology.
Incentive Compensation
The performance componentelements of the Company’s executive compensation program isare designed to reward Company performance and consistsconsist of non-equity incentive compensation and restricted stock-based awards provided through the MIP and the RSUP (collectively, “Incentive Plans”). TheFor plan year 2015, the committee has designed the Incentive Plans to focus on specific annual and long-term Company financial, productivity, safety and customer satisfaction performance goals.
MIP
Annually, we establish incentive opportunities under the MIP, expressed as a percentage of each individual’s salary at year-end (after taking into account any mid-year salary adjustment), corresponding with each individual’s position and responsibilities with the Company, and determine the performance goals to be measured against these opportunities. For 2013,plan year 2015, the target incentive opportunities for the NEOs were set at the following percentages of salary:
| Incentive Opportunities (% of salary) | ||||
| 115 | % | ||
Roy R. Centrella | 75 | % | ||
| 90 | % | ||
| % | |||
Eric DeBonis | 75 | % | ||
Jeffrey W. Shaw | 115 | % | ||
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The performance measures for 2013selected by the committee to determine 2015 incentive compensation under the MIP were tied to themeasures of financial performance and productivity, safety and customer satisfaction of the Company’s natural gas operations. This mix of performance goals is designed to address both shareholder and customer interests throughoperations in line with the Company’s financial performance, increased productivity and customer satisfaction. In prior regulatory proceedings, the regulatory commissions have insisted that productivity measures and customer satisfaction goals be included in the MIP in order to recover any of the costs of the program through the Company’s natural gas rates.
compensation principles discussed above. The primary financial measure, ROE, is designed to reward success in reaching the average authorized return-on-equity.return-on-equity, which benefits both shareholders and customers by correlating with earnings per share and cost of service. The productivity measures are designed to reward success in reaching a predetermined customer satisfaction percentage, a percentage improvement in the customer-to-employee ratio, and a predetermined percentage of operating cost containmentincreases. The committee chose the two components of the safety performance measure because they are oriented towards incidents associated with the Company’s gas distribution systems and thereby linked to risks in areas such as regulation, operations, reputation and franchise value. For select NEOs, the committee included the Construction Services performance measure in recognition of the increased stature and oversight requirements, particularly during the integration process, of the segment following the acquisition of the Link-Line Group of Companies based in Canada. For these three executives, the calculation of MIP awards incorporated a measurement of earnings for operating costs.our Canadian construction services operations.
Each ofFor 2015, the performance measures is equally weighted, andcommittee derived the actual performance award can range from 70% to 140% of the assigned incentive opportunity for each measure. If the threshold percentage for any measure is achieved, a percentage of annual performance awards will have been earned. Regardless of whether such awards are earned, no awards will be paid in any year unless dividends paid on our Common Stock for such year equal or exceed the prior year’s dividends.
The performance measure targets for 2013 wereour five core performance measures as follows:
| * | ROE – The target for the ROE component of the MIP was |
| * | Customer Satisfaction – The Company ranks highly versus its utility industry peers in customer satisfaction ratings. The target for this component remained at 90% |
| * | Customer-to-Employee Ratio – The target for this component of the MIP for |
| * | Operating Costs – For the operating cost component of the MIP, we use a target that reflects estimated inflation and a growth factor. The inflation estimate is derived from the Blue Chip Economic Indicators publication and was |
| * | Safety – The |
For plan year 2015, for most of the Company’s officers, the five core measures were equally weighted (ROE: 20%, Customer Satisfaction: 20%, Customer-to-Employee Ratio: 20%, Operating Cost Increases: 20% and Safety: 20%). For the PEO, Chief Financial Officer and Senior Vice President/Corporate Development, the weighting of ROE was 10%, Construction Services was weighted 10%, and each of the other four measures was weighted 20%.
Actual awards for each measure are determined as of year-end by comparing the Company’s performance to the threshold, target and maximum levels set by the committee at the beginning of the year for each performance measure. When threshold performance for any measure is achieved, an award with respect to that measure is earned. Award payouts can range from 70% (at threshold) to 100% (at target) to 140% (at maximum) of the assigned incentive opportunity for each measure, based on where actual results fall in the range from threshold to target to maximum. We determine actual payouts under the MIP through linear interpolation.
As an illustration, Customer Satisfaction was weighted as 20% of each NEO’s award opportunity for 2015, and the Company achieved 92.75% customer satisfaction in 2015 (above our target of 90% and below the maximum performance level of 97%). Based on this performance, the actual award payout earned was 23.14%, or 115.7% of the 20% target. The success in achievingpercentage payouts under each of the performance measures are aggregated and multiplied by the total MIP incentive opportunity (expressed above as a percentage of base salary) to determine the overall dollar value of the annual MIP award.
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The thresholds, targets and maximums and our actual results under the five core performance measures for 2015 are set forth below:
Measure | Threshold | Target | Maximum | Actual | Weighting | Payout % | ||||||||||||||||||
ROE | 6.58 | % | 7.55 | % | 9.01 | % | 7.46 | % | 20 | %1 | 19.44 | % | ||||||||||||
Customer Satisfaction | 83 | % | 90 | % | 97 | % | 92.75 | % | 20 | % | 23.14 | % | ||||||||||||
Customer-To-Employee Ratio | 879-to-1 | 888-to-1 | 905-to-1 | 881-to-1 | 20 | % | 15.33 | % | ||||||||||||||||
Operating Cost Increases | 4.10 | % | 3.10 | % | 2.10 | % | 3.29 | % | 20 | % | 18.86 | % | ||||||||||||
Safety | ||||||||||||||||||||||||
Damage per 1,000 Tickets | 2.50 | 2.15 | 1.80 | 1.78 | 10 | % | 14.00 | % | ||||||||||||||||
Response Times within 30 Minutes | 60 | % | 65 | % | 70 | % | 67.40 | % | 10 | % | 11.92 | % | ||||||||||||
|
| |||||||||||||||||||||||
Total |
| 103 | %1 | |||||||||||||||||||||
| (1) | For a select group of officers, including Messrs. Hester and Centrella, ROE was weighted 10% and Construction Services was included with 10% weighting. Below threshold performance under the Construction Services measure negatively impacted their overall MIP payout, which was 93% of target. |
Additional detail regarding our achievements under the performance measures for 20132015 is discussedincluded in the narrative following the Summary Compensation and Grants of Plan-Based Awards Tables.
The incentive opportunities as a percentage of salary for the NEOs are the same for 2014. The four performance measures used to determine whether the incentive opportunities are earned are also the same. The target for the ROE for 2014 is set at 7.81%, which represents 83% of the Company-wide authorized weighted average ROE, adjusted downward by 25 basis points to reflect the removal of Company-owned life insurance returns from consideration in the MIP. The customer satisfaction target is set at 90%, and the customer-to-employee target is set at 867 customers per employee, a 1% percent improvement over the actual ratio at the end of 2013. The operating cost target is set at 2.6%, a target that reflects estimated inflation at 1.9% and a net growth factor of 0.7%.
If annual performance awards are earned and payable, payment ofas they were for 2015, the awards will be subjectcommittee has the discretion to a reduction depending upon satisfaction of thereduce an NEO’s overall MIP participants’award for failure to satisfy individual performance goals. Any reductions would be tied to an individual’s overall award and not any one specific performance measure. The committee reviews the PEO’s individual performance to determine whether there will be any downward adjustment. For 2013/2014,2015, individual performance goals for the PEO centered on (i) working with regulators to improvepromoting fundamental business strategies, maximizing shareholder value, pursuing regulatory initiatives and overseeing the level and stability of revenues and cash flows, (ii) striving to control operating expenses, (iii) striving to maintain/strengthen the Company’s credit ratings, (iv) pursuing actions that will, over the longer-term, improve the Company’s equity value, (v) updating the Board on the progress made on the succession plan for the CEO and key members of management and (vi) presenting strategic alternatives to the Board and pursuing agreed upon strategies.construction services segment.
The PEO reviews the other executive officers’ individual performances to determine whether there will be any downward adjustment in the performance awards. As a result of such review, if the PEO recommends a downward adjustment in the performance awards, the PEO will bring the matter before the committee for review and approval. There were no downward adjustments for 2013. The goals of the other NEOs are designed to reflect their individual responsibilities and to complement the goals of the PEO. Mr. Centrella’s goals were centered on investor relations activities, financial planning activities, timely, accurate and useful financialexecution, external reporting, improving the Company’s credit profile, cost containment measures,regulatory compliance and regulatory compliance. Mr. Hester’s goals were directed at improving the level and stability of revenues and cash flows through timely regulatory filings in all of our rate jurisdictions, the acquisition of gas supplies for customers, gas cost recoveries through the regulatory process, and regulatory compliance.strategic planning matters. Mr. Moody’s goals were focused on natural gas distribution system integrity, information systems development cyber-security and pipeline integrity.cyber-security. Ms. Haller’s goals pertain to legal matters, corporate ethics and compliance, enterprise risk management, and oversight of the corporate secretary and human resources functions. Mr. DeBonis’ goals were directed to maintaining system safety and reliability, controlling operating costs and achieving maximum profitability on new growth.enhancing customer service. The individual performance goals for the PEO and other NEOs were satisfied, and there were no reductions in their MIP awards in respect of 2013.to 2015.
Further,No awards are paid in any year unless dividends paid on our Common Stock for such year equal or exceed the prior year’s dividends. Dividends paid in 2015 exceeded 2014 dividends, and for most officers, including Ms. Haller and Messrs. Moody and DeBonis, achievements under the performance measures aggregated for a MIP payout of 103% of the target incentive award opportunity. For Messrs. Hester, Centrella and Shaw below threshold results for the Construction Services performance measure (which carried a 10% weighting) negatively impacted their overall MIP payout, which was 93% of target.
The annual MIP awards will be split, with 40%are paid in a mix of cash and equity. Awards for 2015 were paid 60% in cash (which areis disclosed as non-equity incentive plan compensation in the Summary Compensation Table) and, with the remaining 60%40% converted into performance shares (which are disclosed as stock awards in the Summary Compensation and Grants of Plan-Based Awards Tables Narrative) tied to a five-day average value of the Company’s Common Stock for the first five trading days in January. The performance shares are restricted for three years, and the ultimate payout in Common Stock is subject to continued
employment during this restriction period; provided, however, that MIP performance shares vest immediately when a MIP participant retires after the age of 55 (subject to restrictions under Internal Revenue Service Code Section 409A).
For 2016, MIP incentive opportunities as a percentage of salary and based on job position are the same as they were for 2015. The committee has also set performance targets for 2016 for the previously utilized performance measures. The target for the ROE for 2016 is set at 7.55%, which represents 80% of the Company-wide authorized weighted average ROE, adjusted downward by 25 basis points to reflect the removal of Company-owned life insurance returns from consideration in the MIP. The customer satisfaction target is set at 90%, and the customer-to-employee target is set at 881 customers per employee, which is equal to the actual ratio at the end of 2015. The operating cost target is set at 2.8%, a target that reflects estimated inflation at 2.0% and a net growth factor of 0.8%. With regards to safety, the target for damages per 1,000 tickets is set at 2.00, within the top quartile of utility industry peers. The target for response times within 30 minutes is set at 67%,
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which represents a 2% improvement from the Company’s 2015 response time target. The target for the Construction Services performance measure was set at Centuri’s internal projection of 2016 pre-tax profit, which is consistent with the Company’s publicly disclosed outlook for this segment. As in 2015, for most of the Company’s officers, 2016 MIP awards will be based on five, equally weighted performance measures (ROE: 20%, Customer Satisfaction: 20%, Customer-to-Employee Ratio: 20%, Operating Costs: 20% and Safety: 20%). For the PEO, Chief Financial Officer, General Counsel and Senior Vice President/Corporate Development, the weighting of ROE will be 10%, Construction Services will be weighted 10%, and the other four measures will be weighted 20%.
RSUP
The RSUP is designed to provide incentives for maintaining long-term performance and strengthening shareholder value. The award opportunities, like that of the MIP, are based on a percentage of salary.salary and job position. For 2013,plan year 2015, the target incentive opportunities for the NEOs were set at the following percentages:
| Incentive Opportunities (% of salary) | ||||
| 45 | % | ||
Roy R. Centrella | 20 | % | ||
| ||||
William N. Moody | 25 | % | ||
Karen S. Haller | 20 | % | ||
Eric DeBonis | 20 | % | ||
Jeffrey W. Shaw | 45 | % | ||
The performance goal used to determine whether an award is earned is the average MIP payout percentage for each of the three years immediately precedingin the award determination date. The target is set at anthree-year period ending with the plan year. For plan year 2015, RSUP performance was based on the average of the MIP payout percentage of 100%; however, no award will bepercentages for 2013, 2014 and 2015. No awards are earned unless the three-year average MIP payout percentage is at or above 90%. If an award is earned, it will beAwards are granted in the range of 50% to 150% of the target incentive opportunity, with a 90% MIP average receiving 50% of the target incentive opportunity, a 100% MIP average receiving 100% of target and a 120% or above MIP average receiving 150% of target. For each percentage point increase in the MIP average from 90% to 100%, the RSUP payout increases 5%. For each percentage point increase in the MIP average from 100% to 120%, the RSUP payout increases 2.5%.
Awards are granted in the form of restricted stock or restricted stock units, based on the five-day average value of the Company’s Common Stock for the first five trading days in January. Restricted stock and/or restricted stock units vest in percentages (40%, 30% and 30%) over the three years following the date of the award; provided, however, that RSUP awards vest immediately when an RSUP participant retires after the age of 55 (subject to restrictions under Internal Revenue Service Code Section 409A). The
For the three-year performance period ending with 2015, for most officers, the RSUP payout was 132.5% of target (based on a three-year MIP average of 113%). For the officers, including the PEO, for whom the Construction Services MIP measure applied in 2015, the RSUP payout was 125% of target (based on a three-year MIP average of 110%). We discuss the success in achieving the performance measures for 2013 is discussed2015 in the narrative following the Summary Compensation and Grants of Plan-based Awards Tables.
In both January 2013 and January 2014,Starting with the committee approved incrementalthree-year performance period beginning in 2015, a total shareholder return “modifier” will apply to the RSUP awards for each senior officerof all officers, including the NEOs. Total shareholder return of the Company, equalcomprising stock price appreciation or depreciation over three years, plus dividends, will be compared to 15%total shareholder returns of base salary. The restricted stock units granted will vestpeer companies based on the Bloomberg Transmission Distribution List. The adjustment range of the modifier will be negative 25% to positive 50% of each officer’s RSUP award (as determined according to the same schedule as annualmethodology used to determine awards for plan year 2015). Relative performance that places the Company at or above the 75th percentile of the peer group would result in maximum upward adjustment by 50%, performance in the range between the 25th and 75th percentiles would result in no adjustment, and performance at or below the 25th percentile of the peer group would result in maximum downward adjustment by 25%. The committee determined that the modifier should not be symmetrical because RSUP awards are 100% at risk as currently designed (e.g., if MIP payout percentages average less than 90% over the applicable three-year period, no RSUP will be earned). The modifier will be applied as of the sameend of the applicable three-year performance period to link the average MIP performance for each of the three years then ended with the market’s reaction to that performance. The first RSUP awards to be subject to the modifier will be the awards, if earned, payable for plan year. The factors referenced by the committee when recommending these awards were the incentive award criteria approved by shareholdersyear 2017 for the RSUP.three-year performance period beginning in 2015.
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For plan year 2016, RSUP performance criteria and incentive opportunities (as a percentage of salary and based on job position) are the same as they were for 2015.
Perquisites
The Company provides a limited number of perquisites to its executive officers. The executive officers receive car allowances, cable internet access, annual $2,500 allowances for physical examinations, life insurance and a $5,000 allowance once every three years to assist in financial and estate planning. Senior officers are also provided social club memberships.
Retirement Benefits
Four retirement benefit plans are available to the executive officers. Two of the plans, the Retirement Plan for Employees of Southwest Gas Corporation (“Retirement Plan”) and the Employees’ Investment Plan (“EIP”), both tax-qualified plans, are available to all of our employees. Two additional plans are offered to the executive officers, the SERPSupplemental Executive Retirement Plan (“SERP”) and the Executive Deferral Plan (“EDP”). These additional plans were established to attract and retain qualified executive officers and to address the dollar limitations imposed on the two tax-qualified plans.
Benefits under the Retirement Plan are based on (i) the executive’s years of service with the Company, up to a maximum of 30 years, and (ii) the average of the executive’s highest five consecutive years’ salaries, within the final 10 years of service, not to exceed a maximum compensation level established by the Internal Revenue Service. The SERP is designed to supplement the benefits under the Retirement Plan to a level of 50 – 60% of salary. To qualify for benefits under the SERP, which is based on a12-month average of the highest consecutive 36-months of salary, an executive is required to have reached (i) age 55, with 20 years of service with the Company, or (ii) age 65, with 10 years of service.
Executives may participate in the EIP and defer salary up to the maximum annual dollarsdollar amount permitted for 401(k) plans under the Code. Investments of these deferrals are controlled by the individual executives from a selection of investment options offered through the EIP. The Company does not match contributions for executive deferrals into the EIP. The EDP supplements the deferral opportunities by permitting executives to defer up to 100% of their annual salary and non-equity incentive compensation. As part of the EDP, the Company provides matching contributions that parallel the contributions made under the EIP to non-executives, up to 3.5% of their annual salary. Amounts deferred and Company matching contributions bear interest at 150% of the Moody’s Seasoned Corporate Bond Rate. At retirement or termination, with five years of service with the Company, the executive officers will receive EDP balances paid out at the election of the participant over a period of 10, 15, or 20 years and will be credited during the applicable payment period with interest at 150% of the average of the Moody’s Seasoned Corporate Bond Rate on each January 1st for the five years prior to the start of retirement.
Bonuses
On rare occasions, the committee may award one-time bonuses to recognize exceptional performance or significant achievements that fall outside of an NEOs core responsibilities. The amount of one-time bonuses, when warranted, are driven by internal equity and the value of individual contributions. No bonuses were paid for 2015.
Post-Termination Benefits
The Company offers change in control agreements to its officers to align their interests with shareholders and to retain and motivate high caliber executive talent. Providing change in control benefits is designed to reduce the reluctance of management to pursue potential change in control transactions that may be in the best interests of shareholders and helps ensure stability and continued performance during the potentially protracted process of merging with or acquiring a regulated utility. We engaged independent consultants and outside counsel to ensure that the provisions of the change in control agreements are appropriately consistent with current market practice.
As discussed under the heading “Summary of Key Changes in 2013 and 2014” above, eachEach change in control agreement provides for a term that commences upon execution of the agreement and terminates twelve (12)12 months following written notice from the Company to the officer of the termination of the agreement. Any notice of termination of the agreement will be deemed null and void if, prior to the proposed termination date, an event that was expected to result in a change in control of the Company occurs. The protection period for officers is 24 months after a change in control. A change in control event under the agreements is generally defined to include approval by the Company’s shareholders of the dissolution or liquidation of the Company, consummation of a merger or a similar transaction which results in more than a 50% change in ownership, acquisition by one person (or group of persons) of at least 30% of the
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ownership of the Company, consummation of the sale of substantially all of the Company’s business and/or assets, or the replacement of the majority of the members of the incumbent Board of Directors (excluding replacement directors nominated by the incumbent Board).
Upon a change in control event and the termination of employment without cause or as a result of a significant reduction in his duties, responsibilities, location or compensation, the officer will receive a lump-sum severance payment equal to the sum of (a) for the PEO, 36 months, for Messrs. Centrella, Hester, Moody and DeBonis and Ms. Haller and other senior officers, 30 months, and for the other officers, 24 months, of annual base salary and (b) in the form of cash, an amount equal to any annual incentive compensation
calculated at 100% of the target amount payable for the same periods. Restricted stock awards, stock options and other similar awards, as well as benefits under nonqualified plans may vest and/or become exercisable upon a change in control event. In addition, at the minimum age of 50 and for purposes of determining eligibility for benefits, vesting and calculation of benefits under the SERP, Messrs. Shaw,Hester, Centrella, Hester, Moody and DeBonis, Ms. Haller and other senior officers will be permitted to add six points, while all other officers will be permitted to add five points to the applicable formulas under the SERP. Finally, each officer shall be entitled to reimbursement of reasonable outplacement services not to exceed $30,000. The change in control agreements include a “double trigger” provision, which requires both a change in controland the officer’s termination of employment for good reason or the Company’s termination of the officer’s employment for reasons other than death, disability or cause, for payment of a severance benefit.
These change in control agreements have no tax gross-up provisions and instead employ a “best net” approach whereby benefits would be reduced if a reduced benefit would result in a greater after-tax benefit to the officer. If any payment under these agreements would constitute a “parachute payment” subject to any excise tax under the Code, the Company will not pay the tax on behalf of the officers.
Interaction of the Compensation Elements in Relation to the Compensation Objectives
The Company’s executive compensation program is intended to reward performance and to promote long-term employment commitments. Being rewarded for actual performance recognizes the Company’s commitments to increasing shareholder value, implementing operational efficiencies and maintaining customer satisfaction.satisfaction and improving safety. Salary, retirement benefits and the opportunity to be rewarded for performance provide the incentive to secure long-term commitments to the Company. Taken as a whole, the program supports the Company’s commitment to its shareholders and its long-term commitment to its customers.
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The committee attempts to balance the interests of the Company, its shareholders and customers. The Company provides an annual say-on-pay advisory vote regarding executive compensation. The Company received majority approval in 2013,2015, with more than 97%98% of the votes cast in favor of the compensation of the NEOs as described in the proxy statement for the 20132015 annual meeting. The Board and the committee reviewed the final vote results and did not make any materialmade only limited changes to the compensation policies as a result of these votes. We describe additional actions taken by the committee in 2013 and 2014votes, as described in the Executive Summary. We determined that our stockholdersshareholders should vote on a say-on-pay proposal each year. Accordingly, the Board recommends that you vote FOR Proposal 24 at the Annual Meeting. For more information, see “ADVISORY VOTE TO APPROVE THE COMPANY’S EXECUTIVE COMPENSATION” in this Proxy Statement.
Section 162(m) of the Code generally disallows a tax deduction to public companies for compensation over $1 million paid to the chief executive officer or any of the other four most highly compensated executive officers. Generally, awards under the MIP, which permits the grant of performance-based compensation, may not be subject to the deduction limit if certain requirements are met. We have also structured certain other performance-based portions of the executive compensation program in a manner that is designed to comply with the exceptions to the deductibility limitations of Section 162(m). While we intend for the performance-based compensation arrangements to meet the requirements of Section 162(m), we can provide no assurances that such compensation arrangements would ultimately satisfy such requirements.
