1
EXHIBIT 10.14
CISCO CONFIDENTIAL
CISCO SYSTEMS, INC.
SENIOR MANAGEMENT INCENTIVE PLAN
FY 1997
I. INTRODUCTION
A. THE OBJECTIVE OF THE SENIOR MANAGEMENT INCENTIVE PLAN is to financially
reward Senior Managers for their contributions to the success and
profitability of Cisco Systems, Inc.
B. PARTICIPANTS: This plan applies solely to Cisco Systems, Inc. senior
management staff in the following positions:
POSITION
President
Vice Presidents
Directors (excluding Operations Directors)
Managers, Grade 12 , Individual Contributors, Grade 13
Any exceptions to the above will need to be approved in writing by the
President. The participant must be employed in a bonus eligible position
on or before the first day of the last fiscal quarter of Fiscal Year
1997 and must be employed on the last working day of that year and may
not be concurrently enrolled in any other bonus, sales, or incentive
plan. Participants in the Plan with less than one year of service will
be eligible for a prorated bonus amount. In no event will any individual
accrue any right or entitlement to a bonus under this Plan unless that
individual is employed by Cisco Systems on the last working day of
Fiscal Year 1997.
C. EFFECTIVE DATE: The Plan is effective for the Fiscal Year 1997,
beginning July 29, 1996 through July 26, 1997.
D. CHANGES IN PLAN: The Company presently has no plan to change the Senior
Management Incentive Plan during the fiscal year. However, the Company
reserves the right to modify the Senior Management Bonus Plan in total
or in part, at any time. Any such change must be in writing and signed
by the President. The President or plan designers reserve the right to
interpret the plan document as needed.
E. ENTIRE AGREEMENT: This Plan is the entire agreement between Cisco
Systems, Inc. and the employee regarding the subject matter of this Plan
and supersedes all prior compensation or incentive plans or any written
or verbal representations regarding the subject matter of this Plan.
II. BONUS PLAN ELEMENTS
A. BASE SALARY is determined by the participant's manager, on the Focal
review date scheduled for either August 1, April 1, or October 1 of each
year. The annual base salary in effect at the end of the Fiscal Year
1997 represents the basis for the bonus calculation.
B. BONUS BASIS PERCENTAGE is a percentage level of base salary determined
by the position.
POSITION BONUS %
-------- -------
President 75%
Vice President 50%
Directors (excluding Operations Directors) 40%
Managers, Grade 12 & Individual Contributors, Grade 13 30%
CISCO CONFIDENTIAL
2
Sr. Management Incentive Plan FY'97 Page 2 of 4
C. INDIVIDUAL PERFORMANCE FACTOR is based upon the manager's evaluation of
performance and contribution for the fiscal year. This factor may range
from .9 - 1.3. The assigned factor may also be a zero resulting in no
bonus based on the manager's evaluation of performance and contribution.
A written performance evaluation is required in conjunction with any
assigned factor of zero.
Employees who are on a Written Warning or Performance Improvement Plan
and/or are performing at a level of "Not Satisfactory" (N) at the end of
the fiscal year are not eligible to receive a bonus. Any exceptions to
this must be in writing and approved by the Vice President of Human
Resources.
D. COMPANY PERFORMANCE FACTOR consists of two elements: 50% based upon
achieving an established worldwide Revenue target and 50% based upon
achieving a worldwide Profit Before Interest and Tax (PBIT) target per
the current Plan. 80% of each objective must be achieved for any bonus
to be paid. The applicable targets for Fiscal Year 1997 are approved by
the Cisco Board of Directors within the first 90 days of each fiscal
year.
COMPANY
REVENUE PBIT PERFORMANCE FACTOR MULTIPLIER
------- ---- ------------------ ----------
<80% <80% <80% 0 (no bonus paid)
80-100% 80-100% 80-100% .8 - 1.0
>100% >100% 101%+ 4% for each 1% above 100%
5% for each 1% above 120%
COMPANY PERFORMANCE FACTOR = (REVENUE + PBIT)/2
Example:
Actual Revenue Performance is 105% of goal
Actual PBIT Performance is 115% of goal
105% + 115% = 110%
-----------
2
COMPANY PERFORMANCE MULTIPLIER: = 1.40
E. CUSTOMER SATISFACTION FACTOR is based upon achievement of an overall
worldwide customer satisfaction survey score. This factor may range from
.95 - 1.20.
