Document:

NICOR INC ANNUAL INCENTIVE COMPENSATION PLAN FOR OFFICERS

    NICOR
      ANNUAL INCENTIVE COMPENSATION PLAN FOR OFFICERS

     

    Nicor,
      Inc. (the “Company”, or “Nicor”) has established the Nicor Annual Incentive
      Compensation Plan for Officers (the “Plan”) to link participant incentive
      compensation to the accomplishment of corporate and operating unit financial
      performance, as well as to 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, and is effective
      January 1, 2008.

     

    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 (the “Compensation Committee”). 

     

    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. 

     

    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 and Bonus Payment

    The
      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 approves such
      payment. 

     

    Subject
      to the provisions of the “Bonus Deferral” section below, bonuses will be paid to
      participants in a single lump sum. Payment will be made no later than the date
      two and one-half (2 1⁄2) months after the end of the calendar year in which the
      services were performed (or, in the event that payment by such date is
      administratively impracticable, no later than December 31). Bonus payments
      under
      this Plan are intended to satisfy the short-term deferral exemption under Treas.
      Reg. Sec. 1.409A-1(b)(4). All awards will be paid in cash, except as provided
      below. 

     

    Bonus
      Deferral 

    Deferral
      under the Stock Deferral Plan or Salary Deferral Plan.
      A
      participant in the Stock Deferral Plan may elect to defer up to 50% of his
      bonus
      award into that plan and a participant in the Salary Deferral Plan may elect
      to
      defer 10% to 20% of his bonus award into that plan. All such elections must
      be
      made in accordance with the terms of the Stock Deferral Plan and/or Salary
      Deferral Plan in order to be effective. In the event of conflict between the
      terms of the Stock Deferral Plan or the Salary Deferral Plan and this Plan,
      the
      terms of the Stock Deferral Plan or the Salary Deferral Plan, as applicable,
      shall

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     control.
      Appropriate taxes for the entire award amount will be withheld from the portion
      of the award being paid in cash. 

     

    Deferral
      under this Plan. In
      addition, a participant may elect to have all or a portion of his bonus award
      under the Plan to be deferred by submitting a written request to the
      Compensation Committee no later than the last day of the calendar year
      immediately preceding the year in which the services relating to the bonus
      are
      to be performed (the “deferral election”). The deferral election shall be
      irrevocable following the last day of the calendar year immediately preceding
      the year in which the services relating to the bonus are to be performed. All
      such deferred amounts shall be credited with compounded interest equal to the
      prime rate applied on a quarterly basis. 

     

    	1.  	
            Form
              of Payment.
              The deferral election shall specify whether the deferred bonus award
              (and
              interest thereon) shall be paid in either (a) annual installments over
              a
              period of not more than five years, or (b) a lump sum. For purposes
              of
              Section 409A of the Code, installment payments shall be treated as
              a
              single payment. 

          

     

    	2.  	
            Time
              of Payment.
              Payment shall be made upon the earlier of “separation from service” or
              such other date as the participant shall specify in the election.
              “Separation from service” means the date of termination of the
              participant’s services to the Company and all affiliates, whether
              voluntarily or involuntarily, other than by reason of death, as determined
              in accordance with Treas. Reg. Sec. 1.409A-1(h).
              

          

     

    If
      payment is made upon separation from service, such payment will commence on
      the
      first regularly scheduled Company payroll date following the six month
      anniversary of the participant’s separation from service. If payment is made
      upon a specified date, then distribution will be made within ninety (90) days
      of
      such date. In any situation in which the Company is unable to determine the
      method of payment because of incomplete, unclear or uncertain participant
      instructions or if no deferral election is on file, then the deferred bonus
      and
      any interest thereon will be paid in a single lump sum on the first regularly
      scheduled Company payroll date following the six-month anniversary of the
      participant’s separation from service.

     

    	3.  	
            Modification
              of Time of Payment.
              The participant may submit a written request to the Compensation Committee
              in order to change the elected time of payment; provided, however,
              that
              any such change (a) must be made at least twelve months prior to the
              previously designated initial payment date, (b) will not be effective
              for
              a period of twelve months, and (c) must defer payment for at least
              five
              years beyond the originally elected date of payment, except with respect
              to payment upon death of the participant. A participant’s modified
              election shall not be considered to be made until the date on which
              the
              election becomes irrevocable. Such an election shall become irrevocable
              no
              later than the date that is twelve months prior to the participant’s
              previously designated initial payment
              date.

