Exhibit 10.1(a)

 

NORTHWESTERN ENERGY

2005 EMPLOYEE INCENTIVE PLAN

 

I.                                         INTRODUCTION

 

NorthWestern Energy utilizes this Incentive Plan (Plan) to communicate desired
business results and to reward employees for their contributions toward
achieving those business results.

 

II.                                     PLAN OBJECTIVES

 

This Plan is designed to achieve the following objectives:

 

•            Align the interests of shareholders, customers and employees.

•            Create incentives for employees to maximize stakeholder value.

•            Reward employees individually and as a team by providing
compensation opportunities consistent with company financial and operating
performance.

 

The Plan is funded through improvements in consolidated operating income and
consolidated cash flow.  After implementation, the Plan will be reviewed
periodically to ensure that the desired results are being achieved.

 

III.                                 PLAN ADMINISTRATION

 

The Plan is approved by the Company’s Board of Directors (Board) and
administered by the NorthWestern Energy Incentive Plan Administration Committee
(Committee) consisting of the NorthWestern Energy President and CEO, COO, CFO
and Vice President - Human Resources and Communications.  The Committee is
responsible for all aspects of administration of the Plan, and is responsible
for resolving any conflicts or discrepancies that arise.  The Committee’s
decision on any matter associated with this Plan is final, subject to approval
by the Board’s Human Resources Committee.

 

IV.                                PERFORMANCE PERIOD AND EFFECTIVE DATE

 

The Plan’s performance period is for the calendar year 2005. The Plan becomes
effective January 1, 2005, and will continue until December 31, 2005, subject to
suspension and/or termination by the Company, at any time, without prior notice
and at its sole discretion, subject to approval by the Board’s Human Resources
Committee.

 

V.                                    PARTICIPATION AND ELIGIBILITY

 

All nonunion full-time, regular part-time, and supplemental employees of
NorthWestern Energy actively employed on the last day of the calendar year are
eligible to receive payments under the Plan provided they have been employed by
the Company for one full calendar quarter.  Eligibility for represented
employees is subject to the terms of their respective collective bargaining
agreements.  To participate in the plan, employees must have written goals and
objectives consistent with NorthWestern Energy’s goals and objectives.  These
employee goals must target

 

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results that meet or exceed the normal requirements of the position and that
contribute to meeting the goals and objectives of the company.  Goals and
objectives can be based on either individual or group performance; however, each
employee must have at least one goal that contributes to cost reduction or
process improvement.

 

VI.                                INDIVIDUAL AWARDS

 

Awards to plan participants from the Performance Pool will be determined based
on individual performance ratings that evaluate achievement against established
goals and objectives as well as overall job performance.  Leaders will evaluate
individual employee’s overall performance during the period covered by the plan
to determine individual awards.  Participating employees must fully meet
acceptable performance standards to be eligible for an award.  For
nonrepresented employees, this is defined as receiving a performance rating of
“3” or above during the most recent performance evaluation process.  Employees
are not eligible to participate while under an active step of Progressive
Discipline.  Employees whose performance is not at an acceptable level or who
have received a performance rating of “2” or below are not eligible for an
award.

 

EMPLOYEES ARE ELIGIBLE FOR A PRORATED INCENTIVE AWARD BASED UPON THE AMOUNT OF
TIME SERVED IN AN ELIGIBLE STATUS WITH NORTHWESTERN ENERGY DURING THE
PERFORMANCE PERIOD IF THEY:

 

(1)          ARE CLASSIFIED AS SEASONAL SUPPLEMENTAL (EXCEPT FIRST-YEAR),

 

(2)          HAD PREVIOUSLY BEEN UNDER AN ACTIVE STEP OF PROGRESSIVE DISCIPLINE
FOR A PORTION OF THE PERFORMANCE PERIOD,

 

(3)          WORK ON A PART-TIME BASIS, OR

 

(4)          ARE GRANTED UNPAID LEAVE, INCLUDING MILITARY LEAVE, THAT IS
NONMEDICAL IN NATURE AND THAT EXCEEDS 80 HOURS.

 

Temporary, first-year seasonal supplemental and summer employees, as well as
independent contractors, are not eligible to participate.

 

Distributions under the Plan are at the discretion of the Incentive Plan
Administration Committee, subject to approval of the Board’s Human Resources
Committee.

 

Distributions from the Plan do not guarantee any right to continued employment
and management reserves the right to terminate participants.  A distribution
from the Plan in any one performance period does not guarantee the participant
the right to participate in any subsequent performance period.

 

VII.                            Target Incentives

 

Target incentives for each participating employee is set by their position and
will be expressed as a percentage of base salary.  Each participant’s target
incentive is subject to approval by the Human Resources Department and any
changes will be communicated in writing to participants.  Senior executive
incentive targets will be approved by the Board’s Human Resources Committee.

