SOUTHWESTERN PUBLIC SERVICE COMPANY
INCENTIVE COMPENSATION PLAN
(AN EXECUTIVE MANAGEMENT PLAN)
(As amended July 23, 1996)
I. PLAN GOAL:
The goal of the incentive compensation plan here described is to encourage
selected officers and certain other named key salaried managerial personnel of
Southwestern Public Service Company (Corporation) to develop and apply their
managerial and administrative skills and abilities to the fullest possible
extent, to attract and retain in the employ of the Corporation executive
managerial personnel of outstanding competence and to provide sufficient
motivation of the Corporation's executive management to assure the maximizing of
profitability, the minimizing of customer cost for electric ser vice, and the
general continued improvement in overall corporate performance.
II. CONTROL:
The plan shall be administered by the Compensation Committee (Committee) as
designated by the Board of Directors. No person appointed to the Compensation
Committee shall be eligible for an award under the plan while serving on the
Committee. The Committee shall interpret the plan, amend and resci nd rules,
select eligible plan participants, grant awards, and take other action deemed
necessary for the effective control and administration of the plan. Decisions
made and action ordered by the Committee shall be subject to the approval of the
Board of Directors and be final and binding on all p lan participants.
III. PLAN PARTICIPANTS:
The Committee shall designate from year to year the officers and other key
salaried managerial personnel who shall be eligible to receive incentive
compensation for the designated performance year. Participants in general shall
be limited to those officers and key salaried personnel who, because of their
position and responsibility, materially affect the cost of customer service,
corporate profitability, and the daily operating efficiency of the Corporation.
Directors of the Corporation who are full-time officers of the Corporation shall
be eligible to participate in the plan.
IV. PERFORMANCE PERIOD:
The standards, judgment criteria, performance statistics, and management
objectives constituting the guidelines for determining distribution of incentive
compensation shall be measured from September 1 through August 31 (corporate
fiscal year).
V. THE INCENTIVE COMPENSATION ASSET POOL:
A. Committee Consideration:
Incentive compensation for the performance year ending August 31 shall be
considered and recommendation made to the Board of Directors by the Committee at
the regular meeting of the Board scheduled in October.
B. Funding Guidelines:
The amount available to be placed into an Incentive Compensation Asset Pool
(Pool), for incentive compensation awards, shall be one-half of one percent of
the Corporation's fiscal year Earnings Applicable to Common Stock, as reflected
on the Corporation's Statement of Earnings. (Example: assuming
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actual earnings to be $112,301,000 the amount available to be placed into the
Pool would be $112,301,000 x .0050 = $561,505.)
C. Authorization Criteria:
The Pool shall be funded according to the following guidelines:
1. If the Corporation's actual return on average common stockholders'
equity is at least 90% of the Corporation's budgeted return on average common
stockholders' equity for the designated performance period, 50% of the amount
available for incentive compensation awards, as established according t o
paragraph B of section V, shall be placed in the Pool.
2. Fifty percent of the amount available for incentive compensation awards,
as established according to paragraph B of section V, may be placed in the Pool
if, in the Committee's opinion, management substantially meets the goals
approved by the Committee for the performance period, and such other criteria as
the Committee shall find appropriate under the circumstances.
VI. INCENTIVE PAYMENT METHODOLOGY:
The Pool shall be divided into two equal parts. One part of the Pool (50%)
shall be distributed according to paragraph A, below and the other part (50%)
shall be distributed according to paragraph B, below.
A. Corporate Performance:
Distribution of 50% of the Pool (the corporate performance part of the
Pool) shall be made according to the following formula. The annual base
compensation of each plan participant shall be divided by the aggregate base
compensation of all plan participants. The percent derived from the above com
putation shall represent the share of the corporate performance portion of the
Pool to be distributed to an individual participant.
