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EXHIBIT 10-11
Wisconsin Gas Company
1999 Officer's Incentive Compensation Plan
I. Objectives
The principle objectives of the Plan are:
A. To motivate and to provide incentive for officers and executive
management (EMT) of Wisconsin Gas Company to create economic
value.
B. To ensure a focus on earning a return on capital in excess of
the cost of capital while also achieving the performance plus
goals.
C. To assist in the retention of quality senior management.
D. To yield competitive total compensation levels when performance
goals meet the cost of capital requirement.
II. Eligibility
Participation in the Plan is limited to designated officers and
EMT of Wisconsin Gas. The Chief Executive Officer of WICOR will
be responsible for recommending eligibility changes to the
Compensation Committee of the Board of Directors of WICOR, Inc.
III. Amount of Potential Award
A. The minimum, target and maximum award opportunities for each
participant, as a percentage of base salary (W-2 base salary
calendar earnings), are as follows:
Award as Percent of Salary
--------------------------------
Position Minimum Target Maximum
- ---------------- ------- ------ -------
President & CEO 0% 40% 87%
Senior VP 0% 35% 76.125%
VP and Direct Reports 0% 20% 43.5%
B. Each executive's award will be determined based on a
combination of WGC and individual performance, with WGC
performance accounting for 75% of the award and individual
performance weighted at 25%.
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IV. Performance Criteria and Objective Setting
A. Financial Component (75% Weight)
1.) Overall WGC performance will be measured by Return on
Capital (ROC), which is defined as NOPAT (Net Operating
Profit After Tax) divided by Total Capital Employed
(NOPAT and Total Capital Employed are defined in Appendix
I). Threshold, Target, and Maximum ROC performance
levels, and their corresponding incentive awards are as
follows:
Performance Level 1999 Return on Capital Award as a % of Target
----------------- ---------------------- ----------------------
Below Threshold Less than 6.0% 0%
Threshold 6.0% 1%
Target 7.0%* 100%
Maximum or Above 9.1% 200%
* WGC Cost of Capital = 7.0%
For performance at levels between Threshold and Target or between
Target and Maximum, award calculations will be interpolated on a
linear basis.
2.) ROC payouts will be further modified by performance
against budgeted criteria denoted as "Performance Plus" (the
modifier). Performance Plus consists of Rate Comparison,
Customer Service, Safety, and Cost Effectiveness. Each year
management will recommend specific goals for the aforementioned
criteria. Associated with various levels of performance for
each goal will be a certain number of award points. The
cumulative total of these points will determine the
modification factor. As seen below, achievement of Performance
Plus can modify the award by +/- 20%, or eliminate the award if
the threshold number of points is not achieved.
Performance Plus Performance Plus Award modification
Achievement Points as a % of Target
---------------- ---------------- ------------------
Below Threshold < 12 points 0%
Threshold 12 points 80%
Target 24 points 100%
Maximum 40 points 120%
For performance at levels between Threshold and Target or
between Target and Maximum award calculations will be
interpolated on a linear basis.
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B. Discretionary/Individual Component (25% Weight)
The individual component of total incentive compensation will be
based on the individual's overall performance as measured against
previously identified and agreed upon goals and objectives. The
award may vary between 0% and 150% of the individual performance
portion of the target award, and will be determined and paid
independently of Company financial performance.
Combining the previously mentioned components yields the following
formula for determining annual incentive payouts:
Step 1 [ Base Salary x Eligible Target % ]
Multiplied by sum of step 2 and step 3
Step 2 [(ROC Award % x Performance Plus Modifier %) x 75%]
Plus
Step 3 [Discretionary % x 25%]
Equals
Annual Incentive Award
C. The company intends to hold the proposed financial/operational
performance standards constant for at least three years, with
annual reviews to ensure reasonableness vis-a-vis external market
conditions. This is especially relevant with regard to the cost
of capital, which is the key determinant of performance levels for
the ROC measure.
D. If the Compensation Committee of WICOR, Inc. determines that
corporate performance was inadequate, it may exercise discretion
to reduce or eliminate any or all bonus payments.
V. Performance
Company performance goals will be for the 1999 calendar year.
