UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO.   )

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

o  Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to § 240.14a-12

 

NEW JERSEY RESOURCES CORPORATION

(Name of Registrant as Specified in its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NEW JERSEY RESOURCES CORPORATION

1415 Wyckoff Road

Wall, New Jersey 07719

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON JANUARY 21, 2009

 

 

The Annual Meeting (the “Meeting”) of Shareholders of New Jersey Resources Corporation will be held at 10:30 a.m., Wednesday, January 21, 2009, at the Hilton Parsippany, 1 Hilton Court, Parsippany, New Jersey 07054, for the following purposes:

 

1. To elect as directors the four nominees to the Board of Directors named in the attached proxy statement, for terms expiring in 2012;

 

2. To ratify the appointment by the Audit Committee of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2009; and

 

3. To transact any other business that may properly be brought before the Meeting or any adjournments or postponements thereof.

 

The Board of Directors has fixed the close of business on November 24, 2008, as the record date for the determination of the shareholders entitled to notice of and to vote at the Meeting. Accordingly, only shareholders of record at the close of business on that date will be entitled to vote at the Meeting.

 

In accordance with the new rules approved by the Securities and Exchange Commission, this year we are furnishing proxy materials to our shareholders over the Internet. You may read, print and download our Annual Report and Proxy Statement at http://investor.njresources.com/annual-proxy.cfm. On or about December 12, 2008, we mailed our shareholders a notice containing instructions on how to access our 2008 Proxy Statement and Annual Report and vote online or by telephone. The notice also provides instructions on how you can request a paper copy of these documents if you desire.

 

A cordial invitation is extended to you to attend the Meeting. Whether or not you plan to attend the Meeting, it is important that your shares be represented and voted at the Meeting. If you received a paper copy of the proxy card or voting instruction by mail, you can vote by signing, dating, and returning the enclosed proxy card or voting instruction. Registered shareholders and participants in plans holding shares of our Common Stock may vote by telephone or over the Internet. Instructions for using these convenient services are set forth in the instructions for voting that are attached to the proxy card. Beneficial owners of shares of our Common Stock held in street name through a bank or brokerage account should follow the enclosed voting instruction for voting their shares. I hope you will be able to attend the Meeting, but even if you cannot, please vote your shares as promptly as possible. Thank you.

 

RHONDA M. FIGUEROA

Corporate Secretary

 

Wall, New Jersey

December 12, 2008

PROXY STATEMENT

 

 

NEW JERSEY RESOURCES CORPORATION

1415 Wyckoff Road

Wall, New Jersey 07719

 

 

ANNUAL MEETING OF SHAREHOLDERS

JANUARY 21, 2009

 

This Proxy Statement sets forth certain information with respect to the accompanying proxy to be used at the Annual Meeting (the “Meeting”) of Shareholders of New Jersey Resources Corporation, or at any adjournments or postponements thereof, for the purposes set forth in the accompanying Notice of Annual Meeting. The Board of Directors (the “Board”) has designated the Hilton Parsippany, 1 Hilton Court, Parsippany, New Jersey 07054, as the place of the Meeting. The Meeting will be called to order at 10:30 a.m., local time, on Wednesday, January 21, 2009. The Board solicits this proxy and urges you to vote immediately. Unless the context otherwise indicates, reference to “New Jersey Resources,” “we,” “us,” “our” or “the Company” means New Jersey Resources Corporation.

 

Our Board of Directors is making these materials available to you on the Internet or, upon your request, delivering printed versions of these materials to you by mail. On or about December 12, 2008, we mailed a notice to shareholders containing instructions on how to access the Proxy Statement and Annual Report and vote.

 

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

 

 

 

 

 

 

 

 

 

 

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STOCK OWNERSHIP

 

Principal Shareholders

 

The following table sets forth as of November 24, 2008, certain information with respect to the beneficial ownership of shares of Common Stock by each person or group we know to beneficially own more than 5 percent of the outstanding shares of such stock.

 

 

 

 

Directors and Executive Officers

 

The following table sets forth, as of November 24, 2008, the beneficial ownership of our Common Stock of (i) each of the directors, (ii) each of our executive officers listed in the Summary Compensation Table below and (iii) all of our directors and executive officers as a group. Except as otherwise noted, each person has sole voting and investment power as to his or her shares. The beneficial ownership of each director and executive officer is less than 1 percent of the outstanding shares. The shares owned by all such persons as a group constitute approximately 1.7 percent of the total shares of Common Stock outstanding.

 

 

 

 

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than ten percent of our equity securities, to file reports of ownership and changes in ownership with the SEC and the NYSE. Executive officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.

 

Based solely on a review of the copies of these reports furnished to us, we believe that all filing requirements applicable to such officers and directors (we are not aware of any ten-percent holder) were complied with during fiscal year 2008.

 

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

 

The following table presents information as of September 30, 2008, with respect to equity compensation plans under which shares of Common Stock are authorized for issuance.

 

 

 

 

ELECTION OF DIRECTORS

 

[Item (1) on proxy card]

 

Item 1

 

The Board currently consists of eleven members divided into three classes with overlapping three-year terms. Four individuals have been nominated for election as directors at the Meeting. Mr. Correll, Rev. Howard, Mr. Strange and Mr. Zoffinger will each serve for a three-year term expiring in 2012 and until their respective successors are elected and have qualified. Each of the nominees is currently serving as a director of the Company and, except for Mr. Correll who was appointed to the Board in May 2008, each has been previously elected by our shareholders. There were no nominee recommendations from shareholders or from any group of shareholders. Unless otherwise indicated on a proxy, the proxy holders intend to vote the shares each proxy represents for all of the nominees for election as directors.

 

The affirmative vote of a plurality of the shares of Common Stock, present or represented by proxy and voted at the Meeting, is required for the election of directors.

 

Proxies solicited by the Board will be voted in favor of the nominees listed below, unless otherwise specified in the proxy. All of the nominees proposed by the Board have consented to serve if elected. We know of no reason why the nominees would not be available for election or, if elected, would not be able to serve. While it is not anticipated that any of the nominees will be unable to serve, if any should be unable to serve, the proxy holders reserve the right to substitute any other person approved by the Board.

 

Nominees for Election as Directors

 

 

Directors with Terms Expiring in 2011

 

 

Directors With Terms Expiring in 2010

 

 

THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” ALL OF THE PROPOSED DIRECTOR NOMINEES LISTED ABOVE.

 

INFORMATION ABOUT THE BOARD

 

General

 

Our business and affairs are managed under the direction of the Board in accordance with the New Jersey Business Corporations Act and our Certificate of Incorporation and By-Laws. Members of the Board are kept informed of our business through discussions with the Chairman and Chief Executive Officer and other officers, by reviewing materials provided to them, and by participating in meetings of the Board and its committees. The corporate governance practices we follow are summarized below.

 

Board Meetings and Attendance at Annual Meeting of Shareholders

 

During fiscal year 2008, there were ten meetings of the Board. Each director attended more than 75 percent of the combined meetings of the Board and the committees on which he or she served during the year. We encourage all directors to attend our annual shareholders’ meeting. All of the directors serving at the time of the fiscal year 2007 Annual Meeting of Shareholders held in January 2008 attended that meeting.

 

Board Standards of Independence

 

Our independence standards (“Company Independence Guidelines”) are set by the Board in our corporate governance guidelines (the “Corporate Governance Guidelines”). The director independence standards, as set forth in the Company Independence Guidelines, provide that a majority of the Board shall be independent under the independence standards established by the Corporate Governance Guidelines, the NYSE and the SEC as in effect from time to time. In order for a Board member or candidate for election to the Board to qualify as independent, the Board must affirmatively determine that the person or his or her immediate family members have no material relationship with us (either directly or as a partner, shareholder or officer of an organization that has a relationship

with us) or any of our affiliates. Under the categorical standards adopted by the Board, a member of the Board is not independent if:

 

 

The Board will also consider a director’s charitable relationships. A director who is an officer, director, or trustee of a charitable or non-profit organization will not be considered to have a material relationship with us that impairs the director’s independence so long as our contributions to the entity in any of the last three fiscal years (excluding amounts contributed by us under our employee matching gift program) are less than $1 million or two percent of such entity’s consolidated gross revenues as reported for the last completed fiscal year (whichever is greater).

