EXHIBIT 10(s)
CUMMINS ENGINE COMPANY, INC.
SENIOR EXECUTIVE BONUS PLAN
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(Amended as of December 10, 1996)
1. Purpose. 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. 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. 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. 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. In no
event may a Participant receive an Earned Bonus for any Quarter in
excess of $750,000.
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
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. 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. Effective Date. The Plan shall be effective for Quarters
beginning April 3, 1995, subject to its approval by the Company's
shareholders.
15. Amendment and Termination. The Board of Directors may at any time
amend, modify, alter or terminate this Plan.
16. 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.
17. 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.