Charles S. MacFarlane
Otter TailAbout Charles S. MacFarlane
President and Chief Executive Officer of Otter Tail Corporation (CEO since 2015; President since 2014) and Director since 2015; previously President (2003–2014) and CEO (2007–2015) of Otter Tail Power Company, with earlier leadership roles at Xcel Energy/Northern States Power (1997–2001). Age 60 at the 2025 annual meeting; no board committees. 2024 company performance delivered diluted EPS of $7.17 and ROE of 19.3%, supporting maximum annual incentive payouts on corporate EPS and ROE; three-year TSR for the 2022–2024 performance cycle was 23% at the 65th percentile versus EEI peers and three-year average adjusted ROE was 22.33%, driving ~140% combined PSU payout for that cycle .
Performance snapshot (pay-versus-performance disclosure):
- Net Income and ROE: see table in “Performance & Track Record” below .
- Three-year relative TSR: 65th percentile vs EEI peers for 2022–2024; three-year adjusted ROE of 22.33% → ~140% combined PSU payout .
Past Roles
| Organization | Role | Years | Strategic impact |
|---|---|---|---|
| Otter Tail Corporation | Chief Executive Officer | 2015–present | Led diversified model execution; delivered record 2024 EPS $7.17 and ROE 19% . |
| Otter Tail Corporation | President; COO | 2014–present (Pres.); 2014–2015 (COO) | Corporate leadership, strategy and execution oversight . |
| Otter Tail Power Company | President; CEO | President 2003–2014; CEO 2007–2015 | Regulated utility leadership; regulatory execution and rate base growth . |
| Xcel Energy, Inc. | Director, Electric Distribution Planning, Engineering & Reliability | 2000–2001 | Grid planning, reliability and operations expertise . |
| Northern States Power (Xcel subsidiary) | Director, Delivery Construction & Field Operations | 1997–2000 | Transmission/distribution execution leadership . |
External Roles
| Organization | Role/Capacity | Years | Notes |
|---|---|---|---|
| University of North Dakota Alumni Association and Foundation | Finance and Audit Committees | n/a | Board/committee service . |
| Edison Electric Institute (EEI) | Member/industry body | n/a | Sector engagement and benchmarking . |
| Lake Region Healthcare Corporation | Board of Trustees; Chair, Finance Committee | n/a | Community and financial oversight role . |
Fixed Compensation
| Year | Base Salary ($) | Target Bonus (% of Salary) | Notes |
|---|---|---|---|
| 2024 | 838,240 | 100% | CEO target award as % of salary. |
| 2023 | 806,000 | — | Not specifically disclosed for 2023 in proxy. |
| 2022 | 775,000 | — | Not specifically disclosed for 2022 in proxy. |
Performance Compensation
Annual incentive design and 2024 outcomes (CEO weightings at Corporate level):
- Weightings: Corporate EPS 40%; Corporate ROE 40%; Individual Performance 10%; ESG (Safety/DEI/Environmental) 10% .
- Outcome highlights: 2024 EPS $7.17 and ROE 19.30% → both paid at 200% of target; Individual performance paid at 171% of target; ESG components: Safety at target (100%), DEI 67% of max at Corporate, Environmental (renewables) 0% at Corporate .
| Metric (2024) | Weight | Target | Actual | Payout as % Target |
|---|---|---|---|---|
| Corporate EPS ($) | 40% | 5.30 | 7.17 | 200% |
| Corporate ROE (%) | 40% | 14.75 | 19.30 | 200% |
| Individual Performance | 10% | 100% | — | 171% (average for NEOs) |
| ESG: Safety | part of 10% | Target | Target met | 100% of target |
| ESG: DEI | part of 10% | > Target | Exceeded target | 67% of max at Corporate |
| ESG: Environmental (Renewables) | part of 10% | > Target | Below target | 0% at Corporate |
Long-term incentives (2024 grants; 2022–2024 cycle result):
- PSUs: 50% TSR vs EEI Index (threshold 25th, target 50th, max 75th percentile; negative TSR caps payout at target); 50% three-year adjusted ROE (threshold 10.0%, target 12.0%, max 14.0%); payout range 0–150% .
- 2022–2024 PSU outcome: TSR 65th percentile; three-year avg adjusted ROE 22.33% → ~139.86% combined payout .
- RSUs: 25% per year vesting on Feb 6, 2025/2026/2027/2028 (for 2024 grant); full vest on retirement (prorated if retire on/before June 30 of grant year) .
2024 plan-based awards (granted Feb 6, 2024 unless noted):
| Award | Threshold | Target | Maximum | Grant-Date Fair Value ($) |
|---|---|---|---|---|
| Annual Cash Incentive (effective Jan 1, 2024) | 419,120 | 838,240 | 1,676,480 | — |
| PSUs (shares) | 12,100 | 24,200 | 36,300 | 2,285,690 |
| RSUs (shares) | — | 7,900 | — | 737,307 |
Total annual incentive realized in 2024 (cash): Non-Equity Incentive Plan $1,473,907 + “Bonus” $146,692 = $1,620,599 .
