NiSource Inc.
801 E. 86th Avenue • Merrillville, IN 46410 • (877) 647-5990

 

 

NOTICE OF ANNUAL MEETING

 

April 1, 2011

 

To the Holders of Common Stock of NiSource Inc.:

 

The annual meeting of the stockholders (the “Annual Meeting”) of NiSource Inc. (the “Company”) will be held at The Hilton Rosemont Chicago O’Hare, 5550 N. River Road, Rosemont, IL 60018 on Tuesday, May 10, 2011, at 10:00 a.m., local time, for the following purposes:

 

 

All persons who are stockholders of record at the close of business on March 15, 2011 will be entitled to vote at the Annual Meeting.

 

Please act promptly to vote your shares with respect to the proposals described above. You may vote your shares by marking, signing, dating and mailing the enclosed proxy card. You may also vote by telephone or through the Internet by following the instructions set forth on the proxy card. If you attend the Annual Meeting, you may vote in person, even if you have previously submitted a proxy.

 

In order to help us arrange for the Annual Meeting, if you plan to attend the Annual Meeting, please so indicate in the space provided on the proxy card or respond when prompted on the telephone or through the Internet.

 

PLEASE VOTE YOUR SHARES BY TELEPHONE, THROUGH THE INTERNET OR BY PROMPTLY
MARKING, DATING, SIGNING AND RETURNING THE ENCLOSED PROXY CARD.

 

Gary W. Pottorff
Corporate Secretary

 

Important Notice Regarding the Availability of Proxy Materials
For the Annual Meeting of Stockholders to be Held on May 10, 2011

The Proxy Statement and 2010 Annual Report to Stockholders
are available at http://ir.nisource.com/annuals.cfm

 

TABLE OF CONTENTS

 

 

The accompanying proxy is solicited on behalf of the Board of Directors of the Company. The common stock, $.01 par value per share, of the Company represented by the proxy will be voted as directed. If you return a signed proxy card without indicating how you want to vote your shares, the shares represented by the accompanying proxy will be voted as recommended by the Board of Directors “FOR” all of the nominees for director; “FOR” the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accountants for 2011; “FOR” approval of the compensation of the Company’s named executive officers; for the “ANNUALLY” advisory vote on executive compensation; and “AGAINST” the stockholder proposal to permit action by written consent of stockholders entitled to cast the minimum number of votes that would be necessary to authorize the action at a meeting at which all stockholders entitled to vote thereon were present and voting (the “Stockholder Action by Written Consent Proposal”).

 

This proxy statement and form of proxy are first being sent to stockholders on April 1, 2011. The Company will bear the expense of this solicitation. The original solicitation of proxies by mail may be supplemented by telephone, facsimile, e-mail and personal solicitation by officers, employees, and agents of the Company or its affiliates. To aid in the solicitation of proxies, the Company has retained Phoenix Advisory Partners for a fee of $9,500 plus reimbursement of expenses. The Company also will request brokerage houses and other nominees and fiduciaries to forward proxy materials, at the Company’s expense, to the beneficial owners of stock held of record by such persons.

 

The close of business on March 15, 2011 is the date for determining stockholders entitled to notice of and to vote at the Annual Meeting. As of March 15, 2011, 279,580,251 shares of common stock were issued and outstanding. Each share of common stock outstanding on that date is entitled to one vote on each matter presented at the Annual Meeting.

 

If you are a stockholder of record (that is, if you hold shares of common stock of the Company in your own name), you may vote your shares by proxy using any of the following methods:

 

 

If your shares are held by a broker, bank or other nominee in “street name,” you will receive voting instructions from that entity, the “record holder,” that you must follow in order to have your shares of common stock voted at the Annual Meeting. If your shares are held by a broker or other nominee and you or any other person entitled to vote those shares does not provide the broker or other nominee with instructions as to how to vote such shares, that broker or nominee will only be able to vote your shares on the matters for which the broker or other nominee has discretionary authority. Brokers and most other nominees will have discretionary authority to vote your shares of common stock only with regard to the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accountants for 2011. We do not believe that brokers and most other nominees will have discretionary authority to vote your shares with respect to the election of directors, the advisory vote on executive compensation, the advisory vote on frequency of the advisory vote on executive compensation or the Stockholder Action by Written Consent Proposal. Therefore, it is important that you instruct your broker or other nominee how to vote your shares.

 

If you hold your shares in the Company’s 401(k) plan administered by Fidelity Investments, you will need to vote your shares by one of the methods discussed in this Proxy Statement in order to have your vote counted. Fidelity will not exercise any voting discretion over the shares held in your 401(k) account. If you fail to vote by returning a completed proxy card, or by telephone or through the Internet, your shares held through Fidelity will not be voted.

 

If you are a stockholder of record and plan to attend the Annual Meeting, please so indicate when you vote, so that the Company may send you an admission ticket and make the necessary arrangements. Stockholders who plan

to attend the meeting must present picture identification along with an admission ticket or evidence of current beneficial ownership.

 

You also may come to the Annual Meeting and vote your shares in person by obtaining and submitting a ballot that will be provided at the meeting. However, if your shares are held in street name by a broker, bank or other nominee, including Fidelity Investments as administrator of the Company’s 401(k) plan, then in order to be able to vote at the meeting, you must obtain a proxy, executed in your favor, from the institution that is the holder of record of your shares, indicating that you were the beneficial owner of the shares on March 15, 2011, the record date for voting, and that the record holder is giving you the proxy to vote the shares.

 

Votes cast in person or represented by proxy at the meeting will be tabulated by the inspectors of election. Abstentions will have the same effect as a vote against a proposal, except for the proposal to elect directors and the proposal relating to the frequency of the advisory vote on executive compensation, as to which abstentions will have no effect.

 

You may revoke your proxy at any time before a vote is taken or the authority granted is otherwise exercised. To revoke a proxy, you may send to the Company’s Corporate Secretary a letter indicating that you want to revoke your proxy or you can supersede your initial proxy by (i) delivering to the Corporate Secretary a duly executed proxy bearing a later date, (ii) voting by telephone or through the Internet on a later date, or (iii) attending the meeting and voting in person. Attending the Annual Meeting will not in and of itself revoke a proxy.

 

A quorum of stockholders is necessary to take action at the Annual Meeting. A majority of the outstanding shares of common stock, present in person or represented by proxy, will constitute a quorum at the Annual Meeting. The inspectors of election appointed for the Annual Meeting will determine whether or not a quorum is present. The inspectors of election will treat abstentions and broker non-votes as present and entitled to vote for purposes of determining the presence of a quorum. A broker non-vote occurs when a broker holding shares for a beneficial owner does not have authority to vote the shares and has not received instructions from the beneficial owner as to how the beneficial owner would like the shares to be voted.

