MDU Resources Group, Inc.
MDU RESOURCES GROUP INC (Form: PRE 14A, Received: 03/14/2017 12:24:13)

 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No.         )

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¨     Soliciting Material under §240.14a-12

MDU Resources Group, Inc.
(Name of Registrant as Specified In Its Charter)
____________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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March 24, 2017

Fellow Stockholders:

I invite you to join me, our board of directors, and members of our senior management team at our Annual Meeting of Stockholders at 11 a.m., Central Daylight Saving Time, on May 9, 2017, at 909 Airport Road in Bismarck, North Dakota.

In addition to the business that will be conducted at the meeting, I will explain some of the significant, positive changes we made at MDU Resources Group in 2016. During the year, we streamlined our operations into two lines of business: regulated energy delivery and construction materials and services. We reduced our exposure to commodity price volatility by completing the sale of our oil and natural gas exploration and production assets and by selling our interests in a diesel refinery and in a natural gas processing plant both located in North Dakota.

With a business presence in 48 states, we remain committed to Building a Strong America. ® Our continuing businesses performed well in 2016, providing a 32 percent increase in earnings per share. We delivered a total stockholder return of 62 percent for the year, including increasing our dividend for the 26th consecutive year.

Another positive change we made this year is to our proxy statement. We simplified the proxy statement to what we believe is an easier-to-read format, while still adhering to regulations that outline what information we must provide to stockholders. Our goal is to make it easier for you to understand MDU Resources Group’s governance and how we tie the company’s results to executive compensation. We also hope the proxy statement more clearly describes the business we will conduct at our annual meeting.

We have streamlined our annual report and proxy statement delivery process this year as well, moving to a notice-and-access model of providing the report. You likely received notice in the mail that you can vote your shares and view our annual report and proxy statement online, along with instructions on how to request a printed copy if you would like one.

I look forward to you joining us on May 9. Even if you are not able to attend the annual meeting, your vote is important to us. Please follow the instructions on your proxy card to vote and make sure your shares are represented.

We appreciate your continued investment in MDU Resources Group.
 
Sincerely yours,
 
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David L. Goodin
 
President and Chief Executive Officer

 
MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

MDU RESOURCES GROUP, INC.
1200 West Century Avenue
Mailing Address:
P.O. Box 5650
Bismarck, North Dakota 58506-5650
(701) 530-1000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
MAY 9, 2017
Important Notice Regarding the Availability of Proxy Materials for the
Stockholder Meeting to be Held on
May 9, 2017
The 2017 Notice of Annual Meeting and Proxy Statement and 2016 Annual Report
to Stockholders are available at www.mdu.com/proxymaterials.

March 24, 2017
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of MDU Resources Group, Inc. will be held at 909 Airport Road, Bismarck, North Dakota, on Tuesday, May 9, 2017 , at 11:00 a.m., Central Daylight Saving Time, for the following purposes:
(1)
Election of directors;
(2)
Advisory vote to approve the frequency of the vote to approve the compensation paid to the company’s named executive officers;
(3)
Advisory vote to approve the compensation paid to the company’s named executive officers;
(4)
Ratification of the appointment of Deloitte & Touche LLP as the company’s independent registered public accounting firm for 2017;
(5)
Advisory vote to approve an amendment to the company’s bylaws to adopt an exclusive forum for internal corporate claims; and
(6)
Transaction of any other business that may properly come before the meeting or any adjournment(s) thereof.
The board of directors has set the close of business on March 10, 2017 , as the record date for the determination of common stockholders who will be entitled to notice of, and to vote at, the meeting and any adjournment(s) thereof. We expect to begin mailing the Notice of Availability of Proxy Materials (Notice) on or about March 24, 2017. The Notice will contain basic information about the annual meeting and instructions on how to view our proxy materials, and vote electronically, on the Internet. Stockholders who do not receive the Notice will receive a paper copy of our proxy materials, which will be sent on or about March 30, 2017.
All stockholders as of the record date of March 10, 2017, are cordially invited and urged to attend the meeting in person. Registered stockholders who receive a full set of proxy materials will receive a request for admission ticket(s) with their proxy card that can be completed and returned to us postage-free. Registered stockholders who receive a notice regarding the availability of proxy materials and stockholders whose shares are held in the name of a bank or broker will not receive a request for admission ticket(s). They should, instead: (1) call (701) 530-1000 to request an admission ticket(s); (2) if shares are held in the name of a bank or broker, obtain a statement from their bank or broker showing proof of stock ownership as of March 10, 2017; and (3) present their admission ticket(s), the stock ownership statement, and photo identification, such as a driver’s license, at the annual meeting.
.
 
By order of the Board of Directors,
 
 
 
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Daniel S. Kuntz
 
Secretary

 
MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

TABLE OF CONTENTS
 
 
Page
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
EXECUTIVE COMPENSATION (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

PROXY STATEMENT SUMMARY
To assist you in reviewing the company’s 2016 performance and voting your shares, we call your attention to key elements of our 2017 Proxy Statement and our 2016 Annual Report to Stockholders. The following is only a summary and does not contain all of the information you should consider. You should read the entire Proxy Statement carefully before voting. For more complete information about these topics, please review the complete Proxy Statement and our 2016 Annual Report to Stockholders.
Meeting Information
 
Summary of Stockholder Voting Matters
 
 
 
 
 
 
 
 
 
 
Board Vote Recommendation
 
Time and Date:
 
 
Voting Matters
 
See Page
11:00 a.m.
Central Daylight Saving Time (CDT)Tuesday, May 9, 2017
 
Item 1  -
Election of Directors
FOR each nominee
 
Item 2  -
Advisory Vote to Approve the Frequency of the Vote to Approve the Compensation Paid to the Company’s Named Executive Officers
FOR ONE YEAR
Place:
 
Item 3  -
Advisory Vote to Approve the Compensation Paid to the Company’s Named Executive Officers
FOR
MDU Service Center
909 Airport Road
Bismarck, ND
 
 
Item 4  -
Ratification of the Appointment of Deloitte & Touche LLP as the Company’s Independent Registered Public Accounting Firm for 2017
FOR
 
Item 5  -
Advisory Vote to Approve an Amendment to the Company’s Bylaws to Adopt an Exclusive Forum for Internal Corporate Claims
FOR
Corporate Governance Highlights
 
 
 
 
MDU Resources Group, Inc. is committed to strong corporate governance practices. The following highlights our corporate governance practices and policies. See the sections entitled “ Corporate Governance ” and “ Executive Compensation ” for more information on the following:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ü
Annual Election of All Directors

 
ü
All Three Standing Committees Consist of Independent Directors
ü
Majority Voting for Directors
 
ü
Active Investor Outreach Program
ü
Separate Chairman and CEO
 
ü
Stock Ownership Requirements for Directors and Executives
ü
Executive Sessions of Independent Directors at Every Regularly Scheduled Meeting
 
ü
Anti-Hedging and Anti-Pledging Policies
ü
Annual Board and Committee Self-Evaluations
 
ü
Compensation Recovery/Clawback Policy
ü
Risk Oversight by Full Board and Committees
 
ü
Code of Business Conduct and Ethics for Directors, Officers, and Employees
ü
All Directors are Independent Other Than our CEO
 
ü
Annual Advisory Approval on Executive Compensation



 
MDU Resources Group, Inc. Proxy Statement 1


Proxy Statement
 

Business Performance Highlights
 
 
 
Our overall performance in 2016 was consistent with our long-term strategy as we executed on priorities to reduce our risk to oil and natural gas commodity price fluctuations and focus on our regulated energy delivery and construction materials and services business segments. In 2016, we accomplished:
The sale of Dakota Prairie Refining, LLC in June, the completion of the sale of our oil and gas exploration and production business assets in April, and the sale of our interest in the Pronghorn natural gas processing plant in January 2017 reduced the company’s risk by decreasing its exposure to commodity price fluctuations.
Our construction materials & contracting segment achieved record earnings, and its backlog at December 31, 2016, was $538 million compared to $491 million a year earlier.
Earnings from our construction services segment were up 43%, to $33.9 million, on 16% revenue growth.
We acquired the Thunder Spirit wind farm providing an additional 107.5 megawatts of renewable generation. We also signed an agreement in 2016 to purchase power from an expansion of the Thunder Spirit wind farm which includes an option to buy the expansion at the completion of construction. This will bring the total capacity of the Thunder Spirit wind farm to 150 megawatts which will increase the company’s nameplate electric renewable generation portfolio to 27%.
Our electric & natural gas distribution segment achieved regulatory relief of an additional $32.7 million in final implemented rates in 2016 through February 2017.
We, along with a partner, began construction of approximately 160-miles of 345 kilovolt electric transmission line which will facilitate delivery of renewable wind energy from North Dakota to eastern markets.
Our pipeline & midstream segment secured sufficient capacity commitments and started survey work on a 38-mile transmission pipeline that will deliver natural gas supply to eastern North Dakota and far western Minnesota. Following receipt of necessary permits and regulatory approvals, construction is expected to start in early 2018 and be complete late that year. This segment also signed agreements for and completed construction of other natural gas transmission pipeline projects.
Our construction services segment constructed and sold a large scale solar project in Nevada. This segment also completed a 135-mile 345-kilovolt electric transmission line project which was the largest transmission construction project ever completed by the construction services segment.
Our pipeline & midstream segment experienced a 59% increase in natural gas storage levels.
With our accomplishments in 2016, we are optimistic about the company’s future financial performance. The charts below show our progress over the last five years.
MDU2017PROX_CHART-39730.JPG



 
2 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

2016 Financial Performance Highlights
 
Strong year-over-year performance from continuing operations resulted in an increase in earnings per share from continuing operations to $1.19 per share compared to $0.90 per share in 2015, an increase of 32%
 
Electric & natural gas distribution segment earnings increased by 16%
 
 
Pipeline & midstream segment earnings increased by 77%
 
 
Construction materials & contracting segment earnings increased by 15%
 
 
Construction services segment earnings increased by 43%
 
Return of stockholder value through the dividend
 
Increased dividend for 26th straight year
 
 
Paid uninterrupted dividend for 79th straight year
 
Improved credit rating outlook from Standard & Poor’s (S&P) from negative to stable
 
BBB+ credit ratings with stable outlooks from both S&P and Fitch Ratings
 
Stock price increased from $18.32 per share on December 31, 2015, to $28.77 per share on December 31, 2016, reflecting appreciation of 57%
One year total stockholder return of 62% including our dividends
MDU2017PROX_CHART-41316.JPG
MDU2017PROX_CHART-42664.JPG
* The calculation of Total Annual Stockholder Return assumes the reinvestment of dividends in additional shares of common stock.

 
MDU Resources Group, Inc. Proxy Statement 3


Proxy Statement
 


26 Years
 
Dividends Paid
 
79 Years
 
$692 Million
 
of Consecutive
 
 
of Uninterrupted
Dividend Increases
 
Over the Last 5 Years
 
Dividend Payments
Compensation Highlights
Executive compensation at the company is focused on performance. Our compensation program is structured to strongly align compensation with the company’s performance with a substantial portion of our executive compensation based upon performance incentive awards.
Over 76% of our chief executive officer’s target compensation and 61% of our other named executive officers’ target compensation is performance based.
100% of annual incentive compensation and 100% of long-term incentive compensation are tied to performance against pre-established, specific, measurable financial and operational goals.
We require all executive officers to own a significant amount of company stock based upon a multiple of their base salary.
2016 Named Executive Officer Target Pay Mix
MDU2017PROX_CHART-43928.JPG MDU2017PROX_CHART-45052.JPG
With the exception of the president of our construction materials & contracting segment, which achieved record earnings in 2015, base salaries for our named executive officers were frozen in 2016 following a challenging year in 2015 as a result of impairments at our exploration & production segment, which has since been sold.
Annual incentive award payout to our CEO for 2016, which was based upon the strong performance at all four of our business units, was 139.8% of his annual incentive target.
Long-term incentive award payouts in 2017 for the 2014-2016 performance cycle were at 68% of target based upon total stockholder return at the 40th percentile of our peers over the performance cycle reflecting a challenging operating environment in 2014 and 2015.

 
4 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

Key Features of our Executive Compensation Program
What We Do
 
 
þ
Pay for Performance  - All annual and long-term incentives are performance-based and tied to performance measures set by the compensation committee.
þ
Independent Compensation Committee - All members of the compensation committee meet the independence standards under the New York Stock Exchange listing standards and the Securities and Exchange Commission rules.
þ
Independent Compensation Consultant  - The compensation committee retains an independent compensation consultant to evaluate executive compensation plans and practices.
þ
Competitive Compensation  - Executive compensation reflects the executive’s performance, experience, relative value compared to other positions within the company, relationship to competitive market value compensation, and the economic environment of the executive’s business segment.
þ
Annual Compensation Risk Analysis - We regularly analyze the risks related to our compensation programs and conduct a broad risk assessment annually.
þ
Stock Ownership & Retention Requirements  - Executive officers are required to own, within five years of appointment or promotion, company common stock equal to a multiple of their base salary. The executive officers must retain at least 50% of the net after tax shares of stock vested through the long-term incentive plan for the earlier of two years or until termination of employment.
þ
Clawback Policy - If the company’s audited financial statements are restated, the compensation committee may, or shall if required, demand repayment of some or all incentives paid to company executive officers within the last three years.
 
