EXHIBIT 10(f)
ANNUAL OFFICER INCENTIVE
COMPENSATION PLAN FOR CMS ENERGY CORPORATION
AND ITS SUBSIDIARIES
Effective January 1, 2004
Approved by Committee on February 27, 2004
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ANNUAL OFFICER INCENTIVE
COMPENSATION PLAN FOR OFFICERS OF CMS ENERGY CORPORATION
AND ITS SUBSIDIARIES
I. GENERAL PROVISIONS
1.1 PURPOSE. The purpose of the Annual Officer Incentive
Compensation Plan ("Plan") is to:
(a) Provide an equitable and competitive level of
compensation that will permit CMS Energy Corporation
("Company") and its subsidiaries to attract, retain
and motivate highly competent Officers.
(b) No payments to Officers in the form of incentive
compensation shall be made unless pursuant to a plan
approved by the Committee and after express approval
of the Committee.
1.2 EFFECTIVE DATE. The initial effective date of the Plan is
January 1, 2004. The Plan as described herein, is amended and
restated effective January 1, 2004.
1.3 DEFINITIONS. As used in this Plan, the following terms have
the meaning described below:
(a) "Annual Award" means an annual incentive award
granted under the Plan.
(b) "Base Salary" means the base salary on January 1 of a
Performance Year, except as impacted by a Change in
Status as defined in Article V. Deferred merit
increases from the Salaried Employees Merit Program
for the year 2004 shall be added to Base Salary being
paid in cash for the 2004 and 2004 Performance Years.
For purposes of the Plan, an Officer's Base Salary
must be subject to annual review and annual approval
by the Committee. For any Code Section 162(m)
Employee, the Base Salary upon which the Annual Award
is based will be the amount in effect on January 1 of
the Performance Year.
(c) "CMS Energy" means CMS Energy Corporation.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Code Section 162(m)" means the "Million Dollar Cap"
that may limit an employer's annual tax compensation
deduction for certain compensation of covered
employees, unless the compensation is based on
specific performance goals that are adopted and
administered in accordance with requirements set
forth in Code Section 162(m) and regulations
thereunder.
(f) "Code Section 162(m) Employee" means an employee
whose compensation is subject to the "Million Dollar
Cap" under Code Section 162(m). Generally, this is
the CEO and the four highest paid executive officers
of the Company.
(g) "Committee" means the Committee on Organization and
Compensation of the Board of Directors of CMS Energy.
(h) "Common Stock" means the common stock of CMS Energy.
(i) "Company" means CMS Energy Corporation.
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(j) "Corporate Free Cash Flow" (CFCF) means CMS
Consolidated Cash Flow from operating activities,
excluding pension contributions and adjusted for GCR
Recovery, plus Cash Flow from Investing Activities.
(k) "Disability" means that a participant has terminated
employment with the Company or a Subsidiary and is
entitled to disability payments under the Pension
Plan.
(l) "Earnings Per Share" (EPS) means the amount of
ongoing net income per outstanding CMS Energy Share.
(m) "GCR Recovery" means actual/forecast incremental GCR
recovery during January and February calculated as
actual/forecast GCR cycle billed sales times above
budget GCR factor.
(n) "Leave of Absence" for purposes of this Plan means a
leave of absence that has been approved by the Plan
Administrator.
(o) "Officer" means an employee of the Company or a
Subsidiary in Salary Grade "E-3" or higher.
(p) "Outside Directors" means directors of CMS Energy who
are not employed by CMS Energy or a Subsidiary and
satisfy the requirements of an "Outside Director"
under Code Section 162(m).
(q) "Pension Plan" means the Pension Plan for Employees
of Consumers Energy and Other CMS Energy Companies.
(r) "Performance Year" means the calendar year prior to
the year in which an Annual Award is made by the
Committee.
(s) "Plan" means the Annual Officer Incentive
Compensation Plan for Officers of CMS Energy
Corporation and Its Subsidiaries, as effective
January 1, 2004 and any amendments thereto.
