HARVEST STATES
MANAGEMENT COMPENSATION PROGRAM
FISCAL YEAR JUNE 1, 1996 THROUGH MAY 31, 1997
OBJECTIVES
* Provide more structure to our current Management Compensation Program
(MCP).
* Communicate company, group, divisional and/or profit center goals and
objectives to employees.
* Encourage and reward performance which contributes to the success of
the company as defined by company objectives and the group/divisional
and/or profit center objectives.
* Promote strong links between employee contributions and overall
company performance to enhance stakeholder/member value.
* Reward and recognize innovation and creativity in accomplishing
business objectives.
* Attract and retain the technical and managerial talent necessary for
the company's success.
* Provide compensation based on individual and company annual
performance without increasing compensation fixed costs.
ELIGIBILITY AND PARTICIPATION
Eligibility to participate in the program will be limited to key
management employees whose positions have a continuous opportunity to
significantly influence the profitability or direction of the company. Senior
Management will select employees for participation. The Chief Executive Officer
has sole discretion to determine eligibility, participation, and interpretation
of this policy.
All employees such as sales representatives or facility managers whose
compensation includes an opportunity for sales commissions or share of profits
are excluded from participation in this program. Other employees whose positions
no longer meet the eligibility criteria, or whose performance is less than
satisfactory, may also be excluded from the program at any time.
The level of participation and eligibility will be determined prior to
the beginning of each fiscal year. Participants who are hired or promoted to
positions of eligibility during the calendar year will participate on a pro-rata
basis. Also, those who terminate due to disability, retirement, or death, will
participate on a pro-rata basis. Termination for any other reason will not
normally qualify for participation.
Eligible participants will be selected on meeting most of the following
criteria:
* Strong performance in a position that impacts business
functions and operations.
* Possessing potential for higher levels of contribution in
critical business functions and operations.
* Possessing valuable, often difficult to replace, skills or
skill levels essential for critical business functions and
operations.
* Possessing technical or management leadership roles in
critical projects.
ADMINISTRATION
The Compensation Committee, including the Chief Executive Officer, will
approve the overall Management Compensation Program and review for equity across
operating divisions. The committee may amend, suspend, terminate, or reinstate
any or all provisions of this program. In the event that the company profit or
level of performance is not achieved, the incentive payments may be modified or
eliminated by the Chief Executive Officer in specific units/divisions/groups or
for the entire company.
The Chief Executive Officer and group management will review the annual
business and financial goals and the group management's individual performance
objectives, and will ensure they are consistent with the company's long-term
strategic plan and goals. The performance targets will be established and
communicated to all eligible participants prior to the beginning of each fiscal
year.
Incentive payments will be made in cash payments or as adjustments to
base wages after year-end results have been verified.
ANNUAL SALARY
The program will normally maintain base salaries up to the midpoint
(competitive market level) of the respective job classification. This will
enable the company to manage fixed salary costs.
Participants paid below the midpoint of their salary range will be on a
learning curve. As the participants gain experience, their knowledge and skills
will develop. Once the participant reaches full competency, he/she will be paid
at the midpoint of the job being performed. Additional compensation under this
program will be used as a motivational tool and generally would be awarded only
to those participants who put forth great effort and achieve truly outstanding
results.
Once an employee reaches the midpoint pay level for that position,
additional compensation, in most cases, will only be received from the incentive
performance bonus program. All participants are eligible for the performance
bonus, regardless of their place in the salary range. However, significant
adjustments to base pay will offset a portion of the amount of the bonus award.
Base pay is managed to the midpoint of the salary range, with any
earnings above that point available from a non-reoccurring annual bonus.
Salaries are administered to the midpoint of the salary range with an aggressive
performance and development-based merit program, thus ensuring competitive pay
levels.
LEVEL OF INCENTIVE OPPORTUNITY
At the beginning of each fiscal year, participants will be assigned to
an eligibility group determined by management responsibility and position, which
will be based on the continuous opportunity to significantly influence the
profitability or direction of the company.
Each of the groups will have different opportunities designed around a
"target" award (a level which the company expects to pay over time if it
achieves its business program objectives), a "threshold" award (unacceptable
company performance), and a "maximum" award (above which no additional awards
are payable, normally achieved by very unusual circumstances).
The following table represents the threshold, target, and maximum bonus
payments available and is based on a percentage of the actual salary assigned to
each participant.
Target Incentive Example
Eligibility Group Threshold Target Maximum
- - - - ----------------- --------- ------ -------
I 0 40% 60%
II 0 30% 45%
III 0 20% 30%
IV 0 10% 15%
COMPANY, GROUP, DIVISION, AND/OR PROFIT CENTER PERFORMANCE TARGETS
Company, group, division, and/or profit center performance will be
evaluated by the following criteria and will account for a specific incentive
opportunity as defined by Attachment I. Corporate participants will be rewarded
according to total company performance. Operating unit participants will be
rewarded proportionally for company, group, division or profit center
performance to ensure a cooperative effort in maximized performance.
Criteria for company, group, division and/or profit center performance
evaluations:
1. Economic Value Added (EVA)
2. Pretax Earnings:
Pretax earnings of the company, group, divisional, or
profit center.
MEMBER VALUE OBJECTIVES
Individual or team performance will be measured for each participant
for the program year based on objectives which are predetermined and contribute
economic value to members. Member Value Objectives (MVOs) will be based on the
participant's specific job responsibilities and mutually determined in advance
with the participant's immediate supervisor. Goals established should reflect
truly significant accomplishments which support the business programs and goals.
It is critical that the individual participant can in fact impact the
outcomes stated in the participant MVOs. The manager will determine the final
MVOs and monitor them throughout the year to ensure that the objectives are
current and reflective of changing business conditions and the needs of our
members.
At the end of each year, the participant's manager will assess
performance according to the objectives and recommend an individual award within
the range from threshold to maximum.
Member Value Objectives will be measurable and consistent with the business plan
and goals, the performance of job responsibilities, and must contribute economic
value to members.
Some examples of measurable objectives which enhance
customer/member/stakeholder value are presented in the list below. Additional
information and guides to writing effective objectives are available from the
Human Resources department.
Unless noted, objectives below are listed for FY 96-97:
* Successfully implement the Harvest States Investment Plan. -
or- Implement the Harvest States Investment Plan with at least
30% commitment of shares.
* Make significant progress on the implementation of the
strategic plan though the specific group or divisional
imperative. (state the imperative.)
* Increase Harvest States' presence by offering of a service or
product in a specific location or territory.
* Reduce final unit production or service cost by ___%.
* Increase the productivity or profit level of a business unit
by ___%.
* Increase efficiency of a manufacturing or grain
handling/processing facility by ___%.
* Decrease defects in ________________ product by ___%.
* Reduce input costs by ___%.
* Increase market share of current members by ___%.
* Increase member equity by ___%.
* Develop and implement two Member Educational/Information
Programs that involve 200 participants.
* Increase customer service level by answering phone calls
within 3 rings; answering accounting questions within one
hour.
* Contact the member customer at least ______ a day with market
and production information.
* Create a new publication or insert to increase management and
cooperative information to our members.
* Create a member development program to assist in the analysis
and management of position risk.
* Foster an environment which promotes the development of
employee leadership skills.
* Increase the level of delegation to subordinates.
5/24/96