EXHIBIT (10)(n)
CONSUMERS POWER COMPANY
ANNUAL EXECUTIVE INCENTIVE
COMPENSATION PLAN
As Amended March 1994
1
CONSUMERS POWER COMPANY
Annual Executive Incentive Compensation Plan
I. PURPOSE
The purpose of the Annual Executive Incentive Compensation
Plan (Plan) is to:
A. Provide an equitable and competitive level of
compensation that will permit the Company to attract,
retain and motivate highly competent Officers and key
employees.
B. Provide a financial incentive for Officers and key
employees to achieve expected levels of individual
performance and thereby assist in the achievement of
Company objectives.
II. EFFECTIVE DATE
The effective date of the Plan is January 1, 1986.
III. ELIGIBILITY
Officers and key employees in Salary Grades 11 and above are
eligible for participation in the Plan.
IV. ADMINISTRATION OF THE PLAN
The Plan will be administered by the Chairman & CEO of CMS
Energy and the Vice President -- Human Resources under the
general direction of the Committee on Organization and
Compensation (Committee) of the Board of Directors of CMS
Energy.
The Committee, no later than March of the Performance Year,
will approve performance goals for the Plan year and will
determine the total Annual Award Fund that will provide a
reasonable and competitive level of awards when "standard"
performance goals are achieved.
The Committee, no later than March following the Performance
Year, will review for approval the total Annual Award Fund to
be allocated to the Plan participants for the previous
calendar year. This fund will be based on the Company's
performance and the recommendation by the Committee.
Individual incentive compensation awards for all participants,
except the Chairman & CEO, will be recommended by the Chief
Executive Officer, subject to approval of the Committee. The
incentive award for the Chairman & CEO will be recommended by
the Chairman of the Committee.
The Committee reserves the right to modify the performance
goals or otherwise exercise discretion with respect to
individual awards as they deem necessary to maintain the
spirit and intent of the Plan.
V. PERFORMANCE GOALS
The performance goal for the Plan shall consist of three
factors: (1) the net income of CMS Energy Corporation;
(2) the pre-tax operating income of the Company and (3) the
Company's gas and electric rates for customers as compared
with those of other major investor-owned utilities in the
Midwest and the United States. In the event less than 80% of
the CMS Energy income goal is achieved, there will not be a
payout under that portion of the Plan. In the event less than
80% of the CPCo pre-tax operating income goal is achieved,
there will not be a payout under the Plan.
A. CMS Energy Net Income Award (After Preferred &
Preference Dividends) -- An income goal will be set
each year. For each 1% (or fraction thereof) increase
achieved in net income above 80% of goal, there will
be a corresponding 2.5% (or pro rata part) increase in
the award up to 100% after which there will be a
corresponding 1% (or pro rata part) increase in the
award for each additional 1% (or fraction thereof)
increase in net income above goal. The maximum award
is 120%.
B. CPCo Pre-Tax Operating Income Award -- An operating
income goal will be set each year. For each 1% (or
fraction thereof) increase achieved in pre-tax
operating income above 80% of goal, there will be a
corresponding 2.5% (or pro rata part) increase in the
award up to 100% after which there will be a
corresponding 1% (or pro rata part) increase in the
award for each additional 1% (or fraction thereof)
increase in net income above goal. The maximum award
is 120%.
Actual Net or Operating Income Percent of
as a Percent of Goal Award Granted
-------------------- -------------
Less Than 80.0% 0
80.0% 50.0%
85.0% 62.5%
90.0% 75.0%
95.0% 87.5%
100.0% 100.0%
105.0% 105.0%
110.0% 110.0%
115.0% 115.0%
120.0% and Above 120.0%
C. Energy Rates Award -- A comparison will be made
between the Company's electric rate (average revenue
per kilowatt-hour sold -- $/kWh) and gas rate (average
revenue per thousand cubic feet sold -- $/Mcf) and
rates of comparable utilities. One-half of the energy
rates award portion of the performance goal will be
adjusted by the electric rate comparison and the other
half by the gas rate comparison.