 
What We Don’t Do
 
 
ý
Stock Options  - The company does not use stock options as a form of incentive compensation.
ý
Perquisites  - Executives do not receive perquisites which materially differ from those available to employees in general.
ý
Tax Gross-ups  - Executive officers do not receive tax gross-ups on any compensation.
ý
Hedge or Pledge Stock - Executives and directors are not allowed to hedge or pledge company securities.
ý
No Time Based Awards - All long-term incentives are performance-based and vest only upon the achievement of specific performance measures.


 
MDU Resources Group, Inc. Proxy Statement 5


Proxy Statement
 

BOARD OF DIRECTORS
ITEM 1. ELECTION OF DIRECTORS
The nominating and governance committee of the board, reflecting the criteria for election to the board, identifies and reviews possible candidates for the board and recommends the nominees for directors to the board for approval. The committee considers and evaluates suggestions from many sources, including stockholders, regarding possible candidates for directors. Additional information on our board composition and director nomination process is further discussed in our Proxy Statement under “ Nominating and Governance Committee ” in the section entitled “ Corporate Governance .”
All nominees for director are nominated to serve one-year terms until the annual meeting of stockholders in 2018 and their respective successors are elected and qualified, or until their earlier resignation, removal from office, or death.
We have provided information below about our nominees, all of whom are incumbent directors, including their ages, years of service as directors, business experience, and service on other boards of directors, including any other directorships on boards of public companies. We have also included information about each nominee’s specific experience, qualifications, attributes, or skills that led the board to conclude that he or she should serve as a director of MDU Resources Group, Inc. at the time we file our Proxy Statement, in light of our business and structure. Unless we specifically note below, no corporation or organization referred to below is a subsidiary or other affiliate of MDU Resources Group, Inc.
Director Nominees
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Thomas Everist
Age 67
Independent Director Since 1995
Compensation Committee
Other Current Public Boards:
--Raven Industries, Inc.
Mr. Everist has more than 43 years of business experience in the construction materials and aggregate mining industry. He has business leadership and management experience serving as president and chairman of his companies for over 29 years. Mr. Everist also has experience serving as a director and chairman of another public company, which enhances his contributions to our board.
Career Highlights
President and chairman of The Everist Company, Sioux Falls, South Dakota, an investment and land development company, since April 2002. Prior to January 2017, The Everist Company was engaged in aggregate, concrete, and asphalt production.
Managing member of South Maryland Creek Ranch, LLC, a land development company; president of SMCR, Inc., an investment company, since June 2006; and managing member of MCR Builders, LLC, which provides residential building services to South Maryland Creek Ranch, LLC, since November 2014.
Director and chairman of the board of Everist Health, Inc., Ann Arbor, Michigan, which provides solutions for personalized medicines, since 2002, and chief executive officer from August 2012 to December 2012.
President and chairman of L.G. Everist, Inc., Sioux Falls, South Dakota, an aggregate production company, from 1987 to April 2002.
Other Leadership Experience
Director of publicly traded Raven Industries, Inc., Sioux Falls, South Dakota, a general manufacturer of electronics, flow controls, and engineered films, since 1996, and chairman of the board since April 2009.
Director of Showplace Wood Products, Sioux Falls, South Dakota, a custom cabinets manufacturer, since January 2000.
Director of Bell, Inc., Sioux Falls, South Dakota, a manufacturer of folding cartons and packages, since April 2011.
Director of Angiologix Inc., Mountain View, California, a medical diagnostic device company, from July 2010 through October 2011 when it was acquired by Everist Genomics, Inc.
Member of the South Dakota Investment Council, the state agency responsible for prudently investing state funds, from July 2001 to June 2006.
Education
Bachelor’s degree in mechanical engineering and a master’s degree in construction management from Stanford University.

 
6 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

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Karen B. Fagg
Age 63

Independent Director Since 2005
Compensation Committee
Nominating and Governance Committee
Ms. Fagg brings experience to our board in construction and engineering, energy, and the responsible development of natural resources, which are all important aspects of our business. In addition to her industry experience, Ms. Fagg has over 20 years of business leadership and management experience, including over eight years as president, chief executive officer, and chairman of her own company, as well as knowledge and experience acquired through her service on a number of Montana state and community boards.
Career Highlights
Vice president of DOWL LLC, d/b/a DOWL HKM, an engineering and design firm, from April 2008 until her retirement on December 31, 2011.
President of HKM Engineering, Inc., Billings, Montana, an engineering and physical science services firm, from April 1, 1995 to June 2000, and chairman, chief executive officer, and majority owner from June 2000 through March 2008. HKM Engineering, Inc. merged with DOWL LLC on April 1, 2008.
Employed with MSE, Inc., Butte, Montana, an energy research and development company, from 1976 through 1988, and vice president of operations and corporate development director from 1993 to April 1995.
Director of the Montana Department of Natural Resources and Conservation, Helena, Montana, the state agency charged with promoting stewardship of Montana’s water, soil, energy, and rangeland resources; regulating oil and gas exploration and production; and administering several grant and loan programs, for a four-year term from 1989 through 1992.
Other Leadership Experience
Board member of St. Vincent’s Healthcare since January 2016 and previously from October 2003 until October 2009, including a term as chair.
Former member of several state and community boards, including the First Interstate BancSystem Foundation, from June 2013 to 2016; the Montana Justice Foundation, whose mission is to achieve equal access to justice for all Montanans through effective funding and leadership, from 2013 into 2015; Board of Trustees of Carroll College from 2005 through 2010; Montana Board of Investments, the state agency responsible for prudently investing state funds, from 2002 through 2006; Montana State University’s Advanced Technology Park from 2001 to 2005; and Deaconess Billings Clinic Health System from 1994 to 2002.
Education
Bachelor’s degree in mathematics from Carroll College in Helena, Montana.
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David L. Goodin
Age 55
Director Since 2013
President and Chief Executive Officer
As chief executive officer of MDU Resources Group, Inc., Mr. Goodin is the only officer of the company that serves on our board. With over 33 years of significant, hands-on experience at our company, Mr. Goodin’s long history and deep knowledge and understanding of MDU Resources Group, Inc., its operating companies, and its lines of business bring continuity to the board.
Career Highlights
President and chief executive officer and a director of the company since January 4, 2013.
Prior to January 4, 2013, served as chief executive officer and president of Intermountain Gas Company, Cascade Natural Gas Corporation, Montana-Dakota Utilities Co., and Great Plains Natural Gas Co.
Began his career in 1983 at Montana-Dakota Utilities Co. as a division electrical engineer and served in positions of increasing responsibility until 2007 when he was named president of Cascade Natural Gas Corporation; positions included division electric superintendent, electric systems manager, vice president-operations, and executive vice president-operations and acquisitions.
Other Leadership Experience
Member of the U.S. Bancorp Western North Dakota Advisory Board since January 2013.
Director of Sanford Bismarck, an integrated health system dedicated to the work of health and healing, and Sanford Living Center, since January 2011.
Former board member of several industry associations, including the American Gas Association, the Edison Electric Institute, the North Central Electric Association, the Midwest ENERGY Association, and the North Dakota Lignite Energy Council.
Education
Bachelor of science degree in electrical and electronics engineering from North Dakota State University.
Masters in business administration from the University of North Dakota.
The Advanced Management Program at Harvard School of Business.
Registered professional engineer in North Dakota.

 
MDU Resources Group, Inc. Proxy Statement 7


Proxy Statement
 

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Mark A. Hellerstein
Age 64
Independent Director Since 2013
Audit Committee
Mr. Hellerstein has extensive business experience in the energy industry as a result of his 17 years of senior management experience and service as board chairman of St. Mary Land & Exploration Company (now SM Energy Company). As a certified public accountant, on inactive status, with extensive financial experience as a result of his employment as chief financial officer with several companies, including public companies, Mr. Hellerstein contributes significant finance and accounting knowledge to our board and audit committee.
Career Highlights
Chief executive officer of St. Mary Land & Exploration Company (now SM Energy Company), an energy company engaged in the acquisition, exploration, development, and production of crude oil, natural gas, and natural gas liquids, from 1995 until February 2007; president from 1992 until June 2006; and executive vice president and chief financial officer from 1991 until 1992. He was first elected to the board of St. Mary in 1992 and served as chairman of the board from 2002 until May 2009.
Several positions prior to joining St. Mary in 1991, including chief financial officer of CoCa Mines Inc., which mined and extracted minerals from lands previously held by the public through the Bureau of Land Management; American Golf Corporation, which manages and owns golf courses in the United States; and Worldwide Energy Corporation, an oil and gas acquisition, exploration, development, and production company with operations in the United States and Canada.
Other Leadership Experience
Director of Transocean Inc., a leading provider of offshore drilling services for oil and gas wells, from December 2006 to November 2007.
Director of the Denver Children’s Advocacy Center, whose mission is to provide a continuum of care for traumatized children and their families, from August 2006 until December 2011, including chairman for the last three years.
Education and Professional
Bachelor’s degree in accounting from the University of Colorado.
Certified public accountant, on inactive status.
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A. Bart Holaday
Age 74

Independent Director Since 2008
Audit Committee
Nominating and Governance Committee
Mr. Holaday has extensive business knowledge and experience in the energy and financial management industries. Mr. Holaday brings to the board extensive finance and investment experience, as well as business development skills, through his senior management experience with investment funds and energy companies. Mr. Holaday is also a chartered financial analyst.
Career Highlights
President and owner of Dakota Renewable Energy Fund, LLC, which invests in small companies in North Dakota, since August 2007.
Head of the Private Markets Group of UBS Asset Management and its predecessor entities, managing more than $19 billion in investments, from December 1985 until retirement in 2001.
Vice president and principal of the InnoVen Venture Capital Group, a venture capital investment firm, from 1983 through 1985.
Founder and president of Tenax Oil and Gas Corporation, an onshore Gulf Coast exploration and production company, from 1980 through 1982.
Four years of senior management experience with Gulf Oil Corporation, a global energy and petrochemical company.
Eight years of senior management experience with the federal government, including the Department of Defense, Department of the Interior, and the Federal Energy Administration.
Other Leadership Experience
Member of the investment advisory board of Commons Capital LLC, a venture capital firm, since 1999.
Director of Hull Investments, LLC, a private entity firm that combines nonprofit activities and investments, since August 2011; Alerus Financial, a financial services company, since September 2007; and Adams Street Partners, LLC, a private equity investment firm, from January 2001 to March 2017.
Former member of the U.S. Securities and Exchange Commission advisory committee on the regulation of capital markets.
Education and Professional
Bachelor’s degree in engineering sciences from the U.S. Air Force Academy.
Rhodes Scholar, earning a bachelor’s degree and a master’s degree in politics, philosophy, and economics from Oxford University.
Law degree from George Washington Law School.
Honorary Doctor of Letters from the University of North Dakota.
Chartered Financial Analyst.

