2022 NEO LONG-TERM INCENTIVE PS AWARD OPPORTUNITIES
| | | | | | | | | | | |
| Position | Threshold PS Opportunity1 | Target PS Opportunity1 | Maximum PS Opportunity1 |
| CEO | 101.5% | 203% | 406% |
President and COO2 | 57.75% | 115.5% | 231.0% |
General Counsel, SVP, Regulatory, and Public Policy3 | 47.25% | 94.5% | 189% |
SVP | 29.75% | 59.5% | 119% |
1 As a percentage of base salary. As discussed under Overview - LTIP Performance for 2022-2024 under the 2022 LTIP on page 37, this table represents the PS portion of the 2022 LTIP award opportunities. As discussed in 2025 Compensation Actions beginning on page 49, RSAs were granted under the 2025 LTIP. Such award opportunities were determined based on the NEOs' respective positions and base salaries. |
2 Due to Mr. Tarry’s promotion to President and COO, PS award opportunity increased from 105% to 115.5% for period beginning after May 20, 2022, which increased the target opportunity to 165%. |
3 Pro-rated based on his hire date of September 16, 2024. |
Actual PSs received by the NEOs under the 2022 LTIP are shown on the Outstanding Equity Awards table on page 58.
Deferred Compensation and Retirement Benefits
Our NEOs participate in the Company’s RSP (a broad-based 401(k) plan) and a non-qualified supplemental deferred compensation plan, the ESP II – which runs side-by-side with the RSP. Mr. Tarry also participates in the ERP, a traditional defined benefit plan, which was frozen to employees hired on or after January 1, 1998. These programs are described in more detail beginning on page 59.
Supplemental Benefits and Perquisites
In order to attract and retain key executive talent in an increasingly competitive marketplace, the Company provides its NEOs reasonable supplemental benefits as a part of their overall compensation and benefits. The 2024 supplemental benefits include: company-paid life insurance for NEOs, long term disability insurance, executive physicals, financial planning and the ECP. For Ms. Collawn, the Company also provides home security. The supplemental benefits are set forth in footnote 5 of the SCT on page 55.
Potential Severance Benefits
The Company offers severance benefits to the NEOs to mitigate the possible difficulty they may have finding comparable employment, within a reasonable period of time, following a separation from service. Under our Severance Plan, benefits are only payable if the NEO’s position is eliminated through no fault of his or her own. The Severance Plan and related benefits are described in more detail on page 63.
Potential Change in Control Benefits
The Company also recognizes, as is the case with many publicly-held companies, the possibility of a change in control. A change in control, combined with the uncertainty and the questions that it may raise, may potentially result in the departure of key management to the detriment of the Company and our shareholders. This could also impact the Company’s ability to continue to provide efficient and reliable utility services to our customers. The Company and the Compensation and HC Committee have determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of the Company’s key management to their assigned duties and to pursuing corporate transaction activity that is in the best interests of our customers and shareholders and to facilitate recruitment of future employees in the face of potentially challenging circumstances arising from the possibility of a change in control of the Company. The Company and the Compensation and HC Committee have also concluded that it is appropriate to provide competitive and fair compensation and benefits to employees terminated under these circumstances through our Retention Plan.
The Retention Plan provides the NEOs with benefits if their employment is terminated, under certain circumstances, within 24 months following a change in control of the Company. The purpose of our Retention Plan is to better align the NEOs’ interests with the interests of our shareholders and to provide the NEOs with reasonable protection from loss of employment resulting from a change in control. The provision of benefits pursuant to the Retention Plan also facilitates our recruitment and retention of talented NEOs by providing reasonable and expected protections. Our Retention Plan and change in control benefits are described in more detail beginning on page 63.
