SANDERSON FARMS, INC.
BONUS AWARD PROGRAM
(EXECUTIVE COMMITTEE)
Effective November 1, 1997
SANDERSON FARMS, INC.
CONTENTS PAGE NO.
I. Purpose 1
II. Participation and Maximum Award 2
III. Eligibility 3
IV. Determination 4 - 5
V. Objectives and Formulas for Determination
of the Bonus Award 6 - 13
VI. Parameters 14
SANDERSON FARMS, INC.
Bonus Award Program
as of November 1, 1997
I. PURPOSE
The Board of Directors of Sanderson Farms, Inc. has determined that in
addition to the Company's existing competitive and equitable total compensation
package, it is desirable to maintain a bonus award program for its salaried
employees. The purposes for such a program include:
A. To encourage excellence and high levels of performance.
B. To recognize the contributions of the salaried employees to the
overall profitability of the Company.
C. To encourage all employees from every division in the Company to
cooperate, share information and work together as a team for the
overall benefit of the Company and its shareholders.
SANDERSON FARMS, INC.
Bonus Award Program
as of November 1, 1997
II. PARTICIPATION AND MAXIMUM AWARD
The Executive Committee of Sanderson Farms, Inc. will select and
recognize personnel eligible to participate in the bonus award program, and
reserves the right to review and change the class of eligible employees at
any time. Those now designated include:
A. Salaried personnel within the corporate structure of Sanderson
Farms, Inc., Sanderson Farms, Inc.(Production Division),
Sanderson Farms, Inc. (Processing Division) and Sanderson Farms,
Inc. (Foods Division).
B. All salaried management and accounting trainees within the
corporate structure.
The maximum bonus award achievable will vary depending on the
employee's position in the Company.
SANDERSON FARMS, INC.
Bonus Award Program
as of November 1, 1997
III. ELIGIBILITY
EMPLOYMENT
Except in the case of death, disability or retirement, as set forth
below, employees must be employed in a designated position on October 31 of the
applicable fiscal year to be eligible to participate in the bonus award program.
PARTICIPATION LEVEL
If a person becomes an employee in a designated position during the year
and is employed in a designated position on October 31, the base salary paid to
such employee during that portion of the year during which he or she was
employed in a designated position will be used in calculating the amount of such
employee's bonus award. Base salary for this purpose shall include regular
compensation only, and shall not include bonus award payments and any other
miscellaneous payments that might be treated as income to the employee.
DEATH, DISABILITY AND RETIREMENT
If an eligible employee terminates employment with the Company during
the fiscal year before October 31 as a result of death, disability or
retirement, such employee will be eligible to participate in the Bonus Award
Program notwithstanding the fact that the employee is not employed on October
31, and the base salary paid to such employee during that portion of the year
during which he or she was employed in a designated position will be used to
calculate the amount of such employee's bonus award.
EXTRAORDINARY CIRCUMSTANCES
Extraordinary circumstances will be subject to review by the Executive
Committee.
SANDERSON FARMS, INC.
Bonus Award Program
as of November 1, 1997
IV. DETERMINATION OF AWARD AND PAYMENT
Bonus award programs for many corporations focus in some form or
another on the real dollar profits earned by the corporation within a given time
frame. This method of determining bonuses to be paid to employees recognizes
that bonuses should be paid to employees only after a fair and equitable return
has been earned for the shareholders who own the company. With this basic
philosophy in mind, the Board has determined that no bonuses will be paid under
this program unless net return on average stockholders' equity after
consideration is taken for any bonus paid under this program for the year
exceeds eight percent (8%). After this minimum threshold is met, the Bonus Award
Program will become effective, and bonuses will be paid if the other criteria
described in this program are met.
In recognition of the fact that one of our primary obligations as
employees of this Company is to our shareholders, the Board of Directors has
determined that net profits made by the consolidated corporations [Sanderson
Farms, Inc., Sanderson Farms, Inc. (Production Division), Sanderson Farms, Inc.
