Document:

Exhibit
10.37

 

Executive Officer Compensation

 

On Dec. 13 and 14, 2005, the Governance, Compensation
& Nominating Committee (the Committee) of the Xcel Energy Inc. board of
directors took actions setting executives’ salaries, annual bonus targets and
long-term compensation targets for 2006. Executive compensation was set by the
Committee after consideration of, among other things, individual performance
and market-based data on compensation for executives with similar duties.
Payouts of 2006 annual bonus targets and long-term awards are dependent on
achievement of specified goals set by the Committee, and no officer is assured
of any payout. Set forth below is a description of the actions taken.

 

Salary 

 

The Committee established the base salaries of its senior
executive group for 2006. The salary of Mr. Richard Kelly, the Chairman of the
Board and Chief Executive Officer increased 14 percent in the recognition of
his assumption of additional duties as newly-elected Chairman of the Board. The
salary increases for the other Xcel Energy officers who are expected to be
named in the Summary Compensation Table in Xcel Energy’s 2006 Proxy Statement
(the Named Executive Officers) ranged from 0 percent to 14 percent.

 

	
   

  	
   

  	
  2006 Base Salary

  	
   

  
	
  Richard C. Kelly

  	
   

  	
  $

  	
  1,050,000

  	
   

  
	
  Gary R. Johnson

  	
   

  	
  $

  	
  410,000

  	
   

  
	
  Paul J. Bonavia

  	
   

  	
  $

  	
  515,000

  	
   

  
	
  Patricia K.
  Vincent

  	
   

  	
  $

  	
  450,000

  	
   

  
	
  Benjamin G.S.
  Fowke III

  	
   

  	
  $

  	
  500,000

  	
   

  

 

Annual Bonus Targets

 

Annual incentive awards, expressed as a percentage of
salary, were set by the Committee under the Xcel Energy Executive Annual
Incentive Award Plan (effective May 25, 2005) (the Xcel Annual Incentive Plan),
which was approved by Xcel Energy’s shareholders in 2005. Payouts of annual
incentive awards are dependent on the level of achievement of corporate
financial and operational goals and business unit operational goals approved by
the Committee, with each individual having the opportunity to earn from 0
percent to 200 percent of his or her target annual incentive award based on the
level of achievement in 2006 of the goals applicable to such individual.

 

Corporate goals for 2006 include targeted earnings per
share, a customer service measurement, an environmental measurement, operations
measurements related to generation availability, system reliability and safety,
and an employee engagement measurement. Business unit goals are related to
customer service, environmental responsibility, reliability, safety and
management to budgeted financial results, measured at a business unit level.

 

Target annual incentive awards, as a percent of base
salary, were set for all Xcel Energy officers, ranging from 100 percent of
salary for Mr. Kelly to 55 percent to 65 percent of salary for the other Named
Executive Officers. With the approval of the Committee, an award may be
multiplied by a leadership-rating factor from zero to two.

 

Payout of the annual incentive award for Mr. Kelly is
dependent entirely on attaining corporate goals. For the other executive
officers, including Named Executive Officers, the formula is weighted 67
percent to attaining corporate goals and 33 percent to attaining business unit
operational goals.

 

In order to encourage increased share ownership by
executive officers, the Xcel Energy Annual Incentive Plan provides the option
for executives to receive their payments in shares of common stock or shares of
restricted common stock, which vests in equal annual installments over a
three-year period, in lieu of cash. A 5 percent premium is added to amounts
paid in shares of common stock, and a 20 percent premium is added to amounts
paid in shares of restricted common stock. The terms of the annual incentive
awards are subject to the Xcel Energy Annual Incentive Plan that is filed as
Appendix C to Xcel Energy’s 2005 Proxy Statement.

 

 

Long-Term Awards

 

The Committee also approved target long-term incentive
grants, effective Jan. 1, 2006, pursuant to the Xcel Energy 2005 Omnibus
Incentive Plan, which was approved by shareholders in 2005. As explained below,
payout of long-term incentive grants is dependent on achievement of performance
goals set by the Committee. Long-term incentive grants were made 50 percent in
the form of performance-based restricted stock units and 50 percent in the form
of performance shares. The amounts of the awards for each individual were
established by the Committee and expressed as a percentage of such individual’s
base salary. The actual number of performance-based restricted stock units and
performance shares awarded to an individual were determined by dividing the
dollar value of such percentage of base salary by the expected value of each
award type as determined on Jan. 2, 2006. For Mr. Kelly, his target long-term
award for 2006 was set at 260 percent of his salary. For the other Named
Executive Officers, the percentage ranged from 110 percent to 135 percent.