The committee believes, however, that in certain circumstances, factors other than tax deductibility take precedence when determining the forms and levels of executive compensation most appropriate and in the best interests of the Company and its shareholders. Given our industry and business, as well as the competitive market for outstanding executives, the committee believes that it is important to retain the flexibility to design compensation programs consistent with the overall executive compensation program even if some executive compensation is not fully deductible. The committee has from time to time approved elements of compensation for certain officers that may not be fully deductible and reserves the right to do so in the future when appropriate. For example, the incremental RSUP awards granted in January 2013 and January 2014 were not designed to qualify and be fully deductible.
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As a part of the committee’s duties, it is charged with the responsibility of producing a report on executive compensation for inclusion in the Annual Report on Form 10-K and this Proxy Statement. This report is based on the committee’s review of the Compensation Discussion and Analysis and the discussion of its content with management.
The committee, based on its review of the Compensation Discussion and Analysis and its discussions with management, recommended to the Board (and the Board has approved and directed) that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013,2015, and this Proxy Statement.
Compensation Committee
| ||||
Robert L. Boughner (Chair) | ||||
| ||||
Terrence L. Wright | ||||
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The following table includes information concerning compensation during 2013, 20122015, 2014 and 20112013 for the named executive officers, whom we refer to as the “NEOs,” including our principal executive officer, the “PEO.“NEOs.”
Name and Principal Position | Year | Salary ($)(1) | Stock Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(1)(3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) | All Other Compensation ($)(5)(6) | Total ($) | Year | Salary ($)(1) | Bonus ($)(2) | Stock Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(1)(4) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(5) | All Other Compensation ($)(6)(7)(8) | Total ($) | |||||||||||||||||||||||||||||||||||||||||||||
Jeffrey W. Shaw | 2013 | 817,096 | 1,380,197 | 440,496 | 188,840 | 52,231 | 2,878,860 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
John P. Hester | 2015 | 603,342 | — | 560,729 | 423,522 | 825,559 | 32,652 | 2,445,804 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
President and | 2012 | 771,175 | 1,125,144 | 445,280 | 1,206,219 | 50,858 | 3,598,676 | 2014 | 382,027 | 150,000 | 378,369 | 224,480 | 833,865 | 27,432 | 1,996,173 | |||||||||||||||||||||||||||||||||||||||||||||
Chief Executive Officer | 2011 | 715,151 | 1,042,826 | 420,900 | 1,004,905 | 48,358 | 3,232,140 | 2013 | 325,685 | — | 325,600 | 139,536 | 61,976 | 24,868 | 877,665 | |||||||||||||||||||||||||||||||||||||||||||||
Roy R. Centrella | 2013 | 300,685 | 299,758 | 107,730 | 243,471 | 31,698 | 983,342 | 2015 | 375,822 | — | 319,726 | 163,215 | 172,165 | 36,812 | 1,067,740 | |||||||||||||||||||||||||||||||||||||||||||||
Senior Vice President/ | 2012 | 278,470 | 226,306 | 105,270 | 537,084 | 27,760 | 1,174,890 | 2014 | 336,507 | 75,000 | 296,050 | 133,590 | 666,653 | 31,732 | 1,539,532 | |||||||||||||||||||||||||||||||||||||||||||||
Chief Financial Officer | 2011 | 246,767 | 197,676 | 98,820 | 399,146 | 31,868 | 974,277 | 2013 | 300,685 | — | 299,758 | 107,730 | 243,471 | 31,698 | 983,342 | |||||||||||||||||||||||||||||||||||||||||||||
John P. Hester | 2013 | 325,685 | 325,600 | 139,536 | 61,976 | 24,868 | 877,665 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive Vice President | 2012 | 304,046 | 248,098 | 114,345 | 473,588 | 22,277 | 1,162,354 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2011 | 282,932 | 235,063 | 108,336 | 390,317 | 23,583 | 1,040,231 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
William N. Moody | 2013 | 264,945 | 263,581 | 123,120 | 75,107 | 31,251 | 758,004 | 2015 | 388,822 | — | 403,122 | 224,149 | 356,911 | 38,238 | 1,411,242 | |||||||||||||||||||||||||||||||||||||||||||||
Executive Vice President | 2012 | 237,128 | 187,750 | 92,565 | 497,974 | 27,310 | 1,042,727 | 2014 | 338,363 | — | 333,855 | 166,018 | 705,912 | 34,896 | 1,579,044 | |||||||||||||||||||||||||||||||||||||||||||||
| 2011 | 212,384 | 121,477 | 81,984 | 123,208 | 17,955 | 557,008 | 2013 | 264,945 | — | 263,581 | 123,120 | 75,107 | 31,251 | 758,004 | ||||||||||||||||||||||||||||||||||||||||||||||
Karen S. Haller | 2015 | 318,822 | — | 269,796 | 154,346 | 191,854 | 32,246 | 967,064 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Senior Vice President/ | 2014 | 273,808 | 75,000 | 233,082 | 112,728 | 1,009,190 | 34,571 | 1,738,379 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
General Counsel and | 2013 | 237,693 | — | 237,740 | 84,816 | 9,121 | 26,243 | 595,613 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate Secretary | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eric DeBonis | 2013 | 261,411 | 263,581 | 92,340 | 13,735 | 34,104 | 665,171 | 2015 | 288,060 | — | 247,021 | 137,196 | 83,561 | 34,131 | 789,969 | |||||||||||||||||||||||||||||||||||||||||||||
Senior Vice President/ | 2012 | 246,352 | 201,161 | 92,565 | 316,757 | 33,660 | 890,495 | 2014 | 275,162 | — | 253,758 | 103,212 | 520,471 | 32,633 | 1,185,236 | |||||||||||||||||||||||||||||||||||||||||||||
Operations | 2011 | 221,414 | 123,859 | 87,840 | 290,472 | 26,424 | 750,009 | 2013 | 261,411 | — | 263,581 | 92,340 | 13,735 | 34,104 | 665,171 | |||||||||||||||||||||||||||||||||||||||||||||
Jeffrey W. Shaw | 2015 | 141,425 | — | 1,390,682 | 158,960 | 108,675 | 429,277 | 2,229,019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Chief Executive Officer | 2014 | 861,507 | 350,000 | 1,318,816 | 499,468 | 1,889,173 | 61,123 | 4,980,087 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
(retired) | 2013 | 817,096 | — | 1,380,197 | 440,496 | 188,840 | 52,231 | 2,878,860 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) | Amounts shown in this column include any amounts deferred by the NEOs into the EIP and EDP. |
| (2) | Amounts shown in this column represent one-time cash bonuses for performance in 2014 related to the acquisition of the Link-Line Group of Companies. |
| (3) | Amounts shown in this column represent the grant date fair value of awards of performance shares and restricted stock units granted in |
| Performance shares vest three years after grant. Restricted stock units vest 40% at the end of the first year and 30% at the end of each of the second and third years. The valuation of the performance shares and restricted stock units are based on the Common Stock share price on the date of grant. |
| Amounts shown in this column represent the cash awards paid through the MIP in |
| The aggregate change in the actuarial present value of the NEOs accumulated benefit under the Retirement Plan and the SERP for |
| Increase in Pension Values | Above-Market Interest | Increase in Pension Values | Above-Market Interest | |||||||||||||
Mr. Hester | $ | 759,553 | $ | 66,006 | ||||||||||||
Mr. Centrella | 116,610 | 55,555 | ||||||||||||||
Mr. Moody | 313,002 | 43,909 | ||||||||||||||
Ms. Haller | 177,492 | 14,362 | ||||||||||||||
Mr. DeBonis | 67,158 | 16,403 | ||||||||||||||
Mr. Shaw | $ | 106,706 | $ | 82,134 | 0 | 108,675 | ||||||||||
Mr. Centrella | 205,253 | 38,218 | ||||||||||||||
Mr. Hester | 19,575 | 42,401 | ||||||||||||||
Mr. Moody | 47,650 | 27,457 | ||||||||||||||
Mr. DeBonis | 4,033 | 9,702 | ||||||||||||||
No amounts are payable from the pension plans before a participant attains age 55 and experiences a separation in service from the Company.
30
| Company matching contributions equal to one-half of the amount deferred by the NEOs under the EDP, up to 3.5% of the NEO’s respective annual salary in |
| Matching Contributions | Matching Contributions | |||||||
Mr. Hester | $ | 16,100 | ||||||
Mr. Centrella | 13,637 | |||||||
Mr. Moody | 13,230 | |||||||
Ms. Haller | 11,565 | |||||||
Mr. DeBonis | 10,457 | |||||||
Mr. Shaw | $ | 28,538 | 5,990 | |||||
Mr. Centrella | 10,486 | |||||||
Mr. Hester | 11,025 | |||||||
Mr. Moody | 8,925 | |||||||
Mr. DeBonis | 9,127 | |||||||
| The aggregate incremental costs of the perquisites and personal benefits to the NEOs are based on the taxable value of the personal use of company cars and internet access, while club dues, life insurance, financial planning and physicals are based on the cost to the Company. The life insurance costs include deemed earnings for the value of excess group life insurance coverage premiums and the cost of purchasing supplemental life insurance equal to two times salary. The perquisites and personal benefits, by type and amount, for |
| Car Allowance | Club Dues | Cable Internet | Physicals | Life Insurance | Financial Planning | Car Allowance | Club Dues | Cable Internet | Physicals | Life Insurance | Financial Planning | |||||||||||||||||||||||||||||||||||||
Mr. Hester | $ | 8,402 | $ | 2,060 | $ | 480 | $ | 2,500 | $ | 3,110 | $ | 0 | ||||||||||||||||||||||||||||||||||||
Mr. Centrella | 7,793 | 6,975 | 480 | 2,500 | 5,427 | 0 | ||||||||||||||||||||||||||||||||||||||||||
Mr. Moody | 9,903 | 6,975 | 0 | 2,500 | 5,630 | 0 | ||||||||||||||||||||||||||||||||||||||||||
Ms. Haller | 13,674 | 4,100 | 480 | 0 | 2,427 | 0 | ||||||||||||||||||||||||||||||||||||||||||
Mr. DeBonis | 12,753 | 6,975 | 0 | 2,500 | 1,446 | 0 | ||||||||||||||||||||||||||||||||||||||||||
Mr. Shaw | $ | 9,525 | $ | 6,140 | $ | 0 | $ | 0 | $ | 8,028 | $ | 0 | 3,378 | 1,500 | 0 | 0 | 2,060 | 2,500 | ||||||||||||||||||||||||||||||
Mr. Centrella | 8,231 | 5,770 | 480 | 2,500 | 4,231 | 0 | ||||||||||||||||||||||||||||||||||||||||||
Mr. Hester | 6,463 | 1,930 | 480 | 2,500 | 2,470 | 0 | ||||||||||||||||||||||||||||||||||||||||||
Mr. Moody | 10,377 | 5,760 | 0 | 2,500 | 3,689 | 0 | ||||||||||||||||||||||||||||||||||||||||||
Mr. DeBonis | 14,920 | 6,270 | 0 | 2,500 | 1,287 | 0 | ||||||||||||||||||||||||||||||||||||||||||
| (8) | The amount includes: (i) $175,891 in other compensation paid to Mr. Shaw at retirement, consisting of $39,228 for the value of his Company car, $119,808 in paid-out vacation, $15,000 for a retirement gift, $1,855 for the value of his electronic devices, (ii) retirement benefits of $85,880 and $110,528 received in 2015 under the Retirement Plan and the SERP, respectively and (iii) $41,550 in director compensation paid to Mr. Shaw following his retirement. |
Grants of Plan-Based Awards (2013)(2015)
The following table sets forth information regarding each grant of an award made under our Incentive Plans to our NEOs during the fiscal year ended December 31, 2013.2015.
Name | Award Type(1)(2) | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | Award Type(1)(2) | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | ||||||||||||||||||||||||||||||||||||||||||||||
| Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||||||||||||||||||
Jeffrey W. Shaw | MIP | 270,480 | 386,400 | 540,960 | 7,408 | 10,583 | 14,816 | |||||||||||||||||||||||||||||||||||||||||||||
John P. Hester | MIP | 318,780 | 455,400 | 637,560 | 3,843 | 5,490 | 7,686 | |||||||||||||||||||||||||||||||||||||||||||||
| RSUP | — | — | — | 3,451 | 6,902 | 10,353 | RSUP | — | — | — | 2,685 | 5,370 | 8,055 | |||||||||||||||||||||||||||||||||||||||
Roy R. Centrella | MIP | 66,150 | 94,500 | 132,300 | 1,812 | 2,588 | 3,623 | MIP | 122,850 | 175,500 | 245,700 | 1,481 | 2,116 | 2,962 | ||||||||||||||||||||||||||||||||||||||
| RSUP | — | — | — | 575 | 1,150 | 1,725 | RSUP | — | — | — | 705 | 1,410 | 2,116 | |||||||||||||||||||||||||||||||||||||||
John P. Hester | MIP | 85,680 | 122,400 | 171,360 | 2,347 | 3,352 | 4,693 | |||||||||||||||||||||||||||||||||||||||||||||
William N. Moody | MIP | 152,334 | 217,620 | 304,668 | 1,836 | 2,623 | 3,673 | |||||||||||||||||||||||||||||||||||||||||||||
| RSUP | — | — | — | 776 | 1,552 | 2,328 | RSUP | — | — | — | 911 | 1,822 | 2,733 | |||||||||||||||||||||||||||||||||||||||
William N. Moody | MIP | 75,600 | 108,000 | 151,200 | 2,071 | 2,958 | 4,141 | |||||||||||||||||||||||||||||||||||||||||||||
Karen S. Haller | MIP | 104,895 | 149,850 | 209,790 | 1,264 | 1,806 | 2,529 | |||||||||||||||||||||||||||||||||||||||||||||
| RSUP | — | — | — | 685 | 1,369 | 2,054 | RSUP | — | — | — | 602 | 1,204 | 1,806 | |||||||||||||||||||||||||||||||||||||||
Eric DeBonis | MIP | 56,700 | 81,000 | 113,400 | 1,553 | 2,218 | 3,106 | MIP | 93,240 | 133,200 | 186,480 | 1,124 | 1,606 | 2,248 | ||||||||||||||||||||||||||||||||||||||
| RSUP | — | — | — | 493 | 986 | 1,479 | RSUP | — | — | — | 535 | 1,070 | 1,606 | |||||||||||||||||||||||||||||||||||||||
Jeffrey W. Shaw | MIP | 429,870 | 614,100 | 859,740 | 5,182 | 7,403 | 10,364 | |||||||||||||||||||||||||||||||||||||||||||||
| RSUP | — | — | — | 3,621 | 7,242 | 10,863 | ||||||||||||||||||||||||||||||||||||||||||||||
| (1) | Represents the annual award opportunities established under the MIP for the |
| The award amount under the MIP is based upon the Company achieving a percentage of the target levels under the MIP, as described under “Compensation Discussion and Analysis – |
The MIP equity awards generally vest three years after the date the actual awards are granted. However, because Messrs. |
31
Mr. Shaw was over 55 when he retired in March 2015, his equity awards vested upon termination and were issued following the waiting period imposed by Internal Revenue Service Code Section 409A. |
| The grant date fair value of the actual number of performance shares granted on |
| (2) | Represents the annual award opportunities established under the RSUP for the |
| The award amount under the RSUP is based upon the average MIP payout percentage for the three years immediately preceding the RSUP award determination date, as described under “Compensation Discussion and Analysis – |
| A percentage of the RSUP awards vests each year over the three years following the date of determination of the actual award amount. Because Messrs. |
Summary Compensation and Grants of Plan-Based Awards Tables Narrative
Salaries for the NEOs were increased in July 2013.2015. The increases in salaries reflect additional time and experience in these positions and changes to the midpoints to reflect market trends.
DuringAs presented in the Compensation Discussion and Analysis, during fiscal year 2013,2015, the Company achieved 114%103% of the established target levels under the core MIP performance measures, and the NEOsmost officers, including Mrs. Moody and DeBonis and Ms. Haller, earned 114%103% of their respective incentive opportunities. This comparesMessrs. Hester, Centrella and Shaw, for whom Construction Services was a performance measure, earned 93% of their respective incentive opportunities. These results compare to the 20122014 and 20112013 performance results in which the Company achieved 121%122% and 122%114%, respectively, of the overall performance targets. The Company exceeded the targets for the financial performance measure (i.e., weighted average return on equity), customer service satisfaction and customer to employee ratio and missed the target for operating cost containment. Productivity performance equaled 106% of the weighted-average return on equity, 133% of the customer to employee target level, 121% of the customer service satisfaction target level and 97% of the operating cost containment target level. No downward adjustments were made to the awards to the NEOs.
40%60% of the MIP awards were paid in cash in January 2014February 2016 and the remaining 60%40% of the MIP awards were converted into performance shares in January 2014February 2016 based on the five-day average price of Common Stock for January 2, 3,4, 5, 6, 7 and 8, 2014,2016, which equaled $54.77$55.30 per share. The MIP cash awards paid in 20142016 for services performed in 20132015 (and included in the Summary Compensation Table) were $440,496$423,522 for Mr. Shaw, $107,730Hester, $163,215 for Mr. Centrella, $139,536 for Mr. Hester, $123,120$224,149 for Mr. Moody, $154,346 for Ms. Haller and $92,340$137,196 for Mr. DeBonis.
The dollar value of the 20132015 MIP performance share awards, the number of performance shares granted (rounded to whole shares) as a result thereof, and the grant date fair values of the performance shares granted on January 31, 2014February 23, 2016 are as follows:
| Dollar Values | Performance Shares | Grant Date Fair Value(1) | Dollar Values | Performance Shares | Grant Date Fair Value(1) | |||||||||||||||||||
Mr. Shaw | $ | 660,744 | 12,064 | $ | 648,221 | |||||||||||||||||||
Mr. Hester | $ | 282,348 | 5,105 | $ | 301,473 | |||||||||||||||||||
Mr. Centrella | 161,595 | 2,951 | 158,532 | 108,810 | 1,967 | 116,180 | ||||||||||||||||||
Mr. Hester | 209,304 | 3,822 | 205,337 | |||||||||||||||||||||
Mr. Moody | 184,680 | 3,372 | 181,180 | 149,432 | 2,702 | 159,554 | ||||||||||||||||||
Ms. Haller | 102,897 | 1,861 | 109,867 | |||||||||||||||||||||
Mr. DeBonis | 138,510 | 2,529 | 135,885 | 91,464 | 1,654 | 97,659 | ||||||||||||||||||
Mr. Shaw(2) | — | — | — | |||||||||||||||||||||
| (1) | The grant date fair value was |
| (2) | Mr. Shaw retired from the Company in March 2015 and his MIP award was prorated for his period of employment with the Company during 2015 and paid in cash. The amount of the award is shown in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table for Mr. Shaw. |
32
The Company’s 20132015 performance also resulted in an award under the RSUP. The three-year average of MIP payout percentage equaled 119%113% under the core measures, resulting in an award of 132.5% of the target incentive opportunity for most officers, including Messrs. Moody and DeBonis and Ms. Haller. Messrs. Hester, Centrella and Shaw, for whom Construction Services was a performance measure, had a three-year average MIP payout percentage of 110%, resulting in an award of 147.5%125% of the target and the grant of the following dollar values and numbers of restricted stock units (rounded to whole shares) to the NEOs.their respective incentive award opportunities. The dollar value of the 20132015 RSUP awards, the number of restricted stock units granted (rounded to whole shares) as a result thereof, and the grant date fair values of the performance shares granted on January 31, 2014February 23, 2016 are as follows:
| Dollar Values | Restricted Stock Units(1) | Grant Date Fair Value(2) | Dollar Values | Restricted Stock Units | Grant Date Fair Value(1) | |||||||||||||||||||
Mr. Shaw | $ | 683,550 | 12,481 | $ | 670,595 | |||||||||||||||||||
Mr. Hester | $ | 371,250 | 6,713 | $ | 396,397 | |||||||||||||||||||
Mr. Centrella | 140,175 | 2,559 | 137,518 | 97,500 | 1,763 | 104,104 | ||||||||||||||||||
Mr. Hester | 176,375 | 3,220 | 173,032 | |||||||||||||||||||||
Mr. Moody | 155,625 | 2,842 | 152,676 | 133,494 | 2,414 | 142,536 | ||||||||||||||||||
Ms. Haller | 88,245 | 1,596 | 94,222 | |||||||||||||||||||||
Mr. DeBonis | 120,150 | 2,194 | 117,873 | 78,440 | 1,418 | 83,753 | ||||||||||||||||||
Mr. Shaw(2) | 83,604 | 1,512 | 89,267 | |||||||||||||||||||||
| (1) |
| The grant date fair value was |
| (2) | Mr. Shaw retired from the Company in March 2015, and his RSUP award was prorated for his period of employment with the Company during 2015. |
Outstanding Equity Awards at Fiscal Year-End 20132015
The following table sets forth information regarding unexercised options under our Option Plan, unvested performance share awards under the MIP and unit awards under the RSUP for each of the NEOs, in each case, outstanding as of December 31, 2013.2015.
