WELPP Wisconsin Electric Power Company (QB)

COMPONENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

We have three primary elements of total direct compensation: (1) base salary; (2) annual incentive awards; and (3) long-term incentive awards consisting of a mix of performance units, stock options, and restricted stock. The Compensation Committee again retained Frederic W. Cook & Co., Inc. (“FW Cook”) as its independent compensation consultant to advise the Compensation Committee with respect to our executive compensation program. The Compensation Committee generally relied upon the recommendations of FW Cook in its development of the 2022 program.

On October 21, 2021, the Board appointed Mr. Lauber to succeed Mr. Fletcher as the Company’s President and CEO, effective February 1, 2022. Mr. Fletcher continued to serve as a senior adviser until his retirement on June 1, 2022. As shown in the charts below, 86% of Mr. Lauber’s 2022 total direct compensation and an average of 84% of the other NEOs’ 2022 total direct compensation was tied to Company performance and was not guaranteed. Mr. Fletcher’s 2022 compensation is included in the “Other NEOs 2022 Total Direct Compensation Mix” chart below.

In addition to the components of total direct compensation identified above, our retirement programs are another important component of our compensation program.

To the extent feasible, we believe it is important that the Company’s compensation program not dilute the interests of current stockholders. Therefore, we currently use open-market purchases to satisfy our benefit plan obligations, including the exercise of stock options and awarding of restricted stock.

This Compensation Discussion and Analysis contains a more detailed discussion of each of the above components for 2022, including FW Cook’s recommendations with respect to each component.

Competitive Benchmarking

As a general matter, we believe the labor market for WEC Energy Group executive officers is consistent with that of general industry. Although we recognize our business is focused on the energy services industry, our goal is to have an executive compensation program that will allow us to be competitive in recruiting the most qualified candidates to serve as executive officers of the Company, including individuals who may be employed outside of the energy services industry. Further, in order to retain top performing executive officers, we believe our compensation practices must be competitive with those of general industry.

To confirm that our annual executive compensation is competitive with the market, FW Cook reviewed 2022 general industry executive compensation survey data obtained from WTW and Aon Hewitt. FW Cook also analyzed the compensation data from a peer group of 19 companies similar to WEC Energy Group in size and business model. The methodology used by FW Cook to determine the peer group of companies is described below.

FW Cook started with U.S. companies in the Standard & Poor’s database, and then limited those companies to the same line of business as WEC Energy Group as indicated by the Global Industry Classification Standards. This list of companies was then further limited to companies with revenues between $2.6 billion and $23.5 billion (approximately one-third to three times the size of WEC Energy Group’s revenues), and that were within a reasonable size range in various other measures such as operating income, total assets, total employees, and market capitalization. From this list, FW Cook selected companies similar in overall size to WEC Energy Group with consideration given to companies that met one or more of the following criteria:

These criteria resulted in a comparison group of 19 companies with median revenues and market capitalization of approximately $10.5 billion and $21.2 billion, respectively.

The comparison group utilized for purposes of 2022 compensation includes the same companies as the previous year’s comparison group, with the addition of Dominion Energy, Inc. The comparison group consisted of the 19 companies listed below.

The Compensation Committee approved this comparison group.

DETERMINATION OF MARKET MEDIAN

In order to determine the “market median” for our NEOs, FW Cook recommended that the survey data from WTW and Aon Hewitt receive a 75% weighting and the comparison group of 19 companies receive a 25% weighting. The Compensation Committee agreed with this recommendation. The survey data received a higher weighting because we consider the labor market for our executives to be consistent with that of general industry. Using this methodology, FW Cook recommended, and the Compensation Committee approved, the appropriate market median for each of our NEOs.

The comparison of each component of compensation with the appropriate market median when setting the compensation levels of our NEOs generally drives the allocation of cash versus non-cash compensation and short-term versus long-term incentive compensation.

ANNUAL BASE SALARY

The annual base salary component of our executive compensation program provides each executive officer with a fixed level of annual cash compensation. We believe that providing annual cash compensation through a base salary is an established market practice and is a necessary component of a competitive compensation program.

Based upon the market data analyzed by FW Cook, we generally target base salaries to be at or near the market median for each NEO. However, the Compensation Committee may, in its discretion, set base salaries at a different amount when the Compensation Committee deems it appropriate.

Actual salary determinations are made taking into consideration factors such as the relative levels of individual experience, performance, responsibility, market compensation data and contribution to the results of the Company’s operations. At the beginning of each year, our CEO and the other members of the Office of the Chair develop a list of goals for WEC Energy Group and our employees to achieve during the upcoming year. The Compensation Committee takes the Company’s performance against these goals into consideration when establishing our CEO’s and Executive Chairman’s compensation for the upcoming year. Our CEO undertakes a similar process with the other NEOs, who develop individual goals related to the achievement of the Company’s goals. At the end of the year, each officer’s performance is measured against these goals. The CEO and Executive Chairman discuss these results and based on this performance assessment, a compensation recommendation is made to the Compensation Committee for the upcoming year for each executive officer.

