EMERA INCORPORATED
Notice of Annual Meeting of Common Shareholders Wednesday, May 7, 2014 and Management Information Circular TABLE OF CONTENTS DEAR SHAREHOLDERS, Notice of Annual Meeting 1 We invite you to attend the annual meeting of the common shareholders of Emera Incorporated, Management Information Circular 2 which will be held at the Queens Place Emera Centre, 50 Queens Place Drive, Liverpool, Nova Scotia Business of the Meeting 4 on Wednesday, May 7, 2014, at 2:00 p.m. (Atlantic Time). Director Nominees 5 In 2013, Emera invested in iconic community facilities across Nova Scotia, including this year’s Skills and Experience 6 venue, Queens Place Emera Centre. Emera is committed to building stronger, healthier communities Compensation of Directors in 2013 17 in the areas where we live and work. Investments in this facility and others, such as the Emera Oval Statement of Corporate in Halifax and Emera Centre Northside in North Sydney, where the Company held its annual Governance Practices 20 meeting last year, enable residents to access facilities that encourage a healthy, active lifestyle Senior Management Stock Option and complement Emera’s strong focus on health and wellness. For more information about our Plan Amendments 31 community partnerships, please visit www.emera.com/community. Letter from the Management Resources and Compensation The Board of Directors and the executive team look forward to meeting with you to present our Committee to Our Shareholders 33 analysis of our 2013 financial results and outline our plans for the future. Statement of Executive Compensation 35 Compensation Discussion and Analysis 39 Please take the time to read this document. The Management Information Circular contains Performance Graph 50 important information about the business to be conducted at the annual meeting, about the NEO Summary Compensation Table 52 Directors nominated for election, how we compensate our executive officers and Directors and Appendix “A” – Board of Directors Charter 62 about our corporate governance practices. If you cannot attend the annual meeting, please use the Appendix “B” – Resolution Amending enclosed proxy or voting instruction form to submit your vote prior to the meeting. It is important the Senior Management to us that your shares be counted. Stock Option Plan 64 Live coverage of the annual meeting will be available on our website at www.emera.com/investors. A recording of the meeting will also be available on the site for several weeks following the meeting. We hope you can join us. Sincerely,
John T. McLennan Christopher G. Huskilson Chairman of the Board President and Chief Executive Officer Notice of Annual Meeting The annual meeting of the common shareholders of Emera Incorporated will be held at the Queens Place Emera Centre, 50 Queens Place Drive, Liverpool, Nova Scotia, on Wednesday, May 7, 2014 at 2:00 p.m. (Atlantic Time) for the purposes of: 1. Electing Directors to serve until the next annual meeting of shareholders; 2. Appointing Auditors; 3. Authorizing the Directors to establish the Auditor’s fee; 4. Approving amendments to the Company’s Senior Management Stock Option Plan; and 5. Transacting such other business as may properly come before the meeting. Common shareholders of record as of the close of business on Wednesday, March 19, 2014 and their proxyholders are entitled to vote and participate in the business of the meeting. By Order of the Board of Directors,
Stephen D. Aftanas Corporate Secretary Halifax, Nova Scotia, Canada February 7, 2014
As a shareholder, it is important that you vote. Common shareholders are encouraged to return their proxy or voting instruction form as soon as possible. A postage-paid, pre-addressed envelope is provided. As an alternative, shareholders may choose to vote by telephone or the Internet as provided for on the proxy or voting instruction form. Proxies must be received prior to 5:00 p.m. Atlantic time on Monday, May 5, 2014, or if the meeting is adjourned, at least 48 hours (not including Saturdays, Sundays or statutory holidays in Nova Scotia) prior to the reconvened meeting. Should you have any questions or comments, you may contact Emera Incorporated by writing to the Corporate Secretary, Emera Incorporated, 1223 Lower Water Street, Halifax, Nova Scotia, B3J 3S8, or by calling 1-800-358-1995 from anywhere in North America or 428-6060 within the Halifax-Dartmouth area.
Emera Inc. — Management Information Circular 2014 1 MANAGEMENT INFORMATION CIRCULAR
Information as of March 4, 2014 (unless otherwise noted)
Solicitation of Proxies This Management Information Circular (the “Circular”) is furnished in connection with the solicitation of proxies by the Board of Directors and management of Emera Incorporated (the “Company” or “Emera”) for use at the annual meeting (the “Meeting”) of common shareholders (the “Shareholders”) of the Company to be held on Wednesday, May 7, 2014 as set forth in the Notice of Annual Meeting (the “Notice”). Enclosed with this Circular is a proxy or voting instruction form. The solicitation of proxies will be primarily by mail although proxies may also be solicited by telephone, facsimile, in writing or in person, by Directors, Officers or other employees or agents of the Company. The Company wishes to have as many Shareholders vote as possible and has retained CST Phoenix Advisors as the proxy solicitation agent to assist with the solicitation of votes from Shareholders. The proxy solicitation agent will monitor the number of Shareholders voting and will contact Shareholders in order to ensure that a maximum vote is achieved. The cost of this solicitation will be borne by the Company and is not expected to exceed $50,000. Record Date and Voting of Shares The date for determining which Shareholders are entitled to receive the Notice is Wednesday, March 19, 2014. This is called the “Record Date”. Only Shareholders of record at the close of business on the Record Date will be entitled to vote. Each common share owned as of the Record Date entitles the holder to one vote. To the knowledge of the Directors and Officers, as of the date of this Circular, no person owned or exercised control over more than 10 per cent of the outstanding common shares of the Company and the only outstanding voting shares were 142,106,796 common shares. Beneficial (or Non-Registered) Owners The voting process is different depending on whether you are a registered Shareholder, Non-Objecting Beneficial Owner or Objecting Beneficial Owner. If you have shares registered in your own name, you are a registered Shareholder. If you do not hold shares in your own name, you are a beneficial or non-registered owner. If your shares are listed in an account statement provided to you by a broker, then it is likely that those shares will not be registered in your name, but under the broker’s name or under the name of an agent of the broker such as CDS Clearing and Depository Services Inc., the nominee for many Canadian brokerage firms, or its nominee. There are two kinds of beneficial owners: (i) Objecting Beneficial Owners — those who object to their name being made known to the issuers of shares which they own and (ii) Non-Objecting Beneficial Owners — those who do not object to their name being made known to the issuers of the shares which they own. Non-Objecting Beneficial Owners will receive a voting instruction form from Emera’s registrar and transfer agent, Computershare Trust Company of Canada (“Computershare”). This is to be completed and returned to Computershare in the envelope provided. In addition, Computershare provides both telephone voting and Internet voting as described on the voting instruction form. Securities regulation requires brokers or agents to seek voting instructions from Objecting Beneficial Owners in advance of the Meeting. Objecting Beneficial Owners should be aware that brokers or agents can only vote shares if instructed to do so by the Objecting Beneficial Owner. Your broker or agent (or their agent Broadridge) will have provided you with a voting instruction form or form of proxy for the purpose of obtaining your voting instructions. Every broker has its own mailing procedures and provides instructions for voting. You must follow those instructions carefully to ensure your shares are voted at the Meeting. If you are an Objecting Beneficial Owner receiving a voting instruction form or proxy from a broker or agent, you cannot use that proxy to vote in person at the Meeting. To vote your shares at the Meeting, the voting instruction form or proxy must be returned to the broker well in advance of the Meeting. If you wish to attend and vote your shares in person at the Meeting, follow the instructions for doing so provided by your broker or agent.
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Shareholder Proxy Materials These security holder materials are being sent to both registered and non-registered owners of the securities. If you are a non- registered owner, and the issuer or its agent has sent these materials directly to you, your name and address and information about your holdings of securities have been obtained in accordance with applicable securities regulatory requirements from the intermediary holding on your behalf. Emera has arranged for its registrar and transfer agent, Computershare, to send materials directly to Non-Objecting Beneficial Owners. Emera will bear the cost of delivering shareholder proxy materials to registered Shareholders, Non-Objecting Beneficial Owners and Objecting Beneficial Owners. Appointment and Revocation of Proxies The persons named in the enclosed proxy are John T. McLennan, Chair of the Board, and Christopher G. Huskilson, President and Chief Executive Officer, both of whom are Directors of the Company, and Stephen D. Aftanas, who is Corporate Secretary of the Company. In order for a vote by proxy or voting instruction form to be counted, it should be received prior to 5:00 p.m. (AST) on Monday, May 5, 2014. The Company reserves the right to accept late proxies and to waive the proxy cut-off with or without notice, but is under no obligation to accept or reject any particular late proxy. For Canadian residents, a postage-paid, pre-addressed envelope is provided for this purpose. In order for your vote to be counted, you may vote by proxy or voting instruction form via mail, the Internet or telephone. If you are a registered Shareholder or a Non-Objecting Beneficial Owner, you may attend the Meeting in person and submit your completed proxy or vote by ballot. Completion of a proxy gives discretionary authority to the proxyholder to vote as he or she sees fit in respect of amendments to matters identified in the Notice, and other matters that may properly come before the Meeting or any adjournment thereof, whether or not the amendment or other matter that comes before the Meeting is or is not routine, and whether or not the amendment or other matter that comes before the Meeting is contested. Management of the Company is not aware of any amendments or other matters to be presented for action at the Meeting. If you appoint Mr. McLennan, Mr. Huskilson or Mr. Aftanas as your proxyholder, they will vote, or withhold from voting, in accordance with your directions. If you do not specify how you want your shares voted, they will vote “For” the: •• election of Directors named in this Circular; •• appointment of Ernst & Young LLP as Auditors; •• authorization of the Directors to establish the Auditor’s fee; and •• amendment of the Company’s Senior Management Stock Option Plan. They will vote in accordance with their best judgment if any other matters are properly brought before the Meeting. You may appoint any other person (who need not be a Shareholder) to represent you at the Meeting by inserting that person’s name in the space provided on the accompanying proxy. That person is your proxyholder and must attend and vote at the Meeting in order for your vote to count. You may revoke your proxy by providing new voting instructions in a new proxy or voting instructions form with a later date, or at a later time if you are voting on the Internet or by telephone. Any new voting instructions, however, will only take effect if received prior to 5:00 p.m. (AST) on Monday May 5, 2014 or if the meeting is adjourned, at least 48 hours (not including Saturdays, Sundays or statutory holidays in Nova Scotia) prior to the reconvened meeting. You may also revoke your proxy without providing new voting instructions by giving written notification addressed to Mr. Stephen Aftanas, Corporate Secretary, 1223 Lower Water Street, Halifax, Nova Scotia, B3J 3S8, not later than the last business day preceding the day of the Meeting or any postponement or adjournment thereof or with the Chair of the Meeting on the day of the Meeting or any postponement or adjournment thereof or in any other manner permitted by law. Registered shareholders may attend the Meeting and vote in person and, if they do so, any voting instructions previously given by such persons for such shares will be revoked.
Emera Inc. — Management Information Circular 2014 3 Restrictions on Share Ownership and Voting Under Nova Scotia legislation, no Emera Shareholder may own or control, directly or indirectly, more than 15 per cent of the outstanding voting shares. Shareholders who are not residents of Canada may not hold, in total, more than 25 per cent of the outstanding voting shares. These restrictions may be enforced by limiting non-complying Shareholders’ voting rights, dividend rights and transfer rights. Shareholders may be required, at any time, to furnish a statutory declaration to verify the number of shares held and/or residency in order to ensure compliance with these restrictions. If you have any questions about share ownership and voting restrictions, please contact the Corporate Secretary using the contact information contained in the Notice of Annual Meeting above. Business of the Meeting 1. Election of the Board of Directors: The 10 nominees proposed for election as Directors at the 2014 Meeting are identified under Director Nominees in this Circular. For more information about the process for nominating Directors, see Nomination of Directors in the Statement of Corporate Governance Practices. All nominees are currently Directors of the Company. Each nominee has indicated his or her willingness to serve as a Director. Each Director elected at the Meeting will hold office until the next Annual Meeting of Shareholders. Mr. McLennan, Mr. Huskilson and Mr. Aftanas intend to vote “For” the 10 nominees unless instructed otherwise by Shareholders in their proxy. 2. Appointment of Auditors: The Audit Committee has reviewed the performance of Ernst & Young, LLP, including its independence relating to the audit and recommends the re-appointment of Ernst & Young, LLP as Auditors. Ernst & Young, LLP have been Auditors of the Company since its inception in 1998, and before that were Auditors of the Company’s subsidiary, Nova Scotia Power Inc., since 1991. Mr. McLennan, Mr. Huskilson and Mr. Aftanas intend to vote “For” the re-appointment of Ernst & Young, LLP as Auditors of the Company, to hold office until the close of the next Annual Meeting of Shareholders, unless a Shareholder specifies their shares be withheld from voting. 3. Auditor’s Fee: The Company is incorporated under the Nova Scotia Companies Act. Shareholder approval of the authorization of Directors to establish the Auditor’s fee is required pursuant to the Companies Act. The aggregate fees billed by Ernst & Young, LLP, during the last two fiscal years ended December 31, 2012 and December 31, 2013, were as follows:
Service Fee 2013 ($) 2012 ($)
Audit Fees 921,400 8 2 7,10 0 Audit-Related Fees 196,400 142,750 Tax Fees 229,386 632,670 All Other Fees Nil Nil Total 1 , 3 4 7 , 1 8 6 1 , 6 0 2 , 5 2 0
Mr. McLennan, Mr. Huskilson and Mr. Aftanas intend to vote “For” the authorization of Directors to establish the Auditor’s fee, unless a Shareholder instructs otherwise in their proxy. 4. Senior Management Stock Option Plan Amendments: Shareholders are being asked to consider and, if thought appropriate, to pass an ordinary resolution (the full text of which is reproduced in Appendix “B” of this Circular), ratifying, confirming and approving amendments to the Company’s Senior Management Stock Option Plan (the “Plan”) to (a) increase the maximum number of common shares reserved for issuance under the Plan by five million common shares; and (b) implement detailed amendment provisions setting out those changes to the Plan that require shareholder approval and those changes to the Plan that do not require shareholder approval. Mr. McLennan, Mr. Huskilson and Mr. Aftanas intend to vote “For” the amendment of the Company’s Senior Management Stock Option Plan.
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Director Nominees The following pages set out the names of the nominees proposed for election as Directors of Emera. Biographical information about the Director nominees is also provided, including age, municipality and country of residence, year first elected or appointed as a Director, principal occupation, education, skills and experience. The information about each Director nominee includes Committee memberships and meeting attendance. Their membership on other public company boards in the last five years is also described. There is information about the common shares and Deferred Share Units (DSUs) of Emera held by each Director nominee for the past three years. The estimated value of each Director nominee’s common shares and DSUs holdings is based on the following:
Year Closing price of Emera common shares ($)
December 31, 2011 33.04 December 31, 2012 34.74 December 31, 2013 30.57
All Director nominees are required to meet share ownership guidelines. The information below details their status under those guidelines. For further information on the share ownership guidelines for Directors, see Director Share Ownership Guidelines in the Statement of Corporate Governance Practices later in this Circular. For further information on the share ownership guidelines for the Company’s executive officers, including Mr. Huskilson, President and Chief Executive Officer, see Executive Share Ownership Requirements in the Statement of Executive Compensation. All Director nominees, except Mr. Huskilson, are considered by the Board to be independent. For more information about the Company’s definition of independence, see Director Independence in the Statement of Corporate Governance Practices later in the Circular.
Emera Inc. — Management Information Circular 2014 5 Skills and Experience The checked boxes in the matrix below indicate the skills and experience on the part of the 10 Director nominees in eight categories important to the Company’s business and governance. The voting results for Directors in the 2013 annual meeting of shareholders are shown in the last two rows of the chart. Total Chrominska Sylvia Allan Edgeworth James Eisenhauer Christopher Huskilson LoewenLynn McLennan John Pether Donald Andrea Rosen Richard Sergel Jackie Sheppard
CEO/Senior Executive CEO or Senior officer experience 10 P P P P P P P P P P with large organization
Governance/Other Directorships Director of public company and/or 10 P P P P P P P P P P significant governance role
Customer/Stakeholder Experience in managing 9 stakeholder relations or P P P P P P P P P represents customer group
Energy Sector Senior executive experience in the 4 P P P P energy sector
M&A/Growth Strategy Senior executive experience with 8 mergers, acquisitions and/or P P P P P P P P business growth strategy
Compensation and Human Resources Understanding and experience 7 P P P P P P P with human resources issues and compensation policies
Financial Senior financial executive 10 P P P P P P P P P P experience
Legal and Regulatory Legal and/or regulatory 7 P P P P P P P experience
Percentage of votes cast “For” 99.61 99.58 99.14 99.31 99.71 99.32 99.27 99.39 99.70 99.29 each director (%)
Percentage of votes cast 0.39 0.42 0.86 0.69 0.29 0.68 0.73 0.61 0.30 0.71 “Withheld” (%)
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SYLVIA CHROMINSKA Ms. Chrominska has been a Director since September 2010. She has been a member of the Management Resources and Compensation Committee since November 2010, and a member of Age: 62 the Nominating and Corporate Governance Committee since June 2012. She has been Chair of the Toronto, Ontario ad hoc Pension Governance Committee since November 2013. Canada Director Since: 2010 Ms. Chrominska is the former Group Head of Global Human Resources and Communications for Independent The Bank of Nova Scotia, where she had global responsibility for human resources, corporate communications, government relations, public policy and corporate social responsibility of the Scotiabank Group. Ms. Chrominska has been a member of the Board of Scotia Group Jamaica Limited, since 2009. She became Chair of the Board in 2013. She is also Chair of the Board of Scotiabank Trinidad and Tobago Limited. Ms. Chrominska graduated from the University of Western Ontario with an Honours Degree in Business Administration. She also serves on the Dean’s Advisory Board at the Richard Ivey School of Business. Ms. Chrominska’s 30-year career in the banking sector has provided her with valuable skills and knowledge in financial and credit matters. In particular, the experience she has gained through her senior executive leadership role, with responsibilities encompassing a broad spectrum of areas within a complex, global business organization, is a distinct asset.
Board/Committee Public company board membership Membership Attendance Total % during the last five years
•• Board Member 8 of 8 100% Scotia Group Jamaica Limited •• Management 5 of 5 100% (2009 to present) Skills and Experience Resources and •• CEO/Senior Executive Compensation Scotiabank Trinidad and Tobago Limited •• Customer/Stakeholder Committee (January 2013 to present) •• M&A/Growth Strategy Member •• Governance/Other Directorship •• Nominating 4 of 4 100% •• Financial and Corporate •• Compensation and Human Resources Governance •• Legal and Regulatory Committee Member 1 of 1 100% •• Pension Governance Committee Chair
Total Compensation
Fees earned in 2013 ($) All other compensation ($) Total ($)
121,125 N/A 121,125
DSUs Awarded and Held
Total 2013 increase in Market value of total 2013 share-based awards value of all DSUs held ($) DSUs holdings ($)
100,844 72,025 294,848
Securities Held
Common Value of shares Status under share Year Shares DSUs and DSUs ownership guidelines
2013 1,813 9,645 350,271 Ms. Chrominska owns shares and 2012 1,813 6,414 285,806 DSUs valued at 129% of the 2011 1,770 3,266 166,389 requirement under the Share Ownership Guidelines; therefore, the Guidelines are met.
Emera Inc. — Management Information Circular 2014 7 ALLAN EDGEWORTH Mr. Edgeworth has been a Director since November 2005. He has been a member of the Management Resources and Compensation Committee since February 2006 and the Committee Age: 63 Chair since May 2010. He was also a member of the ad hoc Board Chair Succession Committee. Calgary, Alberta Canada Mr. Edgeworth was a member of the Audit Committee from April 2008 to May 2013, and was a Director Since: 2005 member of the Technology and Development Committee from September 2010 to February 2012. Independent From May 2007 to April 2008, Mr. Edgeworth was a member of the Nominating and Corporate Governance Committee. He also served as a Director of Nova Scotia Power Inc. from November 2005 to October 2006. Mr. Edgeworth is President of ALE Energy Inc. and is the former President and Chief Executive Officer of Alliance Pipeline. He is a Director of AltaGas Ltd. and Pembina Pipeline Corporation. Until March 31, 2012, he was a Commission Member and Director of the Alberta Securities Commission. Mr. Edgeworth holds a Bachelor of Applied Science from the University of British Columbia in Geological Engineering and is a graduate of the Queen’s Executive Program. He has also served on the Boards of the Interstate National Gas Association of America and the Canadian Gas Association. Mr. Edgeworth is also a past Chair of the Canadian Energy Pipeline Association.
Board/Committee Public company board membership Membership Attendance Total % during the last five years
•• Board Member 8 of 8 100% •• AltaGas Ltd. •• Audit Committee 3 of 3 100% (previously AltaGas Income Trust) Member (March 2005 to present) •• Management 5 of 5 100% •• Pembina Pipeline Corporation Skills and Experience Resources and (July 2006 to present) •• CEO/Senior Executive Compensation •• Customer/Stakeholder Committee Chair •• M&A/Growth Strategy •• Board Chair 2 of 2 100% •• Governance/Other Directorship Succession •• Financial Committee •• Energy Sector •• Compensation and Human Resources •• Legal and Regulatory Total Compensation
Fees earned in 2013 ($) All other compensation ($) Total ($)
135,253 N/A 135,253
DSUs Awarded and Held
Total 2013 increase in Market value of total 2013 share-based awards value of all DSUs held ($) DSUs holdings ($)
87,627 7,829 872,682
Securities Held
Common Value of shares Status under share Year Shares DSUs and DSUs ownership guidelines
2013 1,000 28,547 903,252 Mr. Edgeworth owns shares and 2012 1,000 24,895 899,592 DSUs valued at 334% of the 2011 1,000 21,222 734,215 requirement under the Share Ownership Guidelines; therefore, the Guidelines are met.
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JAMES EISENHAUER, FCA Mr. Eisenhauer has been a Director of the Company since May 2011. He is Chairman of the Board of Directors of Emera’s subsidiary, Nova Scotia Power Inc., having served on its Board since 2008. Age: 62 He is President and Chief Executive Officer of ABCO Group Limited, which has holdings in the Lunenberg, manufacturing and distribution sector. He is a Professional Engineer and a Fellow of the Institute Nova Scotia of Chartered Accountants of Nova Scotia. Mr. Eisenhauer was a member of the Board of Nova Canada Scotia Business Inc. from 2005 to January 2013, and was Chair from November 2010 to October Director Since: 2011 2012. He has also been a member of the Board of Composites Atlantic Limited since 1993 (and its Independent predecessor Cellpack Aerospace since 1987). He is also on the Board of Atlantic Industries Limited and chairs its Audit Committee. Mr. Eisenhauer holds a Bachelor of Science from Dalhousie University and a Bachelor of Engineering (with distinction) from the Technical University of Nova Scotia. Mr. Eisenhauer’s professional knowledge and experience combined with his executive leadership in manufacturing and distribution businesses are valuable assets. His leadership role in the Nova Scotia business community provides him with valuable stakeholder and governance skills and experience.
Board/Committee Public company board membership Membership Attendance Total % during the last five years
•• Board Member 7 of 8 88% Nova Scotia Power Inc. (September 2008 to present)
Total Compensation
Skills and Experience Fees earned in 2013 ($) All other compensation ($) Total ($) •• CEO/Senior Executive •• Customer/Stakeholder N/A 155,000 155,000 •• Governance/Other Directorship •• Financial DSUs Awarded and Held
Total 2013 increase in Market value of total 2013 share-based awards value of all DSUs held ($) DSUs holdings ($)
155,000 95,886 620,877
Securities Held
Common Value of shares Status under share Year Shares DSUs and DSUs ownership guidelines
2013 Nil 20,310 620,877 Mr. Eisenhauer owns DSUs valued at 2012 Nil 15,112 524,991 230% of the requirement under the 2011 Nil 9,942 328,483 Share Ownership Guidelines; therefore, the Guidelines are met.
