Exhibit 10.6


    

      Nicor
        Inc.

      Form
        8-K

      Exhibit
        10.6

       

      2006
        NICOR ANNUAL INCENTIVE COMPENSATION PLAN FOR OFFICERS

      


      


      
        	 	
                The
                  2006 Nicor Annual Incentive Compensation Plan for Officers is designed
                  to
                  link participant incentive compensation to the accomplishment of
                  corporate
                  and operating unit financial performance, as well as non-financial
                  measures of operating performance across the Company and operating
                  units.
                  It ties the pay an individual receives to Company performance and
                  non-financial goals. This plan is intended to provide a framework
                  for a
                  performance-based bonus program for
                  Nicor.

              


      

      


      
        	 	
                Purpose

              


      

      The
        purpose of this Plan is to provide meaningful annual incentive award opportunity
        to the participants. Awards will be directly tied to the achievement of
        corporate financial and goals and non-financial objectives.

      


      
        	 	
                Eligible
                  Group

              


      

      Officers
        of Nicor are eligible for participation. As such, participation is limited
        to
        employees in positions which enable them to make significant contributions
        to
        the performance and growth of the Company.

      


      Compensation
        Objective

      Base
        Salary + Bonus Target = Short-Term Compensation Objective

      


      An
        individual's short-term compensation objective will be based on salary plus
        a
        bonus, expected to be earned if established performance targets are met.
        Short-term compensation above (or below) target levels may be paid in the
        event
        performance exceeds (or falls short of) goals.

      


      Base
        Salary

      Standards
        for base salaries will be targeted to the 50th
        percentile of the appropriate blend of general and industry survey data.
        Base
        salaries are reviewed annually by the Compensation Committee of the Board
        of
        Directors.

      


      Bonus
        Targets

      The
        bonus
        target amount varies according to pay, job responsibilities and ability to
        impact the organization and is consistent with the bonus opportunity ranges
        set
        by officer salary bands. Higher responsibility and impact levels result in
        greater dollars at risk.

      


      Performance
        Targets

      Performance
        criteria focus on the achievement of established and documented strategic
        goals.
        Performance targets may include measures of corporate financial and operating
        performance, defined group objectives or individual performance objectives.
        Each
        particular performance target will be assigned weighting reflected as a
        percentage of compensation objectives.

       

      Goal
        Setting Guidelines

      The
        most
        important aspect of this Plan will be the establishment of effective goals.
        In
        addition to measures of corporate financial and operating performance, other
        non-financial measures of performance will also be established. The goals
        should
        be realistic and measurable wherever possible by quantifiable performance
        criteria. It is recognized that measurement of some goals will require
        subjective assessments of performance. Goals must be consistent with the
        longer-term strategic plan.

      


      A
        set of
        guidelines will be devised by the Nicor Human Resources Department to aid
        in
        this process. These guidelines will provide direction as to the formulation
        and
        reporting of non-financial goals.

      


      A
        set of
        guidelines will be devised by the Nicor Human Resources Department to aid
        in
        this process. These guidelines will provide direction as to goal formulation
        and
        reporting.

      


      Amount
        of
        bonus payment for financial/budget related goals can vary above and below
        target
        based upon results achieved. For targets met, bonus amount will be 100% of
        target. When targets are exceeded or are not reached, bonus will be
        proportionately more or less than the target.

      


      The
        Compensation Committee may make appropriate upward or downward adjustments
        if,
        after taking into consideration all of the facts and circumstances of the
        performance period, it determines that adjustments are warranted.

      


      Plan
        Schedule

      The
        2006
        Nicor Incentive Compensation Plan runs on a calendar year basis, with the
        strategic planning cycle and budgeting process serving as the primary link
        to
        performance and bonus targets. The Accounting Department is responsible for
        the
        determination of actual financial results. Performance will be reviewed at
        least
        twice a year to monitor progress and adjust accruals.

      


      Year-end
        results should be available and evaluated as early as possible in the following
        year. No bonus shall be paid until the Compensation Committee of the Board
        of
        Directors (the “Compensation Committee”) approves such payment. Following
        approval of the Compensation Committee, bonuses will be paid to participants
        by
        March 15 of the year in which such approval is given, unless payment by March
        15
        is not administratively practicable, in which case payment shall be made
        by
        December 31.

      


      Form
        of Payment

      All
        awards will be paid in cash, except that a participant in the Stock Deferral
        Plan may elect to defer up to 50% of their award into that plan and a
        participant in the Salary Deferral Plan may elect to defer 10% to 20% of
        their
        award into that plan. Deferral elections must meet the guidelines and timing
        of
        the Stock Deferral and/or Salary Deferral Plans to be effective. Appropriate
        taxes for the entire award amount will be withheld from the portion of the
        award
        being paid in cash.

      


      In
        addition, a participant may elect by writing to the Compensation Committee
        prior
        to July 1 to have all or a portion of the incentive award otherwise payable
        in
        the following year to be deferred; provided that such bonus meets the
        requirements of “performance based compensation” within the meaning of Section
        409A of the Internal Revenue Code of 1986, as amended (the “Code”).


