Exhibit 10.(iii)(A)(1)
FY 95 STANDARD VARIABLE COMPENSATION PLAN
(SEPTEMBER 1, 1994 - AUGUST 31, 1995)
OBJECTIVE To pay additional cash beyond base salary to eligible employees
of Farmland Industries, Inc. or one of its units, contingent upon
the company's financial performance. Farmland Industries, Inc.
("Corporate") must achieve a threshold or minimum income before
extraordinary items, or no payout
occurs, regardless of individual business/service unit
results.
This plan includes three important exhibits which are an integral
part of the plan structure. Please be aware of and consult
them.
They include the following:
Exhibit A - Corporate and Unit financial performance criteria
and levels
Exhibit B - A summary chart of plan structure
Exhibit C - Descriptions and definitions of accounting terms
and methodologies relevant to this plan
PLAN STRUCTURE The plan provides a one-time cash payment following the
conclusion of FY 95 to eligible employees for the attainment of
corporate and unit objectives. Participation is divided into
four categories. Category 1 participants receive payout based
solely on corporate net income. A category 1, non-management
employee at grade 72 or below will normally have a payout
opportunity based 100% on corporate results; however, such
employees in a production environment or in a subsidiary may be
in a customized plan. Whether on a customized plan or standard
plan, they will not be allowed to switch back and forth from year
to year.
Individuals employed by a business unit, but whose functions
provide service to the entire company, may be placed on a 100%
corporate payout opportunity. Such employees shall remain on a
100% corporate opportunity until the nature of their job changes.
Payout opportunity for category 1 will be determined as a
percentage of eligible gross wages or salary paid during the
fiscal year. Payout opportunities for categories 2,3, and 4 will
be a percentage of salary range midpoint.
Any variations in the criteria explained in categories 1-4 below
result in a customized variation from the standard plan (i.e., a
customized plan).
CATEGORY 1
Participants
All eligible corporate and business unit employees with job
grades 0-72 (excluding grade 0-72 production supervisors).
Payout Opportunity
3%-5%-8%
Based on gross earnings during the fiscal year.
Measure
100% Corporate Return on Equity
CATEGORY 2
Participants
All eligible corporate and business unit employees with job
grades 73-79. Grade 0-72 production supervisors.
Payout Opportunity
5%-8%-15% - Grade 0-72 Production Supervisors
5%-8%-15% - Grades 73-74
6%-12%-20% - Grades 75-77
8%-18%-34% - Grades 78-79
Based on Midpoint
Measures
Corporate Units: 100% Corporate Return on Equity
Corporate unit participants include eligible corporate and region
employees, as well as any eligible employee of a business unit,
as designated by management.
Business Units: 50% Corporate Return on Equity
50% Business Unit Cash Flow
Return on Assets
Earnings After Interest
(Note: The three business unit measures
are weighted equally)
CATEGORY 3
Participants
All eligible employees with job grades 80 or above who are not
Farmland Industries, Inc. vice presidents.
Payout Opportunity
10%-22%-40%
Based on Midpoint
Measures
Corporate Units: 100% Corporate Return on Equity
Corporate unit participants include eligible corporate and
regional employees, as well as any eligible employees of a
business unit, as designated by management.
Business Units: 30% Corporate Return on Equity
70% Business Unit Cash Flow
Return on Assets
Earnings After Interest
CATEGORY 4
Participants
All eligible Farmland Industries, Inc. vice presidents and
above.
Payout Opportunity
15%-31%-52% - VPs serving on the Management Council
Designated members of senior management
20%-40%-64% - Designated members of senior management
25%-45%-70% - Chief Executive Officer
Based on Midpoint
A cash patronage payment will be required prior to any payout to
participants in this category.
Measures
Senior Management
and Corporate Unit 100% Corporate Return on Equity
Vice Presidents
Business Unit 30% Corporate Return on Equity
Vice Presidents 70% Business Unit Cash Flow
Return on Assets
Earnings After Interest
ELIGIBILITY The following types of employees are ineligible for payout
under the Standard Variable Compensation Plan:
- Employees represented by an organized bargaining unit.
- Employees hired after 5/31/95. (Waived if the employee is a
former regular full time employee during FY 95. Payout is
prorated.)
