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Section 1: DEF 14A (DEF 14A)

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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.         )

Filed by the Registrant ý
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Check the appropriate box:
¨    Preliminary Proxy Statement
¨    Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
ý Definitive Proxy Statement
¨    Definitive Additional Materials
¨    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 22, 2019
Fellow Stockholders:

I invite you to join me, our Board of Directors and members of our senior management team for our annual meeting at 11 a.m. CDT May 7, 2019, at 909 Airport Road in Bismarck, North Dakota.

At the meeting, stockholders will vote on the items outlined in this proxy statement, including election of our Board of Directors, approval of our independent auditors, and approval of the amended certificates of incorporation for MDU Resources Group and Montana-Dakota Utilities.

Our director slate up for election includes three candidates who have not previously been on the ballot: Edward A. Ryan, David M. Sparby and Chenxi Wang. Edward and David were appointed to the board during 2018. Chenxi has been put forward as a candidate by our Nominating and Governance Committee because of her expertise in technology and cybersecurity. These three new candidates will help ensure a smooth leadership transition as Bart Holaday did not stand for re-election in 2018 and Harry Pearce and Bill McCracken will not stand for re-election this year. Our corporate bylaws state that directors are not eligible for election to the board after their 76th birthday. We deeply appreciate the diligent and faithful service that Harry, Bart and Bill have provided to MDU Resources’ stockholders. Harry, especially, has served you well in his 22 years as a director, including five years as independent lead director and the past 14 years as chair of the board.

Also before stockholders for a vote are resolutions to amend the certificates of incorporation for MDU Resources and Montana-Dakota Utilities. These amendments follow the reorganization of our corporate structure at the start of 2019. The reorganization was undertaken to further delineate the separation between our utility companies and our other businesses. Montana-Dakota Utilities Co. and Great Plains Natural Gas Co. were originally structured as divisions of MDU Resources, as required by the Public Utility Holding Company Act of 1935. The Energy Policy Act of 2005 repealed the PUHCA and allowed us to restructure these companies as a subsidiary. Montana-Dakota Utilities is now a subsidiary of MDU Resources and Great Plains Natural Gas is a division of Montana-Dakota Utilities. This reorganization simplifies our corporate structure and provides greater flexibility in our financing options.

In addition to the business items to be conducted at the annual meeting, I will provide an overview of our strong 2018 financial results and the acquisitions and other growth projects we accomplished. We started 2019 with strong momentum, and I will tell you more about the record backlog of work we have at our construction operations and the additional growth projects we expect to complete this year.

I look forward to seeing you May 7. Details on how to receive an admission ticket to attend our annual meeting are included in the Notice of Annual Meeting of Stockholders as well as on page 67 of this Proxy Statement.

If you cannot attend the annual stockholder meeting, your vote is still important to us. I ask that you please promptly follow the instructions on your notice or proxy card to vote.

We appreciate your continued investment in MDU Resources and remain committed to providing the long-term value you expect.
 
Sincerely,
 
397212499_davidlgoodinblcka06.jpg
 
David L. Goodin
 
President and Chief Executive Officer

 
MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

397212499_mdurlogorgba02.jpg
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 7, 2019
March 22, 2019
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 58504, on Tuesday, May 7, 2019, at 11:00 a.m., Central Daylight Saving Time, for the following purposes:
Items of
Business
1.
Election of directors;
2.
Advisory vote to approve the compensation paid to the company’s named executive officers;
 
3.
Ratification of the appointment of Deloitte & Touche LLP as the company’s independent registered public accounting firm for 2019;
 
4.
Approval of an Amendment to Montana-Dakota Utilities Co.’s Restated Certificate of Incorporation;
 
5.
Approval of Amendments to Update and Modernize the Company’s Amended and Restated Certificate of Incorporation; and
 
6.
Transaction of any other business that may properly come before the meeting or any adjournment(s) thereof.
 
 
 
 
 
 
Record Date
The board of directors has set the close of business on March 8, 2019, 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.
 
 
 
 
 
 
Meeting Attendance
All stockholders as of the record date of March 8, 2019, are cordially invited and urged to attend the annual meeting. You must request an admission ticket to attend. If you are a stockholder of record and plan to attend the meeting, please contact MDU Resources Group, Inc. by email at [email protected] or by telephone at 701-530-1010 to request an admission ticket. A ticket will be sent to you by mail.
If your shares are held beneficially in the name of a bank, broker, or other holder of record, and you plan to attend the annual meeting, you will need to submit a written request for an admission ticket by mail to: Investor Relations, MDU Resources Group, Inc., P.O. Box 5650, Bismarck, ND 58506 or by email at [email protected] The request must include proof of stock ownership as of March 8, 2019, such as a bank or brokerage firm account statement or a legal proxy from the bank, broker, or other holder of record confirming ownership. A ticket will be sent to you by mail.
Requests for admission tickets must be received no later than May 1, 2019. You must present your admission ticket and state-issued photo identification, such as a driver’s license, to gain admittance to the meeting.
 
 
 
 
 
 
Proxy
Materials
Notice of Availability of Proxy Materials will be sent on or about March 22, 2019. The Notice contains 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 28, 2019.
 
 
By order of the Board of Directors,
 
 
397212499_dankuntzsig2a05.jpg
 
 
Daniel S. Kuntz
Secretary
 
 
 
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on May 7, 2019.
The 2019 Notice of Annual Meeting and Proxy Statement and 2018 Annual Report to Stockholders
are available at www.mdu.com/proxymaterials.

 
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 2018 performance and voting your shares, we call your attention to key elements of our 2019 Proxy Statement. The following is only a summary and does not contain all the information you should consider. You should read the entire Proxy Statement carefully before voting. For more information about these topics, please review the full Proxy Statement and our 2018 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
Tuesday, May 7, 2019
 
Item 1.
Election of Directors
FOR Each Nominee
 
Item 2.
Advisory Vote to Approve the Compensation Paid to the Company’s Named Executive Officers
FOR
Place:
 
Item 3.
Ratification of the Appointment of Deloitte & Touche LLP as the Company’s Independent Registered Public Accounting Firm for 2019
FOR
MDU Service Center
909 Airport Road
Bismarck, ND 58504
 
 
Item 4.
Approval of an Amendment to Montana-Dakota Utilities Co.’s Restated Certificate of Incorporation
FOR
 
 
 
 
Item 5.
Approval of Amendments to Update and Modernize the Company’s Amended and Restated Certificate of Incorporation
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
Standing Committees Consist Entirely of Independent Directors
ü
Majority Voting for Directors
 
ü
Active Investor Outreach Program
ü
Succession Planning and Implementation Process
 
ü
Stock Ownership Requirements for Directors and Executive Officers
ü
Separate Board Chair and CEO
 
ü
Anti-Hedging and Anti-Pledging Policies for Directors and Executive Officers
ü
Executive Sessions of Independent Directors at Every Regularly Scheduled Board Meeting
 
ü
No Related Party Transactions by Our Directors or Executive Officers
ü
Annual Board and Committee Self-Evaluations
 
ü
Compensation Recovery/Clawback Policy
ü
Risk Oversight by Full Board and Committees
 
ü
Annual Advisory Approval on Executive Compensation
ü
All Directors are Independent Other Than Our CEO
 
ü
Mandatory Retirement for Directors at Age 76
ü
“Proxy Access” Allowing Stockholders to Nominate Directors in Accordance With the Terms of Our Bylaws
 
ü
Directors May Not Serve on More Than Three Public Boards Including the Company’s Board

 
MDU Resources Group, Inc. Proxy Statement 1


Proxy Statement
 

Business Performance Highlights
 
 
 
Our overall performance in 2018 was consistent with our long-term strategy as we focused on growing our regulated energy delivery and construction materials and services business segments. In addition to our 2018 financial performance highlighted on the next page:
Our electric distribution segment completed the purchase of the Thunder Spirit Wind Farm expansion in southwest North Dakota. The purchase boosts the production capacity of the wind farm from 107.5 megawatts to 155 megawatts of renewable energy. This increases the segment’s renewable generation capacity from 22% to 27% of its total generation capacity. Construction continued in 2018 on the 345-kilovolt transmission line project from Ellendale, North Dakota, to Big Stone City, South Dakota, and was completed in February 2019.
Our construction materials and contracting segment completed the following four acquisitions during 2018:
 
o
Sweetman Const. Co. located in Sioux Falls, South Dakota;
 
o
Teevin & Fischer Quarry, LLC located in northern Oregon;
 
o
Tri-City Paving, Inc. located in Little Falls, Minnesota; and
 
o
Molalla Redi-Mix and Rock Products, Inc. located south of Portland, Oregon.
The pipeline and midstream segment in 2018 had record transportation volumes for the second consecutive year. The segment expanded Line Section 27 of its natural gas transportation system in northwestern North Dakota. The project involved construction of approximately 13 miles of pipeline and associated facilities. The expansion provides Line Section 27 with capacity to transport over 600,000 dekatherms per day. The segment also completed construction of its 38-mile Valley Expansion Project transmission line in eastern North Dakota and western Minnesota. The segment is proceeding with construction planning on its Demicks Lake Project in McKenzie County, North Dakota, and Line Section 22 Project near Billings, Montana. Both of these projects are expected to be completed in 2019.
On January 1, 2019, we completed a holding company reorganization to provide additional financing flexibility and further separation between the company’s utility and other business segments. As a result of the reorganization, all of the company’s utility operations will be conducted through wholly-owned subsidiaries.
 
 
 
 
 
 
 
Including our accomplishments in 2018, we are optimistic about the company’s future financial performance. The chart below shows our progress over the last five years.
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* MDU Resources Group, Inc. reported 2017 earnings from continuing operations of $1.45 per share which included a non-recurring benefit of 20 cents per share attributable to the federal Tax Cuts and Jobs Act that was signed into law on December 22, 2017.

 
2 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

2018 Financial Performance Highlights
 
Strong year-over-year performance from continuing operations at both our regulated energy segments and our construction materials and services segments resulted in earnings per share from continuing operations of $1.38 per share compared to $1.45 per share in 2017, which included a benefit of 20 cents per share attributable to the federal Tax Cuts and Jobs Act. Including discontinued operations, 2018 earnings were $272.3 million, or $1.39 per share, compared to $280.4 million, or $1.43 cents per share, in 2017.
Return of stockholder value through dividends:
 
¨
Increased dividend for 28th straight year; and
 
 
¨
Paid uninterrupted dividend for 81 straight years.
 
