FY 99 STANDARD VARIABLE COMPENSATION PLAN
(SEPTEMBER 1, 1998 - AUGUST 31, 1999)
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 return on
equity before extraordinary items, or no payout occurs,
regardless of individual business/service unit results.
This plan includes four 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 financial performance criteria
and levels
Exhibit B - A summary schedule of payout opportunities by
earnings level
Exhibit C - Additional detail on determination of payout
Exhibit D - 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 99 to eligible employees for the attainment of
corporate objectives. The corporate standard measure is Return On
Equity (ROE). With Senior Management approval, including the
Chief Executive Officer, a business unit may be based completely
on corporate ROE. Alternatively, a business unit may be based
partially or completely on unit measures, with full Senior
Management approval, and would thus not participate in this
standard plan. Farmland would have to achieve at least the
threshold ROE level before any payout would occur under a
customized unit plan.
A further requirement for payout to Farmland Industries, Inc.
Vice Presidents and above is that cash patronage payments to
members must occur; if not, this group will receive no payout
under the terms of this plan.
ELIGIBILITY
The following types of employees are ineligible for payout under
the Standard Variable Compensation Plan:
. Employees whose terms and conditions of employment are subject
to collective bargaining
. Employees hired after 6/1/99 (Waived if the employee is a
former regular full time employee during FY 99. Payout is
prorated)
. Regular part time employees with less than 500 hours of
service during FY 99
. Temporary employees with less than 1000 hours of service
during FY 99
. Employees terminated for cause prior to 8/31/99
. Employees who terminate voluntarily prior to 8/31/99
(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. Exceptions must be
approved by Senior Management of the affected area and by the
VP, Human Resources.
Certain classes of employees who terminate prior to the end of
the fiscal year will receive payout based on their eligible
earnings during the year:
Death/Disability
Retirement
Reduction in Force
Focus Team member obtaining outside employment
Layoff
Leave of Absence
Hired after 9/1/98 but on or before 6/1/99
Involuntary separations, other than for reasons included in the
list above, which are not for performance or for cause, may
result in prorated payout.
Employees who voluntarily terminate prior to 08/31/99 for the
purpose of assuming a position with a system member cooperative
may be eligible to receive a payout. To secure eligibility, the
employee must notify Corporate Human Resources, in writing, at
the time of separation and ensure that the system member
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.
DETERMINATION
OF PAYOUT
Payout is determined as a percentage of eligible gross wages or
salary paid during the fiscal year, as shown in Exhibits B and C.
Corporate performance measurements are labeled "threshold",
"target", and "maximum".
Threshold - The minimal performance level required for the plan
to pay out. No payout occurs for achievement below threshold.
Target - Identifies the actual performance objective.
Maximum - A performance level exceeding target at which the
payout as a percentage of eligible gross wages or salary is
frozen. 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
President and CEO
EXHIBIT A
FY 99 PERFORMANCE CRITERIA AND GOALS
Corporate Return on Equity:
Threshold 8%
Target 14%
Maximum 20%
EXHIBIT B
FY 99 STANDARD VARIABLE COMPENSATION PLAN
TARGET MAXIMUM EARNINGS V COMP CALCULATION POINT **
THRESHOLD
3 5 8 All Non-Exempt/Truck Drivers Any Earnings
3 5 8 Below $35,000 Exempt Actual Earnings
3 6 10 $ 35,000 - $ 38,499 $ 36,750
4 7 12 $ 38,500 - $ 42,349 $ 40,425
5 8 15 $ 42,350 - $ 48,699 $ 45,525
5 10 18 $ 48,700 - $ 55,999 $ 52,350
6 12 22 $ 56,000 - $ 64,399 $ 60,200
7 15 27 $ 64,400 - $ 74,059 $ 69,230
8 18 33 $ 74,060 - $ 85,169 $ 79,615
10 22 40 $ 85,170 - $ 97,949 $ 91,560
12 25 46 $ 97,950 - $112,639 $105,295
12 25 46 $112,640 - $129,539 $121,090
12 25 46 $129,540 - $148,969 $139,255
14 28 52 $148,970 + Actual Earnings (Non - FII Exec)
** I.E., for any exempt employee whose earnings fall within a particular range,
the payout is calculated on this middle value.
