EXHIBIT 10(a)
CUMMINS ENGINE COMPANY, INC.
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TARGET BONUS PLAN
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(Amended as of December 10, 1996)
1. Purpose. The Target Bonus Plan is designed to: (i) reinforce the
financial objectives of the Company in the minds of management and
other employees; (ii) attain and maintain a leadership position for
the Company in its method of compensating employees consistent with
the relative size of the Company, the industry in which the Company
competes, and the relative performance of employees; (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. Bonus payments should relate to the importance of the
employee'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 teams and individuals 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 an officer of the Company designated by
the Compensation Committee or other employees as designated by
the President of the Company or his designee.
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 Target Bonus Plan described herein.
g) "Plan Year" means the Company's fiscal year.
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. The Company shall designate the Participants each
Plan Year and establish the Target Bonus Percentage applicable to each
Participant. The Company shall have the power to change the Target
Bonus Percentage of a Participant or remove one or more Participants
from the Plan.
5. Target Bonus Percentage. 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 on 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. 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"). In addition to specifying the Performance Measure, the
Committee may, in its discretion, specify that up to 20 percent of the
determination of each Bonus Factor also be based upon achieving
certain other financial or nonfinancial goals and objectives. The
"Target Performance" is that performance which provides a 1.0 bonus
factor.
7. Target Bonus. A Target Bonus is calculated for each Participant
by multiplying Base Salary times the Target Bonus Percentage
designated for the Participant.
8. Earned Bonus. 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 that Quarter as specified in the Bonus
Payout Schedule in effect for the Plan Year containing the Quarter.
9. Change in Accounting Standards. 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. The Earned Bonus will be
the bonus paid, except in unusual circumstances where poor individual
performance justifies a reduced bonus.
11. Termination of Employment. 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 that Quarter will be paid to the
Participant or his or her legal representative or estate, whichever is
applicable.
12. Bonus Distribution Date. Any Earned Bonus will be distributed as
soon as practicable following the determination of actual performance.
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. 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 have 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. Amendment and Termination. The Board of Directors may at any
time amend, modify, alter or terminate this Plan.
15. Governing Law. 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.
16. Miscellaneous. 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.