Emera Inc. — Management Information Circular 2014 9 CHRISTOPHER HUSKILSON Mr. Huskilson has been a Director and the President and Chief Executive Officer of Emera since November 2004. Age: 56 Wellington, He is also Chair of Emera Maine, a Director of NSPI and serves as the Chair or as a Director of a Nova Scotia number of other Emera affiliated companies. He has been a Director of Algonquin Power & Canada Utilities Corp. since 2009. He has held a number of positions within Nova Scotia Power Inc. and its Director Since: 2004 predecessor, Nova Scotia Power Corporation, since June 1980. Not Independent Mr. Huskilson holds a Bachelor of Science in Engineering and a Master of Science in Engineering President and Chief Executive Officer from the University of New Brunswick. of Emera Mr. Huskilson’s decades of experience and extensive knowledge of various roles within Emera and NSPI allow him to provide leadership within the Company, and in the broader electricity industry, regionally, nationally and internationally.
Board/Committee Public company board membership Membership Attendance Total % during the last five years
•• Board Member 8 of 8 100% •• Light & Power Holdings Limited •• Board Chair 2 of 2 100% (June 2010 to present) Succession •• Nova Scotia Power Inc. Committee (November 2004 to present) •• ICD Utilities Limited (September 2008 to present) •• Algonquin Power and Utilities Corp. (July 2009 to present) •• Saint Lucia Electricity Services Limited (January 2007 to February 2011) Skills and Experience •• CEO/Senior Executive •• Customer/Stakeholder DSUs Awarded and Held •• M&A/Growth Strategy •• Governance/Other Directorship Total 2013 increase in Market value of total •• Financial 2013 share-based awards value of all DSUs held ($) DSUs holdings ($) •• Energy Sector •• Compensation and Human Resources 0 (526,147) 5,917,728 (1) •• Legal and Regulatory
Securities Held
Common Value of shares Status under share Year Shares DSUs and DSUs ownership guidelines
2013 25,516 193,580 6,697,765 Mr. Huskilson is subject to Executive 2012 15,015 185,489 6,965,509 Share Ownership Requirements, 2011 10,146 178,166 6,221,828 which require that he own shares and/or DSUs valued at four times his salary. He exceeds this requirement.
(1) Mr. Huskilson participates in the DSU Plan for executives and senior management. For more information about the DSU Plan for executives and senior management see the Statement of Executive Compensation.
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LYNN LOEWEN, FCA Ms. Loewen has been a Director of the Company since February 2013. She has been a member of the Audit Committee since May 2013. Age: 52 Westmount, Quebec Ms. Loewen is presently Chief Operating Officer of Minogue Medical Inc. She was President of Canada Expertech Network Installation Inc. from 2008 to 2011. She held key positions with Bell Canada Director Since: 2013 Enterprises, as Vice President of Finance Operations from 2005 to 2008, and as a Vice President Independent of Financial Controls from 2003 to 2005. Prior to that, she was Vice President of Corporate Services and Chief Financial Officer of Air Canada Jazz, where she held positions of increasing responsibility since 1988. Ms. Loewen was a member of the Public Sector Pension Investment Board from 2001 to 2007, where she served on the Audit Committee from 2003 to 2007, including as Audit Committee Chair from 2006 to 2007. She was Chair of the Governance Committee from 2003 to 2006. Ms. Loewen holds a Bachelor of Commerce from Mount Allison University and obtained her Chartered Accountant designation in 1986. She served on the Mount Allison University Board of Regents from 1998 to 2008, including as Chair from 2007 to 2008. She also served as a member of the Advisory Board of the Ron Joyce Centre for Business Studies from 2009 to 2011. Ms. Loewen’s financial expertise and business acumen gained as a senior executive in the telecom and airline sectors are valuable assets for Emera’s Board.
Board/Committee Public company board membership Membership Attendance Total % during the last five years
•• Board Member 8 of 8 100% None •• Audit Committee 3 of 3 100% Skills and Experience Member •• CEO/Senior Executive •• Governance/Other Directorships •• Customer/Stakeholder Total Compensation •• Financial Fees earned in 2013 ($) All other compensation ($) Total ($)
95,878 N/A 95,878
DSUs Awarded and Held
Total 2013 increase in Market value of total 2013 share-based awards value of all DSUs held ($) DSUs holdings ($)
95,878 85,565 85,565
Securities Held
Common Value of shares Status under share Year Shares DSUs and DSUs ownership guidelines
2013 1,044 2,800 115,511 Ms. Loewen owns shares and DSUs 2012 1,000 Nil 34,740 valued at 44% of the requirement under the Share Ownership Guidelines. She has until February 2018 to meet the Guidelines.
Emera Inc. — Management Information Circular 2014 11 JOHN MCLENNAN Mr. McLennan has been a Director since April 2005 and has been Chair of the Board since May 2009. He was a member of the Management Resources and Compensation Committee and the Age: 68 Nominating and Corporate Governance Committee from April 2005 to May 2009 when he Mahone Bay, became Chair of the Board. He was Chair of the ad hoc Board Chair Succession Committee. He Nova Scotia was also a Director of Nova Scotia Power Inc. from April 2005 to November 2013, and was the Canada Chair of that Board from May 2006 to May 2009. Director Since: 2005 Independent Mr. McLennan is the former Vice Chair and Chief Executive Officer of Allstream Inc. (formerly AT&T Canada). He served as President and Chief Executive Officer of Bell Canada and Bell Mobility from 1990 to 1997. He is the former Chief Executive Officer of Cantel Inc. He currently sits on the Boards of Chorus Aviation Inc. and Amdocs Ltd. Mr. McLennan holds a Bachelor of Science, Master of Science and Honorary Doctorate of Science degrees from Clarkson University in New York. From 1996 to 2006, he was Chancellor of Cape Breton University where he also received an Honorary Doctorate. Mr. McLennan’s extensive chief executive officer experience with complex organizations across a variety of industries provides him with valuable strategic insight and leadership capabilities. Through his membership on several public company boards he has gained extensive governance skills and business acumen.
Board/Committee Public company board membership Membership(1) Attendance Total % during the last five years
•• Board Member 8 of 8 100% •• Amdocs Limited •• Board Chair 2 of 2 100% (November 1999 to present) Succession •• Chorus Aviation Inc. (and its Skills and Experience Committee predecessor Jazz Air Holding G.P. Inc.) •• CEO/Senior Executive (January 2006 to present) •• Customer/Stakeholder •• Nova Scotia Power Inc. •• M&A/Growth Strategy (April 2005 to November 2013) •• Governance/Other Directorship •• Ace Aviation Holdings Inc. •• Financial (September 2004 to June 2008) •• Compensation and Human Resources •• Aeroplan Income Fund •• Legal and Regulatory (June 2005 to January 2008) •• Air Canada (November 2006 to January 2008) •• Medisys Health Group (2002 to 2008)
Total Compensation
Fees earned in 2013 ($) All other compensation ($) Total ($)
214,726 N/A $214,726
DSUs Awarded and Held
Total 2013 increase in Market value of total 2013 share-based awards value of all DSUs held ($) DSUs holdings ($)
214,726 57,259 1,710,575
Securities Held
Common Value of shares Status under share Year Shares DSUs and DSUs ownership guidelines
2013 5,000 55,956 1,863,456 Mr. McLennan owns shares and 2012 5,000 47,592 1,827,046 DSUs valued at 690% of the 2011 5,000 39,224 1,461,161 requirement under the Share Ownership Guidelines; therefore, the Guidelines are met.
(1) As Chair of the Board, Mr. McLennan is not a member of any of Emera’s Committees; however, he attends Committee meetings in a non-voting capacity.
12 Emera Inc. — Management Information Circular 2014 Management Information Circular
DONALD PETHER Mr. Pether has been a Director since November 2008. He has been a member of the Management Resources and Compensation Committee and the Nominating and Corporate Governance Age: 65 Committee since May 2009. He was appointed Nominating and Corporate Governance Committee Dundas, Ontario Chair in April 2012. He has been a member of the ad hoc Pension Governance Committee since Canada November 2013 and was also a member of the ad hoc Board Chair Succession Committee. Director Since: 2008 Independent Mr. Pether is the former Chair of the Board and Chief Executive Officer of ArcelorMittal Dofasco Inc., a Canadian steel producer. He is a past-Chair of the Board of Governors for McMaster University and is on the Council of Governors for the Art Gallery of Hamilton. He is a Director of Primary Energy Recycling Corp., Samuel, Son & Co. Ltd. and Schlegel Health Care Inc. Mr. Pether has a Bachelor of Science in Metallurgical Engineering from the University of Alberta and holds a Doctor of Laws (Hon) from McMaster University. Mr. Pether’s experience as a chief executive officer of a steel producer owning assets in the mining and automotive parts industry, and with employees in the US, Mexico and Canada, provides him with valuable business and stakeholder skills. Mr. Pether’s experience throughout his career with employee and labour relations, as well as with innovative manufacturing and maintenance processes, are of significant benefit to the Board.
Board/Committee Public company board membership Membership Attendance Total % during the last five years
•• Board Member 7 of 8 88% •• Primary Energy Recycling •• Management 5 of 5 100% Corporation (April 2010 to present) Resources and •• Samuel Manu-Tech Inc. Skills and Experience Compensation (October 2007 to September 2010) •• CEO/Senior Executive Committee •• Compensation and Human Resources Member •• Customer/Stakeholder •• Nominating and 4 of 4 100% •• Governance/Other Directorship Corporate •• Financial Governance •• Legal and Regulatory Committee Chair •• M&A Growth Strategy •• Pension 1 of 1 100% Governance Committee •• Board Chair 2 of 2 100% Succession Committee
Total Compensation
Fees earned in 2013 ($) All other compensation ($) Total ($)
127,875 N/A 127,875
DSUs Awarded and Held
Total 2013 increase in Market value of total 2013 share-based awards value of all DSUs held ($) DSUs holdings ($)
127,875 75,881 547,234
Securities Held
Common Value of shares Status under share Year Shares DSUs and DSUs ownership guidelines
2013 Nil 17,902 547,234 Mr. Pether owns DSUs valued at 2012 Nil 13,568 471,352 202% of the requirement under the 2011 Nil 9,315 307,767 Share Ownership Guidelines; therefore, the Guidelines are met.
Emera Inc. — Management Information Circular 2014 13 ANDREA ROSEN Ms. Rosen has been a Director since January 2007 and has been a member of Emera’s Audit Committee since May 2007. She was appointed Audit Committee Chair in April 2008. She was a Age: 59 member of the ad hoc Board Chair Succession Committee. Toronto, Ontario Canada Ms. Rosen was Vice Chair of TD Bank Financial Group and President of TD Canada Trust from Director Since: 2007 2002 to 2005. Independent Prior to this, she was Executive Vice President of TD Commercial Banking and Vice Chair of TD Securities. Previously, Ms. Rosen also served as Vice President of Varity Corporation from 1991 to 1994. Between 1981 and 1990, she held a variety of roles at Wood Gundy Inc. (later CIBC Wood Gundy), eventually becoming Vice President and Director. Ms. Rosen is also a Director of the Alberta Investment Management Corporation, Hiscox Ltd. and Manulife Financial Corporation. Ms. Rosen received her Bachelor of Laws degree from Osgoode Hall Law School and a Masters of Business Administration from the Schulich School of Business at York University. She earned a Bachelor of Arts degree from Yale University. Ms. Rosen has spent over 20 years in the corporate finance field and is an experienced senior executive. Her career in the investment and commercial banking industry has given her extensive financial and investment knowledge. Her expertise is of significant value to the Board.
Board/Committee Public company board membership Membership Attendance Total % during the last five years
•• Board Member 8 of 8 100% •• Hiscox Ltd. •• Audit Committee 6 of 6 100% (October 2006 to present) Chair •• Manulife Financial Corporation Skills and Experience •• Board Chair 2 of 2 100% (August 2011 to present) •• CEO/Senior Executive Succession •• Financial Committee •• Governance/Other Directorships •• M&A/Growth Strategy Total Compensation
Fees earned in 2013 ($) All other compensation ($) Total ($)
121,875 N/A 121,875
DSUs Awarded and Held
Total 2013 increase in Market value of total 2013 share-based awards value of all DSUs held ($) DSUs holdings ($)
121,875 45,678 821,874
Securities Held
Common Value of shares Status under share Year Shares DSUs and DSUs ownership guidelines
2013 Nil 26,886 821,874 Ms. Rosen owns DSUs valued at 2012 Nil 22,343 776,196 304% of the requirement under the 2011 Nil 17,969 593,695 Share Ownership Guidelines; therefore, the Guidelines are met.
14 Emera Inc. — Management Information Circular 2014 Management Information Circular
RICHARD SERGEL Mr. Sergel has been a Director since September 2010. He has been a member of both the Audit Committee and the Nominating and Corporate Governance Committee since November 2012. He Age: 64 has been a member of the ad hoc Pension Governance Committee since November 2013, and was Wellesley, Massachusetts, also a member of the Technology and Development Committee from November 2010 to February USA 2012. Mr. Sergel is also a member of the boards of Company subsidiaries Emera CNG Holdings Director Since: 2010 Inc., Emera CNG LLC, Emera Energy Generation II LLC, Rumford Power Inc., Tiverton Power LLC Independent and Bridgeport Energy LLC. Mr. Sergel is the former President and Chief Executive Officer of the North American Electric Reliability Corporation (NERC). He served as President and Chief Executive Officer of National Grid USA, and its predecessor New England Electric System, from 1998 to 2004. Mr. Sergel is presently a director of State Street Corporation. He also served on the boards of the Edison Electric Institute, the Consortium for Energy Efficiency, and the United Way of the Merrimac Valley. Mr. Sergel holds a Bachelor of Science in Mathematics from Florida State University, a Master of Science in Applied Mathematics from North Carolina State University, and a Master of Business Administration from the University of Miami. Mr. Sergel’s extensive career in the United States electricity sector has provided him with valuable industry and business skills and experience. His regulatory background is a distinct asset.
Board/Committee Public company board membership Membership Attendance Total % during the last five years
•• Board Member 8 of 8 100% State Street Corporation Skills and Experience •• Audit Committee 6 of 6 100% (September 1999 to present) •• CEO/Senior Executive Member •• Customer/Stakeholder •• Nominating 4 of 4 100% •• M&A/Growth Strategy and Corporate •• Governance/Other Directorship Governance •• Financial Committee •• Energy Sector Member •• Compensation and Human Resources •• Pension 1 of 1 100% •• Legal and Regulatory Governance Committee
Total Compensation
Fees earned in 2013 ($) All other compensation ($) Total ($)
121,875 2,658 124,533
DSUs Awarded and Held
Total 2013 increase in Market value of total 2013 share-based awards value of all DSUs held ($) DSUs holdings ($)
40,000 29,114 111,275
Securities Held
Common Value of shares Status under share Year Shares DSUs and DSUs ownership guidelines
2013 4,000 3,640 233,555 Mr. Sergel owns shares and DSUs 2012 2,000 2,365 151,640 valued at 86% of the requirement 2011 2,000 1,092 102,159 under the Share Ownership Guidelines. He has until September 2017 to meet the Guidelines.
Emera Inc. — Management Information Circular 2014 15 JACKIE SHEPPARD Ms. Sheppard has been a Director since February 2009. She has been a member of both the Audit Committee and the Management Resources and Compensation Committee since May 2009. She Age: 58 was a member of the Technology and Development Committee from October 2010 to February Calgary, Alberta 2012. Ms. Sheppard is also a Director of the Company’s subsidiary, Emera Newfoundland & Canada Labrador Holdings Inc. Director Since: 2009 Independent Ms. Sheppard is a Director and Chair of the Research and Development Corporation of the Province of Newfoundland and Labrador, a Provincial Crown Corporation. She is also a Director of Cairn Energy PLC, a publicly traded UK-based international upstream exploration and production company. She is also a director of the general partner of Pacific NorthWest LNG LP, which was formed for the purpose of constructing, owning and operating an LNG facility in British Columbia. Ms. Sheppard is a Director and founding Shareholder of a private, junior Canadian oil and gas corporation, as well as of a private international oil and gas corporation focusing on the Middle East, North Africa and the Mediterranean area. She is the former Executive Vice President, Corporate and Legal, of Talisman Energy Inc. Ms. Sheppard is a Rhodes Scholar, having received an Honors Jurisprudence, Bachelor of Arts and Master of Arts from Oxford University in 1979. She earned a Bachelor of Laws degree (Honours) from McGill University in 1981, and a Bachelor of Arts degree from Memorial University of Newfoundland in 1977. With her extensive roles as an executive in the oil and gas industry and as a director of public, private and crown corporations, Ms. Sheppard’s experience in strategic planning, business development, public markets and governance is an important asset to the Board.
Board/Committee Public company board membership Skills and Experience Membership Attendance Total % during the last five years •• CEO/Senior Executive •• Customer/Stakeholder •• Board Member 7 of 8 88% •• Cairn Energy PLC •• M&A/Growth Strategy •• Audit Committee 6 of 6 100% (May 2010 to present) •• Governance/Other Directorship Member •• NWest Energy Corp. •• Financial •• Management 5 of 5 100% (July 2008 to July 2012) •• Energy Sector Resources and •• Compensation and Human Resources Compensation •• Legal and Regulatory Committee Member
Total Compensation
Fees earned in 2013 ($) All other compensation ($) Total ($)
124,375 17,000 141,375
DSUs Awarded and Held
Total 2013 increase in Market value of total 2013 share-based awards value of all DSUs held ($) DSUs holdings ($)
141,375 82,223 623,750
Securities Held
Common Value of shares Status under share Year Shares DSUs and DSUs ownership guidelines
2013 Nil 20,404 623,750 Ms. Sheppard owns DSUs valued at 2012 Nil 15,588 541,527 231% of the requirement under the 2011 Nil 10,636 351,413 Share Ownership Guidelines; therefore, the Guidelines are met.
16 Emera Inc. — Management Information Circular 2014 Management Information Circular
Compensation of Directors in 2013
PURPOSE OF DIRECTOR COMPENSATION The compensation of Directors is designed to: •• attract and retain highly skilled and experienced individuals to serve on Emera’s Board; •• ensure alignment with long-term Shareholders’ interest; and •• recognize the substantial time commitment required to oversee management of the Company. For more information about the process of determining Director compensation, see Director Compensation in the Statement of Corporate Governance Practices later in the Circular.
DEFERRED SHARE UNITS (DSUs) Directors have the ability to elect to receive some or all of their cash compensation in the form of DSUs. In 2013 the annual retainer for each Director was $75,000, of which $40,000 was payable in DSUs. More information about the Directors’ DSUs Plan is provided later in this section of the Circular. The Company does not offer option-based awards, non-equity incentive plan participation, or participation in a Company pension plan to its Directors.
BOARD CHAIR’S ALL-INCLUSIVE RETAINER The annual Chair’s Retainer is an all-inclusive fee, meaning the Board Chair receives no meeting fees or any other retainer for serving as Emera’s Board Chair. The all-inclusive annual retainer of the Board Chair in 2013 was $185,000. This was comprised of $92,500 in DSUs, and the remainder in cash. Until his resignation from the Board of Directors of the Company’s subsidiary, NSPI, on November 6, 2013, the Board Chair was paid an annual fee of $35,000 cash for participation on the NSPI Board.
COMPENSATION RATES FOR DIRECTORS Listed below are the annual compensation rates for independent Directors in 2013. These rates are not applicable to: •• Mr. Huskilson, who is an employee of the Company, •• Mr. Eisenhauer, who received an annual all-inclusive annual retainer from NSPI as the Chair of the NSPI Board.
Annual retainers and meeting fees for directors in 2013 Cash amount ($) DSUs ($) Total ($)
Annual Chair’s Retainer (1) 127,500 92,500 220,000 Annual director’s retainer 35,000 40,000 75,000 In-person meeting fee (2) 1,750 Telephone meeting fee (2) 1,250 Travel fee (if one-way travel is 5 hours or more) 1,750 Travel fee (if one-way travel is at least 3 hours but less than 5 hours) 875 Annual audit committee chair’s retainer 15,000 Annual audit committee member’s retainer 5,000 Annual management resources and compensation committee chair’s retainer 15,000 Annual management resources and compensation committee member’s retainer 3,000 Annual nominating and corporate governance committee chair’s retainer 8,000 Annual nominating and corporate governance committee member’s retainer 3,000
(1) Includes $35,000 cash paid for participation on the Board of Nova Scotia Power Inc. (2) Members of the Pension Governance Committee and the Board Chair Succession Committee received meeting fees for their participation in each Committee meeting. They received no retainer for being a member of this ad hoc Committee.
TOTAL DIRECTOR COMPENSATION IN 2013 The following table sets out the total compensation earned by the Directors who served on Emera’s Board during 2013. Compensation is made up of applicable retainers and fees for attendance at Board and Committee meetings for which a Director attended as a member or guest, briefing meetings, education sessions and travel fees. Mr. Huskilson is not included in the table as his compensation for service as Emera’s President and CEO is disclosed in the Statement of Executive Compensation. He does not receive any additional compensation for his services as a member of the Board of Emera or as a member of the Board of any of Emera’s subsidiaries.
Emera Inc. — Management Information Circular 2014 17 The table below entitled “Total Compensation” shows the compensation earned by Emera Directors in 2013 for serving on the Company’s Board of Directors. It includes compensation earned by Emera Directors who served on the Boards of Emera subsidiaries. See Compensation of Emera Directors on Subsidiary Boards for more information about Emera Directors who served on the Boards of Emera subsidiaries. In the table below, the three columns under the heading “DSUs Awarded and Held” show detailed information about DSUs received by Directors as compensation.
Total compensation DSUs awarded and held
Total 2013 2013 increase in Market value Fees earned All other share-based value of all of total DSU Director in 2013 ($) (1) compensation ($) Total ($) awards ($) (2) DSUs held ($) (3) holdings ($) (4)
Robert Briggs (5) 118,375 27,000 145,375 40,000 26,824 136,984 Sylvia Chrominska 121,125 N/A 121,125 100,844 72,025 294,848 Allan Edgeworth 135,253 N/A 135,253 87,627 7,829 872,682 James Eisenhauer N/A 155,000 155,000 155,000 95,886 620,877 Lynn Loewen 95,878 N/A 95,878 95,878 85,565 85,565 John McLennan 214,726 N/A 214,726 214,726 57,259 1,710,575 Don Pether 1 2 7,8 7 5 N/A 127,875 127,875 75,881 547,234 Andrea Rosen 121,875 N/A 121,875 121,875 45,678 821,874 Richard Sergel (5) 121,875 2,658 124,533 40,000 29,114 111,275 Jacqueline Sheppard (5) 124,375 17,000 141,375 141,375 82,223 623,750
(1) The “fees earned in 2013” column is the amount of Directors’ fees and includes the dollar value of that portion of their retainer paid in DSUs. All fees are in Canadian dollars. (2) This column shows the portion of Directors’ fees earned in 2013 that was allocated to DSUs, plus any dividends earned in the form of additional DSUs. DSUs granted in 2013 are based on the value of the Emera common share closing price on December 31, 2012 ($34.74). (3) This columns shows (i) the increase in value in 2013 of all DSUs held by each Director at the beginning of the year, plus (ii) the value of all DSUs received in 2013, including dividends earned on the DSUs (in the form of additional DSUs), multiplied by the December 31, 2013 Emera share price of $30.57. (4) This column shows the value of all DSUs held by each Director at the end of 2013 based on the December 31, 2013 closing share price of $30.57 for Emera’s common shares. (5) Mr. Briggs and Ms. Sheppard received compensation for serving as Directors of Emera Newfoundland & Labrador Holdings Inc. and, in Mr. Briggs’ case, for also serving as a Director of Emera US Holdings Inc. Mr. Sergel received compensation for serving as a Director of Emera Energy Generation II LLC, Rumford Power Inc., Tiverton Power LLC, Bridgeport Energy LLC, Emera CNG Holdings Inc., and Emera CNG LLC.