If less than 50% of the comparison companies have
rates exceeding Consumers Power Company, the payout
will be zero for the electric or gas rate award. If
50% of the rate comparison companies exceed the
Company, 50% of the award is granted. For each 1% (or
fraction thereof) increase in the ranking above 50%,
there will be a corresponding 2.5% (or pro rata part)
increase in the award up to a 70% ranking after which
there will be a corresponding 1% (or pro rata part)
increase in the award for each 1% (or fraction
thereof) increase achieved in rank above 70%. The
maximum award is 120%.
Electric or Gas Ranking
(Percent of Companies Whose Percent of
Rates Exceed the Company's) Award
--------------------------- ----------
Less Than 50.0% 0
50.0% 50.0%
55.0% 62.5%
60.0% 75.0%
65.0% 87.5%
70.0% 100.0%
75.0% 105.0%
80.0% 110.0%
85.0% 115.0%
90.0% and Above 120.0%
4
For the comparison, the individual average rates of a
number of the largest investor-owned utilities in the
United States and Midwest for both gas and electric
comparisons will be measured against the average
Company electric and gas rates.
VI. ANNUAL AWARD FUND
Standard incentive awards for each eligible executive will
amount to a percentage of the midpoint of his/her salary grade
in the Performance Year. The midpoints and salary ranges are
determined each year and are subject to review and approval by
the Committee. The percentage will vary by position level as
indicated below:
Standard
Salary Incentive Award as a %
Position Grade of Salary Grade Midpoint Formula*
----------------- ------ ------------------------ -------
Chairman & CEO E-9 75.0 I
Vice Chairman,
President E-8 65.0 I
President,
Executive Vice
President E-7 60.0 I
President,
Executive Vice
President E-6 55.0 II
Senior Vice
President E-5 50.0 II
Vice President E-4 45.0 II
Vice President E-3 40.0 II
Other Officers/Senior
Managers/
Directors E-2 35.0 III
Senior Managers/
Directors E-1 30.0 III
Managers/Directors 13 25.0 III
Managers/Directors 12 20.0 III
Managers/Directors
and Equivalent 11 15.0 III
*Generally the top five Officers plus four other Officers with
multi-Company responsibilities participate in Formula I. All
other Officers participate in Formula II and all others
participate in Formula III. The formulas are found on Page 5.
The award for individual participants will be based on either
two or three factors: (1) Company performance as measured by
achievement of the net income of CMS Energy; (2) pre-tax
operating income of CPCo and energy rate relationship goals;
and (3) individual performance; ie, performance must be fully
effective or better to be eligible for an award. Assuming a
minimum of fully effective performance, individual awards may
be adjusted in a range from 70% to 130% of the Company
performance level in order to take into account individual
performance. Each individual's performance will be measured
against specific, quantifiable objectives for the Performance
Year as established and approved by each participant's
immediate supervisor. Accordingly, each year the levels will
be as follows:
115-130% Exceptional
100-115% Exceeds
70-100% Fully Effective
0 Unacceptable
The Chairman & CEO will review and approve each Officer's
objectives for the Performance Year. Final individual awards,
depending on formula designation, will be calculated as
follows:
Formula I
---------
Individual = Standard x CMS Net x Individual
Award Award Income Award Performance
Formula II
----------
Individual = Standard x .50 x CMS Net + .35 x
Award Award Income Award
CPCo Pre-Tax + .15 x Rates x Individual
Opr Income Award Award Performance
Formula III
-----------
Individual = Standard x .25 x CMS Net + .53 x
Award Award Income Award
CPCo Pre-Tax + .22 x Rates x Individual
Opr Income Award Award Performance
VII. PAYMENT OF AWARDS
CURRENT AWARDS
All awards for the Performance Year will be paid in cash no
later than March of the following year after review and
approval by the Committee. The amounts required by law to be
withheld for income tax and Social Security taxes will be
deducted from the award payments.
DEFERRED AWARDS
The payment of all or one-half of each award may be deferred
at the election of the individual participants in the Plan. A
separate irrevocable election must be made each year prior to
the beginning of the Performance Year. Any award granted
after termination of employment or retirement is not eligible
for deferral and will be paid in full in the year in which the
award is made.
