NiSource Inc.
801 E. 86th Avenue • Merrillville, IN 46410 • (877) 647-5990

 

 

NOTICE OF ANNUAL MEETING

 

April 2, 2010

 

To the Holders of Common Stock of NiSource Inc.:

 

The annual meeting (the “Annual Meeting”) of the stockholders of NiSource Inc. (the “Company”) will be held at The 30 South Building, 30 South Meridian, Indianapolis, Indiana 46204 on Tuesday, May 11, 2010, at 10:00 a.m., local time, for the following purposes:

 

 

All persons who are stockholders of record at the close of business on March 15, 2010 will be entitled to vote at the Annual Meeting.

 

Please act promptly to vote your shares with respect to the proposals described above. You may vote your shares by marking, signing, dating and mailing the enclosed proxy card. You may also vote by telephone or through the Internet by following the instructions set forth on the proxy card. If you attend the Annual Meeting, you may vote in person, even if you have previously submitted a proxy.

 

In order to help us arrange for the Annual Meeting, if you plan to attend the Annual Meeting, please so indicate in the space provided on the proxy card or respond when prompted on the telephone or through the Internet.

 

PLEASE VOTE YOUR SHARES BY TELEPHONE, THROUGH THE INTERNET OR BY PROMPTLY
MARKING, DATING, SIGNING AND RETURNING THE ENCLOSED PROXY CARD.

 

Gary W. Pottorff
Corporate Secretary

 

Important Notice Regarding the Availability of Proxy Materials
For the Annual Meeting of Stockholders to be Held on May 11, 2010

 

The Proxy Statement and 2009 Annual Report to Stockholders
are available at http://ir.nisource.com/annuals.cfm

 

TABLE OF CONTENTS

 

 

The accompanying proxy is solicited on behalf of the Board of Directors of the Company. The common stock, $.01 par value per share, of the Company represented by the proxy will be voted as directed. If you return a signed proxy card without indicating how you want to vote your shares, the shares represented by the accompanying proxy will be voted as recommended by the Board of Directors “FOR” all of the nominees for director, “FOR” the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accountants for 2010; “FOR” approval of the amendment of the Company’s By-Laws to give holders of 25% of our outstanding common stock the power to call special meetings of stockholder (the “Special Meetings Proposal”); “FOR” approval of the NiSource Inc. 2010 Omnibus Incentive Plan; and “AGAINST” the stockholder proposal regarding a three-year post-termination stock retention policy for senior executives.

 

This proxy statement and form of proxy are first being sent to stockholders on April 2, 2010. The Company will bear the expense of this solicitation. The original solicitation of proxies by mail and a reminder letter may be supplemented by telephone, facsimile, e-mail and personal solicitation by officers, employees, and agents of the Company or its affiliates. To aid in the solicitation of proxies, the Company has retained Laurel Hill Advisory Group, LLC for a fee of $9,500 plus reimbursement of expenses. The Company also will request brokerage houses and other nominees and fiduciaries to forward proxy materials, at the Company’s expense, to the beneficial owners of stock held of record by such persons.

 

The close of business on March 15, 2010 is the date for determining stockholders entitled to notice of and to vote at the Annual Meeting. As of March 15, 2010, 277,126,434 shares of common stock were issued and outstanding. Each share of common stock outstanding on that date is entitled to one vote on each matter presented at the Annual Meeting.

 

If you are a stockholder of record (that is, if you hold shares of common stock of the Company in your own name), you may vote your shares by proxy using any of the following methods:

 

 

If your shares are held by a broker, bank or other nominee in “street name,” you will receive voting instructions from that entity, the “record holder,” that you must follow in order to have your shares of common stock voted at the Annual Meeting. If your shares are held by a broker or other nominee and you or any other person entitled to vote those shares does not provide the broker or other nominee with instructions as to how to vote such shares, that broker or nominee will only be able to vote your shares on the matters for which the broker or other nominee has discretionary authority. Brokers and most other nominees will have discretionary authority to vote your shares of common stock only with regard to the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accountants for 2010 and the stockholder proposal regarding a stock retention policy requiring that senior executives retain a significant percentage of stock acquired through compensation programs until three years following termination of employment. We do not believe that brokers and most other nominees will have discretionary authority to vote your shares with respect to the election of directors, the Board of Directors’ Special Meetings Proposal or approval of the NiSource Inc. 2010 Omnibus Incentive Plan. Therefore, it is important that you instruct your broker or other nominee how to vote your shares.

 

If you hold your shares in the Company’s 401(k) plan administered by Fidelity Investments, you will need to vote your shares by one of the methods discussed in this Proxy Statement in order to have your vote counted. Fidelity will not exercise any voting discretion over the shares held in its accounts. If you fail to vote by returning a completed proxy card, or by telephone or through the Internet, your shares held through Fidelity will not be voted.

If you plan to attend the Annual Meeting, please so indicate when you vote, so that the Company may send you an admission ticket and make the necessary arrangements. Stockholders who plan to attend the meeting must present picture identification along with an admission ticket or evidence of current beneficial ownership.

 

You also may come to the Annual Meeting and vote your shares in person by obtaining and submitting a ballot that will be provided at the meeting. However, if your shares are held in street name by a broker, bank or other nominee, including Fidelity Investments as administrator of the Company’s 401(k) plan, then in order to be able to vote at the meeting, you must obtain a proxy, executed in your favor, from the institution that is the holder of record of your shares, indicating that you were the beneficial owner of the shares on March 15, 2010, the record date for voting, and that the record holder is giving you the proxy to vote the shares.

 

You may revoke your proxy at any time before a vote is taken or the authority granted is otherwise exercised. To revoke a proxy, you may send to the Company’s Corporate Secretary a letter indicating that you want to revoke your proxy or you can supersede your initial proxy by (i) delivering to the Corporate Secretary a duly executed proxy bearing a later date, (ii) voting by telephone or through the Internet on a later date, or (iii) attending the meeting and voting in person. Attending the Annual Meeting will not in and of itself revoke a proxy.

 

A quorum of stockholders is necessary to take action at the Annual Meeting. A majority of the outstanding shares of common stock, present in person or represented by proxy, will constitute a quorum at the Annual Meeting. The inspectors of election appointed for the Annual Meeting will determine whether or not a quorum is present. The inspectors of election will treat abstentions and broker non-votes as present and entitled to vote for purposes of determining the presence of a quorum. A broker non-vote occurs when a broker holding shares for a beneficial owner does not have authority to vote the shares and has not received instructions from the beneficial owner as to how the beneficial owner would like the shares to be voted.

 

In order for a director to be elected, a nominee must receive more votes in favor of his or her election than against their election. Ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accountants for 2010, approval of the amendment to our By-Laws to give holders of 25% of our outstanding common stock the power to call special meetings of stockholders, approval of the NiSource Inc. 2010 Omnibus Incentive Plan, and adoption of the stockholder proposal regarding a stock retention policy for senior executives each requires the affirmative vote of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote.