 

A Board member may sit on the board of any of our affiliates so long as, except for being a director on each such board of directors, the member otherwise meets the independence requirements for each such entity, including the receipt of only ordinary-course compensation for serving as a member of the board of directors. Each member of the Board must submit a letter of resignation to the Chairman of the Board when the member changes his or her principal occupation or employment, or leaves or retires from the business with which such occupation or employment was carried out. The letter will be submitted to the Board for its determination as to whether to accept such resignations.

 

With the exception of Mr. Downes, the Chairman of the Board and CEO, the Board has affirmatively determined that each member of the Board is independent in accordance with the above standards. Additionally, we made no contributions during fiscal year 2008 to any charitable organization in which any independent director serves as an executive officer in any single fiscal year within the preceding three fiscal years in an amount in excess of the greater of $1 million or two percent of the charitable organization’s consolidated gross revenues.

 

The Company Independence Guidelines are described in the Corporate Governance Guidelines and are available free of charge on our website at http://investor.njresources.com under the caption “Corporate Governance.” A printed copy is available free of charge to any shareholder who requests it by contacting the Corporate Secretary in writing at Office of the Corporate Secretary, New Jersey Resources Corporation, 1415 Wyckoff Road, Wall, NJ 07719.

Lead Director and Non-management Directors and Communications with the Board

 

The Board appoints an independent member to be the Lead Director. The Board has appointed Mr. Lawrence R. Codey to serve as the current Lead Director. The Lead Director’s primary responsibilities are to ensure that the Board operates independently of management and that directors and shareholders have an independent leadership contact. The non-management members of the Board meet without management present at each regularly scheduled meeting of the Board unless they decide it is not necessary to do so. The non-management director meetings are chaired by the Lead Director. Any shareholder or interested party wishing to communicate with the Lead Director, the non-management directors, any Board committee or specified individual director on an anonymous basis may do so by calling Ethicspoint, Inc., an unaffiliated toll-free hotline service at 1-866-384-4277 or via e-mail at http://www.ethicspoint.com. Ethicspoint, Inc. will then notify the Lead Director or another designated representative of the non-management directors. The Lead Director and his duly authorized agents are responsible for collecting and organizing shareholder communications. Absent a conflict of interest, the Lead Director is responsible for evaluating the materiality of each shareholder communication and determining whether further distribution is appropriate, and, if so, whether to (1) the full Board, (2) one or more committee members, (3) one or more Board members and/or (4) other individuals or entities. In addition, any shareholder can communicate in writing to such directors by mailing communications to them c/o New Jersey Resources Corporation, 1415 Wyckoff Road, Wall, NJ 07719, Attention: Lead Director.

 

Corporate Governance Guidelines

 

The Board has adopted Corporate Governance Guidelines that set forth the practices of the Board with respect to the qualification and selection of directors, director orientation and continuing education, director responsibilities, Board composition and performance, director access to management and independent advisors, director compensation, management evaluation and succession, evaluation of the Board’s performance, policies regarding the Lead Director, meetings of the non-management directors, the policy on communicating with the non-management directors and various other issues. A copy of our Corporate Governance Guidelines is available free of charge on our website at http://investor.njresources.com under the caption “Corporate Governance.” A printed copy is available free of charge to any shareholder who requests it by contacting the Corporate Secretary.

 

Code of Business Conduct and Ethics

 

The Board has adopted the Principal Executive Officer and Senior Financial Officers Code of Ethics governing our Chief Executive Officer and senior financial officers, in compliance with the Sarbanes-Oxley Act of 2002 and SEC regulations promulgated thereunder; our Code of Conduct, a code for all directors, officers and employees as required by the NYSE rules; and a Wholesale Trading Code of Conduct, a code applicable to all officers and any employees and agents directly or indirectly involved in the submission or offers or bids to buy or sell natural gas or pipeline or storage capacity (collectively, the “Codes”). The Codes form the foundation of a comprehensive process that includes compliance with all corporate policies and procedures, an open relationship among colleagues that contributes to good business conduct, and the high integrity level of our employees. The Codes cover all areas of professional conduct, including employment policies, conflicts of interest, intellectual property and the protection of confidential information, as well as strict adherence to all laws and regulations applicable to the conduct of our business. Copies of the Codes are available free of charge on our website at http://investor.njresources.com under the caption “Corporate Governance.” A printed copy of each Code is available free of charge to any shareholder who requests it by contacting the Corporate Secretary.

 

Director Continuing Education

 

We encourage directors to attend director continuing education programs. Typically, director education programs focus on issues and current trends affecting directors of publicly-held companies. We reimburse our directors for tuition and expenses associated with attending these programs.

 

INFORMATION ABOUT THE BOARD’S COMMITTEES

 

The Board has established various committees to assist it with the performance of its responsibilities. These committees and their current members are described below.

 

Audit Committee

 

The Audit Committee consists of Nina Aversano, Lawrence R. Codey, Donald L. Correll, Alfred C. Koeppe and J. Terry Strange (Committee Chair). The Audit Committee operates under a written charter adopted by the Board which is available free of charge on our website at http://investor.njresources.com under the caption “Corporate Governance.” A printed copy is available free of charge to any shareholder who requests it by contacting the Corporate Secretary.

 

The Board has determined that each of the members of the Audit Committee is “independent” within the meaning of the enhanced independence standards for audit committee members in the Securities Exchange Act of 1934, as amended, and the rules thereunder, as incorporated into the listing standards of the NYSE, and the independence standards of our Corporate Governance Guidelines as discussed above under “Information About the Board — Board Standards of Independence.” The Board has further determined that each of the members of the Audit Committee is financially literate and that, as required by the NYSE listing standards, at least one member of the Committee has accounting or related financial management expertise, as such terms are interpreted by the Board in its business judgment. The Board has also determined that Mr. Strange is an “audit committee financial expert,” as such term is defined in the rules promulgated by the SEC under the Sarbanes-Oxley Act of 2002. Under the corporate governance listing standards of the NYSE, if an audit committee member simultaneously serves on the audit committees of more than three public companies, and the listed company does not limit the number of audit committees on which its audit committee members serve to three or less, then in each case, the board must determine that such simultaneous service would not impair the ability of such member to effectively serve on the listed company’s audit committee. The Board of Directors has determined that Mr. Strange’s simultaneous service on the audit committees of more than three public companies will not impair his ability to serve effectively as a member of the Audit Committee.

 

The Audit Committee met twelve times during fiscal year 2008 for the purpose of overseeing management’s responsibilities for accounting, internal control over financial reporting and financial reporting. The Audit Committee selects, appoints, compensates and oversees the independent registered public accounting firm to serve as our independent registered public accounting firm for each fiscal year, approves the retention of, and retains, such firm for any other purposes, and approves the audit and non-audit fees we pay to such firm. The Audit Committee reviews the scope and the results of the work of the independent registered public accounting firm and internal auditors and reviews the adequacy of internal control over financial reporting. The functions and responsibilities of the Audit Committee are described in the “Report of the Audit Committee” set forth below.

 

Audit Committee Pre-Approval Policy

 

The Audit Committee has adopted a policy for the provision of audit services and permitted non-audit services by our independent registered public accounting firm. Our Chief Financial Officer has primary responsibility to the Audit Committee for administration and enforcement of this policy and for reporting non-compliance. Under the policy, our Chief Financial Officer is responsible for presenting to the Audit Committee an annual budget and plan for audit services and for any proposed audit-related, tax or other non-audit services to be performed by the independent registered public accounting firm. The presentation must be in sufficient detail to define clearly the services included. Any services included within the budget and plan that the Audit Committee approves require no further Committee approval for that budget year. All other audit and permissible non-audit engagements of the independent registered public accounting firm must be approved in advance by the Audit Committee. The pre-approval requirements do not prohibit the delivery of permissible non-audit services that were not recognized as non-audit services at the time of the engagement so long as (1) all such services are less than 5 percent of revenues paid to the independent registered public accounting firm for the fiscal year and (2) the services are approved by the Audit Committee prior to completion of the audit.