 

At the recommendation of the Corporate Governance Committee, the Board of Directors has nominated the persons listed below to serve as directors, each for one year terms, beginning at the Annual Meeting on May 10, 2011 and running until the 2012 Annual Meeting. The nominees include nine independent directors, as defined in the applicable rules of the New York Stock Exchange (“NYSE”), and the President and Chief Executive Officer of the Company. The nominees do not include Dennis E. Foster, who is currently serving as Director, due to his intention to retire from the Board of Directors at the conclusion of his current term. The Board of Directors does not anticipate that any of the nominees will be unable to serve, but if any nominee is unable to serve, the proxies will be voted in accordance with the judgment of the person or persons acting thereunder.

 

All of the nominees currently serve on the Board of Directors.

 

The following chart gives information about all nominees (each of whom has consented to being named in the proxy statement and to serving if elected). The dates shown for service as a director include service as a director of the corporate predecessors of NiSource Inc. (incorporated in Indiana) and Northern Indiana Public Service Company.

 

Vote Required

 

In order to be elected, each nominee must receive more votes cast in favor of his or her election than against election. Broker non-votes will not be voted with respect to the election of directors and therefore will have no effect on the vote. Abstentions will have no effect on the vote.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH OF THE NOMINEES LISTED BELOW.

 

 

For many years, a substantial majority of the Company’s Board of Directors (the “Board”) has been comprised of “independent” directors. In order to assist the Board in making its determination of director independence, the Board has adopted categorical standards of independence consistent with the standards contained in Section 303A.02(b) of the NYSE Corporate Governance Listing Standards. The Company’s categorical standards of independence are listed in the Company’s Corporate Governance Guidelines, a copy of which can be found on the Company’s website at http://ir.nisource.com/governance.cfm.

 

The Board has affirmatively determined that all of the members of the Board (except Mr. Skaggs) and all nominees (except Mr. Skaggs) are “independent directors” as defined in Section 303A.02(b) of the NYSE Listing Standards and meet the standards for independence set by the Board.

 

To promote open discussion among the non-management directors, the Board of Directors schedules regular executive sessions at meetings of the Board and each of the Board’s Committees. All non-management directors are also members of the Corporate Governance Committee. The non-management members met separately from management five times in 2010. Mr. Ian M. Rolland, the Chairman of the Board, serves as lead, or presiding director at the executive sessions of the non-management directors. All of the non-management members are “independent” directors.

 

Stockholders and other interested persons may communicate any concerns they may have regarding the Company as follows:

 

 

NiSource Inc.
Attention: [Board of Directors]/[Board
Member]/[Non-management Directors]/[Lead Director]
c/o Corporate Secretary
801 East 86th Avenue
Merrillville, Indiana 46410

 

 

NiSource Inc.
Vice President, Ethics and Compliance
801 East 86th Avenue
Merrillville, Indiana 46410

 

The Board of the Company has adopted a Code of Business Conduct (the “Code”) to promote (i) ethical behavior including the ethical handling of conflicts of interest, (ii) full, fair, accurate, timely and understandable financial disclosure, (iii) compliance with applicable laws, rules and regulations, (iv) accountability for adherence to the Code and (v) prompt internal reporting of violations of the Code. The Code satisfies applicable Securities and Exchange Commission (“SEC”) and NYSE requirements and applies to all directors, officers (including the Company’s principal executive officer, principal financial officer, and principal accounting officer and controller) and employees of the Company and its affiliates. A copy of the Code is available on the Company’s website at

http://ir.nisource.com/governance.cfm and will be provided by the Company to any stockholder who requests it in writing from the Company’s Corporate Secretary.

 

Any waiver of the Code for any director, Section 16 officer or senior executive may be made only by the Audit Committee of the Board and must be promptly disclosed to the extent and in the manner required by the Securities and Exchange Commission or the NYSE and posted on the Company’s website. No waivers have been granted under the Code.

 

The Corporate Governance Committee is responsible for reviewing and reassessing the Corporate Governance Guidelines periodically and will submit any recommended changes to the Board for its approval. A copy of the Corporate Governance Guidelines can be found on the Company’s website at http://ir.nisource.com/governance.cfm and will be provided to any stockholder who requests it in writing from the Company’s Corporate Secretary.

 

The Company’s Corporate Governance Guidelines state that the Company should remain free to configure leadership of the Board in the way that best serves the Company’s interests at the time and, accordingly, the Board has no fixed policy with respect to combining or separating the offices of Chairman and Chief Executive Officer. If the Chairman is not an independent director, the Board will choose a lead director to serve as chair of the Corporate Governance Committee and as the presiding director for purposes of the NYSE rules.

 

Since late 2006, the offices of Chairman and Chief Executive Officer of the Company have been held by different individuals, with the Chairman being an independent director. In deciding to separate the offices, the Board believed that having a director with a long tenure serve as Chairman would help ensure continuity and stability during a transition period between Chief Executive Officers. The Board believes that the independent chair arrangement continues to serve the Company well.

 

The Board takes an active role in monitoring and assessing the Company’s risks, which include risks associated with operations, credit, energy supply, financing and capital investments. The Board administers its oversight function through utilization of its various committees, as well as through a Risk Management Committee, consisting of members of the Company’s senior management, which is responsible for the risk management process. The Audit Committee discusses with management and the independent auditor the effect of regulatory and accounting initiatives on the Company’s financial statements and is responsible for overseeing the risk management program generally. In addition, the Finance Committee, Officer Nomination and Compensation Committee and the Environmental, Safety and Sustainability Committee are each charged with overseeing the risks associated with their respective areas of responsibility. The Audit Committee receives regular updates on the activities of the Risk Management Committee and any significant policy breach.

 

The Board met six times during 2010. Each director attended at least 82% of the combined total number of the Company’s Board meetings and the meetings of the committees of which he or she was a member. Pursuant to the Company’s Corporate Governance Guidelines, all directors are expected to attend the Annual Meeting. All incumbent directors attended the 2010 Annual Meeting of Stockholders.

 

The Board has established five standing committees to assist the Board in carrying out its duties: the Audit Committee; the Corporate Governance Committee; the Environmental, Safety and Sustainability Committee (“ES&S”); the Finance Committee; and the Officer Nomination and Compensation Committee (“ON&C”). The following table shows the composition of each Board committee during 2010. Mr. Skaggs does not serve on any committee.

 

 

 

 

Audit Committee

 

The Audit Committee met nine times in 2010. Among other things, the Audit Committee is responsible for monitoring:

 

 

The charter for the Audit Committee can be found on the Company’s website at http://ir.nisource.com/governance.cfm and will be provided by the Company to any stockholder who requests it in writing from the Company’s Corporate Secretary.

 

The Board has determined that all of the members of the Audit Committee are independent as defined under the applicable NYSE and SEC rules and meet the additional independence standard set forth in the Corporate Governance Guidelines. The Audit Committee has reviewed and approved the independent registered public accountants, both for 2010 and 2011, and the fees relating to audit services and other services performed by them.