B. Individual Performance:
The remaining 50% of the Pool (the individual performance part of the Pool)
shall be distributed, by the Corporation's Board of Directors and Chief
Executive Officer, or his designee, in the following manner, based upon the
individual performance of each plan participant. The Board of Directors w ill
first determine the amount of the individual performance portion of the Pool to
be allocated to the Corporation's Chairman of the Board and/or President.
Division of the remainder of the individual performance portion of the Pool
shall be made by the Chief Executive Officer, or his designee. This division
shall be based on an individual performance appraisal of each plan participant.
The appraisal shall include an evaluation of overall demonstrated managerial and
leadership qualities and will specifically address the following performance
factors:
.....Overall performance of responsibilities managed
.....Cooperation with other responsibility centers
.....Utilization of manpower and financial resources
.....Community and public affairs involvement
.....Positive action taken to improve productivity and control expenses
.....Initiative and innovation
.....Positive action to control overtime
.....Safety performance and EEO profile
.....Quality of decisions
.....Value of individual contributions to corporate objectives.
The Chief Executive Officer, or his designee, has the discretion to
withhold individual performance payments.
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VII. INCENTIVE AVAILABILITY (LIMITATION):
The amount available for annual incentive awards under this compensation
plan shall not exceed the amount designated by the Board of Directors for the
stipulated performance year. Compensation available but not awarded for a
stipulated performance year shall not be carried forward for distributio n in
subsequent performance years.
VIII. DEFERRAL OPTIONS:
A. Establishment of Deferral Account:
A participant may elect at any time prior to the beginning of a performance
year to irrevocably defer incentive compensation payment for that year of all or
a fraction of any incentive compensation which would otherwise be paid to him as
a result of this Incentive Compensation Plan to a time foll owing his retirement
with benefits under the Retirement Plan for Employees of Southwestern Public
Service Company. The optional fractional amount shall be expressed as a percent
of the total incentive compensation payment anticipated, but such deferred
declaration shall not be less than ten (10) pe rcent of the performance year
distribution. The compensation amounts established by deferral shall be credited
by the Corporation with interest equivalents in an amount equal to the prime
rate of interest established by Bank One, Texas, N. A., Dallas, Texas, or its
successors or assigns, compounded quarterly as of the first day of January,
April, July, and October of each year during the deferral period. The prime rate
in effect the first day of January, April, July, and October shall be deemed the
prime rate in effect for the preceding quarterly period.
B. Distribution at Retirement:
Distribution of the deferred accumulation shall commence in the January
following retirement as conditioned in Section VIII, A of this plan. A plan
participant may, claiming personal hardship, petition the Compensation Committee
for distribution prior to retirement of all or part of the deferred
accumulation. The Committee shall identify and evaluate the claimed hardship and
make final ruling on the petition. Retirement Distribution shall be in five
annual installments beginning in January of the first year following retirement
in increments determined by the distribution table presented on the following
page:
DISTRIBUTION TABLE
Deferred Compensation
(Installment Payments Following Retirement)
Payment Due Date Amount
I. First January immediately following retirement 20% of accumulation
II. Second January following retirement 25% of balance
III. Third January following retirement 33% of balance
IV. Fourth January following retirement 50% of balance
V. Fifth January following retirement Remaining balance
Modification to the deferred distribution schedule here presented may, at
the discretion of the Compensation Committee, be authorized, provided a written
request is tendered by the retiree to the Committee detailing the circumstance
for such petition, and in the reason of the Committee the retire e's
circumstance as presented warrants special treatment. In the event
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the participant's employment is terminated through death or any other means than
retirement, the deferred account will be distributed to the designated
beneficiary in January of the year following such termination of employment. In
the event a retired participant should die before complete distribution of the
deferred account has occurred, payments shall continue to the designated
beneficiary in accordance with the annual distribution schedule displayed in
this plan.
THE AMOUNT DEFERRED ALONG WITH INTEREST ACCRUAL ARE TO BE SATISFIED FROM
THE GENERAL CORPORATE FUNDS WHICH ARE SUBJECT TO THE CLAIMS OF CREDITORS.