- Regular part time employees with less than 500 hours of
service during FY 95.
- Temporary employees with less than 1000 hours of service
during FY 95.
- Employees terminated for cause prior to 8/31/95.
- Employees who terminate voluntarily prior to 8/31/95.
(Employees who terminate to accept a position with a member
cooperative may be eligible for a prorated payout.)
- Employees included in variable compensation plans other than
the standard variable compensation plan.
PRORATIONS The circumstances listed below result in a prorated payout
(the amount of payout is proportionate to time served as an
active employee in this plan during the fiscal year):
Death/Disability
Retirement
Reduction in Force
Focus Team member obtaining outside employment
Layoff
Leave of Absence
Involuntary separations, other than for reasons listed above,
which are not for performance or for cause may result in
prorated payout.
Employees who voluntarily terminate prior to 08/31/95 for the
purpose of assuming a position with an MCA cooperative may be
eligible to receive a prorated payout. To secure eligibility,
the employee must notify Corporate Human Resources, in writing,
at the time of separation and ensure that the MCA cooperative
notifies Farmland's Corporate Human Resources Department, in
writing, to verify employment from the point of separation
through the conclusion of the plan year.
Employees on formal disciplinary or performance probation are
ineligible for that portion of the fiscal year.
Employees who transfer from one business/service unit to another
receive a prorated award based on the goals attained and eligible
gross wages paid or the salary range midpoint in each unit.
DETERMINATION
OF PAYOUT Payout is determined as a percentage of salary range midpoint or
eligible gross wages paid during the fiscal year. Business unit
or corporate performance measurements are labeled "threshold",
"target", and "maximum".
Threshold - The performance level required for the plan to pay
out. Attainment of threshold results in a payout equivalent to
3% of eligible gross wages or salary paid during the fiscal year
to category 1 participants. Payouts for categories 2, 3 and 4
range from 5% to 25% of midpoint. No payout occurs for
achievement below threshold.
Target - Identifies the actual performance objective. Attainment
of target results in a payout to category 1 participants
equivalent to 5% of eligible gross wages or salary earned during
the fiscal year. Category 2, 3 and 4 participants receive
payouts ranging from 8% to 45% of midpoint.
Maximum - A performance level exceeding target at which the
payout percentage is frozen. Attainment of maximum results in a
payout equivalent to 8% of eligible gross wages or salary earned
during the fiscal year to category 1 participants. Category 2,
3, and 4 participants would receive payouts ranging from 15% to
70% of midpoint. No payout occurs beyond these percentages
regardless of performance.
Payout for performance between threshold and target or target and
maximum is prorated.
APPROVED:
H. D. Cleberg
--------------------------------------------
H.D. Cleberg
President and CEO
EXHIBIT A
FY 95 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 11.5% 15%
Business Unit:
Threshold Target Maximum
Cash Flow
Return on Assets
Earnings after interest
EXHIBIT B
FY 95 STANDARD VARIABLE COMPENSATION PLAN
Management Corporate Employees Basis Business Unit Employees Basis
Category Level for Payout for Payout Thr Target Max Grades
1 Non-Mgmt. 100% Corporate Return on Equity 100% Corporate Return on Equity 3% 5% 8% 0-72
2 Managers 100% Corporate Return on Equity 50% Corporate Return on Equity 5% 8% 15% Production
& Above Supv. &
50% Business Unit Measures 73-74
Cashflow 6% 12% 20% 75-77
Return on Assets
Earnings after interest 8% 18% 34% 78-79
3 Managers & 100% Corporate Return on Equity 30% Corporate Return on Equity 10% 22% 40% 80+
Directors Non-Farmland
70% Business Unit Measures Industries, Inc
Cash Flow VPs)
Return on Asset
Earnings after interest
4 Vice Presidents (All Senior Management, Corporate, (Business Unit VP's) 15% 31% 52% FII VPs &
and Senior and Regional VP's) Designated Sr
Management 30% Corporate Return on Equity Mgmt
100% Corporate Return on Equity
70% Business Unit Measures 20% 40% 64% Designated
Cash Patronage Qualifier Cash Flow Sr Mgmt
Return on Assets
Earnings after interest 25% 45% 70% CEO
Cash Patronage Qualifier
<FN>
Notes: (1) No payout unless the Company achieves the threshold
(i.e., minimally acceptable) return on equity level.