COMPENSATION OF EMERA DIRECTORS ON SUBSIDIARY BOARDS The Emera Board of Directors, on the recommendation of the Nominating and Corporate Governance Committee, determines the compensation to be received by Emera Directors who serve on the boards of Emera’s subsidiaries. Such compensation received by each Emera Director that serves as a Director on the board of an Emera subsidiary is reported under “All Other Compensation” and “Total” in the Total Compensation table above. Mr. Eisenhauer is Chair of the Board of Directors of NSPI. The NSPI Board Chair’s retainer is an annual all-inclusive fee paid by NSPI, meaning the NSPI Board Chair receives no meeting fees or other retainer. As of December 31, 2013, the all-inclusive annual retainer of the NSPI Board Chair was $155,000, of which at least $25,000 is payable in DSUs. Ms. Sheppard and Mr. Briggs are members of the Board of Directors of Emera Newfoundland & Labrador Holdings Inc. (ENL), a wholly owned subsidiary of Emera and the parent company of NSP Maritime Link Inc. and ENL Island Link Inc. For serving on the Board of ENL, Ms. Sheppard and Mr. Briggs each received an annual retainer of $10,000, plus meeting fees of $1,000 for each meeting attended. In 2013, Ms. Sheppard received $17,000 and Mr. Briggs received $17,000, respectively, for serving on the ENL Board (which amounts are included in the compensation reported in the Total Compensation table above). Mr. Briggs is also the sole Director of Emera US Holdings Inc., a United States holding company which holds certain US-based investments of Emera. In 2013, Mr. Briggs received an annual all-inclusive retainer of $10,000 for serving on the Emera US Holdings Inc. Board, which amount is included in the compensation reported in the Total Compensation table above. Mr. Sergel is a member of the Board of Directors (or in the case of limited liability companies, Board of Managers) of Emera CNG Holdings Inc. and Emera CNG LLC., for which he receives a combined annual retainer of $10,000. Mr. Sergel is also on the Boards of Emera Energy Generation II LLC, Rumford Power Inc., Tiverton Power LLC and Bridgeport Energy LLC., for which he also receives a combined annual retainer of $10,000. In 2013, Mr. Sergel received $2,657 for serving on the Emera CNG Holdings Inc., Emera CNG LLC, Emera Energy Generation II LLC, Rumford Power Inc., Tiverton Power LLC and Bridgeport Energy LLC Boards, representing a pro-rated retainer for the period November to December 2013.
18 Emera Inc. — Management Information Circular 2014 Management Information Circular
DIRECTORS SHARE OWNERSHIP GUIDELINES In order to align the interests of Directors and Shareholders, the Directors are subject to share ownership guidelines that require them to own common shares and/or DSUs with a value of not less than three times the annual Director’s Retainer within a specified timeframe. For the status of each Director nominee under the Director Share Ownership Guidelines, see their biographies earlier in this Circular. For more information about the Director Share Ownership Guidelines, see Director Share Ownership Guidelines in the Statement of Corporate Governance Practices.
DIRECTORS’ DSU PLAN Under the Directors’ Deferred Share Unit Plan (the “Directors’ DSU Plan”), independent Directors may elect to receive all or any portion of their compensation in DSUs in lieu of cash compensation subject to requirements to receive a minimum portion of their annual retainer in DSUs. Directors’ fees are paid on a quarterly basis and, at the time of each quarterly payment, the applicable amount is converted to DSUs. The number of DSUs to be credited is determined by dividing (a) the quarterly portion of the Director’s annual fee that the Director elected to be paid in DSUs by (b) the fair market value on the last trading day of the preceding calendar year, with fractions computed to three decimal places. A DSU is a unit that has a value based upon the value of one Emera common share. When a dividend is paid on Emera’s common shares, the Director’s DSU account is credited with additional DSUs computed by dividing: (a) the amount obtained by multiplying the amount of the dividend declared and paid per common share by the number of DSUs recorded in the Director’s account on the record date for the payment of such dividend, by (b) the market price of a common share as of the dividend payment date. DSUs cannot be redeemed for cash until the Director leaves the Board. The cash redemption value of a DSU equals the market value of a common share at the time of redemption. DSUs are not shares, cannot be converted to shares, and do not carry voting rights. DSUs received by Directors in lieu of cash compensation and held by them represent an at-risk investment in Emera. The value of DSUs is based on the value of the common shares of Emera, and therefore is not guaranteed. See Director Compensation in the Statement of Corporate Governance Practices in this Circular for more information about the compensation of Directors. Independent Directors are not entitled to participate in any other compensation plan of the Company or in Emera’s Employee Common Share Purchase Plan.
COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors has three standing Committees to assist it in carrying out its duties. They are the: •• Audit Committee; •• Management Resources and Compensation Committee (MRCC); and •• Nominating and Corporate Governance Committee (NCGC). From time to time the Board may establish ad hoc committees. One such committee is the Pension Governance Committee, which was formed in September 2013 on the recommendation of the Emera Nominating and Corporate Governance Committee. This ad hoc Committee was established to review Emera’s pension governance and make recommendations to the Board of Directors. Membership of the Committee includes Ms. Chrominska, who is Committee Chair, Mr. Sergel and Mr. Pether. Another ad hoc Committee formed in 2013 was the Board Chair Succession Committee, also formed on the recommendation of the NCGC in February 2013. This Committee’s purpose was to identify and recommend the Board Chair’s successor. Its membership was comprised of the Board Chair (as Committee Chair), the Chairs of each of the Board’s standing Committees, and the Company’s President and CEO. For further information on the Committees, see Committees of the Board of Directors in the Statement of Corporate Governance Practices later in this Circular.
CERTAIN PROCEEDINGS To the knowledge of the Company, none of the proposed nominees for election as Directors of the Company: (a) are, as at the date of this Circular, or have been, within 10 years before the date of this Circular, a director, chief executive officer or chief financial officer of any company that: (i) was subject to a cease trade order, an order similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation that was in effect for a period of more than 30 consecutive days (an “Order”) that was issued while the proposed nominee was acting in the capacity as director, chief executive officer or chief financial officer; or (ii) was subject to an Order that was issued after the proposed nominee ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer;
Emera Inc. — Management Information Circular 2014 19 (b) are, as at the date of this Circular, or have been within 10 years before the date of this Circular, a director or executive officer of a company that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangements or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or (c) have, within the 10 years before the date of this Circular, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the proposed nominee. Statement of Corporate Governance Practices
Corporate governance at a glance
Emera’s Board of Directors annually reviews its approach to corporate governance. It monitors best practices of leading corporations with a view to enhancing governance so as to create and preserve long-term Shareholder value. Details of Emera’s corporate governance practices may be found in this Statement of Corporate Governance Practices.
Governance highlights For details see
All Emera Directors are independent from management except the President and Chief Board of Directors Executive Officer. page 21
The Board oversees the Company’s strategy, which includes reviewing the strategic planning Board of Directors process annually approving the strategic plan, taking into account, among other things, the page 21 opportunities and risks of the business.
The Board oversees the Company’s risk management. Board of Directors page 21
The Chair of the Board Charter and position descriptions for each of the Committee Chairs Position Descriptions describe the roles and responsibilities for these leadership positions. page 23
Directors receive an orientation when they become Board members and receive support Orientation of New Directors and for continuing education to familiarize them with the business, investments and key Continuing Education Company personnel. pages 23 and 24
Creating a culture of integrity begins with the tone at the top. Directors, Officers and Ethical Business Conduct employees are required to annually acknowledge that they have reviewed and understand the page 24 Emera Group of Companies Standard for Business Conduct.
New Directors are recruited on the basis that they will make a strong contribution and have Nomination of Directors background, skills and experience needed by the Board in view of the Company’s strategy. page 25
The Company maintains compensation for Directors designed to recognize the substantial Director Compensation time commitment required to oversee Management of the Company and to align Directors’ page 27 interests with the long-term interest of Shareholders.
Three standing Committees assist the Board in carrying out its responsibilities: the Audit Committees of the Board of Directors Committee; the Management Resources and Compensation Committee; and the Nominating page 29 and Corporate Governance Committee.
The Board annually assesses its performance in order to find ways to improve its effectiveness Board and Director Performance Assessments and the performance of the Chair, individual Directors and the Board Committees. pages 27 and 28
Please read Emera’s entire Statement of Corporate Governance Practices below for more important details about the Company’s governance practices.
20 Emera Inc. — Management Information Circular 2014 Management Information Circular
Board of Directors
DIRECTOR INDEPENDENCE All Emera Directors are independent from management, except Mr. Huskilson, who is the President and CEO of the Company. Use of the term “independent” in relation to a Director in this Circular means a Director is independent as defined under applicable Canadian securities laws and, in particular, is free of any direct or indirect material relationship which could, in the view of the Board of Directors, be reasonably expected to interfere with the Director’s independent judgment. None of the independent Directors receive remuneration from Emera other than Directors’ retainers, fees or retainers for service as Chair of the Board or Chair of a Committee. Mr. Eisenhauer, who is Chair of the Board of Emera’s subsidiary, NSPI, receives an all-inclusive annual retainer from NSPI. Ms. Sheppard and Mr. Briggs receive a retainer and meeting fees for being members of the Board of Directors of Emera’s subsidiary, ENL. Mr. Briggs receives a retainer for being a Director of Emera US Holdings Inc. Mr. Sergel receives a retainer for being a member of the boards of Emera’s subsidiaries, Emera CNG Holdings Inc., Emera CNG LLC, Emera Energy Generation II LLC, Rumford Power Inc., Tiverton Power LLC and Bridgeport Energy LLC. The Company’s Articles of Association provide that no more than two Directors may be employees of the Company or of a subsidiary or affiliate of the Company. Mr. Huskilson, as President and CEO of the Company, is the only Director employed by the Company.
BOARD OF DIRECTORS CHARTER The Board of Directors believes that clear accountabilities lead to the best governance and, therefore, maintains a Charter for the Board. The Board of Directors Charter is attached to this Circular as Appendix A. Under the Charter, the Board is responsible for overseeing the management of the business of the Company and for providing stewardship and governance to ensure the viability and growth of its business. The Charter describes the duties and responsibilities of the Board in matters of independence and integrity, strategic planning, risk responsibility, leadership and succession, financial reporting, corporate communications, public disclosure and corporate governance. We encourage you to carefully review the Charter for more detail about the obligations of the Board in these areas.
STRATEGIC PLANNING The President and CEO, in collaboration with executive officers and the Board of Directors, develops a strategic plan which is presented to the Directors at a strategic retreat. Under the Board of Directors Charter, oversight and guidance on the Company’s strategy is one of the primary roles of the Board. Directors participate in the development of the corporate strategy which determines the annual and longer-term objectives for the Company. The Directors regularly evaluate progress made in pursuing that strategy.
RISK MANAGEMENT The Board of Directors is responsible for overseeing risk. Under the Board of Directors Charter, the Board is responsible for overseeing the implementation by management of appropriate systems to identify, report and manage the principal risks of Emera’s business. The Charter requires the Board to consider Emera’s risk profile and to oversee Emera’s risk management by reviewing: (a) the annual identification and assessment of the principal risks of Emera; (b) the process for ongoing monitoring and reporting of the principal risks of Emera; (c) the effectiveness of Emera’s mitigation response to its principal risks; and (d) the alignment of risk management with Emera’s risk profile, its strategy and its organizational objectives, including capital and resources allocation. The Board is also responsible for reviewing Emera’s annual insurance program, its uninsured exposure, and its business continuity and disaster recovery plans. The Board receives regular updates on the status of risk management activities and initiatives.
DIRECTORS MEET WITHOUT MANAGEMENT There were 25 Emera Board and Committee meetings during 2013. Each Board and Committee has adopted the practice of meeting in an in-camera session, during which management is excluded, at every Board and Committee meeting. The Board implemented this practice and held an in-camera session at each Board meeting which excluded management, including the President and CEO. The Board also holds an evening session before the day of a Board meeting. As a governance practice, and at least once a year, the independent Directors conduct such an evening session to the exclusion of all management, including the President and CEO. See Board Dinner Sessions for more information.
Emera Inc. — Management Information Circular 2014 21 INDEPENDENT CHAIR Mr. McLennan, the Chair of the Board, is an independent Director. The Articles of Association of the Company require that the Chair of the Board and the President and CEO be separate individuals.
CHAIR OF THE BOARD OF DIRECTORS CHARTER The Chair provides leadership to the Board, in order that it may fulfill its duties effectively, efficiently and independent of management. The Chair’s role is to see that the Board and Shareholder meetings function effectively. The Chair provides advice and counsel to Directors and the President and CEO. The Chair participates in the recruitment of Directors and the assessment of their performance.
DIRECTORS’ MEMBERSHIP ON OTHER PUBLIC COMPANY BOARDS Public company board membership for each Director during the last five years is set forth in their biographies earlier in this Circular in Director Nominees. Membership on other public company boards is viewed favourably by Emera in that it provides a Director with additional perspective and insight that is beneficial in performing their duties for the Company. The effectiveness of the Board, each Director and the Board Chair is annually evaluated through the Board and Director Performance Assessment process, described in more detail below in Board and Director Performance Assessments.
COMMON MEMBERSHIPS ON BOARDS OF PUBLIC COMPANIES Except for the membership of Mr. Huskilson and Mr. Eisenhauer on the Board of Emera’s subsidiary NSPI, there are currently no common memberships on boards of public companies among Emera’s Directors. Until his resignation in November 2013, Mr. McLennan was also a member of the NSPI Board.
BOARD SIZE The Articles of Association provide that the number of Directors on the Company’s Board must not be less than eight and not more than 15. Ten Director nominees are being proposed for election at the 2014 Annual Meeting. Mr. Briggs is not a nominee for re-election at the 2014 Annual Meeting. Mr. Briggs has been a Director since 2001. He was a member of the Board of Directors of Bangor Hydro Electric Company when Emera acquired the company in 2001. He joined the Board of Directors of Emera, and also served on the Board of Emera’s subsidiary, NSPI, from 2001 to 2006. Mr. Briggs has been a member of the Audit Committee since April 2002, and a member of the NCGC since June 2012. He is also a Director on Emera’s subsidiaries ENL and Emera US Holdings Inc. Mr. Briggs will step down from the boards of these Emera subsidiaries after the 2014 Annual Meeting.
MAJORITY VOTING FOR ELECTION OF DIRECTORS The confidence of Shareholders in the actions of the Board and management is important. In order to provide a mechanism for Shareholders to express that confidence in each Director, the Board has adopted a Majority Voting Policy for Directors. The Policy states: Should a Director nominee, in an uncontested election at a meeting of Shareholders of Emera whereby Directors are to be elected, receive a majority of “withheld” votes for his or her election as a Director, the individual shall submit his or her resignation to the Board for consideration promptly following such Shareholders’ meeting. The votes determining such action shall be those votes validly voted by proxy and those votes validly voted in person at such Shareholders’ meeting. In accordance with the Majority Voting Policy, should a Director receive a majority of “withheld” votes for his or her election as a Director, such Director shall submit his or her resignation to the Board for consideration promptly following such Shareholders’ meeting. The Directors who received a majority “For” vote at the Shareholders’ meeting must consider whether or not to accept the resignation submitted by a Director that received a majority of “withheld” votes for his or her election as a Director. If there are less than three such Directors, the entire Board shall consider whether or not to accept the resignation. A news release disclosing the Board’s determination shall be issued within 90 days following the date of the Shareholders’ meeting. If the resignation is rejected by the Board, the news release shall include the reasons for rejecting the resignation. In 2013, individual Directors received strong support from Shareholders, and since the adoption of the Majority Voting Policy, all Director nominees have received a majority “For” vote at the Company’s meetings of Shareholders.
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POSITION DESCRIPTIONS Chair of the Board The Chair of the Board of Directors Charter describes the fundamental responsibility of the Chair of the Board of Directors of the Company. In this Charter, it confirms that the Chair of the Board is to lead the Board to fulfill its duties effectively, efficiently and independent of Management. For the full text of the Chair of the Board of Directors Charter, visit www.emera.com/governance. Committee Chairs The Board has adopted position descriptions for each Committee Chair which detail the duties of the Committee Chairs. Each Committee Chair is required to provide leadership to the Committee members and support the Committee’s effective operation in order to fulfill its mandate. For the full text of the position description for Committee Chairs, visit www.emera.com/governance. President and Chief Executive Officer The roles and responsibilities of the President and CEO are contained in his employment contract, which provides that he is chief executive of the Company. The President and CEO’s employment contract is reviewed by the Chair of the Board of Directors and the MRCC, and it is approved by the Board of Directors.
ORIENTATION OF DIRECTORS AND CONTINUING EDUCATION For each new Director to be effective in their roles they must be knowledgeable about the Company, its strategy, strengths and challenges. In order to best bring their skills and experience to the operation of the Board, new Directors receive an in-depth orientation to the Company’s executive leaders, business, strategy, financial information and governance practices. This allows them to effectively integrate with the operation of the Board. The Board and management have built and continue to expand a long-term program of training for Directors to enhance their effectiveness and reinforce a collegial working relationship among members of the Board. Orientation sessions are attended by the President and CEO, the Executive Vice President and CFO and other executive officers or leaders of key subsidiaries. The Chair also attends the orientation meetings with a new Director. A reference manual is provided in advance of the session that includes the following: (a) recent annual and interim MD&A and financials, Management Information Circular and Annual Information Form; (b) Board and Committee Charters; (c) Strategic Plan and Business Plan; (d) guide to the Company’s management structure; (e) insider trading guidelines; (f) Emera Group of Companies Standards for Business Conduct; and (g) minutes of Board meetings.
CONTINUING EDUCATION FOR DIRECTORS The oversight function of Directors is enhanced when they are well informed about the Company’s business and its industry. Management regularly seeks opportunities to update, educate and inform the Directors in areas they request or that management determines are relevant to issues facing the Company. The Board and Committees receive regular presentations from senior management updating Directors about market and industry conditions and trends that may impact the Company’s business and influence its strategy. The Board is also provided with opportunities to make site visits to operational facilities to assist Directors to more fully understand the business. For example, in September 2013 Directors were provided with the opportunity to view Muskrat Falls and the construction site of a hydroelectric generating facility. From time to time the Board receives specialized presentations on various matters of significance to the Company. Directors participated in education sessions and received education materials about specific topics in 2013 as follows:
Emera Inc. — Management Information Circular 2014 23 Education Presentations Date Participants
Tour of the Nova Scotia Power Point Aconi May 7, 2013 Board members Generating Station
Presentation on an evaluation of the Internal May 7, 2013 Audit Committee members Audit function administered by third party
Tour of the Churchill River, including Muskrat September 23, 2013 and September 25, 2013 Board members Falls construction site and the Churchill Falls Generating Station
Presentation by external compensation September 23, 2013 MRCC consultant about governance trends and regulatory updates, guidelines of proxy advisory firms in Canada and governance principles applicable to compensation
Best practices in corporate governance, February 7, 2013, September 23, 2013 NCGC including new and proposed securities and November 7, 2013 regulations and Canadian foreign anti-corruption legislation
Dinner with a number of high-potential leaders November 2013 Board members as part of the Company’s succession plans
The Board of Directors encourages, and the Company pays for, Directors to pursue education sessions provided by third parties that are directly related to the business of the Company and the performance of their duties as a Director of the Company.
BOARD DINNER SESSIONS Board dinner sessions are scheduled the evening prior to regularly scheduled Board meetings. Board dinners are treated as an opportunity to accomplish a number of important governance objectives, including: •• Meeting as independent directors in an atmosphere that is not a board meeting. The Board’s practice is to have one dinner each year at which only the independent Directors attend. •• Meeting in a less formal atmosphere with the CEO, and other senior officers. •• Holding educational sessions on important topics for the Company’s business and strategic direction. •• Meeting high-potential employees in order to advance the succession planning for the Company. •• Strengthening Directors’ collegial working relationship. The Company’s Board of Directors annually plans a dinner with a number of high-potential leaders drawn from throughout the Company and its various subsidiaries for the purpose of holding an interactive event in which each high-potential leader is introduced to each member of the Board of Directors. This is an opportunity for Directors to get to know the Company’s high-potential leaders and to support and promote the Company’s executive succession planning and leadership development process.
ETHICAL BUSINESS CONDUCT The Board is committed to sustaining a culture of integrity and ethical business practices throughout the Company.
STANDARDS FOR BUSINESS CONDUCT The Board has adopted written Standards for Business Conduct (Standards for Business Conduct) that applies to everyone at Emera and its subsidiaries. Directors, Officers and employees are required to annually acknowledge that they have reviewed and understand the Standards for Business Conduct. These Standards for Business Conduct are available on Emera’s website at www.emera.com, or a copy may be obtained by contacting the Chief Human Resources Officer, Emera Inc., P.O. Box 910, Halifax, Nova Scotia B3J 2W5. The Board regularly reviews the Standards for Business Conduct, and makes revisions in order to update the content in keeping with best practices.
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WHISTLEBLOWERS POLICY The Company has a whistleblowers policy entitled Procedures for the Reporting of Irregularities and Dishonesty. These Procedures establish a method for dealing appropriately with any complaints made by employees of irregular or dishonest accounting, internal accounting control, auditing matters, or fraudulent or illegal activity by any employee or employees. Any employee who in good faith reports such activity will be protected from threats of retaliation, or discrimination because of the report. Any employee who retaliates against another employee who reports such activity could face disciplinary action under the Procedures. If an employee believes that retaliation has occurred, the employee may submit a complaint in writing to the Director, Internal Audit. Reports under the Standards for Business Conduct and Procedures for the Reporting of Irregularities and Dishonesty are addressed by the Company, and on a quarterly basis the Internal Audit department informs the Audit Committee of all reports and their status.
ETHICS HOTLINE The Company has established a confidential business conduct helpline hosted by an external service provider called “The Ethics Hotline”. This hotline is available to employees to report allegations of conduct not in compliance with the Standards for Business Conduct. The Board monitors compliance with the Standards for Business Conduct and the Procedures for the Reporting of Irregularities and Dishonesty. There have been no instances of any waiver of compliance with the Standards or the Procedures for any Director or Officer.
CORPORATE DISCLOSURE POLICY The Board has approved a Disclosure Policy to ensure that communications to investors and potential investors are timely, factual and accurate, and that the information is disseminated in accordance with all applicable legal and regulatory requirements to the investing public, analysts and the media.
CONFLICTS OF INTEREST Directors are required to declare any conflict of interest which they may have in a matter before the Board. In any matter requiring approval of the Board, a Director is prohibited by the Company’s Articles of Association from voting in respect of the matter in which the Director is interested.
DIRECTOR’S OCCUPATION The Directors have also instituted a policy which requires them to submit their resignation as a Director if there is a significant change in their principal occupation. The resignation is then reviewed by the Board to determine if the circumstances warrant acceptance of the resignation, whether due to a conflict of interest arising by virtue of a new principal occupation or otherwise.
NOMINATION OF DIRECTORS The NCGC is responsible for providing the Company with a list of nominees for election as Directors at the Company’s annual meeting of Shareholders. The NCGC creates and reviews the criteria for selecting Directors by assessing the personal qualities, business experience and qualifications of current Directors. It also assesses the Company’s ongoing needs and circumstances, geographical representation and the overall experience of the Board. In recruiting new Directors, the NCGC considers the background, skills and experience desired for Directors in view of the Company’s strategy and activities. It develops a plan for the recruitment of additional director nominees who can provide those characteristics. Director nominees must, in the opinion of the members of the NCGC, be able to contribute to the broad range of issues which come before the Board for consideration. They must be able to devote the time necessary to prepare for and attend meetings of the Board and Committees of the Board to which they may be appointed. The NCGC regularly evaluates the expected turnover of Directors in advance of their retirement from the Board and develops an effective succession plan.
Emera Inc. — Management Information Circular 2014 25 DIRECTOR RECRUITMENT PROCESS The NCGC routinely uses the services of an independent firm of search consultants to assist in the identification of suitable Director candidates. When the Company engages an independent firm of search consultants, it requests the development of a list of potential candidates based on the criteria developed by the Committee for the selection of a new Director. The search consultants screen candidates and discuss potential candidates with Committee members, and they create a list of primary candidates. Based on this list, the search consultants determine the interest and availability of the potential candidates. This process is designed to provide the best opportunity for finding strong independent Board candidates. Each potential Director candidate is interviewed by a panel of Directors which typically includes the Chair of the Board, the NCGC Chair and the President and CEO. Under the Company’s Articles of Association, the list of Emera’s Director nominees must include the President and CEO. It may include one other senior executive of the Company, as determined by the Committee, but the President and CEO is the only executive of the Company nominated for election at the annual Shareholders’ meeting on May 7, 2014.
