EXHIBIT 10.12
CISCO SYSTEMS, INC.
PROFESSIONAL AND LEADERSHIP INCENTIVE PLAN
FY 2002
I. INTRODUCTION
A. THE OBJECTIVE OF THE PROFESSIONAL AND LEADERSHIP (P&L) INCENTIVE
PLAN is to financially reward eligible employees for their
contributions to the success and profitability of the Cisco
Systems, Inc. and all of its subsidiaries.
B. PARTICIPANTS: This Plan applies solely to employees of Cisco
Systems, Inc. and all of its subsidiaries in Grades 1 through 14,
083, 084, 090, 150, 200, and 888.
C. EFFECTIVE DATE: This Plan is only effective for the Fiscal Year
2002 beginning July 29, 2001, through July 27, 2002. Grades 1
through 7 will be transferred to the P&L Incentive Plan effective
October 28, 2001. This Plan will expire on July 27, 2002
("Expiration Date").
D. CHANGES IN PLAN: The Company presently has no plans to change the
Plan during the fiscal year. However, the Company reserves the
right to modify or cancel the Plan in total or in part, at any
time. Any such change must be in writing and signed by the
President/CEO. The President/CEO or Plan designers reserve the
right to interpret the Plan document as needed. Nothing in this
plan is intended to create an entitlement to any employee for any
incentive payment here under.
E. ENTIRE AGREEMENT: This Plan is the entire understanding between
Cisco Systems, Inc. and all of its subsidiaries and the employee
regarding the subject matter of this Plan and supersedes all prior
bonus or commission incentive plans, or employment contracts
whether with any holding company, subsidiary, or affiliate thereof
(including Cisco Systems, Inc.) or any written or verbal
representations regarding the subject matter of this Plan unless
superceded by local law.
II. ELIGIBILITY AND INCENTIVE PLAN ELEMENTS
A. ELIGIBILITY: The participant must be employed in an
incentive-eligible position on or before the first working day of
the last fiscal quarter of Fiscal Year 2002 and must be employed
by the last working day of the fiscal year to be eligible for a
Fiscal Year 2002 incentive payment. Participants in the Plan with
less than one year of service will be eligible for a prorated
incentive amount from the effective date in the participation of
the plan up to and including the Expiration Date. In no event will
any individual accrue any right or entitlement to an incentive
under this Plan unless that individual is employed by the last
working day of Fiscal Year 2002.
Any exceptions to the above must be approved in writing by the
President/CEO.
The amount of any incentive payment payable to any employee
pursuant to this Plan shall be reduced proportionately by the
amount of any outstanding debt to the company incurred on a sales
commission plan.
AND
The participants are eligible for the incentive payout if they
meet the following requirements at both the time of calculation of
such payments and at payout:
- are not concurrently on a sales incentive or
commission plan
- have not entered into a Mutual Separation
Agreement
- not on a Performance Improvement Plan or
Written Warning
Professional and Leadership Incentive Plan FY2002 Page 2 of 5
- Employees in the bottom 5% will not receive
an incentive payout.
B. ELEMENTS OF CALCULATION:
INCENTIVE INDIVIDUAL COMPANY MARKET CUSTOMER TOTAL
BASE X TARGET X PERFORMANCE X PERFORMANCE X SHARE X SATISFACTION X PRORATION = ANNUAL
SALARY PERCENTAGE FACTOR FACTOR FACTOR FACTOR FACTOR INCENTIVE
- ------ ---------- ----------- ----------- ------ ------------ --------- ---------
C. THE ANNUAL BASE SALARY in effect at the end of Q2 for midyear and
the end of Q4 for year-end represents the basis for the incentive
calculations.
D. INCENTIVE TARGET PERCENTAGE is a percentage of base salary
determined by the grade level.
GRADES INCENTIVE TARGET %
------ ------------------
1 - 4 7%
5 - 7 9%
8 AND 9 14%
10 AND 11 17%
12 30%
013, 014, 083, 084, AND 090 40%
200 AND 888 50%
150 60%
E. INDIVIDUAL PERFORMANCE FACTOR (IPF) is based upon the manager's
evaluation of participants' performance and contribution for the
fiscal year. As a Factor to the Incentive target percentage for
the grade, this factor can range from .5 to 1.5 (i.e., .5 X 14% =
7%, 1.0 X 14% = 14%, or, 1.5 X 14% = 21%). The assigned IPF may
also be zero, resulting in no incentive.