Executive Committee

 

The Executive Committee consists of Nina Aversano, Lawrence R. Codey (Committee Chair), Laurence M. Downes, Alfred C. Koeppe, J. Terry Strange, David A. Trice, William H. Turner and George R. Zoffinger. During the interval between meetings of the Board, the Executive Committee is authorized under our By-Laws to exercise all the powers of the Board in our management, unless specifically directed otherwise by the Board or otherwise proscribed by law. The Executive Committee did not meet during fiscal year 2008.

 

Financial Policy Committee

 

The Financial Policy Committee, which during fiscal year 2008 consisted of Nina Aversano (Committee Chair), M. William Howard, Jr., Jane M. Kenny, J. Terry Strange and David A. Trice, met four times during fiscal year 2008 to review and make recommendations to the Board concerning financing proposals, dividend strategy, capital and operating budgets and other corporate financial and pension matters.

 

Leadership Development and Compensation Committee

 

The Leadership Development and Compensation Committee, which we refer to as the Compensation Committee or the LDCC, consisted during fiscal year 2008 of Nina Aversano, Alfred C. Koeppe, David Trice (Committee Chair), William H. Turner and George R. Zoffinger. The Board has determined that the members of the Compensation Committee are “non-employee directors” (within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended), “outside directors” (within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (referred to herein as the Internal Revenue Code)) and “independent directors” (as defined under the applicable NYSE listing standards and our Corporate Governance Guidelines as discussed above under “Information About the Board — Board Standards of Independence”). In addition, no Compensation Committee member is a current or former employee of us or any of our subsidiaries.

 

The Compensation Committee operates under a written charter adopted by the Board which is available free of charge on our website at http://investor.njresources.com under the caption “Corporate Governance.” A printed copy is available free of charge to any shareholder who requests it by contacting the Corporate Secretary. While the Compensation Committee’s charter does not specify qualifications required for members, the members of the Compensation Committee have been members of other public company boards of directors, are current or former executive officers of public companies or have comparable positions. The Compensation Committee met four times during fiscal year 2008.

 

Among other things, the Compensation Committee performs the responsibilities of the Board relating to compensation of our executives. The Compensation Committee oversees the performance and qualifications of senior management and interprets, implements and administers the annual compensation and benefits of all of our and our subsidiaries’ elected officers. The Compensation Committee’s responsibilities include reviewing or approving financial corporate goals and objectives relevant to compensation of our Chief Executive Officer and other executive officers, evaluating the performance of our Chief Executive Officer and our other executive officers in light of those goals and objectives, and determining and approving compensation levels for our Chief Executive Officer and our other executive officers based on this evaluation; making recommendations to the Board with respect to annual and long-term incentive compensation plans; evaluating the performance of, and determining the salaries, incentive compensation, and executive benefits for senior management; and administering our equity-based and other executive compensation plans. The Compensation Committee also oversees our leadership development, including review or approval of our succession planning, officer promotions and affirmative action and diversity plans.

 

The Chairman of the Compensation Committee works with our Chief Executive Officer and Vice President — Corporate Services to establish the agenda for Compensation Committee meetings. The Vice President — Corporate Services and management personnel reporting to her prepare data and materials for review by the Compensation Committee using market data from both broad-based and targeted national and regional compensation surveys. Competitive industry analysis is enhanced through review of peer company proxy data, professional research consortiums, and nationally recognized compensation databases provided by the Compensation Committee’s independent compensation consultant.

The Compensation Committee reviews the performance and compensation of our Chief Executive Officer with input from both the full Board and our Chief Executive Officer’s self evaluation. The Compensation Committee approves the compensation of the other executive officers, based upon the evaluation and recommendation of our Chief Executive Officer. Where it deems appropriate, the Compensation Committee engages its independent compensation consultant or other appropriate advisors to analyze compensation trends and competitiveness of pay packages and to support the Compensation Committee’s duty to establish each of the executive officer’s targeted overall compensation levels.

 

The Compensation Committee reports regularly to the Board on matters relating to the Compensation Committee’s responsibilities. In addition, the Compensation Committee follows regulatory and legislative developments and considers corporate governance best practices in performing its duties. For additional information regarding the compensation-related activities of the Compensation Committee, see the sections entitled “Compensation Discussion and Analysis” and “Report of Leadership Development and Compensation Committee” on pages 21 and 37 of this Proxy Statement, respectively.

 

Compensation Committee Interlocks and Insider Participation

 

No member of the Compensation Committee was at any time an officer or employee of the Company, or is related to any other member of the Compensation Committee, any other member of the Board or any executive officer of the Company.

 

Nominating/Corporate Governance Committee

 

The Nominating/Corporate Governance Committee consists of Lawrence R. Codey, Alfred C. Koeppe, David A. Trice, William H. Turner and George R. Zoffinger (Committee Chair). The Nominating/Corporate Governance Committee operates under a written charter that is available free of charge on our website at http://investor.njresources.com under the caption “Corporate Governance.” A printed copy is available free of charge to any shareholder who requests it by contacting the Corporate Secretary. The Nominating/Corporate Governance Committee met three times in fiscal year 2008.

 

The Board has determined that all of the members of the Nominating/Corporate Governance Committee are “independent” within the meaning of the listing standards of the NYSE and the independence standards set by the Board as discussed above under “Information About the Board — Board Standards of Independence.”

 

The primary purposes and responsibilities of the Nominating/Corporate Governance Committee are to assess the corporate needs for an effective Board and then, using those assessments to (1) make recommendations to the Board regarding Board composition, size, additional skills and talents needed; (2) identify individuals qualified to become directors, consistent with the criteria approved by the Board and set forth in the Corporate Governance Guidelines; (3) recommend to the Board the selection of nominees for election to the Board; (4) recommend to the Board the individual directors to serve on the committees of the Board; (5) recommend to the Board corporate governance guidelines and oversee related governance matters and (6) advise the Board on matters that impact corporate social responsibility, advocacy and our reputation. The Nominating/Corporate Governance Committee considers performance of incumbent directors to determine whether to nominate them for re-election.

 

Director Candidate Recommendations and Nominations by Shareholders.  The Nominating/Corporate Governance Committee’s charter provides that the Nominating/Corporate Governance Committee will consider qualified director candidate recommendations by shareholders. Shareholder nominees will be evaluated under the same standards as nominees recommended by management or the non-management members of the Board. Recommendations should be sent to New Jersey Resources Corporation, Office of the Corporate Secretary, 1415 Wyckoff Road, P.O. Box 1464, Wall, New Jersey 07719. Under our By-Laws, any nomination for director should be received by the Corporate Secretary on or before November 9, 2009. In addition, in accordance with our By-Laws, any shareholder entitled to vote for the election of directors may nominate persons for election to the Board if such shareholder complies with the procedures set forth in the By-Laws and summarized above under “QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING — How do I make a shareholder proposal for the fiscal year 2009 Annual Meeting of Shareholders occurring in 2010?”

Nominating/Corporate Governance Committee Process for Identifying and Evaluating Director Candidates.  The Nominating/Corporate Governance Committee identifies and evaluates all director candidates in accordance with the director qualification standards described in the Corporate Governance Guidelines. The Nominating/Corporate Governance Committee evaluates any candidate’s qualifications to serve as a member of the Board based on the background and expertise of individual Board members as well as the background and expertise of the Board as a whole. Nominees will be required to bring the skills and talents, and have the knowledge and expertise at the time needed, to assure that the composition, structure and operation of the Board serve the best interests of our shareholders. In addition, the Nominating/Corporate Governance Committee will evaluate a candidate’s independence and his or her background and expertise in the context of the Board’s needs. There are no differences in the manner in which the Nominating/Corporate Governance Committee evaluates director candidates based on whether the candidate is recommended by a shareholder.