| Option Awards | Stock Awards | |||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(1) | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | ||||||||||||||||||
Jeffrey W. Shaw | 0 | 0 | N/A | N/A | 76,606 | 4,283,041 | ||||||||||||||||||
Roy R. Centrella | 662 | 0 | 33.07 | 7/31/16 | 16,227 | 907,252 | ||||||||||||||||||
John P. Hester | 0 | 0 | N/A | N/A | 18,131 | 1,013,704 | ||||||||||||||||||
William N. Moody | 0 | 0 | N/A | N/A | 12,792 | 715,201 | ||||||||||||||||||
Eric DeBonis | 0 | 0 | N/A | N/A | 13,137 | 734,490 | ||||||||||||||||||
Name John P. Hester Roy R. Centrella William N. Moody Karen S. Haller Eric DeBonis Jeffrey W. Shaw Option Awards Stock Awards Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable Option
Exercise
Price ($) Option
Expiration
Date Number of
Shares or
Units of Stock
That Have
Not Vested (#)(1) Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(2) 0 0 N/A N/A 20,604 1,136,517 662 0 33.07 7/31/16 14,909 822,380 0 0 N/A N/A 16,295 898,832 0 0 N/A N/A 12,061 665,285 0 0 N/A N/A 12,447 686,577 0 0 N/A N/A 0 0
| (1) | The MIP performance share awards vest as follows: |
| Grants in 2011 January 2014 | Grants in 2012 January 2015 | Grants in 2013 January 2016 | Grants in 2013 January 2016 | Grants in 2014 January 2017 | Grants in 2015 January 2018 | |||||||||||||||||||
Mr. Hester | 4,313 | 4,037 | 5,699 | |||||||||||||||||||||
Mr. Centrella | 3,971 | 3,117 | 3,392 | |||||||||||||||||||||
Mr. Moody | 3,492 | 3,562 | 4,215 | |||||||||||||||||||||
Ms. Haller | 3,149 | 2,454 | 2,862 | |||||||||||||||||||||
Mr. DeBonis | 3,492 | 2,671 | 2,620 | |||||||||||||||||||||
Mr. Shaw | 17,849 | 15,793 | 15,901 | 0 | 0 | 0 | ||||||||||||||||||
Mr. Centrella | 3,880 | 3,708 | 3,759 | |||||||||||||||||||||
Mr. Hester | 4,614 | 4,065 | 4,083 | |||||||||||||||||||||
Mr. Moody | 2,294 | 3,076 | 3,306 | |||||||||||||||||||||
Mr. DeBonis | 2,339 | 3,296 | 3,306 | |||||||||||||||||||||
33
The RSUP unit awards granted in 2011, 20122013, 2014 and 20132015 (plan years 2010, 20112012, 2013 and 2012,2014, respectively), including dividends reinvested, vest as follows:
| Plan Year | January 2014 | January 2015 | January 2016 | Plan Year | January 2016 | January 2017 | January 2018 | |||||||||||||||||||||||||
Mr. Shaw | 2012 | 6,285 | 4,714 | 4,714 | ||||||||||||||||||||||||||||
Mr. Hester | 2014 | 1,378 | 1,034 | 1,033 | ||||||||||||||||||||||||||||
| 2011 | 3,876 | 3,875 | — | 2013 | 1,021 | 1,020 | — | |||||||||||||||||||||||||
| 2010 | 3,599 | — | — | 2012 | 1,069 | — | — | |||||||||||||||||||||||||
Mr. Centrella | 2012 | 1,243 | 932 | 932 | 2014 | 729 | 547 | 546 | ||||||||||||||||||||||||
| 2011 | 620 | 620 | — | 2013 | 811 | 811 | — | |||||||||||||||||||||||||
| 2010 | 533 | — | — | 2012 | 985 | — | — | |||||||||||||||||||||||||
Mr. Hester | 2012 | 1,350 | 1,013 | 1,012 | ||||||||||||||||||||||||||||
Mr. Moody | 2014 | 944 | 708 | 707 | ||||||||||||||||||||||||||||
| 2011 | 680 | 680 | — | 2013 | 901 | 900 | — | |||||||||||||||||||||||||
| 2010 | 634 | — | — | 2012 | 866 | — | — | |||||||||||||||||||||||||
Mr. Moody | 2012 | 1,093 | 820 | 819 | ||||||||||||||||||||||||||||
Ms. Haller | 2014 | 615 | 462 | 461 | ||||||||||||||||||||||||||||
| 2011 | 515 | 514 | — | 2013 | 639 | 638 | — | |||||||||||||||||||||||||
| 2010 | 355 | — | — | 2012 | 781 | — | — | |||||||||||||||||||||||||
Mr. DeBonis | 2012 | 1,093 | 820 | 819 | 2014 | 563 | 423 | 422 | ||||||||||||||||||||||||
| 2011 | 551 | 551 | — | 2013 | 695 | 695 | — | |||||||||||||||||||||||||
| 2010 | 362 | — | — | 2012 | 866 | — | — | |||||||||||||||||||||||||
Mr. Shaw | 2014 | 0 | 0 | 0 | ||||||||||||||||||||||||||||
| 2013 | 0 | 0 | — | |||||||||||||||||||||||||||||
| 2012 | 0 | — | — | |||||||||||||||||||||||||||||
Because Messrs. Shaw, Centrella and Moody are over age 55 and are eligible for retirement, the MIP performance shares and the RSUP units will vest when their employment with the Company ends. Because Mr. Shaw was past age 55 when he retired in March 2015, all of his MIP performance shares and RSUP units vested at that time.
| (2) | The market value of Common Stock was |
Option Exercises and Stock Vested During 20132015
The following table sets forth the number of options to purchase Common Stock that were exercised and the aggregate dollar value realized upon exercise (the difference between the market price of the underlying securities at exercise and the exercise price of the options). The number of MIP performance shares and RSUP units that vested during 20132015 and the value realized on vesting (the market price at vesting) are also shown in the table.
| Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||||||||||||||||||
Jeffrey W. Shaw | 0 | 0 | 32,089 | 1,374,831 | ||||||||||||||||||||||||||||
John P. Hester | 0 | 0 | 7,233 | 446,201 | ||||||||||||||||||||||||||||
Roy R. Centrella | 2,938 | 41,220 | 4,317 | 185,021 | 0 | 0 | 6,451 | 397,997 | ||||||||||||||||||||||||
John P. Hester | 15,086 | 243,078 | 7,202 | 307,860 | ||||||||||||||||||||||||||||
William N. Moody | 0 | 0 | 3,913 | 167,526 | 0 | 0 | 5,695 | 351,259 | ||||||||||||||||||||||||
Karen S. Haller | 0 | 0 | 4,032 | 248,660 | ||||||||||||||||||||||||||||
Eric DeBonis | 0 | 0 | 4,025 | 172,319 | 0 | 0 | 5,692 | 351,158 | ||||||||||||||||||||||||
Jeffrey W. Shaw(1) | 0 | 0 | 94,321 | 5,394,760 | ||||||||||||||||||||||||||||
| (1) | Stock Award shares for Mr. Shaw, in addition to those vesting according to the normal vesting schedule, also included 25,131 MIP performance shares and 13,623 RSUP units outstanding at the time of his retirement in March 2015, all of which vested in connection with his retirement and were later distributed to him in compliance with Code Section 409A. For purposes of this table, such shares were valued based on the closing share price of Common Stock on the date of distribution. |
We offer two defined benefit retirement plans to the NEOs and the other Company officers. They include the Retirement Plan, which is available to all employees of the Company, and the SERP.
Benefits under the Retirement Plan are based on the NEO’s (i) years of service with the Company, up to a maximum of 30 years, and (ii) average of the highest five consecutive years’ salary, within the final 10 years of service, not to exceed a maximum compensation level established by the Internal Revenue Service. Vesting in the Retirement Plan occurs after five years of service with the Company.
The SERP is designed to supplement the benefits under the Retirement Plan to a level of 50 – 60% of salary, as shown in the“Salary” column of the“Summary Compensation Table.” Salary is currently based on the 12-month average of the
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highest 36 months of salary at the time of retirement. Vesting in the SERP occurs at age 55, with 20 years of service with the Company.
Upon retirement, the plans will provide a lifetime annuity to the NEOs, with a 50% survivor benefit to their spouses. No lump sum payments are permitted under the Plans.
Messrs. Centrella and Moody are vested in both plans and could retire at this time and start receiving full benefits. Mr. Shaw isMessrs. Hester and DeBonis and Ms. Haller are vested only in both plansthe Retirement Plan and, if heany left the Company as of the date of this Proxy Statement, his accrued benefits under both the Retirement Plan and the SERP would be reduced by 14%. Messrs. Hester and DeBonis are vested only in the Retirement Plan and, if either left the Company as of the date of this Proxy Statement, hisor her accrued benefit under the Retirement Plan would be reduced by 58.6% and benefits would not commence until he reached age 55. Mr. Shaw was vested in both plans at his retirement in March 2015 and started receiving benefits with an 11.25% reduction under both the Retirement Plan and SERP.
Pension Benefits as of December 31, 20132015
The following table sets forth the number of years of credited service and present value of accumulated benefits as of December 31, 2013,2015, and payments received during the last fiscal year, under both the Retirement Plan and the SERP for each NEO.
Name | Plan Name | Number of Years Credited Service(#) | Present Value of Accumulated Benefit($)(1) | Payments During Last Fiscal Year($) | Plan Name | Number of Years Credited Service(#) | Present Value of Accumulated Benefit($)(1) | Payments During Last Fiscal Year($) | ||||||||||||||||||||||
Jeffrey W. Shaw | Retirement Plan | 25 | 1,352,099 | 0 | ||||||||||||||||||||||||||
John P. Hester | Retirement Plan | 26 | 1,595,614 | 0 | ||||||||||||||||||||||||||
| SERP | 25 | 4,568,318 | 0 | SERP | 26 | 2,058,402 | 0 | |||||||||||||||||||||||
Roy R. Centrella | Retirement Plan | 30 | 1,644,244 | 0 | Retirement Plan | 30 | 1,960,939 | 0 | ||||||||||||||||||||||
| SERP | 30 | 807,944 | 0 | SERP | 30 | 1,191,663 | 0 | |||||||||||||||||||||||
John P. Hester | Retirement Plan | 24 | 1,196,449 | 0 | ||||||||||||||||||||||||||
William N. Moody | Retirement Plan | 30 | 1,873,775 | 0 | ||||||||||||||||||||||||||
| SERP | 24 | 910,172 | 0 | SERP | 30 | 1,087,259 | 0 | |||||||||||||||||||||||
William N. Moody | Retirement Plan | 30 | 1,612,474 | 0 | ||||||||||||||||||||||||||
Karen S. Haller | Retirement Plan | 18 | 755,789 | 0 | ||||||||||||||||||||||||||
| SERP | 30 | 415,943 | 0 | SERP | 18 | 1,080,533 | 0 | |||||||||||||||||||||||
Eric DeBonis | Retirement Plan | 20 | 626,988 | 0 | Retirement Plan | 22 | 956,819 | 0 | ||||||||||||||||||||||
| SERP | 20 | 700,717 | 0 | SERP | 22 | 894,056 | 0 | |||||||||||||||||||||||
Jeffrey W. Shaw | Retirement Plan | 27 | 1,646,334 | 85,880 | ||||||||||||||||||||||||||
| SERP | 27 | 5,531,317 | 110,528 | |||||||||||||||||||||||||||
| (1) | The valuation method and all material assumptions applied in quantifying the present value of the accrued benefits are described in “Note |
Nonqualified Deferred Compensation
In addition to participating in the EIP, which is available to all employees, the NEOs and the other Company officers can participate in the EDP. The EDP supplements the deferral opportunities by permitting executives to defer up to 100% of their annual salary and non-equity incentive plan compensation. As part of the EDP, the Company provides matching contributions up to 3.5% of participants’ annual base salary. Matching contributions are not available to the NEOs and the other Company officers for deferrals into the EIP.
Amounts deferred under the EDP and the matching contributions made during a plan year bear interest at 150% of the Moody’s Seasoned Corporate Bond Rate (the “Bond Rate”) from the start of the plan year. The interest rate is set for the plan year using the Bond Rate published by Moody’s Investors Services as of January 1 prior to the start of a new plan year. The interest rate formula was defined in the EDP at the time it was adopted in 1986. For plan year 2012,2014, the interest rate was 6.71%7.38%, and for plan year 2013,2015, the interest rate was 6.08%6.26%.
At retirement or termination of employment with five years of service, the EDP balances will be paid out at the election of the participant over a period of 10, 15 or 20 years and will be credited during the applicable payment period with interest at 150% of the average of the Bond Rate on each January 1 for the five years prior to distribution.
Deferrals and the matching contributions to the EDP are unfunded obligations of the Company, and the rights of our named executive officers and other Company officers participating in such plan benefits are no greater than those of an unsecured creditor.
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Nonqualified Deferred Compensation in 20132015
The following table presents nonqualified deferred compensation during 20132015 for each NEO.
Name | Executive Contributions in Last Fiscal Year($)(1) | Registrant Contributions in Last Fiscal Year($)(2) | 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($)(2) | Aggregate Earnings in Last Fiscal Year($)(2) | Aggregate Withdrawals / Distributions ($)(3) | Aggregate Balance at Last Fiscal Year- End($)(4) | ||||||||||||||||||||||||||||||
John P. Hester | 219,204 | 16,100 | 119,319 | 0 | 1,724,101 | |||||||||||||||||||||||||||||||||||
Roy R. Centrella | 181,721 | 13,637 | 104,959 | 0 | 1,629,411 | |||||||||||||||||||||||||||||||||||
William N. Moody | 149,818 | 13,230 | 78,882 | 0 | 1,132,506 | |||||||||||||||||||||||||||||||||||
Karen S. Haller | 63,123 | 11,565 | 27,281 | 0 | 448,057 | |||||||||||||||||||||||||||||||||||
Eric DeBonis | 66,648 | 10,457 | 30,194 | 0 | 462,222 | |||||||||||||||||||||||||||||||||||
Jeffrey W. Shaw | 101,200 | 28,538 | 149,239 | 0 | 2,570,796 | 19,250 | 5,990 | 209,243 | 138,561 | 2,984,384 | ||||||||||||||||||||||||||||||
Roy R. Centrella | 99,398 | 10,486 | 66,338 | 0 | 1,085,914 | |||||||||||||||||||||||||||||||||||
John P. Hester | 111,658 | 11,025 | 72,322 | 0 | 1,125,278 | |||||||||||||||||||||||||||||||||||
William N. Moody | 81,808 | 8,925 | 46,251 | 0 | 707,637 | |||||||||||||||||||||||||||||||||||
Eric DeBonis | 59,646 | 9,127 | 15,857 | 0 | 259,914 | |||||||||||||||||||||||||||||||||||
| (1) | Amounts shown in this column are included in the “Salary” and “Non-Equity Incentive Compensation” columns of the “Summary Compensation Table.” |
| (2) | EDP earnings, which were above-market, and matching contributions are also reported in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” and the “All Other Compensation” columns, respectively, of the “Summary Compensation Table.” Those amounts for the NEOs are as follows: |
| Above-Market Interest | Matching Contributions | Total | Above-Market Interest | Matching Contributions | Total | |||||||||||||||||||
Mr. Hester | $ | 66,006 | $ | 16,100 | $ | 82,106 | ||||||||||||||||||
Mr. Centrella | 55,555 | 13,637 | 69,192 | |||||||||||||||||||||
Mr. Moody | 43,909 | 13,230 | 57,139 | |||||||||||||||||||||
Ms. Haller | 14,362 | 11,565 | 25,927 | |||||||||||||||||||||
Mr. DeBonis | 16,403 | 10,457 | 26,860 | |||||||||||||||||||||
Mr. Shaw | $ | 82,134 | $ | 28,538 | $ | 110,672 | 108,675 | 5,990 | 114,665 | |||||||||||||||
Mr. Centrella | 38,218 | 10,486 | 48,704 | |||||||||||||||||||||
Mr. Hester | 42,401 | 11,025 | 53,426 | |||||||||||||||||||||
Mr. Moody | 27,457 | 8,925 | 36,382 | |||||||||||||||||||||
Mr. DeBonis | 9,702 | 9,127 | 18,829 | |||||||||||||||||||||
| (3) | Represents distributions made after Mr. Shaw’s retirement in March 2015. |
| (4) | The amounts reported in this column that were previously reported as compensation to the NEOs in the Summary Compensation Table for previous years are as follows: |
| 2011 | 2012 | 2013 | 2013 | 2014 | 2015 | |||||||||||||||||||
Mr. Hester | $ | 165,084 | $ | 194,179 | $ | 301,310 | ||||||||||||||||||
Mr. Centrella | 148,102 | 195,781 | 250,913 | |||||||||||||||||||||
Mr. Moody | 118,190 | 150,510 | 206,957 | |||||||||||||||||||||
Ms. Haller | 52,952 | 60,883 | 89,050 | |||||||||||||||||||||
Mr. DeBonis | 78,475 | 82,828 | 93,508 | |||||||||||||||||||||
Mr. Shaw | $ | 195,987 | $ | 204,676 | $ | 211,872 | 211,872 | 213,015 | 133,915 | |||||||||||||||
Mr. Centrella | 120,990 | 129,209 | 148,102 | |||||||||||||||||||||
Mr. Hester | 146,087 | 156,418 | 165,084 | |||||||||||||||||||||
Mr. Moody | 77,762 | 106,928 | 118,190 | |||||||||||||||||||||
Mr. DeBonis | 36,365 | 59,537 | 78,475 | |||||||||||||||||||||
The Company has no employment agreements or severance arrangements. Each officer of the Company has a change in control agreement, which provides benefits upon certain termination events following a change in control of the Company. If the termination of employment without cause or as a result of a significant reduction in duties, responsibilities, location or compensation occurs within two years after a change in control (which includes an acquisition by one person or a group of persons of at least 30% of the ownership of the Company, replacement of a majority of incumbent Board members, or a merger or similar transaction resulting in more than a 50% change of ownership of the Company) (collectively referred to as a “Double Trigger Event”), the affected NEOs would receive the following:
| * | Salary for three years for the PEO and two and one-half years for all other NEOs; |
| * | Incentive compensation under the MIP and the RSUP for three years for the PEO and two and one-half years for all other NEOs; |
| * | Welfare benefits including the cost of medical, dental and life insurance coverage under the current Company plans (for three years for the PEO and two and one-half years for all other NEOs); |
| * | Vesting of all unvested stock-based awards and stock options, with the options being exercisable for 90 days; |
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| * | Additional credit that may affect eligibility, vesting, and the calculation of benefits under the SERP (see discussion in the Compensation Discussion and Analysis section above); and |
| * | Outplacement services of up to $30,000. |
Under the assumption that a Double Trigger Event occurred on December 31, 2013,2015, based on the terms of the change in control agreements for the NEOs, it is estimated that the NEOs would have received the compensation presented in the following table.
Name | Salary | Incentive Compen- sation | Welfare Benefits | Stock Acceler- ation(1) | Outplacement Services | Additional SERP Benefits(2) | Tax Gross-Up | Total | Salary | Incentive Compen- sation | Welfare Benefits | Stock Acceler- ation(1) | Outplacement Services | Additional SERP Benefits(2) | Total | |||||||||||||||||||||||||||||||||||||||||||||
John P. Hester | $ | 1,980,000 | $ | 3,168,000 | $ | 47,172 | $ | 1,136,517 | $ | 30,000 | $ | 1,627,425 | $ | 7,989,114 | ||||||||||||||||||||||||||||||||||||||||||||||
Roy R. Centrella | 975,000 | 926,250 | 47,893 | 0 | 30,000 | 0 | 1,979,143 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
William N. Moody | 1,007,500 | 1,158,625 | 39,245 | 0 | 30,000 | 0 | 2,235,370 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Karen S. Haller | 832,500 | 790,875 | 47,588 | 665,285 | 30,000 | 1,257,859 | 3,624,107 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Eric DeBonis | 740,000 | 703,000 | 47,448 | 686,577 | 30,000 | 0 | 2,207,025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Jeffrey W. Shaw | $ | 2,520,000 | $ | 4,032,000 | $ | 57,474 | $ | 0 | $ | 30,000 | $ | 1,217,973 | n/a | $ | 7,857,447 | n/a | n/a | n/a | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||||||||||||
Roy R. Centrella | 787,500 | 748,125 | 44,720 | 0 | 30,000 | 0 | n/a | 1,610,345 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
John P. Hester | 850,000 | 977,500 | 36,595 | 1,013,704 | 30,000 | 1,298,092 | n/a | 4,205,891 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
William N. Moody | 750,000 | 862,500 | 44,330 | 0 | 30,000 | 0 | n/a | 1,686,830 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Eric DeBonis | 675,000 | 641,250 | 44,330 | 734,490 | 30,000 | 0 | n/a | 2,125,070 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) | Because Messrs. |
| (2) | Additional SERP benefits are shown on a present value basis, using the valuation method and all material assumptions described in “Note |
| (3) | Because Mr. Shaw retired in March 2015, no potential payments have been reflected for him. |
20132015 Directors Compensation Table
Name | Fees Earned or Paid in Cash($) | Stock Awards ($)(1)(2)(3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) | All Other Compensation ($)(5) | Total($) | Fees Earned or Paid in Cash($) | Stock Awards ($)(1)(2)(3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) | All Other Compensation ($)(5) | Total($) | ||||||||||||||||||||||||||||||
Robert L. Boughner | 84,075 | 103,109 | 16,045 | 207 | 203,436 | 80,550 | 143,530 | 21,922 | 160 | 246,162 | ||||||||||||||||||||||||||||||
José A. Cárdenas | 66,400 | 103,109 | 0 | 207 | 169,716 | 63,100 | 143,530 | 0 | 160 | 206,790 | ||||||||||||||||||||||||||||||
Thomas E. Chestnut | 69,700 | 103,109 | 32,001 | 207 | 205,017 | 66,400 | 143,530 | 37,448 | 160 | 247,538 | ||||||||||||||||||||||||||||||
Stephen C. Comer | 85,950 | 103,109 | 22,150 | 207 | 211,416 | 73,900 | 143,530 | 27,915 | 160 | 245,505 | ||||||||||||||||||||||||||||||
LeRoy C. Hanneman, Jr. | 76,175 | 103,109 | 0 | 207 | 179,491 | 75,550 | 143,530 | 0 | 160 | 219,240 | ||||||||||||||||||||||||||||||
Michael O. Maffie | 59,800 | 103,109 | 0 | 0 | 162,909 | |||||||||||||||||||||||||||||||||||
Michael O. Maffie (retired) | 20,000 | 143,530 | 0 | 0 | 163,530 | |||||||||||||||||||||||||||||||||||
Anne L. Mariucci | 72,875 | 103,109 | 20,635 | 207 | 196,826 | 70,600 | 143,530 | 22,943 | 160 | 237,233 | ||||||||||||||||||||||||||||||
Michael J. Melarkey | 114,750 | 103,109 | 29,482 | 207 | 247,548 | 114,750 | 143,530 | 38,014 | 160 | 296,454 | ||||||||||||||||||||||||||||||
Jeffrey W. Shaw | 41,550 | — | 0 | 0 | 41,550 | |||||||||||||||||||||||||||||||||||
A. Randall Thoman | 69,700 | 103,109 | 7,577 | 207 | 180,593 | 73,990 | 143,530 | 12,640 | 160 | 230,230 | ||||||||||||||||||||||||||||||
Thomas A. Thomas | 68,050 | 103,109 | 11,039 | 207 | 182,405 | 63,100 | 143,530 | 15,495 | 160 | 222,285 | ||||||||||||||||||||||||||||||
Terrence L. Wright | 61,450 | 103,109 | 62,730 | 207 | 227,496 | 64,750 | 143,530 | 69,443 | 160 | 277,883 | ||||||||||||||||||||||||||||||
| (1) | The amounts in this column represent the grant date fair value of restricted stock units earned in |
| (2) | The grant date fair value of the |
37
| (3) | Stock and option awards outstanding at December 31, |
| Stock Awards | Options | Stock Awards | Options | |||||||||||||
Mr. Boughner | 10,687 | 0 | 16,033 | 0 | ||||||||||||
Mr. Cárdenas | 4,788 | 0 | 9,801 | 0 | ||||||||||||
Mr. Chestnut | 11,907 | 0 | 17,321 | 0 | ||||||||||||
Mr. Comer | 11,907 | 0 | 17,321 | 0 | ||||||||||||
Mr. Hanneman | 8,880 | 0 | 14,123 | 0 | ||||||||||||
Mr. Maffie | 11,907 | 0 | 0 | 0 | ||||||||||||
Ms. Mariucci | 11,907 | 0 | 17,321 | 0 | ||||||||||||
Mr. Melarkey | 11,907 | 6,000 | 17,321 | 3,000 | ||||||||||||
Mr. Shaw | 0 | 0 | ||||||||||||||
Mr. Thoman | 7,118 | 0 | 12,263 | 0 | ||||||||||||
Mr. Thomas | 10,687 | 0 | 16,033 | 0 | ||||||||||||
Mr. Wright | 11,907 | 9,000 | 17,321 | 3,000 | ||||||||||||
| Mr. Shaw’s executive awards are disclosed above in the discussion with the NEOs. |
| (4) | The pension value of Mr. Wright’s retirement benefits increased by $0. The amounts in this column also reflect above-market interest on nonqualified deferred compensation balances for |
| (5) | The All Other Compensation column represents the cost of life insurance for directors other than |
Directors Compensation Narrative
The outside directors receive an annual retainer of $40,000 and $1,650 for each Board and committee meeting attended and for any additional day of service performed for the Company. The chairperson of the Audit Committee receives an additional $15,000 annually, the chairperson of the Compensation Committee receives an additional $12,500 annually and the chairpersons of the other permanent committees each receive an additional $7,500 annually. The Chairman of the Board receives an additional $50,000 annually for serving in that capacity. Directors who are full-time employees of the Company or its subsidiaries receive no additional compensation for serving on the Board.