Maintained BBB+ stable credit rating from Standard & Poor’s and Fitch rating agencies. 1
28 Years
 
Dividends Paid
 
81 Years
of Consecutive
 
$739 Million
 
of Uninterrupted
Dividend Increases
 
Over the Last 5 Years
 
Dividend Payments
Compensation Highlights
The company’s executive compensation is focused on paying for performance. Our compensation program is structured to strongly align compensation with the company’s financial performance as a substantial portion of our executive compensation is based upon performance incentive awards.
Over 75% of our chief executive officer’s target compensation and over 58% of our other named executive officers’ target compensation is performance based.
100% of our chief executive officer’s annual and long-term incentive compensation is tied to performance against pre-established, specific, measurable financial goals.
We require our executive officers to own a significant amount of company stock based upon a multiple of their base salary.
2018 Named Executive Officer Target Pay Mix
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*Includes time-vesting restricted stock units for certain named executive officers.
1 

A securities rating is not a recommendation to buy, sell, or hold securities, and it may be revised or withdrawn at any time by the rating agency.

 
MDU Resources Group, Inc. Proxy Statement 3


Proxy Statement
 

Key Features of Our Executive Compensation Program
What We Do
 
 
þ
Pay for Performance - Annual and long-term award incentives tied to performance measures set by the compensation committee comprise the largest portion of executive compensation.
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 executive performance, experience, relative value compared to other positions within the company, relationship to competitive market value compensation, business segment economic environment, and the actual performance of the overall company and the business segments.
þ
Annual Cash Incentive - Payment of annual cash incentive awards are based on business segment and overall company performance against pre-established financial measures.
þ
Long-Term Equity Incentive - The long-term performance-based equity incentive in the form of performance shares represents approximately 56% of our CEO’s and approximately 37% of our other named executive officers’ 2018 target compensation, which may only be earned based on achievement of established performance measures at the end of a three-year period.
þ
Annual Compensation Risk Analysis - We regularly analyze the risks related to our compensation programs and conduct an annual broad risk assessment.
þ
Stock Ownership and 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 also must retain at least 50% of the net after-tax shares of stock vested through the long-term incentive plan for at least 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 our executive officers within the last three years.
 
 
What We Do Not Do
 
 
ý
Stock Options - The company does not use stock options as a form of incentive compensation.
ý
Employment Agreements - Executives do not have employment agreements entitling them to specific payments upon termination or a change of control of the company.
ý
Perquisites - Executives do not receive perquisites that materially differ from those available to employees in general.
ý
Hedge Stock - Executives and directors are not allowed to hedge company securities.
ý
Pledge Stock - Executives and directors are not allowed to pledge company securities in margin accounts or as collateral for loans.
ý
No Dividends or Dividend Equivalents on Unvested Shares - We do not provide for payment of dividends or dividend equivalents on unvested share awards.


 
4 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

Corporate Responsibility, Environmental, and Sustainability
MDU Resources Group, Inc. is Building a Strong America® by providing essential products and services to our customers with a long-term view toward sustainable operations. To ensure we can continue to provide these products and services in the communities where we do business, we recognize that we must preserve the trust our communities place in us to be a good corporate citizen. We remain committed to pursuing responsible corporate governance and environmental practices and to maintaining the health and safety of the public and our employees. Learn about our sustainability efforts in our Sustainability Report, which is available at www.mdu.com/sustainability. To better serve our investors and other stakeholders, in 2019 we will begin reporting environmental, social, governance, and sustainability (ESG/sustainability) metrics relevant and important to our operations in frameworks that will provide our stakeholders more uniform and transparent data and information, allowing for comparison with our peers and other companies operating in our industries. For our electric and natural gas distribution segments, as well as our pipeline and midstream segment, we intend to report ESG/sustainability metrics using the reporting templates developed by the Edison Electric Institute and the American Gas Association. For our other business segments, we intend to report ESG/sustainability information under the framework developed by the Sustainability Accounting Standards Board (SASB) for our applicable industries. The use of the metrics developed by these organizations provides for ESG/sustainability reporting tailored to our industries.
These are some highlights of our recent efforts regarding sustainability:
As our renewable generation resource capacity has increased, the carbon dioxide (CO2) emission intensity of our electric generation resource fleet has been reduced by approximately 24% since 2003. We expect it to continue to decline in future years.
Renewable resources comprised approximately 27% of our electric generation resource nameplate capacity at December 31, 2018.

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Approximately 21% of the electricity delivered to our customers from company-owned generation in 2018 was from renewable resources.
We invested approximately $133 million in environmental emission control equipment and other environmental improvements at our coal-fired electric generation plants since 2013. The investments have resulted in substantial reductions in mercury, sulfur dioxide, nitrogen oxide, and filterable particulate emissions from our coal-fired electric generation resources.
Montana-Dakota Utilities Co. produces renewable natural gas (RNG) from the Billings Regional Landfill in Montana. The project came online at the end of 2010 and has produced approximately 1.1 million dekatherm of RNG through year-end 2018. The RNG is supplied to the vehicle fuel market generating renewable identification numbers (RINS) and low carbon fuel standard (LCFS) credits in California and Oregon. In calendar year 2018, the Billings Landfill Plant produced approximately 1.86 million RINs and 3,250 LCFS credits.
Our utility companies received high scores in customer satisfaction. Cascade Natural Gas Corporation ranked first, Intermountain Gas Company second, and Montana-Dakota Utilities Co. third among West Region mid-sized natural gas utilities in the 2018 J.D. Power Gas Utility Residential Customer Satisfaction Survey.
We were recognized on the Thomson Reuters 2017 Top 25 Global Multiline Utilities list. The list recognizes companies that have demonstrated a commitment to energy leadership in these areas: financial, management and investor confidence, risk and resilience, legal compliance, innovation, people and social sustainability, environmental impact, and reputation.

 
MDU Resources Group, Inc. Proxy Statement 5


Proxy Statement
 

Knife River Corporation produces and places warm-mix asphalt in applications where warm-mix asphalt is allowed. Warm-mix asphalt is produced at cooler temperatures than traditional hot-mix asphalt methods, which reduces the amount of fuel needed in the production process and thereby reduces emissions and fumes.
Knife River Corporation continued its practice of recycling and reusing building materials. This conserves natural resources, uses less energy, alleviates waste disposal problems in local landfills, and ultimately costs less for the consumer.
Our subsidiary, Bombard Renewable Energy, was ranked No. 13 on Solar Power World’s 2018 Top 500 Solar Contractors List. The list ranks companies according to their influence in the U.S. solar industry based on how many kilowatts of solar generation they installed in 2017.
The MDU Resources Foundation awarded grants of $1.68 million to educational and nonprofit institutions in 2018. Since its incorporation in 1983, the foundation has contributed more than $34 million to worthwhile causes in categories of education, civic and community activities, culture and arts, environmental stewardship, and health and human services.
We encourage and support community volunteerism by our employees. The MDU Resources Foundation contributes a $500 grant to an eligible nonprofit organization after an employee volunteers a minimum of 25 hours to the organization during non-company hours during a calendar year. In 2018, the foundation granted $40,500 under this program, matching over 4,850 employee volunteer hours.
21%
 
Grants Awarded
 
24%
of 2018 Electricity Generated
 
$1.68 Million
 
Reduction in CO2 Intensity
From Renewable Resources
 
in 2018
 
Since 2003

 
6 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

BOARD OF DIRECTORS
ITEM 1. ELECTION OF DIRECTORS
The board currently consists of eleven directors, all of whom, except Harry J. Pearce and William E. McCracken, are standing for election to the board at the 2019 Annual Meeting of Stockholders to hold office until the 2020 annual meeting and until their successors are duly elected and qualified. Mr. Pearce and Mr. McCracken will be retiring following the annual meeting in accordance with our retirement age limits. In February 2019, the board of directors determined to reduce the number of directors to ten effective with the 2019 annual meeting and has nominated Chenxi Wang as a new director nominee to stand for election to the board at the annual meeting.
The board has affirmatively determined that all the director nominees, other than David L. Goodin, our president and chief executive officer, are independent in accordance with New York Stock Exchange (NYSE) rules, our governance guidelines, and our bylaws.
Our bylaws provide for a majority voting standard for the election of directors. See “Additional Information - Majority Voting” below for further detail.
Each of the director nominees has consented to be named in this proxy statement and to serve as a director, if elected. We do not know of any reason why any nominee would be unable or unwilling to serve as a director, if elected. If, however, a nominee becomes unable to serve or will not serve, proxies may be voted for the election of such other person nominated by the board as a substitute or the board may further reduce the number of directors.
Information about each director nominee’s share ownership is presented below under “Security Ownership.”
The shares represented by the proxies received will be voted for the election of each of the ten nominees named below, unless you indicate in the proxy that your vote should be cast against any or all the director nominees or that you abstain from voting. Each nominee elected as a director will continue in office until his or her successor has been duly elected and qualified or until the earliest of his or her resignation, retirement, or death.
The ten nominees for election to the board at the 2019 annual meeting, all proposed by the board, are listed below with brief biographies.
The board of directors recommends that the stockholders
vote FOR the election of each nominee.

 
MDU Resources Group, Inc. Proxy Statement 7


Proxy Statement
 

Director Nominees
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Thomas Everist
Age 69
Independent Director Since 1995
Compensation Committee
Other Current Public Boards:
--Raven Industries, Inc.
Mr. Everist has more than 44 years of business experience in the construction materials and aggregate mining industry. He has business leadership and management experience serving as president and chair of his companies for over 31 years. Mr. Everist also has experience serving as a director and chair of another public company, which enhances his contributions to our board.
Career Highlights
President and chair 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 chair 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 chair 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 chair from April 2009 to May 2017.
Director of Showplace Wood Products, Inc., 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.
 
