Exhibit (10)(n)
CMS ENERGY CORPORATION
and
CONSUMERS POWER COMPANY
ANNUAL EXECUTIVE INCENTIVE
COMPENSATION PLAN
As Amended January 1995
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CMS ENERGY CORPORATION
and
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 CMS Energy Corporation (CMS) and Consumers
Power Company (CPCo) 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 each Company's objectives
and CMS Energy's overall objectives.
II. EFFECTIVE DATE
The effective date of the Plan is January 1, 1986.
III. ELIGIBILITY
Officers and key employees in Salary Grades "11" or "D" 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,
the Manager - Corporate Human Resources and the Executive Director
- Human Resources CMS Enterprises (CMS) 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.
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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 CPCo Plan shall consist of three
factors: (1) the net income of CMS Energy Corporation; (2) the
pre-tax operating income of CPCo and (3) CPCo'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. Affiliates
of CMS shall establish their own company performance goals in lieu
of the CPCo pre-tax operating income and gas and electric rates
comparison.
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%.
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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%
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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, or the determined Market
Reference Value (MRV) midpoint, of his/her salary grade in the
Performance Year. The midpoints 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 Incentive
Award as a % of
Salary Salary Grade/MRV
Position 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 or F 30.0 III
Managers/Directors 13 25.0 III
Managers/Directors 12 or E 20.0 III
Managers/Directors 11 15.0 III
Managers/Directors
and Equivalent D 10.0 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
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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 CPCo Pre-tax + .15 x Rates) x Individual
- ---------- -------- ( ---------- ---------------- -----) -----------
Award Award ( Income Award Opr Income Award Award) Performance
Formula III
Individual = Standard x (.25 x CMS net + .53 x CPCo Pre-tax + .22 x Rates) x Individual
- ---------- -------- ( ------------ ---------------- -----) -----------
Award Award ( Income Award Opr Income Award Award) Performance
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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.
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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. However, a participant
promoted to a higher or transferred to a lower eligible
salary grade during the award year may be recommended
for an award based upon the percentage of the
Performance Year 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.
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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 reasons such 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 F and 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.