AGE LIMIT Director nominees must be under 70 years of age at the time of the Company’s annual meeting in order to qualify for nomination by the NCGC. In certain exceptional circumstances, the Committee may determine and recommend that an individual be permitted to serve as a member of the Board beyond age 70 because of the individual’s contribution and skills. Such determination will be made annually. All Director nominees for the Company’s 2014 Shareholders’ meeting are under 70 years of age.
BOARD DIVERSITY To ensure that there are a significant number of women on the Company’s Board of Directors, the Company recruits Board members under a long-standing Corporate Governance Practice which requires that no fewer than 25 per cent of the members of the Board of Directors are female. The list of Director nominees for the annual Shareholders’ meeting on May 7, 2014, includes four women out of ten Director nominees, or 40 per cent.
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Compensation
EXECUTIVE COMPENSATION On the recommendation of the MRCC, the Board of Directors determines the compensation for the Company’s senior executives and other officers of the Company. See Compensation Discussion and Analysis with respect to compensation of the Company’s Named Executive Officers.
DIRECTOR COMPENSATION The Board of Directors determines the compensation for the Company’s Directors on the recommendation of the NCGC. The compensation of Directors is designed to recognize the substantial time commitments required to oversee management of the Company. It is intended to attract and retain highly skilled and experienced individuals to serve on Emera’s Board, and to ensure alignment with Shareholders’ long-term interests. Appropriate compensation for Directors, independently determined, is also intended to support their independence of management. The annual retainer for Directors in 2013 was $75,000 per annum, payable as follows: •• $35,000 cash; and •• $40,000 in DSUs. For more details on total compensation received by Emera Directors in 2013, see Compensation of Directors.
ANNUAL REVIEW AND 2014 INCREASE The NCGC annually reviews the compensation of the Directors to ensure it is appropriate. The NCGC reviews the compensation practices of Canadian publicly traded companies similar to Emera’s operations and size and determines whether the Directors are appropriately compensated for the responsibilities and risks involved in being a member of the Company’s Board. The review is based upon publicly available information concerning Directors’ compensation, public surveys and comparison of compensation of Directors of publicly traded companies in Canada. Based on such review, in September 2013 the Board of Directors approved an NCGC recommendation to increase the annual retainer for Emera Directors by $15,000 per annum payable in DSUs, for a total annual retainer of $90,000 effective January 1, 2014. The Board also approved an NCGC recommendation to increase the annual retainer for the Chair of the Board by $15,000 to $200,000 (plus $35,000 cash paid for participation on the Board of NSPI, if applicable), effective January 1, 2014.
DIRECTOR SHARE OWNERSHIP GUIDELINES Under guidelines established by the Board of Directors, within a prescribed timeframe each Director must own Emera shares or DSUs equal in value to three times the annual Board retainer. Based on the increased annual retainer for Emera Directors noted above, under these guidelines, each Director must own Emera shares or DSUs, or a combination of the two, worth $270,000, within five years following their appointment date or September 2017, whichever is the later date. Details of each Director’s share and DSU ownership, and status under the Share Ownership Guidelines, is shown in each Director nominee biography earlier in this Circular. All of Emera’s Director nominees are in compliance with these Guidelines.
DIRECTORS ARE INCREASING THEIR SHARE/DSU OWNERSHIP OVER TIME By virtue of this increase in compensation payable in DSUs, more than 60 per cent of the annual retainer for Emera Directors will be paid in DSUs, which mirror the value of Emera common shares. The Directors increase their DSU ownership by at least $55,000 per annum, and in many cases, Directors have elected to receive DSUs in lieu of all cash compensation they would otherwise be entitled to as Emera Directors. Members of Emera’s Board of Directors support Director ownership of shares and DSUs believing that it contributes to the alignment of the interests of Directors with those of Emera Shareholders.
BOARD AND DIRECTOR PERFORMANCE ASSESSMENTS The Board regularly assesses its effectiveness in order to find ways to improve its performance.
Emera Inc. — Management Information Circular 2014 27 ASSESSMENT PROCESS Each year, the NCGC, in consultation with the Board Chair, determines the process by which assessments of the Board, Directors and its Committees will be conducted. The process has included the use of questionnaires and one-on-one interviews with Directors by the Board Chair. A report on the assessment is provided to the NCGC and the Board of Directors. Issues arising from the assessment are identified, an action plan is developed and progress is monitored by the NCGC.
2013 BOARD DIRECTOR/BOARD CHAIR PERFORMANCE ASSESSMENT The Chair of the Board interviewed each external Director as part of the 2013 Board and Director Performance Assessment. He also interviewed senior officers this year in order to gather feedback from them about the effectiveness of the Board, issues facing the Board or the Company and the interaction between the Board and senior management. A series of questions was sent to each Director for advance consideration. The questions pertained to a number of themes, including:
The effectiveness of the operation of the Board of Directors and suggestions for improvements;
The priorities of the Board and emerging issues for the coming year;
The composition of the Board and mix of Directors;
The effectiveness of the operation of the Committees;
The relationship of the Board to management of the Company;
Integrity within the Company and what more can be done to promote an integrity-based culture throughout the Company;
An assessment of their own performance as Directors, including what might make them more effective as Directors; and
An assessment of their peer Directors on the Board.
The assessment of the Chair of the Board was conducted in a meeting of all Directors excluding the Board Chair, and was led by the Chair of the NCGC. Directors were also provided with the opportunity to discuss the assessment of the Chair of the Board in a one-on- one format with the Chair of the NCGC. 2012 ASSESSMENT FINDINGS AND ACTION PLANS TO ADDRESS THOSE FINDINGS The NCGC reviewed the findings and the results of the 2012 Board and Director Performance Assessment. The Chair worked to develop an action plan based on those findings where necessary. Progress on the action plan was reported to the Board by the Board Chair. He reported on progress made in specific areas highlighted by Directors as requiring continued focus in 2013. These areas included: (a) the development of activities to enhance the Company’s plans in relation to management succession, including CEO succession; (b) Board Chair succession resulting in the establishment of a Board Chair Succession Committee and the selection of Jackie Sheppard as new Board Chair following the 2014 Annual Shareholders Meeting; (c) confirmation that strategy remains a paramount focus for the Board and the establishment of mechanisms, including broader delegated authority for management, to reduce the number of routine and ordinary course decision items that require specific board approval; (d) other suggestions about ways for the Board to use its limited time more effectively.
2013 ASSESSMENT FINDINGS The NCGC reviewed the findings and the results of the 2013 Board and Director Performance Assessment. The Chair worked to develop an action plan based on those findings where necessary. Those areas included: (a) People: Directors want Emera to continue the development of corporate capacity, organization design and effectiveness, and performance management, across Emera’s group of companies; (b) Capital and Financial Plan: Directors want Emera to rationalize and prioritize opportunities for capital to be strategically deployed; (c) Accountability and Integrity: Board members emphasized the importance of project reviews to assess strategic strengths, weaknesses and lessons learned; (d) Corporate Governance: Board members made several suggestions about the operations of the Board, including ways to continue the work of making Board time more effective;
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(e) Strategy and Execution: There was a strong consensus among members on priority areas of strategic focus in 2014 and the importance of executing on those priorities. Progress on the action plan will continue to be reported to the Board.
COMMITTEES OF THE BOARD OF DIRECTORS The Board is committed to effectively and efficiently carrying out its oversight responsibilities. As such, it strongly supports the work of its three standing Committees, to which certain functions are delegated as set forth in the written charters. The Board Committees are: •• the Audit Committee •• the MRCC •• the NCGC From time to time the Board may establish ad hoc committees. Two such committees were established in 2013. (a) Board Chair Succession Committee: Mr. McLennan is the current Chairman of the Board and has held this position since May 6, 2009. He plans to step down as Board Chair in 2014, and will remain a Director. The Directors are required to appoint a Board Chair from their number. In 2013, the Board established the ad hoc Board Chair Succession Committee comprised of Mr. McLennan as Committee Chair and each Committee Chair — Ms. Rosen, Mr. Pether and Mr. Edgeworth, and Mr. Huskilson, President and CEO. The Committee’s purpose was to identify and recommend the Board Chair’s successor. The Board Chair Succession Committee considered (i) the characteristics and attributes Directors were looking for in a new Board chair; (ii) the process to be undertaken in selecting a new Board chair; and (iii) considered candidates for Board chair. The Board Chair spoke to all Directors under a selection process agreed upon by members of the Board Chair Succession Committee. He reported on the outcome of that selection process to the Board of Directors at its meeting in November 2013, and the Board made a determination that, effective May 7, 2014, the date of the Company’s Annual Meeting of Shareholders, Mr. McLennan would retire as the Chair of the Board of Directors of the Company and be replaced by Ms. Sheppard, who will take over as Chair of the Company on the same day. With the announcement of these changes having been made, the work of this ad hoc Committee is done, and the committee is dissolved. (b) Pension Governance Committee: The NCGC recommended to the Board of Directors that an ad hoc committee be established with membership including Ms. Chrominska, as Committee Chair, Mr. Sergel and Mr. Pether, to review Emera’s pension governance and make recommendations to the Board of Directors. The work of this committee is ongoing. In consultation with the Chair of the Board, the Board and its Committees may retain outside advisors as they deem necessary.
AUDIT COMMITTEE The Audit Committee is comprised of: Chair: Ms. Rosen Members: Ms. Loewen, Ms. Sheppard, Mr. Briggs, Mr. Sergel The Audit Committee assists the Board in discharging its oversight responsibilities concerning the integrity of Emera’s financial statements, its internal control systems, the internal audit and assurance process, the external audit process and its compliance with legal and regulatory requirements. The Committee consists of independent Directors only, who each have a high degree of financial acumen. The Committee is responsible for reviewing and recommending to the Board the annual and interim financial statements and all related management discussion and analysis. The Committee evaluates and recommends to the Board the appointment of the external auditor and the compensation of such external auditor. Once appointed, the external auditor reports directly to the Committee. The Committee oversees the work of the external auditor concerning the preparation or issuance of the auditor’s report and the performance of other audit, review or attest services for Emera. The Committee reviews management controls and processes concerning the administration of investment activities, financial reporting, and financial performance and funding of the pension plans. The Company’s internal auditor also reports directly to the Audit Committee, and the Committee oversees the appointment, replacement or termination of the internal auditor. In 2014 the Committee’s Charter was significantly revised to update the responsibilities of the Committee and align it with best practices. For the full text of the Audit Committee Charter, visit http://www.emera.com/governance.
Emera Inc. — Management Information Circular 2014 29 NOMINATING AND CORPORATE GOVERNANCE COMMITTEE (NCGC) The NCGC is comprised of: Chair: Mr. Pether Members: Mr. Briggs, Ms. Chrominska, Mr. Sergel The NCGC assists the Board with a variety of matters relating to corporate governance. These duties include responsibility for providing the Company with a list of nominees for election as Directors to be included in the Company’s Management Information Circular prior to each annual meeting of Shareholders of the Company. For more information about the nomination of Directors, see Nomination of Directors. The Committee consists of independent Directors only, selected by the Board. The Articles of Association of the Company provide that the Chair of the Board may not be a member of the Committee. The NCGC is responsible for developing and communicating the Company’s approach to corporate governance issues, and reviews and approves Emera’s disclosure of corporate governance practices, including this Statement of Corporate Governance Practices. The Committee keeps abreast of best governance practices benchmarks and regularly evaluates the governance practices of Emera. It reviews any disclosure of the Company’s corporate governance practices in accordance with applicable rules and regulations. The NCGC oversees the orientation of new Directors. This orientation program for new Directors is reviewed each time that a new Director joins the Board and is updated as required. The Committee is responsible for assisting the Board of Directors in determining the proper and effective allocation of risk oversight responsibilities. Other duties and responsibilities of the Committee include: (a) assisting the Board and its Committees in determining Committee composition, as well as reviewing and updating the mandate of each Committee, for submission to the Board; (b) making recommendations to the Board on all components of non-employee Director compensation, including the Board Chair and Committee Chairs; (c) ensuring procedures are in place to assist the Board in obtaining information necessary to carry out its duties and ensuring the Board has access to executive management; and (d) reviewing and updating the Company’s Standards for Business Conduct. In 2012, the Committee’s Charter was significantly revised to update the responsibilities of the Committee and align with best practices. For the full text of the NCGC Charter, visit www.emera.com/governance.
MANAGEMENT RESOURCES AND COMPENSATION COMMITTEE (MRCC) The MRCC is comprised of: Chair: Mr. Edgeworth Members: Ms. Chrominska, Ms. Sheppard, Mr. Pether The MRCC consists of independent Directors only. The Committee reviews overall compensation, including salary and benefits policies and recommends such policies to the Board of Directors for approval. The MRCC reviews corporate goals and objectives relevant to corporate strategy and recommends such goals and objectives to the Board of Directors. The Committee ensures that an assessment of the President and CEO’s performance in relation to these goals and objectives is completed. It makes recommendations to the Board of Directors relating to the President and CEO’s total compensation, including participation in incentive-compensation and equity-based plans. It also makes recommendations about senior management total compensation and incentive compensation plans and equity-based plans. It approves grants of stock options, Performance Share Units (PSUs) and DSUs in accordance with the provisions of the respective plans. It reviews executive compensation disclosure prior to the Company releasing such information to the public. The Committee recommends executive officer appointments to the Board of Directors for approval. It obtains comfort that there is an adequate succession plan and leadership development process for senior management. It reviews share ownership guidelines for executive officers. It satisfies itself that there are appropriate labour relation strategies in place and it regularly reviews management’s direction and decisions made in support of labour and employee relations. It also reviews the design of pension plans for the Company’s employees. The MRCC is responsible for evaluating the compensation programs to determine that they do not reward executive officers for taking inappropriate risks that may harm the interests of the Company and its Shareholders. Under its Charter, the Committee must conduct a compensation risk review annually to ensure that the compensation policies are designed to take account of, and mitigate:
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(a) the incentive opportunities that inadvertently encourage excessive and unnecessary risk taking; (b) pay structures that inadvertently encourage behaviour that destroys long-term value; (c) pay and performance not appropriately aligned; and (d) payouts which are not aligned with Emera’s business strategy. For the full text of the MRCC Charter, visit www.emera.com/governance.
COMMUNICATION WITH DIRECTORS The Directors are always interested in receiving shareholders’ views about the Company, its governance and its operation. The Board oversees systems for receiving feedback from shareholders and it monitors feedback received by the Company. Shareholders may communicate with the Chair of the Board or other independent Directors by mailing (by regular mail or other means of delivery) to the corporate head office at: Attention: Chair of the Board 1223 Lower Water Street, Halifax, Nova Scotia B3J 3S8 In a sealed envelope marked “Private and Confidential — Attention Chair of the Board of Directors of Emera Incorporated”
ADDITIONAL INFORMATION Additional information relating to the Company may be found at the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com. The Company’s financial information is contained in its comparative financial statements and management discussion and analysis for the financial year ended December 31, 2013. For copies of the Company’s financial statements and management discussion and analysis, you may also contact the Office of the Corporate Secretary at: Corporate Secretary 1223 Lower Water Street, Halifax, Nova Scotia B3J 3S8 Telephone: (902) 428-6096; Facsimile: (902) 428-6171; email: [email protected] Senior Management Stock Option Plan Amendments At the Meeting, shareholders will be asked to ratify, confirm and approve, with or without variation, amendments to the Senior Management Stock Option Plan (the “Plan”), under which options may be granted to senior management in respect of authorized and unissued common shares of the Company to a current maximum of 6,700,000 shares, or approximately 4.7 per cent of the total issued and outstanding common shares of the Company (all figures in this section are as of March 4, 2014 unless otherwise noted). The Plan has been established by the Company as a long-term incentive program for senior management of the Company and its Affiliates. This Plan is intended to: (a) encourage participants to acquire an increased proprietary interest in the Company and to thereby participate in the Company’s future growth and development; (b) attract and retain management personnel with experience and ability; and (c) provide an incentive to participants to further the development, growth and profitability of the Company, and thereby to enhance shareholder value. The purpose of the amendments is to: (a) increase the maximum number of common shares available for issuance under the Plan by an additional 5,000,000 common shares issuable under the Plan, which represents approximately 3.5 per cent of the Company’s issued and outstanding common shares; and (b) implement detailed amendment provisions setting out those changes to the Plan that require shareholder approval and those changes to the Plan that do not require shareholder approval.
INCREASE MAXIMUM NUMBER OF SHARES The common share reserve of 1,706,109 was originally approved by Shareholders in April 1994. In May 2006, the reserve was increased to the current maximum of 6,700,000 common shares. Since its inception in 1994, 4,110,697 common shares have been issued under the Plan, which represents approximately 2.9 per cent of the total issued and outstanding common shares of the Company, leaving 2,589,303 common shares reserved for issuance under the Plan. Including the 655,100 options granted on February 12, 2014, there are 2,705,218 common shares issuable under actual grants of options, which represent approximately 1.9 per cent of the total issued and outstanding common shares of the Company. Under the Plan, no options remain available to be granted in respect of common shares of the Company. In fact, of the 655,100 options granted on February 12, 2014, 115,915 are subject to the increase in the maximum number of common shares available for issuance under the Plan and may not be exercised or vest until such time as the increase has been ratified by shareholders of the Company. These options have an exercise price of $32.35 and expire on February 11, 2024, and all of them were granted to senior management of the Company or its Affiliates, all of whom are insiders of the Company.
Emera Inc. — Management Information Circular 2014 31 Accordingly, the 2,589,303 common shares reserved for issuance under the Plan, together with the 5,000,000 additional common shares sought to be made available for issuance under the Plan by virtue of the proposed amendment, represent approximately 5.3 per cent of the total issued and outstanding common shares of the Company. Since 6,700,000 common shares have already been approved for issuance under the Plan since its inception in 1994, representing 4.7 per cent of the total outstanding shares of the Company, the new limit of 11,700,000 represents an increase of 3.5 per cent, for a total of 8.2 per cent of the outstanding shares of the Company. If this amendment is not approved, the inventory of common shares available for issuance under the Plan will be exhausted, the 115,915 options granted by the Company on February 12, 2014 which are subject to the increase in the Plan maximum will be cancelled, and the Plan will no longer be available to encourage common share ownership. For more information about the Plan, see the section entitled “Senior Management Stock Option Plan” in the Statement of Executive Compensation later in this Circular.
NEW AMENDMENT PROVISION Currently, the Company has the right to amend, modify, suspend or terminate the Plan at any time. Any amendment to the Plan is subject to the approval of the Toronto Stock Exchange (TSX) and applicable regulatory authorities. The TSX may require Emera shareholder approval. The Company proposes to update the amendment provision of the Plan so it is more in line with current industry practices. The new amendment provision would provide that certain categories of future Plan amendments that are important to the Company’s shareholders would require shareholder approval, as permitted under the TSX rules, but that all other amendments would require only the approval of the Company’s Board of Directors or Management Resources and Compensation Committee (MRCC). Specifically, the proposed amendments will provide that the Emera Board of Directors or MRCC may, without notice or shareholder approval, amend or terminate the Plan, provided, however, that: shareholder approval shall be required for any amendment, modification or change that (i) increases the number of common shares reserved for issuance under the Plan, except an increase to reflect adjustments in the number of common shares outstanding due to a stock dividend, stock split, share reclassification, amalgamation, reorganization, merger or similar event, (ii) extends eligibility to participate in the Plan to non-employee directors, (iii) permits rights under the Plan to be transferred other than for normal estate settlement purposes, (iv) permits awards to be granted under the Plan in addition to options, (v) increases either of the ten per cent insider participation limits under this Plan (vi) reduces the option price of an option (for this purpose, a cancellation or termination of an option of an optionee prior to its expiry date for the purpose of reissuing an option to the same optionee with a lower option price shall be treated as an amendment to reduce the option price of an option) except for the purpose of maintaining option value in connection with a change of control or pursuant to the provisions in the Plan which permit equitable adjustments to be made to the option price in connection with a stock dividend, stock split, share reclassification, amalgamation, reorganization, merger or similar event, (vii) extends the term of an option beyond the original expiry date, (viii) permits the expiry of an option to be beyond ten years from its date of grant or (ix) deletes or reduces the range of amendments which require shareholder approval under the amending provision of the Plan. Accordingly, amendments which would not require shareholder approval would include (i) amendments of an administrative or technical nature, (ii) amendments necessary to comply with the provisions of applicable law or stock exchange requirements, (iii) adjustments to outstanding options in the event of certain corporate transactions, (iv) the addition of provisions requiring forfeiture of options or clawback of the benefit of options in certain circumstances, (v) amendments specifying practices with respect to applicable tax withholdings and (vi) amendments to enhance clarity or correct ambiguous provisions.
SHAREHOLDER APPROVAL The rules of the TSX require that the above-described amendments to the Plan be approved by an ordinary resolution passed by a majority of the votes cast by holders of common shares present or represented by proxy at the Meeting. The management representatives designated in the enclosed form of proxy intend to vote FOR the ratification, confirmation and approval of the amendments to the Plan. The full text of the amendments is set out in the resolution attached as Appendix “B” to this Circular.
RECOMMENDATION OF DIRECTORS The Board believes that the proposed amendments are in the best interests of the Company and unanimously recommends that shareholders vote in favour of the proposed amendments by voting FOR the resolution set out in Appendix “B” to this Circular.
32 Emera Inc. — Management Information Circular 2014 Management Information Circular
A Letter from the Management Resources and Compensation Committee to Our Shareholders Dear Fellow Shareholders: Emera’s ability to create and sustain shareholder value depends largely on the quality of our executive team. It must lead and motivate all employees to act in the shareholders’ and customers’ best interests in order to achieve desired results. Our executive compensation philosophy reflects a close alignment between pay and performance so that higher pay for our executives materializes only when stated objectives are exceeded and the shareholder experience is strong. The Management Resources and Compensation Committee (MRCC) rigorously manages how performance measures and targets are set. It is important that value is created for shareholders and results are achieved within the context of the Company’s core values. The MRCC is diligent in its endeavours to see that the achievement of these goals occurs within the principles we have set for prudent risk management, good governance and compliance with relevant standards and regulations. Each year, we assess our executive compensation programs against these principles and continuously seek to improve our practices and standards. In this letter, we are pleased to provide you with an overview of our approach to executive compensation, the Board’s assessment of Emera’s 2013 performance, and our decisions relating to executive compensation in light of performance and other factors. In addition, we have reported to you, our shareholders, changes and decisions we have made with respect to the compensation of our top executives, including the rationale for the rewards.
EVOLVING OVERSIGHT PROCESS The MRCC oversees all components of executive compensation in our efforts to meet the expectations of all regulators, shareholders and customers. Our compensation philosophy continues to target the 50th percentile of the market, but pay outcomes can be higher or lower than the median based on company and individual performance. In 2013, we undertook a comprehensive market review of all aspects of our executive compensation program, including at-risk and not-at-risk components, and cash and non-cash components. The results of the market review confirmed that our program design and application are aligned with industry benchmarks for executive pay and are consistent with our overall objectives and compensation philosophy.
REWARDING RESULTS 2013 was a strong year for Emera in terms of both Company and executive performance. Below are some of the accomplishments in 2013: •• Operating revenues increased 8.3 per cent to $2.2 billion in 2013 compared to $2.1 billion in 2012; •• Net income adjusted for after-tax mark-to-market adjustments increased 12.5 per cent to $259.4 million in 2013 (2012 — $230.5 million). Adjusted net income excludes after-tax mark-to-market losses of $41.9 million (2012 — $9.7 million). Reported net income in 2013, including mark-to-market losses was $217.5 million (2012 — $220.8 million); •• Adjusted earnings per share (EPS) increased 6.0 per cent in 2013 to $1.96 (2012 — $1.85); •• Cash flows from operations increased 41.9 per cent to $564.2 million in 2013 (2012 — $397.6 million); •• Emera’s total assets increased 17.8 per cent to $8.88 billion in 2013 compared to $7.54 billion in 2012; •• The annual dividend has increased 3.6 per cent to $1.45 per share in 2013 as compared to $1.40 in 2012; and •• The Maritime Link Project received final regulatory approval in November 2013. Mr. Huskilson has led the Company since November 2004. During his nine full years as President and CEO, shareholders have experienced total returns of 136 per cent and almost $2.5 billion in value has been created. In recognition of Mr. Huskilson’s leadership in driving consistent top-quartile performance results, in light of no increase in his target compensation in 2012, and based on market data for comparable companies showing his compensation was well below the average of Emera’s industry comparators, the MRCC adjusted Mr. Huskilson’s total target compensation between the 50th and 75th percentile of comparator group CEO pay in 2013. This change reflects strong multi-year performance, proven leadership and the relative scale and complexity of Emera today against other large Canadian publicly traded utilities. In keeping with our compensation philosophy, this increase was focused more on incentive pay and resulted in 76 per cent of Mr. Huskilson’s target compensation being “at risk” (compared to 70 per cent in 2012), meaning that payouts only occur if the Company achieves certain pre-determined performance objectives. The details of Mr. Huskilson’s total compensation package are further discussed in Named Executive Officer Compensation. The increase in target compensation will have no future impact on Mr. Huskilson’s pension entitlement, as his pension plan benefits have been previously capped. We will continue to align long-term shareholder interests with executive performance expectations, and reward strong Company and individual performance when achieved.
