EXHIBIT 10.20
VARIABLE COMPENSATION PLAN
ARTICLE I
GENERAL
1.1. Establishment and Purpose of the Plan:
NL Industries, Inc., a New Jersey corporation, hereby adopts this Variable
Compensation Plan (the "Plan"). The purpose of the Plan is to attract and retain
high quality executives, officers and employees and provide further incentives
to such executives and employees to maximize the Company's annual financial
performance and thereby increase shareholder value.
1.2. Definitions:
Whenever used in this Plan, the following terms shall have the meanings set
forth below unless otherwise expressly provided.
(a) "Award Group" means one of the following groups to which Participants may be
designated as provided in the Plan or such other groups as may be designated by
the Committee from time to time:
Group I
Group II
Group III
Group IV
(b) Except as provided in Article VI, "Base Salary" means the regular salary
actually paid during a Plan Year to a Participant while participating in the
Plan. Regular salary shall include any salary reduction contributions made to
the Company's 401(k) Plan or other deferred compensation plans, but shall be
exclusive of any Variable Compensation Awards under the Plan and of any other
bonuses, incentive pay, or special awards.
(c) "Board" means the Board of Directors of NL Industries, Inc.
(d) "CEO" means the Company's Chief Executive Officer.
(e) "Certain Executive Officers" means those Executive Officers of the Company
who are designated by the Committee to be Group III or Group IV Participants and
whose total non-performance based compensation from the Company for the
applicable Plan Year would otherwise be in excess of the amount deductible by
the Company pursuant to Section 162(m) of the Code, including Qualifying Group
III Participants.
(f) "Code" means the Internal Revenue Code of 1986, as amended (the "Code").
(g) "Committee" means the Management Development and Compensation Committee of
the Board or such other committee as may be designated from time to time by the
Board, which shall consist of two or more members who meet the requirements of
Section 162(m) of the Code. The members of the Committee shall be appointed by
the Board, and any vacancy on the Committee shall be filled by the Board.
(h) "Company" means NL Industries, Inc. and its direct or indirect subsidiaries.
(i) "Company Performance Level" means with respect to each Award Group the
Minimum Company Performance Level, Target Company Performance Level or Maximum
Company Performance Level (each as described in Section 4.3 below) achieved or
to be achieved by the Company or applicable Company business segment for the
applicable Plan Year.
(j) "Employee" means a regular U.S. salaried employee of the Company.
(k) "Executive Officers" shall have the meaning set forth in rule 16a-1(f)
promulgated under section 16(a) of the Securities Exchange Act of 1934.
(l) "401(k) Plan" means an employee welfare plan of the Company qualified under
the provisions and regulations of Section 401(k) of the Code.
(m) "Individual Performance Level" with respect to each Participant (excluding
Certain Executive Officers) means the individual performance rating assigned by
the Company to such Participant for the applicable Plan Year. Individual
performance rating initially shall consist of a relative rating scale from
"outstanding" to "marginal" for all Participants (excluding Certain Executive
Officers) for any Plan Year. The Committee may terminate, change or adopt a
different individual performance rating scale as it determines appropriate from
time to time.
(n) "Participant" means an Employee selected or designated for participation in
the Plan for a specified Plan Year including Certain Executive Officers.
(o) "Performance Percentage" with respect to Award Groups I, II, and III
(excluding Qualifying Group III Participants, as defined below) means the
percentage assigned by the Committee to each such Award Group at each different
combination of Individual Performance Level and Company Performance Level for
such Award Group. With respect to Participants in Award Group III whose total
non-performance based compensation from the Company for the applicable Plan Year
otherwise would be in excess of the amount deductible by the Company pursuant to
Section 162(m) of the Code ("Qualifying Group III Participants"), no Individual
Performance Level shall be assigned to such Qualifying Group III Participants in
determining the applicable Performance Percentage for such Plan Year. Instead
the Performance Percentage for Qualifying Group III Participants shall be the
highest Performance Percentage available at the applicable Company Performance
Level for Award Group III Participants in general. The Committee, in its sole
discretion, may decrease such Performance Percentage and the corresponding
Variable Compensation Awards applicable to such Qualifying Group III
Participants. With respect to Award Group IV Participants, the initial
Performance Percentages for the Company Performance Levels shall be as follows:
150% for Maximum Company Performance Level, 100% for Target Company Performance
Level and 50% for Minimum Company Performance Level. The Performance Percentages
with respect to each Award Group for any Plan Year may be set or changed by the
Committee during the first ninety (90) days of such Plan Year.
