WPS RESOURCES CORPORATION

SHORT-TERM VARIABLE PAY PLAN

 


As Amended Effective January 1, 1999

 

 


WPS RESOURCES CORPORATION

SHORT-TERM VARIABLE PAY PLAN

 


    1.     Purpose.

        The WPS Resources Corporation Short-Term Variable Pay Plan (the
"Plan") has been established effective January 1, 1998, and is amended
effective January 1, 1999 as set forth herein, to promote the best interests of
WPS Resources Corporation ("Company") and the stockholders of the
Company by (a) attracting and retaining key employees possessing a strong
interest in the above-average performance of the Company and its subsidiaries
and (b) encouraging their continued loyalty, service and counsel.

    2.     Administration.

        The Plan will be administered by the Compensation Committee of the Board of
Directors of the Company (the "Committee"). The Committee shall have
full and final authority and discretion to conclusively interpret the provisions
of the Plan and to decide all questions of fact arising under the Plan,
including the authority and discretion to:


  
                (i) determine those employees who are eligible to participate
                in the Plan for any year;

                (ii) review and from time to time and revise factors on which
                incentive compensation awards may be based;

                (iii) determine the amount (if any) awarded or to be awarded
                under the Plan to any employee for any year; and

                (iv) to make all other determinations respecting the
                administration, operation and interpretation of the Plan that
                the Committee, in its sole discretion, determines to be
                necessary or appropriate.

  



    3.     Designation of Participating Employees.

        (a)     For each calendar year for which this Plan is in effect, the Committee
shall designate:


  
                (i) those employees of the Company and its subsidiaries who
                are eligible to participate in the Plan for such year
                ("Participants");

                (ii) the Target Award applicable to each Participant for such
                year (see Section 7); and

                (iii) whether each Participant is a Utility Participant or a
                Non-Utility Participant.

  



        (b)     An employee's participation in the Plan in any year, and any amounts
awarded to the employee under the Plan for any such year, does not imply that
the employee is entitled to participate in or receive an award under the Plan
for any subsequent year.

        (c)     Nothing in the Plan shall interfere with or limit in any way the right of
the Company or any subsidiary of the Company to terminate an employee's
employment at any time nor confer upon any employee any right to continue in the
employ of the Company or any subsidiary.

    4.     Award of Incentive Compensation.

        A Participant shall not have any right to an amount under this Plan until the
Committee has awarded such amount to the Participant. The incentive compensation
(if any) awarded to a Participant with respect to any calendar year will be an
amount determined by the Committee based on both qualitative and quantitative
measurements of Participant and employer performance, including, without
limitation (1) utility year-end net income, (2) system reliability, (3) safety,
(4) non-utility earnings per share contribution, (5) non-utility customer
account growth and retention, (6) customer satisfaction and response to customer
complaints, (7) environmental strategy, and (8) such other factors as the
Committee in its discretion may consider relevant. In determining the amount of
any incentive compensation to be awarded, the Committee may take into account
the amounts determined under two non-binding target awards known as the Utility
Performance Award and the Non-Utility Performance Award. In no event will the
Committee make an award to a Participant unless the Participant was employed on
December 31 of the year to which the award relates or the Participant terminated
employment prior to December 31 of such year on account of retirement on or
after age 58, permanent and total disability (as defined in the Company's
long-term disability plan) or death.

    5.     Utility Performance Award.

        (a)     A Participant's Utility Performance Award for any year equals:


  
                (i) the Participant's Base Salary for such year multiplied by

                (ii) 0.75 (if the Participant has been designated as a
                Utility Participant) or 0.25 (if the Participant has been
                designated as a Non-Utility Participant), multiplied by

                (iii) the factor determined in accordance with Section 5(d).

  



        (b)     The Committee, in its sole discretion, may adjust the 0.75 and 0.25
factors specified in Section 5(a)(ii) above.

        (c)     Definitions.