ADMINISTRATION AND RESOURCES
Roles of the Compensation and HC Committee, Board of Directors and Executive Officers
Pursuant to its role as assigned by the Board, the Compensation and HC Committee is primarily responsible for the design and administration of our executive compensation program. Additionally, our Board, our NEOs and an independent compensation consultant play important roles. The Compensation and HC Committee establishes and periodically reviews all elements of our executive compensation program. The ultimate responsibility for determining the level of compensation paid to each of the NEOs, other than the CEO, resides with the Compensation and HC Committee. For the CEO, the Compensation and HC Committee makes a recommendation to our independent directors of the Board (a group that includes, but is not limited to, the members of the Compensation and HC Committee) regarding the level of the CEO’s compensation and the final decision is made by the independent directors. The Board, based on the recommendations of the Compensation and HC Committee, approves all equity compensation plans and equity awards for Officers. In setting (or recommending in the case of the CEO) specific compensation levels, the Compensation and HC Committee considers the CEO’s evaluation of the NEOs and the self-evaluation prepared by the CEO. The independent members of the Board take into consideration their evaluation of the CEO’s performance when approving or setting the CEO specific compensation levels. The CEO recommends corporate-level
performance goals to the Compensation and HC Committee for approval. The CEO also provides regular input to the Compensation and HC Committee with respect to the overall structure of the executive compensation program, including how the program effectively aligns with the Company’s strategic objectives. However, the final decision related to the executive compensation program rests with the Compensation and HC Committee, with approval of the independent members of the Board, for all Officer equity plans, Officer equity awards and CEO compensation.
Role of the Independent Compensation Consultant
Pursuant to its charter, the Compensation and HC Committee selects and retains an independent compensation consultant (at the Company’s expense) whose services include: providing peer group and market compensation data, providing information on trends and regulatory issues affecting executive pay, performing competitive market analysis, recommending compensation program and plan changes and recommending Officer compensation structure and levels. In May 2013, the Compensation and HC Committee selected Pay Governance to be its independent compensation consultant pursuant to the Compensation and HC Committee’s Policy Governing Fees and Services for Executive Compensation Consultants. On an annual basis, most recently at its December 2024 meeting, the Compensation and HC Committee evaluated Pay Governance’s independence as its compensation consultant by considering each of the independence factors specified by the NYSE and the SEC. Based on the evaluation, the Compensation and HC Committee determined that no conflict of interest exists that would prevent Pay Governance from independently advising the Compensation and HC Committee. On occasion, the independent compensation consultant provides information to the members of management, but all its services are provided and performed at the request of and pursuant to instructions provided by the Compensation and HC Committee or the Nominating Committee. None of the NEOs are present during the Compensation and HC Committee’s discussions with the independent consultant regarding his or her individual compensation. During 2024, no services were provided to the Company by Pay Governance, other than the services that are described in this proxy statement.
The Compensation and HC Committee strives to provide target compensation opportunities that are at the median TDC of the appropriate benchmark group of companies, which reflect the market within which TXNM competes for executive talent. Information referenced in 2023 to assist in setting 2024 compensation levels was obtained and analyzed as follows:
•Management engaged WTW to perform a competitive assessment of the Company’s executive compensation program, including compensation opportunity levels for the CEO and other NEOs (the “WTW study”). Pay Governance reviewed the approach and the findings of the WTW study.
•The WTW study compared our NEO compensation to (1) market data for the TXNM Peer Group described on page 39 and (2) market data from the companies (listed in Appendix A) comprising the WTW 2023 General Industry Executive Survey Report - United States of general industry companies with data regressed to companies similarly sized to TXNM.
•For corporate-function roles, such as those of our NEOs, talent may be recruited by or lost to companies that are similar in size to the Company, which may or may not be in the utility/energy sector. Therefore, to determine overall market compensation levels, the benchmark analysis used the 2024 Benchmark Data.
•The median compensation levels of the 2024 Benchmark Data were the primary reference points used by the Compensation and HC Committee to evaluate the competitiveness of executive compensation. The Compensation and HC Committee used these figures to benchmark base salary, TCC and TDC paid to the NEOs (both individually and as a group) to similar types and elements of compensation paid to executives holding comparable positions in the marketplace.
2025 COMPENSATION ACTIONS
In February 2025, the Compensation and HC Committee approved the following 2025 compensation actions. The Compensation and HC Committee increased the annual base salaries payable to our NEOs (with the independent directors approving the base salary increase for our CEO), effective March 15, 2025. The base salary increases were based on corporate and individual performance and on the current median base salaries for the corresponding executive positions in the 2025 Benchmark Data. The 2025 base salary increases are as follows: Ms. Collawn from $1,164,428 to $1,199,361; Ms. Eden from $450,000 to $468,000; and Mr. Iverson from $450,000 to $468,000.
