EXHIBIT 10(ao)
National Western Life Insurance Company
2004 DOMESTIC MARKETING OFFICER BONUS PROGRAM
The Bonus Program ("Program") is designed to reward Domestic Marketing officers for their performance in achieving pre-determined sales targets while assisting the Company in managing to its profit criteria. The Plan incorporates three measurable performance factors: (1) sales, which are defined as net placed annualized target premium for Life business and as total placed premium for Annuity business, (2) persistency, and (3) expense management. The bonus percentages included in this document pertain to Domestic Marketing officers at the vice president level and higher. The bonus percentages for assistant vice presidents are determined using one-half of the percentages shown for vice presidents and above.
Each of the three performance factors will have an assigned target level for purposes of the Program. Succeeding years under the Program will have agreed upon target levels by year. Assuming a "par" performance (i.e. achieving each target level), the weighting of the bonus (applied to base salary) is 60% for sales performance, 20% for persistency performance, and 20% for expense management performance. Actual results compared to the targets can either increase or decrease these percentages as explained in each of the following sections.
Sales Component:
The sales component of the Program is further subdivided between Life production and Annuity production. For 2004, the Domestic sales goals are:
- | Life -- $3,200,000 net placed annualized target premium (14% of MaxWealth total premium assumed to be target for purposes of the Program) |
- | Annuities -- $1,100,000,000 net placed total premium |
The New Business Market Summary Report (NWAR60) will be the source of sales results for purposes of this Program. Based upon these sales goals, the bonus percentage corresponding with the Life and Annuity sales production levels achieved in 2004 will be applied to 100% of each Domestic Marketing officer's base salary in accordance with the following grid:
Life Placed Target Premium | Bonus % | Annuity Placed Total Premium | Bonus % |
$2,200,000 | 15.0% | $600,000,000 | 2.0% |
$2,400,000 | 20.0% | $700,000,000 | 4.0% |
$2,600,000 | 25.0% | $800,000,000 | 8.0% |
$2,800,000 | 30.0% | $900,000,000 | 12.0% |
$3,000,000 | 35.0% | $1,000,000,000 | 16.0% |
$3,200,000 | 40.0% | $1,100,000,000 | 20.0% |
$3,500,000 | 45.0% | $1,200,000,000 | 20.0% |
$3,800,000 | 50.0% | $1,300,000,000 | 20.0% |
$4,100,000 | 55.0% | $1,400,000,000 | 20.0% |
Increment for every $300,000 thereafter | 5.0% | Greater than $1,400,000,000 | 20.0% |
Bonus percentages associated with life sales are not capped but increase by 5.0% with every additional $300,000 of placed target premium. Conversely, the bonus percentage for annuity sales is capped at 20% irrespective of sales production above the annuity sales goal.
Assuming an officer salary of $100,000 and 2004 production of $3,150,000 of Life placed target premium and $1,040,000,000 of Annuity placed total premium, the officer's 2004 sales bonus component under the Program would be $51,000 ($100,000 x 35% for Life business plus $100,000 x 16% for Annuity business).
Persistency Component:
Similar to the sales component, the persistency component of the Program is further subdivided between Life business and Annuity business. The target persistency performance factors have been supplied by Actuarial and are as follows:
For Life business:
- | First year annual lapse rate: 18.0% for Traditional and 10.0% for UL |
- | Second year annual lapse rate: 11.0% for Traditional and 15.0% for UL |
- | Third year annual lapse rate: 10.0% for Traditional and 12.5% for UL |
For Annuity business (approximate, based upon product mix):
- | First year annual lapse rate of 2.0% |
- | Second year annual lapse rate of 6.0% |
- | Third year annual lapse rate of 9.0% |
The target persistency calculations will be done a rolling basis by applying a monthly factor, which equates over twelve months to the annual lapse rate, to each month's sales from the month of sale and each successive month thereafter. Accordingly, the target persistency calculation will be a weighting of each month's sales amount and its corresponding duration at the time of measurement. The lapse factors used for establishing the target persistency will be based upon a weighted average of the type of business placed (i.e. Traditional versus UL). Actual persistency will be compared to target persistency for purposes of determining the bonus percentage. For purposes of the Program, the persistency calculation will only be applied to business placed beginning in January 2002 and following (i.e. inforce Annuity business as of 12/31/01 will not be part of the persistency calculation).