(p) "Plan Year" means the Company's fiscal year.
(q) "Variable Compensation Award" with respect to any Participant for any Plan
Year means an amount to be paid by the Company to such Participant under the
terms of the Plan equal to the product of (A) the applicable Performance
Percentage for such Participant for such Plan Year, times (B) the Base Salary of
such Participant for such Plan Year.
1.3 Gender and Number:
Except when otherwise indicated by the context, words in the masculine gender,
when used in the Plan, shall include the feminine gender, the singular shall
include the plural, and the plural shall include the singular.
ARTICLE II
ADMINISTRATION OF THE PLAN
2.1 Administration:
(a) The Plan shall be administered by the Committee. Except with respect to
Committee's administrative authority regarding Executive Officers, the Committee
may delegate its day-to-day administrative authority regarding the Plan to the
CEO. The CEO may in turn re-delegate from time to time said administrative
authority to such officers and employees of the Company as he deems appropriate.
The Company's management shall assist and provide such recommendations to the
Committee as the Committee may request from time to time in connection with the
administration of the Plan.
(b) Subject to the limitations of the Plan, the Committee shall: (i) designate
the Executive Officers who shall be Participants and the Award Groups in which
they shall be included, (ii) designate and approve Performance Percentages
applicable in determining Variable Compensation Awards for payment to
Participants in such forms and amounts as it shall determine from time to time,
(iii) impose such limitations, restrictions, and conditions upon such Variable
Compensation Awards as it shall deem appropriate, (iv) interpret the Plan and
adopt, amend, and rescind administrative guidelines relating to the Plan, (v)
correct any defects or omissions or reconcile any inconsistencies in the Plan,
the Performance Percentages or in any Variable Compensation Award granted
hereunder, and (vi) make all other necessary determinations and take all other
actions necessary or advisable for the implementation and administration of the
Plan. The Committee's determinations on matters within its authority shall be
conclusive and binding.
(c) All expenses associated with the Plan shall be borne by the Company subject
to such allocation to its subsidiaries and business segments as it deems
appropriate.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Eligibility and Participation:
The Company's management shall determine the Employees to be selected as
Participants under the Plan and the Award Group in which each such Participant
may be included, except that participation by Executive Officers shall be
determined by the Committee. Any Employee, except Certain Executive Officers,
may be designated and selected as a Participant in the Plan at any time during a
Plan Year, including after the ninetieth (90th) day of such Plan Year.
ARTICLE IV
VARIABLE COMPENSATION AWARDS
4.1 Designation of Variable Compensation Awards:
The Company's management shall approve, or in case of Executive Officers
recommend to the Committee, the Performance Percentage and the corresponding
Variable Compensation Award to be paid to each Participant in accordance with
the terms of the Plan for the immediately preceding Plan Year. Within the first
ninety (90) days after the end of each Plan Year, the Committee shall review
such recommendations, make any adjustment it deems appropriate in accordance
with the terms of the Plan, and approve the grant and payment of the
corresponding Variable Compensation Awards in the aggregate and to the Executive
Officers.