 
 
 
 

 
8 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

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Karen B. Fagg
Age 65
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 chair 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, dba DOWL HKM, an engineering and design firm, from April 2008 until her retirement in December 2011.
President of HKM Engineering, Inc., Billings, Montana, an engineering and physical science services firm, from April 1995 to June 2000, and chair, 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
Director of the Billings Catholic Schools Board from December 2011 through December 2018, including a term as chair; and director of St. Vincent’s Healthcare Board from October 2003 to October 2009 and from January 2016 to present, 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.
397212499_goodina03.jpg
David L. Goodin
Age 57
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 35 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. In addition, Mr. Goodin provides the board with valuable insight into management’s views and perspectives, as well as the day-to-day operations of the company.
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 and Professional
Bachelor of science degree in electrical and electronics engineering from North Dakota State University and a master’s degree 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 9


Proxy Statement
 

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Mark A. Hellerstein
Age 66
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 chair 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 chair 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 chair 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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Dennis W. Johnson
Age 69
Independent Director Since 2001 Vice Chair of the Board
Audit Committee
Nominating and Governance Committee
Mr. Johnson brings to our board over 44 years of experience in business management, manufacturing, and finance, holding positions as chair, president, and chief executive officer of TMI Corporation for 37 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
Vice chair of the board of the company effective February 15, 2018.
Chair, president, and chief executive officer of TMI Corporation, and chair and chief executive officer of TMI Transport Corporation, 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
Member of the Bank of North Dakota Advisory Board of Directors since August 2017.
President of the Dickinson City Commission from July 2000 through October 2015.
Director of the Federal Reserve Bank of Minneapolis 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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Proxy Statement
 

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Patricia L. Moss
Age 65

Independent Director Since 2003
Compensation Committee
Nominating and Governance Committee
Other Current Public Boards:
--First Interstate BancSystem, Inc.
--Aquila Group of Funds
Ms. Moss has business experience and knowledge of the Pacific Northwest economy and state, local, and regional 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
 
Member of the Oregon Investment Council, which oversees the investment and allocation of all state of Oregon trust funds, since December 2018.
Director of First Interstate BancSystem, Inc., since May 30, 2017.
Director of Cascade Bancorp and Bank of the Cascades from 1993, and vice chair from January 3, 2012 until May 30, 2017 when Cascade Bancorp merged into First Interstate BancSystem, Inc., and became First Interstate Bank.
Chair of the Bank of the Cascades Foundation Inc. from 2014 to July 31, 2018; co-chair of the Oregon Growth Board, a state board created to improve access to capital and create private-public partnerships, from May 2012 through December 2018; and a member of the Board of Trustees for the Aquila Group of Funds, whose core business is mutual fund management and provision of investment strategies to fund shareholders, from January 2002 to May 2005 (one fund) and from June 2015 to present (currently three funds). 
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.
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Edward A. Ryan
Age 65
Independent Director Since 2018
Audit Committee
Nominating and Governance Committee
Mr. Ryan, through his position as executive vice president and general counsel at Marriott International, Inc., brings extensive experience to our board in acquisitions, contracts, compliance, legal matters, SEC reporting, and labor relations. Mr. Ryan’s experience significantly contributes to the board’s oversight of compliance and corporate governance.
Career Highlights
Advisor to the chief executive officer and president of Marriott International from December 2017 to December 31, 2018.
Executive vice president and general counsel of Marriott International from December 2006 to December 2017; senior vice president and associate general counsel from 1999 to November 2006; assumed responsibility for all corporate transactions and corporate governance in 2005; and joined Marriott International as assistant general counsel in May 1996.
Private law practice from 1979 to 1996.
Other Leadership Experience
Director of Goodwill of Greater Washington, D.C., a non-profit organization whose mission is to transform lives and communities through education and employment, since January 2015, as well as vice chair since January 2019 and chair of the finance committee since January 2018.
Education
Juris doctor degree from the University of Pennsylvania Law School.
Bachelor’s degree in economics and international relations from the University of Pennsylvania.


 
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Proxy Statement
 

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David M. Sparby
Age 64
Independent Director Since 2018
Audit Committee
Mr. Sparby has over 32 years of broad public utility experience through his positions as senior vice president and group president, revenue, of Xcel Energy Inc., president and chief executive officer of its subsidiary, Northern States Power-Minnesota (NSP‑Minnesota), and chief financial officer of Xcel Energy. Mr. Sparby’s public utility and renewable energy expertise contributes to the board’s knowledge of the public utility and natural gas pipeline industries.
Career Highlights
Senior vice president and group president, revenue, of Xcel Energy and president and chief executive officer of its subsidiary, NSP-Minnesota, from May 2013 until his retirement in December 2014; senior vice president and group president, from September 2011 to May 2013; chief financial officer from March 2009 to September 2011; and president and chief executive officer of NSP-Minnesota from 2008 to March 2009. He joined Xcel Energy, or its predecessor Northern States Power Company, as an attorney in 1982 and held positions of increasing responsibility.
Attorney with the State of Minnesota, Office of Attorney General, from 1980 to 1982, during which period his responsibilities included representation of the Department of Public Service and the Minnesota Public Utilities Commission.
Other Leadership Experience
Board of Trustees of Mitchell Hamline School of Law since July 2011, including executive committee and committee chair positions.
Board of Trustees of the College of St. Scholastica since July 2012, including vice chair and executive committee positions.
Education
Juris doctor degree from William Mitchell College of Law.
Bachelor’s degree in history from College of St. Scholastica and a master’s degree in business administration from University of St. Thomas.
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Chenxi Wang
Age 49
Independent Director Nominee

Ms. Wang has extensive technology and cybersecurity expertise through her experience, including founder and managing general partner of Rain Capital Fund, L.P., chief strategy officer at Twistlock, vice president, cloud security & strategy at Ciphercloud, and vice president, strategy and market intelligence at Intel Security. She is a sought-after public speaker on issues of technology and cybersecurity.
Career Highlights
Founder and managing general partner of Rain Capital Fund, L.P., a cybersecurity-focused venture fund aiming to fund early-stage, transformative technology innovations in the security market with a goal of supporting women and minority entrepreneurs, since December 2017.
Chief strategy officer at Twistlock, an automated and scalable cloud native cybersecurity platform, from August 2015 to February 2017.
Vice president, cloud security & strategy of CipherCloud, a cloud security software company, from January 2015 to August 2015.
Vice president of strategy of Intel Security, a company focused on developing proactive, proven security solutions and services that protect systems, networks, and mobile devices, from April 2013 to January 2015.
Principal analyst and vice president of research at Forrester Research, a market research company that provides advice on existing and potential impact of technology, from January 2007 to April 2013.
Assistant research professor and associate professor of computer engineering at Carnegie Mellon University from September 2001 through August 2007.
Other Leadership Experience
Board of directors of OWASP Global Foundation, a nonprofit global community that drives visibility and evolution in the safety and security of the world’s software, since January 2018 and vice chair from January 2018 to December 2018.
Board of advisors of Keyp GmbH, a Munich-based software company with a mission to provide enterprises convenient access to the digital identity ecosystem, since December 2017.
Program co-chair (security and privacy track) for the Grace Hopper Conference 2016 and 2017, the world’s largest gathering of women in computing.
Education
Doctor of Philosophy (Ph.D.) in computer science from University of Virginia.
Bachelor’s degree in computer science from Lock Haven University of Pennsylvania.

 
12 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

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John K. Wilson
Age 64
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. Mr. Wilson contributes business management and public utility knowledge to our board.
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.
Additional Information - Majority Voting
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.

 
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Proxy Statement
 

Board Evaluations and Process for Selecting Directors

In the annual board evaluation process, the nominating and governance committee evaluates our directors considering the current needs of the board and the company. In addition, during the year, the committee discusses board succession and reviews potential candidates. The committee may also retain a third party to assist in identifying potential nominees; none were retained in 2018.

Our annual board evaluation process involves assessments at the board and board committee levels. These annual evaluations are conducted by the chair of the nominating and governance committee and periodically by an independent third party.

Our governance guidelines provide that directors are not eligible to be nominated or appointed to the board if they are 76 years or older at the time of the election or appointment. Term limits on directors’ service have not been instituted.
Director Qualifications, Skills, and Experience
Director nominees are chosen to serve on the board based on their qualifications, skills, and experience, as discussed in their biographies, and how those characteristics supplement the resources and talent on the board and serve the current needs of the board and the company.

In making its nominations, the nominating and governance committee also assesses each director nominee by a number of key characteristics, including character, success in a chosen field of endeavor, background in publicly traded companies, independence, and willingness to commit the time needed to satisfy the requirements of board and committee membership. Although the committee has no formal policy regarding diversity, the committee also considers diversity in gender, ethnic background, geographic area of residence, skills, and professional experience in recommending director nominees.



 
14 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

The following shows core specialized competencies and other characteristics of the director nominees.

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Proxy Statement
 

Board Composition and Refreshment
The nominating and governance committee is focused on ensuring that the board reflects a diversity of experience, skills, and backgrounds. Each of the current directors, other than Harry J. Pearce and William E. McCracken, has been nominated for election to the board of directors upon recommendation by the nominating and governance committee and each has decided to stand for election. Messrs. Pearce and McCracken were not eligible for re-election under the company’s age limit policy that provides no individual is eligible for election to the board of directors after his or her 76th birthday.
With the retirement of former board member A. Bart Holaday at the annual meeting in May 2018 and Harry J. Pearce and William E. McCracken reaching our board retirement age limit and retiring from the board at our 2019 annual meeting, the committee identified qualified diverse director candidates with commensurate experience and background as replacement board members.
In evaluating the board retirements and current needs of the board and the company, the nominating and governance committee focused on identifying board candidates that would add gender diversity to the board as well as background and core competencies in the fields of regulated energy delivery, technology and cybersecurity, and public company governance. Potential director nominees were brought to the attention of the nominating and governance committee by board members, management, organizations, and database searches.
In 2018, the nominating and governance committee identified a need for additional expertise in the operation of electric and natural gas utilities and natural gas transmission pipelines. At December 31, 2018, approximately 66% of our capital was invested in these business segments which generated approximately 28% of our 2018 revenues. After serving in several positions during his 32-year career with Xcel Energy, including chief financial officer, and most recently as senior vice president, revenue group, and chief executive officer of its subsidiary, Northern States Power-Minnesota, David M. Sparby brings a vast amount of experience related to the electric and natural gas distribution and pipeline industries. Mr. Sparby was appointed to the board of directors on August 16, 2018.
With the anticipated retirement of Harry J. Pearce, the nominating and governance committee identified a director nominee with extensive risk management and public company governance experience. Prior to his retirement in 2017, Edward A. Ryan served as executive vice president and general counsel for Marriott International, Inc. where his responsibilities included chair of the company’s legal and ethical steering and enterprise crisis management committees. Mr. Ryan was appointed to the board of directors on November 15, 2018.
With the anticipated retirement of William E. McCracken, the nominating and governance committee identified a director nominee that would bring diversity as well as technology and cybersecurity expertise to the board. Chenxi Wang has held positions with various organizations related to technology and security software and is a frequent speaker on issues of technology and cybersecurity. She is currently the founder and general partner of Rain Capital Fund, L.P., an early stage venture capital firm focused on cybersecurity innovation and artificial intelligence for its clients and the promotion of women entrepreneurs. Ms. Wang also provides gender, ethnic, age, and geographic diversity to the board.
By tenure, if the nominees are elected, the board will comprise of three directors who have served from 0-4 years, two directors who have served from 5-10 years, and five directors who have served over 11 years. This mix provides a balance of experience and institutional knowledge with fresh perspectives.

 
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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. Our guidelines require that a substantial majority of the board consists of independent directors. In general, the guidelines require that an independent director must have no material relationship with the company directly or indirectly, except as a director. The board determines independence on the basis of the standards specified by the New York Stock Exchange (NYSE), the additional standards referenced in our corporate governance guidelines, and other facts and circumstances the board considers relevant. Based on its review, the board has determined that all directors and director nominees, except for our chief executive officer Mr. Goodin, have no material relationship with us and are independent.
In determining director independence, the board of directors reviewed and considered information about any transactions, relationships, and arrangements between the non-employee directors and director nominees 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 nonprofit organizations where a director, a director nominee, or their 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 four nonprofit organizations that collectively amounted to $27,500 in 2018. None of the contributions made to any of the nonprofit entities exceeded the greater of $1 million or 2% of the relevant entity’s consolidated gross revenues.

