WPS RESOURCES CORPORATIONSHORT-TERM VARIABLE PAY PLAN

 

As Amended Effective January 1, 1999

 

 

WPS RESOURCES CORPORATIONSHORT-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 amendedeffective January 1, 1999 as set forth herein, to promote the best interests ofWPS Resources Corporation ("Company") and the stockholders of theCompany by (a) attracting and retaining key employees possessing a stronginterest in the above-average performance of the Company and its subsidiariesand (b) encouraging their continued loyalty, service and counsel.

    2.     Administration.

        The Plan will be administered by the Compensation Committee of the Board ofDirectors of the Company (the "Committee"). The Committee shall havefull and final authority and discretion to conclusively interpret the provisionsof 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 Committeeshall 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 amountsawarded to the employee under the Plan for any such year, does not imply thatthe employee is entitled to participate in or receive an award under the Planfor any subsequent year.

        (c)     Nothing in the Plan shall interfere with or limit in any way the right ofthe Company or any subsidiary of the Company to terminate an employee'semployment at any time nor confer upon any employee any right to continue in theemploy 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 theCommittee has awarded such amount to the Participant. The incentive compensation(if any) awarded to a Participant with respect to any calendar year will be anamount determined by the Committee based on both qualitative and quantitativemeasurements of Participant and employer performance, including, withoutlimitation (1) utility year-end net income, (2) system reliability, (3) safety,(4) non-utility earnings per share contribution, (5) non-utility customeraccount growth and retention, (6) customer satisfaction and response to customercomplaints, (7) environmental strategy, and (8) such other factors as theCommittee in its discretion may consider relevant. In determining the amount ofany incentive compensation to be awarded, the Committee may take into accountthe amounts determined under two non-binding target awards known as the UtilityPerformance Award and the Non-Utility Performance Award. In no event will theCommittee make an award to a Participant unless the Participant was employed onDecember 31 of the year to which the award relates or the Participant terminatedemployment prior to December 31 of such year on account of retirement on orafter age 58, permanent and total disability (as defined in the Company'slong-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 0.25factors 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 willprescribe the criteria by (or from) which the factor applicable under Section5(a)(iii) will be determined. Such criteria may take into account WisconsinPublic 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 0.75factors 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 willprescribe the criteria by (or from) which the factor applicable under Section6(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 itssole discretion, may determine.

    7.     Target Award

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

        (b)     The Target Award assigned to a Participant is relevant solely forpurposes of the non-binding calculation described in Section 6 above. Theestablishment of a Target Award with respect to any Participant does not implythat the Participant is or will become entitled to incentive compensation in theamount of the Target Award.

    8.     Distribution.

        (a)     Unless deferred in accordance with Section 8(b) below, incentivecompensation amounts awarded under this Plan shall be paid to the eligibleParticipant (less applicable withholding) as soon as practicable following thedate 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 anyportion of the incentive compensation amounts awarded to the Participant underthis Plan. If the Participant so elects, the deferred portion of theParticipant's incentive compensation award will be credited to the Participant'sStock Account under the WPS Resources Corporation Deferred Compensation Plan("Deferred Compensation Plan") for later distribution in accordancewith the terms of the Deferred Compensation Plan and the Participant's electionsunder that plan. A Participant's election to defer all or a portion of his awardunder this Plan for any year shall be given effect only if the Participant'sexecuted deferral election is received by the Committee or its delegate prior toJanuary 1 of the calendar year during which the incentive compensation will beearned, e.g., prior to January 1, 1999 for deferral of incentive compensationamounts that may be earned in 1999. Notwithstanding the foregoing, in the caseof a Participant who is designated by the Committee as being eligible toparticipate with respect to a particular calendar year after the beginning ofsuch year, the Participant's deferral election for such year may be made within30 days of the date on which the Committee designates the Participant as beingeligible to participate in the Plan.****
    9.    Amendment or Termination.
        The Committee may amend, modify or terminate the Plan at any time and for anyreason, including, without limitation, the authority to alter at any time duringthe calendar year the amount of incentive compensation that is available orpotentially available to Participants with respect to the calendar year or theterms and conditions under which such incentive compensation is or will becomepayable.

    10.     Participant Rights Unsecured.

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

    11.     Successor and Assigns.

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

    12.     Governing Law.

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