 

Votes cast in person or represented by proxy at the meeting will be tabulated by the inspectors of election. Abstentions will have the same effect as a vote against a proposal.

 

The Company’s Board of Directors consists of eleven directors who will be elected at this year’s Annual Meeting and each will serve until the 2011 Annual Meeting.

 

At the recommendation of the Corporate Governance Committee, the Board of Directors has nominated the persons listed below to serve as directors for the term beginning at the Annual Meeting on May 11, 2010 and running until the 2011 Annual Meeting. The nominees include ten independent directors, as defined in the applicable rules of the New York Stock Exchange (“NYSE”), and the President and Chief Executive Officer of the Company. The Board of Directors does not anticipate that any of the nominees will be unable to serve, but if any nominee is unable to serve, the proxies will be voted in accordance with the judgment of the person or persons acting thereunder.

 

All of the nominees currently serve on the Board of Directors.

 

The following chart gives information about all nominees (each of whom has consented to being named in the proxy statement and to serving if elected). The dates shown for service as a director include service as a director of the corporate predecessors of NiSource Inc. (incorporated in Indiana) and Northern Indiana Public Service Company.

 

Vote Required

 

In order to be elected, each nominee must receive more votes cast in favor of his or her election than against election. Broker non-votes will not be voted with respect to the election of directors and therefore will have no effect on the vote.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH OF THE NOMINEES LISTED BELOW.

 

 

For many years, a substantial majority of the Company’s Board of Directors (the “Board”) has been comprised of “independent” directors. In order to assist the Board in making its determination of director independence, the Board has adopted categorical standards of independence consistent with the standards contained in Section 303A.02(b) of the NYSE Corporate Governance Listing Standards. The Company’s categorical standards of independence are listed in the Company’s Corporate Governance Guidelines, a copy of which can be found on the Company’s website at http://ir.nisource.com/governance.cfm.

 

The Board has affirmatively determined that all of the members of the Board (except Mr. Skaggs) and all nominees (except Mr. Skaggs) are “independent directors” as defined in Section 303A.02(b) of the NYSE Listing Standards and meet the standards for independence set by the Board.

 

To promote open discussion among the non-management directors, the Board of Directors schedules regular executive sessions at meetings of the Board and the Corporate Governance Committee. All non-management directors are also members of the Corporate Governance Committee. The non-management members met separately from management seven times in 2009. Mr. Ian M. Rolland, the Chairman of the Board, serves as lead, or presiding director at the executive sessions of the non-management directors. All of the non-management members are “independent” directors.

 

Stockholders and other interested persons may communicate any concerns they may have regarding the Company as follows:

 

 

NiSource Inc.
Attention: [Board of Directors]/[Board
Member]/[Non-management Directors]/[Lead Director]
c/o Corporate Secretary
801 East 86th Avenue
Merrillville, Indiana 46410

 

 

NiSource Inc.
Vice President, Ethics and Compliance
801 East 86th Avenue
Merrillville, Indiana 46410

 

The Board of the Company has adopted a Code of Business Conduct (the “Code”) to promote (i) ethical behavior including the ethical handling of conflicts of interest, (ii) full, fair, accurate, timely and understandable financial disclosure, (iii) compliance with applicable laws, rules and regulations, (iv) accountability for adherence to the Code and (v) prompt internal reporting of violations of the Code. The Code satisfies applicable Securities and Exchange Commission and NYSE requirements and applies to all directors, officers (including the Company’s

principal executive officer, principal financial officer, and principal accounting officer and controller) and employees of the Company and its affiliates. A copy of the Code is available on the Company’s website at http://ir.nisource.com/governance.cfm and will be provided by the Company to any stockholder who requests it in writing from the Company’s Corporate Secretary.

 

Any waiver of the Code for any director, Section 16 officer or senior executive may be made only by the Audit Committee of the Board and must be promptly disclosed to the extent and in the manner required by the Securities and Exchange Commission or the NYSE and posted on the Company’s website. No waivers have been granted under the Code.

 

The Corporate Governance Committee is responsible for reviewing and reassessing the Corporate Governance Guidelines periodically and will submit any recommended changes to the Board for its approval. A copy of the Corporate Governance Guidelines can be found on the Company’s website at http://ir.nisource.com/governance.cfm and will be provided by the Company to any stockholder who requests it in writing from the Company’s Corporate Secretary.

 

The Company’s Corporate Governance Guidelines state that the Company should remain free to configure leadership of the Board in the way that best serves the Company’s interests at the time and, accordingly, the Board has no fixed policy with respect to combining or separating the offices of Chairman and Chief Executive Officer. If the Chairman is not an independent director, the Board will choose a lead director to serve as chair of the Corporate Governance Committee and as the presiding director for purposes of the NYSE rules.

 

Since late 2006, the offices of Chairman and Chief Executive Officer of the Company have been held by different individuals, with the Chairman being an independent director. In deciding to separate the offices, the Board believed that having a director with a long tenure serve as Chairman would help ensure continuity and stability during a transition period between Chief Executive Officers. The Board believes that the independent chair arrangement continues to serve the Company well.

 

The Board takes an active role in monitoring and assessing the Company’s risks, which include risks associated with operations, credit, energy supply, financing and capital investments. The Board administers its oversight function through utilization of its various committees, as well as through a Risk Management Committee, consisting of members of the Company’s senior management, which is responsible for the risk management process. The Audit Committee discusses with management and the independent auditor the effect of regulatory and accounting initiatives on the Company’s financial statements and is responsible for overseeing the risk management program generally. In addition, the Finance Committee, Officer Nomination and Compensation Committee and the Environmental, Safety and Sustainability Committee are each charged with overseeing the risks associated with their respective areas of responsibility. The Audit Committee receives regular updates on the activities of the Risk Management Committee and any significant policy breach.

 

The Board met five times during 2009. Each director attended at least 89% of the combined total number of the Company’s Board meetings and the meetings of the committees on which he or she was a member. The Board has established five standing committees to assist the Board in carrying out its duties: the Audit Committee; the Corporate Governance Committee; the Environmental, Safety and Sustainability Committee (“ES&S”); the Finance Committee; and the Officer Nomination and Compensation Committee (“ON&C”). Pursuant to the Company’s Corporate Governance Guidelines, all directors are expected to attend the Annual Meeting. All incumbent directors attended the 2009 Annual Meeting of Stockholders. The following table shows the composition of each Board committee during 2009.