(Processing Division) and Sanderson Farms, Inc. (Foods Division)] on a per share
basis for the period November 1 through October 31 of each year will be the
primary basis for bonus awards. For all employees of Sanderson Farms other than
those management level employees specifically described in this program, this
will be the sole basis for determining bonus awards.
Although the Board has determined that net profits earned for
shareholders of the Company should be the primary method of determining the
bonuses to be paid to employees, the Board has also recognized that certain
management level employees have responsibility for and more direct control over
the operating performance and profitability of the Company. In recognition of
this fact, the Board has concluded that a certain percentage of such employees'
bonus should be determined by evaluating the operating and profitability
performance of the Company relative to its peers and competitors. Therefore,
while a portion of such employees' bonus will be determined by the Company's
earnings per share performance, a portion of such employees' bonus will also be
determined by evaluating the performance of the Company as compared to our peers
and competitors by Agri Stats for the poultry division, and certain net income
growth targets for managers in the foods division, all as described herein.
The audited annual financial statements, on a consolidated basis, of
Sanderson Farms, Inc. will be the measuring tool for the net return to
shareholders portion of the bonus award program. The annual bonus award will be
paid to participants in the bonus award program after the outside auditors have
completed their annual audit of the corporations, which is usually approximately
two (2) months after the end of the fiscal year.
The Company's performance relative to its peers and competitors as
reported by Agri Stats will be used to evaluate and determine bonuses paid to
those employees whose bonuses are determined in part by such performance. The
appropriate measuring tool as set forth in this Bonus Award Program as reported
by Agri Stats for the twelve (12) month period ending on October 31 each year
will be used to determine if a bonus has been earned by such employees.
SANDERSON FARMS, INC.
Bonus Award Program
Effective November 1, 1997
V. OBJECTIVES AND FORMULAS FOR DETERMINATION OF
THE BONUS AWARD
A. All salaried employees
All salaried employees will receive a bonus if the net income per share
objectives set forth below are met, and if the minimum return on average
stockholders equity for the year is earned. The annual audited financial
statements, on a consolidated basis, of Sanderson Farms, Inc., will be the
measuring tool for this portion of the Bonus Award Program. The annual bonus
award will be paid to participants after the outside auditors have completed
their annual audit of the consolidated corporation.
The earnings per share objectives and the respective percentage of
employees' bonus dependent upon EPS earned for fiscal 1998 (November 1, 1997
thru October 31, 1998) are as follows:
RANK PER SHARE RETURN* PERCENTAGE OF AWARD
---- ------------------ -------------------
Best (1st) $2.3342 100.0%
2nd $2.2862 95.5%
3rd $2.2322 91.0%
4th $2.1782 86.5%
5th $2.1242 82.0%
6th $2.0702 77.5%
7th $2.0161 73.0%
8th $1.9621 68.5%
9th $1.9081 64.0%
10th $1.8541 59.5%
11th $1.8000 55.0%
12th $1.7460 50.5%
13th $1.6920 46.0%
14th $1.6380 41.5%
15th $1.5839 37.0%
16th $1.5299 32.5%
17th $1.4759 28.0%
18th $1.4219 23.5%
19th $1.3678 19.0%
20th BELOW ZERO (0)
*Net of bonus.
The following formula will be utilized to determine the exact dollar amount of a
participant's bonus award dependent upon EPS performance.
A = Gross Award
S = Base Salary (excluding bonus award
payments and other items of
miscellaneous income) of the
Participant during that portion
of the year in which he or she
was employed in a designated
position.
P = Percentage of award earned based
on above schedule
M = Percent of salary eligible to be
earned as a bonus based on EPS performance.
FORMULA
S X P X M = A
As with any awards made under this Bonus Award Program, no bonus will be
paid unless total net income return (after bonus) on average stockholders'
equity for the year exceeds eight percent (8%). Net return on average
stockholders' equity will be computed by taking the average of beginning and
ending stockholders' equity for the applicable year, and dividing that number
into net income for the year.