  
                (i) "Base Salary" means base salary paid to the
                Participant by the Company and/or a consolidated subsidiary of
                the Company for services performed by the Participant during the
                applicable calendar year for which he or she has been designated
                as a Participant in the Plan. Base Salary shall include amounts
                that would have been paid to the Participant as base salary but
                for the fact that the Participant elected to defer such amounts
                as an elective contribution under a Section 125, 129 or 401(k)
                arrangement or as a Voluntary Deferral under the WPS Resources
                Corporation Deferred Compensation Plan. Base Salary shall not
                include extraordinary payments made to or on behalf of the
                Participant, such as overtime, bonuses, meal allowances,
                reimbursed expenses (including any tax "gross-up"
                payments), termination pay, moving pay, commuting expenses,
                Mandatory Deferrals under the WPS Resources Deferred
                Compensation Plan or other non-elective deferred compensation
                payments or accruals, stock options, the value of
                employer-provided fringe benefits or coverage, any contributions
                on behalf of the Participant to a survivor's income benefit plan
                or any other employee benefit plan within the meaning of ERISA,
                all as determined in accordance with such uniform rules,
                regulations or standards as may be prescribed by the Committee.
                In the case of an employee who is designated as a Participant
                after the first day of the calendar year, the Committee may
                elect to apply the foregoing definition with respect to the Base
                Salary received by the Participant on and after the effective
                date of his or her participation.

                (ii) "Net Income" for any year means Wisconsin
                Public Service Corporation's after-tax earnings on common stock
                as reported in the Company's Form 10-K Annual Report for that
                year, as further adjusted by the Committee in its discretion to
                exclude from Net Income the effects of extraordinary items,
                non-recurring items or any other items that the Committee
                determines should be excluded from the definition of Net Income
                for purposes of this Plan.

  



        (d)     For each year during which the Plan is in effect, the Committee will
prescribe the criteria by (or from) which the factor applicable under Section
5(a)(iii) will be determined. Such criteria may take into account Wisconsin
Public Service Corporation's Net Income or such other factors as the Committee,
in its sole discretion, may determine.

    6.     Non-Utility Performance Award.

        (a)     A Participant's Non-Utility Performance Award for any year equals:


  
                (i) the Participant's Target Award for such year multiplied
                by

                (ii) 0.25 (if the Participant has been designated as a
                Utility Participant) or 0.75 (if the Participant has been
                designated as a Non-Utility Participant), multiplied by

                (iii) the factor determined in accordance with Section 6(d).

  



        (b)     The Committee, in its sole discretion, may adjust the 0.25 and 0.75
factors specified in Section 6(a)(ii) above.

        (c)     Definitions.


  
                (i) "EPS Impact" means, with respect to any
                calendar year, the fully diluted earnings per share of the
                Company taking into account only the after-tax net income of WPS
                Energy Services, Inc. and WPS Power Development, Inc. and their
                consolidated subsidiaries, as calculated to the nearest
                one-tenth of one cent in accordance with FASB 128 or any
                successor pronouncement and in a manner consistent with the
                methodology used by the Company and its consolidated
                subsidiaries for the purpose of reporting earnings per share
                information generally. The Committee in its discretion, may
                adjust such after-tax net income to (A) include the
                proportionate share of the after-tax net income of a
                non-consolidated subsidiary, and (B) exclude the effects of
                extraordinary, non-recurring items or any other items that the
                Committee determines should be excluded for purposes of this
                Plan.

                (ii) "Account Retention" means, with respect to any
                calendar year, the percentage of "Accounts" actively
                served on January 1 of the calendar year that the Company or its
                non-utility subsidiaries continue to serve on December 31 of the
                same calendar year, rounded to the nearest one-tenth (1/10) of
                one percent.