Business relationships with entities with which a director or director nominee is affiliated: Mr. Wilson is a member of the board of directors of HDR, Inc., an architectural, engineering, environmental, and consulting firm. The company paid HDR, Inc. or its affiliates approximately $1 million in 2018 directly or through a third party for services which were provided in the ordinary course of business and on substantially the same terms prevailing for comparable services from other consulting firms. Mr. Wilson had no role in securing or promoting the HDR, Inc. services.
The board has also determined that all members of the audit, compensation, and nominating and governance committees of the board are independent in accordance with our guidelines and applicable NYSE and Securities Exchange Act of 1934 rules.
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 2018, the company held meetings, conference calls, and webcasts with a diverse mix of stockholders. Throughout the year, we held meetings or telephone conferences with eleven of the institutional investors included in our year-end top 30 stockholders. In our meetings or conferences, we discussed a variety of topics including longer-term company strategy and our capital expenditure forecast; shorter-term operational and financial updates; environmental, social, and corporate governance; and previously announced strategic initiatives. The company also held telephone conferences with a proxy advisory firm to discuss corporate governance, executive compensation practices, and other topics.
Board Leadership Structure
The board separated the positions of chair of the board and chief executive officer in 2006, and our bylaws and corporate governance guidelines currently require that our chair 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 chair of the board to lead the board in its fundamental role of providing advice to and independent oversight of management. The chair meets regularly between board meetings with the chief executive officer and 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 chair, 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 chair 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 chair is in a position to encourage frank and lively discussions, including during regularly scheduled executive sessions consisting of only

 
MDU Resources Group, Inc. Proxy Statement 17


Proxy Statement
 

independent directors, 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 chair is the appropriate leadership structure for the company at this time and demonstrates our commitment to good corporate governance. With the retirement of Mr. Pearce at the annual meeting, the board will elect a new independent chair at its May board meeting.
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, operational risks, environmental and regulatory risks, the impact of competition, climate and 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 identifying material risks, implementing appropriate risk management strategies, and providing information regarding material risks and risk management to the board. 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 for identifying, assessing, and managing risk.
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 chair meets regularly with our chief executive officer 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. Senior management annually presents an assessment to the board of critical enterprise risks that threaten the company’s strategy and business model, including risks inherent in the key assumptions underlying the company’s business strategy for value creation. Periodically, the board receives presentations from external experts on matters of strategic importance to the board. In 2018, the board heard presentations from external experts regarding climate change and its risks and opportunities, oil and natural gas exploration in the Bakken geological formation in North Dakota, and projected natural gas processing and transportation needs in North Dakota. At least annually, the board holds strategic planning sessions with senior management to discuss strategies, key challenges, and risks and opportunities for the company.
The company has also developed a robust compliance program to promote a culture of compliance, consistent with the right tone at the top, to mitigate risk. The program includes training and adherence to our code of conduct and legal compliance guide. We further mitigate risk through our internal audit and legal departments.
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, cybersecurity, and compliance with legal and regulatory requirements, and, in accordance with NYSE requirements, discusses with the board policies with respect to risk assessment and risk management and their adequacy and effectiveness. The audit committee receives regular reports on the company’s compliance program, including reports received through our anonymous reporting hot line. It also receives reports and regularly meets with the company’s external and internal auditors. During each of its quarterly meetings in 2018, the audit committee received presentations from management on cybersecurity and the company’s mitigation of cybersecurity risks. The entire board was present for these presentations. Risk assessment and mitigation 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 2018, the board of directors held four regular meetings and two 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 2018 (held during the period he or she has been a director). Directors are encouraged to attend our annual meeting of stockholders. All directors attended our 2018 Annual Meeting of Stockholders.

 
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Proxy Statement
 

The non-employee directors meet in executive session at each regularly scheduled quarterly board of directors meeting. The chair of the board presides at the executive session of the non-employee directors held in connection with each regularly scheduled quarterly board of directors meeting.
The board has standing audit, compensation, and nominating and governance committees. The table below provides current committee membership.
Name
Audit
Committee
Compensation
Committee
Nominating and
Governance Committee
Thomas Everist
 
C
 
Karen B. Fagg
 
C
Mark A. Hellerstein
 
 
Dennis W. Johnson
C
 
William E. McCracken
 
Patricia L. Moss
 
Edward A. Ryan
 
David M. Sparby
 
 
John K. Wilson
 
 
C - Chair
 
 
 
 
 - Member
 
 
 
 
Below is a description of each standing committee of the board. The board has affirmatively determined that each of these standing committees consists entirely of independent directors pursuant to rules established by the NYSE, rules promulgated under the Securities and Exchange Commission (SEC), and the director independence standards established by the board. The board has also determined that each member of the audit committee and the compensation committee is independent under the criteria established by the NYSE and the SEC for audit committee and compensation committee members, as applicable.
Nominating and Governance Committee
Met Six Times in 2018
The nominating and governance committee met six times during 2018. The committee members are Karen B. Fagg, chair, Dennis W. Johnson, William E. McCracken, Patricia L. Moss, and Edward A. Ryan.
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.
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, 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.

 
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Proxy Statement
 

Stockholders who wish to nominate persons for election to our board at an annual meeting of stockholders must follow the applicable procedures set forth in Section 2.08 or 2.10 of our bylaws. Our bylaws are available on our website. See “Stockholder Proposals, Director Nominations, and Other Items of Business for 2020 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 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 and the board nominees reflects diversity in business and professional experience, skills, ethnicity, gender, and geography.
Audit Committee
Met Eight Times in 2018

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 2018. The audit committee members are Dennis W. Johnson, chair, Mark A. Hellerstein, Edward A. Ryan, David M. Sparby, and John K. Wilson. The board of directors has determined that Messrs. Johnson, Hellerstein, Sparby, and Wilson are “audit committee financial experts” as defined by SEC rules and all audit committee members are financially literate within the meaning of the listing standards of the NYSE. All members also meet the independence standard for audit committee members under our director independence guidelines, the NYSE listing standards, and SEC rules.
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 and the code of conduct;
the independent registered public accounting firm’s qualifications and independence;
the performance of our internal audit function and independent registered public accounting firm;
management of risk in the audit committee’s areas of responsibility; and
arranges for the preparation of and approves the report that SEC rules require we include in our annual proxy statement. See the section entitled “Audit Committee Report” for further information.

 
20 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

Compensation Committee
Met Four Times in 2018

During 2018, the compensation committee met four times. The compensation committee consists entirely of independent directors within the meaning of the company’s corporate governance guidelines and the NYSE listing standards and who meet the definitions of non-employee directors for purposes of 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 compensation 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. In 2018, the compensation committee retained a compensation consultant, Meridian Compensation Partners, LLC, to conduct a competitive analysis on executive compensation for 2019. Prior to retaining an adviser, the compensation committee considers 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 Meridian Compensation Partners, LLC to assist in its potential conflicts of interest assessment. Based on its review and analysis, the compensation committee determined in 2018 that Meridian Compensation Partners, LLC was independent from management.
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. In 2018, the analysis of non-employee director compensation was performed by the human resources department. Meridian Compensation Partners, LLC will conduct the analysis in 2019.
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 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, the human resources department identified the principal areas of risk faced by the company that may be affected by our compensation policies and practices, 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 promotes careful consideration of financial assumptions;

 
MDU Resources Group, Inc. Proxy Statement 21


Proxy Statement
 

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 portions of executive compensation based upon the company’s total stockholder return in relation to that of 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 primarily to the company’s financial and stock performance;
use of interpolation for annual and long-term incentive awards to avoid payout cliffs;
negative discretion to adjust any annual incentive award payment downward;
use of caps on annual incentive awards (maximum of 200% for regulated segments and 240% for construction materials and services segments) and long-term incentive stock grant awards (200% of target);
ability to clawback incentive payments in the event of a financial restatement;
use of performance shares and restricted stock units, rather than stock options or stock appreciation rights, as an equity component of incentive compensation;
use of performance shares for long-term incentive awards with relative total stockholder return, earnings before interest, taxes, depreciation, and amortization (EBITDA) growth, and earnings growth performance components;
use of three-year performance periods for long-term incentive awards to discourage short-term risk-taking;
substantive annual incentive goals measured primarily by earnings, EBITDA, 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;
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;
mandatory holding periods for 50% of any net after-tax shares earned under long-term incentive awards; and
use of independent consultants to assist in establishing pay targets and compensation structure 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 chair 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.

 
22 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

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 2018, no directors or director nominees submitted resignations under this requirement.
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, geography, 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. We believe the mandatory retirement age allows us to benefit from experienced directors, with industry expertise, company institutional knowledge and historical perspective, stability, and comfort with challenging company management, while maintaining our ability to refresh the board through the addition of new members. In connection with our mandatory retirement for directors, Harry J. Pearce and William E. McCracken will retire as directors at the completion of their current term following the 2019 annual meeting.
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 NYSE listing standards, by posting such information on our website.

 
MDU Resources Group, Inc. Proxy Statement 23


Proxy Statement
 

Proxy Access
In February 2018, the board of directors amended our bylaws to implement proxy access with the following parameters:
Ownership Threshold:
3% of outstanding shares of our common stock
Nominating Group Size:
Up to 20 stockholders may combine to reach the 3% ownership threshold
Holding Period:
Continuously for three years
Number of Nominees:
The greater of two nominees or 20% of our board
We believe these proxy access parameters reflect a well designed and balanced approach to proxy access that mitigates the risk of abuse and protects the interests of all of our stockholders. Stockholders who wish to nominate directors for inclusion in our Proxy Statement in accordance with proxy access must follow the procedures in Section 2.10 of our bylaws. See “Stockholder Proposals, Director Nominations, and Other Items of Business for 2020 Annual Meeting.”
Corporate Governance Materials
Stockholders can see our bylaws, corporate governance guidelines, board committee charters, and Leading With Integrity Guide on our website.
Corporate Governance Materials
Website
Bylaws
http://www.mdu.com/governance
Corporate Governance Guidelines
http://www.mdu.com/governance
Board Committee Charters for the Audit, Compensation, and Nominating and Governance Committees
http://www.mdu.com/governance
Leading With Integrity Guide
http://www.mdu.com/commitmenttointegrity
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 requires the audit committee to review any transaction, arrangement or relationship, or series thereof:
in which the company was or will be a participant;
the amount involved exceeds $120,000; and
a related person had 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 SEC rules, the general counsel furnishes the information to the chair 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 2018.

