EXHIBIT 10.8
CENEX HARVEST STATES
SENIOR MANAGEMENT COMPENSATION PLAN
PLAN HIGHLIGHTS
Your senior management compensation plan is made up of three parts -- BASE PAY,
ANNUAL VARIABLE PAY AND DEFERRED VARIABLE PAY.
BASE PAY is your established annual salary. It is the base upon which your
variable pay opportunities are established.
ANNUAL VARIABLE PAY allows you to receive part of your compensation in cash each
year and is based on a combination of achieving individual performance
objectives, overall company performance and your business unit's performance --
depending on your position.
DEFERRED VARIABLE PAY is calculated at the end of the three-year plan period and
is based on overall company performance.
* You pay no current taxes on deferred variable pay. Taxes are deferred
until you receive a cash payment.
* You may receive a distribution of up to one-third of your deferred
variable pay for each of the three years following the deferral period.
The SENIOR MANAGEMENT COMPENSATION PLAN provides key elements of your total cash
compensation -- base pay plus variable pay -- from Cenex Harvest States. The
plan allows you to share in the company's success by enhancing your base pay
with variable pay based on company results and individual performance. Variable
pay has two forms -- annual variable pay and deferred variable pay.
The following describes the objectives for providing this plan, eligibility
requirements and how the plan works, including how and when awards are paid out
to you.
WHO IS ELIGIBLE?
The Division Executive Vice President determines the senior managers who will
participate in the Senior Management Compensation Plan. You will be notified
when you become a participant. Your participation can be discontinued, however,
before you leave the company by written notice from the Division Executive Vice
President.
WHAT ARE THE OBJECTIVES OF THIS PLAN?
Cenex Harvest States offers the Senior Management Compensation Plan to provide
competitive compensation levels relative to industry competitors, based on Cenex
Harvest States performance.
WHAT ELEMENTS MAKE UP YOUR MANAGEMENT COMPENSATION?
Your management compensation from Cenex Harvest States is made up of three
components -- base pay, annual variable pay and deferred variable pay. The
Senior Management Compensation Plan is designed to provide you with compensation
that is competitive with industry compensation when company performance measures
are met.
Your management compensation is intended to be at approximately the 50th
percentile within the industry if target net income performance is achieved. If
net income performance is above target, however, total pay will be greater than
the industry average. Performance below the target will result in total
compensation somewhat less than average.
HOW DOES THE PLAN WORK?
The Senior Management Compensation Plan provides the opportunity for you to
receive a combination of base pay and variable pay, if individual and company
performance goals are met. Here's how it works.
BASE PAY
Cenex Harvest States uses market compensation data from independent sources to
help set salary midpoints. Salary midpoints and, consequently, your BASE PAY are
set at approximately the 50th percentile of what the relevant labor market pays
for similar jobs.
VARIABLE PAY
Another key element of your senior management compensation plan is your variable
pay, which consists of two parts -- annual variable pay and deferred variable
pay.
The percentage of variable pay you are eligible for depends on your level of
responsibility. For example, if your HAY job evaluation is higher than another
participating manager, you will have more of your total compensation at risk.
ANNUAL VARIABLE PAY provides you with an opportunity to receive a portion of
your variable pay in cash each year. DEFERRED VARIABLE PAY is calculated at the
end of a three-year plan period and then paid out at one-third of the total
deferred awards, each year for the following three years. Payout provisions and
further deferral opportunities are discussed later in this information.
Prior to the beginning of each three-year plan period, Cenex Harvest States sets
net income and return on equity performance goals for the company and its
divisions based on expected industry performance. Net income performance is the
key measure in determining variable pay for both corporate and division
management.
Competitive market compensation data obtained from independent sources is used
to determine target total compensation levels and to develop target variable
compensation percentages. Variable compensation percentages are then adjusted
and assigned to
2
correspond with how well the company and its divisions and you individually, has
met objectives.