(t) "Plan Administrator" means the Chairman and Chief
Executive Officer of CMS Energy, under the general
direction of the Outside Directors on the Committee.
(u) "Retirement" means that a Plan participant is no
longer an active employee and qualifies for a
retirement benefit other than a deferred vested
retirement benefit under the Pension Plan.
(v) "Subsidiary" means any direct or indirect subsidiary
of the Company.
1.4 ELIGIBILITY. Officers (salary grade E-3 and above) are
eligible for participation in the Plan.
1.5 ADMINISTRATION OF THE PLAN.
(a) The Plan is administered by the Chairman and Chief
Executive Officer of CMS Energy under the general
direction of the Outside Directors who are members of
the Committee.
(b) The Committee, no later than March 30th of the
Performance Year, will approve performance goals for
the Performance Year.
(c) The Committee, no later than March 30th of the
calendar year following the Performance Year, will
review for approval proposed Annual Awards for all
Officer
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participants, as recommended by the Chairman and CEO
of the Company. All proposed Annual Awards are
subject to approval of the Committee. Before the
payment of any Annual Awards, the Committee will
certify in writing that the performance goals were in
fact satisfied in accordance with Code Section
162(m).
(d) The Committee reserves the right to modify the
performance goals with respect to unforeseeable
circumstances or otherwise exercise discretion with
respect to proposed Annual Awards as it deems
necessary to maintain the spirit and intent of the
Plan, provided that such discretion will be to
decrease or eliminate, not increase, Annual Awards in
the case of any Code Section 162(m) Employees. The
Committee also reserves the right in its discretion
to not pay Annual Awards for a Performance Year. All
discretionary decisions of the Committee are final.
(e) Only Committee members who are Outside Directors
shall participate in the Committee actions with
respect to Code Section 162(m) Employees
II. CORPORATE PERFORMANCE GOALS
2.1 IN GENERAL. The composite Plan Performance Factor will depend
on corporate performance in two areas: (1) the ongoing net
income per outstanding CMS Energy share (EPS); and (2) the
Corporate Free Cash Flow of CMS Energy (CFCF). There will be
no payout under the Plan unless a composite Plan Performance
Factor of at least 75% is achieved. Each Component as well as
the composite Plan Performance Factor to be used for payouts
will be capped at a maximum of 200%. A table containing the
composite Plan Performance Factors shall be created by the
Committee for each Performance Year. The table for Performance
Year 2004 is set forth below.
(a) EPS COMPONENT. EPS performance shall constitute 40%
of the composite Plan Performance Factor. The 100%
EPS goal for the 2004 performance year is $.85 per
share, and the EPS component shall increase or
decrease by 25% for each $.05 per share change in
performance. (Mathematical extrapolation shall be
used for actual results not shown in the table.)
There will be no payout under the plan unless at
least $.80 per share is achieved (regardless of CFCF
performance).
(b) CFCF COMPONENT. CFCF performance shall constitute 60%
of composite Plan Performance Factor. The 100% CFCF
goal for the 2004 performance year is $ (100)
million, and the CFCF component shall increase or
decrease by 25% for each $50 million change in
performance. (Mathematical extrapolation shall be
used for actual results not shown in the table.)
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COMPOSITE PERFORMANCE FACTORS FOR 2004 PERFORMANCE YEAR
<Table>
<Caption>
CFCF COMPONENT
(MILLIONS) $ (150) $ (100) $ (50) $ 0 $50 $100
------------------------ ------- ------- ------ ----- ------ ------
EPS COMPONENT
------------------------ ------- ------- ------ ----- ------ ------
$ .80
75% 90% 105% 120% 135% 150%
$ .85
85% 100% 115% 130% 145% 160%
$ .90
95% 110% 125% 140% 155% 170%
$ .95
105% 120% 135% 150% 165% 180%
$1.00
115% 130% 145% 160% 175% 190%
$1.05
125% 140% 155% 170% 185% 200%
</Table>
Notes: Mathematical extrapolation shall be used for actual results not
shown in the table.