2022 Salary Determination Process

Mr. Lauber’s 2022 annual base salary was initially set at $950,000 for his role as Senior Executive Vice President and Chief Operating Officer of WEC Energy Group. However, effective February 1, 2022, when Mr. Lauber became President and CEO of the Company, his annual base salary was increased to $1,025,050.

Mr. Fletcher’s annualized base salary was set at $1,087,934, which was unchanged from his 2021 base salary.

In October 2020, in recognition of his strong, continued leadership and to ensure the ongoing mentoring of the next generation of leadership of the Company, the Board determined that Mr. Klappa should continue to serve as Executive Chairman until May 2024. At that time, Mr. Klappa entered into a new letter agreement, which stated his compensation would be determined in the same manner and subject to the same timing as the Compensation Committee utilizes for all other NEOs. As a result, Mr. Klappa’s 2022 base salary was set at $1,126,944 by the Compensation Committee, an increase of 4.0% over his 2021 base salary.

With respect to the 2022 base salaries of Mmes. Liu and Kelsey, and Mr. Garvin, in December 2021, recommendations were made to the Compensation Committee based upon a review of the market compensation data provided by FW Cook and the other factors described above. The Compensation Committee approved the recommendations, which represented an average increase in annual base salary of approximately 3.67%. The annual base salary of each NEO was at or near the market median.

ANNUAL CASH INCENTIVE COMPENSATION

We provide annual cash incentive compensation through our Short-Term Performance Plan (“STPP”). The STPP provides for annual cash awards to our executive officers and other key employees based upon the achievement of pre-established stockholder-, customer-, and employee-focused objectives. All payments under the STPP are at risk. Payments are made only if performance goals are achieved, and awards may be less or greater than targeted amounts based upon actual performance. Payments under the STPP are intended to reward achievement of short-term goals that contribute to stockholder and customer value, as well as individual contributions to successful operations.

2022 Target Awards. Each year, the Compensation Committee approves a target level of compensation under the STPP for each of our NEOs. This target level of compensation is expressed as a percentage of base salary.

Effective February 1, 2022, the target award level for Mr. Lauber was increased to 140% of base salary in recognition of his appointment to President and Chief Executive Officer of WEC Energy Group. Therefore, Mr. Lauber’s STPP payout reflects an 85% target level for January 2022 and a 140% target level for February through the remainder of the year. In recognition of Mr. Fletcher’s service as CEO until February 1, 2022, his target award level was 130%, which is the same as his 2021 target award level.

The year-end 2022 target awards for each NEO (other than Mr. Lauber and Mr. Fletcher, who are discussed above) are set forth in the chart below.

The target award levels of each NEO reflect median incentive compensation practices as indicated by the market data.

For 2022, the possible payout for any NEO ranged from 0% of the target award to 210% of the target award, based upon Company performance.

Supporting Business Fundamentals and Environmental, Social and Governance Commitments. The financial, operational and social goals established under the STPP are linked to key objectives that support the Company’s sustainability.

Delivering a cleaner energy future is one of the fundamentals of our business and a major focus of the Company’s capital plan. The Compensation Committee assesses management’s performance in achieving long-term strategic sustainability goals through the execution of the Company’s capital spending plan. Our ability to fund the capital plan without issuing additional equity has been directly linked with our ability to consistently deliver on the Company’s financial plan, which includes meeting the financial goals established under the STPP. These financial measures, which are discussed in more detail below, are key performance indicators underlying our NEOs’ incentive compensation, linking achievement of the Company’s long-term strategy through our focus on short-term priorities.

The operational and social goals established under the STPP are tied to achievement of strategic objectives, which include a focus on customer satisfaction, employee safety, and workforce and supplier diversity.

2022 Financial Goals under the STPP. The Compensation Committee adopted the 2022 STPP with a continued focus on financial results. In December 2021, the Compensation Committee approved WEC Energy Group’s earnings per share (75% weight) and cash flow (25% weight) as the primary performance measures to be used in 2022. We continue to believe earnings per share and cash flow are key indicators of financial strength and performance, and are recognized as such by the investment community.

In January 2022, the Compensation Committee approved the performance goals under the STPP for WEC Energy Group’s earnings per share as set forth in the chart below.

If the Company’s performance falls between these levels, the payout level with respect to earnings per share is determined by interpolating on a straight line basis the appropriate payout level.

