MANAGEMENT INCENTIVE PLAN (MIP)
Amended and Restated as of January 1, 2003
I. Purposes of the Plan
The purposes of this Amended and Restated Management Incentive Plan are:
(a) to provide incentive for Participants to exert their best efforts to
increase the profitability of the Company, (b) to attract and retain the
best talent available, and (c) to further align the interests of the
participants and shareholders. The awards made under the Plan are not a
form of deferred regular compensation with respect to the Participants'
normal performance of their regular duties, but are instead intended to
provide an incentive to achieve higher than expected levels of performance.
II. Definitions
o Business : "Business" means one of the Business Groups reporting to
the Executive Office.
o Committee: "Committee" means the Management Development and
Compensation Committee of the Company's Board of Directors.
o Company: "Company" means International Paper Company, a New York
corporation, together with its subsidiaries.
o Employees: "Employees" means those persons who are full-time employees
of the Company.
o Award Scale: "Award Scale" means the conversion of the performance
objective rating to a percent of target award earned.
o Industry Financial Performance Peer Group: "Industry Financial
Performance Peer Group" means that representative group of companies
in the paper and forest products industry with which the Company
competes, as determined from time to time by the Company, listed in
Appendix A.
o Participant: "Participant" means a person who has been designated as a
participant in the Plan, according to Section V.
o Performance Objective Rating: "Performance Objective Rating" means the
percentage amount assigned to a Performance Objective for a level of
achievement which translates to a percentage of the Target Award.
o Performance Objectives: "Performance Objectives" mean the measures
developed around ROI, customer, operational excellence, and people or
other objectives as identified by the Company upon which awards may be
earned.
o Plan: "Plan" means this Amended and Restated Management Incentive
Plan, as may be amended from time to time.
o Plan Year: "Plan Year" means the twelve month period corresponding to
the Company's fiscal year.
o Return on Investment/ROI: "Return on Investment" or "ROI" means
earnings before interest and after taxes divided by capital employed,
with or without the effect of cyclical product pricing.
o Target Award: "Target Award" means an amount equal to the percentage
of salary range midpoint applicable to the actual position level of
each Participant, shown in Appendix B.
III. Plan Description
The Plan is an annual cash incentive plan developed around the achievement
of pre-established Return on Investment (ROI) measures and appropriate key
performance objectives promoting Customers, Operational Excellence, and
People and funded by the Company's level of performance against those
objectives. Total awards cannot exceed the amount funded for the MIP pool
generated by overall corporate performance and approved by the Committee.
IV. Administration of the Plan
The Plan operates at the discretion of the Management Development and
Compensation Committee (Committee) of the Board of Directors. The Committee
may exercise considerable discretion and judgment in interpreting the Plan,
and adopting, from time to time, rules and regulations that govern the
administration of the Plan.
The Committee delegates authority to the Chairman and Chief Executive
Officer or his designee, for the day-to-day administration of the Plan,
except for any participant considered an Officer/Insider of the Company or
those designated as coporate Senior Vice President or higher.
Decisions of the Committee are final, conclusive and binding on all
parties, including the Company, its shareholders, and employees.
V. Participation in the Plan
Participants in the Plan are limited to employees of the Company, whose
position level is 14 - 43 and are considered to have a meaningful impact on
the Company's performance as determined by the Chairman and Chief Executive
Officer or his designee. They must be full-time, employed actively during
the plan year January 1 - December 31. If an employee moves into a MIP
eligible position during the plan year then they will be eligible for a
prorated award. If an employee moves from one MIP eligible position to
another their full award is based on the PL as of December 31.
Employees who are eligible for participation in any other annual, recurring
variable cash compensation plan of the Company are not eligible for
participation in this Plan. Participation in this Plan, or receipt of an
award under this Plan, does not give a Participant or Employee any right to
a subsequent award, nor any right to continued employment by the Company
for any period.
VI. Award Pool and Award Scale
A. Pool: The company must achieve at least a minimum level of performance
in order to fund the award pool. The total corporate award pool will
be determined by corporate performance defined as:
o 40% Weight: Improvement of Return on Investment (ROI), without
the effects of cyclical product pricing.
Achievement of Objective % of Target Award
------------------------ -----------------
125% 200%
100% 100%
70% 50%
Below 70% 0%
o 30% Weight: Return on Investment as compared to Industry
Financial Performance Peer Group rank.
Rank % of Target Award
--------------- -----------------
Top Quartile 150 - 200%
2nd Quartile 101 - 149%
3rd Quartile 25 - 100%
Bottom Quartile 0%
o 30% Weight: Key Company Drivers: People, Customers, and
Operational Excellence.
o 10% Aggregate Weighted Customer Objectives
o 10% Aggregate Weighted Operational Excellence Objectives
o 10% Aggregate Weighted People Objectives
Improvement Goal % of Target Award
---------------- -----------------
100% or Higher 100%
70% 70%
Below 70% 0%
B. Business Objectives
o Business objectives must reflect the 70/30 ratio of financial to
non-financial objectives. Non-Financial objectives should include
specific goals under each of the major performance drivers of
People, Customers, and Operational Excellence,
and weighted as appropriate for the specific business, but not to
exceed 30% of the overall business award.
o The business performance achievement percentage may be modified
by the Executive Office to ensure that the overall MIP award pool
is not exceeded.
