Exhibit (10)(h)
ANNUAL OFFICER INCENTIVE
COMPENSATION PLAN FOR CMS ENERGY CORPORATION
AND ITS SUBSIDIARIES
Effective as of January 1, 2006
Approved by Committee on March 30, 2006
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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
as of January 1, 2006. Section VII was added effective December 1,
2005.
1.3 DEFINITIONS. As used in this Plan, the following terms have the
meaning described below:
(a) "Account Balance Plan" means a nonqualified deferred compensation
plan described in Code Section 409A and applicable regulations.
(b) "Annual Award" means an annual incentive award granted under the
Plan.
(c) "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. For purposes of the Plan, an Officer's Base Salary
must be subject to annual review and annual approval by the
Committee.
(d) "CMS Energy" means CMS Energy Corporation.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "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.
(g) "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.
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(h) "Committee" means the Committee on Compensation and Human
Resources of the Board of Directors of CMS Energy.
(i) "Common Stock" means the common stock of CMS Energy.
(j) "Company" means CMS Energy Corporation.
(k) "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.
(l) "Deferred Annual Award" means the amount deferred by an Officer
pursuant to Section 4.2
(m) "Disability" means that a participant has terminated employment
with the Company or a Subsidiary and is entitled to disability
payments under the Pension Plan.
(n) "Earnings Per Share" (EPS) means the amount of adjusted net
income (excluding mark to market) per outstanding CMS Energy
Share.
(o) "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.
(p) "Leave of Absence" for purposes of this Plan means a leave of
absence that has been approved by the Plan Administrator.
(q) "Officer" means an employee of the Company or a Subsidiary in
Salary Grade "E-3" or higher.
(r) "Payment Event" means the date a Deferred Annual Award may be
paid pursuant to Section 4.2.
(s) "Payment Term" means the length of time for payment of a Deferred
Annual Award under Section 4.2.
(t) "Pension Plan" means the Pension Plan for Employees of Consumers
Energy and Other CMS Energy Companies.
(u) "Performance Year" means the calendar year prior to the year in
which an Annual Award is made by the Committee.
(v) "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.
(w) "Plan Administrator" means the President and Chief Executive
Officer of CMS Energy, under the general direction of the
Committee.
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(x) "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.
(y) "Separation from Service" means an Employee who retires or
otherwise has a termination of employment from the Company. The
term is defined under Code Section 409A and any applicable
regulations. A Separation from Service does not occur if an
Employee is on a paid or unpaid authorized leave of absence from
the Employer and has the right to reemployment. An Employee is
not on an authorized leave of absence but is separated from
service if he or she is not providing and is not expected to
provide in the future more than insignificant services to the
Company.
(z) "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 President and Chief Executive
Officer of CMS Energy under the general direction 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 15th of the calendar year
following the Performance Year, will review for approval proposed
Annual Awards for all Officer participants, as recommended by the
President 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.
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). 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
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Performance Factors shall be created by the Committee for each
Performance Year. The table for Performance Year 2006 is set forth
below.
(a) EPS COMPONENT. EPS performance shall constitute 33% of the
composite Plan Performance Factor. The 100% EPS goal for the
2006 performance year is $1.00 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 EPS Component unless at
least $.95 per share is achieved.
(b) CFCF COMPONENT. CFCF performance shall constitute 67% of
composite Plan Performance Factor. The 100% CFCF goal for
the 2006 performance year is$(300) million, and the CFCF
component shall decrease by 1% for each $2 million change in
performance. The CFCF component shall increase by 25% for
each $75 million increase in performance from $(300)
million. (Mathematical extrapolation shall be used for
actual results not shown in the table.) There will be no
payout under the CFCF component unless at least $(350)
million is achieved.
COMPOSITE PERFORMANCE FACTORS FOR 2006 PERFORMANCE YEAR
CFCF
COMPONENT
(MILLIONS)
EPS
COMPONENT <$(350) $(350) $(300) $(225) $(150) $(75) $0
- ---------- --------- ------ ------ ------ ------ ----- ----
$.94 No Payout 50% 67% 84% 101% 117% 134%
$.95 25% 75% 92% 109% 125% 142% 159%
$1.00 33% 83% 100% 117% 134% 150% 167%
$1.05 41% 92% 108% 125% 142% 159% 175%
$1.10 50% 100% 117% 133% 150% 167% 184%
$1.15 58% 108% 125% 142% 158% 175% 192%
$1.20 66% 116% 133% 150% 167% 183% 200%
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.
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SALARY STD AWARD AS A
POSITION GRADE % OF BASE SALARY
-------- ------ ----------------
President & CEO E-9 65%
Vice Chairman E-8 60%
President, Subsidiary - Ex Vice Pres E-7 55%
President, Subsidiary - Ex Vice Pres 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 15th 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 obligation of the company on
whose payroll the Officer is enrolled at the time the Committee makes
the Annual Award.
