Exhibit
10-O-12


 


Otter Tail Corporation


2014 Executive Annual Incentive Plan


 


 










BACKGROUND


 


Otter Tail Corporation (the
“Corporation”) has established the Executive Annual Incentive Plan (the “Plan”) to reward top Corporate
executives (“Participants”) who are directly involved in ensuring that the Corporation reaches its performance goals.
The key objectives of the Plan are to focus the Participants’ attention on the Corporation’s operating results to ensure
that the Corporation will achieve its desired results currently and in the future. 


 


ELIGIBILITY 


 


Participants include the
executive officers of the Corporation as named by the President and Chief Executive Officer and the Compensation Committee of the
Board of Directors. Participants who terminate employment, for reasons other than death, disability, retirement or transfer to
a Corporation subsidiary before the end of a calendar year will receive payments under this Plan, if any, under the terms of their
Employment Agreements. Prorated annual incentive payments will be paid to the estates of Participants who die during a year for
which a Plan payment is made and to Participants who terminate employment due to disability, retirement or transfer to a subsidiary.



 


DEFINITIONS


 


Base Pay is the annualized
base amount paid to Participants as of December 31 of the current plan year. Base Pay includes amounts deferred under Section 401(k)
of the Internal Revenue Code, salary reduction amounts under Section 125 of the Internal Revenue Code, and amounts deferred under
any deferred compensation program sponsored by Otter Tail Corporation. Base Pay does not include incentive payments, moving expenses,
expense reimbursements, imputed income or any similar amounts. 


 


Target Annual Incentive
is the percentage of Base Pay payable if all applicable performance goals are achieved at the stated target level. The Target Annual
Incentive levels shall be established by the Compensation Committee. 


 


Corporate Earnings per Share
(EPS)  is diluted earnings per share for the calendar year, as reported in the Corporation’s year-end financial
reports, subject to adjustment for items deemed to be unusual or extraordinary by the Compensation Committee. The Compensation
Committee shall establish performance standards for EPS for each year.


 


Corporate Return on Equity (ROE) is the earnings
available for common shares as reported in the Corporation’s annual year-end financial reports, divided by the 13-month
average of total outstanding equity for all business operations, subject to adjustment for items deemed to be unusual or extraordinary
by the Compensation Committee. The Compensation Committee shall establish performance standards for ROE for each year.


 


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Utility Return on Equity
(ROE) is Otter Tail Power Company’s Net Income divided by its 13-month average of total equity, subject to adjustment
for items deemed to be unusual or extraordinary by the Compensation Committee. The Compensation Committee shall establish performance
standards for ROE for each year.


 





Safety is measured
against the composite 3 year weighted average (based on hours worked for each operating company) case rate for the industries of
Otter Tail Corporation companies. For Varistar, Otter Tail Power data is excluded. For Otter Tail Power, the goal is 15 basis points
less than the prior year’s goal. The Compensation Committee shall establish the performance standards for safety for each
year.


 


Net Income is the
difference between total revenues, total expenses, other income and deductions and taxes. The Compensation Committee shall establish
the performance standards for net income each year. 


 


Return on Invested Capital (ROIC) is
the percentage calculated by dividing net operating profit after tax (“NOPAT”) by the 13-month average of invested
capital. NOPAT is defined as net profits derived from company operations after taxes but before financing costs. The Compensation
Committee shall establish the performance standards for ROIC each year.


 


Individual Performance
Goals  are established for the Participant by the CEO on an annual basis,
in furtherance of the Corporation’s strategic objectives.


 


CASH ANNUAL INCENTIVE


 


Payment of any cash annual
incentive under the Plan is subject to achievement of the applicable Otter Tail Corporation annual performance goals. The Participant’s
Target Annual Incentive is based on competitive market practice, internal equity needs and the Corporation’s philosophy of
pay for performance. 


 


Earning the Target Annual
Incentive payout is dependent upon achieving the corporate performance goals as identified for each executive officer by the Compensation
Committee on an annual basis. For financial metrics, 50% of the target amount payable is paid if minimum performance level is achieved;
100% of the target amount payable is paid if the target performance level is achieved; and 200% of the target amount payable is
paid if the maximum performance level is achieved. When applicable for the financial metrics, for performance between the minimum
performance level and the target performance level, the payment amount shall increase at an even rate and similarly from the target
performance level to the maximum performance level the payment amount shall increase at an even rate. For Safety, 100% of the target
amount payable is paid if the target performance level is achieved. For individual performance goals, payment is made at the discretion
of the CEO. 


 


The treatment of extraordinary
gains, write-offs and similar unusual events will be at the discretion of the Compensation Committee. Subject to the discretion
of the Compensation Committee, the safety component shall not be paid if there is a workplace fatality resulting from a workplace
accident.


 


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ADMINISTRATION


 


The Plan is not funded and
all annual incentive payments will be paid out of the Corporation’s general assets. 


 


Annual incentive payments
will be paid in cash, through the appropriate payroll system, as soon as administratively possible after annual performance results
are approved by the Board of Directors, but not later than March 15th. The Corporation will deduct from any Plan payment and transmit
to the proper taxing authority, such amount as it may be required to withhold under any applicable federal, state or other law.



 


The Corporation retains
sole discretion, authority, and responsibility to decide all factual and legal questions under the Plan.


 


MISCELLANEOUS


 


The terms of this document
shall not constitute a term of employment for any Participant, and the Corporation shall not be obligated to continue the Plan.
The terms of this document shall not give any Participant the right to be retained in employment with the Corporation.


 


Payments under this Plan
are not considered part of base pay and, except for contributions to the Corporation’s Retirement Savings Plan, will not
be considered in any Corporation or subsidiary tax-qualified Participant benefit plan. Payments under this Plan will be considered
part of Recognized Compensation under the Otter Tail Corporation Retirement Savings Plan, or its successor, and will, therefore,
be included in determining the Participant’s Retirement Savings Plan contributions. 


 


AMENDMENT AND TERMINATION


 


The Plan’s performance
goals and payment structure will be reviewed annually and adjusted to reflect current market conditions and Corporation needs.
The Corporation, by action of the Compensation Committee of the Board of Directors, reserves the right to amend or terminate this
Plan at any time.







 


  


FOR THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS:


 


 





	/s/
    James Stake	 	February 6, 2014
	James Stake, Compensation Committee Chair	 	Date







 





 


OTTER TAIL CORPORATION


 


 





	By:	/s/ Edward J. McIntyre	 	February 6, 2014
	 	Edward J. McIntyre	 	Date
	 	Its:  President and CEO	 	 







 


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