 

For more information regarding the Audit Committee, please see “Audit Committee Report” below.

 

Corporate Governance Committee

 

The Corporate Governance Committee met five times in 2010. The Committee is responsible for:

 

 

Pursuant to the Corporate Governance Guidelines, the Committee, with the assistance of the Company’s staff, reviews the amount and composition of director compensation from time to time and makes recommendations to the Board when it concludes changes are needed. The Committee is also responsible for evaluating the performance of the CEO and his direct executive reports. The Committee reviews and approves the Company’s goals and

objectives relevant to the CEO and his direct reports and evaluates their performance in light of those goals and objectives and after receiving input from the Board. The Chair of the Committee reports the Committee’s findings to the Officer Nomination and Compensation Committee, which uses these findings to set the compensation of the CEO and his direct reports.

 

The Committee identifies and screens candidates for director and makes its recommendations for director to the Board as a whole. The Committee has the authority to retain a search firm to help it identify director candidates to the extent it deems necessary or appropriate. Based on the Committee’s recommendations, the Board as a whole selects the candidates for director. In considering candidates for director, the Committee considers the nature of the expertise and experience required for the performance of the duties of a director of a company engaged in the Company’s businesses, as well as each candidate’s relevant business, academic and industry experience, professional background, age, current employment, community service and other Board service. Pursuant to the Corporate Governance Guidelines, the Committee also considers the racial, ethnic and gender diversity of the Board. The Committee seeks to identify and recommend candidates with a reputation for and record of integrity and good business judgment who: (1) have experience in positions with a high degree of responsibility and are leaders in the organizations with which they are affiliated, (2) are effective in working in complex collegial settings, (3) are free from conflicts of interest that could interfere with a director’s duties to the Company and its stockholders and (4) are willing and able to make the necessary commitment of time and attention required for effective Board service. The Committee also takes into account the candidate’s level of financial literacy. The Committee monitors the mix of skills and experience of the directors in order to assess whether the Board has the necessary tools to perform its oversight function effectively. The Committee also assesses the diversity of the Board as part of its annual self-assessment process. The Committee will consider nominees for directors recommended by stockholders and will use the same criteria to evaluate candidates proposed by stockholders.

 

The Board has determined that all of the members of the Committee are independent as defined under the applicable NYSE rules and meet the additional independence standard set forth in the Corporate Governance Guidelines by the Board.

 

The charter for the Committee can be found on the Company’s website at http://ir.nisource.com/governance.cfm and will be provided by the Company to any stockholder who requests it in writing from the Company’s Corporate Secretary.

 

For information on how to nominate a person for election as a director at the 2012 Annual Meeting, please see the discussion under the heading “Stockholder Proposals and Nominations for 2012 Annual Meeting.”

 

Environmental, Safety and Sustainability Committee

 

The Environmental, Safety and Sustainability Committee met four times during 2010. This Committee reviews the results of environmental compliance of the Company and considers environmental public policy issues as well as health and safety issues affecting the Company. The charter for the Committee can be found on the Company’s website at http://ir.nisource.com/governance.cfm and will be provided by the Company to any stockholder who requests it in writing from the Company’s Corporate Secretary.

 

Finance Committee

 

The Finance Committee met five times during 2010. This Committee is responsible for overseeing and monitoring the financial plans of the Company, capital structure and financial risk. The charter for the Committee can be found on the Company’s website at http://ir.nisource.com/governance.cfm and will be provided by the Company to any stockholder who requests it in writing from the Company’s Corporate Secretary.

 

Officer Nomination and Compensation Committee

 

The Officer Nomination and Compensation Committee met seven times in 2010. The charter for the Committee can be found on the Company’s website at http://ir.nisource.com/governance.cfm and will be provided by the Company to any stockholder who requests it in writing from the Company’s Corporate Secretary. Pursuant to

the charter, this Committee advises the Board with respect to nomination, evaluation, compensation and benefits of the Company’s executives. In that regard, the Committee:

 

 

All of the directors serving on the Committee are (i) independent as defined under the applicable NYSE rules and meet the additional independence standard set forth in the Corporate Governance Guidelines, (ii) “non-employee directors” as defined under the Rule 16b-3 of the Securities Exchange Act of 1934, and (iii) “outside directors” as defined by Section 162(m) of the Internal Revenue Code.

 

Compensation Committee Interlocks and Insider Participation

 

There are no compensation committee interlocks.

 

Director Compensation.  The Company uses a combination of cash and stock-based awards to attract and retain highly qualified candidates to serve on the Board. Only non-employee directors receive director compensation, therefore, since Mr. Skaggs is an employee of the Company, he does not receive compensation for his service as a Board member.

 

The Company currently pays each director who is not receiving a salary from the Company an annual retainer of $165,000, consisting of $82,500 in cash and an award of restricted stock units valued at $82,500 at the time of the award. The cash retainer and the restricted stock units are paid and granted in arrears in four equal installments on the last business day of each calendar quarter. The number of restricted stock units issued each quarter is determined by dividing the value of the grant by the closing price of the Company’s common stock on the last business day of the relevant quarter. Until May 10, 2010, restricted stock units were granted to the directors under the Company’s Non-employee Director Stock Incentive Plan. Beginning May 10, 2010, restricted stock units are granted to directors under the 2010 Omnibus Incentive Plan that was approved by the stockholders at last year’s annual meeting of stockholders.

 

The Board also provides additional compensation to those directors who take on additional responsibilities and serve as the chair of a Board committee. The annual committee chair fees are: Audit Committee $20,000; Officer Nomination & Compensation Committee $20,000 and the Environmental Safety & Sustainability Committee $15,000. In August 2010, the Board increased the annual committee fee for the Finance Committee from $15,000 to $20,000. The chairman of the Board, who also serves as the chair of the Corporate Governance Committee, receives additional annual compensation of $135,000 per year. Fees paid to the chairman of the Board and the committee chairs are paid in cash in four equal installments in arrears. Fees are also prorated based on when Board and committee service begins or ends.

 

2010 Omnibus Incentive Plan.  In May 2010, the stockholders approved the 2010 Omnibus Incentive Plan. This plan allows awards to non-employee directors to consist of incentive and non-qualified stock options, stock appreciation rights, restricted stock and restricted stock units, performance shares, performance units, cash-based awards and other stock-based awards. Terms and conditions of awards to non-employee directors are determined by the Board of directors prior to grant. Since May 10, 2010, awards to directors have been made from the 2010 Omnibus Incentive Plan. Non-employee Directors have received awards of restricted stock units as part of the annual retainer. These restricted stock units vest immediately but are not distributed until the director terminates or

retires from the Board. With respect to restricted stock units, additional restricted stock units are credited to each non-employee director to reflect dividends paid to stockholders of the Company with respect to common stock. The restricted stock units have no voting or other stock ownership rights and are payable in shares of the Company’s common stock upon the directors’ termination of service from the Board.