Outside directors are granted 800 restricted stock units annually, and they have an opportunity to earn additional restricted stock units tied to maintaining long-term performance and based on how the Company performed over the last three years under the MIP performance measures. The incentive award was set at a target of 1,000 restricted stock units. No award will be paid unless the average payout percentage under the MIP for the last three years is at or above 90%. If an award is earned, it can range from 50% to 150% of the incentive opportunity. An incentive award was earned for 2013,2015, and each director on the grant date received an additional grant of 1,4751,325 restricted stock units on January 31, 2014.February 23, 2016. The restricted stock units are valued at the closing price of the Company’s Common Stock on the date of grant. Restricted stock units awarded prior to January 2012 vested in increments over three years commencing with the first anniversary of the grant. Restricted stock units granted on January 17, 2012, January 29, 2013, and January 31, 2014,in subsequent years vested immediately upon grant. Even though the units are vested, they are not converted into shares of Common Stock until the outside directors leave the Board.
Cash compensation received by the outside directors may be deferred until retirement or termination of their status as directors pursuant to the Directors Deferral Plan. Amounts deferred bear interest at 150% of the Moody’s Seasoned Corporate Bond Rate. At retirement or termination, such deferrals will be paid out over 5, 10, 15 or 20 years, and will be credited during the applicable payment period with interest at 150% of the average of the Moody’s Seasoned Corporate Bond Rate on January 1 for the five years prior to retirement or termination.
The Company also provides a retirement plan for the one outside director (Mr. Wright) elected to the Board prior to the 2003 Annual Meeting of Shareholders. Under the provisions of the plan, he will receive an annual benefit equal to the annual retainer at the time of his retirement or, if he retires before reaching 65, beginning at age 65.retirement.
38
ADVISORY VOTE TO APPROVE THE COMPANY’S EXECUTIVE COMPENSATIONAMENDMENT AND REAPPROVAL OF
RESTRICTED STOCK/UNIT PLAN
(Proposal 2 on the Proxy Card)
The Board of Directors Recommends a Vote FOR approval of executive compensation.
In light of the advisory vote at the 2011 Annual Meeting of Shareholders on the frequency of“say-on-pay” advisory votes, the Company’s Board of Directors unanimously determined that the Company will hold an advisory vote on executive compensation on an annual basis, including a vote at the 2014 Annual Meeting of Shareholders. In accordance with the requirements of Section 14A of the Exchange Act, shareholders will have the opportunity to approve or not approve the compensation of the named executive officers through a non-binding vote (commonly known as “say-on-pay” vote) on the following resolution:
RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in the Company’s Proxy Statement for the 2014 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, compensation tables and narrative discussion is hereby APPROVED.
The Company’s compensation program is designed and administered by the Compensation Committee of the Board, which is composed entirely of independent directors and carefully considers many different factors, as described in the Compensation Discussion and Analysis, in order to provide appropriate compensation for the Company’s executives. As discussed in the Compensation Discussion and Analysis, the compensation package for the Company’s named executive officers (who are the officers listed in the Summary Compensation Table in the Executive Compensation section) is designed to support the Company’s objectives of attracting, motivating and retaining the executive talent required to achieve our corporate objectives and increase shareholder value.
The compensation program is based on the Board-approved executive compensation philosophy of (i) paying base salary at the median (50th percentile) of the amounts paid by our peer group of companies (the “relative market”), (ii) providing short- and long-term incentive awards that are designed to motivate the named executive officers to focus on specific annual and long-term Company financial, productivity and customer satisfaction performance goals and achieve superior Company performance while placing a significant amount of total compensation at risk, and (iii) paying total direct compensation (base salary and short- and long-term incentive awards) to be competitive with the relative market.
Consistent with the SEC rule implementing the requirement that the Company periodically include a say-on-pay proposal in its proxy statement, the vote on this proposal is advisory and is not binding on the Company, the Compensation Committee or the Board. The Compensation Committee and the Board value the opinions that shareholders express in their votes and to the extent there is any significant vote against the named executive officer compensation, will consider the outcome of the vote when making future executive compensation decisions and evaluate whether any actions are necessary to address shareholder concerns expressed by such vote. It is expected that the next advisory vote on executive compensation will occur at the 2015 Annual Meeting of Shareholders.
We encourage you to review the complete description of the Company’s executive compensation programs provided in this Proxy Statement, including the Compensation Discussion and Analysis and the accompanying compensation tables.
REAPPROVAL AND AMENDMENT OF MANAGEMENT INCENTIVE PLAN
(Proposal 3 on The Proxy Card)
The Board of Directors Recommends a VoteVOTE FOR this Proposal
In January 2012 the Board adopted, and in May 2012 the shareholders approved, the Company’s Amended and Restated Restricted Stock/Unit Plan (“RSUP”). The Management Incentive Plan (the “MIP” or the “Plan”) was initially adopted by the Company in 1993 and approved by shareholders in 1994, 2002, 2004 and 2009. The MIPRSUP gives the Board authority to grant equity compensation (which we refer to as “Performance Shares”)restricted stock and cash awards that,restricted stock units and, in its discretion, to design such awards that are intended to qualify as “performance-based compensation” as defined under Section 162(m) of the Internal Revenue Code (the “Code”). Awards that so qualify may be exempt from the limit on tax deductibility under Code Section 162(m). The Code Section 162(m) requires that the material terms of the MIPRSUP be reapproved by the shareholders at least onceno less frequently than every five years in order for awards under the MIPRSUP to continue to be abledesignated to qualify as performance-based compensation,compensation. The Board also proposes to increase the share reserve under the RSUP, to extend the term of the RSUP, and to expand the MIPlist of potential performance criteria under the RSUP, as described below. The RSUP is being submitted to shareholders for that reason.these reasons.
Company Common Stock supports the equity compensation component of the MIP by being available for the conversion of Performance Shares at the end of the applicable restriction period. As of March 1, 2014, approximately 1.3 million8, 2016, 418,205 shares of Common Stock had been issued under the MIP,RSUP and target awards covering a total of approximately 300,000 Performance Shares252,666 shares were outstanding, and subject to vesting restrictions and there were approximately 100,000no shares not subject to Performance Sharetarget awards and available for issuance under the MIP.RSUP. To ensure that sufficient shares are authorized for the MIPRSUP to cover future awards, at grant levels consistent with recent practice, the Board believes that additional shares are needed. Accordingly, in February 2014,2016, the Board approved an amendment to the MIP,RSUP, subject to shareholder approval, to reserve an additional 750,000400,000 shares of Common Stock for the MIP,RSUP, thereby increasing the total number of shares reserved for issuance under the MIPRSUP from 1,700,000650,000 to 2,450,0001,050,000 shares. Additionally, the Board approved, subject to shareholder approval, the extension of the term of the RSUP until May 31, 2021, and additional performance criteria for individual performance, safety and subsidiary and regional financial performance.
The material terms of the MIPRSUP are described below, and a complete copy of the MIP,RSUP, marked to show the proposed amendments, is attached to this Proxy Statement as Appendix A. The following description is qualified in its entirety by the terms of the MIP, asRSUP, a copy of which is attached to this Proxy Statement as Appendix A and is incorporated herein by reference. Capitalized terms used but not defined in this Proposal 3 shall have the same meaning as in the MIP unless otherwise indicated.
General Description
Purpose
The purpose of the MIPRSUP is to encourageprovide the Company’s officers, directors and a select group of managementemployees, whose present and highly compensated employees to make long-term employment commitments and to contributepotential contributions are important to the short- and long-term success of the Company. The MIP provides a two-part award, consistingCompany, an incentive, through ownership of cash and equity. The cash componentCommon Stock of the award is payable immediately after the performance period, based on performance. The equity component of the award is converted, based on performance, following the end of the performance period into Performance Shares and, as the MIP is currently administered, is restricted for thirty-six months (generally subjectCompany, to continued employment), at which time the Performance Shares are converted to Company Common Stock and issuedcontinue in service to the Plan participants.Company, and to help the Company compete effectively with other enterprises for the services of qualified individuals.
Shares Reserved for Issuance under the MIPRSUP
If the amendment is approved by the shareholders, the maximum number of shares of Company Common Stock that may be issued pursuant to the MIP may not exceed a total of 2,450,000 shares.1,050,000 shares of Common Stock will be reserved for issuance under the RSUP. The number of shares of Common Stock available under the MIPRSUP will be subject to adjustment in the event of a stock split, stock or other extraordinary dividend, or other similar change in the Company Common Stock or capital structure of the Company.
The maximum number of shares with respect to which awards of restricted stock and restricted stock units that are intended to be performance-based compensation under Section 162(m) of the Code that may be granted to a participant during a calendar year is 20,000 shares. The foregoing limitations shall be adjusted proportionately in connection with any change in the Company’s capitalization due to a stock split, stock dividend, or similar event affecting Company Common Stock and its determination shall be final, binding and conclusive.
Administration
The MIPRSUP is administered by the Administrator (the “Administrator”), defined as one or more committees we designate consisting of independent directors. The RSUP is administered by the Compensation CommitteeCommittee. With respect to grants to officers, directors, and employees who are considered a “covered employee” for purposes of Section 162(m) of the Board of Directors (the “Administrator”), which consists of at least three independent directors. The members ofCode, the committee are intendedCompensation Committee shall be constituted in such a manner as to satisfy the independence requirements delineated inapplicable laws, including Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, and Section 162(m) of the Code. The committee has full and final authority to operate, manage, and administer the MIP on behalf of the Company. This authority includes, but is not limited to, the determination of eligibility for participation in the Plan and whether an award has been earned.
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Eligibility
Participants in the MIPRSUP include managementdirectors, managerial employees and highly compensated employees designated by the Administrator and includeofficers, including the Company’s Chief Executive OfficerCEO and the other executives named in the Summary Compensation Table. As of March 8, 2016, 11 directors and 58 managerial employees and officers were eligible to be RSUP participants, and 12 directors and 57 managerial employees and officers were RSUP participants for 2015. Mr. Shaw’s participation in the RSUP ended with the 2015 plan year.
Terms and Conditions of Awards
Annually, the Administrator establishes an Incentive Award Opportunity for each participant or class of participants designated by the Administrator. The Incentive Award Opportunity is currently expressed as a percentage of the participant’s annual salary at the end of the performance period. The maximum amount of $3,000,000 may be paid for any fiscal year for each Participant. In addition, the Administrator has currently determined that the Incentive Award Opportunity shall not exceed one hundred forty percent (140%) of the Target Award. Actual Awards for each participant are determined by the committee following the end of the applicable performance period, taking into account how the Company performed on the basis of the Annual Performance Measures developed and applied by the Administrator for the performance period.
The MIPRSUP provides for the grant of restricted stock and restricted stock units (collectively referred to as “awards”). Awards may be granted to officers, directors, and employees of the Company and its related entities. Each award granted under the RSUP is designated in an award agreement.
Subject to applicable laws, the Administrator has the authority, in its discretion, to select officers, directors and employees to whom awards may be granted from time to time, to determine whether and to what extent, awards are granted, to determine the number of shares of Common Stock, or the amount of other consideration to be covered by each award (subject to the limitations set forth under the above sub-section of this Proposal 2 titled “Shares Reserved for Issuance under the RSUP”), to approve award agreements for use under the RSUP, to determine the terms and conditions of any award (including the vesting schedule applicable to the award), to amend the terms of any outstanding award granted under the Plan, to construe and interpret the terms of the RSUP and awards granted, and to take such other action not inconsistent with the terms of the RSUP, as the Administrator deems appropriate.
The RSUP includes the following performance criteria that may be considered by the committeeAdministrator when establishing the Annual Performance Measures:granting awards intended to qualify as performance-based awards: (i) annual revenue,increase in share price, (ii) budget comparisons, (iii) controllable profits, (iv) Company earnings per share, (iii) total shareholder return, (iv) operating margin, (v) customer-to-employee ratios,operating costs, (vi) gross margin, (vii) return on equity, (viii) return on assets, (ix) return on investment, (x) operating income, (xi) net operating income, (xii) pre-tax profit, (xiii) cash flow, (xiv) revenue, (xv) expenses, (xvi) earnings before interest, taxes and depreciation, (xvii) economic value added, (xviii) market share, (xix) gas segment return on equity, (xx) customer to employee ratio, (xxi) customer service satisfaction, (vii) expense management, (viii) improvements in capital structure, (ix) net income, (x) net or gross sales, (xi) operating income (pre- or post-tax), (xii) profit margins, (xiii) operating or gross margin, (xiv) profitability of an identifiable business unit or product, (xv) return on investments, (xvi) return on sales, (xvii) return on stockholders’ equity, (xviii) total return to stockholders, (xix) cash flow, operating cash flow, or cash flow or operating cash flow per share (before or after dividends), (xx) price of the shares or any other publicly traded securities of the Company, (xxi) reduction in costs, (xxii) return on capital, including return on total capital or return on invested capital, (xxiii) improvement in or attainment of expense levels or working capital levels, and (xxiv) performance of the Company relative to a peer group of companies and/or relevant indices.indexes, (xxiii) individual performance, (xxiv) safety goals and (xxv) financial performance of subsidiaries or individual business segments and/or operating regions. The Annual Performance Measuresperformance criteria may be applicable to the Company, entities related to the Company, and/or any of its individual business units and may differ from Participant to Participant.of the Company or any related entity.
Procedures for Calculating and Paying Actual Awards
Following the end of each Performance Period,The performance goal currently used by the Administrator comparesto determine whether awards are earned by participants is the average MIP payout percentage for the three years immediately preceding the award determination date. The target is set at an average MIP payout percentage of 100%; however, no award will be earned unless the average MIP payout percentage is at or above 90%. If an award is earned, it can range from 50% to 150% of the incentive opportunity. The incentive opportunity for each of the Company’s actualemployees participating under the RSUP is based on the percentage of base salary as set forth in Appendix A of the RSUP. Non-employee directors also receive an award based on the Company’s three-year performance during such periodunder the MIP criteria, with the Annual Performance Measures it established fortarget award being 1,000 restricted stock units. Non-employee directors also receive an annual grant of 800 shares of restricted stock or restricted stock units under the period, and the Actual Award, if any, forRSUP as a Participant is calculated. Once the Actual Award is determined, the committee retains the discretion to reduce a Participant’s Actual Award, generally based on an overall assessmentportion of each Participant’s attainment of individual performance. Further, no awards will be paid if cash dividends for the performance period do not equal or exceed the dividends paid in the immediately preceding performance period.
Once the Actual Award is established, the award is split into two components. The first component is a dollar amount, which in recent years the Administrator has determined shall represent forty percent (40%) of the Actual Award, that is payable to the Participant in cash as soon as the Administrator deems practical following the Award Conversion Date. The second component is a dollar amount, which in recent years the Administrator has determined shall represent sixty percent (60%) of the Actual Award that is converted into whole or partial Performance Shares. The number of Performance Shares allocable to each Participant is determined by dividing (i) the dollar amount available for the Participant’s Performance Shares (determined by the Award Conversion), by (ii) the average of the closing prices of Company Common Stock on the New York Stock Exchange for the first five trading days of the month before the Award Conversion Date. Payment of Performance Shares occurs at the time described below under “Vesting Of Performance Shares.” For Participants who die, become Disabled, Retire or have his or her employment Involuntarily Terminated Without Cause prior to the Award Conversion Date, the Actual Awards for a given period are paid in cash.their annual compensation.
The Administrator hasRSUP provides that any amendment that would adversely affect the sole and absolute responsibility for determininggrantee’s rights under outstanding awards shall not be made without the Actual Awards of Participants. Generally, the Actual Awards generated by application of the award schedule established by the Administrator for one or more Performance Periods is the Actual Awards that will be payable to each Participant; provided, however, that thegrantee’s written consent. The Administrator may priorissue awards under the RSUP in settlement, assumption, or substitution for, outstanding awards or obligations to grant future awards in connection with the Award Conversion Date, reduce the Actual Awards generated by the awards schedule if,Company acquiring another entity in the opiniona merger or some other form of the Administrator, there have been exceptional circumstances that have created inappropriate windfalls in the Company’s performance, which, in turn, have resulted in inappropriately large awards.transaction.
Vesting of Performance SharesAwards
Performance Shares granted withWith respect to a given Performance Period areawards made to officers and employees, unless otherwise set forth in an individual award agreement or in an amendment to Appendix A to the RSUP (which sets forth the vesting schedule of awards), the shares or units subject to an award made to any employee of the Company will vest and be paid out in shares of Common Stock over a Restriction Periodthree year period as follows: 40% of at least twelve (12) consecutive calendar months beginningthe shares or units subject to the award will vest on the Award Conversion Date applicable4th of January following the grant date of the award and 30% of the shares or units subject to such shares. In recent years, the Restriction Period has been set byaward will vest on each of the Administrator at thirty-six (36) months. Duringsecond and third anniversaries of the Restriction Period, the Participant may not, except as described below under “Participant Terminations and Transfers,” receive payment for his or her Performance Shares.vesting commencement date.
During the Restriction Period, a Participant receives Dividend Credits equalAwards made to the cash dividends paid per share of Company Common Stock, multiplied by the number of Performance Shares then credited to the Participant on the Company’s records, and divided by the closing per share value of Company Common Stock on the New York Stock Exchangedirectors will vest on the date such dividends are paidof grant. Awards of restricted stock units, however, will not be converted into shares of Common Stock until the director’s continuous service terminates or upon a Change in Control Event (as described below in the last trading day on the New York Stock Exchange before such payment. These additional Performance Shares are subject to the same restrictions as the Performance Shares that generated the Dividend Credits, and such restrictions will lapse at the same time as the restrictions lapse on such Performance Shares.sub-section of this Proposal 2 titled “Change in Control Event”).
Following the end of the Restriction Period, the Participant will receive a specific number of shares of Company Common Stock equal to the total number of Performance Shares allocated to the Participant at the beginning of the Restriction Period plus the Performance Shares credited quarterly through Dividend Credits during the Restriction Period.40
Termination of Service
Should a Participant die, become Disabled, Retire, or have his or her employment Involuntarily Terminated Without Cause during a Performance Period, the Participant (or the Participant’s beneficiary if the Participant dies before receiving payment) will be entitled to receive the Participant’s Actual Award for the Performance Period determined on a pro rata basis according to the number of months of the Performance Period actually worked while being a Participant in the Plan, payable in cash following the end of the applicable Performance Period.
Should a Participant die, become Disabled, Retire, or have his or her employment Involuntarily Terminated Without Cause during a Restriction Period, the Participant (or the Participant’s beneficiary in the case of a deceased Participant) will receive a distribution of Company Common Stock equal to the total number of Performance Shares then credited to the Participant. Subject to the requirements of Section 409A of the Code, payment of the Company Common Stock will occur within a reasonable period following the date of the event.
In the event a Participant’san employee’s continuous employmentservice with the Company terminates for any reason other than death, Disability, Retirement, or Involuntary Termination Without Cause during a Performance Period, the Participant’s right to receive an Actual Award for the period will be forfeited by the Participant. Outstanding Performance Shares will also be forfeited as a result of such termination during a Restriction Period.death, disability, or retirement (as defined in the RSUP), 100% of the shares or units subject to the award will become fully vested and no longer subject to forfeiture.
Transferability of Awards
Awards granted underUnder the PlanRSUP, awards are not to be transferable otherwise than by will orand by the laws of descent and distribution, and awards may be realized during the lifetime of a participant, to the Participant onlyextent and in the manner authorized by the ParticipantAdministrator. The RSUP permits the designation of beneficiaries by holders of awards.
Change in Capitalization
Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by outstanding awards, the number of shares of Common Stock that have been authorized for issuance under the RSUP, the exercise or purchase price of each outstanding award, the maximum number of shares of Common Stock that may be granted subject to awards to any participant in a calendar year, and the like, shall be proportionally adjusted by his guardianthe Administrator in the event of: (i) any increase or legal representative.decrease in the number of issued shares of Common Stock resulting from a stock split, stock dividend, combination or reclassification or similar event affecting the Common Stock of the Company; (ii) any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; or (iii) any other transaction with respect to Common Stock including a corporate merger, consolidation, acquisition of property or stock, separation (including a spin-off or other distribution of stock or property), reorganization, liquidation (whether partial or complete), distribution of cash or other assets to shareholders other than a normal cash dividend, or any similar transaction; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been effected without receipt of consideration. Except as the Administrator determines, no issuance by the Company of shares of any class shall affect, and no adjustment shall be made with respect to, the number of shares of Common Stock subject to an award.
Change in Control Event
Upon a ChangeExcept as provided otherwise in Controlan individual award agreement, in the event including the acquisition by a person or entity of at least fifty percent (50%) of the outstanding voting power of the Company, shareholder approval of a reorganization, merger, or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, or upon the sale of all or substantially all of the assets of the Company, the Administrator may make adjustments or amendments to the MIP and outstanding Incentive Award Opportunities and Performance Shares that are consistent with applicable law, including the substitution of new Incentive Award Opportunities. Determinations, decisions, and adjustments made by the Administrator will be final, binding, and conclusive.