Emera Inc. — Management Information Circular 2014 33 A key element of Emera’s performance-based compensation program is to align executives’ total annual compensation with annual shareholder returns and stock price performance. In 2013, with the assistance of its compensation consultant, Hugessen Consulting Inc., the MRCC undertook an analysis of the alignment between the President and CEO’s compensation and the shareholder experience during his tenure. The analysis confirmed there was a close alignment over time between the compensation received by the President and CEO, including realizations from equity grants, with the shareholder experience. Most recently, with the decline in Emera’s share price in 2013, after eight continuous years of overall appreciation, the value of the President and CEO’s total equity awards and holdings declined 21 per cent. This indicates the pay-for-performance elements of our long-term incentive program design are working, as the decline in value is attributable to (1) stock options being worth less; and (2) the performance factors in the Performance Share Unit Plan.
GOVERNANCE We regularly and thoroughly review all aspects of our compensation programs, including risk, on an annual basis. As part of our commitment to good governance, in 2013 the MRCC also reviewed a number of emerging best practices regarding executive contracts and associated policies. Our external review of market comparators and best practices in publicly traded companies identified the need for Emera to implement a Clawback/Recoupment Policy. This growing practice allows Emera to recoup short- and long-term incentive payments from senior leaders if a ‘Restatement Recoupment Event’ occurs, which is where Emera makes a financial restatement due to an executive being engaged in gross negligence or misconduct (including fraud) that directly or indirectly caused, partially caused or significantly contributed to the financial restatement. Recoupment can also occur as a result of a ‘Misconduct Recoupment Event’ where an executive engages in misconduct, including intentional and material non-compliance with Emera’s Standards for Business Conduct. In 2013, recoupment provisions were put into place for the President and CEO. Recoupment conditions will be implemented for the other senior executives in 2014 for incentive awards going forward, which will be reflected in the applicable incentive award agreements. A review of the restrictive covenants in our executive contracts was also undertaken in 2013. New language for non-competition, non-solicitation, non-interference and non-disparagement clauses will be introduced in contracts for senior executive leaders to align Emera’s internal governance standards with best practices. The review also led to changes to the retirement provision of our share-based incentive plans. The MRCC authorized an enhanced retirement benefit for key executives to bring Emera’s practices more in line with the market and as consideration for the introduction of the new restrictive covenants referenced above. This benefit was provided to Mr. Huskilson in 2013 and will be implemented for other senior executives in 2014. Details of this provision are outlined in Annual Compensation Review Process
SUSTAINING SHAREHOLDER VALUE All of our businesses contributed to the Company’s success by achieving significant results in both earnings and revenues. The significant financial and non-financial results referenced in this Circular demonstrate the strength of our team of leaders and employees and will help ensure the Company is well positioned for the future. Emera executives are also shareholders and are committed to creating value for the longer term. We are confident that the design and administration of our executive compensation programs appropriately incent and reward for strong performance. At the same time, we are not complacent and will continue to closely monitor our own practices and industry trends and will adjust our practices accordingly. We welcome you to review our compensation programs and results in more detail in the Statement of Executive Compensation that follows. We also welcome your questions and feedback, which can be provided by contacting the Corporate Secretary’s Office. Allan Edgeworth Sylvia Chrominska Donald Pether M. Jacqueline (Jackie) Board Director and Board Director and Board Director and Sheppard Chair of the Member of the Member of the Board Director and Management Resources and Management Resources and Management Resources and Member of the Compensation Committee Compensation Committee Compensation Committee Management Resources and Compensation Committee
34 Emera Inc. — Management Information Circular 2014 Management Information Circular
Statement of Executive Compensation
COMPENSATION PHILOSOPHY Our executive compensation programs are designed to attract, motivate and reward high-calibre leaders to deliver strong performance in alignment with Emera’s corporate strategy and to create and sustain shareholder value. Programs reflect a blend of short- and long-term incentive plans to support our pay-for-performance philosophy. Emera’s compensation is designed to provide for a significant portion of an executive’s compensation to be at risk while also ensuring the structure of programs and payouts align with sound risk management and good governance principles. Our compensation program includes the following components, which are discussed further in the pages noted:
Base Salary (page 44) — Salaries are benchmarked against the median of the market and are set reflecting the degree of special skills and knowledge required for the position, and the performance and contribution of the individual.
Annual Short-Term Incentive (page 44) — Short-term incentive objectives are set forth in annual scorecards (“Scorecards”) that establish measurable financial, customer, asset, employee and health and safety objectives that, if achieved, are designed to add value to the Company or its affiliates.
Long-Term Incentive (page 46) — Consists of Performance Share Units (“PSUs”) and Stock Options (“Options”). Levels are determined based on competitive benchmarking data and the level of responsibility within the Company. They are intended to align executive performance with a long-term focus on creating and preserving shareholder value.
Pension (page 55) — The Pension Plan consists of both Defined Benefit and Defined Contribution components, and a Supplemental Employee Retirement Plan is provided, all of which are governed by a pension oversight governance framework.
Other (page 58) — As an important part of competitive compensation, we also offer reasonable non-cash compensation components such as group benefits, vacation, car allowance, and wellness incentives.
Our compensation philosophy targets overall compensation at median of the market for similar industries, although pay outcomes can be above or below the median based on company and individual performance, or to reflect the special skills and knowledge required for a particular position. Our compensation programs and policies are designed to incorporate our view on appropriate risk, as demonstrated by the elements shown below, which are discussed in greater detail in the sections that follow.
We regularly review our executive compensation programs through third-party compensation consultants to confirm our programs continue to support shareholder interests and regulatory compliance, and are aligned with sound principles of risk management and governance. The MRCC retains an independent compensation consultant that does not provide any services directly to management.
We have a pay-for-performance philosophy and our mix of short- and long-term programs assist in mitigating excessive risk taking.
Caps on payouts, vesting requirements, stress-testing potential payouts, clawback provisions and share ownership requirements are part of our overall plan design.
Our compensation governance structure consists of the Board, the MRCC, Hugessen Consulting Inc. (the MRCC’s consultant), management and management’s external compensation consultants.
All members of the MRCC Committee are knowledgeable and experienced individuals who have the necessary background and expertise to fulfil their obligations to the Board and to our shareholders.
Emera Inc. — Management Information Circular 2014 35 The MRCC considers best practices in determining and monitoring Executive Compensation as discussed in the Management Information Circular:
A letter to shareholders from the MRCC outlining our approach to executive compensation.
Our compensation programs are aligned with Emera’s corporate strategy through the use of performance metrics that support both our short- and long-term strategic goals.
The MRCC has the discretion to reduce or withhold payout for annual and equity-based incentive plans for results below expectations.
Compensation awards are tested for appropriate alignment between pay and performance under a number of scenarios.
Detailed information is provided on those companies used in our comparator group for benchmarking purposes.
Executive pay is aligned with shareholders’ interests by having a significant component at risk and tied to both short- and long-term performance.
Share ownership requirements are in place for the Named Executive Officers (“NEOs”).
A substantial portion of long-term incentives for the majority of the senior executives and other employees whose actions may have a material impact on our risk profile is deferred to discourage leaders from taking short-term or excessive risks.
A pension oversight governance framework is in place and annual pension benefits payable at year-end and at age 65 are disclosed for the NEOs.
We monitor the ratio of our NEOs’ total compensation to our average employee’s total compensation.
MANAGEMENT RESOURCES AND COMPENSATION COMMITTEE The Board has assigned responsibility to the MRCC to determine the compensation for Emera’s executive officers, and to review, recommend and oversee the administration of all of the Company’s executive compensation plans and programs. Current members of the MRCC are: •• Mr. Edgeworth (Chair), •• Ms. Chrominska, •• Mr. Pether, and •• Ms. Sheppard. All members of the MRCC are independent Directors. Each member of the MRCC has experience with human resources issues and compensation policies, more particularly described in the biographical information contained in Director Nominees.
COMMITTEE GOVERNANCE The MRCC is responsible for reviewing the alignment of Emera’s compensation programs, including incentive pay programs, with Emera’s strategic plans and risk profile, Emera’s performance, and risk management principles. The Committee annually reviews compensation for the President and CEO and senior management of the Company. The MRCC oversees the administration of the incentive plans providing for the award of annual incentives, stock options, PSUs and deferred share units (DSUs) in accordance with the provisions of the respective plans. The Committee reviews, and recommends to the Board of Directors, compensation policies and processes and any new incentive compensation and equity compensation plans or changes to such plans. The MRCC also has responsibility for assessing, on an annual basis, the performance of the President and CEO.
SUCCESSION PLANNING AND LEADERSHIP DEVELOPMENT While the majority of this Circular focuses on the Statement of Executive Compensation, the MRCC also has responsibility for confirming there is an adequate succession planning process for senior management of the Company and its affiliates, and reviews this process on an annual basis. At Emera, succession planning is a dynamic, ongoing process of systematically identifying, assessing and developing leadership competencies and business skills. The purpose is to confirm the Company’s capacity to meet future strategic objectives and to replenish critical organizational roles over time.
36 Emera Inc. — Management Information Circular 2014 Management Information Circular
As part of the comprehensive succession planning process at Emera, the President and CEO annually provides a list of potential successors to his position to the MRCC. In addition, the President and CEO identifies internal successors for each of the NEOs and senior management positions throughout the Company and its affiliates. The Committee members oversee this management succession planning process and developmental strategy. The MRCC is directly involved and responsible for President and CEO succession planning. They consider emerging issues and risks, and report and make recommendations to the Board of Directors. Emera is committed to developing leaders at all levels and has a comprehensive annual assessment process and framework to coordinate leadership development across the Company. This assessment process identifies areas of development for individuals as well as the overall leadership team in regards to identified core leadership capabilities. Personal development plans and overall Company leadership development programs are in place for both existing and potential leaders. On an annual basis, high-potential employees are invited to attend a Board of Directors’ dinner where they meet Directors as well as the Executive Leadership teams across Emera. The Company focuses on ensuring challenging work assignments are offered, secondments to affiliates occur where appropriate, regular leadership development training occurs and mentors are assigned where needed. Emera will continue these focused efforts to build leadership capacity throughout the organization in support of our long-term growth strategy.
COMPENSATION ADVISORS The MRCC retains the services of independent compensation advisors to assist in discharging its duties, including determining the compensation payable to the President and CEO and other senior officers. Since 2007, the MRCC has engaged Hugessen Consulting Inc. (“Hugessen”) as its principal advisor to provide independent advice, compensation analysis and other information for compensation recommendations. Hugessen provides advice on the competitiveness and appropriateness of compensation practices and comparator groups for Emera and its affiliates. In addition, Hugessen provides advice to the MRCC on policy recommendations made by management, and also reviews and provides commentary on the Company’s Statement of Executive Compensation. As independent advisors to the MRCC, Hugessen does not provide any professional services to management. The MRCC has adopted a number of practices with regard to its executive compensation advisor:
The MRCC annually reviews its advisor’s performance and fees.
With input from Company management and the advisor, the MRCC annually, or on an as-needed basis, determines the specific work to be undertaken by the advisor and the fees associated with this work.
All services provided by the MRCC’s advisor beyond its role in supporting the requirements of the MRCC require written pre-approval by the MRCC Chair, outlining the scope of work and related fees. The MRCC will not approve any such work that, in its view, could compromise the advisor’s independence in serving the MRCC.
The work done and the fees Emera pays to its compensation advisors are disclosed annually in this Circular.
In addition to the MRCC’s compensation advisor, in 2013 Emera engaged the services of Mercer (Canada) Limited (“Mercer”), Morneau Shepell, and Yvara Advisory Services to assist in completing a comprehensive market review of Emera’s executive compensation components including base salary, short- and long-term incentives, pensions, benefits and perquisites. The review also provided information on the competitiveness of executive compensation at Emera compared to market data and information on industry trends. In 2013, Morneau Shepell completed an actuarial analysis on Emera’s Long-Term Incentive Plan and provided current data on executive pension entitlements. It making its decisions on the compensation program, the MRCC reviews information and recommendations provided by Hugessen, Mercer, Morneau Shepell and Yvara Advisory Services. The table below summarizes the fees paid to all external compensation advisors in 2012 and 2013.
2013 2012
Advisor MRCC Other MRCC Other work ($) work ($) work ($) work ($)
Hugessen Consulting 84,071 Nil 134,995 Nil Morneau Shepell Nil 81,770 Nil 30,727 Mercer (Canada) Limited Nil 52,307 Nil 5,269 Yvara Advisory Services Nil 49,131 Nil Nil
Emera Inc. — Management Information Circular 2014 37 RISK MANAGEMENT AND COMPENSATION As part of the Board and MRCC’s oversight responsibilities of the design and administration of the Company’s executive compensation programs, the MRCC identifies and discusses design features or processes that may potentially represent conflicts of interest and/or inducements for unnecessary or excessive risk-taking by senior executives. The MRCC also regularly monitors industry trends with respect to risk management practices. One such practice that was adopted in 2013 was the introduction of a clawback policy allowing for the recoupment of short- and long-term incentives paid out to senior leaders in certain circumstances. More information is provided on this policy further in this section. The Company has compensation policies and practices in place so that an NEO or individual at a principal business unit does not take inappropriate or excessive risk, such as:
Caps on short-term incentive plan payouts;
Caps on PSU Plan payouts;
Termination and severance provisions in employment contracts include a double trigger (1) and do not provide enhanced benefits for change of control;
Inclusion of non-financial performance measures in incentive compensation programs;
The Board has discretion to amend the final payout of incentive compensation programs;
Executive share ownership requirements align the interests of senior officers with interests of shareholders;
Officers of Emera and its subsidiaries are not permitted to hedge their economic risk with respect to their holdings of Emera equity securities and equivalents to securities; and
A clawback policy is in place to allow for the recoupment of short- and long-term incentives paid out to senior leaders in certain circumstances.
(1) A double trigger means that (i) a change in control has occurred, with more than 50 per cent of the voting shares of the Company being held by one person (this would require an amendment of the individual share constraint in Emera’s Articles of Association which limit the holding of voting of shares by a single holder, and associates, to 15 per cent); and (ii) within three months of such change of control, there is a substantial reduction in duties of the Executive, which leads to a termination of employment.
In 2011, the MRCC conducted a comprehensive risk assessment of its compensation programs. To assist with this risk assessment, the Company engaged the services of Mercer, which reviewed the design of Emera’s executive compensation programs. Based on this assessment, the MRCC concluded that:
The mix of base salary and short- and long-term incentives for senior officers does not create an incentive to take inappropriate risk to the detriment of the Company’s shareholders;
The annual incentive plan focuses on growth of annual earnings and cash flow, but caps incentive payouts in a manner consistent with market practice, thereby reducing risk;
Any risks associated with the Long-Term Incentive Plans are mitigated by annual grants (versus front-loading grants) in the case of PSU grants and stock option grants, and also by caps on payouts in the case of grants under the PSU Plan;
Emera’s executive share ownership requirements decrease risk in the compensation program by encouraging alignment between the interests of senior officers and shareholders; and
The inclusion in employment contracts for senior officers of double trigger provisions and the absence of enhanced benefits for change of control mitigates the risk arising from termination.
In summary, the MRCC concluded Emera’s compensation programs did not create inordinate risk to the shareholders because an appropriate system of checks and balances are in place to mitigate the level of risk undertaken by management. In 2013, the MRCC conducted its annual compensation risk review and concluded that there were no significant changes in: (a) the Compensation programs or design; (b) the Company’s business strategy; (c) long-term incentive trends in the market; or (d) any other relevant circumstances. Accordingly, the MRCC determined there was no increase in compensation risk. The MRCC will conduct another full risk assessment in 2014.
38 Emera Inc. — Management Information Circular 2014 Management Information Circular
In 2013, the MRCC also conducted an external review of best practices in publicly traded companies and identified the need for Emera to consider implementing a clawback (or “recoupment”) policy. The MRCC subsequently put in place clawback provisions for the President and CEO allowing the Company to recoup short- and long-term incentive payments in cases where: (a) such payments were based upon reported financial results that were subsequently corrected or restated as a result (or partial result) of his gross negligence, misconduct or fraud and the reward received would have been lower had the financial results been properly reported; or (b) where he commits a serious breach of the Company’s Standards for Business Conduct. The clawback provisions for Mr. Huskilson apply to incentive compensation awarded from January 1, 2013 onward and are reflected in the applicable incentive award agreements. Similar recoupment provisions will be implemented for the other Named Executive Officers and senior executives in 2014. The MRCC also satisfies itself as to the adequacy of the information it receives regarding risk, the independence of the risk assessment and reviews, and the reporting of financial results on which certain important compensation decisions (e.g. the amount of annual incentive to be paid) are based. The MRCC and Board will continue to review the relationship between enterprise risk and the Company’s executive compensation plans and policies to confirm they continue to be optimally aligned with shareholder interests while maintaining an acceptable level of risk exposure. Compensation Discussion and Analysis
NAMED EXECUTIVE OFFICER COMPENSATION The Named Executive Officers for 2013 discussed in this Circular are: •• Christopher Huskilson, President and Chief Executive Officer, Emera Inc. (“President and CEO”); •• Scott Balfour, Executive Vice President and Chief Financial Officer, Emera Inc.; •• Nancy Tower, Executive Vice President, Business Development, Emera Inc. and Chief Executive Officer, Emera Newfoundland & Labrador; •• Robert Bennett, Executive Vice President and Chief Operating Officer, Emera Inc.; and •• Robert Hanf, President and CEO, Nova Scotia Power Inc. (“NSPI President and CEO”). For the purposes of compensation disclosure, the individuals listed in the 2013 NEO Summary Compensation Table are the President and Chief Executive Officer, the Executive Vice President and Chief Financial Officer, and the next three most highly compensated executive officers of the Company, or its subsidiaries, as defined by Canadian securities legislation (the “Named Executive Officers” or “NEOs”). The total target compensation for each of the NEOs in 2013 is outlined below:
Short-term Short-term Long-term Long-term Total target Base incentive at incentive at incentive at incentive at compensation Name salary ($) target (%) target($) target (%) target ($) ($)
Christopher Huskilson 875,000 90 787,500 220 1,925,000 3,587,500 Scott Balfour 460,000 60 276,000 70 322,000 1,058,000 Nancy Tower 460,000 60 276,000 70 322,000 1,058,000 Robert Bennett 460,000 60 276,000 70 322,000 1,058,000 Robert Hanf 360,000 50 180,000 50 180,000 720,000
The following table shows the percentage weighting of each component of the total target compensation for the NEOs. The 2013 compensation plan design results in at least 50 per cent of the NEOs’ total target compensation being at risk.
Annual Long-term Base incentive at incentive at Total pay Name salary (%) target (%) target (%) at risk (%)
Christopher Huskilson 24 22 54 76 Scott Balfour 44 26 30 56 Nancy Tower 44 26 30 56 Robert Bennett 44 26 30 56 Robert Hanf 50 25 25 50
Emera Inc. — Management Information Circular 2014 39 Christopher Huskilson, President and Chief Executive Officer, Emera Inc. The strong performance of Emera in 2013 was led by our President and CEO. Under Mr. Huskilson’s leadership, 2013 was highlighted by the regulatory approval of the Maritime Link project. This landmark accomplishment will serve as a major platform for future growth of Emera. Other successes in 2013 include significant increases in operating revenues, net income, adjusted earnings per share, cash flows, assets and dividends (further details on these increases are provided in the Letter from the Management Resources and Compensation Committee to Shareholders). During his tenure as President and CEO, Mr. Huskilson has consistently delivered value to shareholders. In his nine full years (from January 2005 to December 2013), shareholders have experienced a total shareholder return of 136 per cent and approximately $2.5 billion in shareholder value has been created. Over that same period, the S&P/TSX Capped Utilities Index has provided returns of 93 per cent. Emera has also experienced strong growth in value, with market capitalization more than doubling over Mr. Huskilson’s tenure, and has become one of the larger utility companies in Canada. In recognition of Mr. Huskilson’s strong performance in delivering value to shareholders, the MRCC conducted an extensive market review of the President and CEO’s total target compensation in late 2012. The review indicated Mr. Huskilson’s compensation was below the median of Emera’s industry comparator companies and well below the average of the three larger utilities that were most comparable to Emera. In light of these findings, the MRCC determined that aligning the President and CEO’s pay between the 50th and 75th percentile of our comparator group would narrow the margin between compensation at Emera and the other larger utilities. It would also align with Emera’s pay-for-performance philosophy in consideration of the Mr. Huskilson’s long track record of impressive performance. As a result, the MRCC increased the President and CEO’s base salary to $875,000 and his short- and long-term incentive targets to 90 per cent and 220 per cent, respectively. The change to compensation focused more of the increase on incentive opportunities, particularly on long-term performance, and increased the President and CEO’s target at-risk pay from 70 per cent to 76 per cent. This increase in target compensation will have no future impact on Mr. Huskilson’s pension entitlement, as his pension plan benefits have been previously capped. Scott Balfour, Executive Vice President and Chief Financial Officer, Emera Inc. 2013 marked Mr. Balfour’s first full year as Chief Financial Officer of Emera. He led the finalization of key commercial agreements surrounding the Federal Loan Guarantee with the Government of Canada in support of the Maritime Link project and successfully executed $1.0 billion of capital market financing, including a $250 million common share financing and a $125 million preferred share financing. Nancy Tower, Executive Vice President, Business Development, Emera Inc. and Chief Executive Officer, Emera Newfoundland & Labrador 2013 was the second year in this dual role for Ms. Tower. She coordinated the advancement and regulatory approval for the Maritime Link project and was a substantial contributor and witness at formal hearings throughout the year. Ms. Tower also had responsibility for overall business development opportunities across Emera affiliates to ensure alignment with our long-term strategy, which included the acquisition of three gas plant assets in New England in 2013. Robert Bennett, Executive Vice President and Chief Operating Officer, Emera Inc. Mr. Bennett was appointed Executive Vice President and Chief Operating Officer of Emera in January 2013. He previously served as President and CEO of NSPI. In 2013, Mr. Bennett oversaw a number of key growth projects including the completion of NSPI’s biomass initiative and the operational evaluation associated with the acquisition of Brooklyn Power, Tiverton, Rumford and Bridgeport gas facilities. He continues to provide oversight to all of Emera’s affiliate operations in Canada, Maine and the Caribbean to instill operating standards and efficiencies. His compensation changes in 2013 reflected the broader role and responsibilities of his new position with Emera. Robert Hanf, President and Chief Executive Officer, Nova Scotia Power Inc. Mr. Hanf completed a successful first year as NSPI’s President and CEO, delivering strong safety and reliability results as well as strong financial performance. He has been actively focused on key stakeholder management and an improved business model and service delivery to our customers. Mr. Hanf is a proven leader with broad experience in the energy sector, having served in roles as Executive Chairman of Light & Power Holdings and Director of Barbados Light & Power, President and Chief Operating Officer of Bangor Hydro Electric Company, and Chief Legal Officer and Executive Vice President of Corporate Services at Emera.
40 Emera Inc. — Management Information Circular 2014 Management Information Circular
COMPENSATION PROGRAM DESIGN The purpose of Emera’s executive compensation program is to reward Emera’s executives for sustained increases in shareholder value; to attract, retain and motivate highly qualified and high-performing executives; and to align the interests of executives with the interests of Emera’s shareholders and customers. The compensation program is designed to be competitive against relevant industry and regional comparator groups, include both short- and long-term performance goals, and to link compensation to the Company’s performance as measured by specific financial results.