 

Sources for New Nominees.  We did not utilize any third-party search firms to assist in identifying potential director candidates during fiscal year 2008. The Nominating/Corporate Governance Committee did not receive any recommendations from any shareholders in connection with the Meeting.

 

AUDIT COMMITTEE REPORT

 

In accordance with the Audit Committee Charter, the Audit Committee assists the Board in fulfilling its responsibility for oversight of the integrity of the accounting, auditing and financial reporting practices of the Company. During the fiscal year ended September 30, 2008, the Audit Committee met twelve times, and the Audit Committee reviewed and discussed the interim financial information contained in the Company’s Quarterly Reports on Form 10-Q, and discussed press releases announcing earnings with our Chief Financial Officer and the independent registered public accounting firm prior to public release.

 

In discharging its oversight responsibility as to the audit process, the Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence. The Audit Committee also discussed with management, the internal auditors and the independent registered public accounting firm the quality and adequacy of the Company’s internal controls and the internal audit functions, organization, responsibilities, budget and staffing. The Audit Committee reviewed with both the independent and the internal auditors their audit plans, audit scope and identification of audit risks.

 

The Audit Committee reviewed and discussed with the independent registered public accounting firm all communications required by generally accepted auditing standards, including those described in Statement on Auditing Standards No. 61 (AICPA Professional Standards, Vol. 1. AU section 380), as amended, “Communication with Audit Committees,” as adopted by the Public Company Accounting Oversight Board in Rule 3200T and, with and without management present, discussed and reviewed the results of the independent registered public accounting firm’s examination of the financial statements. The Audit Committee also discussed the results of the internal audit examinations.

 

The Audit Committee reviewed and discussed the audited financial statements of the Company as of and for the fiscal year ended September 30, 2008, with management and the independent registered public accounting firm. Management has the responsibility for the preparation of the Company’s financial statements and the independent registered public accounting firm has the responsibility for the audit of those statements.

 

Based on the above-mentioned review and discussions with management and the independent registered public accounting firm, the Audit Committee recommended to the Board that the Company’s audited financial statements be included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2008, for filing with the SEC. The Audit Committee also reappointed Deloitte and Touche, LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2009.

 

THE AUDIT COMMITTEE

 

J. Terry Strange, Chair
Nina Aversano
Lawrence R. Codey
Alfred C. Koeppe
Donald L. Correll

 

Dated: November 11, 2008

 

The “Audit Committee Report” above shall not be deemed incorporated by reference by any general statement incorporating this Proxy Statement into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such Acts.

 

DIRECTOR COMPENSATION

 

Directors who are not officers of the Company or its subsidiaries are compensated as follows: (1) each director receives an annual cash retainer of $35,000 and 1,200 shares of Common Stock; (2) each director receives a fee of $1,500 for each Board and committee meeting attended; and (3) the chairs of the Audit and Executive Committees receive an annual retainer of $10,000 and the chairs of all other Board committees receive an annual retainer of $5,000. The Lead Director receives an annual retainer of $10,000. Directors who are also our or our subsidiaries’ officers do not receive additional compensation for serving on the Board. All directors are reimbursed for any out-of-pocket expenses incurred in attending Board or committee meetings. Share ownership guidelines have been established for directors that specify the expected level of stock ownership of 6,000 shares of Common Stock to be achieved over a five-year period. The following table presents information relating to total compensation of our non-employee directors for the fiscal year ended September 30, 2008.

 

 

 

 

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

This discussion and analysis of our compensation program for named executive officers should be read in conjunction with the tables and text elsewhere in this Proxy Statement that describe the compensation awarded to, earned by or paid to the named executive officers.

 

Compensation of our named executive officers is determined under our compensation and benefits program for senior executives. This program is governed by the Leadership Development and Compensation Committee (the “LDCC”) of the Board of Directors (the “Board”). The LDCC reviews the performance of all officers of the Company and its subsidiaries and makes recommendations to the Board with respect to the compensation of such officers. The LDCC also reviews and makes recommendations to the Board relating to the benefit programs applicable to all officers and has oversight of certain of our employee benefit plans. This discussion and analysis focuses on our named executive officers, who are our Chief Executive Officer, Chief Financial Officer, and three other most highly compensated executive officers. We refer to these five executives as our named executive officers. Additional information with respect to the LDCC can be found on page 15 of this Proxy Statement.

 

Guiding Philosophy

 

The LDCC believes that the compensation program for executive officers should reward the achievement of our short-term and long-term objectives, and that compensation should be related to the value created for our shareholders. Furthermore, the compensation program should reflect competition and best practices in the marketplace. The following objectives serve as the LDCC’s guiding principles for all compensation decisions they make:

 

 

Changes to Executive Compensation Program for Fiscal Year 2008

 

During fiscal year 2008, we undertook an extensive review of our executive compensation practices to assure that our plans and practices were competitive, supportive of the goals of the organization and in keeping with the best interests of our shareholders. As a result of that review, we made the following modifications to the executive compensation program for fiscal year 2008:

 

 

Elements of Our Fiscal Year 2008 Compensation Program for Named Executive Officers

 

The LDCC has a specific mix of compensation components that it targets, with the intent to make each component of total direct compensation competitive with that of other companies of similar size and operational characteristics while also linking compensation to individual and corporate performance and encouraging stock ownership by senior management. The table below describes each compensatory element in our program and briefly explains how it promotes our objectives.

 

 

We believe the combination of these different elements provides an appropriate balance of rewards, incentives and benefits to our executives and enables us to meet our desired compensation objectives, strengthen our ability to attract and retain highly qualified individuals and to appropriately link pay to performance in order to treat our shareholders fairly.

 

The Compensation Review Process

 

Process for Approval of Compensation Measures.  Our planning process begins in May (the third quarter of our fiscal year) when management identifies financial and operational goals, performance measures and action plans that will be executed by the business units and approved by our management in August (the fourth quarter of our fiscal year) for the next fiscal year. These goals are presented to the Board of Directors in September for approval. Upon approval by the Board of Directors, the financial and operational goals become the compensation

measures for the executive officers and are communicated to the rest of the organization through the performance planning and evaluation process and through management presentations to employees.

 

Role of the LDCC and the Chief Executive Officer.  Governance of our compensation program is the responsibility of the LDCC, which consists solely of independent directors. The LDCC works with management, in particular our Chief Executive Officer and the Vice President — Corporate Services in making decisions regarding our compensation program. The LDCC reviews and takes into account all elements of executive compensation in setting policies and determining compensation amounts. The Chief Executive Officer is responsible for recommending to the LDCC the compensation amounts of each of our named executive officers, other than himself. The LDCC generally adheres to the Chief Executive Officer’s recommendations. The Chief Executive Officer attends meetings of the LDCC. Periodically, the LDCC also meets in executive session with our compensation consultant to discuss our compensation program.

 

Role of Compensation Consultant.  The LDCC is authorized to retain experts, consultants, and other advisors to aid in the discharge of its duties and therefore has retained Steven Hall & Partners, a nationally known compensation consulting firm, to assist in gathering and analyzing market data, advising the LDCC on compensation standards and trends, and assisting in the implementation of policies and programs during fiscal year 2008. All work completed by the outside advisor, whether for the LDCC or management, is subject to the approval of the LDCC. The outside advisor’s role with the LDCC is to provide independent advice and counsel. The LDCC does not delegate authority to its outside advisor or to other parties. Occasionally, prior to a meeting of the LDCC, Steven Hall & Partners will meet with the Chief Executive Officer and the Chairman of the LDCC, followed by a private meeting with only the Chairman of the LDCC. During fiscal year 2008, Steven Hall & Partners periodically met with management, participated in LDCC meetings throughout the year, reviewed materials in advance, and provided to the LDCC additional data on market trends and overall compensation design and assessed recommendations for base salary and annual incentive awards for our named executive officers.

 

Comparator Group Analysis.  We intend that the levels of compensation available to executive officers who successfully enhance corporate value be competitive with the compensation offered by publicly held companies that are similar to us with regard to size and industry focus so that we can successfully attract and retain the high quality executive talent we believe is critical to our long-term success. To understand the competitive market for pay, we analyzed the compensation programs of a comparator group of companies in setting compensation terms for our program. When selecting our comparator group in consultation with the independent compensation consultant, we included companies that are generally similar to us based upon several criteria such as industry focus, market capitalization, revenues and earnings.