 
8 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

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Dennis W. Johnson
Age 67
Independent Director Since 2001
Audit Committee
Mr. Johnson brings to our board over 42 years of experience in business management, manufacturing, and finance, holding positions as chairman, president, and chief executive officer of TMI Corporation for 34 years, as well as through his prior service as a director of the Federal Reserve Bank of Minneapolis. As a result of his service on a number of state and local organizations in North Dakota, Mr. Johnson has significant knowledge of local, state, and regional issues involving North Dakota, a state where we have significant operations and assets.
Career Highlights
Chairman, president, and chief executive officer of TMI Corporation and chairman and chief executive officer of TMI Transport Corporation (as well as TMI Systems Design Corporation and TMI Storage Systems Corporation before they merged into TMI Corporation the end of 2015), manufacturers of casework and architectural woodwork in Dickinson, North Dakota; employed since 1974 and serving as president or chief executive officer since 1982.
Other Leadership Experience
President of the Dickinson City Commission from July 2000 through October 2015.
Director of the Federal Reserve Bank of Minneapolis for six years from 1993 through 1998.
Served on numerous industry, state, and community boards, including the North Dakota Workforce Development Council (chair); the Decorative Laminate Products Association; the North Dakota Technology Corporation; and the business advisory council of the Steffes Corporation, a metal manufacturing and engineering firm.
Served on North Dakota Governor Sinner’s Education Action Commission; the North Dakota Job Service Advisory Council; the North Dakota State University President’s Advisory Council; North Dakota Governor Schafer’s Transition Team; and chaired North Dakota Governor Hoeven’s Transition Team.
Education
Bachelor of science in electrical and electronics engineering and master of science in industrial engineering from North Dakota State University.
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William E. McCracken
Age 74

Independent Director Since 2013
Compensation Committee
Nominating and Governance Committee
Mr. McCracken is experienced in information technology and cybersecurity through his tenure at CA, Inc. and International Business Machines Corporation (IBM). This experience coupled with his service as the chair or a member of the board of other public companies and the National Association of Corporate Directors (NACD) enables him to provide insight into the operations, challenges, and complex issues our company is facing in today’s environment and to make significant contributions to the board’s oversight of operational risk management functions and corporate governance.
Career Highlights
President of Executive Consulting Group, LLC, a general business consulting firm, from 2002 to present.
Chief executive officer of CA, Inc., one of the world’s largest information technology management software companies, from January 2010 until January 7, 2013, after which he served as executive adviser to the new chief executive officer until March 31, 2013, and as a consultant to the company until December 31, 2013; also as director of CA, Inc. from May 2005 until January 7, 2013, serving as non-executive chairman of the board from June 2007 to September 2009, interim executive chairman from September 2009 to January 2010, and executive chairman from January 2010 to May 2010.
Several executive positions during his 36-year career with IBM, including serving on its Chairman’s Worldwide Management Council, a group of the top 30 executives at IBM, from 1995 to 2001.
Other Leadership Experience
Director of the NACD, a nonprofit membership organization for corporate board members, since 2010, and named by the NACD as one of the top 100 most influential people in the boardroom in 2009; served on that organization’s 2009 blue ribbon commission on risk governance, co-chaired its blue ribbon commission on board diversity in 2012, and co-chaired its blue ribbon commission on the board and long-term value creation in 2015.
Director of IKON Office Solutions, Inc., a provider of document management systems and services, from 2003 to 2008, where he served on its audit committee, compensation committee, and strategy committee.
Chair of the advisory board of the Millstein Center for Global Markets and Corporate Ownership at Columbia University and member since 2013, and the New York chairman of the Chairmen’s Forum since 2011.
Education
Bachelor of science in physics and mathematics from Shippensburg University.

 
MDU Resources Group, Inc. Proxy Statement 9


Proxy Statement
 

MOSSBA02.JPG
Patricia L. Moss
Age 63

Independent Director Since 2003
Compensation Committee
Nominating and Governance Committee
Other Current Public Boards:
--Cascade Bancorp
--Aquila Tax Free Trust of Oregon

Ms. Moss has business experience and knowledge of the Pacific Northwest economy and state, local, and region issues where a significant portion of our operations are located. Ms. Moss provides our board with experience in finance and banking, as well as experience in business development through her work at Cascade Bancorp and Bank of the Cascades, and on the Oregon Investment Fund Advisory Council, the Oregon Business Council, and the Oregon Growth Board. Ms. Moss also has experience as a certified senior professional in human resources.
Career Highlights
 
President and chief executive officer of Cascade Bancorp, a financial holding company, Bend, Oregon, from 1998 to January 3, 2012; chief executive officer of Cascade Bancorp’s principal subsidiary, Bank of the Cascades, from 1998 to January 3, 2012, serving also as president from 1998 to 2003; and chief operating officer, chief financial officer and secretary of Cascade Bancorp from 1987 to 1998.
Other Leadership Experience
 
Director of Cascade Bancorp and Bank of the Cascades since 1993, and vice chair of both boards since January 3, 2012.
Chair of the Bank of the Cascades Foundation Inc. since 2014; co-chair of the Oregon Growth Board, a state board created to improve access to capital and create private-public partnerships, since May 2012; and member of the Board of Trustees for the Aquila Tax Free Trust of Oregon, a mutual fund created especially for the benefit of Oregon residents, since June 2015 and January 2002 to May 2005.
Former director of the Oregon Investment Fund Advisory Council, a state-sponsored program to encourage the growth of small businesses in Oregon; the Oregon Business Council, with a mission to mobilize business leaders to contribute to Oregon’s quality of life and economic prosperity; the North Pacific Group, Inc., a wholesale distributor of building materials, industrial, and hardwood products; Clear Choice Health Plans Inc., a multi-state insurance company; and City of Bend’s Juniper Ridge management advisory board.
Education
 
Bachelor of science in business administration from Linfield College in Oregon and master’s studies at Portland State University.
Commercial banking school certification at the ABA Commercial Banking School at the University of Oklahoma.
PEARCEBA02.JPG
Harry J. Pearce
Age 74
Independent Director Since 1997
Chairman of the Board
Mr. Pearce provides our board with public company leadership with his multinational business management experience and proven leadership skills through his position as vice chairman at General Motors Corporation, as well as through his extensive service on the boards of large public companies, including Marriott International, Inc., Hughes Electronics Corporation, where he was chairman, and Nortel Networks Corporation, where he also was chairman. He also brings to our board his long experience as a practicing attorney. In addition, Mr. Pearce has focused on corporate governance issues and was the founding chair of Yale University’s Chairmen’s Forum, an organization comprised of non-executive chairmen of publicly traded companies.
Career Highlights
Chairman of the board of the company effective August 17, 2006; lead director from February 15, 2001 until August 17, 2006; and vice chairman of the board from November 16, 2000 until February 15, 2001.
Vice chairman and director of General Motors Corporation from January 1, 1996 to May 31, 2001; general counsel from 1987 to 1994.
Senior partner in the Pearce & Durick law firm in Bismarck, North Dakota, prior to joining General Motors in 1987.
Other Leadership Experience
Director of Hughes Electronics Corporation, a General Motors Corporation subsidiary and provider of digital television entertainment, broadband satellite network, and global video and data broadcasting, from 1992 to December 2003, and retiring as chairman in 2003.
Director of Marriott International, Inc., a major hotel chain, from 1995 to May 2015, and served on the audit, finance, compensation, and excellence committees.
Director of Nortel Networks Corporation, a global telecommunications company, from January 2005 to August 2009, also served as chairman of the board from June 2005.
Fellow of the American College of Trial Lawyers, and a member of the International Society of Barristers.
Founding chair of the Yale University’s Chairmen’s Forum; former member of the President’s Council on Sustainable Development, and co-chair of the President’s Commission on the United States Postal Service.
Education
Bachelor’s degree in engineering sciences from the U.S. Air Force Academy.
Juris doctor degree from Northwestern University’s School of Law.

 
10 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

WILSONBA02.JPG
John K. Wilson
Age 62
Independent Director Since 2003
Audit Committee
Mr. Wilson has an extensive background in finance and accounting, as well as experience with mergers and acquisitions, through his education and work experience at a major accounting firm and his later public utility experience in his positions as controller and vice president of Great Plains Natural Gas Co., president of Great Plains Energy Corp., and president, chief financial officer, and treasurer for Durham Resources, LLC, and all Durham Resources entities.
Career Highlights
President of Durham Resources, LLC, a privately held financial management company, in Omaha, Nebraska, from 1994 to December 31, 2008; president of Great Plains Energy Corp., a public utility holding company and an affiliate of Durham Resources, LLC, from 1994 to July 1, 2000; and vice president of Great Plains Natural Gas Co., an affiliate company of Durham Resources, LLC, until July 1, 2000.
Executive director of the Robert B. Daugherty Foundation in Omaha, Nebraska, since January 2010.
Held positions of audit manager at Peat, Marwick, Mitchell (now known as KPMG), controller for Great Plains Natural Gas Co., and chief financial officer and treasurer for all Durham Resources entities.
Other Leadership Experience
Director of HDR, Inc., an international architecture and engineering firm, since December 2008, and director of Tetrad Corporation, a privately held investment company, since April 2010, both located in Omaha, Nebraska.
Former director of Bridges Investment Fund, Inc., a mutual fund, from April 2003 to April 2008; director of the Greater Omaha Chamber of Commerce from January 2001 through December 2008; member of the advisory board of U.S. Bank NA Omaha from January 2000 to July 2010; and the advisory board of Duncan Aviation, an aircraft service provider, headquartered in Lincoln, Nebraska, from January 2010 to February 2016.
Education and Professional
Bachelor’s degree in business administration, cum laude, from the University of Nebraska – Omaha.
Certified public accountant, on inactive status.
The board of directors recommends a vote “for” each nominee.
A majority of votes cast is required to elect a director in an uncontested election. A majority of votes cast means the number of votes cast “for” a director’s election must exceed the number of votes cast “against” the director’s election. “Abstentions” and “broker non-votes” do not count as votes cast “for” or “against” the director’s election. In a contested election, which is an election in which the number of nominees for director exceeds the number of directors to be elected and which we do not anticipate, directors will be elected by a plurality of the votes cast.
Unless you specify otherwise when you submit your proxy, the proxies will vote your shares of common stock “for” all directors nominated by the board of directors. If a nominee becomes unavailable for any reason or if a vacancy should occur before the election, which we do not anticipate, the proxies will vote your shares in their discretion for another person nominated by the board.
Our policy on majority voting for directors contained in our corporate governance guidelines requires any proposed nominee for re-election as a director to tender to the board, prior to nomination, his or her irrevocable resignation from the board that will be effective, in an uncontested election of directors only, upon:
receipt of a greater number of votes “against” than votes “for” election at our annual meeting of stockholders; and
acceptance of such resignation by the board of directors.
Following certification of the stockholder vote, the nominating and governance committee will promptly recommend to the board whether or not to accept the tendered resignation. The board will act on the nominating and governance committee’s recommendation no later than 90 days following the date of the annual meeting.
Brokers may not vote your shares on the election of directors if you have not given your broker specific instructions on how to vote. Please be sure to give specific voting instructions to your broker so your vote can be counted.

 
MDU Resources Group, Inc. Proxy Statement 11


Proxy Statement
 

CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS
Director Independence
The board of directors has adopted guidelines on director independence that are included in our corporate governance guidelines. The board of directors has determined that, except for Mr. Goodin, all current directors have no material relationship with us and are independent in accordance with our corporate governance guidelines and the New York Stock Exchange listing standards.
In determining director independence, the board of directors reviewed and considered information about any transactions, relationships, and arrangements between the non-employee directors and their immediate family members and affiliated entities on the one hand, and the company and its affiliates on the other, and in particular the following transactions, relationships, and arrangements:

Charitable contributions by the MDU Resources Foundation (Foundation) to the following nonprofit organizations, where a director, or a director’s spouse, serves or has served as a director, chair, or vice chair of the board of trustees, trustee or member of the organization or related entity: Charitable contributions by the Foundation to Sanford Health Foundation, Billings Catholic Schools Foundation, Community Resources Inc., the University of North Dakota Foundation, and the University of Jamestown and its foundation. None of the contributions made to any of these nonprofit entities during the last three fiscal years exceeded in any single year the greater of $1 million or 2% of the relevant entity’s consolidated gross revenues.
Stockholder Engagement
The company has an active stockholder outreach program. We believe in providing transparent and timely information to our investors. Each year we routinely engage directly or indirectly with our stockholders, including our top institutional stockholders. During 2016, the company held meetings, conference calls, and webcasts with a diverse mix of stockholders. Throughout the year, we held meetings with nine of the actively managed institutional investors included in our year-end top 30 stockholders. We engage periodically with our index fund investors, however, no direct meetings were held with this investor class in 2016. In our meetings, we discussed a variety of topics with stockholders including longer-term company strategy and our capital expenditure forecast, shorter-term operational and financial updates, and previously announced strategic initiatives. The company also met with proxy advisory firms to discuss corporate governance and executive compensation practices.
Board Leadership Structure
The board separated the positions of chairman of the board and chief executive officer in 2006, and our bylaws and corporate governance guidelines currently require that our chairman be independent. The board believes this structure provides balance and is currently in the best interest of the company and its stockholders. Separating these positions allows the chief executive officer to focus on the full-time job of running our business, while allowing the chairman of the board to lead the board in its fundamental role of providing advice to and independent oversight of management. The chairman consults with the chief executive officer regarding the board meeting agendas, the quality and flow of information provided to the board, and the effectiveness of the board meeting process. The board believes this split structure recognizes the time, effort, and energy the chief executive officer is required to devote to the position in the current business environment, as well as the commitment required to serve as the chairman, particularly as the board’s oversight responsibilities continue to grow and demand more time and attention. The fundamental role of the board of directors is to provide oversight of the management of the company in good faith and in the best interests of the company and its stockholders. Having an independent chairman is a means to ensure the chief executive officer is accountable for managing the company in close alignment with the interests of stockholders, including with respect to risk management as discussed below. An independent chairman is in a position to encourage frank and lively discussions and to assure that the company has adequately assessed all appropriate business risks before adopting its final business plans and strategies. The board believes that having separate positions and having an independent outside director serve as chairman is the appropriate leadership structure for the company at this time and demonstrates our commitment to good corporate governance.