At the time the Compensation Committee established the earnings per share performance goals for 2022, the Company’s growth plan called for a compound annual growth rate (“CAGR”) in earnings per share of 6.0% to 7.0%, measured off a 2021 base of $4.01 per share, which represented the mid-point of the original 2021 annual earnings guidance. We believe that achievement of our projected CAGR, plus our continued growth in dividends, supports a premium valuation as compared to the Company’s peers. In order to further motivate management, the Compensation Committee determined that the Company’s target payout level should equal the high end of the range and the maximum payout level should exceed the high end of the 6.0% to 7.0% CAGR growth plan. Therefore, the target (100%) and maximum payout levels (200%) were tied to 7.0% and 8.0% CAGRs, respectively. The Compensation Committee tied the above-target payout level to achievement of a 7.2% CAGR. Subsequently, in November 2022, the Company announced that it tightened its projected CAGR in earnings per share to 6.5% to 7.0%.

In January 2022, the Compensation Committee approved the performance goals under the STPP for WEC Energy Group’s cash flow as set forth in the chart below ($ in millions).

If the Company’s performance falls between these levels, the payout level with respect to cash flow is determined by interpolating on a straight-line basis the appropriate payout level.

The Compensation Committee based the cash flow performance level goals on WEC Energy Group’s “net cash provided by operating activities” and adjusting for certain accruals and other items related to capital spending (“Adjusted Cash From Operations”). GAAP requires these items to be recorded as part of cash from operations, but management views them as related to the Company’s capital expenditure program. The Compensation Committee believes that basing the cash flow performance goals on Adjusted Cash From Operations provides a more accurate measurement of the cash generated by the Company’s operations that is available for capital investment, which is the Company’s primary driver for earnings growth. Adjusted Cash From Operations is not a measure of financial performance under GAAP, and the Company’s calculation may differ from similarly titled measures used by other companies or securities rating agencies.

2022 Financial Performance under the STPP. In January 2023, the Compensation Committee reviewed our actual performance for 2022 against the financial, operational and social performance goals established under the STPP, subject to final audit.

WEC Energy Group’s 2022 financial performance satisfied the maximum payout level established for earnings per share and cash flow. WEC Energy Group’s earnings per share were $4.45 for 2022, and its cash flow, based on Adjusted Cash From Operations, was $2,142.0 million. Our cash flow result is not a measure of financial performance under GAAP.

By satisfying the maximum payout level with respect to these financial measures, the NEOs earned 200% of the target award from the financial goal component of the STPP.

2022 WEC Energy Group Operational and Social Performance Goals under the STPP. In December 2021 and January 2022, the Compensation Committee also approved operational and social performance measures and targets under the STPP that promote certain of the Company’s priorities. The Compensation Committee identified commitment to customer satisfaction, supplier and workforce diversity, and safety as critical to the success of the Company. For that reason, annual incentive awards could be increased or decreased by up to 10% of the actual award based upon WEC Energy Group’s performance in the areas of customer satisfaction (5% weight), safety (2.5% weight), and supplier and workforce diversity (2.5% weight).

The Compensation Committee measures customer satisfaction levels based upon the results of surveys that an independent third party conducts of customers who had direct contact with our utilities during the year, which measure (i) customers’ satisfaction with the respective utility overall, and (ii) customers’ satisfaction with respect to the particular transactions with the applicable utility.

Safety is measured based upon performance against the number of lost-time injuries and Days Away, Restricted or Transferred (“DART”) recordable incidents. Beginning with the 2022 STPP award, the Compensation Committee started using DART as one of the safety metrics instead of OSHA Recordable Injuries. DART is a metric that focuses on more significant injuries and measures how many workplace injuries and illnesses resulted in employees missing work, required restricted work activities or resulted in job transfers. The change is consistent with the trend in the Company’s industry to focus safety practices and efforts on preventing the most severe injuries.

The operational performance measures are based upon recommendations from management and take into consideration both current-year performance and our longer-term objective of achieving top quartile performance of all of our principal utilities. The Compensation Committee reviews management’s recommendations and may make adjustments to the performance measures if it determines changes are necessary. The following table provides the operational and social goals approved by the Compensation Committee for 2022, as well as WEC Energy Group’s performance against these goals:

WEC Energy Group’s performance against the safety and diversity goals generated a 5.0% increase to the compensation awarded under the STPP for 2022.

The Compensation Committee retains the right to exercise discretion in adjusting awards under the STPP when it deems appropriate, but did not factor individual contributions into determining the amount of the awards for the NEOs for 2022. Because the Company’s performance against the financial, operational and social goals resulted in significant STPP awards in 2022, the Compensation Committee determined that no further adjustments based upon individual contributions or otherwise were appropriate.

Based upon the Company’s performance against the financial, operational and social goals established by the Compensation Committee, Mr. Lauber received annual incentive cash compensation under the STPP of $2,832,628 for 2022. This represented 276% of his annual base salary. Mmes. Liu and Kelsey, and Messrs. Klappa and Garvin, each received annual cash incentive compensation for 2022 under the STPP equal to 162%, 152%, 274%, and 131% of their respective annual base salaries, representing 205% of the target award for each officer. Mr. Fletcher’s 2022 annual cash incentive compensation of $1,207,397 equals 267% of his pro-rated 2022 annual base salary, representing 205% of his pro-rated target award.

