CUMMINS ENGINE COMPANY, INC.
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EXHIBIT 10(u)
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SENIOR EXECUTIVE BONUS PLAN
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1. Purpose.
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The Senior Executive Bonus Plan is designed to: (i) reinforce the
financial objectives of the Company in the minds of senior
executives, (ii) attain and maintain a leadership position for
the Company in its method of compensating its senior executives
consistent with the relative size of the Company, the industry in
which the Company competes, and the relative performance of its
senior executives, (iii) recognize the performance of the Company
as a whole, maximizing the contributions of the Company's various
businesses and (iv) reward both team and individual performance.
The Plan is an incentive plan providing compensation that varies
with the financial results of the Company.
2. Philosophy.
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Bonus payments should relate to the importance of the executive's
position in influencing Company performance, the financial
performance of the Company during a Quarter and the performance
of the individual during that Quarter. Bonus payments should
encourage and promote outstanding decisions and efforts by senior
executives for the benefit of the Company.
3. Definitions.
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(a) "Base Salary" means the salary paid to a Participant during
a Quarter, exclusive of allowances, incentive pay,
reimbursed expenses, fringe benefits and other similar forms
of payment.
(b) "Compensation Committee" or "Committee" means the
Compensation Committee of the Board of Directors of the
Company.
(c) "Company" means Cummins Engine Company, Inc.
(d) "Participant" means the Company's Chief Executive Officer
and other executive officers designated by the Compensation
Committee.
(e) "Performance Measure" means the Company's return on equity,
return on sales, net income, sales growth, return on assets,
total shareholder return or a combination thereof.
(f) "Plan" means the Senior Executive Bonus Plan described
herein.
(g) "Plan Year" means the Company's fiscal year, provided,
however, that the first Plan Year includes only three
Quarters beginning April 3, 1995.
(h) "Quarter" means a fiscal quarter of the Company.
(i) "Target Bonus" means an incentive bonus amount described in
Section 7 of the Plan.
(j) "Target Bonus Percentage" means a percentage of the
Participant's Base Salary intended to be paid as a Target
Bonus under the Plan.
4. Eligibility.
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The Compensation Committee shall designate the Participants each
Plan Year and establish the Target Bonus Percentage applicable to
each Participant. The Committee shall have the power to change
the Target Bonus Percentage of a Participant or remove one or
more Participants from the Plan, provided, however, that the
percentage shall not be increased following the commencement of
any period for which a Target Bonus may be earned.
5. Target Bonus Percentage.
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On or before the 20th day of each Quarter during which a Target
Bonus may be earned, each Participant will be informed of his or
her applicable Target Bonus Percentage. The Target Bonus
Percentage assigned to each Participant by the Committee shall be
based on various criteria applicable to the Participant
including, but not limited to: (i) the scope and breadth of the
Participant's management position, (ii) opportunity for
independent thought and action, (iii) effect of the Company's
financial performance, (iv) role in decision-making, (v) working
relationships within the Company and (vi) the level of
compensation prevailing in the industry in which the Company
competes
6. Bonus Payout Schedule.
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On or before the 20th day of each Plan Year, a Bonus Payout
Schedule will be calculated by the Committee and communicated to
Participants. The Bonus Payout Schedule will specify the
Performance Measure and the performance level against the measure
during the Quarter required to achieve each payout factor ("Bonus
Factor"). The "Target Performance" is that performance which
provides a 1.0 Bonus Factor.
7. Target Bonus.
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A Target Bonus is calculated for each Participant by multiplying
Base Salary times the Target Bonus Percentage designated for the
Participant.
8. Earned Bonus.
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Corporate performance during the Quarter in excess of the Target
Performance or performance less than the Target Performance will
result in an increased or diminished bonus, respectively, from
the Target Bonus communicated to the Participant. The "Earned
Bonus" will be calculated by multiplying the Target Bonus
Percentage times the Participant's Base Salary times the Bonus
Factor associated with the actual performance for the Quarter as
specified in the Bonus Payout Schedule in effect for the Plan
Year containing the Quarter. In no event may a Participant
receive an Earned Bonus for any Quarter in excess of $750,000.
9. Change in Accounting Standards.
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For purposes of determining the Bonus Factor, the Company's
actual performance under the Performance Measure will exclude
extraordinary charges and credits which result from a change in
accounting standards of the Company.
10. Adjustment for Individual Performance.
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The Earned Bonus will be the bonus paid, except in unusual
circumstances where poor individual performance justifies a
reduced bonus.
11. Termination of Employment.
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During any Quarter that a Participant's employment is voluntarily
or involuntarily terminated, including termination due to death,
disability or retirement, the amount of the Earned Bonus for the
Quarter will be paid to the Participant or his or her legal
representative or estate, whichever is applicable.
12. Bonus Distribution Date.
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Any Earned Bonus will be distributed as soon as practicable
following the determination of actual performance and written
certification by the Compensation Committee that the performance
level with respect to a bonus payable to the Participant has been
met. In general, the Earned Bonus will be distributed
approximately six (6) weeks following the end of the Quarter in
which earned, provided however, payments under the Plan may be
deferred pursuant to the Company's Deferred Compensation Plan.
13. Administration.
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The plan shall be administered by the Compensation Committee. No
member of the Committee shall be eligible to receive a bonus
under this Plan while serving on the Committee. The Committee
shall be authority to interpret the Plan and to establish, amend
and rescind rules and regulations for the administration of the
Plan, and all such interpretations, rules and regulations shall
be conclusive and binding on all persons. Notwithstanding any
other provision of the Plan to the contrary, the Committee may
impose such conditions on participation in and bonuses under the
Plan as it deems appropriate.
14. Optional Administration as Annual Plan.
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The Plan is designed to operate primarily as a quarterly plan,
measuring Company performance and paying Target Bonuses on the
basis of quarterly results. From time-to-time, however, the
Committee may, in its sole discretion, determine it wishes to
measure performance and pay Target Bonuses on the basis of a Plan
Year. In the vent such a determination is made, all references
contained in this Plan to the term "Quarter" shall be deemed to
mean "Plan Year" as the context requires, and the maximum Earned
Bonus referenced in Section 8 of the Plan shall be increased to
$3,000,000.
15. Effective Date.
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The Plan shall be effective for Quarters beginning April 3, 1995,
subject to its approval by the Company's shareholders.
16. Amendment and Termination.
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The Board of Directors may at any time amend, modify, alter or
terminate this Plan.
17. Governing Law.
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This Plan and all determinations made and actions taken pursuant
hereto shall be governed by the laws of the State of Indiana and
construed accordingly.
18. Miscellaneous.
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There shall be no bonus pool or cumulative bonus pool. This Plan
is based upon the number of Participants, the Target Bonus
Percentages, the Bonus Factors and the Base Salaries of the
Participants.