Target Award is Bolded 100% and Maximum Award is Bolded 200%
III. ANNUAL AWARD FORMULA
3.1 OFFICERS' ANNUAL AWARDS. Annual Awards for each eligible
Officer will be based upon a standard award percentage of the
Officer's Base Salary as in effect on January 1 of the
Performance Year. The standard award percentages are set forth
in the table below. The maximum amount that can be awarded
under this Plan for any Code Section 162(m) Employee will not
exceed $2.5 Million in any one Performance Year. The total
amount of an Officer's Annual Award shall be computed
according to the annual award formula set forth in Section
3.2.
SALARY STANDARD AWARD AS A % OF
POSITION GRADE BASE SALARY
-------- ----- ------------------------
Chairman & CEO E-9 65%
President & COO/Vice Chairman E-8 60%
Executive Vice President E-7 55%
President, Subsidiary - Sr. VP E-6 50%
Senior Vice President E-5 45%
Vice President E-4 40%
Vice President E-3 35%
3.2 Annual Awards for Officers will be calculated and made as
follows:
INDIVIDUAL AWARD = BASE SALARY TIMES
STANDARD AWARD % TIMES PERFORMANCE FACTOR %
IV. PAYMENT OF ANNUAL AWARDS
4.1 CASH ANNUAL AWARD. All Annual Awards for a Performance Year
will be paid in cash no later than March 31st of the calendar
year following the Performance Year provided that they first
have been reviewed and approved by the Committee, and provided
further that the Annual Award for a particular Performance
Year has not been deferred voluntarily pursuant to Section
4.2. The amounts required by law to be withheld for income and
employment taxes will be deducted from the Annual Award
payments. All Annual Awards become the
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obligation of the company on whose payroll the Officer is
enrolled at the time the Committee makes the Annual Award. .
4.2 VOLUNTARY DEFERRED ANNUAL AWARDS.
(a) The payment of all or one-half of a cash Annual Award
may be deferred voluntarily at the election of an
individual Plan participant. A separate irrevocable
election must be made in the calendar year prior to
the beginning of the Performance Year. Any Annual
Award made by the Committee after termination of
employment of an Officer or retirement of an Officer
is not eligible for a voluntary deferral and will be
paid in full in cash in the year in which the Annual
Award is made.
(b) A Voluntary Deferred Annual Award may be paid out in
a lump sum or in five or ten annual installments
beginning in the first January of the calendar year
following retirement or termination of employment. If
an Annual Award is paid in annual installments, each
year the payment will be a fraction of the balance
equal to one over the number of annual installments
remaining. In the event of the participant's death,
all deferred amounts will be paid in total in January
of the calendar year following the year of death.
(c) At the time of electing to voluntarily defer payment,
the participant must elect whether the sum deferred
will be treated by the Company or Subsidiary, as
applicable, in accordance with Paragraph I or
Paragraph II below.
i. A Voluntary Deferred Annual Award will be
credited with sums in lieu of interest from
the first day of the month following the
month in which the Annual Award is
determined to the date of payment. The
interest accrual rate will be equivalent to
the U.S. prime rate of interest as reported
in The Wall Street Journal, compounded
quarterly as of the first business day of
January, April, July and October of each
year during the deferral period. The prime
rate in effect on the first business day of
January, April, July and October will be the
prime rate (described above) in effect for
that quarterly period.
ii. A Voluntary Deferred Annual Award will be
treated as if it were invested as an
optional cash payment under the CMS Energy
Stock Purchase Plan including the
accumulation of any dividends. The value of
the deferred sum at the time of payment will
be equal to the number of dollars such an
investment would have been worth as measured
by the purchase price of shares of Common
Stock using the average closing price, as
reported in The Wall Street Journal (NYSE -
composite transactions) for the first five
trading days in the December previous to a
January payout.