 

We identified the following companies as our comparator group for reference in setting compensation for fiscal year 2008:

 

 

We do not rely exclusively on comparator group data in setting the terms of our compensation program. Consideration also is given to major compensation surveys of companies in the utility industry. Additionally, we recognize that some executives have skills and responsibilities that are transferable outside of the regulated comparator companies. For this reason, for these selected positions we also consider pay levels among non-utility industry companies to assure that the compensation levels provided are competitive. We also consider regional demographic and economic conditions as factors affecting our compensation program. Survey information provided by Steven Hall & Partners helps to confirm the validity and provide broader context to the comparator group data, as well as provide data for positions where comparator data is not available from public filings with the SEC.

 

Establishing Total Direct Remuneration

 

Total direct remuneration is the sum of base salary, annual cash incentive awards and long-term equity incentive awards. A major portion of each named executive’s remuneration is therefore established by performance-

based incentives, which requires achievement of performance goals as a condition to earning annual cash incentive awards and long-term equity incentive awards. The at-risk portion of total direct remuneration provides increased pay for higher levels of corporate performance.

 

In setting each named executive officer’s total direct remuneration opportunity, the LDCC takes into account other factors such as the responsibilities, performance, contributions and service of the executive, including compensation in relation to that of other employees. As a result, we do not set total direct remuneration or the component parts at levels to achieve a mathematically precise market position. In determining executive compensation, the LDCC reviews all components of our Chief Executive Officer’s and each other named executive officer’s total compensation, including retirement benefits and the costs of all perquisites received to ensure such compensation meets the goals of the program. As a part of this review, the LDCC considers corporate performance information, compensation survey data, the advice of consultants, and the recommendations of management. The LDCC also takes into consideration individual and overall company operating performance to ensure executive compensation reflects past performance as well as future potential and adequately differentiates between employees, based on the scope and complexity of the employee’s job position, market comparisons, individual performance and experience, and our ability to pay. Our Chief Executive Officer’s and each other named executive officer’s performance is reviewed annually by the LDCC prior to considering changes in compensation. The performance of our Chief Executive Officer and the performance of each other named executive officer is evaluated in light of our overall performance (as described in greater detail below) and non-financial goals and strategic objectives approved by the LDCC and the Board. Based on its review, the LDCC believes total compensation for each of the named executive officers is reasonable.

 

The following table shows the target total direct remuneration opportunity authorized by the LDCC for fiscal year 2008. The table states the annual salary of each named executive officer as of September 30, 2008. The table includes the amount of the annual cash incentive award that could be earned by a named executive officer meeting target performance goals relating to net financial earnings, our Commitment to Stakeholders and individual leadership described below. From time to time, the LDCC considers the use of long-term equity incentive awards as a component of the named executive officers’ compensation.

 

 

 

 

Components of Compensation

 

Base Salary.

 

In setting the base salary level of each executive officer, the LDCC considers marketplace compensation data, as well as the executive’s experience level, demonstrated capabilities, time and placement in position and the actual performance of the Company and the executive. No particular weight is assigned to any one factor. Base salary increases are recommended by our Chief Executive Officer and subject to review and approval by the LDCC and the Board. Base salary increases for our Chief Executive Officer are determined by the LDCC and approved by the Board.

Annual Cash Incentive Awards.

 

We believe we maintain a strong link between performance and pay within our executive compensation program through emphasis on incentives and utilization of performance measures that we believe are key drivers of shareholder value creation. At the start of each fiscal year, the LDCC reviews and approves the annual performance objectives for the company and our named executive officers. Based on a review of our compensation programs by Steven Hall & Partners, in November 2007, the LDCC approved the 2008 OIP. Our objectives for the 2008 OIP were to improve line of sight for each executive officer by giving them a better understanding of their individual objectives and how they could be achieved based on areas that they impact, continue the linkage to corporate results and provide greater flexibility to determine awards based on qualitative performance assessments.

 

The 2008 OIP seeks to motivate our senior executives by rewarding them when our annual financial performance goals and their individual performance goals are met. After the end of fiscal year 2008, the Chief Executive Officer and the LDCC evaluated the degree to which the company and our named executive officers met their respective goals. Under the 2008 OIP, the Chief Executive Officer recommends the annual incentive awards to the LDCC. In addition, under the 2008 OIP, based upon the recommendations of the Chief Executive Officer, the LDCC has discretion to increase or reduce any annual cash incentive award payable. In addition, our Chief Executive Officer, subject to LDCC approval, may recommend special recognition awards to named executive officers who have provided outstanding performance during the fiscal year notwithstanding whether or not an annual cash incentive award is earned by any such named executive officer. Generally, the LDCC follows the recommendations of the Chief Executive Officer.

 

The Chief Executive Officer uses the criteria set forth in the 2008 OIP in order to guide his recommendations of the annual cash incentive awards to the LDCC. The criteria that guide the Chief Executive Officer’s recommendations are: (i) net financial earnings, (ii) Commitment to Stakeholders and (iii) leadership. The Chief Executive Officer generally bases his annual cash incentive award recommendations 50 percent on our net financial earnings amount, 30 percent on the participant achieving an individual leadership component and 20 percent on the company meeting an overall Commitment to Stakeholders component. While these criteria serve as guidelines, the Chief Executive Officer has discretion to determine the actual awards to recommend to the LDCC.

 

The target annual cash incentive award opportunity under the 2008 OIP for each of the named executive officers was between 40 and 50 percent of base salary, except for our Chief Executive Officer, whose target was set at 100 percent of base salary. For illustrative purposes, we use a target amount of the midpoint of that range, 45 percent, for our named executive officers other than our Chief Executive Officer. Actual fiscal year 2008 cash incentive award payments under the 2008 OIP, if earned, could theoretically range from 0 percent up to 150 percent of this targeted amount for each of the named executive officers. Maximum payout amounts under the 2008 OIP that exceeded 150 percent of the target amount, if any, and any amount above the target amount could be paid in full, or in part, in the form of restricted stock based on our Chief Executive Officer’s recommendation and subsequent approval by the LDCC. The actual payouts of the 2008 annual cash incentive awards are described in detail below under “— Actual Fiscal Year 2008 Cash Incentive Award Payouts Under the 2008 OIP.”

 

Net Financial Earnings Component:

 

Net financial earnings represents net income excluding the accounting impact of unrealized gains and losses from certain derivative instruments, net of taxes. Net financial earnings is not an alternative to a measure derived from generally accepted accounting principles (“GAAP”), such as earnings per share or any other GAAP measure of liquidity or financial performance. We use net financial earnings as one of our key performance measures for compensatory purposes because we believe it strongly encourages capital discipline and better investment decisions and leads to enhanced cash flow and shareholder value.

 

Our general policy is that no annual cash incentive award is payable to our named executive officers under the 2008 OIP unless we achieved a threshold of at least 75 percent of a target net financial earnings amount. For fiscal year 2008, the target net financial earnings amount was $90.1 million. Therefore, the threshold amount of net financial earnings that guided the Chief Executive Officer’s and LDCC’s decision-making was $67.6 million.

The table below shows the performance/payout curve for the net financial earnings component of the annual cash incentive awards. Performance between the stated percentages is interpolated.

 

 

Leadership Component:

 

The leadership component of the annual cash incentive award is determined based on our Chief Executive Officer’s review of established business unit initiatives and individual performance assessments that is then ratified by the LDCC. As part of his review, our Chief Executive Officer seeks and considers specific examples of how each named executive officer met these objectives. The LDCC assesses the leadership component for our Chief Executive Officer based on a review of his performance in comparison with his specific individual objectives for the past fiscal year. The maximum payout for this portion of the annual cash incentive award is equal to 150 percent of the targeted amount. The LDCC determines the leadership component of the annual cash incentive award for each of our named executive officers other than our Chief Executive Officer in its discretion based on these reviews by our Chief Executive Officer.