 

Non-employee Director Stock Incentive Plan.  With the approval by the stockholders of the 2010 Omnibus Incentive Plan, the Company has taken action to freeze the award of any new awards under the Non-employee Director Stock Incentive Plan. The plan provided for awards to non-employee directors to consist of restricted stock, non-qualified stock options and restricted stock units. There are currently no outstanding grants of restricted stock or non-qualified stock options under the plan. The directors received grants of restricted stock units as part of the annual retainer. These restricted stock units vested immediately, but will not be distributed until the director terminates or retires from the Board. With respect to restricted stock units, additional restricted stock units are credited to each non-employee director to reflect dividends paid to stockholders of the Company with respect to common stock. The restricted stock units have no voting or other stock ownership rights and are payable in shares of the Company’s common stock upon the directors’ termination of service from the Board. Restricted stock units granted between January 1, 2004 and May 10, 2010 will be paid in shares of Company stock six months after the date of termination from the Board.

 

Director Stock Ownership.  The Board maintains stock ownership requirements for its directors that are included in the Corporate Governance Guidelines. Within five years of becoming a non-employee director or adoption of these ownership requirements in 2008, whichever is later, each non-employee director is required to hold an amount of Company stock equal to or greater than five times the annual cash retainer paid to directors by the Company. Company stock that counts towards satisfaction of this requirement includes shares purchased on the open market, awards of restricted stock or restricted stock units through the Non-employee Director Stock Incentive Plan or 2010 Omnibus Incentive Plan, and shares beneficially owned in a trust or by a spouse or other immediate family member residing in the same household. On January 21, 2011, the Board increased the ownership requirements from four to five times the annual cash retainer paid to directors.

 

Each director has a significant portion of their compensation directly aligned with long-term stockholder value. During 2010, fifty percent (50%) of the Board’s annual retainer was awarded in restricted stock units. Each unit is equal to one share of common stock and is not distributed to the director until the director leaves the Board.

 

The table below shows the number of shares of common stock beneficially owned by each director, the number of non-voting restricted stock units that have been awarded, and the combined total as of March 1, 2011.

 

 

 

 

 

Director Compensation

 

The table below sets forth all compensation earned by NiSource’s non-employee directors in 2010. Mr. Skaggs is the Company’s only employee director and does not receive any separate compensation for his service on the Board.

 

 

 

 

The following table contains information about those persons or groups that are known to the Company to be the beneficial owners of more than five percent of the outstanding common stock.

 

 

 

The following table contains information about the beneficial ownership of the Company’s common stock as of March 1, 2011 for each of the directors, nominees and Named Executive Officers, and for all directors and executive officers as a group.

 

 

 

 

 

The Compensation Discussion & Analysis (“CD&A”) has three parts.

 

 

Tables that identify compensation levels, stock award histories, retirement income benefit levels and potential severance payments for each Named Executive Officer immediately follow the CD&A.

 

I. Overview of Executive Compensation Philosophy and Process

 

The Committee oversees the design, implementation and operation of the Company’s executive compensation programs. It is composed entirely of independent directors to ensure that it can perform its oversight activities effectively and in compliance with prevailing governance standards.

 

The Company’s executive compensation program is designed to attract and retain highly qualified executives by providing compensation in a manner that is aligned with the Company’s strategic plan to build stockholder value and long-term, sustainable earnings growth. Total compensation opportunities are designed to relate total compensation to corporate performance, while also remaining competitive with the compensation practices of competitors in the energy industry. Total compensation opportunities are defined as the sum of base salary, annual incentives and the grant date value of long-term incentives.

 

The Committee approves the compensation of the Chief Executive Officer (“CEO”), based on the Corporate Governance Committee’s evaluation of the CEO’s performance. The Committee also makes recommendations to the Board with respect to incentive-compensation plans and equity-based plans and reviews and approves the general compensation policy for other officers of the Company and officers of its principal affiliates. Further, in 2010 the Committee made recommendations to the Board with respect to the specific compensation of the CEO’s direct executive reports, who, along with the CEO, we refer to as the Company’s senior executives.

 

In 2010, the Committee engaged the services of Exequity, an executive compensation consulting firm, to advise it with respect to executive compensation design, comparative compensation practices, and other compensation matters. The Company paid $83,847 in 2010 to Exequity for these consulting services. Exequity provides no other services to the Company or its affiliates. The Committee meets with the executive compensation consultant in executive session without management present.

 

In connection with its 2010 compensation decision-making, the Committee reviewed the executive compensation practices reported by Hewitt Associates to be in effect among a group of energy services companies identified by the Committee (the “Comparative Group”). The Comparative Group includes a number of leading gas, electric,

combination utility, and natural gas transmission companies. The group composition has remained fairly stable for several years. Until 2010, the Comparative Group was comprised of 27 companies, but the Committee removed Aquila Inc. from the Comparative Group due to its 2008 acquisition by Great Plains Energy. For purposes of supporting 2010 considerations, the Comparative Group included the following companies:

 

Energy Company Comparative Group

 

AGL Resources Inc		Nicor Inc.
Allegheny Energy, Inc.		Pepco Holdings, Inc.
Ameren Corporation		PG&E Corporation
American Electric Power Company, Inc.		PNM Resources, Inc.
CenterPoint Energy, Inc.		PPL Corporation
CMS Energy Corporation		Public Service Enterprise Group
Dominion Resources, Inc.		Questar Corporation
DTE Energy Company		SCANA Corporation
Duke Energy Corporation		Sempra Energy
El Paso Corporation		Southern Company
EQT Corporation		TXU Corp.
FirstEnergy Corp.		WGL Holdings, Inc.
Kinder Morgan Energy Partners, L.P.		Williams Companies Inc.

 

In making its recommendations concerning the various components of executive compensation, the Committee takes into account various factors, including:

 

 

Under the Company’s governance structure, the Corporate Governance Committee has the responsibility to evaluate the CEO’s performance. In making its compensation decisions for the CEO, the Committee therefore places great weight on the Corporate Governance Committee’s evaluation of the CEO’s performance. The Corporate Governance Committee also meets with the CEO and the Senior Vice President, Human Resources, to review the performance of the Company’s other senior executives and to consider the Company’s succession plans for senior executives. Because all of the members of the Committee are also members of the Corporate Governance Committee, each member of the Committee participates in this performance discussion.

 

For 2010, the Committee considered the performance of senior executives in making its compensation recommendations to the Board. The Committee recommended adjustments to compensation based upon each individual’s contributions to the Company, the achievement of predetermined goals and the performance of the business with respect to which the executive had accountability. The Committee discussed and considered these factors before making compensation recommendations to the Board, which took the final action on these matters. The Board accepted and approved the Committee’s recommendations in 2010.