 
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Proxy Statement
 

Board’s Role in Risk Oversight
Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including economic risks, environmental and regulatory risks, the impact of competition, weather conditions, limitations on our ability to pay dividends, pension plan obligations, cyberattacks or acts of terrorism, and third party liabilities. Management is responsible for the day-to-day management of risks the company faces, while the board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.
The board believes establishing the right “tone at the top” and full and open communication between management and the board of directors are essential for effective risk management and oversight. Our chairman meets regularly with our president and chief executive officer and other senior officers to discuss strategy and risks facing the company. Senior management attends the quarterly board meetings and is available to address any questions or concerns raised by the board on risk management-related and any other matters. Each quarter, the board of directors receives presentations from senior management on strategic matters involving our operations. At least annually, the board holds strategic planning sessions with senior management to discuss strategies, key challenges, and risks and opportunities for the company.
While the board is ultimately responsible for risk oversight at our company, our three standing board committees assist the board in fulfilling its oversight responsibilities in certain areas of risk. The audit committee assists the board in fulfilling its oversight responsibilities with respect to risk management in a general manner and specifically in the areas of financial reporting, internal controls and compliance with legal and regulatory requirements, and, in accordance with New York Stock Exchange requirements, discusses policies with respect to risk assessment and risk management and their adequacy and effectiveness. Risk assessment reports are regularly provided by management to the audit committee or the full board. This opens the opportunity for discussions about areas where the company may have material risk exposure, steps taken to manage such exposure, and the company’s risk tolerance in relation to company strategy. The audit committee reports regularly to the board of directors on the company’s management of risks in the audit committee’s areas of responsibility. The compensation committee assists the board in fulfilling its oversight responsibilities with respect to the management of risks arising from our compensation policies and programs. The nominating and governance committee assists the board in fulfilling its oversight responsibilities with respect to the management of risks associated with board organization, membership and structure, succession planning for our directors and executive officers, and corporate governance.
Board Meetings and Committees
During 2016 , the board of directors held four regular meetings and three special meetings. Each director attended at least 75% of the combined total meetings of the board and the committees on which the director served during 2016 . Director attendance at our annual meeting of stockholders is encouraged. All directors attended our 2016 Annual Meeting of Stockholders.
Harry J. Pearce was elected non-employee chairman of the board on August 17, 2006, and previously served as lead director from February 15, 2001 to August 17, 2006. He presides at the executive session of the non-employee directors held in connection with each regularly scheduled quarterly board of directors meeting. The non-employee directors also meet in executive session both with and without the chief executive officer at each regularly scheduled quarterly board of directors meeting. All of our non-employee directors are independent, as defined in our corporate governance guidelines and New York Stock Exchange listing standards.
The board has a standing audit committee, compensation committee, and nominating and governance committee. These committees are composed entirely of independent directors.
Nominating and Governance Committee
The nominating and governance committee met four times during 2016 . The committee members are Karen B. Fagg, chair, A. Bart Holaday, William E. McCracken, and Patricia L. Moss.
The nominating and governance committee provides recommendations to the board with respect to:
board organization, membership, and function;
committee structure and membership;
succession planning for our executive management and directors; and
our corporate governance guidelines.

 
MDU Resources Group, Inc. Proxy Statement 13


Proxy Statement
 

The nominating and governance committee assists the board in overseeing the management of risks in the committee’s areas of responsibility.
The committee identifies individuals qualified to become directors and recommends to the board the nominees for director for the next annual meeting of stockholders. The committee also identifies and recommends to the board individuals qualified to become our principal officers and the nominees for membership on each board committee. The committee oversees the evaluation of the board and management.
In identifying nominees for director, the committee consults with board members, our management, consultants, and other individuals likely to possess an understanding of our business and knowledge concerning suitable director candidates.
Our corporate governance guidelines include our policy on consideration of director candidates recommended to us. We will consider candidates that our stockholders recommend in the same manner we consider other nominees. Stockholders who wish to recommend a director candidate may submit recommendations, along with the information set forth in the guidelines, to the nominating and governance committee chair in care of the secretary at MDU Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506-5650.
Stockholders who wish to nominate persons for election to our board at an annual meeting of stockholders must follow the procedures set forth in section 2.08 of our bylaws. Our bylaws are available on our website. See “ Stockholder Proposals, Director Nominations, and Other Items of Business for 2018 Annual Meeting ” in the section entitled “ Information about the Annual Meeting ” for further details.
In evaluating director candidates, the committee, in accordance with our corporate governance guidelines, considers an individual’s:
background, character, and experience, including experience relative to our company’s lines of business;
skills and experience which complement the skills and experience of current board members;
success in the individual’s chosen field of endeavor;
skill in the areas of accounting and financial management, banking, business management, human resources, marketing, operations, public affairs, law, technology, risk management, governance, and operations abroad;
background in publicly traded companies including service on other public company boards of directors;
geographic area of residence;
diversity of business and professional experience, skills, gender, and ethnic background, as appropriate in light of the current composition and needs of the board;
independence, including any affiliation or relationship with other groups, organizations, or entities; and
compliance with applicable law and applicable corporate governance, code of conduct and ethics, conflict of interest, corporate opportunities, confidentiality, stock ownership and trading policies, and our other policies and guidelines of the company.
In addition, our bylaws contain requirements that a person must meet to qualify for service as a director.
The nominating and governance committee assesses the effectiveness of this policy annually in connection with the nomination of directors for election at the annual meeting of stockholders. The composition of the current board reflects diversity in business and professional experience, skills, and gender.
Audit Committee
The audit committee is a separately-designated committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934.
The audit committee met eight times during 2016 . The audit committee members are Dennis W. Johnson, chair, Mark A. Hellerstein, A. Bart Holaday, and John K. Wilson. The board of directors has determined that Messrs. Johnson, Hellerstein, Holaday, and Wilson are “audit committee financial experts” as defined by Securities and Exchange Commission rules and are financially literate within meaning of the listing standards of the New York Stock Exchange. They also meet the independence standard for audit committee members under our director independence guidelines, the New York Stock Exchange listing standards, and Securities and Exchange Commission rules.

 
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Proxy Statement
 

The audit committee assists the board of directors in fulfilling its oversight responsibilities to the stockholders and serves as a communication link among the board, management, the independent registered public accounting firm, and the internal auditors. The audit committee:
assists the board’s oversight of
the integrity of our financial statements and system of internal controls;
the company’s compliance with legal and regulatory requirements;
the independent registered public accounting firm’s qualifications and independence;
the performance of our internal audit function and independent registered public accounting firm; and
management of risk in the audit committee’s areas of responsibility; and
arranges for the preparation of and approves the report that Securities and Exchange Commission rules require we include in our annual proxy statement. See the section entitled “ Audit Committee Report ” for further information.
Compensation Committee
During 2016, the compensation committee met five times. The compensation committee consists entirely of independent directors within the meaning of the company’s corporate governance guidelines and the New York Stock Exchange listing standards and who meet the definitions of outside or non-employee directors for purposes of Section 162(m) of the Internal Revenue Code and Rule 16-b under the Exchange Act. Members of the compensation committee are Thomas Everist, chair, Karen B. Fagg, William E. McCracken, and Patricia L. Moss.

The compensation committee assists the board of directors in fulfilling its responsibilities relating to the company’s compensation policy and programs. It has the direct responsibility for determining compensation for our Section 16 officers and for overseeing the company’s management of risk in its areas of responsibility. In addition, the compensation committee reviews and recommends any changes to director compensation policies to the board of directors. The authority and responsibility of the compensation committee is outlined in the compensation committee’s charter.
The compensation committee uses the analysis and recommendations from outside consultants, the chief executive officer, and the human resources department in making its compensation decisions. The chief executive officer, the vice president-human resources, and the general counsel regularly attend compensation committee meetings. The committee meets in executive session as needed. The processes and procedures for consideration and determination of compensation of the Section 16 officers, as well as the role of our executive officers, are discussed in the Compensation Discussion and Analysis.
The compensation committee has sole authority to retain compensation consultants, legal counsel, or other advisers to assist in consideration of the compensation of the chief executive officer, the other Section 16 officers, and the board of directors, and the committee is directly responsible for the appointment, compensation, and oversight of the work of such advisers. The committee’s practice has been to retain a compensation consultant every other year to conduct a competitive analysis on executive compensation. The competitive analysis is conducted internally by the human resources department in the other years. Prior to retaining an adviser, the committee will consider all factors relevant to ensure the adviser’s independence from management. Annually the compensation committee conducts a potential conflicts of interest assessment raised by the work of any compensation consultant and how such conflicts, if any, should be addressed. The compensation committee requested and received information from its compensation consultant, Willis Towers Watson, to assist in its potential conflicts of interest assessment. Based on its review and analysis, the compensation committee did not identify any conflicts of interest with respect to Willis Towers Watson.
The board of directors determines compensation for our non-employee directors based upon recommendations from the compensation committee. The compensation committee’s practice has been to retain a compensation consultant every other year to conduct a competitive analysis on director compensation. The compensation committee employed a compensation consultant for an analysis of director compensation in 2015 but not in 2016 as the study was performed by the human resources department.

 
MDU Resources Group, Inc. Proxy Statement 15


Proxy Statement
 

Narrative Disclosure of our Compensation Policies and Practices as They Relate to Risk Management
The human resources department has conducted an assessment of the risks arising from our compensation policies and practices for all employees and concluded that none of these risks is reasonably likely to have a material adverse effect on the company. Based on the human resources department’s assessment and taking into account information received from the risk identification process, senior management and our management policy committee concluded that risks arising from our compensation policies and practices for all employees are not reasonably likely to have a material adverse effect on the company. After review and discussion with senior management, the compensation committee concurred with this assessment.
As part of its assessment of the risks arising from our compensation policies and practices for all employees, the human resources department identified the principal areas of risk faced by the company that may be affected by our compensation policies and practices for all employees, including any risks resulting from our operating businesses’ compensation policies and practices. In assessing the risks arising from our compensation policies and practices, the human resources department identified the following practices designed to prevent excessive risk taking:
Business management and governance practices:
risk management is a specific performance competency included in the annual performance assessment of Section 16 officers;
board oversight on capital expenditure and operating plans that promotes careful consideration of financial assumptions;
limitation on business acquisitions without board approval;
employee integrity training programs and anonymous reporting systems;
quarterly risk assessment reports at audit committee meetings; and
prohibitions on holding company stock in an account that is subject to a margin call, pledging company stock as collateral for a loan, and hedging of company stock by Section 16 officers and directors.
Executive compensation practices:
active compensation committee review of executive compensation, including comparison of executive compensation to total stockholder return ratio to the ratio for the company’s peer group;
the initial determination of a position’s salary grade to be at or near the 50th percentile of base salaries paid to similar positions at peer group companies and/or relevant industry companies;
consideration of peer group and/or relevant industry practices to establish appropriate compensation target amounts;
a balanced compensation mix of fixed salary and annual and long-term incentives tied to the company’s financial performance;
use of interpolation for annual and long-term incentive awards to avoid payout cliffs;
negative discretion to adjust any annual or long-term incentive award payment downward;
use of caps on annual incentive awards (maximum of 250% of target) and long-term incentive stock grant awards (200% target);
clawback availability on incentive payments in the event of a financial restatement;
use of performance shares, rather than stock options or stock appreciation rights, as the equity component of incentive compensation;
use of performance shares with a relative total stockholder return performance measure and mandatory reduction in award if total stockholder return over the performance period is negative;
use of three-year performance periods to discourage short-term risk-taking;
substantive incentive goals measured primarily by return on invested capital, earnings, and earnings per share criteria, which encourage balanced performance and are important to stockholders;
use of financial performance metrics that are readily monitored and reviewed;

 
16 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

regular review of the appropriateness of the companies in the peer group;
stock ownership requirements for the board and for executives receiving long-term incentive awards under the MDU Resources Group, Inc. Long-Term Performance-Based Incentive Plan;
mandatory holding periods for 50% of any net after-tax shares earned under long-term incentive awards; and
use of independent consultants in establishing pay targets at least biennially.
Stockholder Communications with the Board
Stockholders and other interested parties who wish to contact the board of directors or any individual director, including our non-employee chairman or non-employee directors as a group, should address a communication in care of the secretary at MDU Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506-5650. The secretary will forward all communications.
Additional Governance Features
Board and Committee Evaluations
Our corporate governance guidelines provide that the board of directors, in coordination with the nominating and governance committee, will annually review and evaluate the performance and functioning of the board and its committees. The self-evaluations are intended to facilitate a candid assessment and discussion by the board and each committee of its effectiveness as a group in fulfilling its responsibilities, its performance as measured against the corporate governance guidelines, and areas for improvement. The board and committee members are provided with a questionnaire to facilitate discussion. The results of the evaluations are reviewed and discussed in executive sessions of the committees and the board of directors.
Director Resignation Upon Change of Job Responsibility
Our corporate governance guidelines require a director to tender his or her resignation after a material change in job responsibility. In 2017, Mr. Everist submitted his resignation in connection with the sale by The Everist Company of its aggregate, concrete, and asphalt production interests. After considering his background, experience on the board, skills and character, and contribution to the company in light of the company’s business and structure, the board determined Mr. Everist’s resignation should not be accepted.
Majority Voting in Uncontested Director Elections
Our corporate governance guidelines require that in uncontested elections (those where the number of nominees does not exceed the number of directors to be elected), director nominees must receive the affirmative vote of a majority of the votes cast to be elected to our board of directors. Contested director elections (those where the number of director nominees exceeds the number of directors to be elected) are governed by a plurality of the vote of shares present in person or represented by proxy at the meeting.
The board has adopted a director resignation policy for incumbent directors in uncontested elections. Any proposed nominee for re-election as a director shall, before he or she is nominated to serve on the board, tender to the board his or her irrevocable resignation that will be effective, in an uncontested election of directors only, upon (i) such nominee’s receipt of a greater number of votes “against” election than votes “for” election at our annual meeting of stockholders; and (ii) acceptance of such resignation by the board of directors.
Director Overboarding Policy
Our bylaws and corporate governance guidelines state that a director may not serve on more than three public company boards, including the company’s board. Currently, all of our directors are in compliance of this policy.
Board Refreshment
The company regularly evaluates the need for board refreshment. The nominating and governance committee and the board are focused on identifying individuals whose skills and experiences will enable them to make meaningful contributions to shaping the company’s business strategy. As part of its consideration of director succession, the nominating and governance committee from time to time reviews, including when considering potential candidates, the appropriate skills and characteristics required of board members. The board believes it is important to consider diversity of skills, expertise, race, ethnicity, gender, age, education, cultural background, and professional experiences in evaluating board candidates for expected contributions to an effective board. Independent directors may not serve on the board beyond the next annual meeting of stockholders after attaining the age of 76. In connection with our mandatory retirement for directors, three of our current directors are expected to retire within the next two years.