The amount of any Voluntary Deferred Annual Award is
to be satisfied from the general corporate funds of
the company on whose payroll the Officer was enrolled
prior to the payout beginning and are subject to the
claims of general creditors of that company.
4.3 PAYMENT IN THE EVENT OF DEATH.
(a) A participant may name the beneficiary of his or her
choice on a beneficiary form provided by the Company,
and the beneficiary shall receive payment in the
event that the Participant dies prior to receipt of
either a cash Annual Award, a Mandatory Deferred
Annual Award or a Voluntary Deferred Annual Award. If
a beneficiary is not named, the payment will be made
to the first surviving class as follows:
1. Widow or Widower
2. Children, per capita
3. Parents, per capita
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4. Brothers and Sisters, per capita
5. Estate of the Deceased
(b) A participant may change beneficiaries at any time,
and the change will be effective as of the date the
participant completes and signs the beneficiary form,
whether or not the participant is living at the time
the request is received by the Company. However, the
Company or the applicable Subsidiary will not be
liable for any payments made before receipt of a
written request.
V. CHANGE OF STATUS
Payments in the event of a change in status will not apply if no awards
are made for the performance year.
5.1 PRO-RATA ANNUAL AWARDS. A new Officer, whether hired or
promoted to the position, or an Officer promoted to a higher
salary grade during the Performance Year will receive a pro
rata Annual Award based on the percentage of the Performance
Year in which the employee is in a particular salary grade. An
Officer whose salary grade has been lowered, but whose
employment is not terminated, during the Performance Year will
receive a pro rata Annual Award based on the percentage of the
Performance Year in which the employee is in a particular
salary grade.
5.2 TERMINATION. An Officer whose employment is terminated
pursuant to a violation of the Company code of conduct or
other corporate policies will not be considered for an Annual
Award.
5.3 RESIGNATION. An Officer who resigns during or after a
Performance Year will not be eligible for an Annual Award. If
the resignation is due to reasons such as a downsizing or
reorganization, or the ill health of the Officer or ill health
in the immediate family, the Officer may petition the
Committee and may be considered, in the discretion of the
Committee, for a pro rata Annual Award. The Committee's
decision to approve or deny the request for a pro rata Annual
Award shall be final.
5.4 DEATH, DISABILITY, RETIREMENT, LEAVE OF ABSENCE. An Officer
whose status as an active employee is changed during the
Performance Year due to death, Disability, Retirement, or
Leave of Absence will receive a pro rata Annual Award.
VI. MISCELLANEOUS
6.1 IMPACT ON BENEFIT PLANS. Payments made under the Plan will be
considered as earnings for the Supplemental Executive
Retirement Plan (Salary Grades E-3 through E-9) but not for
purposes of the Employees' Savings Plan, Pension Plan, or
other employee benefit programs.
6.2 IMPACT ON EMPLOYMENT. Neither the adoption of the Plan nor the
granting of any Annual Award under the Plan will be deemed to
create any right in any individual to be retained or continued
in the employment of the Company or any corporation within the
Company's control group.
6.3 TERMINATION OR AMENDMENT OF THE PLAN. The Company at any time
may, in writing, terminate or amend the Plan.
6.4 GOVERNING LAW. The Plan will be governed and construed in
accordance with the laws of the State of Michigan.
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6.5 DISPUTE RESOLUTION. Any disputes related to the Plan should
first be brought to the Plan Administrator. If that does not
result in a mutually agreeable resolution, then the dispute
shall be subject to final and binding arbitration before a
single arbitrator selected by the parties to be conducted in
Jackson, Michigan. The arbitration will be conducted and
finished within 90 days of the selection of the arbitrator.
The parties shall share equally the cost of the arbitrator and
of conducting the arbitration proceeding, but each party shall
bear the cost of its own legal counsel and experts and other
out-of-pocket expenditures.
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