VI. Treatment of Acquisitions and Investments
A. Acquisitions
The capitalized value (NOPAT/Target's Cost of Capital) of the
acquired entity's last full year's NOPAT will be added to the
capital base of the acquiring business unit in the month of
acquisition. The acquisition premium (defined as the excess of
the purchase price over the capitalized value ) will be
incorporated into the capital base at a rate of 20% per year
starting at the beginning of the first calendar year after the
acquisition.
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B. Investments
The entire value of investments of an operating nature (capital
expenditures) will be added to the capital base. However,
investments of a significant dollar amount, whose project life
extends beyond ten years, will be reviewed by management for
potential adjustments to the capital base (similar to the
treatment for acquisitions).
VII. Form and Timing of Award Payments
A. Awards will be determined and paid as soon as practicable
after the close of the Plan year.
B. At each participant's discretion and with the concurrence of
the Compensation committee of WICOR, Inc., awards may be paid
in one of three ways:
1. Lump sum.
2. Partly in lump sum and the remainder in deferred annual
installments.
3. Completely in deferred annual installments.
C. The Company will offer a deferred payment option to those
officers who prefer not to receive their awards in current
cash, following these guidelines:
1. Deferred incentive award payments will be carried as an
accrued liability with an interest rate (three-year
treasury bill rate) credited each year.
2. Deferred elections must be made prior to June 30, 1999, and
a definite time period for deferral must be specified.
D. Additionally, if performance significantly exceeds the maximum
standard established, the Compensation Committee has the
discretion to provide an incentive payout in excess of the
maximum allowable payout. However, any exceptional
performance which qualifies for this award, must be a direct
result of management efforts and not due to external factors
beyond management's control. Any awards in excess of the
maximum payout opportunity would be paid in WICOR restricted
stock which would vest ratably over five years. However, if a
participant terminates employment due to death, retirement, or
disability, any prior restricted stock awards made under this
provision would become immediately vested.
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E. In the event the company's overall ROC is negatively impacted
by the inclusion of a newly acquired company's results, the
compensation committee has the discretion to make a
supplemental incentive payment. The supplemental payment will
be considered if the acquired company is meeting the financial
projections established at the time of the acquisition and the
officers of the acquiring entity would have otherwise received
a higher incentive payment had it not been for the inclusion of
the acquired entity's results. The purpose of this
supplemental incentive provision is to motivate officers to
invest in value building projects. The duration of the
supplemental incentive period will be no more than three years.
VIII. Implementation
A. The effective date of the Plan is January 1, 1999.
IX. Plan Administration
A. Compensation Committee
1. The Plan will be administered by the Compensation Committee
of the Board of Directors of WICOR, Inc.
2. The Committee's administration is subject to approval of
the Board of Directors of WICOR, Inc.
3. The decisions of the Board are final and binding on all
Plan participants.
4. The Board retains the right to terminate or amend the Plan
as it may deem advisable.
B. Partial Year Participation
1. Participants must be employed by the Company on the last
day of the Plan year in order to receive a bonus for that
year. However, once earned, a bonus will be paid to a
participant regardless of whether he/she is employed by the
company on the date payment is made.
2. Awards for part year participants will be pro-rated based
on the proportion of the year that the participant was in
the Plan. This includes participants who terminate
employment due to death, disability or retirement.
3. Participants who terminate employment with the Company
prior to the last day of the plan year shall forfeit all
rights to an incentive award payment under the Plan except
for terminations due to death, retirement or disability.
4. A participant is deemed to be disabled if he/she becomes
eligible for benefits under the Company's Long Term
Disability Plan.
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Appendix 1
DEFINITION OF TERMS
Wisconsin Gas Company
NOPAT-Net Operating Profit After Taxes-is calculated as follows:
Net Income per financial statements
Plus the change in specific equity equivalents (net of tax):
Uncollectible Reserve
Regulatory Assets and liabilities (except for Environmental
liability related)
Injuries and Damage Reserve
Assets or Liabilities for Deferred Compensation Plans
Other Post Employee Benefits (Medical and Life Insurance)
Pension Expense (Qualified and non-Qualified)
Plus interest expense (net of tax)
Capital - An approximation of the economic book value of cash invested.
Capital is the sum of:
Shareholders equity
Long and short term debt
Capital Equivalents (net of tax)
Measurement of capital employed is determined using a 13 month rolling
average.