 

The Committee concluded that the 2010 compensation provided for each of the Company’s senior executives, including the Named Executive Officers, was consistent with the Company’s compensation philosophy and was reasonable, competitive and appropriate. The Committee’s conclusions, though based in part on subjective factors, were based primarily upon the Committee’s recognition of the performance of each senior executive, including each Named Executive Officer, and the Committee’s determination that the total compensation awarded to each senior executive provided proper incentive to each person to continue their employment and to focus on serving the best interests of the Company and its stockholders.

 

The Company intends to continue to compensate its executives in accordance with performance. As discussed more fully below, both the 2010 annual incentive opportunity and 80% of the value of the 2010 long-term incentive

opportunity for senior executives, including all of the Named Executive Officers, were contingent upon the Company attaining pre-established goals. The Committee believes that the Company’s executive compensation program has been, and will continue to be, successful in providing competitive compensation opportunities sufficient to attract and retain highly qualified executives, while at the same time encouraging the senior executives to strive toward the creation of additional stockholder value.

 

II. Elements of Compensation

 

The executive compensation program consists of: base salary; an annual incentive plan; long-term incentive opportunities; benefit programs (including pension, retirement savings, deferred compensation and health and welfare); a limited number of perquisites; and post-termination benefits. When balancing these elements, the Committee takes into account the competitive environment, internal pay comparisons, Company and individual performance and evolving governance practices.

 

The Committee approves compensation for Robert C. Skaggs, Jr., President and CEO. Prior to August 2010, the Committee made recommendations to the Board with respect to the compensation of the Company’s other senior executive officers, which includes all of the other Named Executive Officers. In August 2010, the charters of the Corporate Governance Committee and the Committee were modified so that, going forward, the Committee is responsible for approving compensation of the Company’s senior executives.

 

The Committee’s overall compensation philosophy is to provide a competitive total compensation program that reflects the range of compensation paid by similar energy companies and the Company’s annual and long-term performance. The Committee’s intent is to continue to align executive compensation opportunities with Company results measured principally by accomplishments that generate stockholder value.

 

2010 Base Salary for Named Executive Officers.  The Committee reviews the base salary of the Company’s senior executives, including Named Executive Officers, annually. In so doing, the Committee considers the base salaries paid to similarly situated executives by the companies in the Comparative Group. The Committee determines a reasonable, base salary for the Company’s senior executives based on a combination of factors that includes competitive pay standards, level of responsibility, experience, internal equity considerations, historical compensation, and individual performance and contribution to business objectives.

 

Effective June 1, 2010, the Committee increased Mr. Skaggs’ annual base salary from $800,000 to $900,000. Base salary adjustments for other exempt employees were also made at that time. In making its decision regarding Mr. Skaggs’ salary adjustment, the Committee reviewed the Company’s underlying business performance in 2009 which, notwithstanding the challenging economic environment, remained strong. Among the Company’s 2009 accomplishments considered by the Committee were:

 

 

In addition to these achievements, the Committee also took into consideration that Mr. Skaggs’ base salary was below the 50th percentile of base salaries of CEO’s in the Comparative Group.

 

With respect to the other Named Executive Officers, the Committee made the following recommendations to the Board.

 

 

 

With respect to these recommendations, the Committee also took into consideration a freeze on executive base salaries that had been in place since 2009. The increases described above were the first for Messrs. Smith and Staton and Ms. Hightman since joining the Company in June 2008, March 2008 and December 2007, respectively. The Board accepted the Committee’s recommendations.

 

2010 Annual Incentive Plan.  The Committee determines annual incentive ranges for all senior executives under the NiSource Inc. Corporate Incentive Plan (“Incentive Plan”), which is a broad-based plan that extends to most employees within the organization. The purpose of this component is to provide an incentive opportunity for employees based upon the annual performance of the Company and individual contribution to the success of the Company. As in past years, every eligible employee has an incentive level that identifies his or her incentive opportunity at trigger, target and stretch levels of performance. The incentive paid at the trigger performance level is 50% of target, and the incentive paid at the stretch level of performance is 150% of target.

 

In determining incentive compensation ranges for the Named Executive Officers, the Committee considered benchmark information, input from the compensation consultant, historical payouts and individual performance. For 2010, the Committee determined that existing target incentive opportunities were below market norms for certain Named Executive Officers, and, accordingly, increased the incentive ranges for Mr. Skaggs and Ms. Hightman. Stated as a percentage of base salary, the incentive ranges for the Named Executive Officers in 2010 were:

 

Robert C. Skaggs, President and Chief Executive Officer		40% to 120% with a target of 80%
Messrs. Smith, Helms, and Staton		32.5% to 97.5% with a target of 65%
Ms. Hightman		30% to 90% with a target of 60%

 

For the 2010 Incentive Plan, the Committee established corporate financial goals for both earnings and cash flow.

 

 

 

Incentive Plan awards for 2010 also reflected achievement with respect to business unit earnings and cash flow goals for the Company’s three business units. The Committee believes the inclusion of business unit goals in the Incentive Plan improves the line of sight between employees and the incentive measures, thereby enhancing Company performance. The Committee extended to Mr. Skaggs the authority to establish the annual business unit targets for the year. He assigned goals that, if accomplished, were expected to ensure the Company’s attainment of its overall corporate objectives.

 

The target goals for the Incentive Plan are based upon the financial plan approved by the Board. The financial plan is designed to achieve the Company’s goal of creating sustainable stockholder value by growing earnings, effectively managing the Company’s cash, maintaining the dividend, and sustaining an investment grade credit rating. In addition to approving goals that correspond to target incentive award payouts, the Committee also established trigger and stretch goals that corresponded to the lesser and greater incentive payments made at trigger and stretch performance levels.

 

For senior executives, including all the Named Executive Officers, Incentive Plan awards are based upon achievement with respect to three corporate measures; net operating earnings per share, corporate funds from operations, and total debt as of December 31, 2010. The Committee assigned goals for these particular measures based upon its determination that their achievement was vital to the Company’s success in increasing stockholder value in 2010. The senior executives’ incentive opportunities are contingent on achievement of these measures, subject to the Committee’s final discretion. In addition, Messrs. Helms’ and Staton’s incentive opportunities are also based upon the respective performance of the business units they lead.

 

If the Company and, where applicable, the business unit, meet their respective goals, employees in good standing are eligible to receive an incentive in accordance with the plan. As noted above, the Committee retains the discretion to determine the incentives to be paid each Named Executive Officer.