LONG-TERM INCENTIVE COMPENSATION

The Compensation Committee administers our WEC Energy Group Omnibus Stock Incentive Plan, amended and restated, effective as of May 6, 2021 (the “OSIP”), which is a stockholder-approved, long-term incentive plan designed to link the interests of our executives and other key employees to creating long-term stockholder value. It allows for various types of awards tied to the performance of our common stock, including stock options, stock appreciation rights, and restricted stock. The Compensation Committee also administers the WEC Energy Group Performance Unit Plan, under which the Compensation Committee may award performance units. The Compensation Committee primarily uses (1) performance units, including dividend-equivalents, (2) stock options, and (3) restricted stock to deliver long-term incentive opportunities.

Amended and Restated Performance Unit Plan. On December 1, 2022, the Compensation Committee amended and restated the Performance Unit Plan, effective as of January 1, 2023 (the “Amended PUP”).

Pursuant to the Amended PUP, performance units will vest based upon the Company’s performance during a three-year period against one or more performance measures selected by the Compensation Committee at the beginning of the performance period. The Compensation Committee may determine achievement of a performance measure on an annual basis or over the entire three-year performance period. The Compensation Committee will determine the vesting percentages of the performance units, and performance measures may have the same or different weightings with respect to performance unit vesting. Achievement within a performance measure may be determined based upon the Company’s rank in comparison to a peer group of companies or by reaching stated levels of performance. The Compensation Committee will also select the target(s) for each performance measure and the potential impact to the vesting percentage based on achievement of the performance measure(s) relative to the selected target(s). In no event will the vesting percentage over the three-year performance period be less than zero or more than 200%.

The Amended PUP governs the terms of performance units starting with the 2023 award. The performance units awarded in January 2022 were awarded under the prior version of the performance unit plan (the “Prior PUP”), the terms of which are described herein.

Performance Units. Each year, the Compensation Committee makes annual grants of performance units under the performance unit plan. The performance units are designed to provide a form of long-term incentive compensation that aligns the interests of management with those of a typical utility stockholder who is focused not only on stock price appreciation but also on dividends. Payouts of the 2022 performance units are based upon the Company’s level of “total stockholder return” (stock price appreciation plus reinvested dividends) in comparison to a peer group of companies over a three-year performance period, and may be adjusted based upon the Company’s performance against one or more Additional Performance Measures. The performance units are settled in cash.

Selection of Additional Performance Measure(s). “Additional Performance Measure” is defined in the Prior PUP as the performance criterion or criteria (if any) that the Compensation Committee selects, in its sole discretion, based upon the attainment of specific levels of performance by WEC Energy Group. Pursuant to the terms of the Prior PUP, performance units vest in an amount between 0% and 175% of the target award based upon WEC Energy Group’s comparative total stockholder return over a three-year performance period. However, the vesting percentage may be adjusted based upon WEC Energy’s performance against the Additional Performance Measure(s). The Additional Performance Measure(s), if any, were selected by the Compensation Committee at the beginning of the three-year performance period. For each year during the performance period, the Compensation Committee selected the target(s) for the Additional Performance Measure(s) and the potential adjustment to the vesting percentage for that year based upon achievement of the Additional Performance Measure(s) relative to the selected target(s). The actual adjustment, if any, to the vesting percentage based upon the Additional Performance Measure(s) is determined annually. In no event will any adjustment cause the vesting percentage over the three-year performance period to be less than zero.

Short-Term Dividend Equivalents. Pursuant to the terms of the Prior PUP, we increase the number of unvested performance units as of any date that we declare a cash dividend on our common stock by the amount of short-term dividend equivalents a participant is entitled to receive. Short-term dividend equivalents are calculated by multiplying (a) the number of unvested performance units held by a plan participant as of the related dividend record date by (b) the amount of cash dividend payable by the Company on a share of common stock; and (c) dividing the result by the closing price for a share of the Company’s common stock on the dividend payment date. In effect, short-term dividend equivalents are credited and accumulated as reinvested dividends on each performance unit so that the performance units and accumulated dividends will be paid out at the end of the three-year performance period, rather than paying out the dividend equivalents annually on unearned performance units.

Short-term dividend equivalents are treated as additional unvested performance units and are subject to the same vesting, forfeiture, payment, termination, and other terms and conditions as the original performance units to which they relate. In addition, outstanding short-term dividend equivalents are treated as unvested performance units for purposes of calculating future short-term dividend equivalents.

Short-term dividend equivalents are also a part of the Amended PUP and are calculated in the same manner.