In addition, to the extent Performance Shares credited to a Participant constitute “deferred compensation” within the meaning of Section 409A of the Code at the time of a Change in Control Performance Shares will be paid out upon a corporate transaction that also qualifies as a “change in ownership or effective control” of the Company or a “changeEvent (as defined in the ownershipRSUP), each award, which is at the time outstanding under the RSUP, will automatically become fully vested and be released from any repurchase, forfeiture, or transfer restrictions and, with respect to restricted stock units, be converted in full to shares of a substantial portionCommon Stock immediately prior to the specified effective date of such Change in Control Event.
Under the assets” of the Company, as those terms are defined under Section 409A of the Code. To the extentRSUP, a Change in Control that does not so qualify occurs, Performance Shares constituting deferred compensation shall be paid out atEvent is generally defined as the endconsummation of any of the Restriction Period or upon the Participant’s earlier termination of continuous service with the Company.following:
| * | a complete liquidation or dissolution; |
To
| * | acquisition of 20% or more of the Company’s stock by any unrelated individual or entity including by tender offer or a reverse merger; |
| * | a merger or consolidation in which the Company is not the surviving entity; |
| * | a sale of substantially all the Company’s assets to an unrelated entity; and |
| * | during any period not longer than twelve consecutive months, members of the Board who at the beginning of such period cease to constitute at least a majority of the Board, unless the election, or the nomination for election of each new Board member, was approved by a vote of at least 3/4 of the Board members then still in office who were Board members at the beginning of such period. |
Notwithstanding the extent Performance Shares creditedforegoing, prior to a Participant do not constitute “deferred compensation” within the meaningoccurrence of Section 409Aany of the Code atevents listed above (except a complete liquidation or dissolution of the time ofCompany), we may determine that such an event will not constitute a Change in Control the Administrator may accelerate the payout of such Performance Shares.
If, during a Performance Period, the Administrator determines that the established Annual Performance Measures are no longer suitable due to a change in ownership or controlEvent for purposes of the Company,RSUP and the Administrator may accelerate payment ofawards granted under the Actual Award.RSUP.
Amendments andAmendment, Suspension or Termination of the PlanRSUP
We may at any time subjectamend, suspend or terminate the RSUP. Assuming shareholder approval of the amendment, the term of the RSUP will run until May 31, 2021, unless sooner terminated. Awards may be granted under the RSUP upon it becoming effective, but awards granted prior to certain limitation regarding previously granted awards, suspend, terminate, modify or amendobtaining shareholder approval will be rescinded if the MIP.shareholders do not approve the RSUP. To the extent necessary to comply with applicable provisions of federal securities laws, state corporate
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and securities laws, the Code, the rules of any applicable stock
exchange or national market system, and the rules of any non-U.S. jurisdiction applicable to awards granted to residents therein, the Company shall obtain shareholder approval of any such amendment to the MIPRSUP in such a manner and to such a degree as is required. If the amended and restated Plan is not approved by the shareholders of Southwest Gas Corporation at the 2014 Annual Meeting, awards shall not be payable under the MIP with respect to Performance Periods beginning in 2014 to the extent prohibited under Code Section 162(m).
Plan Benefits
In November 2013,Because grants of restricted stock units under the Administrator, subjectRSUP (other than the annual grant to shareholder approvaldirectors of 800 restricted stock units) are determined by the continuation of thethree-year average MIP approved Incentive Award Opportunities and Performance Measures for 2014. Since the Actual Awards for 2014 will be based on the Company’s performance during 2014,payout percentage, it is not possible to determineconclusively state the awards.
amount of benefits which will be paid under the RSUP for plan year 2016. The Incentive Award Opportunitiesincentive award opportunities for 2014employees are identical to the opportunities for 2015 and are expressed as a percentage of a participant’seach individual’s salary at year-end salary to the opportunities for 2013 (after taking into account any mid-year salary increase). The opportunities by position are as follows: chief executive officer, 115%45%; president, 100%30%; executive vice president, 90%25%; senior vice president, 75%20%, vice president, 50%15%; senior management, 30%; and technical specialists, 10%. The four performance measuresIncentive awards to be used to determine whether the incentive opportunities for 2014directors are earned are the same as those used for 2013.based on a target award of 1,000 restricted stock units.
The following table includes estimated 20142016 awards based on 2014 Incentive Award Opportunities,2016 incentive award opportunities, base salaries as of December 31, 20132015, and the 2013 MIPan RSUP payout percentage of 114%132.5% (which is equal to the RSUP payout percentage that was applicable to most officers for plan year 2015). Past award levels may not be indicative of future award levels.
20142016 Estimated Future Management Incentive Plan Awards(1)Restricted Stock Unit Awards
Name and Position | Cash Component Dollar Value($) | Performance Shares Number of Units(2) | ||||||
Jeffrey W. Shaw President and Chief Executive Officer | $ | 440,496 | 12,064 | |||||
Roy R. Centrella Senior Vice President/ | 107,730 | 2,951 | ||||||
John P. Hester Executive Vice President | 139,536 | 3,822 | ||||||
William N. Moody Executive Vice President | 123,120 | 3,372 | ||||||
Eric DeBonis Senior Vice President/ Operations | 92,340 | 2,529 | ||||||
Executive Group (11 participants) | 1,340,526 | 36,715 | ||||||
Non-Executive Director Group (no participants) | 0 | 0 | ||||||
Non-Executive Officer/ | 1,526,130 | 41,798 | ||||||
Name and Position | Restricted Stock Units (# Units)(1)(2) | |||
John P. Hester President and Chief Executive Officer | 7,116 | |||
Roy R. Centrella Senior Vice President/ Chief Financial Officer | 1,869 | |||
William N. Moody Executive Vice President | 2,414 | |||
Karen S. Haller Senior Vice President/ General Counsel and Corporate Secretary | 1,596 | |||
Eric DeBonis Senior Vice President/ Operations | 1,418 | |||
Jeffrey W. Shaw(3) Chief Executive Officer (retired) | 0 | |||
Executive Group (#9) | 18,813 | |||
Non-Executive Director Group (#11) | 23,375 | |||
Non-Executive Officer/Employee Group (#48) | 21,900 | |||
| (1) |
| (2) | The dollar value of the maximum incentive award opportunities for the named executive officers would be $445,500 for Mr. Hester, $117,000 for Mr. Centrella, $151,125 for Mr. Moody, $99,900 for Ms. Haller, $88,800 for Mr. DeBonis, respectively. |
| (3) | Mr. Shaw’s participation in the RSUP ended with the 2015 plan year. |
Certain Federal Tax Consequences
The following summary of the federal income tax consequences of the RSUP and the awards granted thereunder is based upon federal income tax laws in effect on the date of this Proxy Statement.
Restricted Stock
The grant of restricted stock will subject the recipient to ordinary compensation income on the difference between the amount paid for such stock and the fair market value of the shares on the date that the restrictions lapse. This income is subject to withholding for federal income and employment tax purposes. The Company is entitled to an income tax deduction in the amount of the ordinary income recognized by the recipient, subject to possible limitations imposed by Section 162(m)
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of the Code, and so long as the Company withholds the appropriate taxes with respect to such income (if required), and the recipient’s total compensation is deemed reasonable in amount. Any gain or loss on the recipient’s subsequent disposition of the shares will receive long or short-term capital gain or loss treatment depending on how long the stock has been held since the restrictions lapsed. The Company does not receive a tax deduction for any such gain.
Recipients of Performance Sharesrestricted stock may make an election under Section 83(b) of the Code (“Section 83(b) Election”) to recognize, as ordinary compensation income in the year that such restricted stock is granted, the amount equal to the spread between the amount paid for such stock and the fair market value on the date of the issuance of the stock. If such an election is made, the recipient recognizes no further amounts of compensation income upon the lapse of any restrictions and any gain or loss on subsequent disposition will be long or short-term capital gain to the recipient. The Section 83(b) Election must be made within 30 days from the time the restricted stock is issued.
Restricted Stock Units
Recipients of restricted stock units generally should not recognize income until such units are converted into cash or shares of stock. Upon conversion, the recipient will normally recognize taxable ordinary income for federal income tax purposes equal to the amount of cash and fair market value of the shares, if any, received upon such conversion. Recipients who are employees will be subject to withholding for federal income and employment tax purposes with respect to income recognized upon conversion of the restricted stock units. Participants will recognize gain upon the disposition of any shares received upon conversion of the restricted stock units equal to the excess of (i) the amount realized on such disposition over (ii) the ordinary income recognized with respect to such shares under the principles set forth above. That gain will be taxable as long or short-term capital gain depending on whether the shares were held for more than one year. The Company will be entitled to a tax deduction to the extent and in the year that ordinary income is recognized by the recipient, subject to possible limitations imposed by Section 162(m) of the Code, and so long as the Company withholds the appropriate taxes with respect to such income (if required), and the recipient’s total compensation is deemed reasonable in amount.
Performance SharesRestricted stock units also can be considered nonqualified deferred compensation and subject to Code Section 409A. A grant of Performance Sharesrestricted stock units that does not meet the requirements of Code Section 409A will result in an additional 20% tax obligation, plus penalties and interest to such recipient. The MIP containsRSUP award agreements, which are executed by each RSUP participant, contain provisions designed to facilitateensure compliance with Code Section 409A.
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REDUCE THE UPPER AND LOWER LIMITS OF THE RANGE OF
REQUIRED DIRECTORS
(Proposal 3 on the Proxy Card)
The Board of Directors Recommends a VOTE FOR this Proposal
Our Bylaws currently authorize a Board with a size in the range of eleven (11) to fourteen (14) directors. In February 2016, the Board adopted a resolution approving an amendment to our bylaws, subject to obtaining shareholder approval, to change the authorized range to a minimum of nine (9) and a maximum of thirteen (13).
Background and reasons for the Proposal
Under California law, a corporation may allow the directors to establish the exact size of the Board within a stated range, provided that any change to the range adopted in the Bylaws may only be adopted by approval of a majority of the Company’s outstanding shares.
After careful consideration of our governance structure, the functioning of our Board and the availability of candidates for director, our Board determined that it is in the Company’s and our shareholders’ best interest to reduce the minimum number of directors of our Board to nine (9) and the maximum number of directors of the Board to thirteen (13). The Board believes that the added flexibility to consider a smaller board size would aid the Board in determining the optimal board size for effectively facilitating communications and decision-making. The Board believes that reducing the upper and lower limits of the range of required directors would also avoid the potential situation of having to quickly fill any unexpected vacancies in order to meet the existing minimum size requirements. Given the importance of recruiting qualified, independent directors to serve as directors of our Company, the Board believes that it is prudent to conduct an organized search for a replacement when vacancies occur in order to preserve the high quality of the Board and maintain its diversity of experience. The Board therefore recommends that our shareholders approve of the following amendment to the Bylaws.
Proposed Amendment
The full text of Article III, Section 1, of the Bylaws of the Company, as proposed to be amended, is as follows:
Section 1. Number – Quorum
The business of the Corporation shall be managed by a Board of Directors, whose number shall be not fewer than nine (9) nor greater than thirteen (13), as the Board of Directors by resolution or the shareholders by amendment of these Bylaws may establish, provided, however, that a reduction in the authorized number of directors shall not remove any director prior to the expiration of his term of office, and provided further that the shareholders may, pursuant to law, establish a different and definite number of directors or different maximum and minimum numbers of directors by amendment of the Articles of Incorporation or by a duly adopted amendment to these Bylaws. A majority of the prescribed number of directors shall be necessary to constitute a quorum for the transaction of business. At a meeting at which a quorum is present, every decision or act of a majority of the directors present made or done when duly assembled shall be valid as the act of the Board of Directors, provided that a minority of the directors, in the absence of a quorum, may adjourn from day to day but may transact no business.
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ADVISORY VOTE TO APPROVE THE COMPANY’S EXECUTIVE COMPENSATION
(Proposal 4 on the Proxy Card)
The Board of Directors Recommends a Vote FOR approval of executive compensation.
In light of the advisory vote at the 2011 Annual Meeting of Shareholders on the frequency of “say-on-pay” advisory votes, the Company’s Board of Directors unanimously determined that the Company will hold an advisory vote on executive compensation on an annual basis, including a vote at the 2016 Annual Meeting of Shareholders. In accordance with the requirements of Section 14A of the Exchange Act, shareholders will have the opportunity to approve or not approve the compensation of the named executive officers through a non-binding vote (commonly known as “say-on-pay” vote) on the following resolution:
RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in the Company’s Proxy Statement for the 2016 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.
The Company’s compensation program is designed and administered by the Compensation Committee of the Board, which is composed entirely of independent directors and carefully considers many different factors, as described in the Compensation Discussion and Analysis, in order to provide appropriate compensation for the Company’s executives. As discussed in the Compensation Discussion and Analysis, the compensation package for the Company’s named executive officers (who are the officers listed in the Summary Compensation Table in the Executive Compensation section) is designed to support the Company’s objectives of attracting, motivating and retaining the executive talent required to achieve our corporate objectives and increase shareholder value.
The compensation program is based on the Board-approved executive compensation philosophy of (i) paying base salary at the median (50th percentile) of the amounts paid by our peer group of companies (the “relative market”), (ii) providing short- and long-term incentive awards that are designed to motivate the named executive officers to focus on specific annual and long-term Company financial, productivity, safety and customer satisfaction performance goals and achieve superior Company performance while placing a significant amount of total compensation at risk and (iii) paying total direct compensation (base salary and short- and long-term incentive awards) to be competitive with the relative market.
Consistent with the SEC rule implementing the requirement that the Company periodically include a say-on-pay proposal in its proxy statement, the vote on this proposal is advisory and is not binding on the Company, the Compensation Committee or the Board. The Compensation Committee and the Board value the opinions that shareholders express in their votes and to the extent there is any significant vote against the named executive officer compensation, will consider the outcome of the vote when making future executive compensation decisions and evaluate whether any actions are necessary to address shareholder concerns expressed by such vote. It is expected that the next advisory vote on executive compensation will occur at the 2017 Annual Meeting of Shareholders.
We encourage you to review the complete description of the Company’s executive compensation programs provided in this Proxy Statement, including the Compensation Discussion and Analysis and the accompanying compensation tables.
45
SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Proposal 45 on Thethe Proxy Card)
The Board of Directors Recommends a Vote FOR Ratification.
The Audit Committee has selected PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the year ending December 31, 2014,2016, subject to ratification of the selection by the shareholders. PricewaterhouseCoopers LLP has been the Company’s independent public accounting firm since 2002. To the committee’s knowledge, at no time has PricewaterhouseCoopers LLP had any direct or indirect financial interest in or connection with the Company or any of our subsidiaries other than for services rendered to the Company as described below.
The committee is composed of independent directors and meets periodically with the Company’s internal auditors and independent registered public accounting firm to review the scope and results of the audit function and the policies relating to auditing procedures. In making its annual recommendation, the committee reviews both the audit scope and proposed fees for the coming year.
An affirmative vote of a majority of the shares represented and voting at the Annual Meeting in person or by proxy (which shares voting affirmatively also constitute at least a majority of the required quorum) is necessary to ratify the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company. If the shareholders do not ratify our selection, other certified public accounting firms will be considered and one will be selected by the committee to be the Company’s independent registered public accounting firm for 2014.2016.
During fiscal years 20122014 and 2013,2015, PricewaterhouseCoopers LLP provided the following audit, audit-related and other professional services for the Company. The cost and description of these services are as follows:
| 2012 | 2013 | 2014 | 2015 | |||||||||||||
Audit Fees: | $ | 1,367,900 | $ | 1,387,000 | $ | 2,136,000 | $ | 2,100,000 | ||||||||
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Annual audit/§404 internal control attestation | 1,000,000 | 1,022,000 | 1,100,000 | 1,090,000 | ||||||||||||
Quarterly reviews | 115,000 | 117,000 | 120,000 | 125,000 | ||||||||||||
Subsidiary audit | 173,000 | 185,000 | 850,000 | 748,000 | ||||||||||||
Comfort letters and consents | 79,900 | 63,000 | 66,000 | 137,000 | ||||||||||||
The services include the audit of the annual financial statements included in the Company’s Annual Report on Form 10-K, the reviews of unaudited quarterly financial statements included in the Company’s Quarterly Reports on Form 10-Q, subsidiary audits, consultation, and comfort letters and consents for various financings and SEC filings, and the assessment of the Company’s internal control over financial reporting.
Audit-Related Fees: | $ | 127,500 | $ | 134,500 | $ | 226,500 | $ | 183,500 | ||||||||
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Benefit plan audits | 78,000 | 83,500 | 88,000 | 115,000 | ||||||||||||
Affiliate rules audit | 15,500 | 16,000 | 16,500 | 16,500 | ||||||||||||
Other (including Form 2-A filings) | 34,000 | 35,000 | 122,000 | 52,000 | ||||||||||||
The services include benefit plan audits, regulatory audits, and regulatory compliance. The 2014 amounts include services relating to the construction services acquisition.
Tax Fees: | $ | 32,300 | $ | 54,000 | $ | 248,500 | $ | 321,000 | ||||||||
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Tax return review | 32,300 | 31,200 | ||||||||||||||
Tax return reviews | 36,200 | 109,000 | ||||||||||||||
Tax planning and advice | — | 22,800 | 212,300 | 212,000 | ||||||||||||
The services include corporate tax return reviews and corporate tax planning and advice. The independent registered public accounting firm’s independence is assessed with respect to tax planning and advice services to be provided, and in light of the prohibition of representing the Company on tax matters before any regulatory or judicial proceeding or providing tax services to Company executives or directors.
All Other Fees: | $ | 0 | $ | 315,000 | $ | 172,000 | $ | 221,000 | ||||||||
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IT/technology advice | — | 315,000 | ||||||||||||||
Software development advice | 172,000 | 221,000 | ||||||||||||||
46
These services include permitted advisory services with regard to technological systems and future-state technologysoftware development planning, neither of which were the subject of audit or audit-related services performed.
Under the committee’s charter, the committee must pre-approve all Company engagements of PricewaterhouseCoopers LLP, unless an exception exists under the provisions of the Exchange Act or applicable SEC rules. At the beginning of each audit cycle, the committee evaluates the anticipated engagements of the independent registered public accounting firm, including the scope of work proposed to be performed and the proposed fees, and approves or rejects each service, consistent with its preapproval policy, taking into account whether the services are permissible under applicable laws and the possible impact of each nonaudit service on PricewaterhouseCoopers LLP’s independence from management. The committee also considers whether the independent registered public accounting firm is best positioned to provide effective and efficient service, and whether the service may enhance the Company’s ability to manage and control risk or improve audit quality. Throughout the year, the committee reviews updates of the services actually provided and fees charged by PricewaterhouseCoopers LLP.
Requests for the independent registered public accounting firm to provide additional services are presented to the committee by the Company’s chief financial or accounting officer, on an as-needed basis. The committee has delegated to the chairperson of the committee the authority to evaluate and approve engagements on the committee’s behalf in the event that a need arises for preapproval between committee meetings. Approvals of additional services will be made consistent with the preapproval policy and will be reported to the committee at its next scheduled meeting.
Since the effective date of the preapproval process, the committee has approved, in advance, each new engagement of PricewaterhouseCoopers LLP, and none of those engagements made use of the de minimis exception to the preapproval requirement contained in the SEC rules.
Representatives of PricewaterhouseCoopers LLP will be present at the Annual Meeting of Shareholders. They will have the opportunity to make statements, if they are so inclined, and will be available to respond to appropriate questions.
47
The committee, which consists entirely of directors who meet the independence and experience requirements of the NYSE and the SEC, is furnishing the following report:
The committee assists the Board in fulfilling its oversight responsibility by reviewing the financial information provided to shareholders and others, the system of internal control which management and the Board have established, and the audit process. Management is responsible for the Company’s consolidated financial statements, for maintaining internal control over the Company’s financial reporting, and for assessing the effectiveness of that control. PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm, is responsible for performing an integrated audit of the Company’s consolidated financial statements in accordance with generally accepted auditing standards, attesting to the effectiveness of the Company’s internal control over financial reporting based on the audit, and issuing a report thereon. The committee’s role and responsibilities are to monitor and oversee these processes as set forth in a written committee charter adopted by the Board. The committee charter is available on the Company’s website athttp://www.swgas.com. The committee reviews and assesses the adequacy of the Charter at least annually and recommends any changes to the Board for approval.
In fulfilling our responsibilities for 2013,2015, the committee:
| * | Reviewed and discussed the audited consolidated financial statements, for the year ended December 31, |
| * | Discussed with PricewaterhouseCoopers LLP the matters required to be discussed by Auditing Standard No. 16, as amended,Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board (“PCAOB”); and |
| * | Received the written disclosures and the letter from PricewaterhouseCoopers LLP required by the applicable requirements of the PCAOB regarding their communications with the committee concerning independence, and the committee has discussed their independence with them. |
Based on the review and discussions referred to above, the committee recommended to the Board that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013,2015, filed with the SEC.
Audit Committee
| ||||
| Robert L. Boughner | ||||
| Thomas E. Chestnut | ||||
| Thomas A. Thomas | ||||
48
OTHER MATTERS TO COME BEFORE THE MEETING
If any business not described in this Proxy Statement should come before the Annual Meeting for your consideration, it is intended that the shares represented by our proxies will be voted at their discretion. As of the date of this Proxy Statement, we knew of no other matter which might be presented for shareholder action at the meeting.
SUBMISSION OF SHAREHOLDER PROPOSALS
You are advised that any shareholder proposal intended for consideration at the 20152017 Annual Meeting and inclusion in the Company’s proxy materials for that meeting must be received in writing by the Company on or before November 26, 2014.•, 2016. If you intend to offer any proposal at that meeting without using the Company’s proxy materials, written notice of your intended action has to be received by the Company on or before November 26, 2014,•, 2016, in order for your proposal to be considered timely and be presented to shareholders for consideration.