          

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

     

    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
      Plan
      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
      GAS ANNUAL INCENTIVE COMPENSATION PLAN FOR OFFICERS

    

    
      	 	
              Nicor
                Gas (the “Company”) has established the Nicor Gas Annual Incentive
                Compensation Plan for Officers (the “Plan”) to link participant incentive
                compensation to the accomplishment of corporate and operating unit
                financial performance as well as to 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 Gas, and is effective January 1,
                2008.

            

    

    

    
      	 	
              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 operating goals and non-financial objectives. The Plan
      has been structured to encourage teamwork among business units and encourage
      the
      achievement of both shareholder and ratepayer oriented goals.

    

    
      	 	
              Eligible
                Group

            

    

    Officers
      of Nicor Gas in Salary Bands 1 or higher 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 industry survey data. Base salaries are reviewed
      annually by the Compensation Committee of the Board of Directors (the
“Compensation Committee”).

    

    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 bonus target.

    

    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.

    

    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
      bonus
      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 and Bonus Payment

    The
      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 approves such
      payment.

    

    Subject
      to the provisions of the “Bonus Deferral” section below, bonuses will be paid to
      participants in a single lump sum. Payment will be made no later than the date
      two and one/half (2 1⁄2) months after the end of the calendar year in which the
      services were performed (or, in the event that payment by such date is
      administratively impracticable, no later than December 31). Bonus payments
      under
      this Plan are intended to satisfy the short-term deferral exemption under
      Treas.Reg. Sec. 1.409A-1(b)(4). All awards will be paid in cash, except as
      provided below.

    

    Bonus
      Deferral

    Deferral
      under the Stock Deferral Plan or Salary Deferral Plan. A participant in the
      Stock Deferral Plan may elect to defer up to 50% of his bonus award into that
      plan and a participant in the Salary Deferral Plan may elect to defer 10% to
      20%
      of his

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    bonus
      award into that plan. All such elections must be made in accordance with the
      terms of the Stock Deferral Plan and/or Salary Deferral Plan in order to be
      effective. In the event of conflict between the terms of the Stock Deferral
      Plan
      or the Salary Deferral Plan and this Plan, the terms of the Stock Deferral
      Plan
      or the Salary Deferral Plan, as applicable, shall control. Appropriate taxes
      for
      the entire award amount will be withheld from the portion of the award being
      paid in cash.

    

    
      	 	
              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 bands. 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 and if appropriate, a new bonus target 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, or retire before the end of the
      performance period, then the Compensation Committee will authorize payment
      of an
      award to the participant, or beneficiary, in such other 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.     
      assisting
      the Nicor Gas CEO in progress and exception reporting to the  Compensation
      Committee;

    

    4.     
      assist
      the Nicor Gas CEO in monitoring financial performance targets through
 the
      Accounting Department and communicating progress reports to the  participants;

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
    5.    
      monitoring compliance with related financial controls; and

    

    6.    
      maintaining the accuracy of the plan document(s) governing the
      plan.

    

    The
      Nicor
      Gas CEO shall be responsible for:

    

    
      	 	
              1.

            	
              reviewing
                market salary and compensation levels and approving recommendations
                before
                presentation to the Compensation
                Committee;

            

    

    

    
      	 	
              2.

            	
              approving
                structural changes in base salary and compensation objective adjustments
                before presentation to the Compensation
                Committee;

            

    

    

    
      	 	
              3.

            	
              recommending
                eligibility, performance targets and goals to the Compensation
                Committee;

            

    

    

    
      	 	
              4.

            	
              monitoring
                performance targets through the Accounting Department and other sources
                of
                necessary documentation;

            

    

    

    
      	 	
              5.

            	
              communicating
                progress reports to the participants;
                and,

            

    

    

    
      	 	
              6.

            	
              reporting
                performance results and making award recommendations to the Compensation
                Committee.

            

    

    

    The
      Plan
      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.

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