ANNUAL VARIABLE PAY
The annual variable pay portion of the Management Compensation Plan provides you
with the opportunity to receive up to one-half of your variable pay in cash each
year. Your annual payout is based on the following:
* SALARY MIDPOINT -- Your salary midpoint is set using independent market
data. Salary midpoints are used, as opposed to individual actual salaries,
to establish a consistent target variable pay level.
* VARIABLE COMPENSATION PERCENTAGE -- Your variable compensation award
(expressed as a percentage of midpoint) is calculated at the end of each
year and is based on achieving your individual performance objectives and
company or division performance against net income objectives, as well as
your level of responsibility. You can receive up to one-half your variable
pay award in cash each year.
* PERFORMANCE FACTORS -- The performance factors reflect company performance
goals, (division performance goals) and individual performance goals. Sixty
percent of your annual award is based on company financial performance
objectives, 30% is based on business unit objectives and 10% is based on you
achieving your individual performance objectives.
The following examples show how your annual variable pay may be calculated.
DISTRIBUTION OF POTENTIAL AWARD
Company Performance 60% of total annual
Business Unit Performance 30% of total annual
Individual Performance 10% of total annual
-------------------
100% of total annual
EXAMPLE
Cenex Harvest States has determined net income performance targets for each of
the three-years of the 1998 to 2001 period as shown in the table below. ANNUAL
net income targets are used to determine your annual variable pay award. The
company's CUMULATIVE net income performance for the three-year plan period is
used to determine your variable pay percentage for DEFERRED variable pay (see
next section). Actual payment percentages will be prorated between the
established points.
3
Annual Variable Pay
TABLE 1
----------------------------------------------- --------------------------------------------
IF CENEX HARVEST STATES YOUR MAXIMUM VARIABLE COMPENSATION
ACHIEVES THE FOLLOWING RESULTS ... PERCENTAGE IS ...
- ------------------- ----------------------------------------------- --------------------------------------------
COMPANY NET INCOME GRADE LEVEL
PERFORMANCE ($ IN MILLIONS)
-----------------------------------------------
TOTAL VP 49 47 45 43
1999 2000 2001 3-YEAR
- ------------------- --------- ----------- ----------- ------------- -------- ----- ------- ------------- -------
Max $151 $162 $173 $486 100 90 80 70% of 60
Midpoint
- ------------------- --------- ----------- ----------- ------------- -------- ----- ------- ------------- -------
Target $126 $127 $136 $390 67 60 53 47% of 40
Midpoint
- ------------------- --------- ----------- ----------- ------------- -------- ----- ------- ------------- -------
Threshold $ 65 $ 65 $ 65 $195 10 9 8 7% of 6
Midpoint
- ------------------- --------- ----------- ----------- ------------- -------- ----- ------- ------------- -------
ASSUMPTIONS
GRADE LEVELS: 45
SALARY MIDPOINT: $90,000
YEAR: 1999 CORPORATE NET INCOME PERFORMANCE: 100% ($151 million Maximum)
BUSINESS UNIT PERFORMANCE: 100% (Maximum)
INDIVIDUAL PERFORMANCE: 85%
ANNUAL VARIABLE PAY PERCENTAGE: 35% (1/2 of 70% based on above
table)
-----------------------------------------------------------------
FROM ASSUMPTIONS
-->Company performance 100% of 60% 60%
PLUS +
-->Business unit performance: 100% of 30% 30%
PLUS +
-->Individual performance: 85% of 10% 8.5%
-----
98.5*
-----------------------------------------------------------------
SALARY MIDPOINT $ 90,000
TIMES
ANNUAL VARIABLE PAY PERCENTAGE X .35
TIMES
PERCENTAGE OF PERFORMANCE FACTORS ACHIEVED X .985*
-----------
TOTAL ANNUAL VARIABLE PAY FOR 1999 $ 31,028
So according to this example, your payment would equal $31,028 for the 1999 plan
year. You would receive your annual variable pay in mid-October (about 45 days
after the end of the fiscal year, which is August 31.