MARKET COMPETITIVENESS Emera’s executive compensation program is designed to provide total target compensation on average at the median or 50th percentile of compensation paid by similar industries and similarly sized companies. Pay positioning, in some specific cases, can be above or below the median based on experience, uniqueness of responsibilities, and performance. “Total target compensation” for senior management, including the NEOs, for these purposes, is comprised of base salary, target annual incentive (short-term incentive), and target long-term incentives linked to total shareholder value.
PAY-FOR-PERFORMANCE Emera’s executive compensation philosophy is that a significant portion of executive compensation must be at risk. The at-risk components depend on achieving Company, business unit and individual performance objectives. The short-term incentive objectives are set forth in annual scorecards (“Scorecards”) that establish measurable financial, customer, asset, employee and safety objectives that, if achieved, add value to the Company or its affiliates. Executives’ performance against their Scorecard is measured and rated by the President and CEO with a recommendation to the MRCC which, in turn, recommends to the Board of Directors for approval. The Company must achieve a threshold level of performance for any payment against a particular objective, failing which there is no payment against such objective. Accordingly, the incentive compensation plans are designed to pay larger amounts for superior performance and smaller amounts if target performance is not achieved. Generally, the higher the individual executive’s level of responsibility, the greater the at-risk compensation component of total compensation. Management considers many factors when developing annual incentive and long-term incentive plans, including current compensation trends, plan costs at payout including maximum payout values, expected value to be delivered to participants, and analysis of threshold, target and stretch payouts. Both annual incentive and long-term incentive plan designs are modelled using historical and prospective performance scenarios. This stress testing provides the MRCC with reasonable assurance that the plan payouts will be appropriate and aligned with shareholder and Company objectives. Analysis is done every year to determine how actual payouts compare to expected payouts and whether the plan components require any changes. The MRCC engaged Hugessen to conduct a Pay-for-Performance analysis of the compensation paid to the President and CEO, Mr. Huskilson, from his first full year in that position (2005) to December 31, 2013, compared to the investment returns experienced by shareholders over that same period. The analysis included both realized pay (which consists of amounts actually paid out for a particular performance year) and realizable pay (which consists of changes in the value of any outstanding equity-based awards year-over-year). The analysis concluded that there was a close alignment between the President and CEO’s realized/realizable pay and the shareholders’ investment return experience over the long term. Further details are provided following the Performance Graph. On the recommendation of the MRCC, the Board has the discretion to make changes to compensation design including incentive plan results. The MRCC reserves the right to, and has in the past, exercised its discretion to recommend that the Board adjust compensation payout formulas to align with Company results.
COMPENSATION PROCESS Benchmarking Data The MRCC is responsible for annually reviewing the composition and use of comparator groups to assess the compensation payable to the Company’s senior officers, including its President and CEO. The MRCC undertakes periodic reviews of compensation design and total compensation opportunities for the senior management team, including the NEOs. This practice ensures the programs are current and that they fairly compare for particular roles, recognizing varying responsibility and scope of executive positions within Emera and its affiliates. Emera Management engages the services of Mercer, an independent compensation consultant, to compile market information on senior management compensation relating to base salary, short-term and long-term incentives. A complete benchmarking review takes place every two years and the scope of services includes competitive market reviews of senior executive compensation levels; review and observations of current executive compensation philosophy; policies and practices; and a review of pay and performance comparators.
Emera Inc. — Management Information Circular 2014 41 The MRCC reviews compensation data based on a comparator group of companies, primarily regulated utilities and other energy industry enterprises that are of a similar size and scope as Emera. While the intention is to use a consistent list of comparators from year to year, the comparators used for compensation review are subject to some change each year due to: (a) the availability of relevant pay data, (b) mergers and acquisitions, and (c) relevance of new comparators based on updated financial metrics. The following sources were used to gather market information about executive compensation and establish benchmark data for Emera and its affiliates: 1. Publicly Disclosed Compensation Data (Applicable to President and CEO and Chief Financial Officer, Emera Inc. only) With the assistance of Hugessen, in late 2012 the MRCC undertook a review of the competitiveness and appropriateness of compensation programs (salary, annual and long-term incentives and pension) for the President and CEO and Chief Financial Officer using the pre-agreed proxy comparator group. The following publicly traded organizations from the S&P/TSX Capped Utilities Index were used as the primary comparator group for the purposes of the compensation benchmarking review as described above.
S&P/TSX Capped Utilities Index
ATCO Ltd. Fortis Inc. Capital Power Corporation TransAlta Corporation EPCOR Utilities Inc.
The following publicly traded organizations were also used for the purposes of benchmarking Emera’s President and CEO and Chief Financial Officer as described above.
Energy Industry Comparables
AltaGas Ltd. Pembina Pipeline Corporation Ensign Energy Service Inc. Pengrowth Energy Corporation Enerplus Corporation Precision Drilling Corporation Inter Pipeline Fund ShawCor Ltd. Keyera Corporation
The rationale for incorporating the energy industry is that senior talent can migrate between similar organizations (i.e. industry, scale, complexity) and the fact that Emera’s strategic objectives include expansion into various energy-related sectors. The following table shows where Emera is positioned compared to the companies in the two peer groups identified above (consisting of 14 companies in total), based on selected key financial metrics. The data shown is as of December 31, 2012. Emera vs. Pay Benchmarking Comparator Group
$10,000
75th Percentile Pay Benchmarking $8,000 50th Percentile Comparator Group 25th Percentile $6,000 Emera
$4,000
$2,000
$0
Market Total Total Total Capitalization (2) Enterprise Value (2) Assets (3) Revenue (1) EBITDA (1)
(1) Last 12 months (ended December 31, 2012). (2) As at December 31, 2012. Market Capitalization is calculated based on the number of common voting shares multiplied by the closing share price. Total Enterprise Value is calculated based on Market Capitalization less net debt. (3) As at most recent FQE (December 31, 2012).
42 Emera Inc. — Management Information Circular 2014 Management Information Circular
2. Publicly Disclosed Compensation Data (Applicable to NSPI President and CEO) The following publicly traded organizations were used as comparators for the purposes of benchmarking the NSPI President and CEO:
Energy and Services Companies — Publicly Available Disclosure
Alberta Electric System Operator Fortis BC Inc. BC Hydro Hydro One Inc. ENMAX Corporation Manitoba Hydro EPCOR Utilities Toronto Hydro Fortis Alberta
3. Survey Data In 2013, Mercer’s Executive Compensation Review was used to benchmark compensation of the NEOs and other senior management using proxy and/or public disclosure information of energy and services companies with similar revenues to Emera (see below for participant organizations) and the General Industry 2011 Mercer Benchmark Database (MBD) Survey, which was adjusted to reflect market changes. The General Industry MBD Survey expands the survey scope to include Canadian General Industry companies of similar size to Emera in some cases to provide sufficient data.
Energy and Services Companies — Publicly Available Disclosure and Survey Data
ATCO Ltd. Fortis BC AESO Fortis Inc. BC Hydro Hydro One Brookfield Renewable Power Fund Just Energy Group Canadian Utilities Manitoba Hydro Capital Power Corp. Northland Power Income Fund Devon Canada Corporation Toronto Hydro EPCOR Utilities Inc. TransAlta Corp. Fortis AB Valener
Annual Compensation Review Process On an annual basis, benchmarking data and other information regarding industry trends for positions of similar scope and responsibility are used to establish a base salary range for each position along with a range for annual incentive and long-term incentive compensation levels for each position. The President and CEO conducts annual performance assessments on members of the senior management team, including each of the NEOs, which shape the annual salary adjustment recommendations. Based on the benchmark data, the President and CEO then recommends total target compensation for each senior leader, including the NEOs (excluding himself) to the MRCC for review and approval. With respect to the President and CEO, the MRCC reviews benchmark data and other information regarding industry trends for positions of similar scope. Following this process, the MRCC makes recommendations for Total Target Compensation for all of the senior management team including the NEOs and the President and CEO, to the Board of Directors. As part of the annual compensation review process, the MRCC reviews emerging best practices and risk considerations. The changes made to the compensation of the respective NEOs in 2013 are outlined in NEO Compensation and the NEO Summary Compensation Table. A review of prevailing market practices also led the MRCC to introduce an enhanced retirement vesting provision under the Stock Option Plan and PSU Plan. The enhanced vesting provisions allow any outstanding unvested PSUs to be eligible to continue to vest in accordance with the performance criteria upon retirement. In addition, unvested stock options will continue to vest for two years following retirement. Any stock options that are unvested as of that date are forfeited. Key executives will have two years from retirement to exercise any stock options that vest pre- or post-retirement, provided that each stock option is exercisable no later than 10 years from the date of grant. In addition to bringing Emera’s practices more in line with the market, the enhanced retirement vesting provision serves as an important retention tool for the Company given that the enhancement only occurs in cases where the executive stays until he or she is eligible to retire. If the executive leaves prior to that date, any unvested PSUs and stock options are typically forfeited (see Termination and Change of Control Benefits for further details). The enhanced retirement vesting provision was introduced for Mr. Huskilson in 2013 and will be provided to the other NEOs and senior executives in 2014 upon the execution of new employment agreements.
Emera Inc. — Management Information Circular 2014 43 The MRCC also conducted a review of restrictive covenants, which led to the introduction of new language for non-competition, non-solicitation, non-interference and non-disparagement clauses, which will be reflected in the employment agreements of the NEOs and senior executives.
ELEMENTS OF COMPENSATION Base Salary The MRCC is responsible for annually reviewing the composition and use of comparator groups to assess the compensation payable to the Company’s senior officers, including its President and CEO. The MRCC undertakes periodic reviews of compensation design and total compensation opportunities for the senior management team, including the NEOs. This practice ensures the programs are current and that they fairly compare for particular roles, recognizing varying responsibility and scope of executive positions within Emera and its affiliates. 2013 Base Salary Results The aggregated base salaries for the NEOs increased by 12.0 per cent in 2013 over 2012, reflecting changes to broader roles (as described above) and strong performance results of these individuals and their business units in contributing to top-quartile performance overall. Short-Term Annual Incentive Program The Annual Incentive compensation (“Annual Incentive”) is intended to link a portion of an employee’s compensation to the achievement of predetermined levels of performance in support of corporate and business unit objectives. Those objectives are set forth in the Executive’s annual Scorecard and are designed to focus attention on short-term goals that are intended to deliver value to customers and contribute to increased shareholder value in the longer term. Emera has adopted the Scorecard approach to translate corporate strategies into measurable incentive plan goals. Target payouts under the Scorecards are generally set as a percentage of salary and are benchmarked against the median for positions with similar responsibilities in comparator companies. On the recommendation of the MRCC, the Board of Directors of Emera approves Scorecards that set forth corporate objectives and related threshold, target and stretch performance levels to be achieved each year. For NEOs who participate in the NSPI Scorecard instead of the Emera Scorecard, the Board of Directors of NSPI approves the respective corporate objectives and performance levels. The annual incentive payouts for the majority of senior management, including the NEOs, are based on Scorecard results with potential payouts ranging from 0 to 200 per cent of target. All NEOs have their Annual Incentive payout calculated based on results achieved through Scorecard results. 2013 Annual Incentive Results 2013 Emera Corporate Scorecard The Scorecard for Emera (“Emera Corporate Scorecard”) was developed by management and approved by the MRCC and the Emera Board of Directors at the beginning of 2013. It was used to determine the Annual Incentive for Emera’s President and CEO, Emera’s Executive Vice President and Chief Financial Officer; the Executive Vice President Business Development and CEO, Emera Newfoundland & Labrador, and the Executive Vice President and Chief Operating Officer. The Emera Corporate Scorecard objectives were based on the Company’s Business Plan for the year and established threshold, target and stretch performance standards for each objective. Objectives on the 2013 Emera Corporate Scorecard included a 90 per cent weighting for strengthening the financial position of the Company through generating growth as measured by earnings per share (EPS); and cash flow per share. The corporate objective of maintaining and enhancing employee commitment and wellness received a 10 per cent weighting on the Scorecard.
44 Emera Inc. — Management Information Circular 2014 Management Information Circular
The following table shows the elements and results of the Emera Corporate Scorecard for 2013.
Actual Percentage Emera Corporate Objective Weighting (%) Threshold ($) Target ($) Stretch ($) Result ($) Payout (%) (1)
Earnings Per Share (2) 60 1.80 1.85 1.95 1.96 120.0
Cash Flow Per Share (3) 30 4.01 4.21 4.41 4.36 52.5
Employee Commitment and 10 75% of all leaders and high-potential employees Threshold not 0 wellness measured by the participate in the Leadership Development Program, achieved annual employee survey PLUS the Emera Employee Survey Commitment score is at least 65%, PLUS Health and Wellness 2012 baseline categories are maintained, PLUS a minimum 70% composite score is achieved on Innovation related questions
100 Total: 172.5
(1) Percentage payouts, below or above target for financial measures, are prorated on a scale between each level of performance (50 per cent for threshold, 100 per cent for target and 200 per cent for stretch). (2) EPS for compensation purposes reflects EPS-basic adjusted for the income effect of Emera’s held-for-trading derivative instruments and the mark-to-market adjustments included in Emera’s equity income related to the business activities of Bear Swamp Power Company LLC and Northeast Wind Partners II, LLC, as well as the amortization of transportation capacity recognized as a result of certain trading and market transactions. Adjusted EPS is a non-GAAP measure and is disclosed more fully in Emera’s 2013 Annual Report. (3) “Cash Flow Per Share” is calculated as Net Cash Provided by Operations Before Working Capital divided by the weighted average number of common shares outstanding for the same period.
The table below shows Emera’s trending for the period 2008 to 2013 of EPS and cash flow per share as of December 31, 2013.
2008 2009 2010 (1) 2011 (1)(2) 2012 (2) 2013 (2)
Earnings Per Share ($) 1.33 1.55 1.76 1.77 1.85 1.96 Cash Flow Per Share ($) (3) 2.84 2.94 2.96 3.63 4.01 4.36
(1) EPS for compensation purposes in 2010 and 2011 reflected reported EPS, excluding mark-to-market gains and losses and LPH acquisition gains. (2) EPS for compensation purposes in 2011, 2012 and 2013 reflected EPS-basic adjusted for the income effect of Emera’s held-for-trading derivative instruments and the mark-to-market adjustments included in Emera’s equity income related to the business activities of Bear Swamp Power Company LLC and Northeast Wind Partners II, LLC, as well as the amortization of transportation capacity recognized as a result of certain trading and market transactions. Adjusted EPS is a non-GAAP measure and is disclosed more fully in Emera’s 2013 Annual Report. (3) “Cash Flow Per Share” is calculated as Net Cash Provided by Operations Before Working Capital divided by the weighted average number of common shares outstanding for the same period.
Scorecard payouts on average over the last five years have been 40 per cent over target. EPS performance has trended upwards over the same period, increasing 47 per cent over the period from 2008 to 2013. 2013 Nova Scotia Power Incorporated (NSPI) Corporate Scorecard The 2013 NSPI Scorecard set out corporate objectives and related threshold, target and stretch performance levels for 2013. It was used to determine the Annual Incentive for the NSPI President and CEO. The NSPI Scorecard is developed and recommended by NSPI management for approval by the NSPI Human Resources and Governance Committee and Board, which in turn recommends the NSPI Scorecard for final approval at the beginning of each year by the Emera MRCC. Objectives on the 2013 NSPI Scorecard included a 7.5 per cent weighting for continued safety improvement and 7.5 per cent for development of people. Reliability and reputation with the customer received a 30 per cent weighting, and asset management was weighted at 15 per cent. A 40 per cent weighting for strengthening NSPI’s financial position by generating growth as measured by financial earnings and cash from operations made up the balance of the scorecard. On the recommendation of the HRGC, the Emera MRCC approved the 2013 NSPI scorecard to be paid out at 109.45 per cent of target, which was used as a basis to calculate the payout for the NSPI President and CEO.
Emera Inc. — Management Information Circular 2014 45 The following table shows the objectives of the NSPI Scorecard for 2013:
Percentage NSPI Corporate Objective Target Weighting (%) Actual Result Payout (%)
Safety 95% of critical tasks reviews are completed by SMT, 7.5 Stretch 11.25 PLUS 5% reduction in controllable vehicle incidents (<77), PLUS annual audit on Safety Program scores 90% with no one element below 85%, PLUS All Injury Frequency (AIF) =<.78
People 75% of leaders and high-potential employees 7.5 Threshold Not 0 Attract, retain and develop participate in leadership development program; AND Achieved the talent required 2013 Health screenings aggregate results are same as or better than 2012; PLUS achieve a 5% improvement on the Employment Commitment Index on 2013 Annual Employee Survey AND 70% of all leaders participate in Mental Health Awareness Training
Customer (1) 42% fewer tree/equipment failure outages versus 10 Target 14.3 Advancement and cost 2009 actuals or 70% customer satisfaction with NSPI effectiveness of 5-year response to extreme storm events PLUS 5% reliability plan; reliability improvement in the effectiveness of reliability statistics; performance investment plan during extreme storm events
Customer Revise customer service standards, PLUS one 20 Threshold 10 “Net Satisfaction” customer driven process change implemented, PLUS Improve customer experience Increase the “net satisfaction” score for the product related to bill inquiries and support (billing inquiry) customer experience by 10% drive electrical conversions versus 2012, PLUS increase customer satisfaction by 5% from 2012 year-end to 2013 year-end
Asset Management 90% of projects >$2.5M are executed in 2013 within 15 Stretch 22.5 Build a legacy of clean energy plus 5% or minus 10% of the projected budget, PLUS Board approval of Generation Capacity Plan
Financial — Earnings (1) $126 million 30 Stretch 45
Financial — Cash from $363 million 10 Threshold 6.4 operations (1)
100 Total: 109.45
(1) The Customer Reliability, Earnings, and Cash from Operations measures are prorated on a scale between each level of performance. Percentage payouts in between threshold and target, and in between target and stretch, are prorated on a scale between each level of performance (50 per cent for threshold, 100 per cent for target and 150 per cent to 200 per cent for stretch). The targets for Earnings were $123 million at threshold, $126 million at target and $3 million surplus to contribute to customer costs for stretch. The Cash from operations objective at threshold was $343 million, $363 million at target, and $368 million at stretch.
Long-Term Incentive Program There are two components of long-term incentive compensation for senior management, including the NEOs — the Performance Share Unit Plan (the “PSU Plan”) and the Senior Management Stock Option Plan (the “Stock Option Plan”). The number of PSUs and stock options granted to senior management is determined after considering competitive benchmarking data and the individual’s level of responsibility within the Company. Generally, the level of grant increases with the level of responsibility. The MRCC is responsible for granting PSUs and stock options. PSUs and stock options increase or decrease in value in proportion to the increase or decrease in the market price of Emera’s common shares over the term of a particular grant. The PSUs and stock options granted to senior management are determined as a percentage of base salary in each year. The value of stock- option grants is currently based on the Black-Scholes valuation methodology. Previous stock option and PSU grants to senior management are taken into account when recommending new grants by considering a three-year history on total compensation, which is reviewed for senior management (including the NEOs) each year to ensure reasonable progression within the market.
46 Emera Inc. — Management Information Circular 2014 Management Information Circular
In 2013, 50 per cent of the target long-term incentive compensatory value for the President and CEO, Emera consisted of PSUs and 50 per cent consisted of stock options. For all other NEOs, PSUs made up 75 per cent of the target long-term incentive compensatory value and stock options made up the remaining 25 per cent. More details about the PSU Plan and the Stock Option Plan are set forth below. Performance Share Unit Plan The PSU Plan adopted by Emera is designed to retain and incent employee participants by allowing senior management and key employees in specific roles to participate in the long-term success of the Company. Under the PSU Plan, participants receive annual grants of PSUs, which are valued based upon the value of one common share of the Company. The number of PSUs granted to each employee participant is intended to pay 100 per cent of the PSU target-based incentive at the end of the three-year performance period if Emera achieves the financial objectives established by the MRCC for that particular grant. Over the course of the three-year performance period, the value of each PSU will fluctuate in accordance with Emera’s common share price and will earn dividend equivalents in the form of additional PSUs — when a dividend is paid on Emera’s common shares, each participant is allocated additional PSUs based on the dividend paid on an equivalent number of Emera common shares. At the end of the performance period, a performance factor is applied to the PSU grant based on the achievement of the financial objectives. If the Company fails to meet the performance objectives for a particular PSU grant, the Plan may pay out at less than target, or may not pay out any amounts at all. If targets are exceeded, payouts may be as much as, but not more than, two times the initial grant value. Accordingly, the amount payable to participants, including NEOs, at the end of the three-year performance period is determined by: (1) The number of PSUs held, including dividend reinvestment; multiplied by (2) The performance factor, as determined by Emera’s financial performance against the performance factors; multiplied by (3) the average 50 trading-day share price as at the end of the three-year performance period. The results for the 2011 PSU Grant, which had a performance period of January 1, 2011 to December 31, 2013, are shown below. Performance Factor 1 Performance factor 1 is based on Emera’s average three-year total shareholder return in excess of the average three-year return of the S&P/TSX Capped Utilities Index as illustrated in the table below.
Relative annual return to S&P/TSX Capped Utilities Index Performance factor
Less than –5% 0.00 –5% 0.50 0% 1.00 5% or more 1.50
Performance Factor 2 Performance factor 2 is based on Emera’s average annual growth in EPS. As well, dividends must be maintained at or higher than the December 31, 2011 levels. If dividends are reduced, Factor 2 will be deemed to be 0 regardless of the EPS growth as illustrated in the table below.
Emera average three-year Earnings Per Share growth Performance factor
Less than 4% 0.00 4% 0.50 6% 1.00 8% or more 1.50
Each performance factor is weighted equally at 50 per cent and the value of each performance factor is interpolated on the basis of the actual relative returns. All annual average returns or percentages over the three-year performance period are determined on a compounded basis. The performance factor applied as of December 31, 2013 to the 2011 PSU Grant was 0.5684, reflecting the Company’s ability to achieve its objective of outperforming the S&P/TSX Capped Utilities Index but inability to meet the EPS targets over the three-year performance period. Accordingly, the grant did not pay out at full target value. The total payout from the 2011 Grant was $2.2 million, or 62 per cent of the original grant value, which included dividend reinvestment and is based on the average closing share price for the last 50 trading days of 2013 of $30.08.