EXECUTIVES
THRESHOLD TARGET MAXIMUM EARNINGS V COMP CALCULATION POINT**
18 36 67 Designated FII Executives
22 45 83 Designated FII Executives
25 50 92 President and CEO
$ 90,000 - $107,999 $ 99,000
$108,000 - $129,599 $ 118,800
$129,600 - $155,519 $ 142,560
$155,520 - $186,619 $ 171,070
$186,620 - $223,939 $ 205,280
$223,940 - $268,729 $ 246,335
$268,730 - $322,479 $ 295,605
$322,480 - $386,979 $ 354,730
$386,980 - $464,379 $ 425,680
$464,380 - $557,259 $ 510,820
$557,260 - $668,709 $ 612,985
$668,710 - $802,449 $ 735,605
$802,450 + Actual Earnings
** I.E., for any exempt employee whose earnings fall within a particular range,
the payout is calculated on this middle value.
Note: These scales remain unchanged from Fiscal Year 1998.
EXHIBIT C
DETAIL ON DETERMINATION OF PAYOUT
NON-EXEMPT EMPLOYEES:
Payout is determined as a percentage of eligible gross earnings paid
from 9/1/98 to 8/31/99.
Note: Eligible gross wages may exclude some lump sums.
EXEMPT/MANAGEMENT EMPLOYEES:
Payout is determined as a percentage of the Variable Comp Calculation
Point based on eligible gross wages from 9/1/98 to 8/31/99. Exhibit B grid
lists the percentage opportunities assigned to each Variable Comp Calculation
Point.**
NOTE: Lump Sum amounts given during the fiscal year will not be
included in Eligible gross wages unless they were given in
lieu of merit increase.
**Variable Comp Calculation Point and designated percentage will be
used unless comparison to FY96 salary range midpoint and grade determined
percentage results in a higher payout amount; but once a person has
transitioned to the current variable pay computation method, that person
cannot return to receiving a payout based on the fy96 salary range
midpoint. Individuals hired, promoted or demoted after 9/1/96 are
ineligible for this comparison.
ELIGIBLE EARNINGS:
Base earnings, merit increase pay, lump sum in lieu of a merit
increase, shift differential, bridge differential, and geographic
differential.
Production supervisors flat rate overtime payments.
Non-exempts overtime payments.
NON-ELIGIBLE EARNINGS:
The following is list of the most common items not included as
earnings:
Vacation and personal holiday balance lump sum payments
Previous FY variable compensation payment
Sales Commission, SPIFFs payment, bonus, etc.
Severance pay
Relocation reimbursements
Exceptions to normal eligibility or ineligibility of earnings must be
approved in advance by the appropriate FII Vice President and the
Director, Human Resource Information Team.
EXHIBIT D
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 $923,000,000 and the ROE for threshold is expressed as
8%. This would correspond to Income of $73,840,000 (.08 times $923,000,000).
However, the $73,840,000 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 $923,000,000 MILLION)
Required Income
ROE
Threshold 8.0% $ 73,840,000
Target 14.0% $ 129,220,000
Maximum 20.0% $ 184,600,000
*Actual FY 98 ending ROE has yet to be determined. When it is, the
income figures will be modified accordingly.
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 (See the definition of management
employees in the main plan document and in Exhibit "A"). This also applies to
management level employees who participate in customized plans. Employees on
sales incentive plans, with base pay administered at a lower level, are NOT
affected by this provision unless specific portions of their plans are tied to
corporate performance.
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.
. 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.
. 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.