EXECUTIVE OFFICER PERFORMANCE
PLAN
Pentair, Inc.
Purpose
A primary objective of Pentair, Inc. ("Pentair" or
"Corporate") is to be a top-performing company by
consistently achieving profit performance that is higher
than the performance of comparable companies. Pentair
has also identified growth as a key strategy for the long
term success of the business. The return on our
investments, whether to support internal growth and
improvements or make acquisitions, is also a key
determinant of our business success and the return to our
shareholders. Pentair expects to compensate executive
officers for their performance against key financial
measurements in accordance with the terms of the
Executive Officer Performance Plan(EOPP).
Participation
Key employees in executive positions will be considered for
participation. Participation is determined by the magnitude
and scope of the employee's position and is subject to
Pentair Inc. Compensation Committee nomination. An
employee who participates in this program is not eligible for
the Pentair Management Incentive Plan.
Qualifying Positions and BOC Percentages
Bonus Opportunity Category (BOC) percentages are
assigned to each qualifying position by the Compensation
Committee based on competitive market data.
The current designated Qualifying Position and BOC
percentage is:
Qualifying Position BOC Percentage
Chairman, CEO 71.5%
The BOC% for other positions that may qualify for future
participation at the discretion of the Compensation
Committee are:
President, Chief Operating Officer 58.5%
Executive VP 52.0%
Other Sr. Officers 45.5%
Establishment of Goals and Factors
Corporate Performance Goals and Factors
EOPP Goals are established for Corporate for the following
three financial performance measurements: Earnings Per
Share (EPS) Growth, Return on Invested Capital (ROIC)
and Return on Sales (ROS). EOPP Goals are a function of
the overall financial goals for Pentair and are based on the
comparative market data and the historical and expected
performance of the company and its subsidiaries.
Financial performance that meets the EOPP Goals will
result in a corporate performance factor of 1.00. Financial
performance results that are below or above the EOPP
Goals are indexed with factors ranging from a low of .50 to
a high of 1.80. Any result falling between the stated goals
and factors will be interpolated.
The EOPP Goals and factors established for the fiscal year
are measured against Pentair's fiscal year performance for
that year. They are determined early in the fiscal year by the
Compensation Committee of the Board of Directors. They
have been established to be used over multiple fiscal years,
although they will be determined annually by the
Compensation Committee.
Incentive Awards
Incentive Awards under the EOPP are determined
according to the following formula:
Incentive Award = Base Salary x BOC% x C.P.F.
Base Salary = Actual base salary earned during the
year
BOC% = Bonus Opportunity Category Percentage
C.P.F. =Corporate Performance Factor
Cash Pay-out Limit
The cash incentive award for the fiscal year will be
limited to one times the participant's annual base
salary. The portion in excess of one times the
participant's annual base salary will be awarded as
performance shares. The performance shares will be
subject to the terms and provisions of the Omnibus
Stock Incentive Plan.
Maximum Award
No participant will receive an Incentive Award(cash plus
stock) greater than $1.5 million or 200% of annual base
salary.
Timing of Pay-out
Incentive Awards for a fiscal year, shall be paid as soon
as administratively possible after the annual audit is
complete and the compensation Committee has
reviewed and approved the payment.
CORPORATE PERFORMANCE FACTOR
The Corporate Performance Factor is based on actual
fiscal year financial performance achieved as measured
against the following goals, which when achieved will
create shareholder value and move Pentair toward its
top performance objectives. The goals to be measured
are multiplicative to emphasize a balanced approach to
financial performance. Each of the measures are
intended to emphasize a different aspect of financial
performance:
Earnings Per Share (EPS) Growth
Return on Invested Capital (ROIC)
Return on Sales (ROS)
Economic Value Added (EVA) is the concept used to
measure shareholder value creation. (EVA is the
"residual income" left over from operating profits after
the cost of capital has been subtracted.) The three
measures chosen encircle EVA. The strength of these
measures is that they reflect shareholder value.
Pentair will have one primary measure and two
secondary measures with factors based on the current
and historical performance. Earnings Per Share Growth
(EPS) will be primary and the secondary factors are
ROIC and ROS. If Corporate attains the goal on each
of the three measures the plan participants will receive
a Corporate Performance factor of 1.00. There will be
a range of performance factors for each measure that
when multiplied together give the total Corporate
Performance Factor.
Primary Factor x Secondary Factor #1 x
Secondary Factor #2 =
Corporate Performance Factor
Performance Multiplier Grid
Performance Factor Grid
Minimum
Below Goal
On Goal
Above Goal
Maximum
E.P.S. Growth
.50
.75
1.00
1.20
1.40
1.60
1.80
R.O.I.C.
.80
.90
1.00
1.10
1.20
R.O.S.
.80
.90
1.00
1.10
1.20
1.30
Corp. Perf.
Factor*
.32
1.00
2.81
*Performance falling between stated factors will be
interpolated.
Minimum Operating Income Requirement
If Pentair's operating income (after corporate charges)
is zero or less, there will be no bonus payouts.
Consideration for Acquisitions/Divestitures
In the case of an acquisition, no special adjustment
will be necessary. The additional sales, earnings,
and invested capital will flow into the calculations and
impact the results and payouts.
Divestitures will be excluded from the calculations. In
the event of a divestiture, EOPP will be calculated
based on results from continuing operations. Any
financial gain/loss from the divestiture will be
excluded from the EOPP calculation.
Approval of Final Awards
The Compensation Committee will review and approve
all goals and final Incentive Awards granted under this
plan. The Compensation Committee has the flexibility
to reduce or eliminate the award based on its business
judgement. The Compensation Committee does not
have the authority or discretion to award more than the
incentive award generated by the formula, subject to
the stated limits.
General Provisions
1. Nothing contained herein shall be construed to limit or
affect in any manner or degree the normal and usual
powers of management, including the right to terminate
the employment of any participant or remove him/her
from participating in the EOPP at any time.
2. The judgment of the Compensation Committee in
administering the EOPP will be final, conclusive and
binding upon all officers and employees of Pentair and
its subsidiaries, whether or not selected as participants
hereunder, and their heirs, executors, personal
representatives and assigns.
3. The Compensation Committee has the authority and
duties to:
a. Determine the rights and benefits under the
EOPP of participants and other persons;
b. Interpret the terms of the EOPP and apply them
to different situations;
c. Approve, process and direct the payment of
EOPP benefits, and
d. Adopt rules, procedures and forms which are
appropriate for the smooth and proper
operation of the EOPP.
4. In the event of death, a participant's designated
beneficiary will be entitled to the participant's Plan
benefits. If a participant does not designate a
beneficiary, the participant's beneficiary(ies) will be
determined according to the participant's will. If there
is no will, the beneficiary(ies) shall be determined by
the laws of descent and distribution of the state in
which the participant is a resident on the date of death.
5. A participant does not have the right to assign, transfer,
encumber or dispose of any award under the Plan until
it is distributed to the participant. Also, no award is
liable to the claims of any creditor of the participant
until it is distributed to him or her.
6. The Compensation Committee subject to approval by
the Pentair, Inc. Board of Directors, has the right to
terminate the Plan at any time.
7. Calculations will exclude the impact of periodic
change in accounting methods used by Pentair or
required by the Financial Accounting Standards
Board.