exv10w2



 









Exhibit 10.2




Otter Tail Corporation

Executive Annual Incentive Plan

Effective April 1, 2005



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 executive’s
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 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 bonus 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 Bonus is the percentage of Base Pay payable if all applicable
performance goals are achieved at the stated target level. The Target Bonus
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 threshold,
target and maximum performance standards for EPS for each year.



Corporate Return on
Equity (ROE) is the combined average return, as a
percentage of total outstanding equity for all business operations, as reported
in the Corporation’s annual year-end financial reports, subject to adjustment
for items deemed to be unusual or extraordinary by the


 









 







Compensation Committee. The Compensation Committee shall establish threshold,
target and maximum performance standards for ROE for each year.



Cash Flow from Operations is the net cash provided by operating activities as
reported in the Corporation’s annual year-end financial reports, subject to
adjustment for items deemed to be unusual or extraordinary by the Compensation
Committee. The Compensation Committee shall establish threshold, target, and
maximum performance standards for cash flow from operations for each year.



CASH BONUS



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



Earning the Target Bonus payout is dependent upon achieving the three corporate
performance goals. Each goal accounts for one-third of the Participant’s
Target Bonus and includes a threshold, target and maximum performance level.
No payment is made for performance below the threshold level. For each goal,
25% of the target amount payable is paid if the threshold 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. For performance between the threshold and the
target performance levels, the payment amount shall increase at an even rate up
to the target performance level. For performance between the target
performance level and the maximum performance level, the payment amount shall
increase at an even rate up to the maximum performance level.



The treatment of extraordinary gains, write-offs and similar unusual events
will be at the discretion of the Compensation Committee.



ADMINISTRATION



The Plan is not funded and all bonuses will be paid out of the Corporation’s
general assets.
Bonus 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. 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-


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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:




	 	 	 	 
	 



Arvid Liebe, Compensation Committee Chair	 	
 



Date
	 
OTTER TAIL
CORPORATION
 
	 	 
	By:	 



John Erickson

Its:  President and CEO	 	
 



Date






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