 

 

 

 

Audit Committee

 

The Audit Committee met nine times in 2009. Among other things, the Audit Committee is responsible for monitoring:

 

 

The charter for the Audit Committee can be found on the Company’s website at http://ir.nisource.com/governance.cfm and will be provided by the Company to any stockholder who requests it in writing from the Company’s Corporate Secretary.

 

The Board has determined that all of the members of the Audit Committee are independent as defined under the applicable NYSE and SEC rules and meet the additional independence standard set forth in the Corporate Governance Guidelines. The Audit Committee has reviewed and approved the independent registered public accountants, both for 2009 and 2010, and the fees relating to audit services and other services performed by them.

 

For more information regarding the Audit Committee please see the Audit Committee Report.

 

Corporate Governance Committee

 

The Corporate Governance Committee met five times in 2009. The Corporate Governance Committee is responsible for:

 

 

Pursuant to the Corporate Governance Guidelines, the Committee, with the assistance of the Company’s staff, reviews the amount and composition of director compensation from time to time and makes recommendations to the Board when it concludes changes are needed. The Committee is also responsible for the evaluation of the CEO’s performance and the direct reports of the CEO. The Committee reviews and approves the Company’s goals and objectives relevant to the CEO and his direct reports’ and evaluates their performance in light of those goals and objectives and after receiving input from the Board of Directors. The Chair of the Committee reports the Committee’s findings to the Officer Nomination and Compensation Committee, which uses these findings to set the compensation of the CEO and his direct reports.

 

The Committee identifies and screens candidates for director and makes its recommendations for director to the Board as a whole. The Committee has the authority to retain a search firm to help it identify director candidates to the extent it deems necessary or appropriate. Based on the Committee’s recommendations, the Board as a whole selects the candidates for director. In considering candidates for director, the Committee considers the nature of the expertise and experience required for the performance of the duties of a director of a company engaged in the company’s business, as well as each candidate’s relevant business, academic and industry experience, professional background, age, current employment, community service and other Board service. Pursuant to the Corporate Governance Guidelines, the Committee also considers the racial, ethnic and gender diversity of the Board. The Committee seeks to identify and recommend candidates with a reputation for and record of integrity and good business judgment who (1) have experience in positions with a high degree of responsibility and are leaders in the organizations with which they are affiliated, (2) are effective in working in complex collegial settings, (3) are free from conflicts of interest that could interfere with a director’s duties to the Company and its stockholders and (4) are willing and able to make the necessary commitment of time and attention required for effective Board service. The Committee also takes into account the candidate’s level of financial literacy. The Corporate Governance Committee monitors the mix of skills and experience of the directors in order to assess whether the Board has the necessary tools to perform its oversight function effectively. The Committee also assesses the diversity of the Board as part of its annual self-assessment process. The Committee will consider nominees for directors recommended by stockholders and will use the same criteria to evaluate candidates proposed by stockholders.

 

The Board has determined that all of the members of the Corporate Governance Committee are independent as defined under the applicable NYSE rules and meet the additional independence standard set forth in the Corporate Governance Guidelines by the Board.

 

The charter for the Corporate Governance Committee can be found on the Company’s website at http://ir.nisource.com/governance.cfm and will be provided by the Company to any stockholder who requests it in writing from the Company’s Corporate Secretary.

 

For information on how to nominate a person for election as a director at the 2011 Annual Meeting, please see the discussion under the heading “Stockholder Proposals and Nominations for 2011 Annual Meeting.”

 

Environmental, Safety and Sustainability Committee

 

The Environmental, Safety and Sustainability Committee met four times during 2009. The Board changed the name of the Committee from Environmental, Health & Safety to Environmental, Safety & Sustainability to reflect its oversight of programs and performance relative to sustainability matters. In addition, the Committee reviews the results of environmental compliance of the Company and considers environmental public policy issues as well as health and safety issues affecting the Company. The charter for this Committee can be found on the Company’s website at http://ir.nisource.com/governance.cfm and will be provided by the Company to any stockholder who requests it in writing from the Company’s Corporate Secretary.

 

Finance Committee

 

The Finance Committee met nine times during 2009. This Committee is responsible for overseeing and monitoring the financial plans of the Company, capital structure and financial risk. The charter for the Finance Committee can be found on the Company’s website at http://ir.nisource.com/governance.cfm and will be provided by the Company to any stockholder who requests it in writing from the Company’s Corporate Secretary.

Officer Nomination and Compensation Committee

 

The Officer Nomination and Compensation Committee met six times in 2009. The charter for the Officer Nomination and Compensation Committee can be found on the Company’s website at http://ir.nisource.com/governance.cfm and will be provided by the Company to any stockholder who requests it in writing from the Company’s Corporate Secretary. Pursuant to the charter, this Committee advises the Board with respect to nomination, evaluation, compensation and benefits of the Company’s executives. In that regard, the Committee:

 

 

All of the directors serving on the Committee are (i) independent as defined under the applicable NYSE rules and meet the additional independence standard set forth in the Corporate Governance Guidelines, (ii) “non-employee directors” as defined under the Rule 16b-3 of the Securities Exchange Act of 1934, and (iii) “outside directors” as defined by Section 162(m) of the Internal Revenue Code.

 

Compensation Committee Interlocks and Insider Participation

 

There are no compensation committee interlocks.

 

Director Compensation.  The Company uses a combination of cash and stock-based awards to attract and retain highly qualified candidates to serve on the Board. Only non-employee directors receive director compensation, therefore, since Mr. Skaggs is an employee of the Company, he does not receive compensation for his service as a Board member.

 

The Company currently pays each director who is not receiving a salary from the Company an annual retainer of $165,000, consisting of $82,500 in cash and an award of restricted stock units valued at $82,500, under the Company’s Non-employee Director Stock Incentive Plan. The cash retainer and the restricted stock units are paid and granted in arrears in four equal installments on the last business day of each calendar quarter. The number of restricted units issued each quarter is determined by dividing the value of the grant by the closing price of the Company’s common stock on the last business day of the relevant quarter.

 

In keeping with industry trends, the Board continues to provide additional compensation to those directors who take on additional responsibilities and serve as the chair of a Board committee. The annual committee chair fees are: Audit Committee $20,000; Officer Nomination & Compensation Committee $18,000, and the Finance Committee and Environmental Safety & Sustainability Committee $15,000. The chairman of the Board also serves as the chair of the Corporate Governance Committee and receives additional annual compensation of $135,000 per year. Fees paid to the chairman of the Board and the committee chairs are paid in cash in four equal installments in arrears. Fees are also prorated based on when Board and committee service begins or ends.