 
24 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

COMPENSATION OF NON-EMPLOYEE DIRECTORS
Director Compensation for 2018
MDU Resources’ non-employee directors are compensated for their service according to the MDU Resources Group Inc. Director Compensation Policy. Only one company employee, David L. Goodin, the company’s president and chief executive officer, serves as a director. Mr. Goodin receives no additional compensation for his service on the board. Director compensation is reviewed annually by the compensation committee with analysis provided by an independent consultant in odd numbered years and analysis prepared by the company’s human resources department in even numbered years. The company’s human resources department provided the director compensation analysis for 2018. The analysis included research on market trends in director compensation as well as a review of director compensation practices of our peer group companies. Based on the analysis, the compensation committee recommended and the board concurred that no changes would be made to board member compensation for 2018. The following table outlines the compensation paid to our non-employee directors for 2018.
Name
 
Fees Earned or Paid in Cash
($)

 
Stock
Awards
($)1

 
All Other
Compensation
($)
2
 
Total
($)

Thomas Everist
 
80,000

 
110,000

 
83
 
190,083

Karen B. Fagg
 
80,000

 
110,000

 
583
 
190,583

Mark A. Hellerstein
 
70,000

 
110,000

 
83
 
180,083

A. Bart Holaday
 
29,167

 
45,833

 
35
 
75,035

Dennis W. Johnson
 
85,000

 
110,000

 
83
 
195,083

William E. McCracken
 
70,000

 
110,000

 
83
 
180,083

Patricia L. Moss
 
70,000

 
110,000

 
83
 
180,083

Harry J. Pearce
 
160,000

 
145,000

 
83
 
305,083

Edward A. Ryan
 
11,667

 
18,333

 
7
 
30,007

David M. Sparby
 
29,167

 
45,833

 
28
 
75,028

John K. Wilson
 
70,000

 
110,000

 
83
 
180,083

 
 
1 
Directors receive an annual payment of $110,000 in company common stock, except the non-executive chair who receives $145,000 in company common stock, under the MDU Resources Group, Inc. Non-Employee Director Long-Term Incentive Compensation Plan. Directors serving less than a full year receive a prorated stock payment based on the number of months served. All stock payments are 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 20, 2018, which was $26.55 per share. The amount paid in cash for fractional shares is included in the amount reported in the stock awards column to this table. As of December 31, 2018, there are no outstanding stock awards or options associated with the Non-Employee Director Long-Term Incentive Compensation Plan. 
2
Includes group life insurance premiums and charitable donations made on behalf of the director as applicable. Amounts for life insurance premiums reflect prorated amounts for directors serving less than a full year based on the number of months served.
 
 
 
 
 


 
MDU Resources Group, Inc. Proxy Statement 25


Proxy Statement
 

The following table shows the annual cash and stock retainers payable to our non-employee directors.
Base Cash Retainer
 
 
$
70,000

Additional Cash Retainers:
 
 
 
  Non-Executive Chair
 
 
90,000

  Audit Committee Chair
 
 
15,000

  Compensation Committee Chair
 
 
10,000

  Nominating and Governance Committee Chair
 
10,000

Annual Stock Grant1 - Directors (other than Non-Executive Chair)
110,000

Annual Stock Grant2 - Non-Executive Chair
145,000

 
 
 
1 
The annual stock grant is a grant of shares of company common stock equal in value to $110,000.
2 
The annual stock grant is a grant of shares of company common stock equal in value to $145,000.
There are no meeting fees paid to directors.
Other Compensation
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 their beneficiaries during the time they serve on the board. The annual cost per director is $82.80. Directors who contribute to the company’s Good Government Fund may designate up to two charities to receive a matching donation from the MDU Resources Foundation based on their contributions to the fund. Directors are reimbursed for all reasonable travel expenses, including spousal expenses in connection with attendance at meetings of the board and its committees. Perquisites, if any, were below the disclosure threshold in 2018.
Deferral of Compensation
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.
Post-Retirement
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.
Stock Ownership Policy
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 received through our Non-Employee Director Long-Term Incentive Plan 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 the 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 or are within the first five years of their election to the board. For further details on our director’s stock ownership, see the section entitled “Security Ownership.”

 
26 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

SECURITY OWNERSHIP
Security Ownership Table
The table below sets forth the number of shares of our common stock that each director and each nominee for director, each current named executive officer, and all directors and executive officers as a group owned beneficially as of February 28, 2019. Unless otherwise indicated, each person has sole investment and voting power (or share such power with his or her spouse) of the shares noted.
Name1
Shares of
Common Stock
Beneficially Owned

 
Percent
of Class

 
 
 
 
David C. Barney
44,313

2,3 
*

Thomas Everist
861,692

 
*

Karen B. Fagg
73,314

 
*

David L. Goodin
264,925

2 
*

Mark A. Hellerstein
24,000

 
*

Dennis W. Johnson
92,352

4 
*

Nicole A. Kivisto
59,635

2,5 
*

William E. McCracken
24,000

 
*

Patricia L. Moss
76,328

 
*

Harry J. Pearce
246,740

 
*

Edward A. Ryan
10,690

 
*

David M. Sparby
1,726

 
*

Jeffrey S. Thiede
43,540

2 
*

Jason L. Vollmer
11,374

2 
*

Chenxi Wang

 
*

John K. Wilson
129,601

 
*

All directors and executive officers as a group (20 in number)
2,069,126

2,6 
1.05
%
 
 
* 
Less than one percent of the class. Percent of class is calculated based on 196,338,488 outstanding shares as of February 28, 2019.
1 
The table includes the ownership of all current directors, director nominees, current named executive officers, and other executive officers of the company without naming them.
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 531 shares owned by Ms. Kivisto’s spouse.
6 
Includes shares owned by a director’s or executive’s spouse regardless of whether the director or executive claims beneficial ownership.
Hedging Policy
The company’s Director Compensation Policy and its Executive Compensation Policy prohibit our directors and executives from hedging their ownership of company stock. The Director Compensation Policy applies to all directors who are not full-time employees of the company. The Executive Compensation Policy applies to the executives of the company designated as an officer for purposes of Section 16 of the Securities Exchange Act of 1934 as well as all other executives of the company and its subsidiaries who participate in its Long-Term Performance-Based Incentive Plan and its Executive Incentive Compensation Plan. Under the policies, directors and executives are prohibited from engaging in transactions that allow them to own stock technically but without the full benefits and risks of such ownership, including, but not limited to, zero-cost collars, equity swaps, straddles, prepaid variable forward contracts, security futures contracts, exchange funds, forward sale contracts, and other financial transactions that allow the director or executive to benefit from the devaluation of the company’s stock.

 
MDU Resources Group, Inc. Proxy Statement 27


Proxy Statement
 

The company policies also prohibit directors, executives, and related persons from holding company 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.
Greater Than 5% Beneficial Owners
Based solely on filings with the SEC, the table below shows information regarding the beneficial ownership of more than five percent of the outstanding shares of our common stock.
Title of Class
 
Name and Address
of Beneficial Owner
 
Amount and Nature
of Beneficial Ownership

 
Percent
of Class
 
 
 
 
Common Stock
 
The Vanguard Group
 
21,436,898

1 
10.93
%
 
 
100 Vanguard Blvd.
 
 
 
 
 
 
 
Malvern, PA 19355
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
BlackRock, Inc.
 
18,376,417

2 
9.40
%
 
 
55 East 52nd Street
 
 
 
 
 
 
 
New York, NY 10055
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
State Street Corporation
 
12,377,612

3 
6.30
%
 
 
State Street Financial Center
 
 
 
 
 
 
 
One Lincoln Street
 
 
 
 
 
 
Boston, MA 02111
 
 
 
 
 
 
 
1 
Based solely on the Schedule 13G, Amendment No. 7, filed on February 11, 2019, The Vanguard Group reported sole dispositive power with respect to 21,336,371 shares, shared dispositive power with respect to 100,527 shares, sole voting power with respect to 94,745 shares, and shared voting power with respect to 22,519 shares. These shares include 74,426 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 42,838 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.
2 
Based solely on the Schedule 13G, Amendment No. 9, filed on February 6, 2019, BlackRock, Inc. reported sole voting power with respect to 17,339,702 shares and sole dispositive power with respect to 18,376,417 shares as the parent holding company or control person of BlackRock Life Limited, BlackRock International Limited, BlackRock Advisors, LLC, BlackRock (Netherlands) B.V., BlackRock Fund Advisors, BlackRock Institutional Trust Company, National Association, BlackRock Asset Management Ireland Limited, BlackRock Financial Management, Inc., BlackRock Asset Management Schweiz AG, BlackRock Investment Management, LLC, BlackRock Investment Management (UK) Limited, BlackRock Asset Management Canada Limited, BlackRock (Luxembourg) S.A., BlackRock Investment Management (Australia) Limited, BlackRock Advisors (UK) Limited, BlackRock Asset Management North Asia Limited, and BlackRock Fund Managers Ltd.
3 
Based solely on the Schedule 13G, filed on February 14, 2019, State Street Corporation reported shared voting and dispositive power with respect to 12,377,612 shares as the parent holding company or control person of SSGA Funds Management, Inc., State Street Global Advisors Limited (UK), State Street Global Advisors LTD (Canada), State Street Global Advisors, Australia Limited, State Street Global Advisors Asia LTD, State Street Global Advisors Singapore LTD, State Street Global Advisors GmbH, State Street Global Advisors Ireland Limited, and State Street Global Advisors Trust Company.

Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934, as amended, requires officers, directors, and holders of more than 10% of our common stock to file reports of their trading in our equity securities with the SEC. 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 2018, or written representations that no Forms 5 were required, we believe that all such reports were timely filed.

 
MDU Resources Group, Inc. Proxy Statement 28


Proxy Statement
 

EXECUTIVE COMPENSATION
ITEM 2. 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 an 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, the compensation committee and board of directors believe that the current executive compensation program directly links compensation of the named executive officers to our financial performance and aligns the interests of the named executive officers with those of our stockholders. The compensation committee and board of directors also believe that the executive compensation program provides the 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 the named executive officers on both an annual and long-term basis if they attain specified goals.
Our overall compensation program and philosophy for 2018 was built on a foundation of these guiding principles:
we pay for performance, with over 60% of our 2018 total target direct compensation for the named executive officers in the form of performance-based incentive compensation;
we review competitive compensation data for the 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 earnings before interest, taxes, depreciation, and amortization (EBITDA); and
we align executive compensation and performance by using long-term performance incentives based on total stockholder return relative to our peer group and financial measures important to company growth.
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 2018. Accordingly, the following resolution is submitted for stockholder vote at the 2019 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 the named executive officers remains with the compensation committee and the board of directors, although the board and compensation committee will consider the outcome of this vote when making future compensation decisions. We intend to hold this advisory vote every year until at least the next stockholder advisory vote on the frequency of this vote.
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 the named executive officers requires the affirmative vote of a majority of the 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 29


Proxy Statement
 

INFORMATION CONCERNING EXECUTIVE OFFICERS
Information concerning the executive officers, including their ages as of December 31, 2018, 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
 
57
 
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
 
63
 
Mr. Barney was elected president and chief executive officer of Knife River Corporation effective April 30, 2013, and president effective January 1, 2012.
 