Emera Inc. — Management Information Circular 2014 47 The following are the actual performance factor results for the three-year period from 2011 to 2013:
Factor 1: S&P/TSX Capped Factor 2: Utilities Index Earnings Per Emera total shareholder return (%) return (%) Share growth (%) Overall factor
2011 9.8 6.5 0.6 2012 9.4 4.0 4.5 2013 -8.2 -4.4 5.9 Average annual compounded return 3.3 1.9 3.7 Emera’s relative return 1.4 Resulting performance factor 1.1369 0 0.5684 (weighted at 50%=0.5684) (weighted at 50%=0)
The performance targets for the PSU awards are used for compensation purposes only and are not suitable for any other purpose. There is no assurance that any performance level will be met. The targets may also constitute forward-looking information. Forward- looking statements are based upon a number of assumptions and are subject to a number of known and unknown risks and uncertainties, any of which are beyond Emera’s control, which could cause actual results to differ materially from the performance targets. Please see the cautionary statement in the 2013 Annual Report respecting risks and assumptions relevant to Emera’s determination of performance targets for compensation purposes. Senior Management Stock Option Plan The administration of the Stock Option Plan has been delegated to the MRCC by the Board of Directors. Under the Stock Option Plan, the MRCC is responsible for designating, based on Management’s recommendation, which employees of the Company and its affiliates will be eligible to participate in the Stock Option Plan. Options are currently designed to deliver a percentage of the long-term incentive opportunity for senior management, including the NEOs, and have been retained to recognize their importance as a component of competitive executive compensation and to preserve a long-term focus. The level of grant increases with the level of responsibility. The Company considers options to be in alignment with long-term shareholder interests and the MRCC will continue to review the use of options annually. Options may be exercised for up to a maximum of 10 years. All options granted to date are exercisable on a graduated basis, with up to 25 per cent of the options exercisable on the first anniversary date, and in further 25 per cent increments on each of the second, third and fourth anniversaries of the grant. If an option is not exercised within 10 years, it expires and the employee loses all rights thereunder. The holder of an option has no rights as a shareholder until the option is exercised and shares have been issued. The price at which stock options may be exercised is the closing market price of the Company’s common shares on the TSX on the last business day on which such shares were traded immediately preceding the effective date of the grant of an option. Unless the term of an option has expired, vested options may be exercised within the 24 months following the date of retirement or termination for other than just cause, and within six months following the date of termination for just cause, resignation or death. If options are not exercised within such time, they expire. As noted in the Annual Compensation Review Process, an enhanced retirement vesting provision was introduced for the President and CEO, which allows unvested stock options to continue to vest for two years post-retirement. The maximum percentage of shares under all security-based compensation (including the Stock Option Plan) issuable to insiders of the Company at any time is 10 per cent of the issued and outstanding shares of the Company. The maximum number of shares to be optioned to any one person under the Stock Option Plan is five per cent of the issued and outstanding shares of the Company at the date of the grant of the option. The number of shares issued to insiders, within any one-year period, under all security-based compensation arrangements, will not exceed 10 per cent of the issued and outstanding shares of the Company. All of the NEOs participated in the Stock Option Plan and have received stock options in 2013 as a part of their long-term incentive. Under the Stock Option Plan, options may be granted in respect of authorized and unissued common shares of the Company to a maximum of 6,700,000 shares, or approximately 4.7 per cent of the total issued and outstanding common shares of the Company (all figures in this section are as of March 4, 2014, unless otherwise noted).
48 Emera Inc. — Management Information Circular 2014 Management Information Circular
4,110,697 common shares have been issued under the Stock Option Plan since its inception, which represents approximately 2.9 per cent of the total issued and outstanding common shares of the Company. There are 2,705,218 common shares issuable under actual grants of options, which represent approximately 1.9 per cent of the total issued and outstanding common shares of the Company and, of that amount, 1,321,072 are vested and 1,384,146 are unvested. As described in Senior Management Stock Option Plan Amendments, the Company is seeking shareholder approval to increase the maximum number of common shares issuable under the Stock Option Plan. Any options granted in 2014 in excess of the current plan maximum may not be exercised or vest until such time as the increase has been ratified by shareholders of the Company. The table below summarizes certain ratios regarding the Stock Option Plan, namely dilution, burn rate and overhang as defined in the table and measured as a percentage of the total number of shares outstanding as of December 31, 2013, 2012, and 2011.
December 31, December 31, December 31, 2013 (%) 2012 (%) 2011 (%)
Dilution (total number of options outstanding, divided by total number of shares outstanding) 1.56 1.17 1.49 Burn Rate (total number of options granted in a fiscal year, minus expired options, divided by the total number of shares outstanding) 0.45 0.30 0.11 Overhang (total shares available for issuance, plus options outstanding, divided by the total number of shares outstanding) 3.52 3.21 4.23
The stock options issued under the Stock Option Plan are non-assignable. The Stock Option Plan permits transfers from the estate of a deceased option holder to the ultimate beneficiaries under the deceased’s will. The option can then be exercised by such beneficiaries. The Board of Directors of the Company may amend or discontinue the Stock Option Plan by resolution at any time; provided, however, that no such amendment: •• results in any extension of the term of a stock option benefitting an optionee; •• results in any reduction to the exercise price of a stock option benefitting an optionee; •• increases the maximum number of shares that may be optioned under the Stock Option Plan; •• change the manner of determining the option price; or •• without the consent of the optionee, alters or impairs any stock option previously granted to an optionee under the Stock Option Plan. The TSX also requires shareholder approval for any amendment to the Stock Option Plan to remove or to exceed the 10 per cent insider participation limits or to amend the amending provision within the Stock Option Plan. The Company is also seeking shareholder approval to amend the terms of the Stock Option Plan to provide for a detailed amendment provision. See Senior Management Stock Option Plan Amendments earlier in this Circular for details. In 2013, the Company provided no financial assistance to participants under the Stock Option Plan to facilitate the purchase of shares under the Plan.
Emera Inc. — Management Information Circular 2014 49 Performance Graph The following performance graph compares the Company’s cumulative total shareholder return or “TSR” (assuming an investment of $100 and reinvestment of dividends) for its common shares with that of the S&P/TSX Capped Utilities Index and the S&P/TSX Composite Index. Cumulative Total Return on $100 Investment — December 31, 2008 to December 31, 2013
$200.00
$175.00
$150.00
$125.00
$100.00
$75.00
$50.00
Dec. 31/08 Dec. 31/09 Dec. 31/10 Dec. 31/11 Dec. 31/12 Dec. 31/13
As at December 31 2008 ($) 2009 ($) 2010 ($) 2011 ($) 2012 ($) 2013 ($)
Emera 100.00 118.53 155.04 170.17 186.15 170.72 S&P TSX Utilities 100.00 119.00 140.89 150.01 155.98 149.53 S&P TSX Composite 100.00 135.05 158.83 145.00 155.42 175.61
Emera has created significant value for its shareholders over the last five years. Specifically, Emera’s cumulative TSR for the five-year period from December 31, 2008 to December 31, 2013, was 70.7 per cent, which is higher than the 49.5 per cent for the S&P/TSX Capped Utilities Index. The chart above shows the steady growth of Emera’s TSR from 2008 to 2012, with a decline from the end of 2012 to the end of 2013.
TOTAL SHAREHOLDER RETURN VS. NAMED EXECUTIVE OFFICER COMPENSATION At the end of 2013, the Company undertook an analysis of the alignment between the President and CEO’s compensation and the experience of shareholders. The analysis, which is referenced in the Letter from the Management Resources and Compensation Committee to Our Shareholders, looked at the President and CEO’s compensation over a number of timeframes. These compensation results were then compared to the shareholder experience, as measured by TSR, over the same periods. The analysis concluded that Emera’s compensation framework provided a close alignment between the President and CEO’s compensation and the shareholder experience over the long term. The analysis showed that the shareholders’ experience, as measured by the dollar return per $100 of investment at the beginning of each calendar year during the five-year period to December 31, 2013, averaged $123. The President and CEO’s economic experience, as measured by the dollar realized and realizable per $100 of target compensation awarded over the same periods, averaged approximately $122, representing a very close alignment with the shareholder experience.
50 Emera Inc. — Management Information Circular 2014 Management Information Circular
In keeping with Emera’s compensation philosophy, a significant component of NEO compensation consists of long-term incentives (grants of PSUs and stock options), which are designed to focus executives on the long-term success of the Company. These long-term incentives are directly affected by changes in Emera’s common share price and Emera’s TSR relative to the S&P/TSX Capped Utilities Index. This helps create a direct correlation between the shareholder experience and the compensation we pay our senior executives. The above analysis showed that the 8.3 per cent decrease in TSR in 2013, which was due to the decrease in the Emera stock price, reduced the President and CEO’s equity holdings by approximately 21 per cent. This was primarily attributable to the significant at-risk component of the President and CEO’s pay, the higher price-sensitivity of awards of stock options and the performance factors in our PSU Plan. As described in Performance Share Unit Plan, each PSU grant is subject to the achievement of financial objectives and, at the end of the performance period, a performance factor is applied which is determined based on the extent to which the Company has met those objectives. The performance factors for the PSU Plan, expressed in terms of a percentage, for the past five years were 139 per cent (for the performance period ending in 2009), 150 per cent (2010), 149 per cent (2011), 126 per cent (2012) and 57 per cent (2013). The general trend shows performance factors at or above 100 per cent in years where Emera outperforms the S&P/TSX Capped Utilities Index, and below 100 per cent when the Company underperforms the Index, indicating an alignment between executive and shareholder interests. The total annual salary, annual incentive and long-term PSU payouts earned in 2013 for the NEOs totalled $6,818,245, which represents 2.6 per cent of the Company’s adjusted net income attributable to common shares of $259,400,000 for the period ended December 31, 2013. NSPI Ratepayers No portion of the compensation paid to the President and CEO, the Executive Vice President and Chief Financial Officer, the Executive Vice President Business Development and CEO, Emera Newfoundland & Labrador, or the Executive Vice President and Chief Operating Officer were paid by NSPI or NSPI ratepayers. A portion of the compensation paid to the NSPI President and CEO, Mr. Hanf, was included in electricity rates. The Nova Scotia Public Utilities Act and the Nova Scotia Power Incorporated Regulations (collectively referred to as the “NSPI Regulations”) limit the type and amount of compensation that is recoverable in NSPI’s electricity rates. Specifically, the NSPI Regulations: (1) prohibit any incentive or bonus pay from being included in rates; (2) limit the recoverable portion of a NEO’s base salary to a level consistent with the Nova Scotia Government Senior Official Pay Plan; and (3) limit the recoverable portion of any other compensation or benefits to 13 per cent of that base salary. Accordingly, $198,580 of the NSPI President and CEO‘s base salary and $25,515 of his other benefits and compensation were included in rates. No portion of his incentive or bonus pay was included in rates.
Emera Inc. — Management Information Circular 2014 51 NEO Summary Compensation Table
Non-equity incentive plan compensation
Share- Option- Annual based based incentive Pension All other Total Name and Salary awards awards plans value compensation compensation principal position Year (1) ($) (2) ($) (3) ($) (4) ($) (5) (6) ($) (7) ($) (8) ($)
Christopher Huskilson President and Chief 2013 871,635 962,542 962,445 1,358,438 579,000 32,120 4,766,180 Executive Officer 2012 750,000 900,056 299,939 607,845 511,000 33,187 3,102,027 2011 747,115 899,863 300,150 556,500 464,000 23,846 2,991,474 Scott Balfour Executive Vice 2013 460,000 241,624 80,370 601,100 122,000 29,216 1,534,310 President and Chief 2012 316,692 — 310,000 319,553 43,000 12,870 1,002,115 Financial Officer Nancy Tower Executive Vice President, 2013 458,385 241,624 80,370 601,100 388,000 24,106 1,793,585 Business Development, 2012 400,000 360,013 69,996 277,872 119,000 25,026 1,251,907 Emera Inc. and Chief 2011 398,851 260,033 69,966 254,400 385,000 39,407 1,407,657 Executive Officer, Emera Newfoundland & Labrador Robert Bennett Executive Vice 2013 458,923 241,624 80,370 476,100 499,000 18,845 1,774,862 President and 2012 424,423 191,140 88,856 249,688 467,000 22,736 1,443,843 Chief Operating Officer 2011 398,846 179,966 60,030 190,000 304,000 19,339 1,152,181 Robert Hanf (9) President and Chief 2013 364,483 134,981 45,030 252,000 361,000 73,736 1,231,230 Executive Officer, Nova Scotia Power Inc.
(1) Mr. Balfour joined Emera in April 2012, so the information shown for him in 2012 reflects a partial year and there is no 2011 compensation information for him. Mr. Hanf was not an executive officer of Emera in 2011 or 2012, so only 2013 compensation information is shown. (2) Salary information is based on actual earnings. (3) Includes DSU special awards and PSU grant, but does not reflect DSUs received in lieu of cash bonuses, as their value is already reflected in the ‘Annual incentive plans’ column — see Deferred Share Unit Plan for further details. The initial value of a PSU was based on the average 50 trading-day share price up to December 31, 2012 ($34.39). This methodology is used to smooth out any short-term fluctuations in share price immediately preceding the grant. The value of PSUs on payout is subject to the achievement of specific performance objectives over the three-year performance period. If those objectives are not met, payouts may be less than the initial value of the grant noted above. (4) Stock options are valued based on the Black-Scholes valuation methodology, based on the recommendations of the compensation advisors to the MRCC and the Company, and its prevalence as an appropriate and commonly used valuation methodology. The value of the stock options granted to the NEOs in 2013 was determined to be equal to 8.2 per cent of the February 12, 2013 closing share price of $34.80 or $2.85 per option. The Black-Scholes value ratio was determined using the following assumptions: an estimated volatility of 16.0 per cent (based on daily historical share price for the four-year period ending on January 10, 2013), estimated dividend yield of 4.00 per cent, and a risk-free interest rate of 1.82 per cent. (5) In 2013, Mr. Huskilson, Mr. Balfour, Ms. Tower and Mr. Bennett participated in the Emera Corporate Scorecard and Mr. Hanf participated in the NSPI Corporate Scorecard. The payouts to the NEOs participating in the Emera Corporate Scorecard were based on a scorecard result of 172.5 per cent. The NSPI Scorecard result was 109.45 per cent, which was used as the basis to calculate the annual incentive payout for Mr. Hanf. The Annual Incentive Plan and the 2013 results are described in greater detail in Short-Term Annual Incentive. The figures shown reflect amounts earned in the 2013 performance year and paid in 2014. Mr. Balfour elected to receive 100 per cent of his 2013 annual incentive in the form of DSUs. Mr. Bennett and Mr. Hanf each elected to receive 50 per cent of their 2013 annual incentive in the form of DSUs. (6) The 2013 non-equity incentive plan compensation for Mr. Balfour and Ms. Tower include lump-sum bonuses of $125,000 each for outstanding contributions to the Company in 2013. (7) Further information concerning pension values can be found in Pension Plan Benefits. (8) All other compensation in 2013 includes: (a) a car allowance for each NEO in the following amounts: $18,000 for Mr. Huskilson; $12,000 for Mr. Balfour; $13,200 for Ms. Tower; $13,200 for Mr. Bennett; and $15,508 for Mr. Hanf; and (b) other taxable benefits. The figure for Mr. Huskilson also includes Group Life Insurance coverage valued at $8,512. The figure for Mr. Hanf includes a taxable relocation allowance valued at $45,512 relating to his transition from his previous role in Barbados as Executive Chairman of Light & Power Holdings Inc. to his current role. (9) All compensation paid to Mr. Hanf was paid by NSPI, though only a portion his salary ($198,580) and $25,814 of his other compensation and benefits was included in NSPI rates, in accordance with the Public Utilities Act and Nova Scotia Power Incorporated Regulations. See NSPI Ratepayers for more details.
52 Emera Inc. — Management Information Circular 2014 Management Information Circular
Outstanding Share-Based Awards and Option-Based Awards The following table describes all option-based and share-based awards outstanding as of December 31, 2013 for each NEO:
Share-based awards Option-based awards (1) (performance share units (PSUs) and (stock options) deferred share units (DSUs)
Number of Market or Market or payout securities Value of Number of payout value of value of vested underlying Option Option unexercised shares or unit of share-based share-based awards unexercised exercise expiration in-the-money shares that have awards that have that have not been Name option (#) price ($) date options ($) (2) not vested (#) (3) not vested ($) (4) paid out ($) (5)
Christopher 79,500 21.58 14-Feb-2018 714,705 71,030 2,136,572 5,468,976 Huskilson 168,100 21.99 12-Feb-2019 1,442,298 147,000 23.94 16-Feb-2020 974,610 26,400 24.63 05-Jun-2020 156,816 72,500 32.06 15-Feb-2021 0 97,700 33.35 14-Feb-2022 0 337,700 34.80 12-Feb-2023 0 Scott Balfour 100,000 33.73 15-Apr-2022 0 7,332 220,560 0 28,200 34.80 12-Feb-2023 0 Nancy Tower 30,500 19.88 16-Mar-2016 326,045 14,345 431,503 1,642,916 42,100 20.42 08-Mar-2017 427,315 21,500 21.58 14-Feb-2018 193,285 21,600 21.99 12-Feb-2019 185,328 21,300 23.94 16-Feb-2020 141,219 16,900 32.06 15-Feb-2021 0 22,800 33.35 14-Feb-2022 0 28,200 34.80 12-Feb-2023 0 Robert Bennett 2,500 21.58 14-Feb-2018 22,475 13,715 412,547 979,241 9,700 21.99 12-Feb-2019 83,226 13,725 23.94 16-Feb-2020 90,997 14,500 32.06 15-Feb-2021 0 28,943 33.35 14-Feb-2022 0 28,200 34.80 12-Feb-2023 0 Robert Hanf 2,825 23.94 16-Feb-2020 18,730 7,855 236,268 362,964 8,300 32.06 15-Feb-2021 0 12,200 33.35 14-Feb-2022 0 15,800 34.80 12-Feb-2023 0
(1) Option-based awards include both vested and unvested options. (2) The value of all unexercised option-based awards was calculated using a December 31, 2013 closing share price of $30.57. Any options that are not in-the-money have been denoted with ‘$0’. (3) Unvested share-based awards include initial PSU and DSU grants and any additional PSUs and DSUs from dividend reinvestment as of December 31, 2013. (4) The market or payout value of share-based awards was calculated based on an assumed performance factor of 1.0 and the average closing share price for the last 50 trading days of 2013 ($30.08). (5) These figures represent just vested DSUs, as PSUs are paid out upon vesting, and are based on the average closing share price for the last 50 trading days of 2013 ($30.08).
Emera Inc. — Management Information Circular 2014 53 Incentive Plan Awards — Value Vested or Earned During the Year The following table describes all option-based awards, share-based awards and non-equity incentives that vested, or were earned, during 2013 for each NEO:
Share-based awards (Performance Share Units (PSUs) Non-equity incentive plan Option-based awards and Deferred Share Units (DSUs)) compensation — value earned Name value vested during 2013 ($) (1) value vested during 2013 ($) (2) (3) during the year ($) (4)
Christopher Huskilson 1,112,693 957,256 1,358,438 Scott Balfour 54,250 0 601,100 Nancy Tower 151,185 267,402 601,100 Robert Bennett 136,396 332,140 476,100 Robert Hanf 84,518 64,073 252,000
(1) Represents the aggregate dollar value that would have been realized if stock options had been exercised on the applicable vesting (eligibility) date in 2013. (2) The value of PSUs vested in 2013 is based on the 2011 PSU grant, which had a three-year performance period from January 1, 2011 to December 31, 2013. The payout is calculated based on the original grant with accumulated dividends, multiplied by the performance factor, multiplied by the average closing share price for the last 50 trading days of 2013 ($30.08). The performance factor for the 2011 PSU grant was based on Emera’s total shareholder return relative to the S&P/TSX Capped Utilities Index and Emera’s average annual growth in EPS — the overall performance factor result was 0.5684. More details on the PSU Plan and results can be found in Performance Share Unit Plan. (3) This dollar amount includes the value of DSUs from special grants that vested in 2013, including additional DSUs from dividend equivalents, and calculated using a closing share price for the last 50 trading days of 2013 ($30.08). This amount equalled $398,273 for Mr. Huskilson, $136,932 for Ms. Tower and $220,348 for Mr. Bennett. (4) This amount represents the 2013 incentive payouts as previously discussed in the NEO Summary Compensation Table.
Aggregate Option Exercise during 2013 and 2013 Option Values The following table summarizes for each of the NEOs the number of common shares acquired pursuant to the exercise of stock options during the fiscal year ended December 31, 2013, if any; the aggregate value realized upon exercise, if any; and the number of common shares covered by unexercised options under the Stock Option Plan as at December 31, 2013. Aggregate value realized upon exercise is the difference between the fair market value of the common shares on the exercise date and the exercise or base price of the option. The value of unexercised in-the-money options at fiscal year-end is the difference between the exercise or base price of the options and the fair market value of the common shares on December 31, 2013, which was $30.57.
Unexercised options at Value of unexercised in-the-money December 31, 2013 options at December 31, 2013
Securities acquired Aggregate value Name on exercise (#) realized ($) Exercisable (#) Unexercisable (#) Exercisable ($) Unexercisable ($)
Christopher Huskilson 0 0 438,325 490,575 3,005,573 282,857 Scott Balfour 0 0 25,000 103,200 0 (1) 0 (1) Nancy Tower 0 0 145,825 59,075 1,237,887 35,305 Robert Bennett 0 0 35,836 61,732 166,366 30,332 Robert Hanf 14,975 209,695 7,200 31,925 0 (2) 18,730
(1) None of Mr. Balfour’s options were in-the-money as of December 31, 2013. (2) None of Mr. Hanf’s exercisable options were in-the-money as of December 31, 2013.
54 Emera Inc. — Management Information Circular 2014 Management Information Circular
Pension Plan Benefits The NEOs are members of the corporate pension plan and participate on either a defined benefit basis or a defined contribution basis. For 2013, all NEOs participated in the defined benefit component of the plan. Defined Benefit The following table shows years of credited service, estimated pension amounts, and changes to accrued obligations from January 1, 2013 to December 31, 2013 for the NEOs who participated in the corporate pension plan on a defined benefit basis.
Annual benefits payable
Number of Accrued Non- Accrued years credited At year-end At age 65 obligation at Compensatory compensatory obligation at Name service (#) ($) (1) ($) start of year ($) change ($) (2) change ($) (3) year-end ($)
Christopher Huskilson (4) 33.6 606,500 650,000 12,716,700 579,000 (565,700) 12,730,000 Scott Balfour 1.7 18,000 182,000 64,000 122,000 (5,000) 181,000 Nancy Tower 16.3 153,000 249,000 2,831,000 388,000 (110,000) 3,109,000 Robert Bennett 25.7 233,000 317,000 4,869,000 499,000 (443,000) 4,925,000 Robert Hanf 11.5 74,000 163,000 1,193,000 361,000 (107,000) 1,447,000
(1) With the exception of Mr. Huskilson, the NEOs are not eligible for an immediate pension at year-end. The amount shown is the amount payable starting at age 65 if the NEO terminated employment at December 31, 2013. (2) The compensatory change includes (a) value of the current service cost (value of benefits earned during the year) attributed to the employer, (b) the impact of salary increases different than expected on the total value of the pension for all service (Note: the value of the expected salary increase is built into the accrued benefit obligation figures); and (c) impact of any plan changes (there were no plan changes which materially affected the above figures during the year). (3) The non-compensatory change figures reflects that the discount rate used increased 0.75 per cent, from 4.25 per cent (as at December 31, 2012) to 5.00 per cent (December 31, 2013). A higher interest rate means a lower obligation, other things being equal. (4) In 2011, Mr. Huskilson and the Board of Directors agreed to limit the pension amount payable from the corporate pension plan. The limit at future potential retirement dates was determined based on the pension plan formula and an assumed increase in pensionable earnings of approximately 4 per cent per year from the 2010 pensionable earnings levels. This limit is expected to reduce the amount that would otherwise be payable under the normal pension plan terms. As a result, year-over-year changes of more than 4 per cent to Mr. Huskilson’s earnings have no impact on his “compensatory change” component.
The defined benefit component of the plan entitles members to pension benefits based on two per cent of the average of the five highest years’ earnings (base salary plus up to 50 per cent of target short-term incentive), multiplied by each year of credited service to a maximum of 35 years credited service. Upon reaching age 65, pension benefits under the pension plan are reduced to reflect commencement of payments under the Canada Pension Plan (CPP). In addition, the NEOs are eligible to have portions of their annual incentive included in pensionable earnings. For members who retire from active service, the pension is payable on an unreduced basis upon the earlier of age 60 or age 55, provided that age and years of service add to at least 85. For members who joined the plan on or after July 1, 2004, the age 60 unreduced retirement age condition is replaced by age 62 with 15 years of service. A member may also retire on a reduced formula if the member has attained age 55, but does not qualify for the rule of 85. For 2013, members of the defined benefit component of the plan contributed 6.15 per cent of eligible earnings up to the year’s maximum pensionable earnings (“YMPE”) under the Canada Pension Plan, and eight per cent of earnings between the YMPE and the amount on which pension benefits may be earned under a registered pension plan as permitted by the Income Tax Act (Canada). Member contributions are scheduled to increase on January 1, 2014 and 2015. Spousal benefits are paid on the death of a member at the rate of 60 per cent of regular pension benefits. The pension plan is indexed to the consumer price index to a maximum of 6 per cent per annum. Due to Canada Revenue Agency’s limitations on the maximum pension benefit which may be paid under the pension plan, a portion of the pension earned after January 1, 1992 is provided under the terms of a Supplementary Employee Retirement Plan, which is secured by a letter of credit deposited in a retirement compensation trust. The accrued pension obligation is calculated following the method prescribed by the Canadian Institute of Chartered Accountants and is based on management’s best estimate of future events that affect the cost of pensions, including assumptions about future salary adjustments and annual incentive awards. Mr. Huskilson’s lifetime pension is capped at a pre-determined rate as outlined above. The defined benefit component of the Pension Plan was closed to new non-union employees as of January 8, 2013. Defined Contribution Under the defined contribution component of the plan, the Company contributes a base amount to the participant’s account each pay period. The amount is expressed as a percentage of eligible earnings. Plan participants can also make contributions to the defined contribution component, with the Company matching a portion of these contributions. Canada Revenue Agency limits apply.