      


      Such
        deferral election shall specify whether such bonus, plus interest thereon
        shall
        be paid in either annual installments over a period of not more than five
        years,
        or a lump sum. Payment shall be made upon the earlier of separation from
        service
        (within the meaning of Section 409A of the Code) or such other date as the
        participant shall specify in the election. If payment is made upon separation
        from service, such payment will commence on the first regularly scheduled
        payroll of Nicor following the six months anniversary of the participant’s
        separation from service. 

      


      The
        participant may submit a request to change the original date of payment elected;
        provided, however, that any such change (i) must be made at least twelve
        months
        prior to the originally scheduled payment date, (ii) will not be effective
        for a
        period of twelve months, and (iii) must defer payment for at least five years
        beyond the originally elected date of payment. For this purpose, installment
        payments shall be treated as a single payment. The request to change a deferral
        election must be submitted in writing to the Compensation Committee who will
        take into consideration the particular facts and circumstances in its final
        determination. In no event shall the Compensation Committee allow a participant
        to defer a bonus or make changes to a deferral election if such election
        would
        violate Section 409A of the Code. 

      


      The
        Compensation Committee may modify any such election to the extent necessary
        to
        comply with Section 409A of the Code, as it may determine in its sole
        discretion. 

      


      Notwithstanding
        anything contained herein to the contrary, the portion of any bonus which
        would
        otherwise be payable to a “covered individual” within the meaning of Section
        162(m) of the Code, that is not deductible by reason of Section 162(m) of
        the
        Code, shall automatically be deferred and paid to the covered individual
        in a
        lump sum on the first payroll of Nicor following the six month anniversary
        of
        the covered individual’s separation from service.

      


      All
        amounts which are deferred shall be credited with compounded interest equal
        to
        the prime rate applied on a quarterly basis.

      


      
        	 	
                Integration
                  with Existing Programs

              


      

      Base
        salaries will be managed with range bands at the appropriate blend of general
        and industry data for comparable positions, with total compensation objectives
        to be managed at a level appropriate with the performance of the company,
        as
        determined by the Compensation Committee. Salaries will be monitored each
        year
        and increases granted based on merit and range band. Bonus targets will be
        set
        as a percentage of base salary. A change, other than the annual salary review,
        in the compensation objective will customarily occur during the year only
        through promotion to various levels, at which time the base salary and bonus
        target are also likely to change.

      


      Promotion
        of an employee during the year or reassignment to responsibilities in which
        new
        performance objectives apply will result in proration of the existing
        performance objectives and bonus target and assignment of new performance
        objectives as determined by the Compensation Committee. Promotion into an
        Executive Salary Band would create eligibility for bonus at a prorated amount,
        based on the effective date of the promotion.

      


      If
        a
        participant voluntarily terminates or is terminated for cause prior to the
        end
        of the performance period, then no award shall be granted. In the event a
        participant shall die, become disabled, retire or is terminated without cause
        before the end of the performance period, then the Compensation Committee
        will
        authorize payment of an award to the participant, or beneficiary, in such
        amount
        as the Committee deems appropriate.

      


      
        	 	
                Responsibility

              


      

      The
        Human
        Resources Department will be responsible for the administration of the process
        for the company. This will include:

       

      
        	 	
                1)

              	
                monitoring
                  market salary and total compensation
                  levels;

              




      
        	 	
                2)

              	
                recommending
                  structural changes in base salary and compensation objective
                  adjustments;

              


      

      


      
        	 	
                3)

              	
                reviewing
                  eligibility and performance
                  targets;

              


      

      


      
        	 	
                4)

              	
                monitoring
                  financial performance targets through the Accounting
                  Department;

              


      

      


      
        	 	
                5)

              	
                communicating
                  progress reports to participants;

              


      

       

      
        	
              	
                6)

              	
                progress
                  and exception reporting to Compensation
                  Committee;

              



        	
              	
                7)

              	
                monitoring
                  compliance with related financial controls;
                  and

              


      

       

      
        	
              	
                8)

              	
                maintaining
                  the accuracy of the plan documents(s) governing the
                  plan.

              


      

       

      The
        2006
        Nicor Annual Incentive Compensation Plan for Officers and changes to its
        performance targets and measurement criteria will be reviewed and approved
        by
        the Compensation Committee.

      


      In
        determining the actual bonus awards to be made, the Compensation Committee
        may
        take into account all of the facts and circumstances which exist during the
        year
        and may make appropriate upward or downward revisions in performance criteria,
        add or delete objectives, or change the relative percentages assigned to
        the
        various performance objectives.

      


      
        	 	
                Amendment
                  and Termination

              


      

      The
        Board
        of Directors may amend or terminate the Plan at any time without the consent
        of
        the participants. No such amendment or termination shall negatively impact
        any
        participant's amount which accrued under the Plan prior to the calendar year
        in
        which the amendment is made.

      


      


      


      


      


      


      


      
 

      


      


      


      


      


      Nicor
        Human Resources

      March
        2006