 

Performance-based restricted stock units (“Units”)
will represent an equal number of shares of Xcel Energy common stock. Prior to
the expiration of the restricted period, the Units may not be sold or otherwise
transferred by the recipients. Units are credited during the restricted period
at the same rate as dividends paid on all other shares of outstanding common
stock. The dividend equivalents are subject to all terms of the original grant.

 

Payout of the Units and the lapsing of restrictions on
the transfer of Units are based on two separate performance criteria. Seventy-five
percent of awarded Units plus associated earned dividend equivalents shall be
settled, and the restricted period will lapse, after Xcel Energy achieves a
specified earnings per share (EPS) growth (adjusted for corporate-owned life
insurance) measured against Dec. 31, 2005 EPS (adjusted for corporate-owned
life insurance). The forms of performance-based restricted stock unit
agreements are filed as Exhibits 10.30 and 10.32 to this Form 10-K.

 

Additionally, Xcel Energy’s annual dividend paid on
its common stock must remain at $0.86 per share or greater. EPS growth will be
measured annually at the end of each fiscal year. However, in no event will the
restrictions lapse prior to Dec. 31, 2007. If the performance criteria have not
been met within four years of the date of grant, all associated Units shall be
forfeited.

 

The remaining 25 percent of awarded Units plus
associated earned dividend equivalents shall be settled, and the restricted
period will lapse, after the average of actual performance results for the
three components of an environmental index (measured as a percent of target
performance) meets or exceeds 100 percent. The environmental index will be
measured annually at the end of each fiscal year. However, in no event will the
restrictions lapse prior to Dec. 31, 2007. If the performance criteria have not
been met within four years of the date of grant, all associated Units shall be
forfeited.

 

The separate awards of performance shares also will
represent an equal number of shares of Xcel Energy common stock. Performance
shares may not be sold or otherwise transferred. Payout of the performance
share award will be dependent entirely on a single measure, total shareholder
return (TSR). Xcel Energy’s TSR will be measured over a three-year period. Xcel
Energy’s TSR is compared to the TSR of other companies in the Edison Electric
Institute’s Electrics Index as a peer group. At the end of the three-year
period, potential payouts of the performance shares range from 0 percent to 200
percent, depending on Xcel Energy’s TSR compared to the peer group.

 

The terms of the foregoing grants are consistent with
the 2005 Omnibus Incentive Plan and terms of award agreements filed as Appendix
B to Xcel Energy’s 2005 Proxy Statement and Exhibits 10.04, 10.05 and 10.07 to
Xcel Energy’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2005, with the following exceptions: the Committee reserved the discretion to
reduce or pro-rate awards to an individual who is not actively employed by Xcel
Energy on the last day of the performance cycle, and 200% of the target for
performance shares earned will be achieved with 90th percentile
relative total shareholder return vs. 75th percentile relative total
shareholder return performance

 

 

The following table shows the number of
performance-based restricted stock units and performance shares granted,
effective Jan. 1, 2006, to Named Executive Officers: 

 

	
  Named Executive Officer

  	
   

  	
  Performance-based

  Restricted Stock Units

  	
   

  	
  Performance Shares

  	
   

  
	
  Richard C. Kelly

  	
   

  	
  90,218

  	
   

  	
  100,073

  	
   

  
	
  Gary R. Johnson

  	
   

  	
  14,904

  	
   

  	
  16,532

  	
   

  
	
  Paul J. Bonavia

  	
   

  	
  22,976

  	
   

  	
  25,486

  	
   

  
	
  Patricia K.
  Vincent

  	
   

  	
  16,358

  	
   

  	
  18,145

  	
   

  
	
  Benjamin G.S.
  Fowke III

  	
   

  	
  22,307

  	
   

  	
  24,743

  	
   

  

 

Other Perquisites and Benefits

 

Other perquisites and
benefits provided to executives generally are not tied to the Company’s
financial performance, but are primarily designed to attract and retain
executives. Among the perquisites and benefits provided by the Company in 2005
to its executives are Company-paid
life insurance in an amount equal to four times base pay, reduced to two times
base salary post retirement (which, in general, the executives can  purchase upon termination by repaying to the
Company the greater of the cash surrender value or the aggregate premiums paid
by the Company), and benefits provided under the Xcel Energy Inc. Nonqualified
Deferred Compensation Plan and the Xcel Energy Supplemental Executive
Retirement Plan that make up for retirement benefits that cannot be paid under
the Company’s qualified retirement plans due to Internal Revenue Code
limitations and the exclusion of certain elements of pay from pension-covered
earnings. Other perquisites and benefits provided by the Company in 2005 to its
executives include reimbursement
for financial planning services and home security systems, cash perquisite
allowance, executive medical insurance and physicals, aircraft usage and club
dues.