 

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VIII.                        PERFORMANCE POOL

 

The Performance Pool will be created based on five factors including
consolidated operating income, consolidated cash flow, electric service
reliability, customer satisfaction and employee safety.  Each of these measures
will be calculated at the conclusion of the performance period.  Periodic
accruals will be made to provide for the Performance Pool at year-end.  The
Performance Pool will be funded in accordance with Table 1.

 

Table 1

 

 

 

 

 

Target

 

Target

 

Incentive Item

 

Weight

 

Incentive

 

0%

 

50%

 

100%

 

150%

 

 

 

 

 

($ millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

< 90

%

90

%

100

%

110

%

Consolidated

 

40

%

$2.60

 

< $129

 

$129

 

$143

 

$157

 

Operating Income

 

 

 

 

 

 $0.00

 

$1.30

 

$2.60

 

$3.90

 

 

 

 

 

 

 

< 90

%

90

%

100

%

110

%

Consolidated Cash Flow

 

25

%

$1.63

 

< $142

 

$142

 

$158

 

$174

 

from Operations

 

 

 

 

 

 $0.00

 

$0.81

 

$1.63

 

$2.44

 

Reliability
(SAIDI, CAIDI, SAIFI

 

15

%

$0.98

 

< 1

 

1 indicies

 

2 indicies

 

3 indicies

 

Improvement over NW prior 3-yr avg)

 

 

 

 

 

 $0.00

 

$0.49

 

$0.98

 

$1.46

 

 

 

 

 

 

 

Below

 

 

 

2 pts above

 

4 pts above

 

Customer Satisfaction Index

 

15

%

$0.98

 

Region Avg.

 

Region Avg.

 

Region Avg.

 

Region Avg.

 

(JD Powers Index - Western Region)

 

 

 

 

 

$0.00

 

$0.49

 

$0.98

 

$1.46

 

Safety

 

 

 

 

 

 

 

 

 

 

 

 

 

(2005 OSHA

 

5

%

$0.33

 

> 5.57

 

5.57

 

5.25

 

5.00

 

Recordable Target Rate)

 

 

 

 

 

 $0.00

 

$0.16

 

$0.33

 

$0.49

 

TOTAL

 

100

%

$6.50

 

 $0.00

 

$3.25

 

$6.50

 

$9.75

 

 

The minimum funding of the pool is 50% of the target amount.  Performance must
be at 90% of target to achieve 50% funding of the pool.  The maximum payout is
150% of the target amount and will be based on achieving 110% of targeted
performance.

 

In calculating performance against target, adjustments will be made either
positively or negatively for one-time events and extraordinary nonbudgeted items
as approved by the Board’s Human Resources Committee.

 

As soon as possible after the end of the performance period, NorthWestern Energy
will calculate the actual performance and compare it to the performance targets.
 Such calculations shall be finally determined in the sole discretion of Board’s
Human Resources Committee or an appointed designee.  Employees shall have no
recourse, appeal or challenge available from this final determination.  Summary
results will be provided to employees.

 

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IX.                                PERFORMANCE POOL DISTRIBUTION AND INCENTIVE
PAY CALCULATION

 

Individual employee performance is a key consideration in calculating
distribution of incentive pay.  The Performance Pool will be allocated to each
functional officer using total target incentive dollars at the end of the
Performance Period for eligible employees in each functional unit, division or
department.  The functional officer will then allocate the pool to his or her
leaders as appropriate based on either obtaining department/division performance
goals or individual employee performance.  The following guidelines will be
followed in calculating individual target payouts based on either obtaining
department/division performance goals or individual performance.

 

Guidelines for Individual Target Payout

 

Performance Rating

 

Incentive target multiplier

Performance Code 1

 

No incentive Paid

Performance Code 2

 

No incentive paid

Performance Code 3 or 999

 

0.75 – 1.10

Performance Code 4

 

1.10 – 1.30

Performance Code 5

 

1.30 – 1.50

 

These guidelines may be modified at the discretion of the Board’s Human
Resources Committee in the event of payout other than at target level.  In no
case will the total payouts in a given pool exceed the total dollars available
for that pool.

 

X.                                    PAYMENT OF AWARDS

 

Awards will be included with and in the same manner as each employee’s normal
payroll processing, either in the form of Company check or direct deposit.
 Awards will be paid out to employees as soon as practicable, generally within
60 days of the end of the performance period.  At the Company’s discretion,
awards may be spread over a time period not to exceed the remainder of the
calendar year or made in an alternative manner.

 

Awards may not be made under the Plan if, in the sole and final judgment of the
Board’s Human Resources Committee, the overall financial condition of the
Company is insufficient to support awards.

 

XI.                                OTHER CONSIDERATIONS

 

All awards are subject to income tax withholding and garnishment requirements.
 No right or interest in the Plan is transferable or assignable.

 

Approved by the Board of Directors as of

 

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