 

Our Chief Executive Officer’s leadership objectives for fiscal year 2008 included:

 

 

The leadership objectives of the other named executive officers for fiscal year 2008 included:

 

 

Commitment to Stakeholders Component:

 

The Commitment to Stakeholders component of the annual cash incentive award is determined based on performance objectives that the LDCC views as important to our shareholders, and that encompass a broader range of our activities that are not necessarily reflected in our financial metrics. These objectives are measured on a company-wide basis and cover safety, reliability and competitively priced service, customer satisfaction, growth, quality, valuing employees, corporate citizenship and productivity. The LDCC and management use these metrics

to measure the Company’s overall effort to provide our customers, shareholders, communities and other stakeholders with the highest quality service and performance. For each performance objective a number of performance measurements is obtained. For each of these measurements a threshold, target and maximum performance level is set by the LDCC with input from the Chief Executive Officer. The threshold level of each performance objective is based on a level of performance that was believed to be achievable, the target level of each performance objective is based on a level of performance that was believed to be aggressive, but obtainable, and the maximum level of each performance objective is based on a level of performance that was believed to be realizable upon the actualization of exceptional performance. Each of these performance objectives and measurements is weighted equally and an overall average measurement is obtained. Because an overall average is obtained on many measurements, the LDCC believes the specific metrics for each performance objective and measurement are not material to an understanding of the Commitment to Stakeholders component.

 

The table below shows the performance/payout curve for the Commitment to Stakeholders component of the annual cash incentive awards. Performance between the stated percentages is interpolated.

 

 

Actual Fiscal Year 2008 Cash Incentive Award Payouts Under the 2008 OIP

 

In November 2008, the LDCC reviewed the results of the 2008 OIP based on the recommendations made by the Chief Executive Officer. The amounts of the annual cash incentive awards that were recommended by the Chief Executive Officer to the LDCC and subsequently approved by the LDCC is set forth below. For fiscal year 2008, the net financial earnings, Commitment to Stakeholders and leadership components comprised 50 percent, 20 percent and 30 percent, respectively, of the annual cash incentive awards under the 2008 OIP for each of our named executive officers. This totaled a payout amount equal to 126.5 percent of each of the named executive officer’s respective target of fiscal year 2008 total annual cash incentive award.

 

The fiscal year 2008 annual cash incentive awards under the 2008 OIP were determined as follows:

 

For fiscal year 2008, our net financial earnings were $93.8 million, which corresponded to a payout amount equal to 60 percent of the total target annual cash incentive award. We calculated this payout amount as follows:

 

 

In addition, the Company achieved 103.2 percent of its Commitment to Stakeholders targets, which corresponded to a payout amount equal to 108 percent of the total target annual cash incentive award. We calculated this payout amount as follows:

 

 

 

Individual leadership performance reviews for each of the named executive officers (other than our Chief Executive Officer) were submitted by our Chief Executive Officer for discussion and consideration by the LDCC. The LDCC reviewed each of the named executive officer’s 2008 individual leadership results, including our Chief

Executive Officer, and assessed these results against such named executive officer’s objectives. The following table sets forth certain of the 2008 individual performance highlights for each of our named executive officers that were factored into their 2008 annual cash incentive award and the setting of 2009 total targeted direct compensation.

 

 

The Chief Executive Officer recommended to the LDCC that each named executive officer achieved 150 percent of their leadership goals, which corresponded to a payout amount equal to 45 percent of the total target annual cash incentive award. We calculated this payout amount as follows:

 

 

Notwithstanding the 2008 OIP formula payout amount which was equal to 126.5 percent of each of the named executive officer’s respective target total annual cash incentive awards, the LDCC determined to use its discretion based upon reviewing the 2008 OIP in its entirety, market conditions and individual performance results and, in accordance with the recommendations of the Chief Executive Officer, to make the payments set forth in the following table to the named executive officers under the 2008 OIP. These amounts are also set forth in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 38 of this

Proxy Statement. Each of the named executive officers received an annual cash incentive award equal to or in excess of their target award amount under the 2008 OIP. The annual cash incentive award to Mr. Shields under the 2008 OIP exceeded the fiscal year 2008 maximum payout amount and was based primarily upon the performance of NJRES, which significantly exceeded its net financial earnings target and is managed by Mr. Shields.

 

 

The 2007 Stock Award and Incentive Plan.

 

At our 2007 Annual Meeting, shareholders approved the 2007 Stock Award and Incentive Plan (the “2007 Plan”), which the Board and the LDCC had previously approved. The 2007 Plan authorizes a broad range of awards which the LDCC may award at its discretion, including:

 

 

We believe the 2007 Plan assists the company in:

 

 

Long-term Equity Incentive Awards.

 

In fiscal year 2008, the LDCC adopted a new long-term equity incentive program under our 2007 Plan. In designing the new program, the following key objectives were established:

 

 

Our primary objectives in granting long-term equity incentive awards are to encourage significant ownership of our Common Stock by management and to provide long-term financial incentives linked directly to market performance of our Common Stock. The LDCC believes that significant ownership of our Common Stock by senior management is the optimal method for aligning the interests of management and the shareholders, and our stock incentive program is effectively designed to further this objective.

 

With the exception of significant promotions and new hires, equity grants, including long-term equity incentive awards, are generally awarded following the public release of our annual financial results. The LDCC selects this timing because it enables us to consider the prior year performance of the Company and the participants and our expectations for the next performance period, while also guaranteeing that normal awards will be made after we publicly disclose our performance for the year. The awards also are made as early as practicable in our fiscal year in order to maximize the time period for the incentives associated with the awards.

 

Based on these objectives, our 2007 Plan provides for several forms of long-term equity incentive grants, including performance share awards, restricted stock awards and deferred stock retention awards. In the past, we have utilized awards of non-qualified stock options consistent with long-term share appreciation to reward executives. Stock options also presented favorable accounting and tax treatment. The LDCC determined not to grant stock options due to its preference to reward retention and Company performance by granting full-value restricted shares of Common Stock. This change made it more desirable to grant performance share awards to our named executive officers, which in turn allows us to limit the issuance of shares related to such awards, thereby reducing dilution. In the future, we may utilize stock options as an incentive vehicle, particularly as part of employment arrangements with newly hired executives and where we deem it appropriate to align executive and shareholder interests.

 

The LDCC in November 2007, after consulting Steven Hall & Partners, determined that a portion of our executive officers’ total compensation should be paid in equity awards through our new long-term equity incentive program. Therefore, in November 2007, the LDCC set long-term equity incentive awards for executive officers based upon their respective fiscal year 2007 performance. The awards to our named executive officers were recommended by our Chief Executive Officer and approved by the LDCC and the awards to our Chief Executive Officer were determined by the LDCC and ratified by the Board.

 

Performance Unit Awards.

 

In November 2005, we granted performance units, each unit of which is equal to a share of our Common Stock, to each of the named executive officers. Generally, the LDCC has made grants of performance unit or performance share (described below under “Performance Share Awards”) awards every three years. Performance unit awards are both “performance based” and “time based.” The performance units only vest upon (i) the attainment of a schedule of performance goals related to total shareholder return (stock price appreciation plus dividends, which are treated as though reinvested) as measured against a twenty-one company peer group (the “Company Peer Group”) over a period of 30 months and (ii) additional service beyond the point when the goal is reached. The higher our ranking among the Company Peer Group, the greater the number of performance units that will be earned, up to a maximum of 150 percent of the target. No performance units would have vested if we did not perform in at least the top half of

the Company Peer Group. Based upon our total shareholder return relative to our peers during the 30-month period ended September 30, 2007, the recipients of performance units were entitled to a payout equal to 50 percent of the target number of performance units granted to them during the 30-month cycle. For each of the named executive officers, 50 percent of such payout occurred on October 1, 2007, and the remaining 50 percent was paid out on October 1, 2008. We did not make any performance unit awards in fiscal year 2008.

 

Performance Share Awards.