 

Certain executive
officers, including four of the Named Executive Officers, may receive severance
benefits in accordance with the Xcel Energy Senior Executive Severance and
Change in Control Policy, which is filed as Exhibits 10.15 and 10.28 to this
form 10-K. Mr. Bonavia may receive severance benefits under his employment
agreement, which is filed as Exhibit 10.25 to this Form 10-K. Mr. Wayne
Brunetti, former Chairman and Chief Executive Officer, retired in December 2005
and received benefits under his employment agreement, which is filed as Exhibit
10.35 to this Form 10-K.Exhibit 10.38

 

Directors’ Compensation

 

The following table provides information on our
compensation and reimbursement practices for non-employee directors. Mr. Kelly,
who is employed by us, does not receive any compensation for his Board
activities.

 

	
  Annual Director
  Retainer

  	
   

  	
  $

  	
  35,000

  	
   

  
	
  Board Meeting
  Attendance Fees (per meeting)

  	
   

  	
  $

  	
  1,500

  	
   

  
	
  Telephonic
  Meeting Attendance Fees (per meeting)

  	
   

  	
  $

  	
  650

  	
   

  
	
  Committee
  Meeting Attendance Fees (per meeting)

  	
   

  	
  $

  	
  1,500

  	
   

  
	
  Additional
  Retainer for Committee Chair:

  	
   

  	
   

  	
   

  
	
  Governance,
  Compensation & Nominating Committee

  	
   

  	
  $

  	
  5,000

  	
   

  
	
  Operations,
  Nuclear & Environmental Committee

  	
   

  	
  $

  	
  5,000

  	
   

  
	
  Audit Committee

  	
   

  	
  $

  	
  10,000

  	
   

  
	
  Finance
  Committee

  	
   

  	
  $

  	
  5,000

  	
   

  
	
  Stock Equivalent
  Units

  	
   

  	
  $

  	
  64,000

  	
   

  

 

We have a Stock Equivalent Plan for Non-Employee
Directors to more closely align directors’ interests with those of our
shareholders. Under this Stock Equivalent Plan, which is filed as Exhibit 10.16
to this Form 10-K, directors may receive an annual award of stock equivalent
units with each unit having a value equal to one share of our common stock. Stock
equivalent units do not entitle a director to vote and are only payable as a
distribution of whole shares of the Company’s common stock upon a director’s
disability or termination of service. The stock equivalent units fluctuate in
value as the value of our common stock fluctuates. Additional stock equivalent
units are accumulated upon the payment of, and at the same value as, dividends
declared on our common stock.

 

On May 26, 2005, each non-employee director of the
Company received an award of 2,916 stock equivalent units representing
approximately $52,800 in cash value. Mr. Richard H. Truly was elected to the
board of directors in September 2005 and, in October 2005, Mr. Truly received a
pro-rated portion of stock equivalent units valued at approximately $37,100 or
2,053 units. Additional stock equivalent units were accumulated during 2005 as
dividends were paid on our common stock. 

 

Prior to 2005, directors were able to participate in a
deferred compensation plan that provided for deferral of director retainer and
meeting fees until after retirement from the Board. A director could defer
director retainer and meeting fees into the Stock Equivalent Plan. A director
who elected to defer compensation under this plan may receive a premium of 20%
of the compensation that is deferred. In December 2004, the Board amended a
number of executive and director compensation plans, including the Stock
Equivalent Plan for Non-Employee Directors and the Non-Employee Directors
Deferred Compensation Plan, in part to comply with deferred compensation
requirements of new Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”), as added by Section 885 of the American Jobs Creation Act
of 2004, and other legislation. As a result of the amendments, participation in
the Stock Equivalent Plan for Non-Employee Directors and the Non-Employee
Directors Deferred Compensation Plan was frozen. The plans will continue to
operate in accordance with their terms with respect to amounts deferred and/or
awarded prior to January 1, 2005. It is expected that the plans will be amended
in 2006 in order to achieve compliance with the new deferred compensation
requirements.

 

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