C. Performance Objective Rating. Each performance objective will be
evaluated at the end of the plan year and assigned a rating
representing the level at which the objective was achieved. Ratings
will be assigned by appropriate management levels for final review and
approval by the Chairman and Chief Executive Officer before submitting
to the Committee for final approval. In connection with Company ROI
and Competitive ROI, the Committee may take into account, without
limitation, such items as unforeseen changes in economic conditions.
Overall MIP awards may be reduced for deteriorating safety
performance.
VII. Allocation of Incentive Compensation Pools Among Business/Corporate Staff
Units: Pool amounts available under the MIP for payment of individual
awards will be earned and allocated to Corporate and Business Participants
based upon:
A. Corporate Level Participants. Members of the Executive Office and all
Corporate Staff members not specifically assigned to a business are
considered corporate participants. As such, these participants' award
pool is based:
o 100% upon Achievement of Corporate Objectives.
B. Business Level Participants. Participants other than members of the
Executive Office or Corporate Staff members and whose primary
responsibilities rest within a business unit are considered Business
Participants. As such, these participants' award pool is based:
o 50% upon Corporate Objectives
o 50% upon Business Objectives.
VIII. Award Recommendations.
A. Recommendations. The Chairman and Chief Executive Officer will submit
to the Committee at the end of each Plan Year individual award
recommendations for participants considered Officers/Insiders/Senior
Vice Presidents or higher and an aggregate award amount for all other
participants.
B. Granting of Awards. The Committee, in its sole discretion, may
approve, revise or disapprove any recommended award to an
Officer/Insider/Senior Vice President as it deems appropriate. Any
award to an Officer/Insider/Senior Vice President will be subject to
approval by the full Board of Directors of the Company.
C. Death, Disability or Retirement of a Participant. A Participant whose
employment terminates during a Plan Year because of death, disability
or retirement (or who is granted a leave of absence) may, at the
discretion of the Committee and under such rules as the Committee may
from time to time prescribe, be eligible for consideration for a
pro-rata award based on the period of active employment during the
Plan Year. If a Participant's employment with the Company is
terminated for any reason other than death, disability, retirement, or
the grant of a leave of absence, prior to actual payment of an award,
such award will be canceled and the Participant will have no right to
receive payment.
IX. Method and Time of Payment of Awards
A. Type of Payment. As soon as practical after an individual incentive
award under this Plan has been approved by the Committee (or approved
by the Board of Directors with respect to an award to an
Officer/Insider/Senior Vice President), the award will be paid to the
Participant in cash unless the Participant has elected to defer
payment as described in Article IX(C).
B. Payment to Beneficiaries. If a Participant dies prior to receipt of an
approved award under the Plan, the award will be paid to such
beneficiary or beneficiaries as the Participant has designated in
writing. The beneficiary designation will state whether payment will
be made in a lump-sum or in quarterly installments over a specified
period of time (not to exceed forty calendar quarters). If a
Participant dies without having a filed a beneficiary designation, the
award will be paid in a lump-sum to the Participant's estate.
C. Deferral of Payment. Any Participant may elect to defer payment, not
to exceed 85%, of any award under this Plan by filing an irrevocable
Election to Defer Payment with the Company by a date determined by the
Company. Awards or portions elected to be deferred will be invested in
accounts under the Company's savings plans as directed by the
participants.
X. Modification, Suspension or Termination of Plan.
The Board of Directors may at any time suspend, terminate, modify or amend
any or all of the provisions of this Plan.
XI. Governing Law.
The Plan is governed by the laws of the State of New York.
XII. Tax Withholding.
The Company will deduct from any award made under the Plan, a sufficient
amount to cover withholding of any federal, state, local or foreign
jurisdiction taxes required by law, or to take such other action as may be
necessary to satisfy any such withholding obligations.
XIII. Non-Transferability of Award.
No award, under this Plan, and no rights or interests therein, will be
assignable or transferable by a Participant (or legal representative).
XIV. Effective Date.
This Plan is effective as of January 1, 2003 and continues until
terminated, suspended, modified, or amended.
Appendix A
Industry Financial Performance
Peer Group
o Boise Cascade
o Georgia-Pacific
o Smurfit Stone
o Stora Enso
o UPM-Kymmene
o MeadWestvaco
o Weyerhaeuser
Appendix B
Management Incentive Plan (MIP)
Target Awards
Position Level Target Award (% of Midpoint)
- -------------- ----------------------------
43 100%
40 85%
37 75%
36 75%
35 70%
34 70%
33 65%
32 65%
31 60%
30 55%
29 50%
28 50%
27 45%
26 45%
25 40%
24 40%
23 35%
22 30%
21 30%
20 25%
19 25%
18 20%
17 15%
16 15%
15 10%
14 10%