Exhibit 10.5
Summary Description of
Equistar Chemicals, LP
Long-Term Incentive Plan
In 1998 Equistar offered a performance driven long-term incentive plan, or
LTIP, to selected key employees. The LTIP is an integrated current and deferred
bonus system. Awards are based on whether Equistar reaches its performance and
financial goals in critical areas, primarily economic value added and the
achievement of synergies. Economic value added measures Equistar's cash flow
performance in excess of a capital charge which is calculated by multiplying the
capital invested in Equistar by Equistar's weighted average cost of capital.
Synergies include both one-time and ongoing potential savings from operating the
businesses contributed to Equistar by Lyondell, Millennium and Occidental
together. Synergy targets include
. aligning and optimizing processing units for improved processing time
and increased capacity capability
. maximizing the value of raw material and olefins co-products
. lowering distribution costs
. reducing the cost of raw materials and other purchasing costs
. reducing the amount of staffing services required by each contributed
business.
The partnership governance committee has discretion to make awards based on
its assessment of Equistar's operating performance in the preceding year,
primarily in the areas of synergy attainment and economic value added.
Equistar currently assigns each LTIP participant a target award percentage
for the year based on that participant's position and any other factors Equistar
deems appropriate. Each LTIP participant's award for the year is determined by
multiplying his/her target award percentage by an award multiple determined by
the partnership governance committee, the product of which is multiplied by
his/her base pay. The award multiple for 1998 was based on the achievement of a
four-year rolling average economic value added of $160 million, and the
achievement of net synergies of $50 million.
Awards will generally be paid only to LTIP participants who are actually
employed at year-end. Those LTIP participants whose employment terminates due to
death, disability or retirement before the end of the year will be paid a pro
rata portion of their award based on the number of full months completed while
actively employed. All other participants terminated with or without cause are
subject to forfeiture of their award. LTIP participants hired after the first
of the year are eligible to receive a pro rata award based on the number of full
months completed during the year.
Awards consist of a combination of annual or current cash and deferred cash
compensation. The relative percentages of current cash and deferred cash
components are currently based on the LTIP participant's salary range. The
percentage of deferred cash compensation as compared with current cash
compensation increases as the LTIP participant's salary increases. The deferred
cash portion of the award is paid out over three consecutive years, one-third
each year, beginning approximately one year from the payment of the related
annual cash component. In 1998, the payout amounts for the deferred
compensation component could be adjusted upward with no cap or downward, caped
at 20%, based on Equistar's ongoing results with respect to synergies, over that
three-year period. Awards could be adjusted one percentage point for every
percentage point of synergy gained or lost during the award period.
The following table details the 1998 target award percentage of a
participants' salary, and the percentage of the awards granted to be paid as an
annual cash component and long-term component of the bonus award.
Market Reference Target Annual Cash Long-Term
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$ 185,000 $225,000 90% 35% 55%
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$ 175,000 $184,999 80% 35% 45%
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$ 165,000 $174,999 75% 35% 40%
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$ 155,000 $164,999 70% 35% 35%
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$ 145,000 $154,999 60% 30% 30%
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$ 135,000 $144,999 50% 30% 20%
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$ 125,000 $134,999 45% 30% 15%
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$ 115,000 $124,999 40% 25% 15%
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$ 100,000 $114,999 35% 25% 10%
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