Stock Options. Each year, the Compensation Committee also makes annual stock option grants as part of our long-term incentive program. These stock options have an exercise price equal to the fair market value of our common stock on the date of grant and expire on the 10th anniversary of the grant date. Since management benefits from a stock option award only to the extent our stock price appreciates above the exercise price of the stock option, stock options align the interests of management with those of our stockholders in attaining long-term stock price appreciation.

Restricted Stock. The Compensation Committee also awards restricted stock as part of the long-term incentive plan, consistent with market practice. Similar to performance units, restricted stock aligns the interests of management with a typical utility stockholder who is focused on stock price appreciation and dividends.

Aggregate 2022 Long-Term Incentive Awards. Generally, when establishing the target value of long-term incentive awards and the appropriate mix of performance units, stock options, and restricted stock for each NEO, the Compensation Committee reviews the market compensation data and analysis provided by FW Cook. Based upon FW Cook’s analysis, for 2022 the Compensation Committee again determined that the long-term incentive awards would be weighted 65% performance units, 20% stock options, and 15% restricted stock for the NEOs, other than Mr. Klappa. Target values also were presented to and approved by the Compensation Committee in December 2021.

Consistent with prior years, the Compensation Committee determined that Mr. Klappa’s 2022 long-term incentive award would be weighted 25% performance units, 15% stock options, and 60% restricted stock. Mr. Klappa’s tenure as the Company’s Executive Chairman is scheduled to end in May 2024. Therefore, after consultation with FW Cook, the Compensation Committee again determined that there should not be any changes to the mix of Mr. Klappa’s long-term awards.

Based upon the market data provided by FW Cook, we customarily target the long-term incentive award to be at or near the market median value of long-term incentive compensation for each executive officer’s position. All of the NEOs’ long-term incentive awards were within this target range for 2022. The following provides the 2022 target long-term incentive award value for each NEO:

Although awarded in January 2022, Mr. Lauber’s target award reflects his appointment as President and Chief Executive Officer effective February 1, 2022. Mr. Fletcher’s target award is the same as 2021.

2022 Stock Option Grants. In December 2021, the Compensation Committee approved the grant of stock options to each of our NEOs and established an overall pool of options that were granted to approximately 170 other employees. The annual option grants to the NEOs were made effective January 3, 2022, the first trading day of 2022.

All such options were granted with an exercise price equal to the average of the high and low prices reported on the NYSE for shares of WEC Energy Group common stock on the grant date. The January 2022 options were granted in accordance with our standard practice of making annual stock option grants effective on the first trading day of each year, and the timing of all of the grants was not tied to the timing of any release of material information.

All 2022 stock options have a term of 10 years and vest 100% on the third anniversary of the date of grant. The vesting of the stock options may be accelerated in connection with a termination of employment due to a change in control or an executive officer’s termination of employment under certain circumstances. See “Potential Payments upon Termination or Change in Control” beginning on page P-66 for additional information. Subject to the limitations of the OSIP, the Compensation Committee has the power to amend the terms of any option (with the participant’s consent). However, without stockholder approval, the Committee may not reduce the exercise price of existing options or cancel outstanding options in exchange for cash or other options having a lower exercise price.

For purposes of determining the appropriate number of options to grant to a particular NEO, the value of an option was determined based upon the Black-Scholes option pricing model. We use the Black-Scholes option pricing model for purposes of the compensation valuation. The following table provides the number of options granted to each NEO in 2022:

For financial reporting purposes, the stock options granted on January 3, 2022 had a grant date fair value of $14.71 per option.

2022 Restricted Stock Awards. In December 2021, the Compensation Committee also approved the grant of restricted stock to each of our NEOs and established an overall pool of restricted stock that was granted to approximately 170 other employees. The grants were made effective January 3, 2022.

Other than the shares granted to Mr. Klappa, the restricted stock vests in three equal annual installments beginning on the one year anniversary of the applicable grant date. The shares of restricted stock granted to Mr. Klappa vest in full on the one year anniversary of the grant date, consistent with the restricted stock awards he has received each year since returning to the Company. In light of Mr. Klappa’s expected tenure as Executive Chairman, and after consultation with FW Cook, the Compensation Committee again determined not to make any changes to the vesting schedule.

Subject to very limited exceptions, restricted stock awarded to the Company’s executive officers, including the NEOs, is subject to a minimum one-year holding period following the vesting date. The vesting of the restricted stock may be accelerated in connection with a termination of employment due to a change in control, death or disability, or by action of the Compensation Committee. See “Potential Payments upon Termination or Change in Control” beginning on page P-66 for additional information. Tax withholding obligations related to vesting may be satisfied, at the option of the executive officer, by withholding shares otherwise deliverable upon vesting or by cash. The NEOs have the right to vote the restricted stock and to receive cash dividends when the Company pays a dividend to its stockholders.