 
MDU Resources Group, Inc. Proxy Statement 17


Proxy Statement
 

Prohibitions on Hedging/Pledging Company Stock
The director compensation policy prohibits directors from hedging their ownership of common stock, pledging company stock as collateral for a loan, or holding company stock in an account that is subject to a margin call.
Code of Conduct
We have a code of conduct and ethics, which we refer to as the Leading With Integrity Guide. It applies to all directors, officers, and employees.
We intend to satisfy our disclosure obligations regarding amendments to, or waivers of, any provision of the code of conduct that applies to our principal executive officer, principal financial officer, and principal accounting officer and that relates to any element of the code of ethics definition in Regulation S-K, Item 406(b), and waivers of the code of conduct for our directors or executive officers, as required by New York Stock Exchange listing standards, by posting such information on our website.
Corporate Governance Materials
Stockholders can see our bylaws, corporate governance guidelines, board committee charters, and Leading With Integrity Guide on our website.
• Audit, compensation, and nominating and governance committees’ charters are available at http://www.mdu.com/integrity/governance/board-charters-and-committees.
• Bylaws and corporate governance guidelines are available at http://www.mdu.com/integrity/governance/guidelines-and-bylaws.
• Leading With Integrity Guide is available at http://www.mdu.com/docs/default-source/governance/leadingwithintegrity.pdf.
Related Person Transaction Disclosure
The board of directors’ policy for the review of related person transactions is contained in our corporate governance guidelines. The policy provides that the audit committee review any transaction, arrangement or relationship, or series thereof:
in which we are or will be a participant;
the amount involved exceeds $120,000; and
a related person has or will have a direct or indirect material interest.
The purpose of this review is to determine whether this transaction is in the best interests of the company.
Related persons are directors, director nominees, executive officers, holders of 5% or more of our voting stock, and their immediate family members. Related persons are required promptly to report to our general counsel all proposed or existing related person transactions in which they are involved.
If our general counsel determines that the transaction is required to be disclosed under the Securities and Exchange Commission’s rules, the general counsel furnishes the information to the chairman of the audit committee. After its review, the committee makes a determination or a recommendation to the board and officers of the company with respect to the related person transaction. Upon receipt of the committee’s recommendation, the board of directors or officers, as the case may be, take such action as they deem appropriate in light of their responsibilities under applicable laws and regulations.
We had no related person transactions in 2016.

 
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Proxy Statement
 

COMPENSATION OF NON-EMPLOYEE DIRECTORS
Director Compensation for 2016
Name
 
Fees Earned or Paid in Cash
($)

 
Stock
Awards
($) 1

 
All Other
Compensation
($)
2
 
Total
($)

Thomas Everist
 
75,000

 
110,000

 
83
 
185,083

Karen B. Fagg
 
75,000

 
110,000

 
83
 
185,083

Mark A. Hellerstein
 
65,000

 
110,000

 
83
 
175,083

A. Bart Holaday
 
65,000

 
110,000

 
83
 
175,083

Dennis W. Johnson
 
80,000

 
110,000

 
83
 
190,083

William E. McCracken
 
65,000

 
110,000

 
83
 
175,083

Patricia L. Moss
 
65,000

 
110,000

 
83
 
175,083

Harry J. Pearce
 
155,000

 
110,000

 
83
 
265,083

John K. Wilson
 
65,000

3  
110,000

 
83
 
175,083

 
 
1  
The annual retainer of $110,000 in company common stock is awarded pursuant to the MDU Resources Group, Inc. Non-Employee Director Stock Compensation Plan. The amount shown for each director represents the aggregate grant date fair value of 3,886 shares of MDU Resources Group, Inc. common stock measured in accordance with Financial Accounting Standards Board (FASB) generally accepted accounting principles for stock-based compensation in FASB Accounting Standards Codification Topic 718. The grant date fair value is based on the purchase price of our common stock on the grant date of November 21, 2016, which was $28.30 per share. The $10.66 in cash paid to each director in lieu of fractional shares is included in the amount reported in the stock awards column to this table. As of December 31, 2016, there are no outstanding stock awards or options associated with the Non-Employee Director Stock Compensation Plan. 
2
Group life insurance premium.
3
Mr. Wilson elected to receive shares of our common stock in lieu of his cash retainer pursuant to the Non-Employee Director Stock Compensation Plan.  The amount shown includes 2,244 shares of our common stock purchased on December 7, 2016, at $28.96 per share.
 
 
 
 
 
The following table shows the cash and stock retainers payable to our non-employee directors.
Base Retainer
 
 
$
65,000

Additional Retainers:
 
 
 
Non-Executive Chair
 
 
90,000

Lead Director, if any
 
 
33,000

Audit Committee Chair
 
 
15,000

Compensation Committee Chair
 
 
10,000

Nominating and Governance Committee Chair
 
10,000

Annual Stock Grant 1
 
 
110,000

 
 
1  
The annual stock grant is a grant of shares equal in value to $110,000.
There are no meeting fees paid to directors.
In addition to liability insurance, we maintain group life insurance in the amount of $100,000 on each non-employee director for the benefit of each director’s beneficiaries during the time each director serves on the board. The annual cost per director is $82.80.
Directors may defer all or any portion of the annual cash retainer and any other cash compensation paid for service as a director pursuant to the Deferred Compensation Plan for Directors. Deferred amounts are held as phantom stock with dividend accruals and are paid out in cash over a five-year period after the director leaves the board.
Directors are reimbursed for all reasonable travel expenses, including spousal expenses in connection with attendance at meetings of the board and its committees. All reimbursable expense amounts, together with any other perquisites, were below the disclosure threshold for 2016 .

 
MDU Resources Group, Inc. Proxy Statement 19


Proxy Statement
 

Our post-retirement income plan for directors was terminated in May 2001 for current and future directors. The net present value of each director’s benefit was calculated and converted into phantom stock. Payment is deferred pursuant to the Deferred Compensation Plan for Directors and will be made in cash over a five-year period after the director’s retirement from the board.
Our director stock ownership policy contained in our corporate governance guidelines requires each director to own our common stock equal in value to five times the director’s annual cash base retainer. Shares acquired through purchases on the open market and participation in our director stock plans are considered in ownership calculations as is ownership of our common stock by a spouse. A director is allowed five years commencing January 1 of the year following the year of that director’s initial election to the board to meet the requirements. The level of common stock ownership is monitored with an annual report made to the compensation committee of the board. All directors are in compliance with the stock ownership policy. For stock ownership, see the section below.
SECURITY OWNERSHIP
Security Ownership Table
The table below sets forth the number of shares of our capital stock that each director and each nominee for director, each named executive officer, and all directors and executive officers as a group owned beneficially as of February 28, 2017. Unless otherwise indicated, each person has sole investment and voting power (or share such power with his or her spouse) of the shares noted.
Name
Common Shares
Beneficially
Owned

 
Percent
of Class

 
Deferred
Director Fees
Held as
Phantom
Stock 1

 
 
 
 
 
 
 
 
David C. Barney
12,055

2,3  
*

 

Thomas Everist
853,458

 
*

 
32,977

Karen B. Fagg
61,164

 
*

 


Martin A. Fritz

 
*

 

David L. Goodin
101,788

2  
*

 

Mark A. Hellerstein
15,766

 
*

 
8,637

A. Bart Holaday
60,911

 
*

 
8,637

Dennis W. Johnson
80,330

4  
*

 

William E. McCracken
15,766

 
*

 

Patricia L. Moss
75,418

 
*

 

Harry J. Pearce
235,885

 
*

 
54,221

Doran N. Schwartz
54,897

2,5  
*

 


Jeffrey S. Thiede
7,149

2  
*

 

John K. Wilson
118,916

 
*

 

All directors and executive officers as a group (20 in number)
1,853,142

 
0.95
%
 
104,472

 
 
*  

Less than one percent of the class. Percent of class is calculated based on 195,304,376 outstanding shares as of February 28, 2017.
1  

These shares are not included in the “Common Shares Beneficially Owned” column. Directors may defer all or a portion of their cash compensation pursuant to the Deferred Compensation Plan for Directors. Deferred amounts are held as phantom stock with dividend accruals and are paid out in cash over a five-year period after the director leaves the board.
2  

Includes full shares allocated to the officer’s account in our 401(k) retirement plan.
3  

The total includes 687 shares owned by Mr. Barney’s spouse.
4  

Mr. Johnson disclaims all beneficial ownership of the 163 shares owned by his spouse.
5  

The total includes 1,300 shares owned by Mr. Schwartz’s spouse.
We prohibit our directors and executive officers from hedging their ownership of company common stock. They may not enter into transactions that allow them to benefit from devaluation of our stock or otherwise own stock technically but without the full benefits and risks of such ownership.

 
20 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

Directors, executive officers, and related persons are prohibited from holding our common stock in a margin account, with certain exceptions, or pledging company securities as collateral for a loan. Company common stock may be held in a margin brokerage account only if the stock is explicitly excluded from any margin, pledge, or security provisions of the customer agreement. Company common stock may be held in a cash account, which is a brokerage account that does not allow any extension of credit on securities. “Related person” means an executive officer’s or director’s spouse, minor child, and any person (other than a tenant or domestic employee) sharing the household of a director or executive officer, as well as any entities over which a director or executive officer exercises control.
The table below sets forth information with respect to any person we know to be the beneficial owner of more than five percent of any class of our voting securities.
Title of Class
 
Name and Address
of Beneficial Owner
 
Amount and Nature
of Beneficial Ownership

 
Percent
of Class
 
 
 
 
Common Stock
 
BlackRock, Inc.
 