IX. GENERAL PLAN PROVISIONS:
A. Termination of Employment:
No incentive compensation payment shall be made to a participant for a plan
year performance who resigns or is discharged, with or without cause, prior to
the close of the performance year.
B. Vesting:
A participant shall have no vested right to an incentive compensation
payment prior to such payment having been determined by the Committee.
C. Death or Retirement:
In the event a participant dies or retires during a performance year with
respect to which incentive compensation payment is made, the Committee may, in
its discretion, grant such retired participant, or in the case of a
participant's death, the designated beneficiary, a prorata portion of the pa
yment that would have otherwise been paid at the end of the performance year,
but based upon the number of months of actual service worked during the
performance year.
D. Category of Incentive Compensation:
Annual incentive compensation paid in accordance with the terms of this
plan shall not be considered as earnings for purposes of ESOP, TRASOP,
retirement income calculations, Group Life Insurance Coverage, disability income
calculations under the Employee Retirement Plan for Employees of Southwes tern
Public Service Company, and other Corporation-sponsored benefit programs as may
be based upon gross earnings.
E. Contractual Limitation:
This plan shall not constitute a contract of employment, and participation
in this plan shall not affect the Corporation's right to discharge a
participating employee.
F. Change of Control:
Notwithstanding anything contained herein to the contrary, in the event of
a "Change of Control" (as defined below) during a performance year with respect
to which incentive compensation is made, the amount available to be placed into
the Pool pursuant to the Funding Guidelines and Authorization Criteria of
Sections B and C of Article V hereof, respectively, will be determined on the
basis of the Corporation's performance for the period beginning on the first day
of such performance year through the last day of the month preceding the
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month in which a Change of Control occurs. Payment of s uch incentive
compensation will be made to a participant as soon as practicable following the
Change of Control.
A "Change of Control" shall be deemed to have occurred on any of the
following:
a. The acquisition (other than from the Corporation) by any person, entity,
or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (excluding, for this
purpose, the Corporation or its subsidiaries, or any written plan providing
benefits for employees of the Corporation which acquires beneficial ownership of
voting securities of the Corporation), of beneficial ownership (within the
meaning of Rule 13(d)(3) promulgated under the Exchange Act) of 20 percent or
more of either the then outstanding shares of the Comm on Stock or the combined
voting power of the Corporation's then outstanding voting securities entitled to
vote generally in the election of directors; or
b. Individuals who, as of the date hereof, constitute the Board of
Directors of the Corporation (the "Incumbent Board") and cease for any reason to
constitute at least a majority of the Board of Directors of the Corporation,
provided that any person who first becomes a director after the date her eof
whose recommendation, election, or nomination for election by the Corporation's
stockholders was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connect ion with an actual
or threatened election contest relating to the election of the directors of the
Corporation, as described in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) shall be, for purposes of this plan, considered as though such
person were a member of the Incumbent Board; or
c. The consummation by the Corporation of a reorganization, share exchange,
merger, or consolidation with respect to which the persons who were the
stockholders of the Corporation immediately before the reorganization, share
exchange, merger, or consolidation do not, immediately thereafter, own m ore
than 50 percent of the combined voting power entitled to vote in the election of
directors of the reorganized, merged, or consolidated company; or
d. The liquidation or dissolution of the Corporation or a sale of all or
substantially all assets of the Corporation.
X. AMENDMENT, SUSPENSION, OR TERMINATION OF THE PLAN:
The Board of Directors may, upon recommendation of the Committee, from time
to time, amend, suspend, or terminate the plan in whole or part, and if the plan
is suspended or terminated, the Board may reinstate any or all of its
provisions.
NOTATION
The executive compensation plan here presented in no way opts to include
nor provide personal planning services to plan participants. Personal investment
counseling, tax control, income tax preparation, and estate planning are
essential elements to maximizing and preserving personal assets, and t he
Corporation hastens to urge the plan participants to avail themselves of the
expertise available in these areas at the marketplace.
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