For purposes of determining the appropriate number of shares of restricted stock to grant to a particular NEO, the Compensation Committee used a value of $92.088 per share. This value was based upon the volume-weighted price of WEC Energy Group’s common stock for the ten trading days beginning on December 1, 2021, and ending on December 14, 2021. The Compensation Committee uses the volume-weighted price for annual awards in order to minimize the impact of day-to-day volatility in the stock market.

The measurement period is customarily early- to mid-December for annual awards in order to shorten the timeframe between the calculation of the awards and the actual grant date. The following table provides the number of shares of restricted stock granted to each NEO in 2022:

2022 Performance Units. In December 2021, the Compensation Committee approved the grant of performance units to each of our NEOs and approved a pool of performance units that were granted to approximately 170 other employees.

With respect to the 2022 performance units, the amount of the benefit that ultimately vests will be dependent upon the Company’s total stockholder return over a three-year period ending December 31, 2024, as compared to the total stockholder return of the custom peer group described below. Total stockholder return is the calculation of total return (stock price appreciation plus reinvestment of dividends) based upon an initial investment of $100 and subsequent $100 investments at the end of each quarter during the three-year performance period. However, the vesting percentage may be adjusted based upon WEC Energy Group’s performance against the Additional Performance Measure. For the 2022 performance unit awards, the Compensation Committee selected performance against the weighted average authorized return on equity of all WEC Energy Group’s utility subsidiaries as the Additional Performance Measure.

Upon vesting, the performance units will be settled in cash in an amount determined by multiplying the number of performance units that have vested by the closing price of the Company’s common stock on the last trading day of the performance period.

The 2022 performance unit peer group against which WEC Energy Group’s performance will be measured includes:

The peer group is chosen by the Compensation Committee, based upon management’s recommendation and with the concurrence of FW Cook. This peer group was chosen because we believe these companies are similar to WEC Energy Group in terms of business model and long-term strategies, with a primary focus on regulated utility operations rather than a non-regulated business model. There is significant overlap between the performance unit peer group and the comparison group developed by FW Cook for purposes of benchmarking compensation levels. However, there are several companies that are different among the two groups because FW Cook places significant weight on the financial metrics of the companies included in its comparison group, whereas we focus more on operational measures for the performance unit peer group.

In December 2022, the Compensation Committee determined that PG&E Corporation (“PG&E”) was no longer an appropriate peer comparison and approved the removal of PG&E from the custom peer group for the outstanding 2020-2022 performance unit awards. PG&E is a public utility holding company whose primary operating subsidiary sells and delivers electricity and natural gas to customers located in Northern and Central California. As a result, PG&E is subject to a significantly increased financial risk from wildfires and other natural disasters. In fact, in 2020 PG&E emerged from bankruptcy resulting from incidents related to these risks. In addition, some financial analysts have recently dropped their coverage of PG&E.

The required percentile ranking for 3-year total stockholder return and the applicable vesting percentage are set forth in the chart below.

If the Company’s rank is between the benchmarks identified above, the vesting percentage will be determined by interpolating on a straight line basis the appropriate vesting percentage. Unvested performance units generally are immediately forfeited upon a NEO’s cessation of employment with WEC Energy Group prior to completion of the three-year performance period. However, the performance units will vest immediately at the target 100% rate upon the termination of the NEO’s employment (1) by reason of disability or death or (2) after a change in control of WEC Energy Group. In addition, a prorated number of performance units (based upon the target 100% rate) will vest upon the termination of employment of the NEO by reason of retirement prior to the end of the three-year performance period.

Pursuant to the terms of the performance unit plan, the vesting percentage of the performance units may be adjusted downwards or upwards based upon the Company’s performance against an Additional Performance Measure. Similar to the performance units awarded in 2020 and 2021, the Additional Performance Measure for the 2022 performance unit awards is the weighted average authorized return on equity (“ROE”) of all WEC Energy Group’s utility subsidiaries. In order for WEC Energy Group to meet its earnings per share targets, it is important that our utilities earn at or close to their allowed rates of return. The Company’s performance against this measure may decrease or increase the vesting percentage of the performance units up to 10% over the three-year performance period. The ROE target is based upon a formulaic calculation that varies each year based on our past and planned investments among our utilities, as well as each utility’s authorized ROE. For the 2020, 2021, and 2022 performance unit awards, the ROE targets and potential adjustments were set as follows for 2022:

WEC Energy Group’s utility subsidiaries achieved a weighted average authorized ROE of 9.81% for 2022. This resulted in a 3.33% increase in the vesting percentage of the performance units awarded in January 2022, January 2021 and January 2020.

For purposes of determining the appropriate number of performance units to grant to a particular NEO, the Compensation Committee used a value of $92.088 per unit, the same value used for the 2022 restricted stock granted in January 2022.