4.2 DEFERRED ANNUAL AWARDS.
(a) The payment of all or any portion (rounded to an even multiple of
10%) of a cash Annual Award may be deferred voluntarily at the
election of an individual Plan participant. A separate
irrevocable election must be made no later than six months prior
to the end of the Performance Year. Any Annual Award made by the
Committee after termination of employment of a participant or
retirement of a participant will be paid in accordance with any
deferral election made within the enrollment period.
(b) At the time the participant makes a deferral election he or she
must select the Payment Options (including the Payment Event as
set forth at (c) below and the Payment Term as set forth at (d)
below) applicable to the Deferred Annual Award for the
Performance Year, as well as any earnings or income attributable
to such amounts. The participant, at the time of the deferral
election for the Performance Year must elect a payment event for
the Deferred Annual Award. The Payment Options elected will apply
only to that year's Deferred Annual Award and will not apply to
any previous Deferred Annual Award or to any subsequent Deferred
Annual Award.
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(c) The Payment Event elected can be either:
(i) Separation from Service for any reason other than death.
Payment will be made, or begin, in the later of: (1) January
of the year following the year of the Separation from
Service; or (2) the seventh month after the month of the
Separation from Service. Later installments, if any, will be
paid in January of the succeeding years;
(ii) Payment upon attainment of a date certain that is more than
1 year after the last day of the applicable Performance
Year. Later installments, if any, will be paid in January of
the succeeding years.
(d) Payment Term. At the time of electing to defer an Annual Award,
the participant must also elect how he or she wishes to receive
any such payment from among the following options (the
participant may elect a separate Payment Term for each Payment
Event elected):
(i) Payment in a single sum upon occurrence of the Payment
Event.
(ii) Payment of a series of annual installment payments over
a period from two (2) years to fifteen (15) years following
the Payment Event. The series of installment payments is to
be construed and treated as a right to a series of separate
payments. Each such separate payment shall be equal to a
fractional amount of the original balance in the account the
numerator of which is one and the denominator of which is
the number of installment payments elected. Although
initially such installment payments will be identical,
actual payments may vary based upon investment performance.
For example, a series of 5 installment payments will result
in a payout of 1/5 of the account balance in the first
installment, 1/4 of the account balance (including
investment gains or losses since the first installment date)
in the second installment, etc.
(e) Changes to Payment Options. Once a Payment Option has been
elected, subsequent changes which would accelerate the receipt of
benefits from the Plan are not permitted, except as provided in
Sections (h) through (j). A subsequent election to change the
payment options related to a Payment Event, in order to delay a
payment or to change the form of a payment, can only be made when
both of the following conditions are satisfied:
(a) such election may not take effect until at least 12
months after the date on which the election is made; and,
(b) the payment(s) with respect to which such election is
made is deferred for a period of not less than 5 years from
the date such payment would otherwise have been made.
(f) Investments. At the time of electing to voluntarily defer
payment, the participant must elect how the Deferred Annual Award
will be treated by the Company or Subsidiary. To the extent that
any amounts deferred are placed in a rabbi trust
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with an independent record keeper, a participant who has
previously deferred amounts under this Plan or any of the other
Account Balance Plans of the Company will automatically have his
or her existing investment profile apply to this deferral also.
All determinations of the available investment options by the
Plan Administrator are final and binding upon participants. A
participant may change the investment elections subject to any
restrictions imposed by the plan record keeper or by any
applicable laws and regulations. Additional restrictions,
including blackout periods and window periods are generally
applicable with respect to elections relating to CMS Energy
Common Stock to comply with any insider trading rules of the
Securities and Exchange Commission. Prior to any establishment of
a rabbi trust or selection of an independent record keeper, the
participant must elect whether the Deferred Annual Award will be
treated as invested, as applicable, in accordance with Paragraph
I or Paragraph II below.
I. A Deferred Annual Award will be credited with the 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 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 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 b 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.
(g) The amount of any Deferred Annual Award is to be satisfied from
the general corporate funds of the company on whose payroll the
Plan participant was enrolled prior to the payout beginning and
are subject to the claims of general creditors of that company.
This is an unfunded nonqualified deferred compensation plan. To
the extent the Company or Subsidiary, as applicable, elects to
place funds with a trustee to pay its future obligations under
this Plan, such amounts are placed for the convenience of the
Company or Subsidiary, remain the property of the Company or
Subsidiary and the participant shall have no right to such funds
until properly paid in accordance with the provisions of this
Plan. For administrative ease and convenience, such amounts may
be referred to as participant accounts, but as such are a
notional account only and are not the property of the
participant. Such amounts remain subject to the claims of the
creditors of the Company or Subsidiary.
(h) Payment in the Event of an Unforeseeable Emergency. The
Participant may request that payments commence immediately upon
the occurrence of an Unforeseeable Emergency as that term is
defined in Code Section 409A and any applicable regulations.