Based upon these persistency performance factors, the bonus percentage corresponding with the Life and Annuity persistency levels achieved in 2004 will be applied to 100% of each Domestic Marketing officer's base salary in accordance with the following grid:
Life Business Persistency | Bonus % | | Annuity Business Persistency | Bonus % |
Below Target - 4% | 0.0% | | Below Target - 1.00% | 0.0% |
Target - 4% | 2.0% | | Target - 1.00% | 2.0% |
Target - 3% | 4.0% | | Target - 0.75% | 4.0% |
Target - 2% | 6.0% | | Target - 0.50% | 6.0% |
Target - 1% | 8.0% | | Target - 0.25% | 8.0% |
Target | 10.0% | | Target | 10.0% |
Target + 1% | 12.0% | | Target + 0.25% | 12.0% |
Target + 2% | 14.0% | | Target + 0.50% | 14.0% |
Target + 3% | 16.0% | | Target + 0.75% | 16.0% |
Target + 4% | 18.0% | | Target + 1.00% | 18.0% |
Target + 5% | 20.0% | | Target + 1.25% | 20.0% |
Above Target + 5% | 20.0% | | Above Target + 1.25% | 20.0% |
Assuming an officer salary of $100,000 and 2004 persistency of Target - 1% for Life business and Target + 0.50% for Annuity business, the officer's 2004 persistency bonus component under the Program would be $22,000 ($100,000 x 8% for Life business plus $100,000 x 14% for Annuity business).
Expense Component (20% of base salary):
The expense component of the program is based upon actual expense management versus budgeted expenses. Budgeted expenses are those amounts approved by the Budget Committee as part of the annual budgeting process.
Based upon the approved budgeted expenses, the bonus percentage corresponding with the actual expense levels achieved in 2004 will be applied to 100% of each Domestic Marketing officer's base salary in accordance with the following grid:
Expense Management | Bonus % |
90% of Budget | 40.0% |
92% of Budget | 36.0% |
94% of Budget | 32.0% |
96% of Budget | 28.0% |
98% of Budget | 24.0% |
Budget | 20.0% |
101% of Budget | 16.0% |
102% of Budget | 12.0% |
103% of Budget | 8.0% |
104% of Budget | 4.0% |
105% of Budget | 0.0% |
106% of Budget | (1.0%) |
Additional decrement for every 1% over Budget thereafter | (1.0%) |
Assuming an officer salary of $100,000 and 2004 actual expenses at 98% of Budget, the officer's 2004 expense management bonus component under the Program would be $24,000 ($100,000 x 24%).
From the above examples, the officer with a $100,000 base salary would receive a 2004 bonus under the program of 97% or $97,000 ($51,000 sales plus $22,000 persistency plus $24,000 expense management) reflecting persistency and expense management above "par" and sales below "par". See "Administration" for further guidelines when the bonus percentage exceeds 100%.
Administration:
Bonus amounts under the program will be calculated and advanced monthly based upon actual results. However, bonus advances will be limited to 100% of participant base salary even if actual results to-date exceed 100%. In the event that actual year-to-date results are below minimum Program performance factor levels, the Company may, at its discretion,suspend the monthly bonus advance payments until such time as the year-to-date results reach the minimum Program performance levels. Bonus amounts paid in a previous month(s) will not be recouped from the participants in the event of suspension of monthly payments except at the end of the Program year if unearned.
If at the end of the year the aggregate bonus percentage exceeds 100%, the incremental % above 100% will be applied to the base salaries of all Domestic Marketing Officers (weighted for the portion of the calendar year each participant was employed by the Company) to determine a dollar amount to be put into a "pool". The pool amount will be allocated based upon the recommendation of the Domestic Chief Marketing Officer and as approved by the Company President. The recommendation of the pool allocation by the Chief Marketing Officer must be submitted to the Company President by the end of the January 2005. The pool amount will be paid out quarterly in the following calendar year (i.e. 2005). Participants must be currently employed by the Company in order to receive pool payments. In other words, unpaid pool bonuses will be forfeited by participants upon termination from the Company. Amounts forfeited by terminated participants will remain the property of the Company and will not be redistri buted among the remaining participants.
If employment with the Company is terminated during calendar 2004 for any reason other than "termination for cause" by NWL, the 2004 bonus amount paid at termination will be based upon the current year-to-date bonus % (not to exceed 100%) and the prorated percentage of the calendar year that services were rendered to the Company. In the event of death, the bonus amount will be paid to the individual's spouse, and if the individual's spouse is also not living at that time, then to the individual's children.
The Program, its terms, and its administration are at the complete discretion of the Company President and may be changed or revoked at any time without the consent of the participants. This includes, among other things, amendment of the terms, targets, and other features of the Program as the Company President sees fit. Accordingly, this Program does not constitute a legal and binding obligation of the Company to perform.
All amounts paid to participants under this program will be excluded when determining benefits under the Company's pension, 401(k), and other benefit programs.
February 3, 2004