 

Director Retirement Plan — (Discontinued).  On March 25, 2008, the Board elected to terminate any future accrual of benefits under the Retirement Plan beyond May 13, 2008. The Company’s Non-employee Director Retirement Plan provided a retirement benefit for each non-employee director serving on the Board who was originally elected or appointed to the Board on or before December 31, 2001, who had completed at least five years

of service on the Board and who did not elect to opt out of the plan during 2002. The benefit under the Retirement Plan was a monthly amount equal to one-twelfth of the annual retainer for Board service in effect at the time of the director’s retirement from the Board and would be paid for 120 months, or the number of full months of service the individual served as a non-employee director of the Company, whichever was less.

 

As a result of the Board electing to terminate any future accrual of the benefits under the Retirement Plan, Drs. Beering and Woo made an election to receive the value of their accrued benefit in cash or restricted stock units under the Non-employee Director Stock Incentive Plan, or a combination thereof. Dr. Beering elected to receive his benefit 50% in cash and 50% in restricted stock units. Dr. Woo elected to receive her benefit 60% in cash and 40% in restricted stock units. The restricted stock units were issued on May 13, 2008, and will be distributed after the director leaves the Board in accordance with the provisions of the Non-employee Director Stock Incentive Plan. The cash portions were paid in January 2009 and reflected in the Director Compensation table.

 

Non-employee Director Stock Incentive Plan.  The provisions of the Plan permit the Board to approve awards of restricted stock or restricted stock units. All grants of restricted stock vest in 20% increments over five years. There are currently no outstanding grants of restricted stock. All grants of restricted stock units vest immediately but are not distributed until the non-employee director terminates or retires from the Board. With respect to restricted stock, dividends are paid to holders in cash on the date dividends are actually paid to stockholders of the Company. With respect to restricted stock units, additional restricted stock units are credited to each non-employee director to reflect dividends paid to stockholders of the Company with respect to common stock. The restricted stock units have no voting or other stock ownership rights and are payable in shares of the Company’s common stock upon the directors termination of service from the Board. Restricted stock units granted after January 1, 2004, will be paid in shares six months after the date of termination from the Board.

 

The Board may designate that a scheduled award will consist of nonqualified stock options to purchase shares of the Company’s common stock rather than shares of restricted stock or restricted stock units. In such event, in lieu of shares of restricted stock or restricted stock units, each non-employee director would be granted a nonqualified stock option with a market value on the date of any such grant equal to the dollar value of the grant otherwise scheduled to be made to such non-employee director on such date. Grants of nonqualified stock options vest in 20% annual increments and become fully vested on the fifth anniversary of the date of the grant. The grants will vest immediately upon the director’s death, disability or retirement after attaining age 70, or the effective date of a change in control of the Company. No awards of nonqualified stock options have been made under the Plan.

 

Director’s Stock Ownership.  In 2008, the Board updated its Corporate Governance Guidelines to include stock ownership requirements for its directors. Within five years of adopting these ownership requirements, each non-employee director is required to hold an amount equal to or greater than four times the annual cash retainer paid to directors by the Company. Company stock that counts towards satisfaction of this requirement includes shares purchased on the open market, awards of restricted stock or restricted stock units through the Non-employee Director Stock Incentive Plan, and shares beneficially owned in a trust or by a spouse or other immediate family member residing in the same household.

 

Each director has a significant portion of their compensation directly aligned with long-term stockholder value. During 2009, fifty (50%) of the Board’s annual retainer was awarded in restricted stock units. Each unit is equal to one share of common stock and is not distributed to the director until the director leaves the Board.

The table below shows the number of shares of common stock beneficially owned by each director, the number of non-voting restricted stock units that have been awarded, and the total as of March 1, 2010.

 

 

 

 

Director Compensation

 

The table below sets forth all compensation earned by NiSource’s non-employee directors in 2009. Mr. Skaggs is the Company’s only employee director and does not receive any separate compensation for his service on the Board.

 

 

 

 

 

The following table contains information about those persons or groups that are known to the Company to be the beneficial owners of more than five percent of the outstanding common stock.

 

 

 

 

The following table contains information about the beneficial ownership of the Company’s common stock as of March 1, 2010 for each of the directors, nominees and Named Officers, and for all directors and executive officers as a group.

 

 

 

 

Overview of Executive Compensation Philosophy and Decisions

 

The Officer Nomination and Compensation Committee, referred to as the “Committee” throughout the Compensation Discussion and Analysis, is composed entirely of independent directors. The Committee administers the executive compensation programs. It approves the compensation of the Chief Executive Officer (“CEO”), based on the Corporate Governance Committee’s report on its evaluation of CEO performance. The Committee also makes recommendations to the Board with respect to incentive-compensation plans and equity-based plans and reviews and approves the general compensation policy for other officers of the Company and officers of its principal affiliates. Further, the Committee makes recommendations to the Board with respect to the specific compensation of the CEO’s direct executive reports, which we refer to as the Company’s senior executives.

 

The Company’s executive compensation program is designed to attract and retain highly qualified executives and provide compensation in a manner that is aligned with the Company’s strategic plan to create additional stockholder value. The compensation policy is designed to relate total compensation to corporate performance, while remaining competitive with the compensation practices of competitors in the energy industry and, to a lesser

extent, general industry. Total compensation opportunities are defined as the sum of base salary, annual incentives and the grant date value of long-term incentives (LTI).

 

Prior to May 2009, the Committee engaged the services of Hewitt Associates, an executive compensation consulting firm, to advise it with respect to compensation design, comparative compensation practices, and other compensation matters. The Company paid $71,284 to Hewitt for these consulting services. Under separate agreements, Hewitt also provides other services to the Company, including benefits administration, actuarial services, and health and welfare consulting. For 2009, the total amounts paid to Hewitt for its services to the Company and its pension trusts was $8,057,584. The Committee’s decision to engage Hewitt to provide consulting services to the Committee was independent of the Company’s engagement of Hewitt for these other services. The Committee instructed Hewitt that its executive compensation consultant was to act independently of management with respect to the executive compensation services Hewitt provides to the Committee. The same executive compensation consultant worked with the Committee for several years. He did not receive any incremental compensation from Hewitt for Hewitt’s provision of any other services to the Company and he did not receive any individual incentives for cross-selling other Hewitt services. He did not manage the overall relationship with the Company, and the Committee reasonably believes that his judgments were not in any way influenced by the other work Hewitt performed. Nevertheless, in order to further strengthen the Company’s governance practices, the Corporate Governance Committee, at its January 2009 meeting, unanimously approved a change in Board policy such that, following a transition period of no more than six months, future executive compensation consultants advising the Committee would not be retained to provide any other services to the Company, its affiliates or its senior executive officers. Accordingly, in May 2009 the Committee retained the services of Exequity as an independent executive compensation consultant. Exequity provides no other services to the Company or its affiliates. The Committee meets with the executive compensation consultant in executive session without management present.