(2) Employees may at management discretion be placed at payout
opportunity levels lower than those for which they would be
qualified based on grade and/or organizational level.
(3) No payout for category 4 unless cash patronage is paid.
(4) The business unit measures of cash flow, return on assets,
and earnings after interest are weighted equally.
EXHIBIT C
ACCOUNTING TERMS AND METHODOLOGY
DEFINITIONS
INCOME is defined as income before taxes and extraordinary items as reported for
Key Results purposes.
EQUITY is the prior year's ending equity. Equity includes all capital shares
and equities ( preferred, common and associate member shares, patronage refunds
for reinvestment, and earned surplus). It does not include minority owners
equity in subsidiaries.
RETURN ON EQUITY (ROE) is the ratio determined by dividing Income by Equity.
CASH FLOW will be measured by using the Net Cash Generated formula of net income
plus beginning assets minus ending assets. The assets are those reported for
Key Results purposes, and at the business unit level, exclude such items as
prepayments and redating of inventory.
AVERAGE ASSETS are the key results assets averaged by adding the previous year-
end assets, September through July ending assets multiplied by two, the current
year ending assets and dividing by 24.
RETURN ON AVERAGE ASSETS is the ratio of income divided by the Average Assets.
EARNINGS AFTER INTEREST is the Key Results income for the operating unit after
interest, other income and joint venture income.
TREATMENT OF THE VARIABLE COMPENSATION EXPENSE
The ROE targets have been expressed after the recognition of the variable
compensation expense. In calculating the level at which variable compensation
will be paid, the variable compensation expense is added back to Income. For
example, assume Equity is $586 million and the ROE for threshold is expressed as
8%. This would correspond to Income of $46.9 million (.08 times $586 million).
However, the $46.9 million includes variable compensation expense (variable
compensation expense is budgeted at target and an accrual is made each month).
EXAMPLE OF REQUIRED INCOME *
(ASSUMING PRIOR YEAR ENDING EQUITY OF $586 MILLION)
ROE REQUIRED
INCOME
Threshold 8 % $46,880,000
Target 11.5% $67,390,000
Maximum 15 % $87,900,000
* Actual FY 94 ending ROE has yet to be determined. When it is, these income
figures will be subject to some modification.
DETERMINATION OF EXTRAORDINARY ITEM
If Farmland achieves its performance goals, but experiences a loss year due to
extraordinary items, the Board of Directors of Farmland Industries, Inc.
maintains the discretion to authorize, adjust, or deny payout of the management
portion of the Variable Compensation Plan (include employee in categories 2-4).
This also applies to employees with management level payout opportunities who
participate in customized plans. Employees on sales incentive plans, with base
pay administered through sales paylines, are not affected by this provision
unless specific portions of their plans are tied to corporate performance; nor
are employees in category 1.
GUIDELINES FOR "EXTRAORDINARY" DESIGNATION
The Chief Financial Officer and the Chief Executive Officer must approve the
classification of any item as "extraordinary." Transactions deemed as
"extraordinary" and therefore excluded in the determination of Income for
variable compensation include:
* The punitive portion of litigation results in favor of or against
Farmland, excluding redemptive payments on normal business matter
where the intent is to substantially restore net income to where it
would have been had the incident not occurred.
* Nonrecurring (one-time) adjustments to income or expense such as the
gain from settlement of the retirement plan. Any such items would
generally be reported as extraordinary items on Farmland financial
statements under generally accepted accounting principles.
* The gain or loss on the disposal of a major asset, group of assets, or
investments.
* The gain or loss from any new business activity or business unit added
subsequent to the approval of the Business Plan, provided that the
acquisition was such that it required specific Board of Director
approval outside of the business plan.
* The impact of adjustments resulting from LIFO inventory computations
or reserves.
* Other items as approved.
Specific requests by an operating unit for treatment of an item as
"extraordinary" must be approved by the Senior Management representative before
review by the Chief Financial Officer and the Chief Executive Officer.