The following table provides the number of performance units granted to each NEO in 2022, at the 100% target level:

2022 Payouts under Long-Term Incentive Awards Granted in 2020. The Compensation Committee granted performance unit awards to participants in the Performance Unit Plan in 2020. The terms of these performance units were substantially similar to those of the performance units granted in 2022 and described above. The required percentile ranks for total stockholder return and related vesting schedule were identical to that of the 2022 performance units.

Other than the inclusion of Dominion Energy, Inc. for the 2022 performance unit awards, payouts under the 2020 performance units were based upon our total stockholder return for the three-year performance period ended December 31, 2022 compared against the same group of peer companies used for the 2022 performance unit awards.

As previously described, the Compensation Committee amended and restated the Company’s Performance Unit Plan, effective as of January 1, 2023, making several changes to the plan design. For purposes of calculating total shareholder return, the Prior PUP, under which the 2020 performance units were awarded, requires an initial investment of $100 and $100 investments each quarter thereafter for the duration of the three-year performance period. On the other hand, the plans of our peer companies require only the initial $100 investment. Investing $100 each quarter rewards those companies whose stock price drops significantly during the performance period compared to their peers, and then increases even if such increase is in line with the rest of their peers. Management and the Compensation Committee reviewed the performance of companies whose stock price significantly underperformed WEC Energy Group’s stock price between the start and end of the performance period, yet would have ranked higher in the total stockholder return calculation under the Company’s plan. These companies were Edison International, First Energy, OGE Energy Corp. and Pinnacle West Capital. The stock price of these four companies dropped significantly during the three-year performance period for strategic, operational and/or regulatory reasons specific to each company.

As a result, when calculating the total stockholder return for these companies, the Compensation Committee adjusted for their significant underperformance during the performance period. Accounting for these adjustments, as well as the removal of PG&E Corporation from the peer group for all outstanding performance unit awards, resulted in a total stockholder return for WEC Energy Group at the 43.8^th percentile of the peer group for the three-year performance period ended December 31, 2022, resulting in the performance units vesting at a level of 81.3%. The cumulative three-year impact of the Company’s performance against the Additional Performance Measure was a 10% increase in the vesting percentage of the performance units for a total vesting level of 91.3%. The actual payouts were determined by multiplying the number of vested performance units by the closing price of our common stock ($93.76) on December 30, 2022, the last trading day of the performance period. The actual payout to each NEO is reflected in the “Option Exercises and Stock Vested for Fiscal Year 2022” table.

COMPENSATION RECOUPMENT POLICY

Accountability is a fundamental value of WEC Energy Group. To reinforce this value through the Company’s executive compensation program, the Compensation Committee has adopted a clawback policy that provides for the recoupment of incentive-based compensation in the event WEC Energy Group is required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws (other than restatements permitted as a result of changes in accounting principles or interpretation). Pursuant to the policy, the Compensation Committee will recover from any current or former executive officer who has received incentive-based compensation during the three-year period preceding the date on which WEC Energy Group is required to prepare the accounting restatement, any portion of the incentive-based compensation paid in excess of what would have been paid to the executive officer under the restated financial results. The Company may also recover incentive-based compensation if an executive officer’s employment is terminated for cause, or the executive officer violates a noncompetition or other restrictive covenant.

STOCK OWNERSHIP GUIDELINES

The Compensation Committee believes that an important adjunct to the long-term incentive program is significant stock ownership by officers who participate in the program, including the NEOs. Accordingly, the Compensation Committee has implemented stock ownership guidelines requiring officers who participate in the long-term incentive program to hold an amount of Company common stock and other equity-related Company securities that varies depending upon such officer’s level.

In addition to shares owned outright, holdings of each of the following are included in determining compliance with our stock ownership guidelines: restricted stock; WEC Energy Group phantom stock units held in the Executive Deferred Compensation Plan and Non-Qualified Retirement Savings Plan; WEC Energy Group stock held in WEC Energy Group’s 401(k) plans; performance units at target; and shares held in a brokerage account, jointly with an immediate family member or in a trust.

The guidelines require each executive officer, including the NEOs, to acquire (generally within five years of appointment as an executive officer) and hold common stock and other equity-related securities of the Company having a minimum fair market value ranging from 250% to 600% of base salary. The Compensation Committee believes these stock ownership guidelines discourage unreasonable risk-taking by Company officers.

The Compensation Committee annually reviews whether executive officers are in compliance with these guidelines. The last review was completed in October 2022. The Compensation Committee determined that all NEOs are in compliance, or making sufficient progress towards compliance, with these guidelines.