 

For its 2009 compensation considerations, the Committee engaged Hewitt to provide the Committee survey information for a group of energy companies, including gas, electric, combination utility, and natural gas transmission companies. For its 2009 considerations, the Committee approved the following energy company comparative group:

 

Energy Company Comparative Group

 

AGL Resources Inc		Nicor Inc.
Allegheny Energy, Inc.		Pepco Holdings, Inc.
Ameren Corporation		PG&E Corporation
American Electric Power Company, Inc.		PNM Resources, Inc.
Aquila, Inc.		PPL Corporation
CenterPoint Energy, Inc.		Public Service Enterprise Group
CMS Energy Corporation		Questar Corp
Dominion Resources, Inc.		SCANA Corporation
DTE Energy Company		Sempra Energy
Duke Energy Corporation		Southern Company
El Paso Corp		TXU Corp.
Equitable Resources Inc.		WGL Holdings, Inc.
FirstEnergy Corp		Williams Cos Inc.
Kinder Morgan Energy — LP

 

In making its recommendations concerning the various components of executive compensation, the Committee takes into account various factors, including:

 

 

 

In making its compensation decisions for the CEO, the Committee considers the Corporate Governance Committee’s evaluation of the CEO’s performance. Under the Company’s governance structure, the Corporate Governance Committee has the responsibility to evaluate the CEO’s performance. The Corporate Governance Committee also meets with the CEO and the Senior Vice President, Human Resources, to review the performance of the other senior executives. In this meeting, the Corporate Governance Committee also reviews the Company’s succession plans for senior executives. Because all of the members of the Committee are also members of the Corporate Governance Committee, each member of the Committee participates in this performance review discussion.

 

For 2009, the Committee considered the performance reviews of senior executives in making its compensation recommendations to the Board. The Committee recommends adjustments to compensation based upon the individual’s contributions to the Company, the achievement of predetermined goals and the performance of the business. The Committee discusses and considers these factors, and then makes compensation recommendations to the full Board, which takes the final action on these matters. The Board accepted all of the Committee’s recommendations in 2009.

 

Elements of Compensation

 

The executive compensation program consists of: base salary; an annual incentive plan; long-term incentive opportunities; benefit programs (including pension, retirement savings, deferred compensation and health and welfare); a limited amount of perquisites; and post-termination benefits. With respect to balancing these elements, the Committee considers competitive conditions, internal comparisons, Company and individual performance and evolving governance practices.

 

The Committee approves compensation for Robert C. Skaggs, Jr., President and CEO. The Committee makes recommendations to the Board with respect to the compensation of the Company’s other senior executive officers, which includes all of the other Named Officers (the Named Officers, in addition to the CEO, are the Chief Financial Officer, and the three other most highly compensated executive officers as of December 31, 2009).

 

The Committee’s overall compensation philosophy is to provide a competitive total compensation program based on the range of compensation paid by similar energy companies, taking into account the Company’s performance. The Committee seeks to align executive compensation with Company performance.

 

2009 Base Salary Freeze for Named Officers.  Generally, the Committee targets base salary at the range of compensation paid by the companies in the Energy Company Comparative Group in order to be competitive for these executive positions, and reviews the base salary of the Company’s senior executives annually. For 2009, however, Mr. Skaggs recommended, and the Committee approved, that the Company should freeze the base salaries of its senior executives, including all of the Named Officers. The Committee determined that, despite the strong performance of Mr. Skaggs and his senior executive team in meeting the Company’s operational and financial objectives during 2008, this action was appropriate given the then-current economic climate and the Company-wide cost-savings initiatives being implemented in 2009.

 

2009 Annual Incentive Plan.  The Committee determines annual incentive ranges for all senior executives under the NiSource Corporate Incentive Plan, which is a broad-based plan that extends to most employees within the organization. The purpose of this component is to provide an incentive opportunity for employees based upon the annual performance of the Company. As in past years, every eligible employee has an incentive level that identifies their incentive opportunity at trigger, target and stretch.

 

In determining incentive compensation ranges, the Committee considered benchmark information, advice from the compensation consultant, historical payouts and individual executive performance. The Committee did not change the incentive compensation ranges for incumbent Named Officers from their 2008 levels.

The incentive ranges for the Named Officers, stated as a percentage of base salary, under the Corporate Incentive Plan in 2009 were:

 

Robert C. Skaggs, President and Chief Executive Officer		35% to 105% with a target of 70%
For the other Named Officers		32.5% to 97.5% with a target of 65%

 

Under the 2009 NiSource Corporate Incentive Plan (“Incentive Plan”), the Board established a corporate trigger financial goal of $1.05 of net operating earnings per share (after accounting for the cost of any incentive payout). The Company uses net operating earnings, a non-GAAP financial measure, for determining financial performance for its incentive compensation plans because the Board and management believes this measure better represents the fundamental earnings strength and performance of the Company. NiSource uses this measure internally for budgeting and for reporting to the Board. Net operating earnings is defined as income from continuing operations determined in accordance with Generally Accepted Accounting Principles (GAAP) adjusted for certain items, such as weather, gains and losses on the sale of assets, and certain out-of-period items and reserve adjustments. The Board further established a corporate target financial goal of $1.10 of net operating earnings per share and a stretch financial goal of $1.15 net operating earnings per share.

 

In addition to the corporate operating earnings measure, the Incentive Plan also established earnings and cash flow goals for the Company’s three business units. The respective units had goals at trigger, target and stretch levels. For employees in the Company’s respective business units, 25% of their incentive opportunity was based upon overall corporate performance, 37.5% was based upon business unit earnings and 37.5% was based upon business unit cash from operations. Most of the employees in the corporate services functions were allocated to business units for incentive purposes, based upon where their work was focused. For the remaining employees in the corporate services functions, 100% of their incentive opportunity was based upon overall corporate performance. For senior executives, including all the Named Officers, the Board established three measures for incentive purposes: net operating earnings per share; corporate funds from operations; and total debt as of December 31, 2009. The Board established these goals based upon its determination that these measures were vital to the Company’s performance in 2009 and to increasing shareholder value. The specific measures were as follows:

 

 

If the Company and, where applicable, the business unit, meet their respective goals, employees in good standing are eligible to receive an incentive in accordance with the plan. The Committee retains the discretion once the trigger is met to pay incentives under the Incentive Plan for each Named Officer. Additionally, a profit sharing contribution of between 0.5% and 1.5% of an employee’s eligible earnings may be made to the account of each eligible employee, including the Named Officers, in the Company’s Retirement Savings Plan, based on the overall corporate financial performance measure.