DEFERRED VARIABLE PAY
The deferred variable pay portion of the Senior Management Compensation Plan
operates in three-year plan periods. Payment eligibility depends upon your
employment status during the three years following the end of each three year
plan. Calculations are made at the end of each three-year period based on the
following:
* SALARY MIDPOINT -- Your position midpoint at the end of the three-year
plan period will be used in the calculation.
* VARIABLE COMPENSATION PERCENTAGE -- Your variable pay potential award
from net income performance over the three-year plan period.
4
EXAMPLE -- DEFERRED VARIABLE PAY
ASSUMPTIONS -- This chart follows a senior manager through the three-year plan
period 1999 to 2001 in order to perform the calculations in the example:
--------------------------------------------------------------------------------
TABLE 2 1999 2000 2001 TOTAL
- --------------------------------------- ------------------- -------------------- ------------------ --------------------
SALARY MIDPOINT $ 90,000 $ 95,000 $100,000 N/A
- --------------------------------------- ------------------- -------------------- ------------------ --------------------
CORPORATE PERFORMANCE $151 million $153.5 million $175 million $479.5 million
- --------------------------------------- ------------------- -------------------- ------------------ --------------------
ANNUAL POTENTIAL PAYOUT $31,500 $33,250 $35,000 $99,750
(MIDPOINT X 35%)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL % OF PERFORMANCE GOALS ACHIEVED:
COMPANY 100 92 100 N/A
DIVISION 100 93 69 N/A
INDIVIDUAL 85 70 100 N/A
100% X 60% = 60% 92% X 60% = 55% 100% X 60% = 60%
CALCULATION OF TOTAL(1) 100% X 30% = 30% 93% X 30% = 28% 67% X 30% = 20%
85% X 10% = 8.5% 70% X 10% = 7.0% 100% X 10% = 10%
- --------------------------------------- ------------------- -------------------- ------------------ --------------------
TOTAL(1) 98.5% 90.0% 90.0% N/A
- --------------------------------------- ------------------- -------------------- ------------------ --------------------
ANNUAL ACTUAL CASH PAYOUT $31,028 $29,925 $31,500 $92,453
- ------------------------------------------------------------------------------------------------------------------------
CURRENT POSITION MIDPOINT (YEAR 2001) $100,000
TIMES
THREE YEARS X 3
--------
TIMES $300,000
VARIABLE PARTICIPATION RATE X .70
--------
$210,000
CUMULATIVE PERFORMANCE AWARD .98(2)
--------
(98%) $205,800
MINUS -$99,750
--------
INDIVIDUAL ANNUAL CASH PAYMENT POTENTIAL $106,050
/ 3
--------
DIVIDED BY
AMOUNT AVAILABLE EACH OF NEXT THREE YEARS $ 35,350
(2) INTERPOLATED BETWEEN TARGET MAXIMUM (FROM TABLE 1)
MAXIMUM 486.0 = 100%
ACTUAL 475.5 = 97.8% OF MAXIMUM
TARGET 390.0 = 67%
WHEN CAN I RECEIVE MY DEFERRED VARIABLE PAY?
Although Cenex Harvest States makes no promises to continue such plans, the
following information may be helpful in your own planning process. While you are
actively employed, you may withdraw your deferred variable pay according to the
schedule below. Once you have completed the first three-year plan period, the
plans would overlap so you could possibly have three years of variable pay at
risk. Your deferred variable pay from the previous three-year plan period may be
withdrawn in 33.3% increments each year during the follow three-year period.