F. COMPANY PERFORMANCE FACTOR is based upon achieving an established
worldwide Revenue target and a worldwide Profit Before Interest
and Tax (PBIT) target per the current Plan by Cisco Systems, Inc.
and all of its subsidiaries. The PBIT achievement to target is
more heavily weighted relative to the worldwide Revenue target.
80% of each objective must be achieved for any incentive to be
paid. Maximum payout under the Plan is 190% or a Factor of 1.9.
When the Revenue and PBIT percentages of goal fall between the
stated percentages on the matrix, the Performance Factor will be
determined using a straight-line interpolation approach. The
applicable targets for Fiscal Year 2002 can be amended at any time
during the fiscal year.
G. MARKET SHARE FACTOR is based upon achievement of market share
growth from prior year compared to our list of key competitors.
This factor may range from 0.50 - 1.00 based on the following
criteria:
MARKET SHARE POINT DELTA RELATIVE MARKET SHARE FACTOR
------------------------ ----------------------------
< 0 0
0 0.50
1 0.56
2 0.62
3 0.68
4 0.74
5 0.80
6 0.84
7 0.88
8 0.92
9 0.96
10 + 1.00
H. CUSTOMER SATISFACTION FACTOR is based upon achievement of an
overall worldwide customer satisfaction survey score drawn from
all Cisco Systems Inc. and all of its subsidiaries together
worldwide. This Factor may range from 0.95-1.20 based on the
following criteria:
Professional and Leadership Incentive Plan FY2002 Page 3 of 5
WORLDWIDE SATISFACTION SCORE CUSTOMER SAT FACTOR
---------------------------- -------------------
< 4.37 0.95
4.37 - 4.40 1.05
4.41 - 4.49 1.10
4.50 + 1.20
I. TRANSFERS AND TERMINATIONS: Employees who are participants in the
Plan and who transfer to a new position not governed by this Plan
will be eligible on a pro-rata basis for the applicable period and
paid as defined by the Plan. Employees who transfer into the Plan
from another plan will be subject to proration as well, and
consequently will be eligible to receive an incentive payment
based on their participation in this Plan during Fiscal Year 2002
applying the Proration Factors referred to below. Payments from
the plan are subject to reduction by advances, unearned commission
advances, draws or prorations and appropriate withholdings. Any
exceptions to the Plan must be designated in writing and approved
by the President/CEO of the Cisco Systems, Inc..
A participant must be employed as of the last working day of the
fiscal year to be eligible for the year-end incentive. A
participant must be employed on the day of distribution to receive
a partial midyear payment under paragraph II-L. If an employee
terminates prior to the applicable date, the employee will not be
eligible for such incentive or partial payment.
J. PRORATION FACTOR accounts for the number of calendar days during
the fiscal year that the employee was in the incentive-eligible
position. For example, the proration factor for an employee who
has been on the Plan the entire year will be "1.00". For an
employee who has been on the plan for 6 months, this factor will
be "0.50". Employees in the following situations will have a
Proration Factor of less than "1.00":
- Participants in the Plan who transferred to a new position
not covered by the Plan.
- Employees who transferred from one incentive-eligible
position to another incentive-eligible position. Employees
in this situation will have their incentive prorated based
on length of time in each position.
- Employees who have been in the Plan less than 12 months
(such as a new hire).
- Employees who have been on a leave of absence of any length
during the fiscal year.
- Employees working less than the full-time standard work
week will receive an incentive prorated according to the
following schedule:
----------------------------------------------------------------------------------------------
HOURS WORKED INCENTIVE ELIGIBILITY
----------------------------------------------------------------------------------------------
Less than full-time as defined by standard prorated according to the average number of
work week hours worked
----------------------------------------------------------------------------------------------
Any modification to the above schedule must be approved by
the next-level Manager and Compensation in advance of the
year-end close date.
K. INCENTIVE FORMULA AND CALCULATION EXAMPLE: Assume an employee with
a base salary of $95,000, incentive target of 14%, individual
performance factor of 1.00, Cisco Systems, Inc. and all of its
subsidiaries' Company Performance Factor of 1.30, a customer
satisfaction factor of 1.05, and a proration factor of 1.00.