PROHIBITION ON HEDGING AND PLEDGING

WEC Energy Group’s Corporate Securities Trading Policy prohibits Directors and active employees (including officers) or any of their designees from using any strategies or products (including derivatives, short-selling techniques, prepaid variable forward contracts, equity swaps, collars, and exchange funds) that hedge or offset, or are designed to hedge or offset, any potential changes in the value of WEC Energy Group’s common stock. The policy applies to WEC Energy Group common stock granted to the employees or Directors by the Company as part of their compensation or held directly or indirectly by employees or Directors. The policy also prohibits the holding of WEC Energy Group securities in a margin account, as well as the pledging of WEC Energy Group securities as collateral for a loan.

LIMITED TRADING WINDOWS

Officers, including the NEOs, other identified employees, and the Company’s Directors may only transact in WEC Energy Group securities during approved trading windows after satisfying mandatory pre-clearance requirements, or subject to a 10b5-1 trading plan approved during an open trading window.

RETIREMENT PROGRAMS

We also maintain retirement plans in which our NEOs participate: a defined benefit pension plan of the cash balance type, a supplemental pension plan, individual letter agreements with some of the NEOs, a 401(k) plan, and a non-qualified retirement savings plan. We believe our retirement plans are a valuable benefit in the attraction and retention of our employees, including the NEOs. We believe that providing a foundation for long-term financial security for our employees, beyond their employment with the Company, is a valuable component of our overall compensation program which will inspire increased loyalty and improved performance. For more information about our retirement plans, see “Pension Benefits at Fiscal Year-End 2022” and “Retirement Plans” beginning on page P-62.

OTHER BENEFITS, INCLUDING PERQUISITES

We provide our executive officers, including the NEOs, with employee benefits and a limited number of perquisites. Except as specifically noted elsewhere in this proxy statement, the employee benefits programs in which executive officers participate (which provide benefits such as medical coverage, retirement benefits, annual contributions to a qualified savings plan, and moving and relocation costs) are generally the same programs offered to substantially all of the Company’s management employees.

The perquisites made available to executive officers include financial planning, membership in a service that provides health care and safety management when traveling outside the United States, reimbursement for expenses related to annual physical exam costs not covered by insurance, and limited spousal travel for business purposes. The Company also pays periodic dues and fees for club memberships for designated officers. Mr. Garvin received this benefit in 2022.

We customarily review market data regarding executive perquisite practices on an annual basis. For 2022, the Compensation Committee again reviewed our package of perquisites with FW Cook and decided not to make any changes. WEC Energy Group has a legacy group of executives who are still eligible for gross-ups. We reimburse those executives for taxes paid on income attributable to the financial planning benefits provided to the executives only if the executive uses either of the Company’s identified preferred providers, Annex Wealth Management or AYCO. We believe the use of the preferred financial advisers provides administrative benefits and eases communication between Company personnel and the financial advisers.

We pay periodic dues and fees for certain club memberships as we have found that the use of these facilities helps foster better customer and community relationships. Officers are expected to use clubs for which the Company pays dues primarily for business purposes. We do not pay any additional expenses incurred for personal use of these facilities, and officers are required to reimburse the Company to the extent that it pays for any such personal use. We do not permit personal use of the airplane available to the Company. We do allow spousal travel if an executive’s spouse is accompanying the executive on business travel and the airplane is not fully utilized by Company personnel. There is no incremental cost to the Company for this travel, other than the reimbursement for taxes paid on imputed income attributable to the executives for this perquisite, as the airplane cost is the same regardless of whether or not an executive’s spouse travels. Any tax reimbursement is subject to the Company’s Tax Gross-Up Policy discussed below.

In addition, each of our executive officers is eligible to participate in an officer life insurance benefit. If an executive officer chooses to participate, upon such officer’s death while employed by the Company, a benefit is paid to his or her designated beneficiary in an amount equal to the value of three times the officer’s base salary at the time of death.

TAX GROSS-UP POLICY

The Compensation Committee adopted a formal policy that prohibits entry into any contract, agreement, or arrangement with any officer of the Company that obligates the Company to pay directly or reimburse the officer for any portion of the officer’s individual tax liability for benefits provided by the Company. Excluded from this policy are (1) agreements or arrangements entered into prior to December 2014 when the policy was adopted, (2) agreements or arrangements entered into prior to, and assumed by the Company in connection with, any merger or acquisition, or (3) plans or policies applicable to Company employees generally.

SEVERANCE BENEFITS AND CHANGE IN CONTROL

Mr. Fletcher, who retired effective June 1, 2022, was a party to an employment agreement with the Company that included severance benefits. In conjunction with his retirement, Mr. Fletcher was not entitled to any of these benefits. None of the remaining NEOs, including Mr. Lauber, have entered into an employment agreement that provides for severance and change in control benefits. However, they are eligible to participate in the Company’s Severance Pay Plan. For a discussion of the severance benefits available to our executive officers generally, see “Potential Payments upon Termination or Change in Control” located on page P-66.

In addition, our supplemental pension plan provides that in the event of a change in control, participants will be entitled to a lump sum payment of amounts due under the plan if employment is terminated within 18 months of the change in control.