 
Trevor J. Hastings
 
45
 
Mr. Hastings was elected president and chief executive officer of WBI Holdings, Inc. effective October 16, 2017. Prior to that, he was vice president-business development and operations support of Knife River Corporation effective January 11, 2012.
 
 
Anne M. Jones
 
55
 
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
 
45
 
Ms. Kivisto was elected president and chief executive officer of Montana-Dakota Utilities 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
 
65
 
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
 
52
 
Ms. Link was elected vice president and chief information officer effective December 1, 2017. Prior to that, she was chief information officer effective January 1, 2016, assistant vice president-technology and cybersecurity officer effective January 1, 2015, and director shared IT services effective June 2, 2009.
 
 
Jeffrey S. Thiede
 
56
 
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
 
41
 
Mr. Vollmer was elected vice president, chief financial officer and treasurer effective September 30, 2017. Prior to that, he was vice president, chief accounting officer and treasurer effective March 19, 2016, treasurer and director of cash and risk management effective November 29, 2014, manager of treasury services and risk management effective June 30, 2014, and manager of treasury services, cash and risk management effective April 11, 2011.
 


 
30 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 2018 and how their 2018 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 2018 compensation of our named 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 2018 were:
David L. Goodin
President and Chief Executive Officer (CEO)
Jason L. Vollmer
Vice President, Chief Financial Officer (CFO) and Treasurer
David C. Barney
President and Chief Executive Officer - Construction Materials and Contracting Segment
Jeffrey S. Thiede
President and Chief Executive Officer - Construction Services Segment
Nicole A. Kivisto
President and Chief Executive Officer - Electric and Natural Gas Distribution Segments
Executive Summary
Pay for Performance
To ensure management’s interests are aligned with those of our stockholders and the performance of the company, the majority of the CEO’s and 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 incentives.
397212499_mduprox_chart-40820a04.jpg 397212499_mduprox_chart-42098a04.jpg
 
*Includes time-vesting restricted stock units for certain named executive officers.
Annual Base Salary
We provide our executive officers with base salary at a sufficient level to attract, recruit, and retain executives with the knowledge, skills, and abilities necessary to successfully execute their job responsibilities. Consistent with our compensation philosophy of linking pay to performance, our executives receive a relatively smaller percentage of their overall target compensation in the form of base salary. In establishing base salaries, the compensation committee considers each executive’s individual performance, the scope and complexities of their responsibilities, internal equity, and whether the base salary is competitive as measured against the base salaries of similarly situated executives in our peer group and market compensation data.

 
MDU Resources Group, Inc. Proxy Statement 31


Proxy Statement
 

Annual Cash Incentive Awards
Annual cash incentive awards for our executive officers are linked to performance by rewarding achievement of financial goals and ensuring our executive officers are focused and accountable for our growth and profitability. The design of the annual cash incentive award opportunities for 2018 was the same as the design used in 2017. Each executive is assigned a target annual incentive award based on a percentage of the executive’s base salary. The actual annual cash incentive realized is determined by multiplying the target award by the payout percentage associated with achievement of the executive’s performance measures.
The compensation committee selected specific business segment financial performance measures for the business segment executives which represented 80% of their annual award opportunity. The other 20% of the business segment executives’ annual award opportunity was based on the achievement of overall company earnings per share (EPS). These measures incentivize 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.
The annual cash incentive award for corporate executives (including our CEO and CFO) is based on the achievement of the performance measures for each business segment executive and weighted by each business segment’s invested capital relative to the company’s total invested capital. The corporate executives’ target awards are multiplied by the sum of the weighted achievement percentage for each business segment executive to derive the corporate executives’ realized annual awards. This incentivizes the corporate executives to assist the business segments in their success while still emphasizing overall company performance. See the “Annual Incentives” section within this Compensation Discussion and Analysis for further details on our company’s annual cash incentive program.
The following chart shows the percentage payout of the annual incentive target realized by our CEO with a comparison to earnings per share from continuing operations for the last five years. The chart demonstrates the alignment between our financial performance and realized annual cash incentive compensation.
397212499_mduprox_chart-43094a04.jpg
* MDU Resources Group, Inc. reported 2017 earnings from continuing operations of $1.45 per share which included a non-recurring benefit of 20 cents per share attributable to the federal Tax Cuts and Jobs Act that was signed into law on December 22, 2017.

 
32 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

Long-Term Equity-Based Incentive Awards
Our compensation committee and the board approve grants of long-term incentives to our executives in the form of performance shares which vest into company stock plus dividend equivalents at the end of a three-year performance cycle upon achievement of established performance measures. The following chart depicts the actual vesting percentage for the last five performance cycles and demonstrates the alignment between total stockholder return (TSR) and realized long-term incentive compensation by our executives.
397212499_mduprox_chart-44763a04.jpg
In their February 2018 meeting, the compensation committee and the board approved off-cycle awards to Messrs. Barney and Thiede of time-vesting restricted stock units which will vest on December 31, 2020, if the executives remain employed through the vesting date. The compensation committee believed the restricted stock unit awards incentivize Messrs. Barney and Thiede to continue their employment for the next three years and grow their respective business segments during that time.
See the “Long-Term Incentives” section within this Compensation Discussion and Analysis 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 2018 Annual Meeting of Stockholders, 95.9% of the votes cast on the “Say on Pay” proposal approved the compensation of our named executive officers. The compensation committee viewed the 2018 vote as an expression of the stockholders general satisfaction with the company’s executive compensation programs. The compensation committee reviewed and considered the 2018 vote on “Say on Pay” in setting compensation for 2019 by continuing to link performance-based annual and long-term incentives to company financial performance and stockholder value.


 
MDU Resources Group, Inc. Proxy Statement 33


Proxy Statement
 

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 - Annual and long-term award incentives tied to performance measures set by the compensation committee comprise the largest portion of executive compensation.
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 executive performance, experience, relative value compared to other positions within the company, relationship to competitive market value compensation, business segment economic environment, and the actual performance of the overall company and the business segments.
þ
Annual Cash Incentive - Payment of annual cash incentive awards are based on business segment and overall company performance against pre-established financial measures.
þ
Long-Term Equity Incentive - The long-term performance-based equity incentive in the form of performance shares represents approximately 56% of our CEO’s and approximately 37% of our other named executive officers’ 2018 target compensation, which may only be earned based on achievement of established performance measures at the end of a three-year period.
þ
Annual Compensation Risk Analysis - We regularly analyze the risks related to our compensation programs and conduct an annual broad risk assessment.
þ
Stock Ownership and 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 also must retain at least 50% of the net after-tax shares of stock vested through the long-term incentive plan for at least 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 our executive officers within the last three years.
 
 
What We Do Not Do
 
 
ý
Stock Options - The company does not use stock options as a form of incentive compensation.
ý
Employment Agreements - Executives do not have employment agreements entitling them to specific payments upon termination or a change of control of the company.
ý
Perquisites - Executives do not receive perquisites that materially differ from those available to employees in general.
ý
Hedge Stock - Executives and directors are not allowed to hedge company securities.
ý
Pledge Stock - Executives and directors are not allowed to pledge company securities in margin accounts or as collateral for loans.
ý
No Dividends or Dividend Equivalents on Unvested Shares - We do not provide for payment of dividends or dividend equivalents on unvested share awards.
2018 Compensation Framework
Objectives of our Compensation Program
We have a written executive compensation policy for our executive officers, including all the 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;

 
34 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

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 2018
For 2018, 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 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 2018. They also certified the achievement of performance measures in 2017 associated with annual and long-term incentive compensation.
At least every two years, the compensation committee hires an independent consulting firm to assess and recommend 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 August 2017, the company’s human resources department prepared the analysis of and provided recommendations for the 2018 compensation structure.
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 sufficient, regularly paid income to recruit and retain executives with the knowledge, skills, and abilities necessary to successfully execute their job responsibilities.
 
Based on recommendation from the CEO for executives other than himself and analysis of 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 ensure focus on annual financial results and to be competitive from a total renumeration standpoint.
 
Annual cash incentives are calculated as a percentage of base salary with payout based on the achievement of performance measures established in advance by the compensation committee.
 
Annual incentive performance measures are tied to the achievement of financial goals aimed to drive the success of the company and the individual business segments.
Performance Shares
Performance Based

At Risk
Provides an opportunity to earn long-term compensation to ensure focus on stockholder return and to be competitive from a total renumeration standpoint.
 
Performance share award opportunities are calculated as a percentage of base salary with vesting based on the company’s achievement of financial measures established by the compensation committee as well as total stockholder return in comparison to the company’s peer group over a three-year performance cycle.
 
Fosters ownership in company stock and aligns the executive’s interests with those of stockholders in increasing stockholder value.
Restricted Stock Units
Time Vested
Provides an opportunity to earn long-term compensation to promote retention of executive talent, focus on long-term business segment growth, and to be competitive from a total renumeration standpoint.
 
Restricted stock unit awards are determined by the compensation committee and vest at the end of a three-year period if the executive remains employed by the company.
 
Fosters ownership in company stock and incentivizes executives to remain employed with the company while aligning the executive’s interests with those of the stockholder in increasing stockholder value.

 
MDU Resources Group, Inc. Proxy Statement 35


Proxy Statement
 

Allocation of Total Target Compensation for 2018
Total target compensation consists of base salary plus target annual and long-term incentive compensation. Performance-based 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 long-term performance. The long-term incentive awards, if earned by achieving established 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 the executive officers, as stockholders, will be motivated to deliver 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 as representatives of the industries in which we operate. The 2018 peer group includes twelve companies in regulated energy delivery businesses, and eight companies in the construction materials or construction services businesses. In determining the 2018 peer group, we removed five companies, namely Avista Corporation, National Fuel Gas Company, IES Holdings, Inc., Quanta Services, Inc., and Sterling Construction Company, Inc., due to size, industry focus, or pending merger. Companies added to the 2018 peer group were Otter Tail Corporation, Portland General Electric Company, Southwest Gas Holdings, Inc., Spire, Inc., MasTec, Inc., and Summit Materials, Inc. due to their industry focus, relative size, and geographic location. The following chart depicts the companies in our 2018 peer group.
2018 Peer Companies
Regulated Energy Delivery
Construction Materials and Services
ALLETE, Inc.
EMCOR Group, Inc.
Alliant Energy Corporation
Granite Construction Incorporated
Atmos Energy Corporation
Martin Marietta Materials, Inc.
Black Hills Corporation
MasTec, Inc.
IDACORP, Inc.
MYR Group, Inc.
Northwest Natural Gas Company
Summit Materials, Inc.
NorthWestern Corporation
U.S. Concrete, Inc.
Otter Tail Corporation
Vulcan Materials Company
Portland General Electric Company
 
Southwest Gas Holdings, Inc.
 
Spire Inc.
 