4.2 Establishment of Performance Percentages:
Management of the Company shall assist and provide to the Committee management's
recommendations regarding the Performance Percentages applicable to each
combination of Individual Performance Level and Company Performance Level for
Award Groups I, II and III. No later than the ninetieth (90th) day of each Plan
Year, the Committee shall review such recommendations, make any adjustments it
deems appropriate in accordance with the terms of the Plan, and approve the
Performance Percentages for Award Groups I, II and III for such Plan Year. At
that same time, the Committee also shall set the Performance Percentages for
Group IV Participants. As described in Section 1.2(o), Performance Percentages
with respect to Award Group III and Award Group IV Participants who qualify as
Certain Executive Officers shall be based solely on the achievement of Company
Performance Levels. In the event the Committee takes no action prior to the
ninetieth (90th) day of such Plan Year to change, amend or rescind the
Performance Percentages in effect for the immediately preceding Plan Year, the
Performance Percentages for such Plan Year shall be deemed to be the Performance
Percentages for said immediately preceding Plan Year.
4.3 Company Performance Levels:
Prior to the ninetieth (90th) day of a Plan Year, the Company's management shall
make recommendations to the Board regarding the annual operating plan for the
Company and each of the Company's business segments for such Plan Year (the
"Annual Operating Plan"). The Board shall approve the Annual Operating Plan with
any modifications it deems appropriate. Based on the approved Annual Operating
Plan for such Plan Year, the Committee shall establish the financial performance
goals for the Company and its applicable business segments at the following
three levels which shall be designed to help focus the Participants' attention
on achieving superior annual financial performance results in light of existing
conditions: a threshold level, which is the minimum financial performance income
level for any award to be made under the Plan (the "Minimum Company Performance
Level"), a target financial performance income level (the "Target Company
Performance Level"), and a maximum financial performance level (the "Maximum
Company Performance Level"). The Committee shall in its discretion establish the
applicable objective Company financial performance criteria for determining
Company Performance Levels.
4.4 Determination of Performance Percentages:
Performance Percentages for Award Group I, Award Group II and Award Group III
Participants (excluding Qualifying Group III Participants) shall be based upon
the Performance Percentage assigned by the Committee for such Participant's
Award Group with respect to each combination of achieved Company Performance
Level for such Plan Year and the Individual Performance Level achieved by such
Participant for such Plan Year. Performance Percentages for Award Group I
Participants will range from 2% to 32%; Award Group II Participants initially
will range from 9% to 65%; and Group III Participants initially will range from
14% to 120%. Variable Compensation Awards for Group IV Participants and
Qualifying Group III Participants shall be based solely upon the Performance
Percentage assigned by the Committee with respect to the achieved Company
Performance Level. Performance Percentages will range from 50% to 150% for Award
Group IV Participants and from 60% to 120% for Qualifying Group III
Participants, depending on the Company Performance Level achieved. In the event
that the Company Performance Level achieved is below the Minimum Company
Performance Level, the Variable Compensation Award for Group IV and for
Qualifying Group III Participants shall be 0%. The Performance Percentages with
respect to each Award Group for any Plan Year may be set or changed by the
Committee during the first ninety (90) days of such Plan Year.
4.5 Adjustment of Company Performance Levels:
Except with respect to Certain Executive Officers as provided in Article VI, if
during any Plan Year external or internal changes or other unanticipated
business conditions have materially affected the appropriateness of the Company
Performance Levels, the Committee may, in its sole discretion, determine
appropriate increases or decreases to the Company Performance Levels for such
Plan Year.
Participants shall not be entitled to any Variable Compensation Award under the
Plan unless the Company achieves at the corresponding Company Performance Level;
provided, however, except as provided in Article VI, the CEO in the case of
Participants other than Executive Officers, and the Committee in the case of
Executive Officers other than Certain Executive Officers, in their discretion,
may approve payment of special awards to designated Participants.
4.6 Determination of Company Performance Level Achieved and Payment of
Variable Compensation Awards:
Within ninety (90) days after the end of each Plan Year, the Company's
management shall report to the Committee the Company Performance Level achieved
by the Company and each applicable business segment for such Plan Year. The
Committee shall review such report and certify in writing or set forth in a
resolution of the Committee the Company Performance Level achieved by the
Company and each applicable Company business segment for such Plan Year. Such
achieved Company Performance Level shall be used in determining the
corresponding Performance Percentage and Variable Compensation Award for such
Plan Year as provided in Sections 4.1 and 4.4 above. The Committee shall approve
the grant and payment of the corresponding Variable Compensation Awards to
Participants pursuant to terms of the Plan. Payment of Variable Compensation
Awards shall be made following certification by the Committee of the Company
Performance Level achieved for such Plan Year and shall be paid in cash in a
lump sum or shares of NL Common Stock. Except as provided in Article 5,
Participants must be employed by the Company on the date the Committee approves
the Variable Compensation Awards to receive the approved award for such Plan
Year.