 

In 2009, the Company achieved $1.07 of net operating earnings per share (after accounting for the cost of any incentive payout). Because the Company exceeded the trigger level of financial performance, the Committee deemed it appropriate to fund the portion of the incentive pool based upon corporate performance at a level of 70% of target. The funding of the portions of the incentive pool based upon business unit performance varied. The NiSource Gas Transmission and Storage (’NGT&S”) business unit exceeded its stretch goals for both earnings and cash from operations. The NiSource Gas Distribution (“NGD”) business unit met its target goal for earnings but exceeded its stretch goal for cash from operations. The Northern Indiana Energy (“NIE”) business unit failed to meet its trigger goal for earnings and exceeded its stretch goal for cash from operations. Mr. Skaggs requested that the Committee and Board fund the corporate services function at 100% of target because much of the work that had been done in 2009 to address financial issues, increase corporate cash flow, and access the credit markets had been accomplished by employees in the corporate services group. The Committee agreed to Mr. Skaggs’ request. The

Committee recommended to the Board, based upon the corporate performance and the respective business units’ performance, that overall payouts to the respective units be funded as follows:

 

 

The Board accepted the Committee’s recommendations regarding the Incentive Plan.

 

Further, the Company made a profit sharing contribution of 0.5% of an employee’s eligible earnings, including those of the Named Officers, to the respective employees’ accounts in the Company’s Retirement Savings Plan.

 

2009 Incentive Plan Payouts to the Named Officers.  In January, 2010, Mr. Skaggs, as he had in prior years, requested that he not receive his cash payout for 2009 under the Incentive Plan, which would have been $690,000. The Committee agreed to this request. The Committee, in place of the cash payment, however, granted Mr. Skaggs 46,685 restricted stock units, which had a face value of $690,000 as of the date of the grant, January 22, 2010. The service conditions for these units lapse January 22, 2013. The Committee granted these units to Mr. Skaggs to recognize his leadership and the Company’s performance in 2009 in the face of a severe economic recession and highly stressed capital markets, including: the achievement of the Company’s net operating earnings per share, funds from operations, and total debt goals; the successful execution of a comprehensive liquidity plan; maintaining an investment-grade credit rating; and achieving total stockholder return of nearly fifty percent.

 

Mr. Skaggs made recommendations to the Committee with respect to the award of incentive payouts to senior executives, including all of the Named Officers, for 2009. With respect to the incentive goals for senior executives the Board established for 2009, the Company exceeded the trigger goal for net operating earnings per share and exceeded the stretch goals for senior executive’s funds from operations and debt. The Committee considered Mr. Skaggs’ recommendations, as well as overall corporate performance, the contributions of the individual executives, the individual executive’s incentive range and the funding level of the incentive pool approved by the Board. The Committee, in turn, made its recommendation to the Board. The Board accepted all of the Committee’s recommendations for incentive payouts. The incentive payouts for 2009 to the Named Officers were as follows.

 

 

Long-Term Incentive Plan (LTIP).  The Company’s compensation program includes a long-term incentive component of equity-based compensation. The purpose of this component includes:

 

 

Under the LTIP, the Committee may award stock options, stock appreciation rights, performance units, restricted stock awards, and contingent stock awards. The Committee considers base salaries of the executive officers, prior awards under the LTIP, and the Company’s total compensation philosophy in establishing long-term incentive awards. The actual compensation value of awards under the LTIP depends on actual stock price appreciation and total stockholder return.

 

The Company’s philosophy is that the preponderance of its long-term incentive award opportunities be performance based. Accordingly, 75% of the total long-term incentive opportunity during 2009 for each of the Named Officers was in the form of contingent stock, while 25% was in the form of restricted stock. The contingent stock is contingent upon the Company meeting certain performance goals over the two-year period from 2009 through 2010. In addition to the performance restrictions, the stock is also subject to an employment restriction through January 31, 2010. The contingent stock has three performance measures, each with a one-third weighting. The measures are cumulative net operating earnings over the two-year period, cumulative funds from operations over the two-year period and total debt as of December 31, 2010. The Committee selected these measures because it was their view that they were key drivers to the enhancement of long-term stockholder value. If the threshold level of performance is exceeded on a particular measure, the executive could receive up to a maximum of 150% of the value of that portion of the grant. The measures and goals are:

 

One-third weighting — cumulative net operating earnings per share for 2009-2010

 

 

One-third weighting — funds from operations for 2009-2010 (millions)

 

 

One-third weighting, total debt as of December 31, 2010 does not exceed $7,450,000,000.

 

If prior to the lapse of the conditions, the employee terminates employment (1) due to retirement, having attained age 55 and completed ten years of service, (2) due to disability, or (3) due to death with less than or equal to

12 months remaining in the performance period, the employee will receive a pro rata portion of the contingent stock upon the performance conditions being met. If prior to the lapse of the performance conditions, the employee terminates employment due to death with more than 12 months remaining in the performance period, the employee will receive a pro rata portion of the contingent stock as if the performance conditions had been met. Termination due to any other reason will result in all contingent stock awarded being forfeited effective as of the employee’s date of termination.

 

The 2009 restricted stock vests over approximately three years. The service conditions lapse on January 31, 2012. If before January 31, 2012, the employee terminates employment (1) due to retirement, having attained age 55 and completed ten years of service, or (2) due to death or disability, the employment conditions will lapse with respect to a pro rata portion of the restricted units on the date of termination. Termination due to any other reason will result in all restricted stock awarded being forfeited effective as of the employee’s date of termination.

 

In March 2009, the Committee recommended, and the Board approved, grants of 308,496 restricted shares and 925,490 shares of contingent stock to executives of the Company, including the Named Officers. The Committee determined that it was appropriate to include an equity-based component in the executive compensation program since it was aligned with stockholder interest, was tied to performance, and had a long-term vesting schedule in order to provide an incentive for retention of executives.

 

In determining the 2009 long-term incentive grants to be awarded to the Named Officers, the Committee considered the market information provided by its compensation consultant, as well as the performance of the individuals and the desire to further align the interests of management with those of the Company’s stockholders. With respect to Mr. Skaggs, the Committee also considered that Mr. Skaggs’ total compensation remains below the 50th percentile for CEO’s in the energy company comparative group. The Committee recommended, and the Board authorized, restricted and contingent stock awards to the Named Officers in the following amounts:

 

 

Consistent with the philosophy and principles articulated above, the Committee believes that the 2009 stock awards:

 

 

On January 22, 2010, the Committee granted Mr. Skaggs 46,685 restricted stock units, which vest over three years. The Committee granted these units to Mr. Skaggs because he did not receive a cash incentive payout for 2009, even though the Company met its financial goals and total shareholder return for 2009 was very strong. The service conditions lapse on January 22, 2013. If before January 22, 2013, Mr. Skaggs terminates employment (1) due to retirement or (2) due to death or disability, the employment conditions will lapse with respect to a pro rata portion of the restricted units on the date of the termination. Termination due to any other reason will result in all restricted units awarded being forfeited effective as of his date of termination.