15,934,262

1  
8.20
%
 
 
55 East 52nd Street
 
 
 
 
 
 
 
New York, NY 10055
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
State Street Corporation
 
13,420,759

2  
6.87
%
 
 
State Street Financial Center
 
 
 
 
 
 
 
One Lincoln Street
 
 
 
 
 
 
 
Boston, MA 02111
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
The Vanguard Group
 
20,142,541

3  
10.31
%
 
 
100 Vanguard Blvd.
 
 
 
 
 
 
 
Malvern, PA 19355
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Parnassus Investments
 
13,875,527

4  
7.10
%
 
 
1 Market Street, Suite 1600
 
 
 
 
 
 
 
San Francisco, CA 94105
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1  
Based solely on the Schedule 13G, Amendment No. 7, filed on January 25, 2017, BlackRock, Inc. reported sole voting power with respect to 15,053,491 shares and sole dispositive power with respect to 15,934,262 shares as the parent holding company or control person of BlackRock (Luxembourg) S.A., BlackRock (Netherlands) B.V., BlackRock Advisors (UK) Limited, BlackRock Advisors, LLC, BlackRock Asset Management Canada Limited, BlackRock Asset Management Ireland Limited, BlackRock Asset Management North Asia Limited, BlackRock Asset Management Schweiz AG, BlackRock Capital Management, BlackRock Financial Management, Inc., BlackRock Fund Advisors, BlackRock Fund Managers Ltd, BlackRock Institutional Trust Company, N.A., BlackRock Investment Management (Australia) Limited, BlackRock Investment Management (UK) Ltd, BlackRock Investment Management, LLC, and BlackRock Life Limited.
2  
Based solely on the Schedule 13G, filed on February 9, 2017, State Street Corporation reported shared voting and dispositive power with respect to all shares as the parent holding company or control person of State Street Bank and Trust Company, SSGA Funds Management, Inc., State Street Global Advisors, Ltd, State Street Global Advisors, Australia, Limited, State Street Global Advisors (Asia) Limited, and State Street Global Advisors France, S.A.
3  
Based solely on the Schedule 13G, Amendment No. 5, filed on February 10, 2017, The Vanguard Group reported sole dispositive power with respect to 20,014,996 shares, shared dispositive power with respect to 127,545 shares, sole voting power with respect to 115,860 shares, and shared voting power with respect to 21,119 shares. These shares includes 106,426 shares beneficially owned by Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., as a result of its serving as investment manager of collective trust accounts, and 30,553 shares beneficially owned by Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group, Inc., as a result of its serving as investment manager of Australian investment offerings.
4  
Based solely on the Schedule 13G, Amendment No. 2, filed on February 14, 2017, Parnassus Investments reported sole voting and dispositive power with respect to all shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934, as amended, requires that officers, directors, and holders of more than 10% of our common stock file reports of their trading in our equity securities with the Securities and Exchange Commission. Based solely on a review of Forms 3, 4, and 5 and any amendments to these forms furnished to us during and with respect to 2016 or written representations that no Forms 5 were required, we believe that all such reports were timely filed, except that in May 2016, Mr. Daniel S. Kuntz filed an amended Form 3 to report beneficial ownership of 631 additional shares that were omitted from his original Form 3 filed in January 2016. Mr. Kuntz disclaims beneficial ownership of these additional shares.

 
MDU Resources Group, Inc. Proxy Statement 21


Proxy Statement
 

EXECUTIVE COMPENSATION
ITEM 2. ADVISORY VOTE TO APPROVE THE FREQUENCY OF THE VOTE TO APPROVE THE COMPENSATION PAID TO THE COMPANY’S NAMED EXECUTIVE OFFICERS
In accordance with Section 14A of the Securities Exchange Act of 1934 and Rule 14a-21(b), we are asking our stockholders to indicate, on an advisory basis, whether future advisory votes to approve the compensation paid to our named executive officers should be held every year, every two years, or every three years.
Our board of directors has determined that our stockholders should have the opportunity to vote on the compensation of our named executive officers every year. The board of directors believes that giving our stockholders the right to cast an advisory vote every year on the compensation of our named executive officers is a good corporate governance practice and is in the best interests of our stockholders. Annual advisory votes provide the highest level of accountability and direct communication with our stockholders.
By voting on this Item 2, stockholders are not approving or disapproving the board of directors’ recommendation, but rather are indicating whether they prefer an advisory vote on named executive officer compensation be held every year, every two years, or every three years. Stockholders may also abstain from voting.
Although the board of directors intends to carefully consider the voting results of this proposal, it is an advisory vote and the results will not be binding on the board of directors or the company, and the board of directors may decide that it is in the best interests of our stockholders and the company to hold an advisory vote on executive compensation more or less frequently than the option selected by our stockholders. We will provide our stockholders with the opportunity to vote on the frequency of advisory votes on our named executive officer compensation at our annual meetings at least once every six calendar years.
The board of directors recommends that an advisory vote
 on compensation paid to our named executive officers be held every year.
The frequency of every year, every two years, or every three years that receives the most votes of our common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal will be the frequency for the advisory vote on executive compensation that has been recommended by our stockholders. Abstentions will not count as votes for or against any frequency. Broker non-votes are not counted as voting power present and, therefore, are not counted in the vote.

 
22 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

ITEM 3. ADVISORY VOTE TO APPROVE THE COMPENSATION PAID TO THE COMPANY’S NAMED EXECUTIVE OFFICERS
In accordance with Section 14A of the Securities Exchange Act of 1934 and Rule 14a-21(a), we are asking our stockholders to approve, in a separate advisory vote, the compensation of our named executive officers as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K. As discussed in the Compensation Discussion and Analysis, our compensation committee and board of directors believe that our current executive compensation program directly links compensation of our named executive officers to our financial performance and aligns the interests of our named executive officers with those of our stockholders. Our compensation committee and board of directors also believe that our executive compensation program provides our named executive officers with a balanced compensation package that includes an appropriate base salary along with competitive annual and long-term incentive compensation targets. These incentive programs are designed to reward our named executive officers on both an annual and long-term basis if they attain specified goals.
Our overall compensation program and philosophy is built on a foundation of these guiding principles:
we pay for performance, with over 60% of our 2016 total target direct compensation for our named executive officers in the form of performance-based incentive compensation;
we review competitive compensation data for our named executive officers, to the extent available, and incorporate internal equity in the final determination of target compensation levels;
we align executive compensation and performance by using annual performance incentives based on criteria that are important to stockholder value, including earnings, earnings per share, and return on invested capital; and
we align executive compensation and performance by using long-term performance incentives based on total stockholder return relative to our peer group.
We are asking our stockholders to indicate their approval of our named executive officer compensation as disclosed in this Proxy Statement, including the Compensation Discussion and Analysis, the executive compensation tables, and narrative discussion. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers for 2016 . Accordingly, the following resolution is submitted for stockholder vote at the 2017 annual meeting:
“RESOLVED, that the compensation paid to the company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion of this proxy statement, is hereby approved.”
As this is an advisory vote, the results will not be binding on the company, the board of directors, or the compensation committee and will not require us to take any action. The final decision on the compensation of our named executive officers remains with our compensation committee and our board of directors, although our board and compensation committee will consider the outcome of this vote when making future compensation decisions. In a separate vote, we are also providing our stockholders with the opportunity to vote, on an advisory basis, on whether the vote on our named executive officer compensation should occur every year, every two years, or every three years.
The board of directors recommends a vote “for” the approval, on a non-binding
advisory basis, of the compensation of the company’s named executive officers,
as disclosed in this Proxy Statement.
Approval of the compensation of our named executive officers requires the affirmative vote of a majority of our common stock present in person or represented by proxy at the meeting and entitled to vote on the proposal. Abstentions will count as votes against this proposal. Broker non-vote shares are not entitled to vote on this proposal and, therefore, are not counted in the vote.

 
MDU Resources Group, Inc. Proxy Statement 23


Proxy Statement
 

INFORMATION CONCERNING EXECUTIVE OFFICERS
At the first annual meeting of the board after the annual meeting of stockholders, our board of directors elects our executive officers, who serve until their successors are chosen and qualify. A majority of our board of directors may remove any executive officer at any time. Information concerning our executive officers, including their ages as of December 31, 2016 , present corporate positions, and business experience during the past five years, is as follows:
 
Name
 
Age
 
Present Corporate Position and Business Experience
 
 
David L. Goodin
 
55
 
Mr. Goodin was elected president and chief executive officer of the company and a director effective January 4, 2013. For more information about Mr. Goodin, see the section entitled “ Item 1. Election of Directors .”
 
 
David C. Barney
 
61
 
Mr. Barney was elected president and chief executive officer of Knife River Corporation effective April 30, 2013, and president effective January 1, 2012.
 
 
Martin A. Fritz
 
52
 
Mr. Fritz was elected president and chief executive officer of WBI Holdings, Inc. effective July 20, 2015. Prior to joining WBI Holdings, Inc., he had his own energy consulting firm, Fritz Consulting, from February 2014 to July 2015, where he provided strategy, operations, business development, and business brokerage services. Prior to that, Mr. Fritz was employed by EQT Corporation, a petroleum and natural gas exploration and pipeline company, in positions of increasing responsibility, most recently serving as its executive vice president midstream operations, land and construction from 2013 through January 2014 and vice president EQT and president EQT midstream operations from 2008 to 2013.
 
 
Dennis L. Haider
 
64
 
Mr. Haider was elected executive vice president-business development effective June 1, 2013. Prior to that, he was executive vice president-business development and gas supply of Montana-Dakota Utilities Co., Great Plains Natural Gas Co., Cascade Natural Gas Corporation, and Intermountain Gas Company from January 1, 2012 to May 31, 2013.
 
 
Anne M. Jones
 
53
 
Ms. Jones was elected vice president-human resources effective January 1, 2016. Prior to that, she was vice president-human resources, customer service, and safety at Montana-Dakota Utilities Co., Great Plains Natural Gas Co., Cascade Natural Gas Corporation, and Intermountain Gas Company effective July 1, 2013, and director of human resources for Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. effective June 2008.
 
 
Nicole A. Kivisto
 
43
 
Ms. Kivisto was elected president and chief executive officer of Montana-Dakota Utilities Co., Great Plains Natural Gas Co., Cascade Natural Gas Corporation, and Intermountain Gas Company effective January 9, 2015. Prior to that, she was vice president of operations for Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. effective January 3, 2014, and vice president, controller and chief accounting officer for the company effective February 17, 2010.
 
 
Daniel S. Kuntz
 
63
 
Mr. Kuntz was elected vice president, general counsel and secretary effective January 1, 2017. Prior to that, he was general counsel and secretary effective January 9, 2016, associate general counsel effective April 1, 2007, and assistant secretary effective August 17, 2007.
 
 
Margaret (Peggy) A. Link
 
50
 
Ms. Link was elected chief information officer effective January 1, 2016. Prior to that, she was assistant vice president-technology and cybersecurity officer effective January 1, 2015, and director shared IT services effective June 2, 2009.
 
 
Doran N. Schwartz
 
47
 
Mr. Schwartz was elected vice president and chief financial officer effective February 17, 2010.
 
 
Jeffrey S. Thiede
 
54
 
Mr. Thiede was elected president and chief executive officer of MDU Construction Services Group, Inc. effective April 30, 2013, and president effective January 1, 2012.
 
 
Jason L. Vollmer
 
39
 
Mr. Vollmer was elected vice president, chief accounting officer and treasurer effective March 19, 2016. Prior to that, he was treasurer and director of cash and risk management effective November 29, 2014, assistant treasurer of Centennial Energy Holdings, Inc. and manager of treasury services and risk management effective June 30, 2014, and manager of treasury services, cash and risk management effective April 11, 2011.
 


 
24 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Discussion and Analysis describes how our named executive officers were compensated for 2016 and how their 2016 compensation aligns with our pay for performance philosophy. It also describes the oversight of the compensation committee and the rationale and processes used to determine the 2016 compensation of our executive officers including the objectives and specific elements of our compensation program.
The Compensation Discussion and Analysis may contain statements regarding corporate performance targets and goals. The targets and goals are disclosed in the limited context of our compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.
Our Named Executive Officers for 2016 were:
David L. Goodin
President and Chief Executive Officer (CEO)
Doran N. Schwartz
Vice President and Chief Financial Officer (CFO)
David C. Barney
President and Chief Executive Officer - Construction Materials & Contracting Segment
Jeffrey S. Thiede
President and Chief Executive Officer - Construction Services Segment
Martin A. Fritz
President and Chief Executive Officer - Pipeline & Midstream Segment
Executive Summary
Pay for Performance
To ensure management’s interests are aligned with those of our stockholders and the performance of the company, over 76% of the CEO’s target compensation and 61% of the other named executive officers’ target compensation is dependent on the achievement of company performance targets. The charts below show the target pay mix for the CEO and average target pay mix of the other named executive officers, including base salary and the annual and long-term at-risk performance incentives.
MDU2017PROX_CHART-40820.JPG MDU2017PROX_CHART-42098.JPG
Annual incentive opportunities for our executive officers are linked to performance by tying them to the achievement of specific business and financial goals. The 2016 annual incentive opportunities for business segment executives are based on the achievement of specific performance measures selected by the compensation committee. The performance measures included targets specific to the business segment and one performance measure tied to the success of the company as a whole. This incentivized our business segment executives to focus on the success and performance of their business segment while keeping the overall success of the company in mind.
For corporate executives (including our CEO and CFO), annual incentive opportunities are based on the business segments’ achievement of their performance measures. The business segment performance measures are then weighted by its average invested capital. The sum of the weighted business unit achieved performance measures results in the annual incentive payout for corporate executives. This incentivizes the corporate executives to assist the business segments in their success and performance.