Equity Ownership & Alignment
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Beneficial ownership: 324,828 common shares (<1% of outstanding) as of Dec 31, 2024; all directors and officers (14 persons) held 784,519 shares (1.9%) .
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Stock ownership guidelines: CEO requirement 5x base salary; executives must hold 100% of net shares until guideline met; unvested RSUs count toward compliance; all executives met guidelines at proxy date. Hedging and pledging are prohibited .
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Outstanding equity awards (as of Dec 31, 2024): | Year of Grant | RSUs Unvested (#) | RSUs Market Value ($) | PSUs Unvested (#, at max) | PSUs Market/Payout Value ($, at max) | |---|---:|---:|---:|---:| | 2024 | 7,900 | 583,336 | 36,300 | 2,680,392 | | 2023 | 7,500 | 553,800 | 47,700 | 3,522,168 | | 2022 | 4,350 | 321,204 | 44,400 | 3,278,496 | | 2021 | 2,975 | 219,674 | — | — | Note: PSUs shown at maximum; actual payout range 0–150% .
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Shares vested in 2024: 69,550; value realized $6,491,102 .
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Options: No option awards disclosed in recent years .
Employment Terms
- Employment contracts: Company does not provide individual employment contracts to NEOs .
- Clawbacks: SEC-compliant Incentive Compensation Recovery Policy filed with 10-K for FY2024; Supplemental Incentive Compensation Recovery Policy (adopted Feb 2025) permits discretionary recovery of incentive comp (cash and equity) upon detrimental misconduct; oversight by Compensation and Human Capital Management Committee .
- Change-in-control (CIC) and severance: Double-trigger equity vesting; severance equals 2x salary (highest in prior two years) + 2-year average annual incentive; two years of life/health/disability; legal fees covered; amended 2023 severance form conforms CIC definition to 2023 Stock Plan (includes ≥25% stock acquisition and other events) with 24-month severance-qualifying period post-CIC .
- Without-cause termination (non-CIC): Pro rata PSUs continue vesting based on performance; severance payable in lump sum .
- Non-compete: Severance agreements provide for termination of any non-competition arrangements upon CIC terminations .
- Perquisites/benefits: Executive physicals; standard health, dental, PTO; pension and supplemental retirement programs (see below) .
Termination/CIC economic summary (estimated as of Dec 31, 2024):
| Scenario | Retirement ($) | Death/Disability ($) | Without Cause ($) | Change in Control ($) |
|---|---|---|---|---|
| Charles S. MacFarlane | 7,873,190 | 5,805,670 | 7,818,434 | 10,710,258 |
| Key CEO components: Retirement includes RSUs vesting $1,670,630 and PSUs continuing at assumed 150% $6,202,560; Without Cause includes pro rata PSU continuation (assumed 150%) $2,794,844 and severance $3,352,960; CIC (double trigger) includes PSUs at target $4,135,040, RSUs $1,670,630, severance $4,847,914, and health benefit $56,674 . |
Retirement and deferred compensation:
- Pension Plan: CEO formula equals 37% of final average earnings × service fraction (to 30 years; plus 1% per year >30 to max 110%); early retirement reductions apply; CEO eligible for early retirement .
- ESSRP (non-qualified): Potential supplemental target of 65% of final average earnings (offset by Social Security and qualified pension); restoration component frozen 12/31/2019 .
- ERPP (Executive Restoration Plus Plan): Annual employer contributions equal 6.5% of pay above IRS cap + 3% of total pay; special contributions to offset ESSRP freeze until retirement or age 62; investment menu disclosed .
- Present value of accrued benefits (12/31/2024): Pension Plan $1,364,544; ESSRP $4,716,994; credited service 23.08 and 18.08 years, respectively .
- Non-qualified deferred compensation (12/31/2024): Executive contributions $419,120; Company contributions $712,229; Aggregate earnings $1,222,469; Balance $9,000,552 .
Multi-Year Compensation (Summary Compensation Table)
| Year | Salary ($) | Bonus ($) | Stock Awards ($) | Non-Equity Incentive ($) | Change in Pension Value ($) | All Other ($) | Total ($) |
|---|---|---|---|---|---|---|---|
| 2024 | 838,240 | 146,692 | 3,022,997 | 1,473,907 | 183,899 | 722,579 | 6,388,314 |
| 2023 | 806,000 | 141,050 | 2,605,539 | 1,403,783 | 151,969 | 715,385 | 5,823,726 |
| 2022 | 775,000 | 147,252 | 2,130,247 | 1,317,500 | — | 689,579 | 5,059,578 |
Say-on-pay and shareholder feedback:
- 2024 say-on-pay approval: 96.0% .
Compensation benchmarking and peer group:
- Consultant: WTW; primary benchmarks from 2023 WTW/Mercer surveys; custom peer group used to validate survey data .
- 2024 Peer Group includes diversified utilities and industrials (e.g., ALLETE, Avista, Black Hills, IDACORP, Portland General, Unitil; and select manufacturers like Graco, Tennant) .
