1
EX-10-M.3
ANNUAL INCENTIVE PLAN
Washington Energy Company
October 1988
Plan Year: Fiscal year beginning October 1 and ending
- --------- September 30.
Eligibility: All Vice Presidents and above of Washington Energy
- ----------- Company and its subsidiaries.
Purposes of Plan: o Provide incentive to meet Company,
- ---------------- department, and individual goals.
o Link a greater portion of executive pay to
achieving objectives.
Administration: The plan will be administered by the CEO and/or the
- -------------- President at the direction of the Compensation
Committee of the Board of Directors.
Award Levels: Award Levels (% of Base Salary)
- ------------- --------------------------------
Position Threshold Target Maximum
-------- --------- ------ -------
CEO 15% 25% 40%
President 10% 20% 30%
Senior VPs 10% 15% 20%
VPs 5% 10% 15%
-1-
2
4804ZZ32 10/88
Weighting of Company A portion of the participant's potential award
and Department will be determined by "Corporate Performance" and
Performance Results: the remaining portion will be determined by
- -------------------- "Department Performance". These portions will be based
on position as follows:
Percentage of
Target Award Based on:
----------------------------
Corporate Department
Position Performance Performance
-------- ----------- -----------
CEO, President 100% --
Senior VPs 60% 40%
VP-Subsidiary Heads 40% 60%
Other VPs 40% 60%
Corporate and Corporate Performance. Corporate performance will be
Department defined as Washington Energy Company performance. The
Performance Corporate performance measure(s) will be as shown on
Measures: the attached exhibit. Other financial measures may be
- ------------- used at the discretion of the Committee. All financial
measures for regulated operations will be weather
adjusted.
Department Performance. Through the planning
process, the President and/or CEO will discuss the
Department's goals for the plan year with each
participant. Each of these goals will be weighted
based on their relative importance. Overall
Department performance will be determined by applying
these weights to the performance of each specific goal.
-2-
3
4804ZZ32 10/88
Minimum Corporate The Corporate portion of the incentive cash payment
Performance: will not be paid if net income before adjusting for
- ----------------- weather is inadequate to pay common and preferred
dividends.
Award Adjustments: The CEO can recommend discretionary award adjustments
- ------------------ of plus/minus 30% of the award amount.
If individual performance is significantly inferior,
the CEO may significantly reduce or eliminate the
total incentive cash payment award for that
participant regardless of Corporate or Department
performance.
The Effect of In comparing actual performance against the
Extraordinary and performance goals, the Compensation Committee may
Nonrecurring Items: exclude from such comparison any extraordinary or
- ------------------- nonrecurring gains, losses, charges, or credits which
appear on the Company's books and records as it deems
appropriate.
Less Than Full-Year If an individual becomes a participant after the
Plan Participation: beginning of the Plan Year, the President and/or CEO
- ------------------- will develop department performance measures for the
remainder of the plan year for that participant.
The final award will be calculated by multiplying the
award by a proration factor. The proration factor
will be equal to the number of full weeks the
individual actually spent as a Plan participant,
divided by fifty-two.
-3-
4
4804ZZ32 10/88
If a participant's employment is terminated during a
plan year for reason of death, disability, or normal
retirement, an award will be determined based on the
performance as of the date of termination. The final
award (paid after the end of the plan year) will be
calculated by multiplying the award by a proration
factor. The proration factor will be equal to the
number of full weeks of employment during the plan
year divided by fifty-two.
If a participant's employment is terminated by
resignation or for cause, an incentive award will not
be paid.
Change-In-Control: Change-in-control will be defined as set forth in the
- ------------------ Performance Share Plan. Upon change-in-control,
target incentive cash payment for the year will be
paid if a participant is terminated without cause.
Form and Timing
of Payment: All awards will be paid in cash, less applicable
- --------------- withholding requirements. The final award will be
paid as soon as practicable following the end of the
Plan Year.
Modifications: The Compensation Committee will approve all elements
- -------------- and goals of the Plan each year and reserves the
right to modify, amend or repeal the Plan. No
modifications, however, may adversely affect an award
which has previously been earned, either in whole or
in part.
-4-
5
4804ZZ32 10/88
Final Award The Compensation Committee of the Board of Directors
Payment Approval: has final approval of all incentive cash payments.
-5-
6
4804ZZ32 10/88
EXAMPLE OF AWARD CALCULATION
Position: Senior Vice President
- --------------------------------
o Base salary: $90,000
o Performance criteria weightings: 60% Company/40% Department
o Award levels Threshold Target Maximum
--------- ------ -------
10% 15% 20%
Assumptions:
- ------------
o Company performance: 95% of target
o Department performance: 105% of target
o Awards as percent of target performance:
Threshold Target Maximum
------------- --------------- -------------
90% of target Target perform- 110% of target
performance ance measure performance
measure measure
o Earnings are sufficient to pay dividends.
Award Determination
- -------------------
Company Performance:
Award-Level Base Salary Company Award
----------- ----------- -------------
12.5% x $90,000 = $11,250
Department Performance:
Department
Award Level Base Salary Award
----------- ----------- ----------
17.5% x $90,000 = $15,750
Company Department
Performance Department Award Total
Company Award Weighting Award Weighting Award
------------- ----------- ---------- ---------- -------
($11,250 x .60) + ($15,750 x .40) = $13,050
7
FISCAL YEAR 1989
EARNINGS AVAILABLE TO COMMON
WASHINGTON EARNINGS
WASHINGTON THERMAL THERMAL THERMAL ENERGY CO. PER SAHRE
NATURAL GAS ENERGY EXPLORATION EFFICIENCY CONSOLIDATED (AVERAGE)
----------- --------- ----------- ---------- ------------ ---------
o 1989 BUDGET $18,312,000 $(308,000) $ 722,000 $1,059,000 $19,936,000 $1.46
o 1989 LONG-RANGE PLAN (S&W) $19,180,000 $(218,000) $(1,399,000) $ 218,000 $19,408,000 $1.42
CORPORATE GOALS
WEIGHTING THRESHOLD TARGET MAXIMUM
--------- ---------- ---------- ----------
o EARNINGS PER SHARE (AVERAGE) 80% $1.35 $1.46 $1.57
o NON-REGULATED OPERATIONS
AS % OF TOTAL 10% $6,400,000 $7,100,000 $7,800,000
o INTERNALLY GENERATED CASH
AS % OF TOTAL CASH REQUIREMENTS 10% 36% 40% 44%
42 at update
corrected goals
10/26/88