 
MDU Resources Group, Inc. Proxy Statement 25


Proxy Statement
 


Construction Materials & Contracting Segment
 
Construction Services Segment
 
Pipeline & Midstream Segment
 
Electric & Natural Gas Distribution Segment
ê
 
ê
 
ê
 
ê
Business Segment Targets
 
Business Segment Targets
 
Business Segment Targets
 
Business Segment Targets
Company Target
 
Company Target
 
Company Target
 
Company Target
ê
 
ê
 
ê
 
ê
MDU Resources Corporate Executives (including our CEO and CFO)
Achievement of Business Segment Measures x Business Segment Average Invested Capital

The following chart shows the annual incentive payout of target realized by our CEO with a comparison to earnings per share from continuing operations for the last five years and demonstrates the alignment between our financial performance and realized annual incentive compensation.
MDU2017PROX_CHART-43094.JPG
See “Annual Incentives” in this section for further details on our company’s annual incentive program.
Vesting of long-term incentives is based on our company’s total stockholder return in comparison to that of our peers measured over a three year period. The following chart depicts the actual vesting percentage for the last five performance cycles and demonstrates the alignment between total return to our stockholders and our realized long-term incentive compensation.






 
26 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 


MDU2017PROX_CHART-44763.JPG
See “Long-Term Incentives” in this section for further details on the company’s long-term incentive program.
With the majority of our executive officer’s compensation dependent on the achievement of performance measures set by the compensation committee, we believe there is substantial alignment between executive pay and the company’s performance.
Stockholder Advisory Vote (“Say on Pay”)
At our 2016 Annual Meeting of Stockholders, 85.2% of the votes cast on the “Say on Pay” proposal approved the compensation of our named executive officers. Although the compensation committee viewed the 2016 vote as a strong expression of the stockholders general satisfaction with the company’s executive compensation programs, the 85.2% approval is lower than the results of our 88.2% “Say on Pay” vote at the 2015 Annual Meeting of Stockholders. The compensation committee believes the lower approval vote was largely attributable to a negative recommendation of a proxy advisor largely caused by comparative analysis to a peer group that was not reflective of the company’s business mix and an analysis that gave inadequate recognition to the distinction between target incentive award opportunities and realized incentive compensation. The compensation committee reviewed and considered the 2016 vote on “Say on Pay” in setting compensation for 2017.
Total Realized Pay
Total Realized Pay reflects the compensation actually paid to our executive officers based on performance, which can differ substantially from compensation as presented in the Summary Compensation Table. For example, total compensation presented in the Summary Compensation Table contains estimated values of performance share grants based on multiple assumptions which may or may not be achieved and can only be realized at the end of a three-year performance period. In addition, the Summary Compensation Table may show an increase in pension value based on valuation assumptions and discount rates used to calculate present value; however, any change in the pension value is not realized until the future period when the executive actually retires. We believe presenting information on Total Realized Pay provides additional perspective on the renumeration actually received by an executive in a given year. We define 2016 Total Realized Pay to include:
Base salary for 2016;
Annual incentive earned for 2016;
Performance shares (long-term incentive) plus dividend equivalents vesting as of December 31, 2016 and paid in 2017; and
Other compensation which includes company contributions to the 401(k) plan and company paid life insurance premiums.

 
MDU Resources Group, Inc. Proxy Statement 27


Proxy Statement
 

Name
2016 Base Salary
($)

2016 Annual Incentive Earned
($)

Vested and Paid Performance Shares 1
($)

2016 Other Compensation
($)

2016 Total
Realized Pay
($)

Summary Compensation Table Total Compensation
($)

David L. Goodin
755,000

1,055,490

654,368

40,246

2,505,104

3,510,991

Doran N. Schwartz
380,000

351,481

171,936

35,772

939,189

1,134,629

David C. Barney
406,800

593,114

145,190

22,905

1,168,009

1,376,616

Jeffrey S. Thiede
425,000

489,600

152,848

22,708

1,090,156

1,325,906

Martin A. Fritz
400,000

416,000


21,670

837,670

1,243,248

1  
Performance shares and dividend equivalents for the 2014-2016 performance cycle vested on December 31, 2016 and were approved in February 2017. The performance share value is based on our stock price on February 16, 2017, which was $26.37 per share.
Compensation Practices
Our practices and policies ensure alignment between the interests of our stockholders and our executives as well as effective compensation governance.
What We Do
 
 
þ
Pay for Performance  - All annual and long-term incentives are performance-based and tied to performance measures set by the compensation committee.
þ
Independent Compensation Committee - All members of the compensation committee meet the independence standards under the New York Stock Exchange listing standards and the Securities and Exchange Commission rules.
þ
Independent Compensation Consultant  - The compensation committee retains an independent compensation consultant to evaluate executive compensation plans and practices.
þ
Competitive Compensation  - Executive compensation reflects the executive’s performance, experience, relative value compared to other positions within the company, relationship to competitive market value compensation, and the economic environment of the executive’s business segment.
þ
Annual Compensation Risk Analysis - We regularly analyze the risks related to our compensation programs and conduct a broad risk assessment annually.
þ
Stock Ownership & Retention Requirements  - Executive officers are required to own, within five years of appointment or promotion, company common stock equal to a multiple of their base salary. The executive officers must retain at least 50% of the net after tax shares of stock vested through the long-term incentive plan for the earlier of two years or until termination of employment.
þ
Clawback Policy - If the company’s audited financial statements are restated, the compensation committee may, or shall if required, demand repayment of some or all incentives paid to company executive officers within the last three years.
 
 
What We Don’t Do
 
 
ý
Stock Options  - The company does not use stock options as a form of incentive compensation.
ý
Perquisites  - Executives do not receive perquisites which materially differ from those available to employees in general.
ý
Tax Gross-ups  - Executive officers do not receive tax gross-ups on any compensation.
ý
Hedge or Pledge Stock - Executives and directors are not allowed to hedge or pledge company securities.
ý
No Time Based Awards - All long-term incentives are performance-based and vest only upon the achievement of specific performance measures.

 
28 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

2016 Compensation Framework
Objectives of our Compensation Program
We have a written executive compensation policy for our executive officers, including all our named executive officers. Our policy’s stated objectives are to:
recruit, motivate, reward, and retain high performing executive talent required to create superior long-term total stockholder return in comparison to our peer group;
reward executives for short-term performance, as well as for growth in enterprise value over the long-term;
provide a competitive compensation package relative to industry-specific and general industry comparisons and internal equity;
ensure effective utilization and development of talent by working in concert with other management processes - for example, performance appraisal, succession planning, and management development; and
ensure that compensation programs do not encourage or reward excessive or imprudent risk taking.
Compensation Decision Process for 2016
For 2016, the compensation committee made recommendations to the board of directors regarding compensation of all executive officers, and the board of directors then approved the recommendations. The CEO’s role in the process includes the assessment of executive officer performance and recommending base salaries for the executive officers other than himself. The CEO attended all the compensation committee meetings but was not present during discussions of his compensation. The compensation committee established and approved base salaries and performance measures for the annual and long-term incentive compensation for 2016. They also certified the achievement of performance measures associated with annual and long-term incentive compensation.
At least every two years, the compensation committee hires an independent consulting firm to assess competitive pay levels including base salaries and incentive compensation associated with executive officer positions. Typically the consulting firm conducts its analysis in even numbered years. In odd numbered years, the assessment is performed by the company’s human resources department using a variety of industry specific sources. In 2015, the human resources department prepared the analysis for 2016 compensation.
Components of Compensation
The components of our executive officer’s compensation are selected to drive financial and operational results as well as align the executive officer’s interests with those of our stockholders. The components of our executive compensation include:
Component
Payments
Purpose
 
How Determined
 
How it Links to Performance
Base Salary
Assured
Provides executives with sufficient, regularly paid income to recruit and retain executives with knowledge, skills, and abilities necessary to successfully execute their job responsibilities.
 
Compared to peer company and industry compensation information.
 
Base salary is a means to attract and retain talented executives capable of driving success and performance.
Annual Cash Incentive
Performance Based

At Risk
Provides an opportunity to earn annual incentive compensation to be competitive from a total renumeration standpoint and to ensure focus on annual financial and operating results.
 
Annual incentives calculated as a percentage of base salary based on the achievement of performance measures established by the compensation committee.
 
Annual incentive performance measures are tied to the achievement of financial and operational goals aimed to drive the success of the company.
Performance Shares
Performance Based

At Risk
Provides an opportunity to earn long-term compensation to be competitive from a total renumeration standpoint and to ensure focus on stockholder return.
 
Performance share award opportunities are calculated as a percentage of base salary and pay out is based on the company’s total stockholder return over a three-year period in comparison to the company’s peer group.
 
Fosters ownership in company stock and aligns the executive’s interests with those of the stockholder in increasing stockholder value.

Allocation of Total Target Compensation for 2016
Total target compensation consists of base salary plus target annual and long-term incentive compensation. Performance-based compensation accounts for over 76% of our CEO’s and on average approximately 61% of our other named executive officers’ total target

 
MDU Resources Group, Inc. Proxy Statement 29


Proxy Statement
 

compensation. Incentive compensation, which consists of annual cash incentive and three-year performance share award opportunities, comprises the largest portion of our named executive officers’ total target compensation because:
our named executive officers are in positions to drive, and therefore bear high levels of responsibility for our corporate performance;
incentive compensation is dependent upon our performance;
incentive compensation helps ensure focus on performance measures that are aligned with our overall strategy; and
the interests of the named executive officers are aligned with those of stockholders by making a significant portion of their target compensation contingent upon results beneficial to stockholders.
To foster and reward long-term growth, the compensation committee generally allocates a higher percentage of total target compensation to the target long-term incentive than to the target annual incentive for our higher level executives because they are in a better position to influence our long-term performance. The long-term incentive awards, if earned by achieving performance measures, are paid in company common stock. These awards, combined with our stock retention requirements and our stock ownership policy, promote ownership of our stock by the executive officers. The compensation committee believes, as stockholders, the executive officers will be motivated to deliver financial results that build value for all stockholders over the long term.
Peer Group
The compensation committee evaluates the company’s compensation plan and its performance relative to a group of peer companies in determining compensation and the vesting of long-term incentive compensation. The companies included in our peer group are evaluated every year and are selected to be representative of the industries in which we operate. During 2015, as we decided to exit the oil and gas exploration and production business, we re-evaluated our peer group and removed the remaining exploration and production companies, which were Bill Barrett Corporation and SM Energy Company from the peer group. To more closely reflect our regulated energy delivery and construction materials and services businesses, we added IDACORP, Inc., NorthWestern Corporation, U.S. Concrete, Inc., IES Holdings, Inc., and MYR Group, Inc. to our peer group. MarkWest Energy Partners L.P., which was added as a peer company in 2015, merged with another company and was removed from our 2015 peer group. Likewise, Questar Corporation merged with another company in 2016 and was removed from our 2016 peer group. The following chart depicts the companies included in our 2016 peer group.
2016 Peer Companies
 
ê
 
 
 
ê
 
Regulated Energy Delivery
 
Construction Materials and Services
ê
 
ê
 
ê
 
ê
Utility
 
Pipeline
 
Construction Materials & Contracting
 
Construction Services
ALLETE, Inc.
 
Atmos Energy Corporation
 
Granite Construction Incorporated
 
EMCOR Group, Inc.
Alliant Energy Corporation
 
National Fuel Gas Company
 
Martin Marietta Materials, Inc.
 
Quanta Services, Inc.
Avista Corporation
 
 
 
Sterling Construction Company, Inc.
 
IES Holdings, Inc.
Black Hills Corporation
 
 
 
Vulcan Materials Company
 
MYR Group, Inc.
Northwest Natural Gas Company
 
 
 
U.S. Concrete, Inc.
 
 
Vectren Corporation
 
 
 
 
 
 
IDACORP, Inc.
 
 
 
 
 
 
NorthWestern Corporation
 
 
 
 
 
 
2016 Compensation for Our Named Executive Officers
2016 Salary and Incentive Targets
For 2016, Mr. Goodin considered the 2015 financial results as well as the economic challenges facing the company and recommended a base salary freeze for the named executive officers during 2016, with the exception of Mr. Barney where he recommended a 3% increase based on the outstanding performance of the construction materials & contracting segment in achieving record earnings and exceeding its risk adjusted capital cost in 2015. The compensation committee approved the salary recommendations of the CEO. The compensation committee reviewed and determined to freeze Mr. Goodin’s base salary for 2016 consistent with the freeze of other named executive officers.

 
30 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

The following is information related to each named executive officer’s base salary, target annual incentive, target long-term incentive, and total direct compensation:
David L. Goodin
2016
($)
% Increase
 from Prior Year
Compensation Component
as a % of Base Salary

 
Base Salary
755,000
0%
n/a

 
Target Annual Incentive Opportunity
755,000
0%
100
%
 
Target Long-Term Incentive Opportunity
1,698,750
0%
225
%
 
Target Total Potential Direct Compensation
3,208,750
0%
425
%
 
Doran N. Schwartz
2016
($)
% Increase
 from Prior Year
Compensation Component
as a % of Base Salary

 
Base Salary
380,000
0%
n/a

 
Target Annual Incentive Opportunity
247,000
0%
65
%
 
Target Long-Term Incentive Opportunity
342,000
0%
90
%
 
Target Total Potential Direct Compensation
969,000
0%
255
%
 
David C. Barney
2016
($)
% Increase
 from Prior Year

Compensation Component
as a % of Base Salary

 
Base Salary
406,800
3
 %
n/a

 
Target Annual Incentive Opportunity
305,100
(3
)%
75
%
 
Target Long-Term Incentive Opportunity
325,440
18
 %
80
%
 
Target Total Potential Direct Compensation
1,037,340
5
 %
255
%
 
Mr. Barney continues to transition from an all annual incentive target to a combination of annual and long-term incentive targets in connection with his promotion in 2013. Mr. Barney’s annual incentive target as a percent of base salary decreased from 80% in 2015 to 75% for 2016, while his long-term incentive target as a percent of base salary increased from 70% in 2015 to 80% for 2016.
 
