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EXHIBIT 10.10
WICOR, Inc.
1997 Corporate Officer's Incentive Compensation Plan
I. Objectives
The principle objectives of the Plan are:
A. To motivate and to provide incentive for officers of WICOR to create
economic value.
B. To ensure a focus on earning a return on capital in excess of the
cost of capital while also making a positive contribution to
earnings.
C. To assist in the retention of quality senior management.
D. To yield competitive total compensation levels when performance goals
meet the cost of capital requirement.
II. Eligibility
Participation in the Plan is limited to designated WICOR corporate
officers. The Chief Executive Officer will be responsible for
recommending eligibility changes to the Compensation Committee of the
Board of Directors of WICOR, Inc.
III. Amount of Potential Award
A. The minimum, target and maximum award opportunities for each
executive, as a percentage of base salary (W-2 base salary calendar
earnings), are as follows:
Award as a Percent of Salary
--------------------------------
Position Minimum Target Maximum
------------------ ------- ------ -------
President & CEO 0% 50% 108.75%
VP, Treasurer & CEO 0% 40% 87%
Asst. Treasurer 0% 20% 43.5
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B. Each executive's award will be determined based on a combination of
WICOR and individual performance, with WICOR performance accounting
for 75% of the award and individual performance weighted at 25%.
IV. Performance Criteria and Objective Setting
A. Financial Component (75% Weight)
1.) Overall WICOR performance will be measured by Return on Capital
(ROC), which is defined as NOPAT (Net Operating Profit After
Tax) divided by Total Capital Employed (NOPAT and Total Capital
Employed are defined in Appendix I). Threshold, Target, and
Maximum ROC performance levels, and their corresponding
incentive awards are as follows:
1997 Return Award as a %
Performance Level on Capital of Target
- ----------------------- -------------- ------------
Below Threshold Less than 7.2% 0%
Threshold 7.2% 1%
Target 8.5% 100%
Maximum or above 11.1% 200%
* WICOR Cost of Capital = 8.5%
For performance at levels between Threshold and Target or between Target
and Maximum, award calculations will be interpolated on a linear basis.
2.) ROC payout will be further modified by performance against EPS
Growth (the modifier). As seen below, EPS growth performance
can modify the award by +/- 20%.
1997 EPS Award Modification
Performance Level Growth as a % of Target
- ---------------------- -------------- ------------------
Threshold Less than or
equal to 5% 80%
Target 10% 100%
Maximum Greater than or
equal to 15% 120%
For performance at levels between Threshold and Target or between
Target and Maximum award calculations will be interpolated on a linear
basis.
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B. Discretionary/Individual Component (25% Weight)
The individual component of total incentive compensation will be
determined by the WICOR Compensation Committee on recommendations from
the CEO reflecting the individual's overall performance as measured
against previously identified and agreed upon goals and objectives. The
award may vary between 0% and 150% of the individual performance portion
of the target award, and will be determined and paid independently of
Corporate financial performance.
Combining the previously mentioned components yields the following
formula for determining annual incentive payout:
Step 1 [ Base Salary x Eligible Target % ]
Multiplied by the sum of Step 2 and Step 3
Step 2 [(ROC Award % x EPS Growth Modifier %) x 75%]
Plus
Step 3 [Discretionary % x 25%]
Equals
Annual Incentive Award
C. The company intends to hold the proposed financial/operational
performance standards constant for at least three years, with annual
reviews to ensure reasonableness vis-a-vis external market conditions.
This is especially relevant with regard to the cost of capital, which is
the key determinant of performance levels for the ROC measure. The cost
of capital should be re-examined if there is a 100 basis point
increase/decrease in the 30-year Treasury bond rate. (For example,
based on the current rate of 7.0%, an increase in rates to 8.0% or more
or a decrease in rates to 6.0% or less, would trigger a review of the
cost of capital.)
D. If the Compensation Committee of WICOR, Inc. determines that corporate
performance was inadequate, it may exercise discretion to reduce or
eliminate any or all bonus payments.
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V. Performance
Company performance goals will be for the 1997 calendar year.