4.7 Limitation on Payments:
The amount payable to a Participant pursuant to this Plan with respect to any
Plan Year shall not exceed $3 million.
ARTICLE V
TERMINATION OF EMPLOYMENT
5.1 Termination of Employment Due to Death, Disability, Retirement, Or
Transfer To Affiliate Not Included In Plan:
In the event a Participant's employment with the Company is terminated by reason
of death, total and permanent disability, retirement, or a Participant is
transferred to an affiliate which does not participate in the Plan, the
Participant's Variable Compensation Award shall be based on (i) Participant's
actual Base Salary paid through the date of termination or transfer, and (ii)
the applicable Performance Percentage. The Variable Compensation Award shall be
paid in accordance with Article IV.
"Total and permanent disability" and "retirement" shall have the meaning as
defined in the Retirement Programs of NL Industries, Inc.
5.2 Termination For Any Other Reason:
Except for terminations listed in Section 5.1, in the event a Participant's
employment is terminated for any other reason including voluntary and
involuntary termination prior to certification by the Committee of the Company
Performance Level achieved for such Plan Year, the Participant shall not be
entitled to a Variable Compensation Award with respect to such Plan Year.
However, the CEO, in his sole discretion, may approve the payment to such
Participant of a Variable Compensation Award under the Plan with respect to such
Plan Year, except that in the case of Executive Officers the CEO may make such
recommendation to the Committee, which shall have sole discretion to approve
such award.
ARTICLE VI
CERTAIN EXECUTIVE OFFICERS
6.1 Applicability Of Article VI:
The provisions of this Article VI shall apply only to Certain Executive
Officers. In the event of any inconsistencies between this Article VI and the
other Plan provisions, the provisions of this Article VI shall control.
6.2 Definition Applicable To Article VI Only:
The following term shall have the meaning set forth below:
(a) "Base Salary" shall mean as to any Plan Year a Participant's actual regular
salary at the rate in effect prior to the ninetieth (90th) day of the Plan Year
and not after the date the Company Performance Levels are established. Regular
salary shall include any salary reduction contributions made to the Company's
401(k) Plan or other deferred compensation plans, but exclusive of any Variable
Compensation Awards under this Plan and of any other bonuses, incentive pay, or
special awards.
6.3 No Partial Plan Year Participation:
A Certain Executive Officer who becomes eligible after the ninetieth (90th) day
of a Plan Year may not participate in the Plan for such Plan Year, but may
participate in the Plan for the succeeding Plan Year.
6.4 Components Of Individual Awards:
Each Variable Compensation Award shall be based strictly on the Company's
achievement of predetermined Company Performance Levels. Prior to ninety (90)
days after the beginning of the Plan Year, the Committee shall determine the
Company Performance Levels for such Plan Year.
6.5 No Mid-Year Change In Award Percentages:
Variable Compensation Awards for Certain Executive Officers shall be based
solely on the Performance Percentage for the applicable Award Group as set by
the Committee during the first ninety (90) days of the Plan Year.
6.6 No Adjustments Of Performance Goals:
Once established, Company Performance Levels shall not be changed after the
first ninety (90) days of the Plan Year with respect to Certain Executive
Officers. Certain Executive Officers shall not receive any Variable Compensation
Award under this Plan when the Company or the applicable Company business
segment fails to achieve at least the applicable Minimum Company Performance
Level.
6.7 Individual Performance and Discretionary Adjustments:
Individual performance shall not be reflected in the Variable Compensation
Awards to Certain Executive Officers. However, the Committee retains the
discretion to eliminate or decrease the amount of the Variable Compensation
Award otherwise payable to a Certain Executive Officer.