 

In November 2007, the LDCC approved the grant of performance share awards to each of the named executive officers after the completion of the previous performance unit award cycle which ended on September 30, 2007. As set forth in the table below, the performance share awards were granted to the named executive officers as of January 1, 2008. These performance share awards vest at the end of a thirty-three month performance period ending on September 30, 2010, based on relative company Total Shareholder Return (“TSR”) versus the established comparator group used for compensation purposes which is described under “Elements of Our Fiscal Year 2008 Compensation Program for Named Executive Officers — Comparator Group Analysis” on page 24 above. If performance does not meet the minimum threshold level, no shares will vest.

 

 

 

 

The earned performance shares will be delivered to participants at the end of the performance period. The stated percentiles are approximate due to rounding and the performance between the stated percentiles is interpolated.

 

 

Restricted Stock Awards.

 

The LDCC intends to use restricted stock awards as a retention vehicle and as necessary for new hires, promotions, special recognition awards and as a reward for superior performance. As set forth in the table below, on January 1, 2008, the LDCC granted awards of time vested restricted stock to our named executive officers for fiscal year 2008. The LDCC made these restricted stock awards to the named executive officers in recognition for our fiscal year 2007 performance, for retention purposes and to motivate the named executive officers to perform over the three-year vesting period. The LDCC values restricted stock awards at the fair market value of the number of

shares of our Common Stock on the date of grant. The shares of restricted stock vest over three years at a rate of one-third per year on the anniversary of the date of grant, based on continued employment.

 

 

 

 

Deferred Stock Retention Awards

 

In November 2008, the LDCC approved the grant of a deferred stock retention award to two of our named executive officers as recognition for superior performance and as a retention vehicle. The deferred stock retention awards are denominated in dollars and converted into deferred stock units based on the stock price at the date of grant. Each deferred stock unit equals one share of our Common Stock. The deferred stock units will not accrue dividends. At the end of the deferral period, deferred stock units are paid out in shares of our Common Stock. The deferred stock retention awards become payable in four quarterly installments beginning three years from the date of the grant, provided that the named executive officer complies with certain covenants, including a non-competition restriction. As set forth in the table below, on November 11, 2008, the LDCC granted the deferred stock awards to Mr. Shields and Ms. Ellis. The LDCC made these deferred stock awards to these named executive officers in recognition for their fiscal year 2008 performance and for retention purposes over the vesting period.

 

 

 

 

Common Stock Awards

 

As set forth on the table below, on November 11, 2008, the LDCC approved the grant of a fully vested common stock award to Mr. Downes, our Chief Executive Officer as a reward for achievement of annual performance that was in excess of his target incentive for fiscal year 2008. The common stock award was denominated in dollars and paid out immediately in shares of our Common Stock based upon the number of shares of our Common Stock the award amount translated into at the time of the payout. The LDCC believed that the common stock award further strengthens Mr. Downes’ ongoing linkage to shareholders and the future performance of the Company. The award was fully vested at grant to reflect the fact that it was a substitute for cash and therefore had no other conditions attached to it.

 

 

 

 

Retirement Programs

 

Our retirement programs for senior executives provide an opportunity for each participating executive, through long-term service to New Jersey Resources, to receive a pension or other forms of retirement benefits. Our named executive officers participate in the New Jersey Natural Gas Company Plan for Retirement Allowances for Non-Represented Employees (the “Non-Represented Plan”), which is a trusteed noncontributory defined benefit retirement plan. Our named executive officers also participate in our 401(k) Plan, which is a trusteed defined contribution plan. These plans provide retirement benefits to broad groups of employees and executives. Certain of our named executive officers also participate in the Savings Equalization Plan of New Jersey Resources, which we refer to as the SEP, and the Pension Equalization Plan of New Jersey Resources, which we refer to as the PEP, both of which are unfunded nonqualified plans. These plans provide benefits that would have been made under the Non-Represented Plan and the 401(k) Plan, but for the limitations on compensation and contributions imposed by Sections 401(a)(17), 401(k), 401(m) and 415 of the Internal Revenue Code. In addition, the named executive officers and certain other officers have supplemental retirement agreements. Under the Supplemental Executive Retirement Plan Agreements, which we also refer to as SERP Agreements, benefits are payable over a 60-month period commencing at age 65. At projected retirement, the total maximum amount payable to our Chief Executive Officer under his SERP Agreement is currently $250,000. Messrs. Shields, Lockwood, Ms. Ellis and Ms. Dugan would each be entitled to maximum amounts of $125,000 under their respective SERP Agreements. These are described more fully in the narrative following the Pension Benefits table on page 45 of this Proxy Statement.

 

We also sponsor health care plans that provide postretirement medical and life insurance benefits to union and non-union employees who meet the eligibility requirements. To be eligible, retirees must meet certain age and service requirements. Depending on the year of retirement, benefits may be subject to annual deductibles, coinsurance requirements, lifetime limits and retiree contributions. As of September 30, 2008, none of the named executive officers have completed the age and service requirements to be eligible for post-retirement health coverage.

 

Severance Policies

 

Severance protection is provided to our senior executives in their employment continuation agreements with the Company (“Employment Continuation Agreements”) and only in the event that a senior executive is terminated following a “change in control.” This protection is designed to be fair and competitive and to aid in attracting and retaining experienced executives. When recruited from another company, the executive generally will seek to be protected in the event he or she is terminated without cause or we take actions giving the executive good reason to terminate employment. We believe that the protection we provide — including the level of severance payments and post-termination benefits — is appropriate and within the range of competitive practice.

 

Severance protection following a change in control provides a number of important benefits to us. First, it permits an executive to evaluate a potential change in control while relatively free of concern for the executive’s own situation or the need to seek employment elsewhere. Second, change in control transactions take time to unfold, and a stable management team can help to preserve our operations either to enhance the value delivered to a buyer in the transaction or, if no transaction is consummated, to ensure that our business will continue without undue disruption. Finally, we believe that the change in control protections in place encourage management to consider, on an ongoing basis, whether a strategic transaction might be advantageous to our shareholders, even one that would vest control of the company in a third party. The LDCC believes that the potential cost of executive change in control severance payments and benefits, as a percentage of the potential buyout price, would be well within the range of reasonable industry practice and represents an appropriate cost relative to the benefits to us and our shareholders.

 

On February 20, 2007, we entered into Employment Continuation Agreements with each of Mr. Downes, Ms. Dugan, Ms. Ellis, Mr. Lockwood and Mr. Shields, which, in the case of Mr. Downes, Ms. Ellis, Mr. Lockwood and Mr. Shields, replaced existing employment continuation agreements. The Employment Continuation Agreements provide each executive certain rights in the event that his or her employment is terminated within two years following the occurrence of a “Change of Control” (as defined in the agreements) (i) by the company without “Cause” (as defined in the agreements) or (ii) by the executive for “Good Reason” (as defined in the agreements).

Subject to the limitation described below in the next paragraph, upon either such termination of employment, the executive, in the case of Mr. Downes, will receive three times the sum or, in the case of the other executives, two times the sum, of (x) annual base salary and (y) the average of annual bonuses paid or payable with respect to the last three calendar years ended prior to the Change of Control. The Employment Continuation Agreements further provide that, if any such executive is subject to the so-called “golden parachute” excise tax imposed under Section 4999 of the Internal Revenue Code, the Company must make an additional payment to the executive in an amount sufficient to place the executive in the same after-tax position as if no such excise taxes had been imposed.

 

As a condition of the right of the executive to receive payments under the Employment Continuation Agreements, the executive must enter into a binding agreement that, without the written consent of the Board, the executive will not for a period of two years, acting alone or in conjunction with others, directly or indirectly (i) engage (either as owner, investor, partner, shareholder, employer, employee, consultant, advisor or director) in any business in which he or she has been directly engaged on behalf of us or any affiliate, or has supervised as an executive thereof, during the last two years prior to such termination, or which was engaged in or planned by us or an affiliate at the time of such termination, in the geographic area of New York, New Jersey, Pennsylvania, or Delaware and in which such business was conducted or planned to be conducted; (ii) induce any customers of the company or any of our affiliates with whom the executive has had contacts or relationships, directly or indirectly, during and within the scope of his or her employment with the company or any of our affiliates, to curtail or cancel their business with us or any such affiliate; (iii) induce, or attempt to influence, any employee of the company or any of our affiliates to terminate employment; or (iv) solicit, hire or retain as an employee or independent contractor, or assist any third party in the solicitation, hire or retention as an employee or independent contractor, any person who during the previous 12 months was an employee of the company or any affiliate; provided, however, that activities engaged in by or on behalf of the company are not restricted by this covenant.