All proposals to be submitted to shareholders must comply with applicable SEC rules. You must submit your proposals for inclusion in the Company’s proxy materials and notices to the Company to the Corporate Secretary, and it is recommended that you send it by certified mail, return receipt requested to ensure timely delivery.
| By Order of the Board of Directors |
|
Karen S. Haller Senior Vice President/General Counsel and Corporate Secretary |
49
APPENDIX A
SOUTHWEST GAS CORPORATION
MANAGEMENT INCENTIVERESTRICTED STOCK/UNIT PLAN1
| 1 | This Appendix A presents the terms of the Plan, as amended and restated. Double-underlined |
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SOUTHWEST GAS CORPORATION
Management Incentive PlanRESTRICTED STOCK/UNIT PLAN
| 1. |
This Management IncentiveThe purpose of this Plan is intended to encourage a selected group of highly compensated or management employeespromote the success of the Company by providing an additional means through the grant of Awards to remain in its employmentattract, motivate, retain, and reward key Employees, including Officers of the Company, with incentives for high levels of individual performance and improved financial performance of the Company and to put forth maximum efforts to achieve the Company’s short-attract, motivate, and long-term performance goals.retain experienced and knowledgeable independent Directors.
| 2. | Definitions |
The following definitions shall apply as used herein and in the Award Agreements and Notices except as defined otherwise in an Award Agreement or Notices. In the event a term is separately defined in an Award Agreement, such definition shall supersede the definition contained in this Section 2.
| (a) | “Administrator” means the compensation committee of the Board or such other Committee appointed to administer the Plan, consisting of independent members of the Board. |
| (b) | “Applicable Laws” means the legal requirements relating to the Plan and the Awards under applicable provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any non-U.S. jurisdiction applicable to Awards granted to residents therein. |
| (c) | “Award” means the grant of Restricted Stock or Restricted Stock Units under the Plan. |
| (d) | “Award Agreement” means a written agreement specifying the terms and conditions of Awards and Restricted Stock Units granted under this Plan executed by the Company and the Grantee, including any amendments thereto. |
| (e) | “Board” means the Board of Directors of the Company. |
| (f) | “Cause” means (i) a material act of theft, misappropriation, or conversion of corporate funds committed by the Grantee, or (ii) the Grantee’s demonstrably willful, deliberate, and continued failure to follow reasonable directives of the Board or the Chief Executive Officer of the Company which are within the Grantee’s ability to perform. Notwithstanding the foregoing, for the24-month period following a Change in Control Event, the Grantee shall not be deemed to have been terminated for Cause unless and until: (1) there shall have been delivered to the Grantee a copy of a resolution duly adopted by the Board in good faith at a meeting of the Board called and held for such purpose (after reasonable notice to the Grantee and an opportunity for the Grantee, together with his or her counsel, to be heard before the Board), finding that the Grantee was guilty of conduct set forth above and specifying the particulars thereof in reasonable detail; and (2) if the Grantee contests such finding (or a conclusion that he or she has failed to timely cure the performance in response thereto), the arbitrator, by final determination in an arbitration proceeding pursuant to Section 17 hereof, has concluded that the Grantee’s conduct met the standard for termination for Cause above and that the Board’s conduct met the standards of good faith and satisfied the procedural and substantive conditions of this Section 2(f) (collectively, the “Necessary Findings”). The Grantee’s costs of the arbitration shall be advanced by the Company and shall be repaid to the Company if the arbitrator makes the Necessary Findings. |
| (g) | “Change in Control Event” means the consummation of any of the following: |
| (i) | The dissolution or liquidation of the Company, other than in the context of a transaction that does not constitute a Change in Control Event under clause (ii) below. |
| (ii) | A merger, consolidation, or other reorganization, with or into, or the sale of all or substantially all of the Company’s business and/or assets as an entirety to, one or more entities that are not Subsidiaries or other affiliates (a “Business Combination”), unless (A) as a result of the Business Combination at least 50% of the outstanding securities voting generally in the election of directors of the surviving or resulting entity or a Parent thereof (the “Successor Entity”) immediately after the reorganization are, or will be, owned, directly or indirectly, by shareholders of the Company immediately before the Business Combination; and (B) at least 50% of the members of the board of directors of the entity resulting from the Business Combination were members of the Board at the time of the execution of the initial agreement or of the action of the Board approving the Business Combination. The shareholders before and after the Business Combination shall be determined on the presumptions that (x) there is no change in the record ownership of the Company’s securities from the record date for such approval until the consummation of the Business Combination; and (y) record owners of securities of the Company hold no securities of the other parties to such reorganization. |
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| (iii) | Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than an Excluded Person, becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 20% of the combined voting power of the Company’s then outstanding securities entitled to then vote generally in the election of Directors of the Company, other than as a result of (A) an acquisition directly from the Company, (B) an acquisition by the Company, (C) an acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or a Successor Entity, or an acquisition by any entity pursuant to a transaction which is expressly excluded under clause (ii) above. |
| (iv) | During any period not longer than twelve consecutive months, individuals who at the beginning of such period constituted the Board cease to constitute at least a majority thereof, unless the election, or the nomination for election by the Company’s shareholders, of each new Board member was approved by a vote of at least three-quarters of the Board members then still in office who were Board members at the beginning of such period (including for these purposes, new members whose election or nomination was so approved), but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board. |
| (v) | Notwithstanding the foregoing, prior to the occurrence of any of the events described in clause (ii) through (iv) above, the Board may determine that such an event shall not constitute a Change in Control Event for purposes of the Plan and Awards granted under it. |
| (h) | “Code” means the Internal Revenue Code of 1986, as amended. |
| (i) | “Committee” means the Compensation Committee of the Board or such other committee composed of independent members of the Board. |
| (j) | “Common Stock” means the common stock of the Company. |
| (k) | “Company” means Southwest Gas Corporation, a California corporation, or any successor entity that adopts the Plan in connection with a Change in Control Event. |
| (l) | “Continuous Service” means that the provision of services to the Company or a Related Entity in any capacity of Employee, Director, or consultant is not interrupted or terminated. In jurisdictions requiring notice in advance of an effective termination as an Employee, Director, or consultant, Continuous Service shall be deemed terminated upon the actual cessation of providing services to the Company or a Related Entity notwithstanding any required notice period that must be fulfilled before a termination as an Employee, Director, or consultant can be effective under Applicable Laws. A Grantee’s Continuous Service shall be deemed to have terminated either upon an actual termination of Continuous Service or upon the entity for which the Grantee provides services ceasing to be a Related Entity. Continuous Service shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers among the Company, any Related Entity, or any successor, in any capacity of Employee, Director or consultant, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of Employee, Director or consultant (except as otherwise provided in the Award Agreement). An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave. |
| (m) | “Covered Employee” means an Employee who is a “covered employee” under Section 162(m)(3) of the Code. |
| (n) | “Director” means a non-Employee member of the Board or the board of directors of any Related Entity. |
| (o) | “Disability” means as defined under the long-term disability policy of the Company or the Related Entity to which the Grantee provides services regardless of whether the Grantee is covered by such policy. If the Company or the Related Entity to which the Grantee provides service does not have a long-term disability plan in place, “Disability” means that a Grantee is unable to carry out the responsibilities and functions of the position held by the Grantee by reason of any medically determinable physical or mental impairment for a period of not less than one hundred and eighty (180) consecutive days. A Grantee will not be considered to have incurred a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Administrator in its discretion. |
| (p) | “Employee” means any person, including an Officer or Director, who is in the employ of the Company or any Related Entity, subject to the control and direction of the Company or any Related Entity as to both the work to be performed and the manner and method of performance. The payment of a director’s fee by the Company or a Related Entity shall not be sufficient to constitute “employment” by the Company. |
| (q) | “Exchange Act” means the Securities Exchange Act of 1934, as amended. |
| (r) | “Excluded Person” means (i) any person described in and satisfying the conditions of Rule 13d-1(b)(1) under the Exchange Act, (ii) the Company, or (iii) an employee benefit plan (or related trust) sponsored or maintained by the Company or the Successor Entity. |
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| (s) | “Grantee” means an Employee or Director who receives an Award under the Plan. |
| (t) | “Notice” means the written notice memorializing the grant of each Award hereunder and specifying, among other things, the date, number of Restricted Stock Units granted and vesting schedule applicable to each such Award. |
| (u) | “Officer” means a person who is an officer of the Company or a Related Entity within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. |
| (v) | “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code. |
| (w) | “Performance-Based Compensation” means compensation qualifying as “performance-based compensation” under Section 162(m) of the Code. |
| (x) | “Plan” means this Restricted Stock/Unit Plan. |
| (y) | “Related Entity” means any Parent or Subsidiary of the Company. |
| (z) | “Restricted Stock” means Shares issued under the Plan to the Grantee for such consideration, if any, and subject to such restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as established by the Administrator. |
| (aa) | “Restricted Stock Units” or “Units” means an Award which may be earned in whole or in part upon the passage of time or the attainment of performance criteria established by the Administrator and which may be settled for Shares or other securities or a combination of Shares or other securities as established by the Administrator. |
| (bb) | “Retirement” means: |
| (i) | with respect to Employees, a termination of an Employee’s employment with the Company or a Related Entity on or after the Employee has attained his or her early retirement date or normal retirement date as defined in the Retirement Plan for Employees of Southwest Gas Corporation, as amended and in effect from time to time. |
| (ii) | with respect to non-Employee Directors, a termination of a Director’s service to the Company or a Related Entity as a Director on or after his or her “normal retirement date” which is the earlier of the first day of the month following the month in which the non-Employee Director (A) reaches age seventy-two (72), or (B) has completed at least ten (10) years of service (in the aggregate) to the Company or a Related Entity as a Director. |
| (cc) | “Rule 16b-3” meansRule 16b-3 promulgated under the Exchange Act or any successor thereto. |
| (dd) | “Share” means a share of the Common Stock. |
| (ee) | “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code. |
| 3. | Stock Subject to the Plan |
| (a) | Subject to the provisions of Section 9 below, the maximum aggregate number of Shares which may be issued pursuant to all Awards is |
| (b) | Any Shares covered by an Award (or portion of an Award) which is forfeited, canceled or expired (whether voluntarily or involuntarily) shall be deemed not to have been issued for purposes of determining the maximum aggregate number of Shares which may be issued under the Plan. Shares that actually have been issued under the Plan pursuant to an Award shall not be returned to the Plan and shall not become available for future issuance under the Plan, except that if unvested Shares are forfeited such Shares shall become available for future grant under the Plan. During the ten (10) year period following approval of the Plan by the Company’s shareholders and to the extent not prohibited by the listing requirements of the New York Stock Exchange (or other established stock exchange or national market system on which the Common Stock is traded) and Applicable Law, any Shares covered by an Award, which are surrendered in satisfaction of tax withholding obligations incident to the vesting of an Award, shall be deemed not to have been issued for purposes of determining the maximum number of Shares which may be issued pursuant to all Awards under the Plan, unless otherwise determined by the Administrator. |
| 4. | Administration of the Plan |
| (a) | Plan Administrator. |
| (i) | Administration with Respect to Covered Employees, Directors, and Officers. With respect to grants of Awards to Covered Employees, Directors, and Employees who are also Officers or Directors of the Company, the Plan shall be administered by a Committee designated by the Board, which Committee (A) shall be comprised solely |
(a) “Actual Award” means
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of two or more Directors eligible to serve on a committee making Awards qualifying as Performance-Based Compensation and (B) shall be constituted in such a manner as to satisfy the Applicable Laws and to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance withRule 16b-3. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. |
| (ii) | Administration Errors. In the event an Award is granted in a manner inconsistent with the provisions of this subsection (a), such Award shall be presumptively valid as of its grant date to the extent permitted by the Applicable Laws. |
| (b) | Powers of the Administrator. Subject to Applicable Laws and the provisions of the Plan (including any other powers given to the Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall have the authority, in its discretion: |
| (i) | to select the Employees and Directors to whom Awards may be granted from time to time hereunder; |
| (ii) | to determine whether and to what extent Awards are granted hereunder; |
| (iii) | to determine the number of Shares or Restricted Stock Units to be covered by each Award granted hereunder; |
| (iv) | to approve forms of Award Agreements for use under the Plan; |
| (v) | to determine the terms and conditions of any Award granted hereunder; |
| (vi) | to amend the terms of any outstanding Award granted under the Plan, provided that any amendment that would adversely affect the Grantee’s rights under an outstanding Award shall not be made without the Grantee’s written consent; |
| (vii) | to construe and interpret the terms of the Plan and Awards, including without limitation, any notice of Award or Award Agreement, granted pursuant to the Plan; and |
| (viii) | to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate. |
The express grant in the dollar amount earned by a Participant onPlan of any specific power to the basisAdministrator shall not be construed as limiting any power or authority of the Administrator; provided that the Administrator may not exercise any right or power reserved to the Board. Any decision made, or action taken, by the Administrator or in connection with the administration of this Plan shall be final, conclusive, and binding on all persons having an interest in the Plan.
| (c) | Indemnification. In addition to such other rights of indemnification as they may have as members of the Board or as Officers or Employees of the Company or a Related Entity, members of the Board and any Officers or Employees of the Company or a Related Entity to whom authority to act for the Board, the Administrator or the Company is delegated shall be defended and indemnified by the Company to the extent permitted by law on an after-tax basis against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any claim, investigation, action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any Award granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by the Company) or paid by them in satisfaction of a judgment in any such claim, investigation, action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such claim, investigation, action, suit or proceeding that such person is liable for gross negligence, bad faith, or intentional misconduct; provided, however, that within thirty (30) days after the institution of such claim, investigation, action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at the Company’s expense to defend the same. |
| 5. | Eligibility |
Awards may be granted to Employees and Directors. An Employee or Director who has been granted an Award may, if otherwise eligible, be granted additional Awards.
| 6. | Terms and Conditions of Awards |
| (a) | Designation of Award. Each Award shall be designated in a Notice and shall be subject to the terms and conditions of an Award Agreement. |
| (b) | Conditions of Award. Subject to the terms of the Plan, the Administrator shall determine the provisions, terms, and conditions of each Award including, but not limited to, the Award vesting schedule (if any), resale restrictions applicable to the Shares issued pursuant to Awards, forfeiture provisions, and satisfaction of any performance criteria. The performance criteria established by the Administrator may be based on any one of, or combination of, |
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the following: (i) increase in share price, (ii) earnings per share, (iii) total shareholder return, (iv) operating margin, (v) operating costs, (vi) gross margin, (vii) return on equity, (viii) return on assets, (ix) return on investment, (x) operating income, (xi) net operating income, (xii) pre-tax profit, (xiii) cash flow, (xiv) revenue, (xv) expenses, (xvi) earnings before interest, taxes and depreciation, (xvii) economic value added, (xviii) market share, (xix) gas segment return on equity, (xx) customer to employee ratio, (xxi) customer service satisfaction, (xxii) performance of the Company relative to a peer group of companies and/or indexes, (xxiii) individual performance, (xxiv) safety goals, (xxv) financial performance of subsidiaries or individual business segments and/or operating regions. The performance criteria may be applicable to the Company and/or any of its individual business units and may differ from Participant to Participant. In addition and to the extent appropriate, the performance criteria will be calculated in accordance with generally accepted accounting principles, but excluding the effect (whether positive or negative) of any change in accounting standards and any extraordinary, unusual, or nonrecurring item, as determined by the Committee, occurring after the establishment of the performance criteria applicable to the Awards intended to be performance-based compensation. Each such adjustment, if any, shall be made solely for the purpose of providing a consistent basis from period to period for the calculation of performance criteria in order to prevent the dilution or enlargement of the Participant’s rights with respect to an Award intended to be performance-based compensation; provided however, that certain categories or types of such adjustments can be specifically included (rather than excluded) at the time the performance criteria are established if so determined by the Committee. Certain provisions, terms and conditions applicable to Awards have been set forth in Appendix A and Appendix B hereto. |
| (c) | Acquisitions and Other Transactions. The Administrator may issue Awards under the Plan in settlement, assumption, or substitution for, outstanding Awards or obligations to grant future Awards in connection with the Company or a Related Entity acquiring another entity, an interest in another entity or an additional interest in a Related Entity whether by merger, stock purchase, asset purchase, or other form of transaction. |
| (d) | Separate Programs. The Administrator may establish one or more separate programs under the Plan for the purpose of issuing particular forms of Awards to one or more classes of Grantees on such terms and conditions as determined by the Administrator from time to time. |
| (e) | Individual Limit for Restricted Stock and Restricted Stock Units. For Awards of Restricted Stock and Restricted Stock Units that are intended to be Performance-Based Compensation, the maximum number of Shares with respect to which such Awards may be granted to any Grantee in any calendar year shall be 20,000 Shares. The foregoing limitation shall be adjusted proportionately in connection with any change in the Company’s capitalization pursuant to Section 9 below. |
| (f) | Transferability of Awards. Awards shall be transferable (i) by will and by the laws of descent and distribution and (ii) during the lifetime of the Grantee, to the extent and in the manner authorized by the Administrator. Notwithstanding the foregoing, the Grantee may designate one or more beneficiaries of the Grantee’s Award in the event of the Grantee’s death on a beneficiary designation form provided by the Administrator. |
| (g) | Time of Granting Awards. The date of grant of an Award shall for all purposes be the date on which the Administrator makes the determination to grant such Award. |
| 7. | Taxes |
No Shares shall be delivered under the Plan to any Grantee or other person until such Grantee or other person has made arrangements acceptable to the Administrator for the satisfaction of any federal, state, local, or non-U.S. income and employment tax withholding obligations, including, without limitation, obligations incident to the receipt of Shares. Upon the issuance of Shares, the Company shall withhold or collect from Grantee an amount sufficient to satisfy such tax obligations, including, but not limited to, by surrender of Shares covered by the Award sufficient to satisfy the minimum applicable tax withholding obligations incident to the vesting of an Award.
| 8. | Conditions Upon Issuance of Shares |
| (a) | If at any time the Administrator determines that the delivery of Shares pursuant to an Award is or may be unlawful under Applicable Laws, the vesting or right to exercise an Award or to otherwise receive Shares pursuant to the terms of an Award shall be suspended until the Administrator determines that such delivery is lawful and shall be further subject to the approval of counsel for the Company with respect to such compliance. The Company shall have no obligation to effect any registration or qualification of the Shares under federal or state laws. |
| (b) | As a condition to the exercise or issuance of an Award, the Company may require the person exercising or receiving such Award to represent and warrant at the time of any such exercise or issuance that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws. |
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| 9. | Adjustments Upon Changes in Capitalization |
Subject to any required action by the shareholders of the Company, during the annual Performance Period.
(b) “Annual Base Salary” meansnumber of Shares covered by each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan, the maximum number of Shares with respect to which Awards may be granted to any Grantee in any calendar year-end rateyear, as well as any other terms that the Administrator determines require adjustment shall be proportionately adjusted for (i) any increase or decrease in the number of compensation paid toissued Shares resulting from a Key Employee, including salary deferrals, but excluding bonuses, incentives, commissions, overtime, monetary and nonmonetary awards for employment service tostock split, reverse stock split, stock dividend, combination, or reclassification of the Shares, or similar transaction affecting the Shares, (ii) any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company, or payments(iii) any other transaction with respect to Common Stock including a corporate merger, consolidation, acquisition of property or Company contributions tostock, separation (including a spin-off or from this Planother distribution of stock or property), reorganization, liquidation (whether partial or complete), or any other Company retirement or deferred compensation, or similar plans.
(c) “Annual Performance Measures” shall mean the performance criteria used by the Committee in determining the performancetransaction; provided, however, that conversion of any convertible securities of the Company forshall not be deemed to have been “effected without receipt of consideration.” Except as the purposeAdministrator determines, no issuance by the Company of calculating Actual Awards for Participants earned undershares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason hereof shall be made with respect to, the Plan during a Performance Period.number of Shares subject to an Award.
(d) “Award Conversion” means the division of Actual Awards earned into two portions:
| 10. | Change in Control Event |
(i) A portion payableExcept as provided otherwise in cash as soon as the Committee deems practicable following the end of the annual Performance Period.
(ii) A portion converted into Performance Shares and subject toan Award Agreement or a Restriction Period.
(e) “Award Conversion Date” means the day that occurs in the first two andone-half calendar months following the end of a Performance Period on which the Committee performs the Award Conversion on Actual Awards for such Performance Period.
(f) “Beneficiary” means the person or persons designated pursuant to Section 8(g) as eligible to receive a Participant’s unpaid Plan benefitsNotice, in the event of a Change in Control Event, each Award which is at the Participant’s death.time outstanding under the Plan automatically shall (i) become fully vested and be released from any repurchase, forfeiture, or transfer restrictions and (ii) with respect to Restricted Stock Units, be converted in full to Shares, immediately prior to the specified effective date of the consummation of such Change in Control Event, for all of the Shares or Units at the time represented by such Award.
| 11. | Effective Date and Term of Plan |
(g) “Board” or “Board of Directors” means
The Plan was originally effective upon its adoption by the Board and was continued by an affirmative vote of Directorsshareholders at the Company’s 2007 Annual Meeting for an initial term of Southwest Gas Corporation.ten (10) years from the original effective date.If theAn extension of the Planiswas approvedby shareholders at the 2012 Annual Meeting,and the term of the Planshall bewas extended for a term ending May 31, 2017. If the extension of the Plan is approved at the 2016 Annual Meeting, the term of the Plan shall be extended for a term ending May 31, 2021. Such shareholder approval shall be obtained in the degree and manner required under Applicable Laws. If the Plan, as amended and restated, is not approved by shareholders at the20122016 Annual Meeting, Awards shall not be payable under the Plan with respect to periods beginning in20122016.
| 12. | Amendment, Suspension, or Termination of the Plan |
(h) “Code” means the Internal Revenue Code of 1986, as amended.
| (a) | The Board may at any time amend, suspend, or terminate the Plan; provided, however, that no such amendment shall be made without the approval of the Company’s shareholders to the extent such approval is required by Applicable Laws. |
| (b) | No Award may be granted during any suspension of the Plan or after termination of the Plan. |
| (c) | No suspension or termination of the Plan shall adversely affect any rights under Awards already granted to a Grantee. |
| 13. | Reservation of Shares |
| (a) | The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. |
| (b) | The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. |
| 14. | No Effect on Terms of Employment/Consulting Relationship |
(i) “Committee” meansThe Plan shall not confer upon any Grantee any right with respect to the Compensation CommitteeGrantee’s Continuous Service, nor shall it interfere in any way with his or her right or the right of the Board of Directors,Company or any successor thereto.
(j) “Common Stock” meansRelated Entity to terminate the common stock of Southwest Gas Corporation.
(k) “Company” means Southwest Gas CorporationGrantee’s Continuous Service at any time, with or without Cause, and its present and future subsidiaries and any successors thereto.
(l) “Determination Date” means as to any Performance Period: (i) the first daywith or without notice. The ability of the Performance Period;Company or (ii) if later,any Related Entity to terminate the latest date possible which will not jeopardizeemployment of a Grantee who is employed “at will” is in no way affected by its determination that the Plan’s qualification as performance-based compensation under Code Section 162(m).