Performance & Track Record
Pay-versus-performance disclosed metrics:
| Year | Net Income ($) | ROE (%) | Value of $100 Investment (OTTR TSR) ($) | Peer Group TSR ($) |
|---|---|---|---|---|
| 2024 | 301,662,000 | 19.3 | 166.28 | 132.05 |
| 2023 | 294,191,000 | 22.1 | 185.62 | 109.36 |
| 2022 | 284,184,000 | 25.6 | 125.37 | 120.35 |
| 2021 | 176,769,000 | 19.2 | 147.06 | 118.48 |
Three-year PSU performance (2022–2024 cycle):
- TSR: 23% at 65th percentile vs EEI peers; three-year adjusted ROE: 22.33% → ~139.86% payout .
Top-of-house 2024 highlights:
- Record EPS $7.17; 19% ROE; 86th consecutive year of dividends; dividend increased 12% in Feb 2025 to $2.10 annualized .
Revenues and EBITDA (fiscal years):
| Metric | FY 2021 | FY 2022 | FY 2023 | FY 2024 |
|---|---|---|---|---|
| Revenues ($) | 1,196,844,000* | 1,460,209,000* | 1,349,166,000* | 1,330,548,000* |
| EBITDA ($) | 338,550,000* | 482,711,000* | 485,170,000* | 493,980,000* |
| Net Income ($) | 176,769,000 | 284,184,000 | 294,191,000 | 301,662,000 |
| Values marked with * retrieved from S&P Global. |
Board Governance (MacFarlane as Director)
- Director since 2015; not independent (CEO). Committees: none .
- Board leadership structure: Independent Chairman (Nathan I. Partain); CEO and Chair roles are separated .
- Committees are fully independent; Audit (chair: Steven Fritze), Compensation & Human Capital (chair: Thomas Webb), Governance (chair: Michael LeBeau) .
- Board meetings: 5 in 2024; each director attended at least 75% of Board/committee meetings; independent directors held periodic executive sessions; all directors attended the 2024 annual meeting .
- Dual-role implications: CEO serving as a director is balanced by an independent Chair and fully independent key committees, mitigating independence concerns .
Director Compensation (for context)
Employee directors typically do not receive director fees; non-employee director compensation disclosed separately (MacFarlane is not listed among paid non-employee directors) .
Risk Controls and Policies
- Hedging and pledging of company stock prohibited for executives and directors .
- Clawbacks: SEC-compliant and supplemental misconduct recovery policy adopted in 2025 .
- No tax gross-ups on severance; robust stock ownership and share-holding requirements .
Compensation Structure Analysis
- Strong pay-for-performance orientation: ~70% of target direct compensation at risk; annual incentive and PSUs driven by EPS/ROE/TSR; maximums capped (AIP 200%; PSUs 150%) .
- Shift in equity mix: Use of PSUs and RSUs; no recent stock option grants; RSUs vest ratably and fully vest on retirement (prorated if retiring early in grant year) .
- Discretion moderated: Individual performance can pay up to 200% but subject to committee approval; 2024 average individual performance payout 171% .
- Peer benchmarking: WTW surveys plus custom peer group validation; no explicit target percentile disclosed .
Potential Trading Pressures from Vesting
- RSU vest dates cluster in early February each year (e.g., Feb 6 for 2025–2028 tranches), creating predictable liquidity events; 2024 vested shares for CEO totaled 69,550 ($6.49m value) .
Equity Ownership & Pledging
- CEO beneficial ownership 324,828 shares (<1%); all executives are in compliance with 5x salary ownership guideline; pledging prohibited .
Employment & Contracts
- No individual employment contracts; severance/CIC governed by standardized agreements (double-trigger equity; 2x salary+bonus; benefits; legal fee coverage; 24-month CIC tail) .
Say-on-Pay & Shareholder Feedback
- 96.0% approval in 2024 indicates strong investor support for pay program; committee considers vote results in design decisions .
Investment Implications
- Alignment: High at-risk pay and PSU structure tied to relative TSR and multi-year ROE, strict ownership/holding rules, and hedging/pledging ban indicate strong alignment with shareholders .
- Execution track record: Record 2024 EPS/ROE and 3-year PSU outperformance (~140% payout) support credibility in delivering value; 12% dividend increase further signals confidence .
- Event risk economics: CIC protection is moderate (2x salary+bonus; double trigger) without tax gross-ups; potential accelerated vesting on CIC at target for PSUs is shareholder-standard for utilities .
- Liquidity/overhang: Meaningful unvested equity and annual February vesting cadence can create episodic selling pressure; however, 100% net-share retention until ownership guideline is met tempers near-term selling by under-compliant executives (CEO already compliant) .
- Pension/SERP/deferral: Significant non-qualified balances (ESSRP PV ~$4.7m; deferred comp balance ~$9.0m) enhance retention but can dilute pay-for-performance optics; ERPP special contributions offset frozen ESSRP accruals .
S&P Global disclaimer for starred data: Values retrieved from S&P Global.