Jeffrey S. Thiede
2016
($)
% Increase
 from Prior Year

Compensation Component
as a % of Base Salary

 
Base Salary
425,000
0
 %
n/a

 
Target Annual Incentive Opportunity
318,750
(6
)%
75
%
 
Target Long-Term Incentive Opportunity
340,000
14
 %
80
%
 
Target Total Potential Direct Compensation
1,083,750
2
 %
255
%
 
Mr. Thiede continues to transition from an all annual incentive target to a combination of annual and long-term incentive targets in connection with his promotion in 2013. Mr. Thiede’s annual incentive target as a percent of base salary decreased from 80% in 2015 to 75% for 2016, while his long-term incentive target as a percent of base salary increased from 70% in 2015 to 80% for 2016.
 
Martin A. Fritz
2016
($)
% Increase
 from Prior Year

Compensation Component
as a % of Base Salary

 
Base Salary
400,000
0
%
n/a

 
Target Annual Incentive Opportunity
260,000
0
%
65
%
 
Target Long-Term Incentive Opportunity
360,000
0
%
90
%
 
Target Total Potential Direct Compensation
1,020,000
0
%
255
%
 
Annual Incentives
Annual incentive opportunities are determined for business segment executives by the achievement of specific performance measures selected by the compensation committee. For corporate executives, annual incentive opportunities are determined by the average of the business segments’ achievement of their performance measures weighted by its average invested capital. Through this, our business segment executives are incentivized to primarily focus on the success and performance of their business segment while corporate executives focus on the success and performance of all lines of business.

 
MDU Resources Group, Inc. Proxy Statement 31


Proxy Statement
 

The compensation committee developed and reviewed financial and other corporate performance measures to ensure compensation to the executives reflect the success of their respective business segments and the company, as well as the value provided to our stockholders. Each business segment’s performance measures are weighted with a corporate earnings per share performance measure representing 20% of the target award opportunity and the business segment specific performance measures representing 80% of the award opportunity. The following incentive plan performance measures for 2016 were established by the compensation committee for the business segment presidents (exclusive of the MDU Resources corporate executive officers) at the February 2016 meeting:
Measure
Applies to
Purpose
Measurement
Target
Weight
Why Measure Selected
MDU Resources Diluted Adjusted Earnings per Share (EPS)
All the business segments
EPS is a generally accepted accounting principle (GAAP) measurement and is a key driver of stockholder return. This goal applies to the presidents of all business segments to engage them in the earnings of the company as a whole.
GAAP EPS less discontinued operations (as reported as discontinued on or prior to December 31, 2015) and adjusted to exclude:
- effects of intersegment eliminations,
- noncash gains/losses resulting from hedge accounting,
- losses on asset sales/dispositions approved by the board, and
- assessed withdrawal liabilities relating to multiemployer pension plans.
$1.02
20%
Reflects anticipated EPS performance within the range of EPS guidance for 2016.
Return on Invested Capital (ROIC)
Electric & Natural Gas Distribution Segment
Provides a measure of how effective the business segment uses its capital and generates a return from its capital. These segments are primarily regulated entities requiring significant capital investment. ROIC is important in providing a return to our stockholders.
Business segment earnings, without regard to after tax interest expense and preferred stock dividends divided by the business segment’s average capitalization for the calendar year.



4.4%
40%
Reflects anticipated returns considering additional capital investments made in 2015.
Pipeline & Midstream Segment
5.9%
28%
Reflects anticipated returns considering additional capital investments made in 2015.
Business Segment Earnings
Electric & Natural Gas Distribution Segment
Provides a measure of financial performance.
GAAP business segment earnings adjusted to exclude:
- effects of intersegment eliminations,
- noncash gains/losses resulting from hedge accounting,
- losses on asset sales/dispositions approved by the board, and
- assessed withdrawal liabilities relating to multiemployer pension plans.

$68.0 million
40%
Reflects anticipated earnings associated with the business segment.
Pipeline & Midstream Segment
$18.5 million
28%
Reflects anticipated earnings associated with the business segment.
Construction Materials & Contracting Segment
$62.8 million
80%
Reflects earnings necessary to meet or exceed the business segment’s risk adjusted capital cost.
Construction Services Segment
$26.4 million
80%
Reflects earnings necessary to meet or exceed the business segment’s risk adjusted capital cost.
Optimum Refining Production
Refining Segment
Promotes the achievement of plant reliability based on optimum production.
Barrels of diesel produced in 2016.
5,865 bbls
24%
Reflects plant production based on the plant design with consideration for planned maintenance outages.
Actual performance results are compared to the target performance measure to arrive at a percent of target achieved. The percent of target achieved is then translated into a payout percentage of the target award opportunity. Generally, to receive a payout requires achievement of 85% of the target performance measure which results in a payout of 25% of the award opportunity. Maximum payouts vary by business segment. For the regulated energy delivery companies, maximum payout of 200% of the award opportunity is received if the percent of target achieved is 115% or greater. For the construction materials and services companies, maximum payout is 250% of the award opportunity if the percent of target achieved is 167.2% of target for the construction materials & contracting segment and 210% of target for the construction services segment. Results achieved between the threshold, target, and maximum levels are calculated using linear interpolation. The following tables show the 2016 performance measure results and the relative award opportunity payout:

 
32 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

Business Segment
Performance Measure
Result

Percent of
 Performance
 Measure
 Achieved

Percent
of Award
Opportunity
Payout

Weight

Weighted
Award
 Opportunity
 Payout %

All Business Segments
Earnings per Share
$1.08
105.9
%
139.2
%
20
%
27.8
%
Electric & Natural Gas Distribution Segment
Earnings
$69.3 million
101.9
%
112.7
%
40
%
45.1
%
ROIC
4.5
%
102.3
%
115.1
%
40
%
46.0
%
Pipeline & Midstream and Refining Segments
Earnings
$24.9 million
134.6
%
200.0
%
28
%
56.0
%
ROIC
7.5
%
127.1
%
200.0
%
28
%
56.0
%
Optimum Refining Production   1
2,796 bbls
82.9
%
84.0
%
24
%
20.2
%
Construction Materials & Contracting Segment
Earnings
$96.0 million
152.9
%
208.3
%
80
%
166.6
%
Construction Services Segment
Earnings
$33.9 million
128.6
%
157.2
%
80
%
125.8
%
1
The compensation committee determined the economic conditions that led to the sale of Dakota Prairie Refining, LLC in June 2016, as well as the sale itself, were unforeseen changes and significant factors beyond the control of management that substantially affected the ability of the refining segment to achieve the specified annual production performance measure at Dakota Prairie Refining, LLC. Due to these unforeseen circumstances, the compensation committee determined the annual production performance measure at the refining segment was achieved for Mr. Fritz at the same percentage as the annual production rate at Dakota Prairie Refining, LLC was being achieved during 2016 prior to the sale.
 
 
 
 
 
For the MDU Resources Group, Inc. corporate named executive officers, namely Messrs. Goodin and Schwartz, the compensation committee continued to base the payment of the annual incentive on the achievement of performance measures at the business segments weighted by each business segment’s weighted average invested capital. The compensation committee’s rationale for this approach was to provide alignment between the MDU Resources Group, Inc. executives and business segment performance. The compensation committee determined achievement of the optimum refining production performance measure for Mr. Schwartz’s award opportunity payout in the same manner as it determined the achievement of the performance measure for Mr. Fritz. The compensation committee did not modify Mr. Goodin’s award opportunity payout for the effects of the optimum refining production performance measure. As a result, Messrs. Goodin’s and Schwartz’s 2016 annual incentives were earned at 139.8% and 142.3% of the target award opportunity, respectively, based on the following weighted average of annual business segment incentives achieved:
 
Business Segment
Column A
Business Segment Award Opportunity Payout
Column B
Percentage of
 Average Invested
 Capital

 
Column A x Column B
 
 
 
Mr. Goodin

Mr. Schwartz

 
Mr. Goodin

Mr. Schwartz

 
Construction Materials & Contracting Segment   1
187.8
%
187.8
%
22.2
%
 
41.7
%
41.7
%
 
Construction Services Segment
153.6
%
153.6
%
8.8
%
 
13.5
%
13.5
%
 
Pipeline & Midstream and Refining Segments
139.8
%
160.0
%
12.4
%
 
17.3
%
19.8
%
 
Electric & Natural Gas Distribution Segment
118.9
%
118.9
%
56.6
%
 
67.3
%
67.3
%
 
Total Payout Percentage
 
139.8
%
142.3
%
1
For purposes of calculating the incentive award opportunities for Messrs. Goodin and Schwartz, the award opportunity payout associated with the earnings performance measure for the construction materials & contracting segment was limited to 200%, which resulted in a weighted construction materials & contracting segment award opportunity payout percentage of 187.8% versus the 194.4% for the business segment.
 
 
 
 
 
Based on the achievement of the performance targets, the named executive officers received the following annual incentive compensation:
2016 Annual Incentives Earned
Name
Target Annual
Incentive
($)
 
Annual Incentive Earned
 
Payout
(%)
Amount
($)
David L. Goodin
755,000
 
139.8
1,055,490
Doran N. Schwartz
247,000
 
142.3
351,481
David C. Barney
305,100
 
194.4
593,114
Jeffrey S. Thiede
318,750
 
153.6
489,600
Martin A. Fritz
260,000
 
160.0
416,000

 
MDU Resources Group, Inc. Proxy Statement 33


Proxy Statement
 

Long-Term Incentives
We use the Long-Term Performance-Based Incentive Plan, which has been approved by our stockholders, for long-term incentive compensation. As in the past, the compensation committee used performance shares as the form of long-term incentive compensation for 2016 and established the company’s total stockholder return in comparison to the total stockholder return for the peer group companies over a three-year period as the performance measure for vesting of long-term incentive compensation.

Total stockholder return is the percentage change in the value of an investment in the common stock of a company from the closing price on the last trading day in the calendar year preceding the beginning of the performance period through the last trading day in the final year of the performance period. It is assumed that dividends are reinvested in additional shares of common stock at the frequency paid during the performance period. The compensation committee selected total stockholder return as the performance measure because long-term executive incentive compensation should align with our long-term performance in stockholder return as compared to other public companies in our industries.
Depending on our total three-year stockholder return compared to the total three-year stockholder returns of our peer group companies, performance share award opportunities for our named executive officers may or may not vest. Vesting of performance shares can range from 0% to 200% of the target award. Vesting of the performance share opportunities will be a function of our rank over the performance period against our peer group companies as delineated in the following table:
The Company’s
Peer TSR Percentile Rank
Vesting Percentage of
Award Target
75th or higher
200%
50th
100%
25th
20%
Less than 25th
0%
Vesting for percentile ranks falling between the intervals will be interpolated. If our total stockholder return is negative, the shares and dividend equivalents otherwise earned based on the payout percentages above, if any, will be reduced in accordance with the following table:
Total Stockholder Return
Reduction in Vesting
0% through -5%
50%
-5.01% through -10%
60%
-10.01% through -15%
70%
-15.01% through -20%
80%
-20.01% through -25%
90%
-25.01% or below
100%
Dividend equivalents are paid in cash based on the number of shares actually vested for the performance period. No dividend equivalents are paid on unvested performance shares.
Actual vesting of performance share awards under the plan have varied over the last five years as shown below:
Performance Period
Vesting Percentage
2014-2016
68%
2013-2015
31%
2012-2014
0%
2011-2013
193%
2010-2012
0%

 
34 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

Results of 2014-2016 Performance Period
We awarded performance share opportunities to our named executive officers on February 14, 2014 for the 2014-2016 performance period. Our total stockholder return for the three-year performance period was 1.15% which corresponded to a percentile ranking of 40% with our 2014 peer group companies, and resulted in 68% vesting of performance shares and dividend equivalents. The named executive officers received the following for the 2014-2016 performance period:
Name
Target
Performance
Shares
(#)

Performance
Shares
Vested
(#)

Dividend
Equivalents
($)

Value of Vested Shares and Dividend
 Equivalents at 2/16/17
($) 1

David L. Goodin
33,677

22,900

50,495

654,368

Doran N. Schwartz
8,849

6,017

13,267

171,936

David C. Barney
7,472

5,081

11,204