Professional and Leadership Incentive Plan FY2002 Page 4 of 5
SAMPLE CALCULATION
------------------
INCENTIVE INDIVIDUAL COMPANY MARKET CUSTOMER TOTAL
BASE TARGET PERFORMANCE PERFORMANCE SHARE SATISFACTION PRORATION ANNUAL
SALARY PERCENTAGE FACTOR FACTOR FACTOR FACTOR FACTOR INCENTIVE
------ ---------- ----------- ----------- ------ ------------ --------- ---------
$95,000 X 0.14 X 1.00 X 1.30 X 1.00 X 1.05 X 1.00 = $18,154.50*
*less any advance paid
In this example, the total incentive equals 19.1% of base salary.
L. MIDYEAR ADVANCE OF YEAR-END INCENTIVE PAYMENT: If the Cisco
Systems, Inc. and all of its subsidiaries' Company Performance
Factor is at a minimum of 1.00, (measured on the basis of midyear
revenue and PBIT), a partial payment may be distributed to
eligible employees midway through the fiscal year. This advance
will be 50% of the incentive target times current base salary,
reduced by advances, unearned commission advances, draws,
prorations and appropriate withholdings. This advance will be
deducted from the year-end payout. The incentive will be paid to
employees who have met job expectations and were hired on or
before the first working day of the second quarter of Fiscal Year
2002 and active on the day of distribution. In no event, however,
will any right or entitlement to such a partial payment accrue to
any eligible participant unless that individual is employed by
Cisco Systems, Inc. or a participating Cisco subsidiary on the
distribution date.
If the Cisco Systems, Inc. and all of its subsidiaries' Company
Performance Factor is not at a minimum of 1.00 (measured on the
basis of midyear revenue and PBIT) but is at least .80, then a
partial payment may, at the sole discretion of Cisco's
President/CEO be distributed midway through the fiscal year to all
or part of the employee population covered by the Plan, with the
actual recipients to be determined by the President/CEO. Any such
discretionary payment may be in an amount up to 25% of the
incentive target by level. However, only employees who have met
job expectations and were hired on or before the first day of the
second quarter of Fiscal Year 2002 and are active on the day of
distribution will be eligible for such a discretionary payment.
Any payout for employees in the bottom 5% is at manager's
discretion and subject to Human Resource agreement.
M. YEAR-END DISCRETIONARY INCENTIVE PAYMENT: If Cisco Systems, Inc.
and all of its subsidiaries' performance fail to achieve the
minimum revenue and PBIT targets for Fiscal Year 2002 so that no
year-end payout becomes due under the Plan, then the President/CEO
may, at his or her sole discretion, authorize a year-end payment
in an amount up to 25% of the incentive target to all or a portion
of the employee population covered by the Plan, but in no event
will an individual be eligible for such a discretionary payment
unless he or she is employed by on the last day of the fiscal
year. All payments are subject to reduction by advances, unearned
commission advances, draws or prorations and appropriate
withholdings.
N. DEFINITIONS: For the sole purpose of this Plan, the following
words shall have the meanings set out below:
"Employment Termination Agreement" includes any agreement,
(other than an employment agreement or offer letter or
employee handbook or policy or collective bargaining
agreement which is generally applicable to the employees
and the participating employee in respect of his or her
termination of employment.
Professional and Leadership Incentive Plan FY2002 Page 5 of 5
III. PROCEDURES AND PRACTICES
A. PROCEDURE:
1. A copy of the Plan will be made available to each
participant.
2. All incentive payments will be made after all required or
elected withholdings have been deducted.
B. BUSINESS CONDUCT: It is the established policy of Cisco Systems,
Inc. and all of its subsidiaries to conduct business with the
highest standards of business ethics. Employees may not offer,
give, solicit or receive any payment that could appear to be a
bribe, kickback or other irregular type of payment from anyone
involved in any way with an actual or potential business
transaction.
C. EMPLOYMENT AT WILL (US ONLY): The employment of all Plan
participants at Cisco Systems, Inc. and all of its subsidiaries is
for an indefinite period of time and is terminable at any time by
either party, with or without cause being shown or advance notice
by either party. This Plan shall not be construed to create a
contract of employment for a specified period of time between
Cisco Systems, Inc. and all of its subsidiaries and any Plan
participant. Any modification of the employment relationship
inconsistent with this Section must be in writing and signed by
the company's President/CEO of Cisco Systems, Inc.