Vectren Corporation
 
2018 Compensation for Our Named Executive Officers
2018 Base Salary and Incentive Targets
At its November 2017 meeting, the compensation committee approved 2018 base salaries for the named executive officers. Mr. Goodin was not present during the portion of the meeting where the compensation committee discussed and approved the president and CEO base salary for 2018. At its February 2018 meeting, the compensation committee approved the target annual and long-term incentive opportunities for our named executive officers. In determining base salaries, target cash annual incentives, target long-term incentives, and total direct compensation for our named executive officers, the compensation committee received and considered company and individual

 
36 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

performance, market and peer data, responsibilities, experience, tenure in position, internal equity, and input and recommendations from the CEO and human resources department. The following information relates to each named executive officer’s base salary, target cash annual incentive, target long-term incentive, and total direct compensation:

David L. Goodin
2018
($)
Compensation Component
as a % of Base Salary

 
Base Salary
824,460
 
 
Target Annual Incentive Opportunity
824,460
100
%
 
Target Long-Term Performance Share Incentive Opportunity
2,061,150
250
%
 
Target Total Potential Direct Compensation
3,710,070


 
The compensation committee considered information provided in the 2016 and 2017 compensation studies showing Mr. Goodin's base salary, total cash compensation, and long-term incentives were below market levels and increased Mr. Goodin’s base salary by 4% and long-term incentive target from 225% to 250% for 2018. No changes were made to Mr. Goodin’s annual incentive target as a percentage of base salary.
 
Jason L. Vollmer
2018
($)
Compensation Component
as a % of Base Salary

 
Base Salary
350,000
 
 
Target Annual Incentive Opportunity
227,500
65
%
 
Target Long-Term Performance Share Incentive Opportunity
420,000
120
%
 
Target Total Potential Direct Compensation
997,500


 
For 2018, Mr. Vollmer's base salary remained at $350,000, which was set when he was promoted to CFO effective September 30, 2017. His annual and long-term incentive targets were set at 65% and 120% of his base salary, respectively.
 
David C. Barney
2018
($)
Compensation Component
as a % of Base Salary

 
Base Salary
455,000
 
 
Target Annual Incentive Opportunity
341,250
75
%
 
Target Long-Term Performance Share Incentive Opportunity
546,000
120
%
 
Target Restricted Stock Units Opportunity
300,000
66
%
 
Target Total Potential Direct Compensation
1,642,250


 
Mr. Barney received a 6.5% increase in base salary for 2018. For 2018, the compensation committee maintained Mr. Barney’s target annual incentive opportunity at 75% of his base salary but increased his long-term incentive opportunity from 90% to 120%. Mr. Barney also received a grant of 11,419 restricted stock units which vest on December 31, 2020, if he remains employed by the company.
 
Jeffrey S. Thiede
2018
($)
Compensation Component
as a % of Base Salary

 
Base Salary
455,000
 
 
Target Annual Incentive Opportunity
341,250
75
%
 
Target Long-Term Performance Share Incentive Opportunity
546,000
120
%
 
Target Restricted Stock Units Opportunity
300,000
66
%
 
Target Total Potential Direct Compensation
1,642,250


 
Mr. Thiede received a 3.9% increase in his base salary for 2018. For 2018, the compensation committee maintained Mr. Thiede’s target annual incentive opportunity at 75% of base salary but increased his long-term incentive opportunity from 90% to 120%. Mr. Thiede also received a grant of 11,419 restricted stock units which vest on December 31, 2020, if he remains employed by the company.
 


 
MDU Resources Group, Inc. Proxy Statement 37


Proxy Statement
 

Nicole A. Kivisto
2018
($)
Compensation Component
as a % of Base Salary

 
Base Salary
430,000
 
 
Target Annual Incentive Opportunity
279,500
65
%
 
Target Long-Term Performance Share Incentive Opportunity
516,000
120
%
 
Target Total Potential Direct Compensation
1,225,500


 
Ms. Kivisto received a base salary increase of 13.8% for 2018. The compensation committee maintained her target annual incentive opportunity at 65% of base salary but increased her long-term incentive opportunity from 90% to 120% of base salary for 2018.
 
Annual Incentives
Annual incentive awards are determined for business segment executives by the achievement of specific performance measures selected by the compensation committee including financial performance measures specific to each business segment and a performance measure tied to overall company earnings per share. For corporate executives, annual incentive awards are determined as the sum of a weighted percentage award payout of each business segment based upon achievement of its performance measures. Percentage award payouts for the business segments are weighted by the business segment’s invested capital relative to the company’s total invested capital. Through this, our business segment executives are incentivized to primarily focus on the success and performance of their business segment while keeping the overall financial success of the company in mind, whereas our corporate executives are incentivized to assist in the success and performance of all lines of business.
The compensation committee considered and selected objective financial performance measures to ensure that compensation to the executives reflects the success of their respective business segments and the company as well as value provided to our stockholders. Each business segment president’s annual incentive performance measures include a corporate earnings per share performance measure representing 20% of the target award opportunity and a business segment financial performance measure representing 80% of the target award opportunity. The following annual incentive performance measures for 2018 were adopted by the compensation committee for the business segment presidents (exclusive of the MDU Resources Group, Inc. corporate executive officers) at its February 2018 meeting:






 
38 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

Measure
Applies to
Purpose
Measurement
Target
Weight
How Target was Selected
MDU Resources Diluted Adjusted Earnings per Share (EPS)
All Business Segment Presidents
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 as members of the company’s management policy committee in the overall success of the company.
GAAP EPS (diluted) before discontinued operations plus earnings/losses from any operations discontinued after December 31, 2017, and adjusted to remove:
- the effect on earnings at the company level of intersegment earnings eliminations;
- the effect on earnings from losses on asset sales/dispositions approved by the board;
- the effect on earnings from withdrawal liabilities relating to multiemployer pension plans; and
- the effect on earnings from transaction costs for completed acquisitions or mergers.
$1.35
20%
Target reflects EPS performance within the range of guidance for 2018 while also being higher than 2017 target. The target reflects an aggregation of the 2018 business unit financial goals and is higher than 2017 actual results minus the effect of the federal Tax Cuts and Jobs Act on 2017 results.
Business Segment Earnings
Electric and Natural Gas Distribution Segments President
Provides a measure of financial performance and an incentive to drive business results.
GAAP business segment earnings before discontinued operations plus earnings/losses from any operations discontinued after December 31, 2017, and adjusted to remove:
- the effect on earnings from losses on asset sales/dispositions approved by the board; and
- the effect on earnings from transaction costs for completed acquisitions or mergers.
$89.1 million
80%
Target reflects the 2018 financial goal for the business segment and exceeds the segments’ 2017 target and actual results.
Pipeline and Midstream
Segment
President
$22.2 million
80%
Target reflects the 2018 financial goal of the business segment and exceeds the segment’s 2017 target and actual results.
Business Segment Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA)
Construction Materials and Contracting
Segment
President
Provides a measure of financial performance common to the industries in which these segments operate.
EBITDA from continuing operations adjusted to remove:
- the effect on earnings from losses on asset sales/dispositions approved by the board;
- the effect on earnings from withdrawal liabilities relating to multiemployer plans; and
- the effect on earnings from transaction costs for completed acquisitions or mergers.
$197.5 million
80%
Target reflects the 2018 financial goal of the business segment, sufficient to exceed the segment’s risk adjusted capital costs, incentivize growth of the business segment, and exceed 2017 actual results adjusted to remove the effect of the federal Tax Cuts and Jobs Act.
Construction Services
Segment
President
$100.1 million
80%
Target reflects the 2018 financial goal of the business segment, sufficient to exceed the segment’s risk adjusted capital costs, incentivize growth of the business segment, and exceed 2017 actual results.
Actual performance results are compared to target performance measures to arrive at a percent of target achieved. The percent of target achieved is translated into a payout percentage of the target award opportunity. Achievement of 100% of the performance target corresponds to a payout equal to the target annual award opportunity. Receipt of a payout requires threshold achievement of a performance measure which varies by business segment. Achievement below the threshold level of the performance measure results in no payout of the target award opportunity attributable to the measure. For the company EPS performance measure, threshold payout requires achievement of 85% of the target performance measure which results in a payout of 25% of the award opportunity attributable to the company EPS performance measure. For the electric and natural gas distribution segments, the pipeline and midstream segment, the construction materials and contracting segment, and the construction services business segment’s performance measures, threshold payout requires achievement of 90%, 85%, 75%, and 65% of the target performance measures, respectively, resulting in business segment target award payouts of 50%, 25%, 25%, and 25%, respectively. Maximum payouts also vary by business segment. For the company EPS performance measure, as well as the electric and natural gas distribution segments and the pipeline and midstream segment, maximum payout of the

 
MDU Resources Group, Inc. Proxy Statement 39


Proxy Statement
 

business segment award opportunity is 200%, and for the construction materials and contracting segment and the construction services segment, payout of 250% of the business segment award opportunity is received if the percent of target performance achieved is 115% or greater. Results achieved between payout levels are calculated using linear interpolation.
2018 Annual Incentive Results
The 2018 performance measure results, percent of target achieved based on those results, and the associated payout percentages are presented below:
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
$1.35
100.0
%
100.0
%
20
%
20.0
%
Electric and Natural Gas Distribution
Earnings
$84.7 million
95.1
%
75.7
%
80
%
60.6
%
Pipeline and Midstream
Earnings
$24.0 million
108.1
%
154.1
%
80
%
123.3
%
Construction Materials and Contracting
EBITDA
$200.6 million
101.6
%
115.9
%
80
%
92.7
%
Construction Services
EBITDA
$103.6 million
103.5
%
135.1
%
80
%
108.1
%
For our corporate named executive officers, namely Messrs. Goodin and Vollmer, the compensation committee continued to base the payout of the annual cash incentives on the achievement of performance measures at the business segments weighted by each business segment’s average invested capital relative to the company’s total invested capital. The compensation committee believes this approach provides alignment between our corporate executives and business segment performance. Messrs. Goodin’s and Vollmer’s 2018 annual cash incentives were earned at 98.0% of the target award opportunity based on the following proportional weighted sum of the annual business segment payouts:
 
Business Segment
Column A
Business Segment Award Opportunity Payout

Column B
Percentage of
 Average Invested Capital

 
Column A x Column B
 
 
 
Electric and Natural Gas Distribution
80.6
%
58.5
%
 
47.2
%
 
Pipeline and Midstream
143.3
%
8.7
%
 
12.5
%
 
Construction Materials and Contracting
112.7
%
23.9
%
 
26.9
%
 
Construction Services
128.1
%
8.9
%
 
11.4
%
 
Total Payout Percentage
 
98.0
%
Based on the achievement of the performance targets, the named executive officers received the following 2018 annual incentive compensation:
Name
Target Annual
Incentive
($)
 
Annual Incentive Earned
 
Payout as a % of Target
(%)
Amount
($)
David L. Goodin
824,460
 
98.0
807,971
Jason L. Vollmer
227,500
 
98.0
222,950
David C. Barney
341,250
 
112.7
384,589
Jeffrey S. Thiede
341,250
 
128.1
437,141
Nicole A. Kivisto
279,500
 
80.6
225,277
Long-Term Incentives
Long-term incentive compensation comprises approximately 56% of the CEO’s 2018 total target direct compensation and 48% of the average of the other named executive officer’s target total direct compensation. Stock earned under long-term incentive compensation is subject to our stock retention requirements. If the executive’s employment is terminated during the performance period for cause at any time, or for any reason other than cause before the executive has reached age 55 and completed ten years of service, all performance shares and related dividend equivalents are forfeited. Restricted stock units are forfeited or canceled if the executive ceases to be an employee of the company or an affiliate except for employment termination due to death, disability, or change of control.

