EXHIBIT 10.(iii)A
FY 96 STANDARD VARIABLE COMPENSATION PLAN
(SEPTEMBER 1, 1995 - AUGUST 31, 1996)
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 96
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 100% Corporate Return on Equity
and Corporate Unit
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:
o Employees whose terms and conditions of employment are subject to
collective bargaining.
o Employees hired after 5/31/96. (Waived if the employee is a
former regular full time employee during FY 96. Payout is
prorated.)
o Regular part time employees with less than 500 hours of service
during FY 96
o Temporary employees with less than 1000 hours of service during
FY 96
o Employees terminated for cause prior to 8/31/96
o Employees who terminate voluntarily prior to 8/31/96 (Employees
who terminate to accept a position with a member cooperative may
be eligible for a prorated payout.)
o Employees included invariable 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
Hired after 9/1/95 but before 5/31/96
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 08/31/96 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 96 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 A
FY 96 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 11.5% 15%
Business Unit: TRANSPORTATION
Threshold Target Maximum
TRUCK OPERATIONS
Cash Flow 757,000 1,082,000 1,407,000
Return on Assets 27.52% 39.32% 51.12%
Earnings after 1,013,000 1,447,000 1,881,000
interest
FTI
Cash Flow 924,000 1,320,000 1,716,000
Return on Assets 34.04% 48.63% 63.22%
Earnings after 1,203,000 1,719,000 2,235,000
interest
EXHIBIT A
FY 96 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 11.5% 15%
Business Unit: CROP PRODUCTION
Threshold Target Maximum
Cash Flow 41,061,000 82,122,000 123,183,000
Return on Assets 16.03% 32.05% 48.08%
Earnings after 78,876,000 157,752,000 236,628,000
interest
EXHIBIT A
FY 96 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 11.5% 15%
Business Unit: PETROLEUM
Threshold Target Maximum
Cash Flow (79,095,000) (60,842,000) (42,589,000)
Return on Assets 2.08% 2.97% 3.86%
Earnings after 6,419,000 9,170,000 11,921,000
interest
EXHIBIT A
FY 96 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 11.5% 15%
Business Unit: FEED
Threshold Target Maximum
Cash Flow 6,567,000 9,382,000 12,196,000
Return on Assets 10.05% 14.36% 18.67%
Earnings after 9,293,000 13,276,000 17,259,000
interest
EXHIBIT A
FY 96 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 11.5% 15%
Business Unit: FOODS, INCLUDING CARANDO
Threshold Target Maximum
Cash Flow 1,093,000 1,562,000 2,031,000
Return on Assets 3.70% 5.80% 7.90%
Earnings after 9,884,000 15,495,000 21,106,000
interest
EXHIBIT A
FY 96 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 11.5% 15%
Business Unit: HEARTLAND DATA SERVICES
Threshold Target Maximum
Cash Flow 218,000 272,000 326,000
Return on Assets 12.08% 15.10% 18.12%
Earnings after 322,000 402,000 482,000
interest
EXHIBIT A
FY 96 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 11.5% 15%
Business Unit: PRINT OPERATIONS
Threshold Target Maximum
Cash Flow (39,000) (30,000) (21,000)
Return on Assets 23.10% 33.00% 42.90%
Earnings after 562,000 802,000 1,043,000
interest
EXHIBIT A
FY 96 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 11.5% 15%
Business Unit: GRAIN
Threshold Target Maximum
Cash Flow
Return on Assets
Earnings after
interest
EXHIBIT B
FY 96 STANDARD VARIABLE COMPENSATION PLAN
Category Management Corporate Employees Business Unit Employees Thr. Target Max. Grades
Level Basis for Payout Basis for Payout
1 Non-Mgmt. 100% Corporate 100% Corporate Return on Equity 3% 5% 8% 0-72
Return on Equity
2 Managers & 100% Corporate 50% Corporate Return on Equity 5% 8% 15% Production Supv &
Above Return on Equity 50% Business Unit Measures
o Cashflow 6% 12% 20% 73-74
o Return on Assets 75-77
o Earnings after interest 8% 18% 34% 78-79
3 Managers & 100% Corporate 30% Corporate Return on Equity 10% 22% 40% 80+ (Non-
Directors Return on Equity 70% Business Unit Measures Farmland
o Cash Flow Industries,
o Return on Assets Inc. VPs)
o Earnings After Interest
4 Vice (All Senior Management, (Business Unit VP s) 15% 31% 52% FII VPs &
Presidents Corporate, & Regional 30% Corporate Return on Equity Designated Sr
& Senior VP s) 70% Business Unit Measures 20% 40% 64% Mgmt
Management 100% Corporate o Cash Flow Designated Sr
Return on Equity o Return on Assets Mgmt
Cash Patronage Qualifier o Earnings After interest 25% 45% 70%
o Cash Patronage Qualifier CEO
<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 $686,849,000 and the ROE for threshold is expressed as
8%. This would correspond to Income of $54,948,000 (.08 times $686,849,000).
However, the $54,948,000 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 $686,849,000 MILLION)
ROE Required Income
Threshold 8.0% $ 54,948,000
Target 11.5% $ 78,988,000
Maximum 15.0% $ 103,027,000
* Actual FY 95 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:
o 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.
o Non-recurring (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.
o The gain or loss on the disposal of a major asset, group of assets, or
investments.
o 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.
o The impact of adjustments resulting from LIFO inventory computations or
reserves.
o 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.