WORLDWIDE SATISFACTION SCORE FACTOR
---------------------------- ------
<3.95 .95
3.95 - 4.07 1.05
4.08 - 4.14 1.10
4.15+ 1.20
CISCO CONFIDENTIAL
3
Sr. Management Incentive Plan FY'97 Page 3 of 4
F. PRORATION FACTOR accounts for the number of calendar days or hours
within the day during the fiscal year that the employee was in the
bonus-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
".50". Employees in the following situations will have a proration
factor of less than "1.00":
o Participants in the Plan who transferred to a new position not
governed by any incentive plan.
o Employees who transferred from one bonus-eligible position to
another bonus-eligible position. Employees in this situation
will have their bonus prorated based on length of time in each
position.
o Employees who have been on the Plan less than 12 months (such as
a new hire).
o Employees who have been on a leave of absence of any length
during the fiscal year.
o Employees who have been on the Plan, terminated their
employment, and returned to a bonus-eligible position all in the
same fiscal year.
o Employees working less than a 40-hour week will receive bonuses
prorated according to the following schedule:
20 - 39 hours/week: prorated according to the average number
of hours worked
<20 hours/week: not bonus eligible
Any modification to the above schedule must be approved by the
next-level Manager and Compensation in advance of the year-end close
date.
G. BONUS FORMULA AND CALCULATION EXAMPLE: Assume a Director-level
participant with a base salary of $130,000 at the 40% level, individual
performance factor of 1.10, company performance of 110%, a customer
satisfaction factor of 1.05 and a proration factor of 1.00.
SAMPLE CALCULATION:
BONUS INDIVIDUAL COMPANY CUSTOMER
BASE BASIS PERFORMANCE PERFORMANCE SATISFACTION PRORATION TOTAL
SALARY PERCENTAGE FACTOR FACTOR FACTOR FACTOR BONUS
-------- ---------- ----------- ----------- ------------ --------- -----
$130,000 x .40 x 1.10 x 1.40 x 1.05 x
1.00 = $84,084
In this example, the total bonus equals 64.7% of base salary.
CISCO CONFIDENTIAL
4
Sr. Management Incentive Plan FY'97 Page 4 of 4
H. BONUS PAYMENTS: If company performance is at a minimum of 100% of mid-year
revenue and PBIT targets, a partial payment will be distributed to active
employees midway through the fiscal year. This advance will be 50% of the
bonus target by level net of any advances, draws, or prorations. The bonuses
will go to employees who have met job expectations and were hired on or
before the first day of the second quarter of Fiscal Year 1997 and are
active on the day of distribution. For example, a director would receive an
advance equal to 20% of base salary. 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 on the distribution
date. The balance (if any) will be paid after the close of the fiscal year,
typically in mid to late August.
III. PROCEDURES AND PRACTICES
A. PROCEDURE:
1. A list of eligible employees will be sent by Human Resources to the
Executive Staff for review at the beginning of the fiscal year.
Additions, deletions or other changes to the list will be made and
the approved list will be returned to Human Resources.
2. Once the list is confirmed, a copy of the Plan will be sent to each
participant.
3. Each eligible new hire and employees promoted into eligible
positions will receive a copy of the plan during the fiscal year.
4. A month before fiscal year end, a list of eligible employees with
all changes made during the year will again be sent to the Executive
Staff for final review and approval.
5. All bonus payments will be made net of applicable withholding taxes.
B. BUSINESS CONDUCT: It is the established policy of Cisco Systems, Inc. to
conduct business with the highest standards of business ethics. Cisco
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. Gifts, favors and entertainment are allowed such that they
are consistent with our business practice, do not violate any applicable
laws, are of limited value ($50.00 or less) and would not embarrass
Cisco if publicly disclosed.
C. TRANSFERS AND TERMINATIONS: Employees who are participants in the Senior
Management Incentive 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. Any exceptions to the
Plan must be designated in writing and approved by the President.
A participant must be employed as of the last working day of the fiscal
year to be eligible for the bonus and must be employed on the
distribution date in order to be eligible to receive a partial payment
under paragraph II-H. If an employee terminates prior to the applicable
date, the employee will not be eligible for such bonus or partial
payment.
D. EMPLOYMENT AT WILL: The employment of all Plan participants at Cisco
Systems, Inc. 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 any Plan participant.
FY'97 SENIOR MGMT INCENTIVE PLAN 9/26/96
CISCO CONFIDENTIAL