 
40 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

Grant of 2018-2020 Long-Term Performance Share Awards
For 2018, the compensation committee approved performance share awards which may vest at the end of a three-year period between 0% and 200% based on the achievement of three performance measures:
Total stockholder return relative to that of the peer group companies represents 50% of the award and was selected to align the award with the company's performance relative to our peers;
Compound annual growth rate in earnings from continuing operations before interest, taxes, depreciation, depletion, and amortization (EBITDA) represents 25% of the award which encourages strategic growth and focuses on controllable costs; and
Compound annual growth rate in earnings from continuing operations represents 25% of the award which encourages quality earnings and continued growth of the company.
For the awards made in 2018, the compensation committee added the EBITDA and earnings growth measures to incentivize participants to focus on company growth in addition to total stockholder return during the performance period. Earnings used to calculate EBITDA growth and earnings growth will be adjusted for (i) the effect on earnings from losses on asset sales/dispositions approved by the board; (ii) the effect on earnings from withdrawal liabilities relating to multiemployer pension plans; and (iii) the effect on earnings from transaction costs for completed acquisitions or mergers.
On February 15, 2018, for the 2018-2020 performance period, the compensation committee determined the target number of performance shares for each named executive officer by multiplying the named executive officer’s 2018 base salary by a target long-term incentive percentage and then dividing by the average of the closing prices of our stock from January 1 through January 22, 2018, which was $26.27 per share. Based on this price, the board of directors, upon recommendation of the compensation committee, awarded the following target performance share opportunities to the named executive officers:
Name
Base Salary to Determine Target
($)
Target Long-Term
Performance Share
Incentive % of Base Salary
(%)
Long-Term Performance
Share Incentive Target
($)
Performance Share
Opportunities
(#)

David L. Goodin
824,460
250
2,061,150
78,460

Jason L. Vollmer
350,000
120
420,000
15,987

David C. Barney
455,000
120
546,000
20,784

Jeffrey S. Thiede
455,000
120
546,000
20,784

Nicole A. Kivisto
430,000
120
516,000
19,642

Restricted Stock Units Subject to Service Based Vesting
For 2018, the compensation committee also awarded 11,419 restricted stock units to each of Messrs. Barney and Thiede, which will vest on December 31, 2020, provided they remain employed until that date. The restricted stock unit awards represent $300,000 divided by the average closing stock price from January 1 through January 22, 2018 of $26.27 per share. The compensation committee believes the off-cycle restricted stock awards further incentivize both Messrs. Barney and Thiede to continue their employment with the company for the next three years while the company emphasizes the growth of their respective business segments. Dividend equivalents are credited to each restricted stock unit during the vesting period to the same extent that dividends are paid on shares of our common stock, but such dividend equivalents are paid only to the extent the underlying restricted stock unit vests based on the satisfaction of the service requirement. Dividend equivalents are paid at the time of settlement in cash.
Vesting of 2016-2018 Performance Share Awards
For the 2016-2018 performance period, the long-term incentive program consisted solely of performance shares. The performance criteria used for the 2016-2018 performance period was total stockholder return as a percentile of the total stockholder return for our peer companies. Our total stockholder return ranking over the performance period was at the 60th percentile which resulted in vesting at 140% of the target performance shares and dividend equivalents. The named executive officers received the following long-term compensation for the 2016-2018 performance period:

 
MDU Resources Group, Inc. Proxy Statement 41


Proxy Statement
 

Name
Target
Performance
Shares
(#)

Performance
Shares
Vested
(#)

Dividend
Equivalents
($)

David L. Goodin
98,764

138,269

321,475

Jason L. Vollmer
4,767

6,673

15,515

David C. Barney
18,920

26,488

61,585

Jeffrey S. Thiede
19,767

27,673

64,340

Nicole A. Kivisto
16,744

23,441

54,500


Stock Retention Requirement
The named executive officers must retain 50% of the net after-tax shares vested pursuant to the long-term incentive awards for at least two years from the date the vested shares are issued or the executive’s termination of employment. The compensation committee may also require the executive officer to retain share awards net of taxes if the executive has not met the stock ownership requirements under the company’s stock ownership policy for executives.
Other Benefits
The company provides post employment benefit plans and programs in which our named executive officers may be participants. We believe it is important to provide post-employment benefits which approximate retirement benefits paid by other employers to executives in similar positions. The compensation committee periodically reviews the benefits provided to maintain a market-based benefits package. Our named executive officers participated in the following plans during 2018 which are described below:
Plans
David L. Goodin
Jason L. Vollmer
David C. Barney
Jeffrey S. Thiede
Nicole A. Kivisto
401(k) Retirement Plan
Yes
Yes
Yes
Yes
Yes
Pension Plans
Yes
Yes
No
No
Yes
Supplemental Income Security Plan
Yes
No
Yes
No
Yes
Nonqualified Defined Contribution Plan
No
Yes
Yes
Yes
No
401(k) Retirement Plan
The named executive officers as well as all employees working a minimum of 1,000 hours per year are eligible to participate in the 401(k) plan and defer annual income up to the IRS limit. The company provides a match up to 3% depending on the employee’s elected deferral rate. Contributions and the company match are invested in various funds based on the employee’s election including company common stock.
In 2010, the company began offering increased company contributions to our 401(k) plan in lieu of pension plan contributions. For non-bargaining unit employees hired after 2006 or employees who were not previously participants in the pension plan, the added retirement contribution is 5% of plan eligible compensation. For non-bargaining unit employees hired prior to 2006 who were participants in the pension plan, the added retirement contributions are based on the employee’s age as of December 31, 2009. The retirement contribution is 11.5% for Mr. Goodin, 9.0% for Ms. Kivisto, 7.0% for Mr. Vollmer, and 5.0% for Messrs. Barney and Thiede. These amounts may be reduced in accordance with the provisions of the 401(k) plan to ensure compliance with IRS limits.
Pension Plans
Effective in 2006, the defined benefit pension plans were closed to new non-bargaining unit employees and as of December 31, 2009, the defined benefit plans were frozen. For further details regarding the company’s pension plans, please refer to the section entitled “Pension Benefits for 2018.”
Supplemental Income Security Plan
We offered certain key managers and executives benefits under a nonqualified retirement plan, referred to as the Supplemental Income Security Plan (SISP). The SISP provides participants with additional retirement income and death benefits. Effective February 11, 2016, the SISP was amended to exclude new participants to the plan and freeze current benefit levels for existing participants. For further details regarding the company’s SISP, please refer to the section entitled “Pension Benefits for 2018.” Named executive officers participating in the SISP are Messrs. Goodin, Barney, and Ms. Kivisto.

 
42 MDU Resources Group, Inc. Proxy Statement


Proxy Statement
 

The following table reflects our named executive officers’ SISP benefits as of December 31, 2018:
Name
 
SISP Benefits
 
Annual Death Benefit
($)

Annual Retirement Benefit
($)

David L. Goodin
 
552,960
276,480
Jason L. Vollmer
 
n/a

n/a

David C. Barney
 
262,464
131,232
Jeffrey S. Thiede
 
n/a

n/a

Nicole A. Kivisto
 
96,000

48,000

Nonqualified Defined Contribution Plan
The company adopted the Nonqualified Defined Contribution Plan (NQDCP) effective January 1, 2012, to provide retirement and deferred compensation for a select group of management and other highly compensated employees. The compensation committee, upon recommendation from the CEO, determines which employees will participate in the NQDCP and the amount of contributions for any year. After satisfying a vesting requirement for each contribution, distributions will be made in accordance with the terms of the plan. For further details regarding the company’s NQDCP, please refer to the section entitled “Nonqualified Deferred Compensation for 2018.”
For 2018, the compensation committee selected and approved contributions of $35,000 to Mr. Vollmer, $150,000 to Mr. Barney, and $100,000 to Mr. Thiede. The contributions awarded to Messrs. Vollmer, Barney, and Thiede represent 10.00%, 32.97%, and 21.98% of their base salaries, respectively.
Employment and Severance Agreements
We currently do not have employment or severance agreements with our executives entitling them to specific payments upon termination of employment or a change of control of the company. The compensation committee generally considers providing severance benefits on a case-by-case basis. Any post-employment or change of control benefits available to our executives are addressed within our incentive and retirement plans. Please refer to the section entitled “Potential Payments upon Termination or Change of Control.”
Compensation Governance
Impact of Tax and Accounting Treatment
The compensation committee may consider the impact of tax and/or accounting treatment in determining compensation.
Section 162(m) of the Internal Revenue Code limits the deductibility of certain compensation to $1 million paid to certain officers as a business expense in any tax year. The federal Tax Cuts and Jobs Act (Tax Reform), signed into law in December 2017, expanded the number of individuals covered by the Section 162(m) deductibility limit and repealed the exception for performance-based compensation, effective for taxable years beginning after December 31, 2017. Incentive compensation approved by the compensation committee prior to Tax Reform for our CEO and those executive officers whose overall compensation was likely to exceed $1 million was generally structured to meet the requirements for the performance-based exception for deductibility for purposes of Section 162(m). As a result of Tax Reform, compensation paid to our covered executive officers in excess of $1 million will not be deductible, unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017.
The compensation committee also considers the accounting and cash flow implications of various forms of executive compensation. We expense salaries and annual incentive compensation as earned. For our equity awards, we record the accounting expense in accordance with Financial Accounting Standards Board 718, which is generally expensed over the vesting period.

 
MDU Resources Group, Inc. Proxy Statement 43


Proxy Statement
 

Stock Ownership Requirements
Executives participating in our Long-Term Performance-Based Incentive Plan are required within five years of appointment or promotion into an executive level to own our common stock equal to a multiple of their base salary as outlined in the stock ownership policy. Stock owned through our 401(k) plan or by a spouse is considered in ownership calculations. The level of stock ownership compared to the ownership requirement is determined based on the closing sale price of our stock on the last trading day of the year and base salary at December 31 of the same year. The table shows the named executive officers’ holdings as a multiple of their base salary.
Name
Ownership Policy Multiple of Base Salary within 5 Years
Actual Holdings as a Multiple of Base Salary1

Ownership requirement