                (iii) "Account" means an actively served customer
                account entered into by an agent or employee of the customer who
                has the authority to contract with WPS Energy Services, Inc. or
                WPS Power Development, Inc. with respect to all or a portion of
                the customer's business. Where a customer has multiple contracts
                with WPS Energy Services, Inc. and/or WPS Power Development,
                Inc., such contracts, although originating with the same
                customer, may be considered separate Accounts for purposes of
                this Plan to the extent that the contracts are entered into or
                authorized by different contacts at the customer each of whom
                has independent authority to contract with WPS Energy Services,
                Inc. and/or WPS Power Development, Inc.

                (iv) "Account Growth" means, with respect to any
                calendar year, (i) the total number of Accounts on December 31
                of the calendar year minus the total number of Accounts on
                January 1 of the calendar year, this amount divided by (ii) the
                total number of Accounts on January 1 of the calendar year. This
                quotient shall be rounded to the nearest one-tenth (1/10) of one
                percent.

  



        (d)     For each year during which the Plan is in effect, the Committee will
prescribe the criteria by (or from) which the factor applicable under Section
6(a)(iii) will be determined. Such criteria may take into account EPS Impact,
Account Retention, Account Growth or such other factors as the Committee, in its
sole discretion, may determine.

    7.     Target Award

        (a)     The Target Award for each Participant shall be an amount or percentage of
Base Salary selected by the Committee.

        (b)     The Target Award assigned to a Participant is relevant solely for
purposes of the non-binding calculation described in Section 6 above. The
establishment of a Target Award with respect to any Participant does not imply
that the Participant is or will become entitled to incentive compensation in the
amount of the Target Award.

    8.     Distribution.

        (a)     Unless deferred in accordance with Section 8(b) below, incentive
compensation amounts awarded under this Plan shall be paid to the eligible
Participant (less applicable withholding) as soon as practicable following the
date on which such payment has been authorized by the Committee.

        (b)     A Participant may, but need not, elect to defer the receipt of all or any
portion of the incentive compensation amounts awarded to the Participant under
this Plan. If the Participant so elects, the deferred portion of the
Participant's incentive compensation award will be credited to the Participant's
Stock Account under the WPS Resources Corporation Deferred Compensation Plan
("Deferred Compensation Plan") for later distribution in accordance
with the terms of the Deferred Compensation Plan and the Participant's elections
under that plan. A Participant's election to defer all or a portion of his award
under this Plan for any year shall be given effect only if the Participant's
executed deferral election is received by the Committee or its delegate prior to
January 1 of the calendar year during which the incentive compensation will be
earned, e.g., prior to January 1, 1999 for deferral of incentive compensation
amounts that may be earned in 1999. Notwithstanding the foregoing, in the case
of a Participant who is designated by the Committee as being eligible to
participate with respect to a particular calendar year after the beginning of
such year, the Participant's deferral election for such year may be made within
30 days of the date on which the Committee designates the Participant as being
eligible to participate in the Plan.


     9.    
Amendment or Termination.

        The Committee may amend, modify or terminate the Plan at any time and for any
reason, including, without limitation, the authority to alter at any time during
the calendar year the amount of incentive compensation that is available or
potentially available to Participants with respect to the calendar year or the
terms and conditions under which such incentive compensation is or will become
payable.

    10.     Participant Rights Unsecured.

        The right of a Participant to receive a distribution of incentive
compensation awarded hereunder shall be an unsecured claim, and the Participant
shall not have any rights in or against any specific assets of the Company or
any of its subsidiaries. The right of a Participant to the payment of incentive
compensation that has been awarded or may be awarded under this Plan may not in
any manner be subject to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment or garnishment; provided that any benefits
awarded to the Participant but unpaid as of the date of the Participant's death
shall be paid to the Participant's estate.

    11.     Successor and Assigns.

        This Plan, with respect to any amount awarded to a Participant by the
Committee in accordance with Section 4, shall be binding upon and inure to the
benefit of the Company and its subsidiaries, their successors and assigns and to
the Participant and the executor, administrator or legal representative of the
Participant's estate.

    12.     Governing Law.

        This Plan shall be governed by and construed in accordance with the law of
the State of Wisconsin.