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


 





















 


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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