Emera Inc. — Management Information Circular 2014 55 Upon ending active employment with the Company at any age between 55 and 65, plan participants may start receiving retirement income through the purchase of a life annuity or by converting their account to a Life Income Fund. The defined contribution component of the plan is administered on behalf of the Company by a major Canadian insurance company, which acts in accordance with the provisions of the defined contribution component of the plan, the Income Tax Act, and the Nova Scotia Pension Benefits Act. Deferred Share Unit Plan (“DSU Plan”) Emera has a DSU Plan for executives and senior management and each NEO is a participant. A Deferred Share Unit (“DSU”) is a unit that has a value based upon the value of one common share of the Company. Each DSU earns dividend equivalents in the form of additional DSUs — when a dividend is paid on Emera’s common shares, each participant’s DSU account is allocated additional DSUs based on the dividend paid on an equivalent number of Emera common shares. DSUs are not paid out until such time as the participant is no longer employed by the Company or any of its affiliates. When redeemed, the value of a participant’s DSUs is equivalent to the fair market value of an equal number of common shares of the Company. The DSU Plan is intended to facilitate achievement of share ownership guidelines (discussed in Executive Share Ownership Requirements) without diluting the shareholder base. DSUs are an income deferral mechanism only, and therefore there are no performance targets attributable to DSUs. Prior to the start of each financial year, each plan participant may elect to defer some or all of the annual incentive award in the form of DSUs. When the Annual Incentive is paid to the NEOs, the portion elected is allocated to DSUs rather than paid in cash. Following resignation, termination of employment or retirement, and on a date selected by the participant not later than December 15 of the next calendar year after resignation, termination or retirement, the value of the DSUs credited to the participant’s account is calculated by multiplying the number of DSUs in the participant’s account by the then market value of an Emera common share. The after-tax amount is paid to the participant. If a participant is a US taxpayer, payment shall be made six months following the termination date. In addition, special DSU awards may be made from time to time by the MRCC to selected executives and senior management to recognize singular achievements or the achievement of certain corporate objectives. 2013 DSU Plan Results The table below identifies the amount of Annual Incentive for 2013 which each NEO elected to receive as DSUs:
Percentage of 2013 annual incentive Dollar amount of 2013 annual incentive Name elected to deferred share units (%) elected to deferred share units ($)
Christopher Huskilson 0 0 Scott Balfour 100 476,100 Nancy Tower 0 0 Robert Bennett 50 238,050 Robert Hanf 50 126,000
56 Emera Inc. — Management Information Circular 2014 Management Information Circular
Executive Share Ownership Requirements To align the interests of senior management with the interests of shareholders, share ownership guidelines were introduced for designated Executive Officers in 2003. The guidelines, which must be achieved within five years of becoming a designated Executive Officer, are as follows:
Position Affiliate Target share ownership
President and Chief Executive Officer Emera Inc. 4.0 times salary
President and Chief Executive Officer Nova Scotia Power Inc. 2.0 times salary Emera Maine
Presidents/Chief Operating Officers/ Emera Inc. 2.0 times salary Executive and Senior Vice Presidents/Chief Nova Scotia Power Inc. Financial Officer/Chief Legal Officer/Chief Emera Maine Human Resources Officer Emera Energy Emera Utility Services Emera Newfoundland & Labrador
Vice President/Corporate Secretary Emera Inc. 1.0 times salary Nova Scotia Power Inc.
Share ownership is based on the number of shares owned by an individual, plus DSUs which may be acquired pursuant to the Company’s DSU Plan. DSUs are considered share equivalents. Executive Officers who are subject to the share ownership guidelines are required to allocate a portion of their annual incentive into DSUs until their target share ownership is met. All Executive Officers are subject to an anti-hedging policy prohibiting them from hedging, monetizing, or otherwise reducing or limiting their economic risk with respect to any Emera securities they hold (including DSUs, PSUs and stock options). The President and CEO is required to maintain his share ownership target for one year post-retirement. 2013 Executive Share Ownership Results The share and/or share equivalent ownership for those NEOs governed by the ownership guidelines are set out below. The estimated value is based on the closing price of Emera’s common shares on December 31, 2013 of $30.57.
NEO Shares/share equivalents (#) (1) Estimated value ($) Multiple of base salary Target Achieved
Christopher Huskilson 219,096 6,697,765 7.7 Yes Scott Balfour 35,165 1,074,994 2.3 Yes Nancy Tower 60,293 1,843,157 4.0 Yes Robert Bennett 41,872 1,280,027 2.8 Yes Robert Hanf (2) 19,677 601,526 1.7 No
(1) Includes vested and unvested DSUs. (2) Mr. Hanf has until January 16, 2016 to achieve his share ownership requirements.
The total share and share equivalent ownership for Mr. Huskilson, including PSUs, as of December 31, 2013, is illustrated below:
Total shares and Total share and share share equivalents as a Shares ($) PSUs ($) DSUs ($) equivalent ownership ($) multiple of base salary
780,022 1,811,712 5,917,728 8,509,462 9.7
Emera Inc. — Management Information Circular 2014 57 Other Executive Benefits The Company provides executives with additional benefits in accordance with the compensation program objectives and for the purpose of retention and motivation. As part of their compensation, senior management, including the NEOs, are eligible to receive: •• annual income tax return preparation; •• monthly parking; •• monthly car allowance plus mileage, as applicable; and •• annual wellness/fitness allowance. Executives are also eligible to participate in the Employee Common Share Purchase Plan, which allows employees of Emera and its affiliates to purchase Emera common shares through regular payroll deductions or lump-sum payments. Participants can contribute up to $8,000 per year and the Company will match 20 per cent of the first $3,000 in contributions, and 10 per cent of any contributions between $3,000 and $8,000. These items are considered taxable benefits and are reported in the NEO Summary Compensation Table for the NEOs. All retired employees are eligible to continue basic life and accident insurance as well as extended health coverage. Termination and Change of Control Benefits The following table provides the estimated amounts of incremental payments, payables and benefits to which each NEO would be entitled under various plans and arrangements, assuming retirement, resignation, termination without cause, termination for cause and separation from the Company in circumstances of a change of control, assuming the triggering event took place on December 31, 2013. Continuation Cash Short-term of benefits Departure severance incentive Stock (present Name scenario (1) ($) ($) PSUs ($) (2) DSUs ($) (2) options ($) (2) value) ($) (3) Total ($)
Christopher Huskilson Resignation Termination for Cause Termination without Cause 1,750,000 1,575,000 353,899 49,055 3,727,954 Control Change 1,750,000 1,575,000 353,899 49,055 3,727,954 Retirement 2,136,572 353,899 282,857 2,773,327 Scott Balfour Resignation Termination for Cause Termination without Cause 460,000 276,000 220,560 13,056 969,616 Control Change 460,000 276,000 220,560 13,056 969,616 Retirement 73,520 73,520 Nancy Tower Resignation Termination for Cause Termination without Cause 460,000 276,000 214,149 20,610 970,759 Control Change 460,000 276,000 431,503 1,167,503 Retirement 214,149 214,149 Robert Bennett Resignation Termination for Cause Termination without Cause 460,000 276,000 201,511 7,103 944,614 Control Change 460,000 276,000 412,547 1,148,547 Retirement 201,511 201,511 Robert Hanf Resignation Termination for Cause Termination without Cause 360,000 180,000 116,441 21,339 677,780 Control Change 360,000 180,000 116,441 21,339 677,780 Retirement 116,441 116,441
(1) Please see the tables following for a description of the entitlements of each NEO under the various departure scenarios. (2) Payouts for PSUs assume a performance factor of 1.0 and payouts for both PSUs and DSUs are valued using the average closing share price for the last 50 trading days of 2013 ($30.08). Payouts for stock options represent the in-the-money amount of exercisable options using the closing share price as of December 31, 2013 ($30.57). (3) Continuation of benefits may reflect amounts for car allowance, health and dental benefits and insurance benefits, as applicable pursuant to employment contracts.
58 Emera Inc. — Management Information Circular 2014 Management Information Circular
The following is a summary of the entitlements on departure afforded to each NEO under his or her employment contract or the applicable plans as of December 31, 2013.
Christopher Huskilson
Resignation All unvested PSUs, DSUs and stock options are forfeited.
Terminated for cause All unvested PSUs, DSUs and stock options are forfeited.
Terminated without cause Entitled to 24 months’ compensation based upon annual salary, annual incentive at target and car allowance. Health, dental and other such benefits will be continued for up to 12 months. Unvested DSUs are deemed to vest on the termination date. Unvested PSUs and stock options are forfeited.
Change in control If there is a change of control of the ownership of the Company, such that any one party acquires 50 per cent or more of voting securities and there is a substantial reduction in responsibilities or scope of authority, Mr. Huskilson may elect within three months following such substantial reduction in responsibilities or scope of authority, to terminate employment and receive 24 months’ compensation based upon annual salary, annual incentive at target, and car allowance. Health, dental and other such benefits will be continued for up to 12 months. Unvested DSUs are deemed to vest on the termination date. Unvested PSUs and stock options are forfeited.
Retirement Mr. Huskilson was eligible to retire with an unreduced pension as of June 30, 2012. He has agreed to advise the Company at least 12 months in advance of any proposed retirement. Information regarding pension entitlement is contained in Pension Plan Benefits. PSUs continue to be eligible to vest in accordance with the applicable performance criteria and will be paid out upon vesting. Unvested DSUs shall vest immediately. Unvested stock options continue to be eligible to vest for two years past retirement. Any stock options that have not vested within two years of retirement are forfeited. All vested stock options must be exercised by the earlier of (a) two years from the date of retirement, and (b) 10 years from the original grant date.
Scott Balfour
Resignation All unvested PSUs and stock options are forfeited.
Terminated for cause All unvested PSUs and stock options are forfeited.
Terminated without cause Entitled to a lump sum equal to 12 months’ compensation based upon annual salary and annual incentive at target. Health, dental and other such benefits will be continued for up to 12 months. Unvested PSUs are deemed to vest on the termination date. Unvested stock options are forfeited.
Change in control If there is a change of control of the ownership of the Company, such that any one party acquires 50 per cent or more of voting securities and there is a substantial reduction in responsibilities or scope of authority, Mr. Balfour may elect, within three months following such substantial reduction in responsibilities or scope of authority, to terminate employment and receive 12 months’ compensation based upon annual salary and annual incentive at target. Health, dental and other such benefits will be continued for up to 12 months. Unvested PSUs are deemed to vest on the termination date. Unvested stock options are forfeited.
Retirement Mr. Balfour becomes eligible to retire with an unreduced pension in August 2024. Information regarding pension entitlement is contained in Pension Plan Benefits. PSUs continue to be eligible to vest in accordance with the applicable performance criteria and will be paid out on a prorated basis upon vesting. Unvested stock options are forfeited.
Other If Mr. Balfour’s employment is terminated without cause, he is entitled to a relocation program for reimbursement of reasonable relocation costs back to Ontario to a maximum of $200,000, which is payable up to 12 months after the termination date.
Emera Inc. — Management Information Circular 2014 59 Nancy Tower
Resignation All unvested PSUs and stock options are forfeited.
Terminated for cause All unvested PSUs and stock options are forfeited.
Terminated without cause Entitled to a lump sum equal to 12 months’ compensation based upon annual salary, annual incentive at target and car allowance. Health, dental and other such benefits will be continued for up to 12 months. Unvested PSUs are prorated to the date of termination and paid out based on an estimated future value. Unvested stock options are forfeited.
Change in control If there is a change of control of the ownership of the Company, such that any one party acquires 50 per cent or more of voting securities and there is a substantial reduction in responsibilities or scope of authority, Ms. Tower may elect, within three months following such substantial reduction in responsibilities or scope of authority, to terminate employment and receive 12 months’ compensation calculated on the basis of her annual salary and annual incentive at target. Unvested PSUs are deemed to vest on the termination date. Unvested stock options are forfeited.
Retirement Ms. Tower becomes eligible to retire with an unreduced pension in March 2019. Information regarding pension entitlement is contained in Pension Plan Benefits. PSUs continue to be eligible to vest in accordance with the applicable performance criteria and will be paid out on a prorated basis upon vesting. Unvested stock options are forfeited.
Robert Bennett
Resignation All unvested PSUs and stock options are forfeited.
Terminated for cause All unvested PSUs and stock options are forfeited.
Terminated without cause Entitled to a lump sum equal to 12 months’ compensation based upon annual salary and annual incentive at target. Health, dental and other such benefits will be continued for up to 12 months. Unvested PSUs are prorated to the date of termination and paid out based on an estimated future value. Unvested stock options are forfeited.
Change in control If there is a change of control of the ownership of the Company, such that any one party acquires 50 per cent or more of voting securities and there is a substantial reduction in responsibilities or scope of authority, Mr. Bennett may elect, within three months following such substantial reduction in responsibilities or scope or authority, to terminate employment and receive 12 months’ compensation calculated on the basis of his annual salary and annual incentive at target. Unvested PSUs are deemed to vest on the termination date. Unvested stock options are forfeited.
Retirement Mr. Bennett becomes eligible to retire with an unreduced pension in November 2017. Information regarding pension entitlement is contained in Pension Plan Benefits. PSUs continue to be eligible to vest in accordance with the applicable performance criteria and will be paid out on a prorated basis upon vesting. Unvested stock options are forfeited.
Other Under termination without cause, Mr. Bennett will be entitled to receive his pension on his earliest retirement eligibility date, calculated based on his earliest retirement eligibility date in 2017. This would be calculated based on his salary and annual target bonus in effect at the time of termination and as per the Executive Supplemental Pension Agreement.
60 Emera Inc. — Management Information Circular 2014 Management Information Circular
Robert Hanf
Resignation All unvested PSUs and stock options are forfeited.
Terminated for cause All unvested PSUs and stock options are forfeited.
Terminated without cause Entitled to a lump sum equal to 12 months’ compensation based upon annual salary, annual incentive at target and car allowance. Health, dental and other such benefits will be continued for up to 12 months. Unvested PSUs are prorated to the date of termination and paid out based on an estimated future value. Unvested stock options are forfeited.
Change in control If there is a change of control of the ownership of the Company, such that any one party acquires 50 per cent or more of voting securities and there is a substantial reduction in responsibilities or scope of authority, Mr. Hanf may elect, within three months following such substantial reduction in responsibilities or scope or authority, to terminate employment and receive 12 months’ compensation calculated on the basis of his annual salary, annual incentive at target and car allowance. Health, dental and other such benefits will be continued for up to 12 months. Unvested PSUs are prorated to the date of termination and paid out based on an estimated future value. Unvested stock options are forfeited.
Retirement Mr. Hanf becomes eligible to retire with an unreduced pension in November 2022. Information regarding pension entitlement is contained in Pension Plan Benefits. PSUs continue to be eligible to vest in accordance with the applicable performance criteria and will be paid out on a prorated basis upon vesting. Unvested stock options are forfeited.
Shares Authorized for Issuance under Equity-Based Compensation Plans The following table shows shares authorized for issuance under the Stock Option Plan and the Employee Common Share Purchase Plan as of December 31, 2013. There are no equity-based compensation plans that were not approved by Shareholders.
(A) (B) (C)
Number of shares available Number of shares to be Weighted-average for future issuance under issued upon exercise of exercise price of equity compensation plans Plan Category outstanding options outstanding options ($) (excluding column (A))
Equity-based compensation plans approved by Shareholders • Senior management stock option plan 2,067,118 28.95 539,185 • Employee common share purchase plan N/A N/A 1,966,494 Total 2,067,118 28.95 2,505,679
Loans to Directors and Officers No current or former directors or officers of Emera, or any of its subsidiaries, had any loans with Emera or any of its subsidiaries at any time in 2013, other than routine indebtedness previously outstanding as defined under Canadian securities laws. Material Transactions During the most recently completed financial year, insiders of the Company and its affiliates, including Directors, executive officers, proposed nominee Directors or their associates or corporations they controlled, did not have any material interest, direct or indirect, in any transaction or in any proposed transaction that has materially affected or will materially affect the Company. Management Contracts There are no functions of management which are performed by a person or company other than the Directors, executive officers or other employees of the Company. Audit Committee Information For information regarding Emera’s Audit Committee, including its Charter, composition, relevant education and experience of its members, Audit Committee oversight, policies and procedures for the approval of non-audit services and Auditors’ service fees, please refer to Emera’s Annual Information Form, available on SEDAR at www.sedar.com, or by contacting the Corporate Secretary of the Company.
Emera Inc. — Management Information Circular 2014 61 Appendix A Emera Incorporated Board of Directors Charter The fundamental responsibility of the Board of Directors (the “Board”) is to provide stewardship and governance to Emera Incorporated (“Emera”) to ensure the viability of the Company by overseeing management of the business. In addition to the powers set out in Emera’s Articles of Association, the Board shall have the following duties and responsibilities.
INDEPENDENCE AND INTEGRITY The Board shall be comprised of a majority of “Independent Directors” as defined from time to time under applicable legislation and the rules of any stock exchange on which Emera’s securities are listed for trading. The Chair shall be an “Independent Director” as defined above. The Board shall review and approve standards for ethical business conduct for employees, Officers and Directors of Emera and its subsidiaries and affiliates and a procedure for monitoring compliance with such code throughout the Company. The Board shall satisfy itself as to the integrity of the Chief Executive Officer and executive officers and the creation of an integrity- based culture throughout the Company. The Board shall, through its oversight of management, continue to foster an organization which operates in an environmentally responsible manner.
STRATEGIC PLANNING The Board shall provide oversight and guidance on the strategic issues facing Emera. The Board shall oversee a strategic planning process resulting in a strategic plan which shall be approved on an annual basis and will take into account, among other things, the opportunities and risks of the business. The Board shall regularly consider Emera’s strategy, evaluate progress made in pursuing that strategy, and consider any adjustments to the strategy that may be required from time to time. The Board shall review and approve the Company’s financial objectives, plans and actions, including significant capital allocations and expenditures. The Board shall review and approve all material acquisitions, dispositions, projects, business plans and budgets.
RISK RESPONSIBILITY The Board shall oversee the implementation by management of appropriate systems to identify, report and manage the principal risks of Emera’s business. The Board will consider Emera’s risk profile and oversee Emera’s risk management by reviewing: (a) the annual identification and assessment of the principal risks of Emera; (b) the process for ongoing monitoring and reporting of the principal risks of Emera; (c) the effectiveness of Emera’s mitigation response to its principal risks; and (d) the alignment of risk management with Emera’s risk profile, its strategy and its organizational objectives, including capital and resources allocation. The Board shall also review Emera’s annual insurance program and uninsured exposure, and Emera’s business continuity and disaster recovery plans. The Board shall receive regular updates on the status of risk management activities and initiatives. The Board shall approve and monitor processes that provide reasonable assurance of compliance with applicable legal and regulatory requirements.
LEADERSHIP AND SUCCESSION The Board shall oversee policies and practices to enable the Company to attract, develop and retain the human resources required by the Company to meet its business objectives. The Board shall appoint executive officers and delegate the necessary authority for the conduct of the business. The Board shall establish annual performance expectations and corporate goals and objectives for the Chief Executive Officer and monitor progress against those expectations.
62 Emera Inc. — Management Information Circular 2014 Management Information Circular
The Board shall evaluate the performance and, following a review of recommendations from the Management Resources and Compensation Committee, approve compensation for executive officers. The Board shall oversee the succession planning program for the Chief Executive Officer and other key executive positions from time to time.
FINANCIAL The Board shall oversee the financial reporting and disclosure obligations imposed on the Company by laws, regulations, rules, policies and other applicable requirements. The Board shall review the financial performance of the Company and declare dividends as appropriate. The Board shall approve for release to the public as necessary the Company’s financial statements, management discussion and analysis (MD&A) and earnings releases prepared by management, and oversee the Company’s compliance with applicable audit, accounting and reporting requirements. The Board shall review the quality and integrity of Emera’s internal controls and management information systems.
CORPORATE COMMUNICATIONS AND PUBLIC DISCLOSURE The Board shall review and approve a formal corporate disclosure policy and oversee policies and processes for accurate, timely and appropriate public disclosure. The Board shall oversee systems for receiving feedback from stakeholders and monitor such feedback received by the Company.
GOVERNANCE RESPONSIBILITY The Board is responsible for overseeing the Company’s corporate governance policies and practices and shall maintain a set of corporate governance practices that are specifically appropriate to the Company. Pursuant to the Articles, the Directors shall appoint one of the Directors as Chair of the Board, and such Director shall not be an employee of Emera or any of its affiliates or subsidiaries. The Board shall establish appropriate structures and procedures to allow the Board to function independently of management and in the interests of the Company and its Shareholders. The Board, in carrying out its mandate, shall appoint Committees of the Board and delegate certain functions to those Committees, each of which shall have its own written charter. Notwithstanding such delegation, the Board retains its oversight function and ultimate responsibility for these delegated functions. The Board shall oversee a process for the selection of qualified individuals for board nomination, and shall approve selection criteria for identifying Director candidates, taking into account the competencies and skills the Board as a whole should possess. The Board shall undertake regular evaluation of the Board, the Chair of the Board, the Board Committees and individual Directors. The Board shall undertake regular evaluation of Directors’ compensation. The Board shall review this Charter annually to ensure it appropriately reflects the Board’s stewardship responsibilities.
Emera Inc. — Management Information Circular 2014 63 Appendix B Emera Incorporated (the “Company”) Resolution Amending the Senior Management Stock Option Plan May 7, 2014 Resolved that: 1. The Senior Management Stock Option Plan (the “Plan”) of the Company be amended to increase by 5,000,000 the maximum number of common shares of the Company (“Common Shares”) that can be issued under the Plan from 6,700,000 to 11,700,000 Common Shares. 2. The Plan be amended by deleting Article 9.1 and replacing it with the following: The Board or the Committee may from time to time, without notice and without shareholder approval, amend, modify, change, suspend or terminate the Plan as it, in its absolute discretion determines appropriate, provided, however, that: shareholder approval shall be required for any amendment, modification or change that (i) increases the number of Common Shares reserved for issuance under the Plan, except an increase made in proportion to an increase in the number of common shares outstanding due to a stock dividend, stock split, amalgamation, reorganization, merger or similar event, (ii) extends eligibility to participate in the Plan to non-employee directors, (iii) permits rights under the Plan to be transferred other than for normal estate settlement purposes, (iv) permits awards to be granted under the Plan in addition to Options, (v) increases either of the ten per cent insider participation limits under this Plan (vi) reduces the Option Price of an Option (for this purpose, a cancellation or termination of an Option of an Optionee prior to its expiry date for the purpose of reissuing an Option to the same Optionee with a lower Option Price shall be treated as an amendment to reduce the Option Price of an Option) except for the purpose of maintaining Option value in connection with a change of control or pursuant to the provisions in the Plan which permit equitable adjustments to be made to the Option Price in connection with a stock dividend, stock split, share reclassification, amalgamation, reorganization, merger or similar event, (vii) extends the term of an Option beyond the original expiry date, (viii) permits the expiry of an Option to be beyond ten years from its date of grant or (ix) deletes or reduces the range of amendments which require shareholder approval under this paragraph. 3. The 115,915 options granted to senior management of the Company or its Affiliates, on February 12, 2014 which are subject to approval of the increase in the Plan maximum are hereby ratified and approved. 4. Any Director or Officer of the Company be and is hereby authorized and directed to execute, whether under the corporate seal of the Company or otherwise, and to deliver all documents or instruments in writing and to do all such other acts and things as may be determined necessary or appropriate to carry out the terms of this resolution, the making of such determination to be conclusive evidence of the necessity or appropriateness.
64 Emera Inc. — Management Information Circular 2014 emera.com