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(m) “Disability” or “Disabled”. A Participant shall be considered to be “Disabled” or to have incurred a “Disability” if he or she qualifiesGrantee’s Continuous Service has been terminated for a disability benefit under Southwest Gas Corporation’s group long-term disability plan and incurs a Separation From Service. The Committee, in its sole and absolute discretion, may determine that a Participant is DisabledCause for the purposes of this Plan.
(n) “Dividend Credits” means the additional Performance Shares determined as set forth in Plan Section 7(d) calculated for each Restriction Period for the Participant’s Performance Shares subject to such period.
(o) “Employee” means any person who is-7-
| 15. | No Effect on Retirement and Other Benefit Plan |
Except as specifically provided in a regular full-time employeeretirement or other benefit plan of the Company including those who are officers or Board Members.
(p) “Fiscal Year” means the Fiscal Yeara Related Entity, Awards shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company beginning each January 1or a Related Entity, and endingshall not affect any benefits under any other benefit plan of any kind or any benefit plan subsequently instituted under which the following December 31.
(q) “Incentive Award Opportunity” means the rangeavailability or amount of an Actual Award availablebenefits is related to each Participant in thislevel of compensation. The Plan foris not a given Performance Period.
(r) “Involuntary Termination Without Cause” means a Participant’s Separation From Service (i) due to reorganization, downsizing, restructuring“Retirement Plan” or layoff, and (ii) not due to what the Committee determines was, in its sole and absolute discretion, either the Participant’s inability to adequately perform his or her job, a violation of Company work rules or policies, or misconduct that the Committee determines is detrimental to the Company’s best interests.
(s) “Key Employee” means a management or highly compensated Employee of the Company who the Committee determines to (i) have a direct and significant impact on the performance of the Company, and (ii) has a position or compensation that allows him or her to affect or influence, through negotiation or otherwise, the design or operation of this Plan so as to eliminate the Employee’s need for the substantive rights and protections of Title I of“Welfare Plan” under the Employee Retirement Income Security Act of 1974.
(t) “Participant” means a Key Employee who, in the Committee’s sole and absolute discretion, is determined to be eligible to receive an Incentive Award Opportunity under this Plan.
(u) “Payment Period” means the first two and one-half months following the end of a Performance Period.
(v) “Peer Group” means the companies comprising the group against which the Committee assesses the performance of the company for the purposes of determining Actual Awards earned, or for modifying the number of shares of Common Stock that are payable to Participants following the end of a Restriction Period.
(w) “Performance Period” means a period of twelve (12) months corresponding to the Company’s Fiscal Year and for which the Company’s performance is assessed by the Committee for the purpose of determining Actual Awards earned.
(x) “Performance Share” means a hypothetical share of Common Stock that will be converted into, and paid out,1974, as a share of Common Stock only if all restrictions and conditions set forth in this Plan have been satisfied. The Performance Share carries no voting rights but does entitle the Participant to receive Dividend Credits determinable under Plan Section 7(d).
(y) “Performance Shares Payment Period” means the first two and one-half months following the end of a Restriction Period.
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(z) “Plan” means the Southwest Gas Corporation Management Incentive Plan as set forth herein and as amended from time to time.
(aa) “Restriction Period” means, with respect to each grant of Performance Shares to a Participant, a period set by the Committee prior to the beginning of the Performance Period of at least twelve (12) consecutive calendar months beginning with the Award Conversion Date applicable to such shares or otherwise thirty-six (36) consecutive calendar months beginning with the Award Conversion Date applicable to such shares.
(bb) “Retire” or “Retirement” means a Participant’s Separation From Service on or after the Participant has attained his or her early retirement date, normal retirement date, or deferred retirement date as defined in the Retirement Plan for Employees of Southwest Gas Corporation, as amended and in effect from time to time.
(cc) “Section 409A” or “Code Section 409A” means Section 409A of the Code and the rules and regulations with respect thereto.
(dd) “Section 162(m)” or “Code Section 162(m)” means Section 162(m) of the Code and the rules and regulations with respect thereto.
(ee) “Separation From Service” means the termination of a Participant’s employment by the Company if the Participant dies, retires, or otherwise has a termination of employment with the Company; provided, that Participant’s employment relationship is treated as continuing intact while on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months or longer, and if Participant’s right to reemployment is provided either by statute or by contract. A leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that the Participant will return to perform services for the Company. If the period of leave exceeds six months and the Participant does not retain a right to reemployment under an applicable statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such six-month period. Notwithstanding the foregoing, where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, where such impairment causes the Participant to be unable to perform the duties of his or her position of employment, or any substantially similar position of employment, a 29-month period of absence may be substituted for such six-month period. For purposes of this paragraph, the term “Company” includes all other organizations that together with the Company are part of the Code Section 414(b-c) control group of organizations. Whether a Participant has incurred a Separation From Service shall be determined based in accordance with the Code Section 409A. Additionally, if a Participant ceases to work as an Employee, but is retained to provide services as an independent contractor of the Company, the determination of whether the Participant has incurred a Separation From Service shall be determined based in accordance with Code Section 409A.
(ff) “Target Award” means the Incentive Award Opportunity available to each Participant if all Performance Measures for a Performance Period are fully met but not exceeded.amended.
(a) The Plan shall be administered by non-Employee members of the Committee, which shall be composed of not less than three members of the Board of Directors. The non-Employee members of the Committee chosen to administer the Plan shall not have received an award under this Plan or any plan preceding this Plan within the last calendar year. The Board of Directors may designate alternate members of the Committee from non-Employee Board members who satisfy the above criteria to act in the placeCaptions and stead of any absent member of the Committee.
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(b) The Committee shall have full and final authority to operate, manage, and administer the Plan on behalf of the Company. This authority includes but is not limited to the following:
(i) Determination of eligibility for participation in the Plan;
(ii) Determination of Actual Awards earned and the Award Conversion of the Actual Awards;
(iii) Payment of Actual Awards that have become nonforfeitable;
(iv) Directing the Company to make the accruals and payments provided for by the Plan;
(v) Interpretation of the Plan and the resolution of any inconsistent or conflicting Plan language as well as factual or nonfactual questions regarding a Participant’s eligibility for, and the amount of, benefits payable under the Plan;
(vi) Power to prescribe, amend, or rescind rules and regulations relating to the Plan;
(vii) Power to determine the vesting schedules, if any, for all awards;
(viii) Powers prescribed to the Committee elsewhere in the Plan; and
(ix) Power to construe and interpret the Plan to the maximum extent possible to comply with applicable law, including Code Sections 162(m) and 409A.
(c) With respect to Incentive Award Opportunities and Actual Awards earned, the Committee shall have full and final authority in its sole and absolute discretion to determine the Incentive Award Opportunities for individual Participants; determine the time or times at which Actual Awards may be calculated; determine the length of all applicable Performance Periods and/or Restriction Periods; determine the award schedule and the Annual Performance Measures (and the Company’s satisfaction or failure to satisfy such measures) that will be used in calculating Actual Awards and the division of such awards between cash and performance shares.
(d) A majority of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by all the members in the absence of a meeting, shall be the acts of the Committee. All Committee interpretations, determinations, and actions will be final, conclusive, and binding on all parties.
(e) No member of the Board or the Committee will be liable for any action taken or determination made in good faith by the Board or the Committee with respect to the Plan or any Actual Award calculated and paid hereunder.
(a) In determining the Key Employees that will be Participants and the Incentive Award Opportunity for each Participant, the Committee shall take into account the duties of the respective Participant, their present and potential contributions to the success of the Company, and such other factors as the Committee shall deem relevant in connection with accomplishing the purpose of the Plan.
(b) No Incentive Award Opportunity will be available to any person who, at the beginning of the applicable Performance Period, is a member of the Committee responsible for the administration of the Plan.
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(a) By the Determination Date, the Committee will, in its discretion, establish, in writing, the Incentive Award Opportunity for the Performance Period for each Participant or class of Participants designated by the Committee. The Incentive Award Opportunity will be expressed as percentages of the Participant’s Annual Base Salary.
(b) An Incentive Award Opportunity may be based on a dollar amount or a percentage of the Participant’s Annual Base Salary related to a range of the foregoing. The maximum dollar amount of any Actual Award will not exceed for any one Participant Three Million Dollars ($3,000,000) for any Fiscal Year.
(c) By the Determination Date, the Committee will assign to a Participant an Incentive Award Opportunity which will be assigned a specific Target Award that will fall within the range of the Participant’s Incentive Award Opportunity. The Target Award will be awarded to the Participant if, in the discretion and judgment of the Committee, applicable Annual Performance Measures for the applicable Performance Period are met.
(d) Actual Awards for each Participant in the Plan shall be determined by the Committee following the end of the applicable Performance Period, taking into account how the Company performed on the basis of the Annual Performance Measures developed and utilized by the Committee for the Performance Period.
(a) The Committee shall establish the Annual Performance Measures that will be utilized for one or more Performance Periods in assessing the performance of the Company for the purpose of determining the Actual Awards earned under this Plan. As determined by the Committee, the Annual Performance Measures applicable to each Participant shall provide for a targeted level or levels of achievement using one or more of the following measures: (i) annual revenue, (ii) budget comparisons, (iii) controllable profits, (iv) Company earnings per share, (v) customer to employee ratios, (vi) customer service satisfaction, (vii) expense management, (viii) improvements in capital structure, (ix) net income, (x) net or gross sales, (xi) operating income (pre- or post-tax), (xii) profit margins, (xiii) operating or gross margin, (xiv) profitability of an identifiable business unit or product, (xv) return on investments, (xvi) return on sales, (xvii) return on stockholders’ equity, (xviii) total return to stockholders, (xix) cash flow, operating cash flow, or cash flow or operating cash flow per share (before or after dividends), (xx) price of the shares or any other publicly traded securities of the Company, (xxi) reduction in costs, (xxii) return on capital, including return on total capital or return on invested capital, (xxiii) improvement in or attainment of expense levels or working capital levels, and (xxiv) performance of the Company relative to a peer group of companies and/or relevant indexes. The Annual Performance Measures may be applicable to the Company and/or any of its individual business units and may differ from Participant to Participant. In addition and to the extent applicable, the Annual Performance Measures will be calculated in accordance with generally accepted accounting principles, but excluding the effect (whether positive or negative) of any change in accounting standards and any extraordinary, unusual or nonrecurring item, as determined by the Committee, occurring after the establishment of the Annual Performance Measures applicable to the Actual Award intended to be performance-based compensation. Each such adjustment, if any, shall be made solely for the purpose of providing a consistent basis from period to period for the calculation of Annual Performance Measures in order to prevent the dilution or enlargement of the Participant’s rights with respect to an Actual Award intended to be performance-based compensation; provided, however, that certain categories or types of such adjustments can be specifically included (rather than excluded) at the time the Annual Performance Measures are established if so determined by the Committee. These
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measures and the standards of performance associated with them may change from year to year and may receive different emphasis or weight according to the changing priorities of the Company.
(b) During the Payment Period, the Committee will compare the Company’s actual performance during such period with the Annual Performance Measures it established for the period, and the Actual Award for such period, if any, for a Participant will be calculated. For each Performance Period, the Committee will utilize an award schedule for calculating the Actual Awards earned on the basis of the Company’s performance. The award schedule may be modified by the Committee from year to year as Annual Performance Measures or the standards of performance associated with such measures change.
(c) The Committee retains the discretion to reduce a Participant’s Actual Award (including a reduction to zero).
(d) During the Payment Period, an Award Conversion will be made whereby the Actual Awards for each Participant for the Performance Period will be split into two components. The first component will be a dollar amount that shall be paid during the Payment Period to the Participant in a lump sum cash payment. The second component will be a dollar amount that is converted into whole or partial Performance Shares, which shall be subject to a substantial risk of forfeiture and thereby restricted for a specified period of at least twelve (12) consecutive calendar months beginning on the Award Conversion Date applicable to such shares. The number of Performance Shares allocable to each Participant shall be determined by dividing (i) the dollar amount available for the Participant’s Performance Shares (determined by the Award Conversion), by (ii) the average of the closing prices of the Common Stock on the New York Stock Exchange for the first five trading days of the month before the Award Conversion Date. Payment of Performance Shares shall occur at the time provided in Plan Section 7(c). For Participants who die, become Disabled, Retire or have his or her employment Involuntarily Terminated Without Cause prior to the Award Conversion Date, the Actual Awards will be paid in cash.
(e) The Committee shall have the sole and absolute responsibility for determining Actual Awards of Participants. The Actual Awards generated by application of the award schedule established by the Committee for one or more Performance Periods will be the actual awards that will be payable to each Participant; provided, however, that the Committee may, prior to the Award Conversion Date, unilaterally reduce the Actual Awards generated by the awards schedule if, in the opinion of the Committee, there have been exceptional circumstances that have either created inappropriate windfalls in the Company’s performance, which, in turn, have resulted in inappropriately large awards.
(f) Notwithstanding any other provision of this Section 6, a Participant shall receive no Actual Award for a Performance Period if cash dividends paid on each share of outstanding Company common stock during such period does not equal or exceed the dividends paid on each such share in the immediately preceding Performance Period.
(g) If, during a Performance Period, the Committee determines that the established Annual Performance Measures are no longer suitable due to a change in control of the Company, as defined in Code Section 409A, the Committee may accelerate payment of the Actual Award.
(a) On the Award Conversion Date, Participants who earned an Actual Award during the preceding Performance Period will have an entry made on the Company’s books reflecting the Performance Shares allocable to them as determined pursuant to Plan Section 6(d).
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(b) A Participant’s Performance Shares granted with respect to a given Performance Period will be subject to a specified Restriction Period of at least twelve (12) consecutive calendar months beginning on the Award Conversion Date applicable to such shares. During the Restriction Period, the Participant may not, except as provided in Plan Section 8, receive payment for his or her Performance Shares.
(c) During the Restriction Period, a Participant will receive Dividend Credits equal to the quarterly dividend paid per share of Common Stock, multiplied by the number of Performance Shares then credited to the Participant on the Company’s records, and divided by the closing per share value of the Common Stock on the New York Stock Exchange on the date such dividends are paid or the last trading day on the Exchange before such payment. These additional Performance Shares will be subject to the same restrictions as the Performance Shares that generated the Dividend Credits, and such restrictions will lapse at the same time as the restrictions lapse on such Performance Shares.
(d) During the Performance Shares Payment Period, the Participant shall receive a specific number of shares of Common Stock equal to the total number of Performance Shares allocated to the Participant at the beginning of such Restriction Period plus the Performance Shares credited quarterly through Dividend Credits during the Restriction Period. In no event will shares of Common Stock credited in respect of Dividend Credits be issued with respect to any Performance Shares until the Participant has satisfied all of the requirements for payment and issuance of the underlying Performance Shares.
(a) Should a Participant incur a Separation From Service for any reason other than death, Disability, Retirement, or Involuntary Termination Without Cause during a Performance Period, the Participant’s right to receive an Actual Award for such period will be forfeited by the Participant.
(b) Should a Participant incur a Separation From Service for any reason other than death, Disability, Retirement, or Involuntary Termination Without Cause during a Restriction Period, the Participant’s right to receive payments of his or her outstanding Performance Shares will be forfeited by the Participant.
(c) Should a Participant incur a Separation From Service during the Performance Period due to death, becoming Disabled, Retirement, or having his or her employment Involuntarily Terminated Without Cause, the Participant (or the Participant’s Beneficiary if the Participant dies before receiving payment) will be entitled to receive the Participant’s Actual Award for the Performance Period determined on a pro rata basis according to the number of months of the Performance Period actually worked while being a Participant in the Plan. Payment of the Actual Award shall be made in a lump sum cash payment and shall occur during the Payment Period following the end of the applicable Performance Period.
(d) Should a Participant incur a Separation From Service due to death during a Restriction Period, the Participant’s Beneficiary will be entitled to receive a distribution of Common Stock equal to the total number of Performance Shares then credited to the Participant. Payment of Common Stock shall occur during the first two and one-half calendar months following the Participant’s death.
(e) Should a Participant incur a Separation From Service during the Restriction Period due to becoming Disabled, Retirement, or having his or her employment Involuntarily Terminated Without Cause during a Restriction Period, the Participant (or the Participant’s Beneficiary in the case the Participant dies before receiving payment) will receive a distribution of Common Stock equal to the total number of Performance Shares then credited to the Participant. Payment of Common Stock shall occur during the first two and one-half calendar months following the date of the Participant’s Separation From Service; provided, however, that if the Participant is a “specified employee,” within the
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meaning of Code Section 409A, in no event shall payment occur before the day after the last day of the six month period that begins with the date of the Participant’s Separation From Service.
(f) A Participant shall have the right to designate any person as his or her Beneficiary to whom benefits determined under this Section 8 (“Death Benefits”) shall be paid in the event of the Participant’s death prior to the total distribution of his/her Death Benefits. If greater than fifty percent (50%) of the Death Benefits are designated to a beneficiary other than the Participant’s lawful spouse, such beneficiary designation must be consented to by the Participant’s lawful spouse. Each beneficiary designation must be in written form prescribed by the Committee and will be effective only when filed with the Committee, or its designee, during the Participant’s lifetime.
A Participant may change a beneficiary designation, subject to spousal consent under the preceding paragraph, by filing a new beneficiary designation form with the Committee or its designee. The filing of a new beneficiary designation form will cancel all beneficiary designations previously filed. The Committee shall be entitled to rely on the beneficiary designation form last filed by the Participant prior to his/her death. Any payment made in accordance with such designation shall fully discharge the Company from all further obligations with respect to the amount of such payments.
If a beneficiary entitled to receive benefits under the Plan is a minor or a person declared incompetent, the Committee may direct payment of such benefits to the guardian or legal representative of such minor or incompetent person. The Committee may require proof of incompetency, minority or guardianship as it may deem appropriate prior to distribution of any Death Benefits. Such distribution shall completely discharge the Committee and the Company from all liability with respect to such payments.
If no beneficiary designation is in effect at the time of the Participant’s death, or if the named beneficiary predeceased the Participant, then the beneficiary shall be: (1) the surviving lawful spouse; (2) if there is no surviving lawful spouse, then Participant’s issue per stirpes; or (3) if no surviving lawful spouse or issue, then Participant’s estate.
(g) If a Participant changes jobs with the Company during the course of a Performance Period and his or her new job has a different Incentive Award Opportunity under the Plan, the Participant’s Incentive Award Opportunity for the Performance Period shall be the sum of the products obtained by multiplying (i) the percentage of the full Performance Period spent in each job by (ii) the Incentive Award Opportunity for each such job. In special circumstances, which the Committee may identify from time to time, the Participant may be assigned for the full Performance Period the Incentive Award Opportunity that corresponds to any one of the jobs held by the Participant during the Performance Period rather than combining partial Incentive Award Opportunities for the jobs.
(h) Should a Key Employee become eligible to participate in the Plan after the beginning of a Performance Period, the Participant will be entitled to an Incentive Award Opportunity on the basis of the number of months of the full Performance Period the Key Employee is a Participant in the Plan.
(i) Notwithstanding any other provision of the Plan, to the extent that (i) one or more of the payments in connection with the Participant’s Separation From Service would constitute deferred compensation subject to the requirements of Code Section 409A, and (ii) the Participant is a “specified employee” within the meaning of Code Section 409A, then such payment or benefit (or portion thereof) will be delayed until the earliest date following the Participant’s Separation From Service on which the Company can provide such payment or benefit to the Participant without the Participant’s incurrence of any additional tax or interest pursuant to Code Section 409A, with all remaining payments or benefits due thereafter occurring in accordance with the original schedule. In addition, this Plan and the payments and benefits to be provided hereunder are intended to comply in all respects with the applicable provision of Code Section 409A.
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(a) Notwithstanding anything in the Plan to the contrary, the Board may terminate the Plan and liquidate “deferred compensation” payable under the Plan as permitted pursuant to Code Section 409A.
(b) All determinations, decisions, and adjustments made by the Committee as a result of the Board’s action pursuant to Plan Section 9(a) will be final, binding, and conclusive. No fractional interest will be issued under the Plan on account of such adjustments.
(c) In the event (i) a report on Schedule 13D is filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934 (referred to as the “Act”) disclosing that any “person” (as defined in Section 13(d) of the Act) other than the Company or one of its subsidiaries or an employee benefit plan sponsored by the Company or one of its subsidiaries is the beneficial owner, directly or indirectly, of fifty percent (50%) or more of the combined voting power of the then outstanding securities of the Company; (ii) any “person” (as defined in Section 13(d) of the Act) other than the Company or one of its subsidiaries, or an employee benefit plan sponsored by the Company or one of its subsidiaries shall purchase securities pursuant to a tender offer or exchange offer to acquire any Common Stock of the Company (or securities convertible in Common Stock) for cash, securities, or any other consideration, provided that after the consummation of the offer, the person in question is the “beneficial owner” (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of fifty percent (50%) or more of the combined voting power of the then outstanding securities of the Company (as determined under paragraph (d) of Rule 13d-3 under the Act, in the case of rights to acquire Common Stock); (iii) and in connection with the consummation of (a) any consolidation or merger of the Company (1) in which the Company is not the continuing or surviving corporation, (2) pursuant to which shares of Common Stock of the Company would be converted into cash, securities, or other property, and (3) with a corporation that prior to such consolidation or merger owned fifty percent (50%) or more of the cumulative voting power of the then outstanding securities of the corporation; or (b) any sale, lease, exchange, or other transfer (in one transaction or a series of transactions) of all or substantially all of the assets of the Company; or (iv) there shall have been a change in the majority of the Board of the Company within a 12-month period, unless the election or nomination for election by the Company’s stockholders of each director during the 12-month period was approved by the vote of two-thirds (2/3) of the directors then in office who were directors at the beginning of such 12-month period, the Committee may in its sole and absolute discretion, without obtaining stockholder approval, at the time of any one or more of the foregoing actions, to the extent permitted in Plan Section 7, with respect to all Participants:
(i) Make adjustments or amendments to the Plan and outstanding Incentive Award Opportunities and Performance Shares that are consistent with applicable law, including Code Section 162(m) and the terms of the transaction; or
(ii) Consistent with applicable law, including Code Section 162(m), substitute new Incentive Award Opportunities.
To the extent Performance Shares credited to a Participant constitute “deferred compensation” within the meaning of Code Section 409A at the time of a Change in Control, Performance Shares shall be paid out upon a Change in Control that also constitutes a “change in ownership or effective control” of the Company or a “change in the ownership of a substantial portion of the assets” of the Company, as those terms are defined under Code Section 409A (each such transaction, a “409A Change in Control”). To the extent a Change in Control that is not a 409A Change in Control occurs, Performance Shares constituting deferred compensation shall be paid out at the end of the Restriction Period or upon the Participant’s earlier “Separation from Service” from the Company under Code Section 409A, subject to the delay applicable to “specified employees” described in Section 8.