The approved 2010 Incentive Plan performance goals, and the results in relation to them, follow:

 

 

 

 

Consistent with the philosophy of paying for performance, Incentive Plan funding levels were based upon the performance of each business unit in relation to its respective goals, which the Committee believes appropriately aligned the employees of the organization with the overall objective of increasing stockholder value. Based upon the strong results displayed above, the Committee approved payouts to the respective units as follows:

 

 

2010 Incentive Plan Payouts to the Named Executive Officers.  For 2010, the Committee determined that Mr. Skaggs should receive an annual incentive payout in the amount of $1,250,000 — 50% in cash and 50% in restricted stock. Accordingly, the Committee granted Mr. Skaggs 33,476 shares of restricted stock, which had a fair market value of $625,000 as of the date of the grant, January 28, 2011. The service restrictions on these shares lapse January 28, 2014. The total value of $1,250,000 exceeds by $206,000 the arithmetic value of the calculated

incentive amount (based upon Mr. Skaggs’ base salary of $900,000, the Company’s performance on the three financial metrics that apply to senior executives and his incentive range). The Committee determined it was appropriate to approve a $625,000 cash award and a $625,000 restricted share grant to Mr. Skaggs to recognize his leadership over the past several years in building the Company and continuing to lead the Company’s strong performance in 2010, including achieving net operating earnings of $1.22 per share in 2010 — an increase of 14% over 2009, and the fourth consecutive year in which the Company delivered earnings within its increased guidance range. The Committee further considered that under Mr. Skaggs’ leadership the Company has maintained its commitment to preserve a stable investment-grade credit rating; maintain its dividend level; and improve employee engagement, safety and system reliability metrics. The Committee determined that providing Mr. Skaggs these payments was consistent with the Company’s philosophy to pay for performance.

 

Mr. Skaggs made recommendations to the Committee with respect to the award of incentive payouts to the other senior executives, including all of the Named Executive Officers other than himself, for 2010. As noted above, the Company exceeded the stretch goals for net operating earnings per share and for funds from operations, and exceeded the target goal for debt. In making his recommendations, Mr. Skaggs considered the performance of the senior executives in delivering strong stockholder returns in 2010, as well as the respective performances of the business units and corporate functions the executives led. The Committee considered and accepted Mr. Skaggs’ recommendations and approved incentive payouts to the Named Executive Officers as follows:

 

 

Long-Term Incentive Plan (LTIP).  The Company’s compensation program includes a long-term incentive component of equity-based compensation. The purpose of this component includes:

 

 

Under the LTIP, the Committee may award stock options, stock appreciation rights, performance units, restricted stock units, restricted stock awards and contingent stock awards. The Committee considers base salaries of senior executives, prior awards under the LTIP, and the compensation philosophy in establishing long-term incentive awards. The actual compensation value of awards under the LTIP depends largely on meeting performance criteria, stock price appreciation and stockholder return.

 

Consistent with the Company’s philosophy that the preponderance of its long-term incentive awards should be performance-based, in 2010 80% of the value of the awards to Named Executive Officers was in the form of contingent stock, while 20% was in the form of restricted stock units.

2008 Contingent Stock Grant

 

In 2008, the Board approved a grant of contingent stock to executives of the Company, including all of the Named Executive Officers (other than Mr. Smith who was not yet an employee of the Company). Vesting of the 2008 contingent stock was subject to two performance conditions, each with a 50% weighting: cumulative net operating earnings per share on the three-year period of 2008 through 2010; and cumulative funds from operations over the same period. The Committee selected these measures as they deemed them to be key drivers to the enhancement of long-term stockholder value. If the target level of performance was exceeded on a particular measure, the executive could receive up to a maximum of 150% of the value of that portion of the grant. The performance measures and results follow:

 

 

Based upon the overall Company’s performance, the contingent stock vested at 75%. The number of contingent stock awards granted to the Named Executive Officers and the number that vested are set forth below:

 

 

2009 Contingent Stock Grant

 

In 2009, the Board approved a grant of contingent stock to executives of the Company, including all of the Named Executive Officers. Vesting of the 2009 contingent stock was subject to three performance goals, each with a one-third weighting, over the two-year period of 2009 through 2010. The measures were cumulative net operating earnings per share, cumulative funds from operations and total debt as of December 31, 2010. The Committee selected these measures as it was their view that they were key drivers to the enhancement of long-term stockholder value. In addition to the performance contingencies, the stock is also subject to an employment restriction through January 31, 2012.

 

The performance measures and results follow:

 

 

Based upon the Company’s performance, 133% of the contingent stock awards will vest subject to the satisfaction of the continuing employment restrictions. The number of contingent stock awards to the Named Executive Officers and the number that may vest are set forth below:

 

 

 

2010 Equity Grants

 

2010 Contingent Stock Grant.  Vesting of the 2010 grant of contingent stock is dependent upon the Company meeting certain performance measures over the three-year period from 2010 through 2012. The performance measures relate to cumulative net operating earnings per share over the three-year period, cumulative funds from operations over the three-year period and total debt as of December 31, 2012. The Committee selected these measures because it was their view that they are key drivers to the enhancement of long-term stockholder value. The target goals are based upon the Company’s financial plan. If the target goal is met, then the executive will receive 100% of the value of that portion of the grant. The Committee also approved trigger and stretch goals for each measure. If the trigger level is not met, then the executive will not receive any value of that portion of the grant. If the target level is exceeded, the executive could receive up to a maximum of 150% of the value of that portion of the grant. When the result for a particular measure lands between two goals (for example, between the target and stretch goal), then the long-term incentive award opportunity is determined by interpolation, and is expressed as a percentage of the target opportunity.

 

The measures and goals pertaining to the 2010 contingent stock award are:

 

 

If the executive terminates employment prior to January 31, 2013 due to (1) retirement, having attained age 55 and completed ten years of service, (2) disability or (3) death with 12 or less months remaining in the performance period, the executive will receive a pro rata portion of the contingent stock upon the performance conditions being met. If the executive terminates employment prior to January 31, 2013 due to death with more than 12 months remaining in the performance period, the executive’s beneficiary will receive a pro rata portion of the contingent stock as if the performance conditions had been met. Termination due to any other reason will result in all contingent stock awards being forfeited.

 

2010 Restricted Stock Unit Grant.  The employment restriction on the 2010 restricted stock units lapses on January 31, 2013. If before January 31, 2013, the executive terminates employment (1) due to retirement, having attained age 55 and completed ten years of service, or (2) due to death or disability, the employment conditions will lapse with respect to a pro rata portion of the restricted stock units on the date of termination. Termination due to any other reason will result in all restricted stock units awarded being forfeited.

 

In determining the 2010 long-term incentive grants to be awarded to the Named Executive Officers, the Committee considered the Comparative Group information, as well as the performance of the individuals and the desire to further align the interests of management with those of the Company’s stockholders. With respect to Mr. Skaggs, the Committee also considered that Mr. Skaggs’ total compensation remained below the 50th percentile for CEOs in the energy company Comparative Group. The Committee recommended, and the Board authorized, restricted stock units and contingent stock awards to the Named Executive Officers in the following amounts:

 

Consistent with the philosophy and principles articulated above, the Committee believes that the 2010 stock awards:

 

 

Health and Welfare Benefits.  The Company provides a variety of health and welfare benefits to its employees, including a number of health care plans, vision, dental, long-term disability and life insurance. The Named Executive Officers are eligible to participate in these plans as employees of the Company. The Company also has the following plans.