Generally, an unforeseeable emergency is a severe
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financial hardship resulting from an illness or accident of the
Employee or the Employee's spouse or dependent, loss of property
due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of
the Employee. A distribution on account of unforeseeable
emergency may not be made to the extent that such emergency is or
may be relieved through reimbursement or compensation from
insurance or otherwise, by liquidation of the Employee's assets
(without causing severe financial hardship), or by cessation of
deferrals under this arrangement, the Savings Plan or other
arrangements. Distributions because of an unforeseeable emergency
are limited to the amount reasonably necessary to satisfy the
emergency need (after use of insurance proceeds, liquidation of
assets, etc.) plus an amount to pay taxes reasonably anticipated
as a result of the distribution. In the event any payment is made
due to an unforeseeable emergency, all deferral elections for the
current Plan Year will cease and the Participant will not be
eligible to make any deferral elections under this Plan for the
following Plan Year. For any Participant receiving a hardship
withdrawal under the Savings Plan, all deferral elections under
this Plan for the current Plan Year will cease and the
Participant will not be eligible to make any deferral elections
under this Plan for the following Plan Year.
(i) Payment Pursuant to the Terms of a Domestic Relations Order.
Payment may be accelerated and made to a person other than the
Participant to the extent so ordered by a Court applying
applicable state domestic relations law to provide for the
support, property settlement or welfare of a spouse, former
spouse or child of the Participant. Notwithstanding the above, in
no event may any amount that is not vested under this Plan be
payable until such amount is properly vested.
(j) Conflicts of Interest. A payment will be made when necessary in
order to comply with a certificate of divestiture (as defined in
Code Section 1043(b)(2)).
(k) Payment in the Event Any Amount is Includible in Income. A
payment will be made to the Participant at any time where the
Plan fails to satisfy the requirements of Code Section 409A and
any applicable regulations, and as a result the Participant is
required to report taxable income. Such payment may not exceed
the amount required to be included in income by the Participant
as a result of the failure to comply with the requirements of
Code Section 409A.
(l) Payment in Company Stock. Payments are made in cash except when
the Participant is subject to any applicable restrictions imposed
by any laws and regulations, including blackout periods and
window periods generally applicable to the CMS Energy Common
Stock Fund to comply with any insider trading rules of the
Securities and Exchange Commission. At the Plan Administrator's
discretion, amounts in the Company Stock Fund may be paid in
Company stock rather than in cash.
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
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that the Participant dies prior to receipt of either a cash
Annual Award or a 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
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 Annual
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 prior to payment (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. An Officer who retires, is on disability or
leave of absence and who becomes employed by a competitor of CMS
Energy or Consumers Energy or their subsidiaries or affiliates prior
to award payout will forfeit all rights to an Annual Award, unless
prior approval of such employment has been granted by the Committee. A
"competitor" shall mean
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an entity engaged in the business of (1) selling (a) electric power or
natural gas at retail or wholesale within the State of Michigan or (b)
electric power at wholesale within the market area in which an
electric generating plant owned by a subsidiary or affiliate of CMS
Enterprises is located or (2) developing an electric generating plant
within the State of Michigan or a market area in which an electric
generating plant owned by a subsidiary or affiliate of CMS Enterprises
is located.
VI. MISCELLANEOUS
6.1 IMPACT ON BENEFIT PLANS. Payments made under the Plan will be
considered as earnings for the Supplemental Executive Retirement Plans
(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 may amend or
terminate the Plan at any time. Upon termination, any amount accrued
under the Plan will remain in the Plan and be paid out in accordance
with the Payment Elections previously selected. The Plan Administrator
is authorized to make any amendments that are deemed necessary or
desirable to comply with any applicable laws, regulations or orders or
as may be advised by counsel or to clarify the terms and operation of
the Plan. The Company may terminate the Plan and accelerate any
benefits under the Plan, at its discretion, if it acts consistent in
all manners with the requirements of Code Section 409A and any
applicable regulations with respect to when a terminated plan may
accelerate payment to a Participant.
6.4 GOVERNING LAW. The Plan will be governed and construed in accordance
with the laws of the State of Michigan.
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.
VII. AMENDMENT TO REFLECT CODE SECTION 409A
7.1 PRIOR ELECTIONS. Certain one-time elections are permitted under Code
Section 409A and the proposed regulations thereunder. Accordingly,
each participant in the Plan (and all such Plans for prior years) may
elect by December 16, 2005, (1) to receive all or a portion of the
amounts in the account balance attributable to deferrals, to be paid
prior to December 31, 2005, (2) to change or revoke a prior election
for deferrals for
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the 2005 Performance Year, and (3) to change his or her payment
elections. Any change in the payment elections will be applied to the
entire amount in the participant's account as of December 31, 2005.
7.2 CODE SECTION 409A. Prior to December 31, 2006, this Plan will be
amended, effective as of January 1, 2005, to comply with the
requirements of Section 409A of the Code. Prior to that amendment, the
Plan will be operated in good faith compliance with the provisions of
Section 409A and IRS Notice 2005-1. While operating in good faith
compliance, any provisions of the Plan that violate a provision of
Section 409A will be changed in operation to conform to Section 409A.
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