For all employees other than those specifically set forth below, the
percent of salary eligible to be earned as a bonus based on EPS performance ("M"
in the above formula) is 25%. The management level employees set forth below
shall be eligible to earn a bonus based on EPS performance equal to the percent
of their salary as set forth below ("M" in the above formula):
CEO 50%
CFO, VP-Sales, Dir.-Marketing,
Dir.-Production, Dir.-Processing 35%
B. General Corporate Management
Bonus awards under this Bonus Award Program for the Chief Executive
Officer, Chief Financial Officer, VP-Sales, Director of Marketing, Director of
Production, Director of Processing, the Controller, the Director of
Administration, the Director of Technical Services, the Director of Sales, the
Corporate Processing Manager, Corporate Manager of Live Production,
Nutritionist, Veterinarian, Assistant to Director of Live Production,
By-products Division Manager, Chief Analyst, and Corporate Sales Coordinator
will be granted based on a combination of earnings per share performance and
general corporate performance as measured against the Company's peers and
competitors as reported by Agri Stats. For purposes of calculating bonuses
awarded and paid to individuals in these positions based on operating
performance, the corporate Agri Stats measure will be as reported in Agri Stats'
"bottom line report." Awards made to these individuals based on the operating
performance factor will be as follows:
Percentage of Salary
Eligible to be Earned as Corporate Agri Stats
Bonus on Operating Bottom Line
Performance Factors Report
Percentage of Award Earned)
TARGET Top 10%
CEO 50% 100%
CFO, VP Sales,
Dir.-Marketing,
Dir.-Prod., Dir.-Proc. 35% 100%
Controller, Dir.-Admin.,
Dir-Tech Svcs., Dir.-Sales,
Corp. Proc. Mgr., Corp. Mgr.
of Live Production, Chief
Analyst, 25% 100%
By-products Division Mgr. 20% 100%
Nutritionist, Veterinarian, Asst.
to Dir. of Live Prod.,
Corp. Sales Coordinator 15% 100%
HIGH AVERAGE Top 20%
CEO 50% 66 2/3%
CFO, VP Sales,
Dir.-Marketing,
Dir.-Prod., Dir.-Proc. 35% 66 2/3%
Controller, Dir.-Admin.,
Dir-Tech Svcs., Dir.-Sales,
Corp. Proc. Mgr., Corp. Mgr.
of Live Production, Chief
Analyst 25% 66 2/3%
By-products Division Mgr. 20% 66 2/3%
Nutritionist, Veterinarian, Asst.
to Live Prod., Corp. Sales
Coordinator 15% 66 2/3%
LOW AVERAGE Top 30%
CEO 50% 33 1/3%
CFO, VP Sales,
Dir.-Marketing,
Dir.-Prod., Dir.-Proc., 35% 33 1/3%
Controller, Dir.-Admin,
Dir-Tech Svcs., Dir.-Sales,
Corp. Proc. Mgr., Corp. Mgr.
of Live Production, Chief
Analyst 25% 33 1/3%
By-products Division Mgr. 20% 33 1/3%
Nutritionist, Veterinarian, Asst.
to Dir. of Live Prod., Corp. Sales
Coordinator 15% 33 1/3%
The following formula will be utilized for all employees whose bonus is
to be determined in part by factors other than EPS performance to determine that
portion of the award dependent upon such factors:
A = Gross Award
S = Base Salary (excluding bonus award
payments and other items of
miscellaneous income) of the
Participant during that portion of
the year in which he or she was
employed in a designated position.
P = Percentage of award earned based
on performance factor
M = Percentage of salary eligible to
be earned and paid as a bonus on
performance factor.
FORMULA
S X P X M = A
C. Sales and Marketing Management, Production Management and
Processing Management
All poultry sales managers and processing and production division
managers, production division unit managers and processing shift managers will
receive a bonus based in part upon the Company's earnings per share performance,
in part based on the Company's overall corporate Agri Stats performance, and in
part based on the performance of the complexes to which they are assigned (for
example, "fast food" complexes will be grouped and "chill pack" complexes will
be grouped) relative to the Company's peers and competitors as reported by Agri
Stats. The overall corporate Agri Stats performance measure will be the
Company's performance relative to its peers and competitors as reported by Agri
Stats in its "bottom line analysis" report. The performance of the applicable
complexes will be measured by the complexes' combined performance relative to
its peers and competitors as reported by corporate Agri Stats in its complex
"bottom line analysis" report.