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To the extent Performance Shares credited to a Participant do not constitute “deferred compensation” within the meaning of Code Section 409A at the time of a Change in Control, the Committee may vest such Performance Shares and shall, in that event, settle the Performance Shares within 2 1/2 months of the calendar year in which they vest.
(a) The Committee may require a Participant receiving Common Stock upon conversion of Performance Shares awarded hereunder to reimburse the Company for any taxes required by any government to be withheld or otherwise deducted and paid by the Company in respect of the issuance to or disposition of shares by the Participant (a “Taxable Event”). Any payment on account of a tax obligation shall be in a form acceptable to the Committee. If upon the occurrence of a Taxable Event the Participant does not, in the time required by law or designated by the Committee, reimburse the Company for taxes as provided for above: (i) the Company shall have the right to withhold some or all of the amount of such taxes from any other sums due or to become due from the Company to the Participant upon such terms and conditions as the Committee shall prescribe, and (ii) the Company may satisfy some or all of the tax obligation of such Participant by withholding shares of Common Stock acquired by the Participant in the conversion of any Performance Shares and may in the same manner satisfy some or all of any additional tax obligation resulting from such withholding.
(b) At any time that the Company becomes subject to a withholding obligation under applicable law with respect to the conversion of Performance Shares, a Participant may elect to satisfy, in whole or in part, the Participant’s related estimated personal tax liabilities by directing the Company to withhold from the shares of Common Stock issuable in the related conversion of Performance Shares either (i) a specific percentage of shares, (ii) a specific number of shares, or (iii) shares having a specific value, in each case with a value not in excess of such estimated tax liabilities. Such an election shall be irrevocable. The shares of Common Stock withheld in payment shall be valued at their fair market value on the date that the withholding obligation arises (the “Tax Date”). The Committee may disapprove any election, suspend or terminate the right to make elections or provide that the right to make elections shall not apply to particular conversions. The Committee may impose any other conditions or restrictions on the right to make an election as it shall deem appropriate.
(a) If at any time the Board shall determine in its discretion that the listing, registration or qualification upon any national securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the sale, purchase, issuance or delivery of Common Stock under the Plan, no Common Stock shall be sold, purchased, issued or delivered, as the case may be, unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained, or otherwise provided for, free of any conditions not acceptable to the Board.
(b) Except as hereafter provided and if so required by the Committee, the recipient of any Performance Share award shall, upon receipt of any shares of Common Stock due to the Award Conversion of Performance Shares represented by the award, execute and deliver to the Company a written statement, in form satisfactory to the Company, in which such Participant represents and warrants that such Participant is acquiring the shares for such Participant’s own account, for investment only and not with a view to the resale or distribution thereof, and agrees that any subsequent offer for sale or distribution of any such shares of Common Stock shall be made only pursuant to either (a) a Registration Statement on an appropriate form under the Securities Act of 1933, as amended (the “Securities Act”), which Registration Statement has become effective and is current with regard to the shares of Common Stock being offered or sold, or (b) a specific exemption from the registration requirements of the Securities Act, but in claiming such exemption the holder or
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recipient shall, if required by the Company, prior to any offer for sale or sale of such shares, obtain a favorable written opinion, in form and substance satisfactory to the Company, from counsel for or approved by the Company, as to the applicability of such exemption thereto. The foregoing restriction shall not apply to (i) issuances by the Company so long as the shares being acquired are registered under the Securities Act and a prospectus in respect thereof is current or (ii) reofferings of shares by affiliates of the Company (as defined in Rule 405 or any successor rule or regulation promulgated under the Securities Act) if the shares being reoffered are registered under the Securities Act and a prospectus in respect thereof is current.
(c) The Company may endorse such legend or legends upon the certificates for shares of Common Stock issued upon conversion of Performance Shares made hereunder and may issue such “stop transfer” instructions to its transfer agent in respect of such shares as, in its discretion, it determines to be necessary or appropriate to (i) prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act, or (ii) implement the provisions of the Plan and any agreement between the Company and the Participant.
(d) The Company shall pay issue taxes with respect to the issuance of shares of Common Stock upon conversion of Performance Shares, as well as all fees and expenses necessarily incurred by the Company in connection with such issuance.
(e) The maximum number of shares of Common Stock that may be issued pursuant to the Plan shall not exceed a total of1,700,0002,450,000shares, without further shareholder approval.
The Plan became effective upon adoption by the Board in 1993 and was approved by shareholders at the 1994, 2002, 2004 and 2009 Annual Meetings. If the amended and restated Plan is not approved by shareholders of Southwest Gas Corporation at the 2014 Annual Meeting, awards shall not be payable under the Plan to the extent prohibited under Code Section 162(m).
The Board at any time and from time to time may, without prior notice to Participants, suspend, terminate, modify, or amend the Plan. Except as otherwise provided for in Plan Sections 5, 6, 7, 8 and 9, no suspension, termination, modification, or amendment of the plan may adversely affect any award previously granted, unless the written consent of the Participant is obtained. Notwithstanding the authority granted to the Board herein, if the shareholders of Southwest Gas Corporation have approved this Plan as contemplated in Plan Section 12 above, no amendment to the provisions of this Plan shall become effective without shareholder approval to the extent required by applicable law indemnifying Code Section 162(m).
(a) Any claim for money or stock awards under the Plan shall be made in writing to the Committee. If such claim is wholly or partially denied, the Committee shall, within a reasonable period of time not to exceed ninety (90) days after receipt of the claim, notify the Participant, Beneficiary or other party making the claim (the “Claimant”) of the denial of the claim. Such notice of denial shall (i) be in writing, (ii) be written in a manner calculated to be understood by the Claimant, and (iii) contain the specific reason or reasons for denial of the claim, a specific reference to the pertinent Plan provisions upon which the denial is based, a description of any additional material or information necessary to perfect the claim, along with an explanation of why such material or information is necessary, and an explanation of the claim review procedure. The ninety (90) day period may, under special circumstances, be extended up to an additional ninety (90) days upon written notice of such extension
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to the Claimant which notice shall specify the special circumstances and the extended date of the decision, the time limits applicable to such procedures and a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination upon review. Notice of extension must be given prior to expiration of the initial ninety (90) day period. The extension notice shall indicate the special circumstances that require an extension of time and the date by which the Committee expects to render a decision on the claim. If the claim is denied, the Claimant may file a request for review as provided in the next paragraph.
(b) Within sixty (60) days after the receipt of the decision denying a claim by the Claimant, the Claimant may file a written request with the Committee that it conduct a full and fair review of the denial of the claim. The Claimant or his or her duly authorized representative may review pertinent documents and submit issues and comments in writing to the Committee in connection with the review.
(c) The Committee shall deliver to the Claimant a written decision on the review of the denial within sixty (60) days after receipt of the aforesaid request for review, except that if there are special circumstances (such as the need to hold a hearing, if necessary) which require an extension of time for processing, the aforesaid sixty (60) day period shall, upon written notice to the Claimant be extended an additional sixty (60) days. Upon review the Claimant shall be given the opportunity to (i) submit written comments, documents, records, and other information relating to its claim and (ii) request and receive, free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant’s claim for benefits. Whether a document, record, or other information is relevant to a claim for benefits shall be determined by reference to applicable ERISA regulations, if any. The review of a denied claim shall take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. The decision on review shall be written in a manner calculated to be understood by the Claimant and, if adverse, shall (i) include the specific reason or reasons for the decision, (ii) contain a specific reference to the pertinent Plan provisions upon which the decision is based, (iii) contain a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant’s claim for benefits (whether a document, record, or other information is relevant to a claim for benefits shall be determined by reference to applicable ERISA Regulations), and (iv) contain a statement describing the Claimant’s right, if any, to bring an action under ERISA Section 502(a).
(a) Nothing in this Plan or in any award granted pursuant hereto shall confer on an individual any right to continue in the employ of the company or any of its subsidiaries or interfere in any way with the right of the Company or any such subsidiary to terminate any employment.
(b) Upon its adoption by the Board, this Plan shall replace the existing Southwest Gas Corporation Management Incentive Plan with respect to periods commencing effective January 1, 2014.
(c) Awards granted under the Plan shall not be transferable otherwise than as provided for in Plan Section 8(d), by will or by the laws of descent and distribution, and awards may be realized during the lifetime of the Participant only by the Participant or by his guardian or legal representative.
(d) The section and subsection heading aretitles contained herein are for convenience only and shall not affect the construction hereof.meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.
| 17. | Arbitration and Litigation |
| (a) | Any dispute, controversy, or claim arising out of or in respect to this Plan (or its validity, interpretation, or enforcement) or the subject matter hereof must be submitted to and settled by arbitration conducted before a single arbitrator (chosen from a list of arbitrators provided by the American Arbitration Association with each party hereto taking alternate strikes and the remaining arbitrator hearing the dispute). The arbitration will be conducted in Clark County, Nevada, in accordance with the then current rules of the American Arbitration Association or its successor. The arbitration of such issues, including the determination of any amount of damages suffered, will be final and binding upon the parties to the maximum extent permitted by law. The arbitrator in such action will not be authorized to change or modify any provision of the Plan. Judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof. The arbitrator will award reasonable legal fees and expenses (including arbitration costs) to the prevailing party upon application therefor. The parties consent to the jurisdiction of the Supreme Court of the State of Nevada and of the U.S. District Court for the District of Nevada for all purposes in connection with arbitration, including the entry of judgment of any award. |
| (b) | Except as may be necessary to enter judgment upon the award or to the extent required by applicable law, all claims, defenses, and proceedings (including, without limiting the generality of the foregoing, the existence of the controversy and the fact that there is an arbitration proceeding) shall be treated in a confidential manner by the arbitrator, the parties and their counsel, and each of their agents and employees, and all others acting on behalf or in concert with them. Without limiting the generality of the foregoing, no one shall divulge to any third party or person not directly involved in the arbitration, the contents of the pleadings, papers, orders, hearings, trials, or awards in the arbitration, except as may be necessary to enter judgment upon an award as required by applicable law. Any court proceedings relating to the arbitration hereunder, including, without limiting the generality of the foregoing, to prevent or compel arbitration to perform, correct, vacate, or otherwise enforce an arbitration award, shall be filed under seal with the court, to the extent permitted by law. |
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APPENDIX A Participant’s rightsTO THE RESTRICTED STOCK/UNIT PLAN
TARGET AWARD OPPORTUNITY FOR EACH GRANTEE
Position | % of Year-End Base Salary | Range of Award Grant* | ||
Chief Executive Officer | 45 | 22.5 to 67.5 | ||
President | 30 | 15.0 to 45.0 | ||
Executive Vice President | 25 | 12.5 to 37.5 | ||
Senior Vice President | 20 | 10.0 to 30.0 | ||
Vice President | 15 | 7.5 to 22.5 | ||
Other Participants | 10 | 5.0 to 15.0 | ||
Non-Employee Directors | 800 Restricted Stock or Stock Units |
| * | Awards granted pursuant to the Plan will range from 50 percent to 150 percent of the target Award opportunity for each participant, other than non-Employee Directors, established for the initial Award. The actual Award will be determined based on the three-year average Management Incentive Plan payout percentage (the “MIP Payout Percentage”) for the three years immediately preceding the Award determination date. The threshold to earn an Award will be a MIP Payout Percentage of 90. The Award will increase by five percent for each one percentage point increase in the MIP Payout Percentage until such percentage equals 100, then the increase will be reduced to two and one-half percent for each percentage point increase through 120. |
| * | Awards granted pursuant to the Plan to Directors will be set at 800 Restricted Stock or Stock Units per year. |
| * | Once the Awards are established, they will be converted into Restricted Stock or Stock Units, based on the average of the closing prices of the Common Stock on the New York Stock Exchange for the first five trading days of the month in which the award is granted. |
| 1. | Vesting Schedule of Awards |
| (a) | Awards to Employees. |
| (i) | With respect to Awards to Employees, unless otherwise set forth in an Award Agreement, a Notice or in an amendment to this Appendix A, the Shares or Units subject to an Award shall vest and be paid out in Common Stock over a three (3) year period as follows: forty percent (40%) of the Shares or Units subject to the Award shall vest on the 4th of January following the Award (the “Vesting Commencement Date”) and thirty percent (30%) of the Shares or Units subject to the Award shall vest on each of the second and third anniversaries of the Vesting Commencement Date. |
| (ii) | During any authorized leave of absence, the vesting of the Shares or Units awarded to Employees only as provided above shall be suspended after the leave of absence exceeds a period of three (3) months. Vesting of the Shares or Units shall resume upon the Employee’s termination of the leave of absence and return to service to the Company or a Related Entity. The Vesting Schedule of the Shares or Units shall be extended by the length of the suspension. |
| (iii) | Notwithstanding the foregoing, in the event the Employee’s Continuous Service terminates as the result of Death, Retirement, or Disability, the Employee will be entitled to receive the Award for the current Plan year determined on a pro rata basis according to the number of months actually worked during the current year while participating in the Plan. This Section 1(a)(iii) of Appendix A is effective January 17, 2012 with retroactive and prospective effect. |
| (iv) | With respect to Restricted Stock Units, Awards shall be credited with notional dividends at the same time, in the same form, and in equivalent amounts as dividends that are payable from time to time on the Common Stock. Any such notional dividends shall be valued as of the date on which they are credited to the Employee and reallocated to acquire additional Units. Such additional Units shall vest in accordance with the vesting schedule set forth in the applicable Notice or Award Agreement as if such Units had been issued on the date of such Award (if any). |
| (v) | Notwithstanding the foregoing, in the event the Employee’s Continuous Service terminates as the result of Death, Retirement, or Disability, 100% of the Shares or Units shall become fully vested and no longer subject to forfeiture to the Company. In the event of a Change in Control Event, each Award which is at the time outstanding under the Plan automatically shall (i) become fully vested and be released from any repurchase, forfeiture, or transfer restrictions and (ii) with respect to Restricted Stock Units, be converted in full to Shares, immediately prior to the specified effective date of the consummation of such Change in Control Event, for all of the Shares or Units at the time represented by such Award. |
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| (b) | Awards to Directors. Subject to the Director’s Continuous Service, Awards shall vest in accordance with either of the following schedules: |
| (i) | Forty percent (40%) of the Shares or Units subject to an Award shall vest on the 4th of January following the award (Vesting Commencement Date), and thirty percent (30%) on each of the second and third anniversaries of the Vesting Commencement Date. Vesting of the Shares or Units shall accelerate so that one hundred percent (100%) of the Shares or Units subject to the Award shall vest (i) in the event of a Change in Control Event and, with respect to Units, be converted in full to Shares, immediately prior to the specified effective date of the consummation of such Change in Control Event or (ii) upon termination of the Director’s Continuous Service as a result of death, Disability, or Retirement. Notwithstanding the foregoing, Shares or Units subject to an Award granted on or after January 17, 2012, shall vest on the Award Date. With respect to Restricted Stock Units, the conversion of the Units into Shares, however, will not occur until the Director’s Continuous Service terminates, or immediately prior to a Change in Control Event. |
| (ii) | With respect to Restricted Stock Units, Awards shall be credited with notional dividends at the same time, in the same form, and in equivalent amounts as dividends that are payable from time to time on the Common Stock. Any such notional dividends shall be valued as of the date on which they are credited to the Director and reallocated to acquire additional Units. Such additional Units shall vest in accordance with the vesting schedule set forth in the applicable Award Agreement as if such Units had been issued on the date of such Award (if any). |
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APPENDIX B TO THE RESTRICTED STOCK/UNIT PLAN
ADDITIONAL GRANTS TO NON-EMPLOYEE DIRECTORS
Commencing January 2009, non-Employee Directors will be entitled to Performance Shares and other Plan benefits represent rights to merely an unfunded and unsecured promisereceive annual grants of a future payment of money or property. A participant shall look onlyRestricted Stock Units tied to the Companyperformance of the Company. Each non-Employee Director will receive a target Award opportunity of 1,000 Units.
The Award granted will range from 50 to 150 percent of the target Award opportunity for each non-Employee Director. The Awards granted annually will be determined based on the three-year average Management Incentive Plan payout percentage (the “MIP Payout Percentage”) for the paymentthree years immediately preceding the Awards determination date. The threshold to earn Awards will be a MIP Payout Percentage of Performance Shares90. The Awards will increase by five percent for each one percentage point increase in the MIP Payout Percentage until such percentage equals 100, then the increase will be reduced to two and other Plan benefits and such shares and benefits shall, until paid, be subjectone-half percent for each percentage point increase through 120.
Vesting Schedule of Awards
Subject to the claims of Company creditors. A Participant’s rights under the PlanDirector’s Continuous Service, Awards shall be only that of an unsecured general creditorvest in accordance with either of the Company.following schedules:
| (a) | Forty percent (40%) of the Units subject to each annual Award shall vest on the 4th of January following the award (the “Vesting Commencement Date”), and thirty percent (30%) on each of the second and third anniversaries of the Vesting Commencement Date. Vesting of the Units shall accelerate so that one hundred percent (100%) of the Units subject to the Award shall vest (i) in the event of a Change in Control Event and, with respect to Units, be converted in full to Shares, immediately prior to the specified effective date of the consummation of such Change in Control Event or (ii) upon termination of the Director’s Continuous Service as a result of death, Disability, or Retirement. Notwithstanding the foregoing, Shares or Units subject to an Award granted on or after January 17, 2012, shall vest on the Award Date. Conversion of the vested Units into Shares, however, will not occur until the Director’s Continuous Service terminates, or immediately prior to a Change in Control Event. |
| (b) | With respect to the Awards, notional dividends shall be credited at the same time, in the same form, and in equivalent amounts as dividends that are payable from time to time on the Common Stock. Any such notional dividends shall be valued as of the date on which they are credited and reallocated to acquire additional Units. Such additional Units shall vest in accordance with the vesting schedule set forth above, as if such Units had been issued on the date of such Awards. |
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SWX1PS2014SWX1PS2016
SOUTHWEST GAS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
Thursday,Wednesday, May 8, 20144, 2016
at 10:4:00 A.M.P.M. Pacific Time
CILI RESTAURANT AT BALI HAI GOLF CULBCLUB
5160 Las Vegas Blvd. South
Las Vegas, Nevada
| 5241 Spring Mountain Road Las Vegas, NV 89150-0002 | PROXY |
Please refer to the back of this Proxy Card for Voting Instructions
“Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at
www.investorelections.com/swx”
This proxy will be voted in the manner directed by the shareholder(s). If no direction is made, this proxy will be voted FOR the listed Nomineesnominees (Proposal 1), FOR amendment and reapproval of the Restricted Stock/Unit Plan (Proposal 2), FOR approval of the Bylaw amendment (Proposal 3), FOR Approval, on an advisory basis, of Executive Compensationexecutive compensation (Proposal 2), FOR Reapproval and Amendment of the Management Incentive Plan (Proposal 3)4) and FOR Auditor Selection Ratificationauditor selection ratification (Proposal 4)5). Further, if cumulative voting rights for the election of directors (Proposal 1) are exercised at the meeting, the Proxies, unless otherwise instructed, will cumulatively vote their shares as explained in the Proxy Statement.
The undersigned hereby revokes alall previously granted proxies and appoints LeRoy C. Hanneman, Jr. and Michael J. Melarkey as Proxies,proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote as designated by telephone, by internet or by mail, all the shares of Common Stock of the undersigned at the 20142016 Annual Meeting of Shareholders of Southwest Gas Corporation, and at any adjournments thereof; and at their discretion, with authorization to vote such shares on any other matters as may properly come before the meeting or any adjournment thereof.
Vote by Internet, Telephone or Mail
24 Hours a Day, 7 Days a Week
Your phone or Internet vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed and returned your proxy card.
 |  |  |  | |||
INTERNET | PHONE | VOTE | ||||
| www.proxypush.com/swx | 1-800-883-3382 | IN PERSON | ||||
| Use the Internet to vote your proxy until 11:59 p.m. Central Time on May | Use a touch-tone telephone to vote your proxy until 11:59 p.m. Central Time on | Mark, sign and date your proxy card and return it in the postage-paid envelope provided. | Directions to attend the Annual Meeting and vote in person are included on the map on page M-1 of the Notice of | |||
If you vote your proxy by Internet or by telephone, you do NOT need to return your Proxy Card by mail.
| ||||||||
| Shareowner ServicesSM | ||||||||
| P.O. Box 64945 | ||||||||
| St. Paul, MN 55164-0945 | ||||||||
| Address Change? Mark box, sign, and indicate changes below: ¨ | ||||||||
| TO VOTE BY INTERNET OR TELEPHONE, SEE REVERSE SIDE OF THIS PROXY CARD. | ||||||||
TO VOTE BY MAIL AS THE BOARD OF DIRECTORS RECOMMENDS ON ALL ITEMS BELOW, SIMPLY SIGN, DATE AND RETURN THIS PROXY CARD.
The Board of Directors Recommends a Vote FOR Proposals 1 through 4.5.
| 1. | Election of Directors: | 01 Robert L. Boughner 02 José A. Cárdenas 03 Thomas E. Chestnut | 07 Anne L. Mariucci 08 Michael J. Melarkey 09 | ¨ | Vote FOR all nominees (except as marked) | ¨ | Vote WITHHELD from all nominees | |||||||
04 Stephen C. Comer | 10 Thomas A. | |||||||||||||
05 LeRoy C. Hanneman, Jr. | 11 | |||||||||||||
06 |
|
ò Please fold here – Do not separate ò
| To withhold authority to vote for a particular nominee, mark the Vote FOR all nominees (except as marked) box and enter the number next to the name(s) of the exceptions in the space provided. Unless authority to vote for all the foregoing nominees is withheld, this proxy will be deemed to confer authority to vote for every nominee whose name is not listed. | ||||
2. | To AMEND AND REAPPROVE the Company’s Restricted Stock/Unit Plan. | ¨ For | ¨ Against | ¨ Abstain | ||||
3. | To APPROVE an amendment to the Company’s Bylaws to reduce the upper and lower limits of the range of required directors. | ¨ For | ¨ Against | ¨ Abstain | ||||
4. | To APPROVE, on an advisory basis, the Company’s executive compensation. | ¨ For | ¨ Against | ¨ Abstain | ||||
| ||||||||
| To RATIFY the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for fiscal year | ¨ For | ¨ Against | ¨ Abstain | ||||
THE PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED AS THE BOARD RECOMMENDS. | ||||||||
| ||||||||
| Date | ||||||||
| Signature(s) in Box | ||||||||
| Please sign exactly as your name(s) appears on the Proxy. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the Proxy. | ||||||||
