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EXHIBIT 10-J.2
INTERIM PERFORMANCE AWARD PLAN
Washington Energy Company
December 7, 1994
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RATIONALE
In place of the current performance share plan, Washington Energy recommends
the implementation of an interim performance award plan to accomplish the
following purpose:
To develop an award structure for the new executive management team to motivate
and reward attainment of new financial and strategic goals reflecting the
successful reorganization of the company.
On the following pages are recommended specifications for a new plan.
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INTERIM PERFORMANCE AWARD PLAN SPECIFICATIONS
Comments
Eligibility All current performance share plan Retirees would not be eligible and would
participants who are active employees on just continue under their existing
October 1, 1994. cycles.
Performance Four years Reflects restructuring plans.
Cycle October 1, 1994 -
September 30, 1998
Award Total Shareholder Return (TSR) TSR is an appealing measure to use where
Measures shareholder value creation is a primary
strategic objective. See discussion of
TSR and suggested award measures on page
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Award Recommended Typical
Opportunities Units* Range
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CEO 11,400 9,500-15,000
CFO, SRVP - Operations 7,800 6,500-10,500
SRVP - Legal and HR 4,500 3,500-6,000
VP - Supply and Administration,
President WES
Other VPs and 2,000-3,500
SRVP - Public Affairs
*Unit equals cash value of one
share of WECO common stock.
Grant This is a one-time only special grant.
Frequency A new ongoing performance plan will be
initiated in the following year.
Vesting of Vesting of a percentage of total units If a cumulative award target is met at
Shares would be made annually based on the end of the cycle, the Compensation
achievement of Committee has discretion to vest
performance targets. remaining shares not previously vested
through achievement of annual targets.
1995 15%
1996 15%
1997 30%
1998 40%
Award Paid in cash at the end of the Cash plan would not be subject to
Payments performance cycle. shareholder approval.
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Dividends Dividend equivalents on total target Dividends are assumed to be reinvested
units would be accrued during the in stock equivalents.
performace period. Payment would be
made at the end of the cycle for the
percentage that was vested.
Termination Participants must be active employees at Death, retirement, or disability of the
the end of the performance cycle executive would be the only exceptions
(9/30/98) to be eligible for any award to this. In that case, payment would be
payments. made for vested units earned to date.
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TOTAL SHAREHOLDER RETURN
Definition of TSR = Appreciation in stock Price + Dividends*
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Beginning Stock Price
- - TSR can be measured annually or cumulatively over a period of time.
- - The beginning stock price will be equal to the average of the high and low
prices of stock for each day of the month of September 1994. The ending
stock price for the annual calculations will be the average of high and low
for each day of September in 1995, 1996, 1997, and 1998.
*The proxy TSR chart and the dividend equivalents in the plan assume
reinvestment of dividends in stock. However, for purposes of calculating TSR
in the award formula below, no reinvestment of dividends is assumed for
Washington Energy or the comparator group.
RECOMMENDED APPROACH
Annual Earned
Vesting Percent
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Cumulative 75th %ile 100%
Relative TSR
Compared to 50th %ile 50%
AGA Member
Distribution 30th %ile 30%
Companies with
Total Less than 0%
Capitalization 30th %ile
>$200 Million
- - There is also a minimum 7.5% Absolute TSR that must be achieved annually for
any vesting to occur in that year. The Compensation Committee has the
discretion to adjust the minimum Absolute TSR as it deems appropriate to
reflect issues such as extraordinary items or dividends paid but not earned.
- - At the end of the performance cycle, if the cumulative Relative TSR is
greater than or equal to the 50th percentile, the Compensation Committee can
choose to vest any portion (or all) of the remaining shares.
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EXAMPLE: VP (2,700 INTERIM UNITS)
Annual Cumulative
Annual Vesting Absolute Relative TSR Annual Earned Units
Opportunity TSR %ile Vesting % Earned
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1995 15% 405 4% 55%ile 0% 0
1996 15% 405 8% 65%ile 50% 203
1997 30% 810 12% 75%ile 100% 810
1998 40% 1,080 12% 70%ile 50% 540
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100% 2,700 1,553
Since the cumulative TSR was greater than the 50th percentile at the end of the
performance cycle, the Compensation Committee cold choose to vest additional
units up to the maximum (2,700) number of units.
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