These managers will be paid in accordance with the following schedule:
Percentage of Salary Assigned Corporate
Eligible to be Earned Complex Agri Stats
As Bonus Based Operations Bottom
On Performance Profit Line
Factors Agri Stats Report
(%of Award Earned) (%of Award Earned)
TARGET Top 10% Top 10%
Prod. Div. Managers,
Proc. Div. Managers, 20% 50% 50%
Sales Managers 15% 50% 50%
Prod. Unit Mgrs and Proc.
Shift Managers 10% 20% 20%
HIGH AVERAGE Top 20% Top 20%
Prod. Div. Managers,
Proc. Div. Managers 20% 33.3% 33.3%
Sales Managers 15% 33.3% 33.3%
Prod. Unit Mgrs. and
Proc. Shift Mgrs. 10% 33.3% 33.3%
LOW AVERAGE Top 30% Top 30%
Prod. Div. Managers,
Proc. Div. Managers 20% 16.7% 16.7%
Sales Managers 15% 16.7% 16.7%
Prod. Unit
Mgrs. and Proc.
Shift Managers 10% 16.7% 16.7%
C. Foods Division Management
The division manager at the Foods Division, the Foods Sales Managers,
the Production Manager and the Product Development Manager will receive a bonus
based in part upon the Company's earnings per share performance as described on
pages 6 and 7 of this plan, and in part based on the Foods Division's
performance as measured by "net income growth" and "net income return on sales"
as described below. The final results of the Foods Division will be determined
after the Company's external auditors have completed their audit at the end of
each fiscal year, which is completed approximately two months after the last day
of each fiscal year end.
The Foods Division Manager, Sales Managers, Production Manager and
Product Development Manager will receive a portion of their bonus based on the
performance of the Foods Division as measured by "net income growth" and "net
income return on sales" as set forth below:
Percentage of Salary
Eligible to be Earned
As Bonus Based Target Net Target Net
On Performance Return Income
Factors On Sales Growth
(Percentage of Award Earned) (Percentage of Award Earned)
TARGET 12% 12%
Div. Manager-Foods Div. 20% 50% 50%
Foods Sales Manager 15% 50% 50%
Production Mgr. and
Product Development Mgr. 10% 50% 50%
HIGH AVERAGE 10% 10%
Div. Manager-Foods Div., 20% 33.3% 33.3%
Foods Sales Manager 15% 33.3% 33.3%
Production Mgr. and
Product Development Mgr. 10% 33.3% 33.3%
LOW AVERAGE 8% 8%
Div. Manager-Foods Div. 20% 16.7% 16.7%
Foods Sales Manager 15% 16.7% 16.7%
Production Mgr. and
Product Development Mgr. 10% 16.7% 16.7%
SANDERSON FARMS, INC.
Bonus Award Program
as of November 1, 1997
VI. PARAMETERS
This bonus award program has been designed to encourage teamwork and
cooperation among all of the divisions of Sanderson Farms, and to ensure that
Sanderson Farms is consistently among the leaders in profitability in the
broiler and prepared foods industry. The program is also designed to pay a bonus
to employees only after the Company has returned to its shareholders a fair and
equitable return.
1. In the event of extraordinary operating conditions that were
unforeseen when setting the objectives and percentages in this bonus
award program, such circumstances will be considered by the Executive
Committee of Sanderson Farms, Inc. in making awards.
2. In the event of possible reporting errors affecting the ranking,
such circumstances will be considered by the Executive
Committee of Sanderson Farms, Inc. in making awards.
3. In the event changes in laws or accounting procedures affect the
ranking, such circumstances will be considered by the
Executive Committee of Sanderson Farms, Inc. in making awards.
A:\BONUS4~1.WPD