5
- --------------------------------------------------------------------------------------------------------------------
SAMPLE PLAN TIMETABLE
- --------------------------------------------------------------------------------------------------------------------
1999-2001 2002-2004 2005-2007 2007-2009
- ---------------------------- ----------------------------- ----------------------------- ---------------------------
Earned Deferred Receive 33.3%
Variable Pay Payments each year
- ---------------------------- ----------------------------- ----------------------------- ---------------------------
Earned Deferred Receive 33.3%
Variable Pay Payments each year
- ---------------------------- ----------------------------- ----------------------------- ---------------------------
Earn Deferred Variable Receive 33.3%
Pay Payments each year
- ---------------------------- ----------------------------- ----------------------------- ---------------------------
If you are not longer a participant or actively employed at the end of a
three-year plan period, the amount of deferred variable pay you are eligible to
receive is determined according to the schedule below. You may choose to defer
any payment from the 1999-2001 plan to a later date as long as you elect to do
so before January 1, 1999. Your payment must be in increments of 5%.
- ------------------------------------------------------ -------------------------------------------------------------
IF YOU ... YOU MAY RECEIVE ...
- ------------------------------------------------------ -------------------------------------------------------------
Retire between ages 55 and 65 One-third of your account balance of 33.3 each year (with
annual Cenex Harvest States approval)
- ------------------------------------------------------ -------------------------------------------------------------
Retire after age 65 A lump sum
- ------------------------------------------------------ -------------------------------------------------------------
Become disabled or are terminated for cause A lump sum
- ------------------------------------------------------ -------------------------------------------------------------
Die A lump sum will be paid to your beneficiary
- ------------------------------------------------------ -------------------------------------------------------------
Are not longer a plan participant by written notice A lump sum
of the President/CEO
- ------------------------------------------------------ -------------------------------------------------------------
Lose your job due to reasons beyond your control A lump sum
(i.e., job was eliminated)
- ------------------------------------------------------ -------------------------------------------------------------
All lump sums may be taken in periodic distributions provided you elect to do so
before January 1, 1999.
HOW ARE PLAN BENEFITS FUNDED?
Funds for deferred variable pay will be accumulated in a "rabbi trust" as the
amount and timing of those obligations is estimable. A rabbi trust is an
irrevocable trust into which assets set aside for benefit liabilities are
accumulated. In other words, a rabbi trust secures the promise to pay deferred
income. Trust assets are typically protected, but must remain accessible to
creditors in the event of bankruptcy or insolvency.
HOW WILL MY DEFERRED COMPENSATION BE TAXED?
No taxes are payable while your account remains deferred. Once you receive a
distribution, the money is taxed as ordinary income.
6
CAN I ROLL OVER MY ACCOUNT TO AN IRA OR QUALIFIED PLAN?
No. Because the Senior Management Compensation Plan is a nonqualified plan, you
cannot legally roll over your distribution to an IRA or other qualified
retirement plan.
WHAT HAPPENS DURING A CHANGE IN CONTROL?
If a change in control occurs, the Senior Management Compensation Plan will
continue if the successor company elects to do so. If the plan is not continued
by the successor company, your existing account would not be affected by the
termination of the plan. You would receive the benefit you were entitled to as
of the date of termination.
WHAT HAPPENS IF THE PLAN CHANGES OR TERMINATES?
Although the company does not currently intend to change the plan, the Cenex
Harvest States Board of Directors reserves the right to change or end the plan
at any time and for any reason. Your account balance at that time will be
available to you under the same terms and conditions as if the plan had not been
changed or terminated.
WHO DO I CONTACT WITH QUESTIONS?
If you have questions or want more information about the plan, please contact
the Vice President of Human Resources and Administration at 651-451-4511.
- --------------------------------------------------------------------------------
This brochure highlights the key features of the Cenex Harvest
States Senior Management Compensation Plan. If there is a
discrepancy between this brochure and the official plan
documents that govern the plan, the plan documents will rule in
all cases.
Participation in this plan is not an employment contract, nor
does it imply a right to continued employment.
- --------------------------------------------------------------------------------
7