GRACO INC.
1998 CORPORATE
&
BUSINESS UNIT
ANNUAL BONUS PLAN
Effective January 1, 1998
Human Resources
1998 EXECUTIVE CORPORATE & SBU BONUS PLAN
Objectives
- ----------
o To create shareholder value through achievement of annual financial
objectives.
o To motivate and retain those key executives and managers who work in
positions where they can impact the Company's annual financial objectives.
Plan Design
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The Plan links the size of each individual's award to specific financial
objectives. These objectives are tailored for the Corporation and for each
Business Unit. These objectives are:
o Corporation
o Corporate Sales and/or Net Earnings objectives
o Business Units
o Sales and/or Contribution Growth objectives
Eligibility Requirements
- ------------------------
Only those positions which carry clear managerial responsibility for directly
contributing to Graco's Corporate Sales and/or Net Earnings objective and
Business Unit Sales and/or Contribution Growth objectives are eligible to be
included in this Plan.
Only those individuals in eligible positions who have demonstrated and are
maintaining a performance level that meets the supervisor's normal expectations
for that position are eligible for annual participation in this Plan as well as
the receipt of any annual Bonus Payments.
Participation
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The top executive in each organizational unit may nominate managers for
participation in this Plan when the established position and individual
eligibility requirements have been met.
The Management Organization and Compensation Committee of the Graco Inc. Board
of Directors has sole authority to approve the participation of the Chief
Executive Officer in the Plan.
The Chief Executive Officer of Graco Inc. has sole authority to select and
approve all other Plan participants.
Bonus Maximum
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Taken in conjunction with base salary market comparisons, bonus maximum for all
positions will be:
o Commensurate with the position's ability to impact the annual
Corporate Sales and/or Net Earnings objective and Business Unit Sales
and/or Contribution Growth objectives.
o Consistent with total compensation levels prevalent for similar
positions in the market place.
Based on these criteria, bonus maximums ranging from 10% to 80% have been
established for each individual.
Bonus Payment
- -------------
The determination of a participant's annual Bonus Payment will be calculated by
adding the bonus results attained for Corporate Sales and/or Net Earnings
performance (expressed in percent) to the bonus results attained for any
applicable Business Unit's Sales and/or Contribution Growth performance
(expressed in percent). These bonus results are then multiplied by the
participant's Maximum Bonus Percentage and then multiplied by the participant's
Base Salary for the Plan Year, to determine the total Bonus Payment.
Example:
|------------- ---------------|
|Annual Annual | Participant's Participant's
|Corporate Business | Maximum Annual
|Performance + Unit | x Bonus x Base = Bonus
|Results Performance | Salary Salary
| Results |
| (if |
| applicable) |
| |
| % % | $ $ $
|------------- ---------------|
1998 EXECUTIVE CORPORATE & SBU BONUS PLAN
Administration
- --------------
The following rules have been established to insure equitable administration of
Graco's Annual Bonus Plan (the Plan):
1. The Plan will be administered by the Management Organization and
Compensation Committee of the Board of Directors. The Committee may cancel
the Plan and interpret the Plan.
2. The Management Organization and Compensation Committee shall establish the
Annual Corporate Bonus Plan financial objectives. Within the basic
framework of the Plan, the Chief Executive Officer may establish the annual
bonus plan financial objectives for individual Business Units. The CEO may
also establish deadlines for filing administrative forms and adopt other
administrative rules.
The CEO has established the Bonus Administrative Committee consisting of
the President, the Vice President, Human Resources, and the Compensation
Manager. This Committee is responsible for making approval recommendations
on all Annual Bonus Program administrative matters, such as participation
award payments, performance measures, and performance results. All requests
for adjustments or exceptions are to be formally submitted to this
Committee for review through the Compensation Manager.
3. Key executives and managers selected to participate in the Plan after its
annual effective date (January 1st) may be included on a pro-rata basis.
4. Participation in the Plan one year does not necessarily assure
participation in subsequent years. Eligibility requirements for both the
position and individual performance must be met continually.
5. Participation continues during any paid time off such as short-term
disability (up to six months). Participation ceases with retirement, death,
or long-term disability (over six months). In the event participation
ceases due to retirement, death, or long term disability, the Participant
will be eligible for a Bonus Payment, calculated using the Maximum Bonus
Percent and Base Salary up to the time of retirement, death, or long-term
disability and the annual performance results for the year in which
retirement, death, or long-term disability occurs.
6. A participant who transfers to a position not eligible for inclusion in the
Plan will be eligible for a pro-rata award based on the actual time
employed in the eligible position during the year. The pro-rated award will
be paid as described in Administrative Rule #11.
1998 Executive Corporate & SBU Bonus Plan
Administration (continued)
- --------------------------
7. A participant who resigns or is terminated effective during the Plan Year
is ineligible for a bonus.
Participants must maintain satisfactory performance throughout the Plan
year in order to be eligible to receive a bonus award payment.
In addition, a participant whose employment termination has been requested
due to performance or otherwise for cause will be ineligible for a bonus
payment even though the participant is still employed at year-end.
8. All matrix calculations will include such effects as those created by
foreign exchange gain/loss translation and income tax rate changes.
9. All matrix calculations will be based on actual exchange rates, not plan
rates.
10. Acquisitions and divestitures not included in the annual business plan for
the Plan Year will be excluded from the Corporate Sales and/or Net Earnings
calculations.
11. Significant changes in historical FASB accounting practices or income tax
rates will be included in corporate earnings calculations at the discretion
of the Management Organization and Compensation Committee of the Board of
Directors.
12. Payments will be made by March 15th of the year following each successive
Corporate and Business Unit performance year.
1998
Corporate Performance Results and Awards
for 100% Corporate Participants
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1998 Corporate Percent of Maximum
Net Earnings Bonus Award
Results Earned
-------------- ------------------
$40,000 0.00%
$43,000 18.75%
$46,000 37.50%
$49,000 56.25%
$52,000 75.00%
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1998 Percent of Maximum
Corporate Sales Bonus Award
Results Earned
-------------- ------------------
$414,000 0.00%
$426,000 6.25%
$438,000 12.50%
$450,500 18.75%
$463,000 25.00%
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Note: Calculations exclude acquisitions and divestitures which were not included
in the 1998 Annual Business Plan.