The deferred awards may be paid out in a lump sum or in five
or ten annual installments beginning in the January following
retirement or termination of employment. If awards are paid
in annual installments, each year the payment will be a
fraction of the balance equal to one over the number of annual
installments remaining. In the event of the participant's
death, all deferred amounts will be paid in total the
following January.
At the time of electing to defer payment, the participant must
elect whether the sum deferred shall be treated by the Company
in accordance with Paragraph A or Paragraph B below.
A. The deferred award will be credited with sums in lieu
of interest from the first day of the month following
the month in which the award was granted to the date
of payment. The "interest rate" will be equivalent to
the prime rate of interest set by Citibank, NA,
compounded quarterly as of the first day of January,
April, July and October of each year during the
deferral period. The prime rate in effect on the
first day of January, April, July and October shall be
the prime rate in effect for that quarterly period.
B. The deferred award will be treated as if it were
invested as an optional cash payment under the CMS
Energy Corporation's Dividend Reinvestment and Common
Stock Purchase Plan. The value of the deferred sum at
the time of payment shall be equal to the number of
dollars such an investment would have been worth as
measured by the purchase price of shares of Common
Stock using the average closing price (NYSE --
composite transactions) for the first five trading
days in the December previous to a payout.
The amounts deferred are to be satisfied from the general
Corporate funds which are subject to the claims of creditors.
PAYMENT IN THE EVENT OF DEATH
Participants may name the beneficiary of their choice in the
event they die prior to receipt of either a current or
deferred award. In the event a beneficiary is not named, the
payment will be made to the first surviving class as follows:
1. Widow or Widower
2. Children
3. Parents
4. Brothers and Sisters
5. Executor or Administrator
Participants may change beneficiary at any time and the change
will be effective as of the date the participants complete and
sign the beneficiary form, whether or not they are living at
the time the request is received by the Company. However, the
Company will not be liable for any payments it makes before
receiving a written request.
VIII. CHANGE OF STATUS
A. SALARY GRADE CHANGE
Individual awards will be based on the salary grade
level in effect as of the beginning of the Performance
Year or such later date on which an employee becomes a
participant in the Plan except that an eligible
employee promoted to a higher eligible salary position
during the award year may be recommended for an award
based upon the percentage of the Performance Year the
employee is in each participating position.
B. NEW HIRE, TRANSFER, PROMOTION
A newly hired employee or an employee promoted during
the Performance Year to a position qualifying for
participation may be recommended for a pro rata award
based on the percentage of the Performance Year the
employee is in the participating position.
C. DEMOTION
No award will be made to an employee who has been
demoted during the Performance Year because of
performance. If the demotion is due to an
organization change, a pro rata award may be made
provided the employee otherwise qualifies for an
award.
D. TERMINATION
An employee whose services are terminated during the
Performance Year for reasons of misconduct, failure to
perform, or other performance-related reasons, shall
not be considered for an award. If the termination is
due to other reasonssuch as reorganization, transfer
to a subsidiary, etc, and the termination is not due
to a fault of the employee, the employee may be
considered for a pro rata award.
E. RESIGNATION
An employee who resigns to accept employment elsewhere
during or after a performance year, (including self-
employment) will not be eligible for an award. If the
resignation is due to other reasons; eg, ill health in
the immediate family, etc, the employee may be
considered for a pro rata award.
F. DEATH, DISABILITY, RETIREMENT, LEAVE OF ABSENCE
An employee whose status as an active employee is
changed during the Performance Year for any of the
reasons cited, may be considered for a pro rata award.
IX. IMPACT ON BENEFIT PLANS
Payments made under this program will be considered as
earnings for the Supplemental Executive Retirement Plan
(Salary Grades E-1 through E-9) and for life insurance, but
not for purposes of the Employees' Savings Plan, Pension Plan,
or other employee benefit programs.
X. TERMINATION OR AMENDMENT OF THE PLAN
The Company at any time may, in writing, terminate or amend
the Plan.