As disclosed in our Current Report on Form 8-K filed February 27, 2025, the Compensation and HC Committee also approved the 2025 AIP. The 2025 AIP includes a financial goal of Incentive EPS (weighted 60%) and two operational goals, customer satisfaction (weighted 20%) and reliability (weighted 20%). No incentive award under the 2025 AIP will be paid if performance for the Incentive EPS goal is below the threshold level and incentive awards, if earned, will be capped at the
maximum opportunity. Straight-line interpolation will determine the incentive award payout for performance that falls between threshold and target or target and maximum levels.
The Compensation and HC Committee and the Board also approved the 2025 LTIP. The 2025 LTIP award mix is comprised of 70% PSs and 30% RSAs. The PS awards pursuant to the 2025 LTIP for the three-year performance period of 2025-2027 aligns with our pay for performance objectives as well as industry trends and market practices. The PSs under the 2025 LTIP are based on three performance measures: Earnings Growth (targets are determined by the Board based on the Company’s long-range operating plan); Relative TSR; and FFO/Debt Ratio (targets are determined by the Board based on the Company’s long-range operating plan); weighted 40%, 40% and 20%, respectively. Each of the Earnings Growth, Relative TSR and FFO/Debt Ratio performance measures for the 2025 LTIP has a threshold, target and maximum award opportunity. The RSAs awarded pursuant to the 2025 LTIP were granted in February 2025 which will vest three years thereafter. This is in contrast to the Company’s past practice, which would have granted the RSAs under the 2022 LTIP (for performance period 2022-2024) after the end of the performance period.
ADDITIONAL INFORMATION
Corporate Governance
The Company and the Compensation and HC Committee continue to monitor corporate governance best practices and give consideration to incorporating them into our compensation processes and policies, as appropriate.
Sustainability
The Company’s sustainability programs are described on page 11 of this proxy statement. The Board and the Compensation and HC Committee believe that the Company’s compensation program and corporate governance requirements motivate our NEOs to operate the Company’s businesses in a sustainable manner that balances the interests of our customers and our other stakeholders while creating long-term value for shareholders. The Board and the Compensation and HC Committee also believe that our current compensation program, which emphasizes incentive-driven pay earned over the long-term based on TXNM Energy’s stock and earnings performance and credit metric objectives, creates a strong incentive for the NEOs to operate the Company’s business in a sustainable manner. Our share price and earnings performance and financial strength are likely to be enhanced by our utility subsidiaries delivering sustainable, diverse and affordable power in ways that protect the environment, ensure reliability and increase the use of renewable energy.
Clawback Policy
In August 2023, the Board approved an updated Clawback Policy that became effective December 1, 2023. The Clawback Policy applies to TXNM’s current and former Section 16 officers and any other current or former Officer of TXNM who receives any incentive compensation (each a “Covered Individual”). The policy applies to all incentive compensation, including any AIP awards and equity-based compensation. Clawback under the policy is triggered by (1) an accounting restatement due to material noncompliance of the Company with any financial reporting requirements under the securities laws (a “Restatement”) or (2) any improper conduct by a Covered Individual. If a Restatement occurs, the Company will recover the difference between the amount of incentive compensation paid to the Covered Individual and the amount that should have been paid to such Covered Individual in the absence of the Restatement. If a Covered Individual engages in improper conduct, the Company may recover the full amount of any incentive compensation that is attributable or relates to the period during which the improper conduct occurred. Any clawback that is triggered by the NYSE rules shall be handled in accordance with such rules.
Insider Trading Policy; No Hedging or Pledging of Company Stock
The Company has adopted the Insider Trading Policy governing the purchase, sale and/or other dispositions of the Company’s securities by its directors, officers, employees and certain of their family members and other persons in which they have a financial interest. While the policy does not technically govern trades by the Company itself, it is the Company’s practice to follow the same guidelines and restrictions in transactions involving its securities that apply to persons covered under the policy. As discussed on page 11 of this proxy statement, the Company’s Insider Trading Policy prohibits all Officers, directors and employees from engaging in hedging or monetization transactions that allow a person to lock in much of the value of his or her Company securities, such as zero-cost collars and forward sales contracts. Further, our Insider Trading Policy prohibits all directors and executive officers, including the NEOs, from pledging Company securities as collateral for a loan.
Double Trigger Vesting Following a Change in Control
The PEP includes, as a general rule, double trigger vesting following a change in control. Double trigger vesting results only if an NEO is terminated without cause or is constructively terminated following a change in control. See Payments Made Upon a Change in Control section of 2024 NEO Compensation Information beginning on page 63.
