Exhibit 10-a
KANSAS CITY POWER & LIGHT COMPANY
ANNUAL INCENTIVE PLAN
FEBRUARY 2001
OBJECTIVE
The Kansas City Power & Light Company (KCPL) executive Annual Incentive
Plan (AIP) is designed to reward sustained value creation by providing
competitive incentives for the achievement of annual financial
performance goals. By providing market-competitive target awards, the
plan supports the attraction and retention of senior executive talent
critical to achieving the Company's strategic business objectives.
Eligible participants include Executives and other Key Employees of the
Company, as approved by the Compensation Committee (the Committee) of
the Board of Directors.
PERFORMANCE GOAL
Performance under the plan will be measured by Economic Value Added, or
EVA(R). The awards paid under the plan will be based on the achievement
of the annual EVA goal approved by the Committee. Annual EVA goals will
be set as part of a four-year cumulative EVA goal recommended by the
Chief Executive Officer and approved by the Committee. At the beginning
of the four-year period, the committee will approve the four-year
cumulative EVA goal and the EVA goal for the first year of the plan.
KCPL's proposed cumulative EVA goal for 2001 through 2004 is $51.6
million. The proposed annual EVA goal for KCPL for the 2001 annual
incentive plan year is $2.4 million. Details regarding these goals are
presented in Appendix I.
In addition to the overall KCPL goal, separate EVA goals will be
established for the business units. Individual incentive awards may
reflect a mix of KCPL and business unit performance; the actual mix for
each executive will be determined based on his role and contribution to
the organization.
TARGET AWARDS
Target award levels will be approved by the Committee and will be set as
a percentage of the executive's base salary. Target levels will vary by
participant and will reflect both his organizational responsibilities
and market-competitive bonus levels. Competitive bonus levels will be
determined using a blend of general industry and utility industry data.
In order for bonuses to be paid at target levels, the annual EVA
performance goals - both at the corporate and business level where
applicable - must be met.
EXAMPLE
Position Salary Target Bonus % Target Bonus $
Vice President $150,000 30% $45,000
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EVA(R) is a registered trademark of Stern Stewart and Company.
Target award levels are presented in Appendix II.
AWARD THRESHOLD AND MAXIMUM
Awards will be subject to an established performance threshold. If EVA
performance falls below the threshold level, no award will be payable
for that portion of the individual's award(1).
For plan year 2001, the threshold level of EVA performance for KCPL will
be negative $14.7 million. If performance falls below this level, no
award for the corporate component will be paid.
Awards will also be subject to a maximum level equal to 200% of the
target award. For plan year 2001, the bonus amount of 200% will be
awarded when EVA reaches $19.6 million.
If performance falls below target but is above threshold, the amount of
the award payable will be below the target award level. Similarly,
performance above target will result in an award higher than target
level. The amount of the award will be determined using the performance
matrix provided in Appendix III.
EXAMPLE
- ------- ------- -------- ----------- ------------------- ---------
Target Target 2001 EVA 2001 Actual Actual Award Actual
Bonus % Bonus $ Goal EVA (% of Target Award) Award ($)
- ------- ------- -------- ----------- ------------------- ---------
30% $45,000 $2.4 $6.7 125% $56,250
million million
- ------- ------- -------- ----------- ------------------- ---------
Using the performance matrix, the award paid for 2001 actual EVA
performance of $6.7 million would be 125% of target, or $56,250 in the
example above.
EXCEPTIONS
The cumulative EVA target established for the plan period is fixed for
the duration of the plan, and will only be changed upon the approval of
the Committee and the Board. Changes will only be approved as a result
of an acquisition, divestiture or other significant event that, in the
judgment of the Committee, results in a change in the character of the
Company.
Each year, the Committee will approve the annual EVA target. In
establishing this target, the Committee will consider both prior year
EVA performance and the four-year cumulative EVA goal. Should EVA
performance in any year fall below threshold, the Committee will
consider setting the following year's goal at a level sufficient to
recover all or a portion of the shortfall.
- ------------
(1) For example, if KCPL falls below the threshold EVA level while a
business unit performs above its threshold, the corporate (KCPL)
component of the award would be zero.
KANSAS CITY POWER & LIGHT COMPANY
ANNUAL INCENTIVE PLAN
APPENDIX I
PROPOSED EVA TARGETS
Following are the proposed KCPL (Total Company) EVA targets for the
period 2001 through 2004 ($000s)
2001 2002 2003 2004 Total
------ ------ ------ ------- -------
Budget EVA $ 200 $5,200 $1,000 $22,900 $29,300
Additional EVA $2,232 $4,465 $6,697 $ 8,929 $22,332
TARGET EVA $2,432 $9,665 $7,697 $31,829 $51,632
KANSAS CITY POWER & LIGHT COMPANY
ANNUAL INCENTIVE PLAN
APPENDIX II
PROPOSED TARGET INCENTIVE AWARD LEVELS
(EXPRESSED AS A PERCENT OF BASE SALARY)
Executive Tier Annual Target Award Opportunity
-------------- -------------------------------
CEO / President 45%
EVP & SVP 30%
VP and Other Executives 20%
KANSAS CITY POWER & LIGHT COMPANY
ANNUAL INCENTIVE PLAN
APPENDIX III
PROPOSED PERFORMANCE MATRIX
The proposed performance matrix establishes the threshold and maximum
levels of EVA performance and the corresponding annual award level.
These EVA levels were established using the EVA interval calculation
used under the current plan.
2001 Performance Matrix
-----------------------------------------------------------------
EVA % of Target Earnings Per
(thousands) ($) Award Earned Share Equivalent
--------------- ------------ ----------------
19,582 200% $2.39
15,295 175%
11,007 150%
6,717 125%
--------------- ------------ ----------------
2,432 100% $2.12
--------------- ------------ ----------------
-1,856 75%
-6,143 50%
-10,431 25%
-14,718 0% $1.83
CALCULATING THE INTERVAL
The EVA interval is calculated as follows:
a. MVA $2,696,124
b. Cost of Capital .0830
c. Expected Return (MVA x cost of capital) $223,778
d. Capitalized EVA factor
(1 + cost of capital)/(cost of capital) 13.05
e. EVA Interval (b divided by c) $17,150
The threshold level is equal to the target EVA minus one interval; the
maximum is equal to the target EVA plus one interval:
Threshold = $2,432 - $17,150 = ($14,718)
Maximum = $2,432 + $17,150 = $19,582