 

Defined Contribution Plans.  Under the NiSource Inc. Retirement Savings Plan, the Company’s 401(k) plan that covers most of the Company’s employees (including the Named Executive Officers), Named Executive Officers can defer a portion of their base salary and receive employer contributions that vary according to the terms of the respective pension plans in which they participate. Additionally, a profit sharing contribution of between 0.5% and 1.5% of an employee’s eligible earnings may be made to the account of each eligible employee, including the Named Executive Officers, in the Company’s Retirement Savings Plan (and Savings Restoration Plan if applicable), based on the overall corporate net operating earnings per share measure. For 2010, the Company made a profit sharing contribution of 1.5% of each employee’s eligible earnings, including those of the Named Executive Officers, to the respective employees’ accounts in the Company’s Retirement Savings Plan (and Savings Restoration Plan if applicable).

 

The Company sponsors the Savings Restoration Plan for NiSource Inc. and Affiliates to provide a supplemental benefit equal to the difference between: (i) the benefit an employee would have received under the Company’s Retirement Savings Plan had such benefit not been limited by sections 415 (a limitation on annual contributions under a defined contribution plan of $49,000 for 2010) and 401(a)(17) (a limitation on annual compensation of $245,000 for 2010) of the Internal Revenue Code, reduced by their deferrals into the Company’s Executive Deferred Compensation Plan, minus (ii) the actual benefit the employee received under the Retirement Savings Plan. All of the Named Executive Officers are eligible to participate in the Savings Restoration Plan.

 

Executive Deferred Compensation Plan.  The Company sponsors the Executive Deferred Compensation Plan in which employees at certain job levels and other key employees designated by the Committee, including the Named Executive Officers, are eligible to participate. Participants may elect to defer and invest between 5% and 80% of their base compensation and between 5% and 100% of their non-equity incentive payment on a pre-tax basis. Employees designate how their contributions will be invested; the investment options generally are the same as those available under the Company’s 401(k) plan except that there are additional investment options for former Bay State Gas Company Plan participants and transferred Columbia Energy Group Plan accounts. Employee contributions and any earnings thereon are 100% vested.

 

Pension Plans.  The Company and its affiliates sponsor several qualified pension plans for their respective employees. The plan, in which an employee participates, including each of the Named Executive Officers, differs depending upon the affiliate into which the employee was hired. Pensions are payable from a trust fund, which consists of contributions made by the Company and the earnings of the fund. Over a period of years, the contributions are intended to result in overall actuarial solvency of the trust fund.

 

Mr. Skaggs participates in the Columbia Energy Group Pension Plan (formerly known as the Retirement Plan of Columbia Energy Group Companies), as he was a participant in this plan at the time of the acquisition of Columbia Energy Group by the Company. Messrs. Smith, Helms and Staton, as well as Ms. Hightman, participate in the NiSource Pension Plan as they were hired into NiSource Corporate Services Company.

 

Both the Columbia Energy Group Pension Plan and the NiSource Pension Plan provide for a “final average pay” benefit. Both plans also provide for a cash balance feature, whereby an eligible employee will have a benefit consisting of an opening account balance (if they transitioned from a final average pay benefit) plus annual pay and interest credits to the cash balance account. Pay credits equal a percentage of compensation based on the

participant’s combined age and service. Interest is credited to the account based on the interest rate on 30-year Treasury securities (unless a minimum interest rate applies as required by law), as determined by the Internal Revenue Service, for the September immediately proceeding the first day of each year, but not less than 4%.

 

At the time the plans added a cash balance benefit, eligible employees were offered a choice of receiving the final average pay benefit or receiving the cash balance benefit. Participants in the plans prior to October 1, 2005 were eligible to elect to remain in the “final average pay feature” or the original cash balance feature, or to begin participating in the new cash balance feature. Participants hired into exempt employee positions on or after October 1, 2005 and prior to January 1, 2006 automatically participated in the original cash balance feature until January 1, 2006 when they automatically began participating in the new cash balance feature. Participants hired into exempt employee positions on or after January 1, 2006 but before January 1, 2010 automatically participate in the new cash balance feature. The difference between the original cash balance feature and the new cash balance feature is that the pay credits provided under the new cash balance feature are a lower percentage of compensation based upon a participant’s combined age and service. Participants in the new cash balance feature receive an enhanced matching contribution under the Retirement Savings Plan. Employees hired into exempt employee positions on or after January 1, 2010 are not eligible to participate in the Company’s pension plans.

 

Mr. Skaggs and Mr. Helms were the only Named Executive Officers who were required to make the election described above. Mr. Skaggs elected to continue to receive the final average pay benefit under the Columbia Energy Group Pension Plan. The formula for a retiree’s monthly retirement benefit at age 65 under the Columbia Energy Group Pension Plan is (i) 1.15% of the retiree’s final average compensation that does not exceed 1/2 of the taxable Social Security wage base times years of service up to 30, plus (ii) 1.5% of the retiree’s final average compensation in excess of 1/2 of the taxable Social Security wage base times years of service up to 30, plus (iii) 0.5% of the retiree’s final average compensation times years of service between 30 and 40. Mr. Helms elected to receive the new cash balance benefit.

 

Effective January 1, 2011, both pension plans were amended to further provide that all eligible exempt employees will participate in the new cash balance feature and will receive the enhanced matching contribution under the Retirement Savings Plan. Mr. Skaggs is the only Named Executive Officer participating in the final average pay benefit (all other Named Executive Officers participate in the cash balance feature). Effective January 1, 2011, Mr. Skaggs will no longer accrue a final average pay benefit. His pension benefit will consist of an opening balance based on the conversion of his final average pay benefit accrued up to January 1, 2011, plus annual pay and interest credits to his cash balance account thereafter.

 

The Company also sponsors the Pension Restoration Plan for NiSource Inc. and Affiliates. The Pension Restoration Plan is a non-qualified defined benefit plan. The plan includes employees of the Company and its affiliates (including all of the Named Executive Officers) whose benefits under the applicable tax-qualified pension plan are limited by sections 415 and 401(a)(17) of the Internal Revenue Code. The Pension Restoration Plan provides for a supplemental retirement benefit equal to the difference between (i) the benefit a participant would have received under the qualified pension plan had such benefit not been limited by section 401(a)(17) of the Internal Revenue Code and reduced by deferrals into the Company’s Executive Deferred Compensation Plan, minus (ii) the actual benefit received under the qualified pension plan.