 

On November 28, 2008, the Employment Continuation Agreements between the Company and each of our named executive officers were amended to make technical changes to maintain compliance with Section 409A of the Internal Revenue Code. The Employment Continuation Agreements are described in more detail below in the section entitled “Potential Payments upon Termination or Change of Control” beginning on page 46 of this Proxy Statement.

 

Deferred Compensation

 

We provide an Officers’ Deferred Compensation Plan whose purpose is to provide certain members of a select group of management or highly compensated employees of the company and its affiliates a means to defer receipt of specified portions of compensation and to have such deferred amounts treated as if invested in specified investment vehicles in order to enhance the competitiveness of our executive compensation program and, therefore, its ability to attract and retain qualified key personnel necessary for our continued success and progress. Participants in the Officers’ Deferred Compensation Plan may defer the receipt of compensation or awards, which may be in the form of cash, stock or stock-denominated awards, including salary, annual bonus awards, long-term awards and compensation payable under other plans and programs, employment agreements or other arrangements. Deferrals under the Officers’ Deferred Compensation Plan must comply with the requirements of Section 409A of the Internal Revenue Code and be in accordance with U.S. federal income tax laws and Treasury Regulations. All of the named executive officers are eligible to participate in the Officers’ Deferred Compensation Plan. Nonqualified Deferred Compensation is described in more detail below in the section entitled “Nonqualified Deferred Compensation” beginning on page 47 of this Proxy Statement.

 

Other Benefits

 

The LDCC believes employee benefits are an essential component of our competitive total compensation package. These benefits are designed to attract and retain our employees. The named executive officers may participate in the same benefit plans as our salaried employees, which include medical, health and dental insurance, long-term disability insurance, accidental death and disability insurance, travel and accident insurance and our 401(k) Plan. As part of the 401(k) Plan, we match 50 percent of the first 6 percent of compensation contributed by the employee into the 401(k) Plan subject to the Internal Revenue Code and our 401(k) Plan limits. We have disclosed all company matches for our named executive officers in Column (i), “All Other Compensation”, in the

Summary Compensation Table, and separately disclosed each amount in Footnote 6 to that table on page 39 of this Proxy Statement.

 

In addition, we provide certain other benefits to our executives, including our named executive officers. The LDCC believes these other benefits provide security for current and future needs of the executives and their families and therefore assist in attracting and retaining them. These other benefits are structured to be within the competitive range relative to our comparator group. In general, we do not provide our executives with many of the types of perquisites that other companies offer their executives, such as personal use of a corporate jet. The additional benefits we provide or have provided to some of our executives consist of the following and are included in the amounts set forth in Column (i), “All Other Compensation,” in the Summary Compensation Table, and separately disclosed in Footnote 6 to that table on page 39 of this Proxy Statement: car allowance, executive preventative health maintenance program and executive insurance program. In addition to the cash and equity compensation discussed above, we provide our Chief Executive Officer and the other named executive officers with the same benefits package available to all of our salaried employees. The package includes:

 

 

For business purposes it may be appropriate for certain members of senior management to belong to a golf or social club so that such executive has an appropriate entertainment forum for customers and appropriate interaction with their communities. Relocation benefits also are reimbursed per our usual relocation policy, but may be individually negotiated under special circumstances.

 

Share Ownership Guidelines

 

The LDCC believes it is important to align the interests of members of senior management with our shareholders. While the LDCC considers this principle when determining the appropriate mix of base salary, annual cash incentive awards and long-term equity incentive awards, the LDCC also established stock ownership guidelines that encourage the accumulation and retention of our Common Stock. We believe that executive ownership is important to create a mutuality of interest with shareholders. Therefore, executive officers are required to meet established share ownership levels. These requirements are subject to annual review by the LDCC.

 

Executive officers are required to meet ownership levels within five years after their election by the Board of Directors. If the requirement has not been met at that time, we have the right to defer payout of shares under the 2007 Plan until the target is achieved. The ownership requirements are 60,000 shares for our Chief Executive Officer, 6,000 shares of Common Stock for Executive and Senior Vice Presidents and 3,000 shares of Common Stock for Vice Presidents.

 

United States Federal Income Tax Limits on Deductibility

 

Section 162(m) of the Internal Revenue Code provides that executive compensation in excess of $1 million to an individual officer will not be deductible for purposes of corporate income tax unless it is performance-based compensation and is paid pursuant to a plan meeting certain requirements of the Internal Revenue Code. The LDCC has relied and intends to continue to rely on performance-based compensation programs for annual cash bonus awards and long-term equity incentive awards. The LDCC seeks, through such programs, to fulfill corporate business objectives. The LDCC currently anticipates that, to the extent practicable and in our best interest, such programs will be designed to satisfy the requirements of Section 162(m) with respect to the deductibility of compensation paid. The LDCC recognizes, however, that there may be business considerations that dictate that compensation be paid that is not deductible under Section 162(m).

 

REPORT OF THE LEADERSHIP DEVELOPMENT AND COMPENSATION COMMITTEE

 

The Leadership Development and Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis section of this Proxy Statement with management and, based on such review and discussion, the Leadership Development and Compensation Committee recommends to the Board that it be included in this Proxy Statement.

 

 

Dated: November 11, 2008

 

The “Leadership Development and Compensation Committee Report” shall not be deemed incorporated by reference by any general statement incorporating this Proxy Statement into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such Acts.

 

EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table provides information relating to total compensation for the fiscal year ended September 30, 2008. The individuals named below include our Chairman and Chief Executive Officer, our Chief Financial Officer, and our other named executive officers.

 

 

 

 

 

All Other Compensation Table

 

 

 

 

Grants of Plan-Based Awards

 

The following table presents information regarding grants of plan-based awards to the named executive officers during the fiscal year ended September 30, 2008.

 

 

 

 

2007 Stock Award and Incentive Plan

 

At the fiscal year 2006 Annual Meeting, shareholders approved the 2007 Plan. We believe the 2007 Plan assists us to:

 

 

The 2007 Plan authorizes a broad range of awards which the Board may award at its discretion, including:

 

 

Consistent with the requirements of the NYSE, the 2007 Plan includes a restriction providing that, without shareholder approval, we will not amend or replace options or SARs previously granted under the 2007 Plan in a transaction that constitutes a “repricing.” For this purpose, a “repricing” is defined as amending the terms of an option or SAR after it is granted to lower its exercise price, any other action that is treated as a repricing under generally accepted accounting principles, or canceling an option at a time when its strike price is equal to or greater than the fair market value of the underlying stock in exchange for another option, SAR, restricted stock, or other equity, unless the cancellation and exchange occurs in connection with a merger, acquisition, spin-off or other similar corporate transaction. Adjustments to the exercise price or number of shares subject to an option or SAR to reflect the effects of a stock split or other extraordinary corporate transaction will not constitute a “repricing.”

 

Executive officers and all other employees of the company and our subsidiaries, non-management directors serving on the Board and others who provide substantial services to the company and our subsidiaries and affiliates are eligible to be granted awards under the 2007 Plan. The LDCC administers the 2007 Plan. The selection of participants and the nature and size of the awards granted to participants is subject to the discretion of the LDCC. As of September 30, 2008, approximately 736,037 shares of Common Stock were subject to outstanding awards under our equity compensation plans and 1,999,101 shares of Common Stock were available for future awards under our equity compensation plans.

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

 

The following table presents information concerning the number and value of unexercised options, SARs and similar instruments, nonvested stock (including restricted stock, restricted stock units or other similar instruments) and incentive plan awards for the named executive officers outstanding as of the end of the fiscal year ended September 30, 2008.