 

Benefits.  The Company provides a variety of health and welfare benefits to its employees, including a number of health care plans, vision, dental, long-term disability and life insurance. The Named Officers are eligible to participate in these plans as employees of the Company. The Company also has the following plans.

Defined Contribution Plans.  Under the NiSource Inc. Retirement Savings Plan, the Company’s 401(k) plan that covers most of the Company’s non-union employees (including the Named Officers), Named Officers can defer a portion of their base salary and receive employer matching contributions that vary according to the terms of the respective pension plans in which they participate. In addition, the Company sponsors the Savings Restoration Plan for NiSource Inc. and Affiliates. The Savings Restoration Plan provides for a supplemental benefit equal to the difference between (i) the benefit an employee would have received under the NiSource Inc. Retirement Savings Plan had such benefit not been limited by sections 415 (a limitation on annual contributions under a defined contribution plan of $49,000 for 2009) and 401(a)(17) (a limitation on annual compensation of $245,000 for 2009) of the Internal Revenue Code, reduced by their deferrals into the Company’s Executive Deferred Compensation Plan, minus (ii) the actual benefit the employee received under the Retirement Savings Plan. All of the Named Officers are eligible to participate in the Savings Restoration Plan.

 

Executive Deferred Compensation Plan.  The Company sponsors the Executive Deferred Compensation Plan whereby employees at certain job levels and other key employees designated by the Committee, including the Named Officers, are eligible to participate. Participants who elect to participate may elect to defer and invest between 5% and 80% of their compensation and between 5% and 100% of their non-equity incentive payment on a pre-tax basis. Employees designate how their contributions will be invested; the investment options generally are the same as those available under the Company’s 401(k) plan except that there are additional investment options for former Bay State Gas Company Plan participants and transferred Columbia Energy Group Plan accounts. Employee contributions and any earnings thereon are 100% vested.

 

Pension Plans.  The Company and its affiliates sponsor several qualified pension plans for their respective employees. The plan, in which an employee participates, including each of the Named Officers, differs depending upon the affiliate into which the employee was hired. The pensions are payable out of a trust fund, which consists of contributions made by the Company and the earnings of the fund. Over a period of years, the contributions are intended to result in overall actuarial solvency of the trust fund.

 

Messrs. Skaggs and O’Donnell participate in the Retirement Plan of Columbia Energy Group Companies, as they were participants in this plan at the time of the acquisition of Columbia Energy Group by NiSource. Messrs. Helms, Smith and Staton participate in the NiSource Pension Plan because they were hired into NiSource Corporate Services Company.

 

Both the Retirement Plan of Columbia Energy Group Companies and the NiSource Pension Plan provide for a “final average pay” benefit. Both plans also adopted a cash balance feature, whereby an executive will have a benefit consisting of an opening account balance plus annual pay and interest credits to the cash balance account. Pay credits equal a percentage of compensation based on the participant’s combined age and service. Interest is credited to the account based on the interest rate on 30-year Treasury securities, as determined by the Internal Revenue Service, for the September immediately proceeding the first day of each year, but not less than 4%. At the time the plans added this cash balance benefit, eligible employees were provided a choice between receiving the final average pay benefit or receiving the cash balance benefit.

 

Both pension plans were amended and restated effective January 1, 2006 to add a new cash balance feature, for exempt employees only. Participants in the plans prior to October 1, 2005 were entitled to elect to remain in the “final average pay feature” or the original cash balance feature, or to begin participating in the new cash balance feature. Participants hired into exempt employee positions on or after October 1, 2005 and prior to January 1, 2006 automatically participated in the original cash balance feature until January 1, 2006, when they automatically began participating in the new cash balance feature. Participants hired into exempt employee positions on or after January 1, 2006 automatically participate in the new cash balance feature. The difference between the original cash balance feature and the new cash balance feature is that the pay credits provided under the new cash balance feature are a lower percentage of compensation based upon a participant’s combined age and service. Participants in the new cash balance feature receive an enhanced matching contribution under the Retirement Savings Plan. As of January 1, 2011, all participants who are exempt employees will participate in the new cash balance feature and will receive the enhanced matching contribution under the Retirement Savings Plan.

 

Mr. Skaggs elected to continue to receive the final average pay benefit under the Retirement Plan of Columbia Energy Group Companies. The formula for a retiree’s monthly retirement benefit at age 65 under the Retirement

Plan of Columbia Energy Group is (i) 1.15% of the retiree’s final average compensation that does not exceed 1/2 of the taxable Social Security wage base times years of service up to 30, plus (ii) 1.5% of the retiree’s final average compensation in excess of 1/2 of the taxable Social Security wage base times years of service up to 30, plus (iii) 0.5% of the retiree’s final average compensation times years of service between 30 and 40.

 

Messrs. O’Donnell and Helms elected to receive the new cash balance benefit.

 

The Company also sponsors the Pension Restoration Plan for NiSource Inc. and Affiliates. The Pension Restoration Plan is a nonqualified defined benefit plan. The plan includes employees of the Company and its affiliates (including all of the Named Officers) whose benefits under the applicable tax-qualified pension plan are limited by sections 415 and 401(a)(17) of the Internal Revenue Code. The Pension Restoration Plan provides for a supplemental retirement benefit equal to the difference between (i) the benefit a participant would have received under the qualified pension plan had such benefit not been limited by section 401(a)(17) of the Internal Revenue Code and reduced by deferrals into the Company’s Executive Deferred Compensation Plan, minus (ii) the actual benefit received under the qualified pension plan. Benefits earned under the Pension Restoration Plan are used to offset amounts earned under the Supplemental Executive Retirement Plan.

 

Supplemental Executive Retirement Plan.  The Company also has a Supplemental Executive Retirement Plan which applies to those officers and other employees selected by the Board to participate in the plan. Benefits from this plan are to be paid from the general assets of the Company. For each officer and employee who first participated in the Supplemental Executive Retirement Plan prior to January 23, 2004, the Supplemental Executive Retirement Plan provides a retirement benefit at age 62, or age 60 and the completion of at least 25 years of service, of the greater of (i) 60% of final average pay (prorated for less than 20 years of service) and an additional 0.5% of final average pay per year between 20 and 30 years of service, less 5% of primary Social Security benefits (prorated for less than 20 years of service) or (ii) the benefit formula under the NiSource qualified pension plan. Final average pay is determined by dividing the participant’s total compensation during the 60 consecutive months within the last 120 months of service that produce the highest result, by the number of months for which such compensation was received. For purposes of the Plan, total compensation is compensation as defined in the NiSource Pension Plan (but disregarding the limitations required by Code Section 401(a)(17) and the 50% limitation applicable to bonuses). In either case, the benefit is reduced by the actual pension payable from the qualified pension plan covering the officer or employee and benefits earned under the Pension Restoration Plan. In addition, the Supplemental Executive Retirement Plan provides certain early retirement and disability benefits and pre-retirement death benefits for the spouse of a participant. Mr. O’Donnell is the only Named Officer who participates in the Supplemental Executive Retirement Plan and his participation is based on his service and compensation with the Company and its affiliates from and after November 1, 2000.