 

Perquisites.  Perquisites are not a principal element of the Company’s executive compensation program. Perquisites are limited in number and modest in value when compared to its principal elements of compensation. They are intended to assist executive officers in the performance of their duties on behalf of the Company or otherwise to provide benefits that have a combined personal and business purpose.

 

The Committee regularly reviews the types and costs of perquisites provided to its Named Executive Officers to be assured that the perquisites are in line with the Company’s compensation philosophy. During 2010, the only perquisites offered by the Company to all of its Named Executive Officers were financial planning and tax advisory services. The Company did not reimburse the Named Executive Officers for the payment of personal income taxes in connection with this benefit.

 

From time to time, the Company provides benefits in the form of relocation services and the payment of relocation expenses, when an officer relocates at the Company’s request or as a result of a job transfer, and may also allow limited personal use of Company aircraft or limited spousal travel in conjunction with attending Company events. None of these benefits were provided during 2010.

Post-Termination Benefits.  The Company maintains an executive severance policy, Change-in-Control Agreements with the Named Executive Officers and letter agreements with Messrs. Helms, Smith and Staton regarding payments to be made in connection with the termination of employment of the executive. Mr. Skaggs is also entitled to receive payments for vested phantom stock units that were given to him in February 2001 as an inducement to remain employed with the Company following the Company’s acquisition of Columbia Energy Group. The Company entered into the Change-in-Control Agreements based upon its belief that these agreements are in the best interests of the stockholders to ensure that in the event of extraordinary events, a thoroughly objective judgment is made on any potential corporate transaction so that stockholder value is appropriately, safeguarded and maximized by having these agreements. For further discussion of these agreements see “Compensation of Executive Officers — Potential Payments upon Termination of Employment or a Change-in-Control of the Company” below.

 

In January 2010, the Committee determined that all new Change-in-Control Agreements entered into between the Company and employees would not include “gross-up” payments to reimburse such employees for individual excise or income taxes incurred with respect to benefits triggered by a Change-in-Control of the Company. The rationale for this change, including the prospective nature of the change, was to reflect best practices with respect to the subject of gross-up payments in the context of Change-in-Control agreements, while still respecting the Company’s contractual and other commitments to existing Named Executive Officers.

 

III. Stock Ownership Guidelines, Assessment of Risk, and Tax Treatment

 

Executive Stock Ownership Guidelines

 

The Company established stock ownership guidelines for its senior executives in 2007 and revised the guidelines in January 2009. Senior executives are generally expected to satisfy their applicable ownership guidelines within five years of becoming subject to the guidelines. The stock ownership requirement for the CEO is shares of the Company’s common stock having a value equal to five times his annual base salary. The other senior executives have a stock ownership guideline of three times their respective annual base salary. At the end of 2010, the Named Executive Officers (other than Mr. Skaggs, who has met the guideline) were determined to be progressing toward their ownership guidelines. Since the revised ownership guidelines have been in effect for less than five years, executives have additional time to comply. Once the senior executive satisfies the guidelines, they must continue to own a sufficient number of shares to remain in compliance with the guidelines. Until such time as the senior executive satisfies the stock ownership guidelines, the senior executive is required to hold 50% of the shares of common stock received upon the lapse of the restrictions on restricted stock units and the vesting of contingent stock.

 

Assessment of Risk

 

The Company annually assesses whether its incentive compensation programs are constructed in a manner that might induce participant behaviors that could cause the Company material harm. An assessment was performed in 2010 and concluded that the incentive components of its program for senior executives do not create an incentive for excessive risk taking for the following reasons:

 

 

 

Tax Treatment of Executive Compensation

 

Section 162(m) of the Internal Revenue Code provides that annual compensation in excess of $1,000,000 paid to the CEO or any of the other Named Executive Officers, other than compensation meeting the definition of “performance-based compensation,” will not be deductible by a corporation for federal income tax purposes. The Committee does not anticipate that the limits of Section 162(m) will materially affect the deductibility of compensation paid by the Company in 2010. However, the Committee will continue to review the deductibility of compensation under Section 162(m) and related regulations published by the IRS. The Committee retains the discretion to amend any compensation arrangement to comply with Section 162(m)’s requirements for deductibility in accordance with the terms of such arrangements and what it believes is in the best interest of the Company.

 

The Committee considers the anticipated tax treatment to the Company when determining executive compensation and routinely seeks to structure its executive compensation program in a way which preserves the deductibility of compensation payments and benefits. It should be noted, however, that there are many factors which are considered by the Committee in determining executive compensation and, similarly, there are many factors which may affect the deductibility of executive compensation. To maintain the flexibility to compensate the Named Executive Officers in a manner designed to promote varying corporate goals, the Committee has not adopted a strict policy that all executive compensation must be deductible under Section 162(m).

 

In addition, Sections 280G and 4999 of the Internal Revenue Code impose excise taxes on Named Executive Officers, directors who own significant stockholder interests in the Company, and other service providers who receive payments in excess of a threshold level upon a Change-in-Control. Additionally, the Company or its successor could lose a deduction for amounts subject to the additional tax. As discussed under “Potential Payments upon Termination of Employment or a Change-in-Control of the Company” below, it is possible that payments to the Named Executive Officers could be subject to these taxes.

 

Finally, Section 409A of the Internal Revenue Code imposes additional taxes on Named Executive Officers, directors and other service providers who defer compensation in a manner that does not comply with Section 409A. The Company has reviewed its compensation arrangements to help ensure they comply with applicable Section 409A requirements.

 

The Officer Nomination and Compensation Committee of the Board of Directors (the “Committee”) has furnished the following report to the stockholders of the Company in accordance with rules adopted by the Securities and Exchange Commission.

 

The Committee states that it reviewed and discussed with management the Company’s Compensation Discussion and Analysis contained in this Proxy Statement.

 

Based upon the review and discussions referred to above, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

This report is submitted on behalf of the members of the Officer Nomination and Compensation Committee:

 

Officer Nomination and Compensation Committee
W. Lee Nutter, Chairman
Richard A. Abdoo
Steven C. Beering
Deborah S. Parker
Carolyn Y. Woo

 

March 1, 2011

 

Summary.  The following table summarizes compensation for services to NiSource and its affiliates for 2010 awarded to, earned by or paid to the CEO, Chief Financial Officer and three other most highly compensated executive officers as of December 31, 2010 (collectively these individuals constitute the “Named Officers”).

 

Summary Compensation Table

 

 

 

 

 

 

 

 

 

 

Grants of Plan-Based Awards

 

No stock options were granted to the Named Executive Officers in 2010.

 

The following table sets forth information concerning plan-based awards under the NiSource Corporate Incentive Plan and the NiSource Long-Term Incentive Plan to the Named Officers in 2010.

 

 

 

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth information at fiscal year end concerning outstanding grants of equity awards to the Named Executive Officers, including awards of options to purchase common stock and restricted and contingent stock to the Named Executive Officers. No options were granted or exercised in 2010.