VI. Treatment of Acquisitions and Investments
A. Acquisitions
The capitalized value (NOPAT/Target's Cost of Capital) of the
acquired entity's last full year's NOPAT will be added to the capital
base of the acquiring business unit in the month of acquisition. The
acquisition premium (defined as the excess of the purchase price over
the capitalized value ) will be incorporated into the capital base at
a rate of 20% per year starting at the beginning of the first
calendar year after the acquisition.
B. Investments
The entire value of investments of an operating nature (capital
expenditures) will be added to the capital base. However,
investments of a significant dollar amount, whose project life
extends beyond ten years, will be reviewed by management for
potential adjustments to the capital base (similar to the treatment
for acquisitions).
VII. Form and Timing of Award Payments
A. Awards will be determined and paid as soon as practicable after the
close of the Plan year.
B. At each participant's discretion and with the concurrence of the
Compensation committee of WICOR, Inc., awards may be paid in one of
three ways:
1. Lump sum.
2. Partly in lump sum and the remainder in deferred annual
installments.
3. Completely in deferred annual installments.
C. The Company will offer a deferred payment option to those officers
who prefer not to receive their awards in current cash, following
these guidelines:
1. Deferred incentive award payments will be carried as an accrued
liability with an interest rate (three-year treasury bill rate)
credited each year
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2. Deferred elections must be made prior to June 30, 1997, and a
definite time period for deferral must be specified.
D. Additionally, if performance significantly exceeds the maximum
standard established, the Compensation Committee has the discretion
to provide an incentive payout in excess of the maximum allowable
payout. However, any exceptional performance which qualifies for
this award, must be a direct result of management efforts and not due
to external factors beyond management's control. Any awards in
excess of the maximum payout opportunity would be paid in WICOR
restricted stock which would vest ratably over five years. However,
if a participant terminates employment due to death, retirement, or
disability, any prior restricted stock awards made under this
provision would become immediately vested.
E. In the event the company's overall ROC is negatively impacted by the
inclusion of a newly acquired company's results, the compensation
committee has the discretion to make a supplemental incentive
payment. The supplemental payment will be considered if the acquired
company is meeting the financial projections established at the time
of the acquisition and the officers of the acquiring entity would
have otherwise received a higher incentive payment had it not been
for the inclusion of the acquired entity's results. The purpose of
this supplemental incentive provision is to motivate officers to
invest in value building projects. The duration of the supplemental
incentive period will be no more than three years.
VIII. Implementation
A. The effective date of the Plan is January 1, 1997.
IX. Plan Administration
A. Compensation Committee
1. The Plan will be administered by the Compensation Committee of
the Board of Directors of WICOR, Inc.
2. The Committee's administration is subject to approval of the
Board of Directors of WICOR, Inc.
3. The decisions of the Board are final and binding on all Plan
participants.
4. The Board retains the right to terminate or amend the Plan as
it may deem advisable
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B. Partial Year Participation
1. Participants must be employed by the Company on the last day of
the Plan year in order to receive a bonus for that year.
However, once earned, a bonus will be paid to a participant
regardless of whether he/she is employed by the company on the
date payment is made.
2. Awards for part year participants will be pro-rated based on
the proportion of the year that the participant was in the
Plan. This includes participants who terminate employment due
to death, disability or retirement.
3. Participants who terminate employment with the Company prior to
the last day of the plan year shall forfeit all rights to an
incentive award payment under the Plan except for terminations
due to death, retirement or disability.
4. A participant is deemed to be disabled if he/she becomes
eligible for benefits under the Company's Long Term Disability
Plan.
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DEFINITIONS OF TERMS
Corporate Consolidated
NOPAT -Net operating profits after tax is calculated as follows:
Sum of the individual Subsidiaries NOPAT, including Energy PCO, WICOR
Industries PCO, WEXCO, Fieldtech, and WESCO.
CAPITAL - Total capital employed is calculated as follows:
Sum of the individual Subsidiaries Average Capital employed,
including Energy PCO, WICOR Industries PCO, WEXCO, Fieldtech
and WESCO.
Measurement for all capital employed items is determined using 13 month
rolling average
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