CEO and Officer Succession Planning
The Board, including the members of the Compensation and HC Committee, reviews CEO and Officer succession planning on an annual basis. The succession planning process is designed to ensure that internal candidates are identified and developed well before the position may need to be filled. The succession planning process addresses both short-term and long-term potential succession needs.
Equity Ownership Guidelines
To maintain alignment between our NEOs and shareholders, the Company continues to provide equity-based compensation and has adopted ownership holding guidelines, the Equity Ownership Guidelines for TXNM Officers, as amended. The Equity Ownership Guidelines provide that each NEO should own TXNM equity having a value equal to a specified multiple of the NEO’s base salary. The multiples range from three (3) to five (5) times base salary, depending upon the position of the NEO. The ownership holding guidelines also require that each NEO retain 100% of any equity he or she receives under our PEP (after withholding to satisfy tax obligations) until he or she has achieved the applicable guideline multiple, including after subsequently falling below the applicable guideline multiple.
The Compensation and HC Committee believes these guidelines further align the interests of NEOs with the interests of shareholders by ensuring that the NEOs maintain a significant long-term stake in the Company and are subject to the risks of equity ownership. All equity interests that the Officer holds either directly or indirectly, including any unvested RSAs, any earned PSs, any investment in the TXNM Energy, Inc. Common Stock Fund held in the RSP and any hypothetical investment in the TXNM Energy, Inc. Common Stock Fund held in the ESP II, count toward compliance with the ownership holding guidelines. The Compensation and HC Committee reviews compliance with the ownership holding requirements on an annual basis for all NEOs and did so most recently at its February 2025 meeting. As of December 31, 2024, the NEO equity ownership holdings (as determined based on the Equity Ownership Guidelines principles) were as noted below:
2024 EQUITY OWNERSHIP GUIDELINES
| | | | | | | | |
NEO | Holding Requirement as a multiple of base salary* | Actual Holdings as a multiple of base salary* |
| P. K. Collawn | 5X | 36.3X |
| J. D. Tarry | 3X | 4.1X |
| E. A. Eden | 3X | 2.6X |
B. G. Iverson | 3X | 0.9X |
* Based on 12/31/2024 closing price on the NYSE of $49.17 and the NEO’s 2024 base salary. |
As of December 31, 2024, two of the NEOs exceeded the applicable holding requirements. Given Mr. Iverson’s and Ms. Eden’s tenures as NEOs, and the equity retention requirements for LTIP award shares, the Compensation and HC Committee believes Mr. Iverson and Ms. Eden are making reasonable progress towards achieving the holding guidelines. The current holdings of each NEO are shown on page 19.
Impact of Tax and Accounting Requirements
The Compensation and HC Committee evaluates costs and cash flow implications of compensation to maximize financial efficiencies. Since the repeal of the performance-based exception to the deduction limit in the Tax Code, deductibility is no longer a significant factor in determining executive compensation. In 2024, we paid compensation for our NEOs of approximately $5.4 million that may not be deductible for tax purposes.
Adjustments for Certain Items
Consistent with past practice and based on criteria determined at the beginning of the performance period, the Compensation and HC Committee may, subject to compliance with an applicable plan or award agreement(s) as well as applicable law or regulations, adjust the performance measures underlying certain incentive compensation awards to eliminate the effects of certain items. The adjustments are intended to ensure that award payments are based on the underlying performance of the Company’s core business and are not artificially inflated or deflated due to such effects in the award year. The adjustments made for 2024 award calculations for Incentive EPS, Earnings Growth and the FFO/Debt Ratio are reflected in the definitions as set forth in the Glossary of Terms Used in this Proxy. These defined terms are used solely for measuring performance for compensation purposes and should not be considered earnings guidance by the Company.
Option Award Practices
Our current executive compensation program does not include the award of options. While we do not have a formal policy in place with regard to the timing of award of options, stock appreciation rights or similar instruments in relation to the disclosure of material nonpublic information, if in the future we anticipate granting options, stock appreciation rights or similar instruments, we may determine to establish a policy regarding how the Board determines when to grant such awards and how the Board or the Compensation and HC Committee will take material nonpublic information into account when determining the timing and terms of such awards.