 

Perquisites.  Perquisites are not a principal element of the Company’s executive compensation program. The Company’s perquisites are limited in number and modest in dollar value in comparison to its principal elements of compensation. They are intended to assist executive officers in the performance of their duties on behalf of the Company or otherwise to provide benefits that have a combined personal and business purpose.

 

The Committee annually reviews the types and costs of perquisites provided by the Company to its Named Officers to be sure that the perquisites are in line with the Company’s compensation philosophy. During 2009, the only perquisite offered by the Company to all of its Named Officers was financial planning and tax advisory services. The Company did not reimburse the Named Officers for the payment of personal income taxes in connection with this benefit.

 

In addition to the perquisite discussed above, certain individual Named Officers also received an automobile leasing and annual physical perquisite. Both of these perquisites have been discontinued but not with respect to Named Officers who received them under prior practice.

 

From time to time, the Company provides benefits in the form of relocation services and the payment of relocation expenses, where an officer relocates at the Company’s request or as a result of a job transfer, and may also allow limited personal use of Company aircraft or limited spousal travel in conjunction with attending Company events. None of these benefits were provided during 2009.

Post-Termination Benefits.  The Company maintains an executive severance policy, Change in Control Agreements with the Named Officers and letter agreements with Messrs. Helms, Smith, and Staton regarding payments to be made in connection with the termination of employment of the executive. Messrs. Skaggs and O’Donnell are also entitled to receive payments for vested phantom stock units that were given to them in February 2001 as an inducement to remain employed with the Company following the Company’s acquisition of Columbia Energy Group. The Company entered into the Change in Control Agreements based upon its belief that these agreements are in the best interests of the stockholders, to insure that in the event of extraordinary events, a thoroughly objective judgment is made on any potential corporate transaction, so that stockholder value is appropriately safeguarded and maximized by having these agreements. For further discussion of these arrangements see “Compensation of Executive Officers — Potential Payments upon Termination of Employment or a Change in Control of the Company” below.

 

Executive Stock Ownership Guidelines

 

The Company established stock ownership guidelines for its senior executives in 2007, and revised the guidelines in January 2009. Officers are generally expected to satisfy their applicable ownership guidelines within five years of becoming subject to the guidelines. The ownership requirement for the CEO is five times his annual base salary. The other senior executives have a stock ownership guideline of three times their respective annual base salary. At the end of 2009, the Named Officers (other than Mr. Skaggs and Mr. O’Donnell, who met the guideline as of December 31, 2009) are progressing toward their ownership guidelines but have been subject to them for less than five years, the time generally estimated to reach the guidelines. Once an officer satisfies the guidelines, the officer must continuously own a sufficient number of shares to remain in compliance with the guidelines. Until such time as the officer satisfies the share ownership guidelines, the officer is required to hold 50% of the shares of common stock received upon the lapse of the restrictions on restricted stock, and the vesting of performance units.

 

Tax Treatment of Executive Compensation

 

Section 162(m) of the Internal Revenue Code provides that annual compensation in excess of $1,000,000 paid to the CEO or any of the other Named Officers, other than compensation meeting the definition of “performance based compensation,” will not be deductible by a corporation for federal income tax purposes. The Committee does not anticipate that the limits of Section 162(m) will materially affect the deductibility of compensation paid by the Company in 2009. However, the Committee will continue to review the deductibility of compensation under Section 162(m) and related regulations published by the IRS. The Committee retains the discretion to amend or not amend any compensation arrangement to comply with Section 162(m)’s requirements for deductibility in accordance with the terms of such arrangements and what it believes is the best interest of the Company.

 

In addition, Sections 280G and 4999 of the Internal Revenue Code impose excise taxes on Named Officers, directors who own significant stockholder interests in the Company, and other service providers who receive payments in excess of a threshold level upon a change in control. Additionally, the Company or its successor could lose a deduction for amounts subject to the additional tax. As discussed under “Potential Payments upon Termination of Employment or a Change in Control of the Company” below, it is possible that payments to the Named Officers could be subject to these taxes.

 

Finally, Section 409A of the Internal Revenue Code imposes additional taxes on Named Officers, directors and other service providers who defer compensation in a manner that does not comply with Section 409A. The Company has reviewed its compensation arrangements to help ensure they comply with applicable Section 409A requirements.

 

Total Executive Compensation

 

The Company intends to continue to compensate its executives in accordance with performance. As noted above, both the 2009 annual incentive opportunity and 75% of the value of the 2009 long-term incentive opportunity for senior executives, including all of the Named Officers, were based upon the Company attaining pre-established goals. The Committee believes that its overall executive compensation program has been, and will continue to be,

successful in providing competitive compensation sufficient to attract and retain highly qualified executives, while at the same time encouraging the senior executives to strive toward the creation of additional stockholder value.

 

The Officer Nomination and Compensation Committee of the Board of Directors has furnished the following report to the stockholders of the Company in accordance with rules adopted by the Securities and Exchange Commission.

 

The Officer Nomination and Compensation Committee of the Company states that the Committee reviewed and discussed with management the Company’s Compensation Discussion and Analysis contained in this Proxy Statement.

 

Based upon the review and discussions referred to above, the Officer Nomination and Compensation Committee recommended to the Board of Directors that the Company’s Compensation Discussion and Analysis be included in this Proxy Statement.

 

This report is submitted on behalf of the members of the Officer Nomination and Compensation Committee:

 

Officer Nomination and Compensation Committee
W. Lee Nutter, Chairman
Richard A. Abdoo
Steven C. Beering
Deborah S. Parker
Carolyn Y. Woo

 

March 11, 2010

 

Summary.  The following table summarizes compensation for services to NiSource and its affiliates for 2009 awarded to, earned by or paid to the CEO, Chief Financial Officer and three other most highly compensated executive officers as of December 31, 2009 (collectively these individuals constitute the “Named Officers”).

 

Summary Compensation Table

 

 

 

 

 

 

 

 

 

 

Grants of Plan-Based Awards

 

No stock options were granted to the Named Officers in 2009.

 

The following table sets forth information concerning plan-based awards under the NiSource Corporate Incentive Plan, and the NiSource Long-Term Incentive Plan to the Named Officers in 2009.

 

 

 

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth information at fiscal year end concerning outstanding grants of equity awards to the Named Officers, including awards of options to purchase common stock and restricted and contingent stock, and grants made pursuant to a Time Accelerated Restricted Stock Award Program (“TARSAP”) to the Named Officers. No options were granted or exercised in 2009.