6.8 Possible Modification:
If, on advice of the Company's tax counsel, the Committee determines that Code
Section 162(m) and the regulations thereunder will not adversely affect the
deductibility for federal income tax purposes of any amount paid to a Certain
Executive Officer under the Plan (i) by applying one or more of Sections 1.2(b),
1.2(m), 1.2(o), 3.1, 4.2, 4.4, or 4.5 to such Certain Executive Officer without
regard to the limitations regarding Certain Executive Officers in such
Section(s) or (ii) by not applying one or more Sections of this Article VI, then
the Committee may, in its sole discretion, disregard such limitations.
6.9 No Discretionary Awards or Bonuses:
No discretionary awards or bonuses shall be paid to Certain Executive Officers
pursuant to this Plan. However, nothing in this Plan shall be construed as
limiting the right of the Committee or the Board to make any other award or
bonus under their general authority or under any other plan.
ARTICLE VII
MISCELLANEOUS PROVISION
7.1 Nontransferability:
No right or interest of any Participant in the Plan shall be assignable or
transferable, or subject to any lien, directly, by operation of law or
otherwise, including execution, levy, garnishment, attachment, pledge, and
bankruptcy.
7.2 Tax Withholding:
The Company shall have the right to deduct from all awards or payments under
this Plan, whether paid in cash or stock, any foreign, Federal, state, or local
taxes required by law to be withheld with respect to such payments.
7.3 Amendments:
The Committee, in its sole discretion, without notice, at any time and from time
to time, may modify or amend, in whole or in part, any or all of the provisions
of this Plan, or suspend or terminate it entirely.
7.4 Indemnification:
Each person who is or shall have been a member of the Committee or the Board or
who is or shall have been an Employee of the Company acting on behalf of the
Committee shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense, including without limitation, fees and
expenses of legal counsel, that may have been imposed upon or reasonably
incurred by him in connection with or resulting from any claim, action, suit, or
proceeding to which he may be a party or in which he may be involved by reason
of any action taken or failure to act under the Plan and against and from any
and all amounts paid by him in settlement thereof, with the Company's approval,
or paid by him in satisfaction of any judgment in any such action, suit or
proceeding against him, provided he shall give the Company an opportunity, at
its own expense, to handle and defend the same before he undertakes to handle
and defend it on his own behalf. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such person may
be entitled under the Company's Certificate of Incorporation or Bylaws, as a
matter of law, or otherwise, or any power that the Company may have to indemnify
him or hold him harmless.
7.5 Beneficiary Designation:
Each Participant under the Plan may name, from time to time, any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his death before he received any
or all of such benefit. Each designation will revoke all prior designations by
the same Participant, shall be in a form prescribed by the Company, and will be
effective only when filed by the Participant in writing with the Company during
his lifetime. In the absence of any such designation, or if the designated
beneficiary is no longer living, benefits shall be paid to the surviving
member(s) of the following classes of beneficiaries, with preference for classes
in the order listed below:
(a) Participant's spouse (unless the parties were divorced or legally separated
by court decree);
(b) Participant's children (including children by adoption);
(c) Participant's parents (including parents by adoption);
(d) Participant's executor or administrator.
Payment of benefits, in accordance with Section 5.1, shall be made exclusively
to the member(s) of the first class, in the order listed above, which has
surviving member(s). If that class has more than one member, benefit payments
shall be made in equal shares among members of the class.
7.6 Rights of Participants:
Nothing in this Plan shall interfere with or limit in any way the right of the
Company to terminate or change a Participant's employment at any time, nor
confer upon any Participant, any right to continue in the employ of the Company
for any period of time or to continue his present or any other rate of
compensation. No Participant in a previous Plan Year, or other employee at any
time, shall have a right to be selected for participation in a current or future
Plan Year.
7.7 Governing Law:
The Plan shall be construed in accordance with and governed by the laws of the
State of Texas.
7.8 Effective Date:
The Plan shall be deemed effective as of January 1, 2001.