EXHIBIT 10.1(a)
PENNZOIL-QUAKER STATE COMPANY
2000 LONG-TERM PERFORMANCE
INCENTIVE PROGRAM
Amended and Restated
March 5, 2002
OVERVIEW
- The basic concept of the plan design is to target long-term incentive
values at market (e.g., 50th percentile pay for 50th percentile
performance, 75th percentile pay for 75th percentile performance, etc.).
The weighting of compensation delivered under different long-term devices
for senior management is as follows:
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PLAN ELEMENT % OF EXPECTED VALUE DELIVERED BY DEVICE
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Stock Options 40%
Conditional Stock 20%
Long-Term Performance Plan 40%
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Total 100%
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-- The employees participating in this plan structure for 2000 are the
Executive Tier, Tiers E-1 through E-7 and Tier X-1.
PLAN OBJECTIVES
- Motivate participants to achieve outstanding company performance relative
to peers.
- Enable Pennzoil-Quaker State to attract and retain key employees by having
this plan serve as part of a competitive total pay package.
- Be easy to administer.
- Be reasonable in terms of company cash requirements and overall cost.
- Provide a tax-effective means for the Company to help participants
accumulate capital on a tax-deferred basis.
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BASIC PLAN DESIGN CONCEPT
- Under the plan, participants will be provided an opportunity to receive an
award payment based on Pennzoil-Quaker State's total shareholder return
relative to industry peers during overlapping 3-year cycles.
- New performance cycles begin every year following the year the plan was
established.
- The recommended performance/payout cycle relationship is shown in Exhibit
1.
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Exhibit 1
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PENNZOIL-QUAKER STATE COMPANY
PERFORMANCE/PAYOUT CYCLE RELATIONSHIP
2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ----
==================================X
=====================================X
=====================================X
=================================X
X = Award earned at end of year shown
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ELIGIBILITY
- Eligibility for the plan should be reviewed and determined annually by
Pennzoil-Quaker State's CEO and the Compensation Committee of
Pennzoil-Quaker State's Board.
- Plan participation should be extended to key executives that can directly
impact the long-term success of the Company.
- Based on the Company's business needs and competitive market practices,
Towers Perrin recommends that plan eligibility continue to be limited to
executives in Tiers E-1 through E-7, and Tier X-1*.
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* Note: This recommendation is consistent with current prevailing
market practice.
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PERFORMANCE MEASUREMENT
- The recommended plan performance measure is Pennzoil-Quaker State's total
shareholder return compared to the industry peers listed in Exhibit 2.
- Total shareholder return will be defined using the same method required in
the total shareholder return graph of the proxy statement. Specifically,
$100 invested in Pennzoil-Quaker State stock on the first day of the
performance cycle, with dividends reinvested, compared to $100 invested in
each of the peer companies, with dividend reinvestment during the same
period.
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Exhibit 2
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PENNZOIL-QUAKER STATE COMPANY
LISTING OF PEER COMPANIES CONSIDERED FOR TSR
CALCULATIONS FOR LONG-TERM PERFORMANCE PLAN
Church & Dwight Inc. Oneida LTD
Clorox Procter & Gamble
Colgate Palmolive Ralston Purina Co.
Dial Revlon Inc.
Kimberly-Clark Corp. Samsonite Corp.
Lancaster Colony Scotts Company
Libbey Inc. Sunbeam
Newell Rubbermaid Inc.
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PERFORMANCE STANDARDS
- At the start of each new performance cycle, Pennzoil-Quaker State will
need to define threshold, target, and maximum performance on the total
shareholder return objective.
- Given the company's executive pay philosophy, the standards shown in the
table below will be used for the 2000-2002 performance cycle.
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PENNZOIL-QUAKER STATE TSR RANKING
PERFORMANCE LEVEL DEFINITION RELATIVE TO PEERS*
------------------------ -------------------------------------- ------------------------------------
Maximum Outstanding performance 3rd of 16 (87th%ile)
Target Expected or budgeted performance 8th of 16 (53rd%ile)
Threshold** Minimal acceptable performance for 12th of 16 (27th%ile)
incentive payout
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* If mergers/acquisitions result in a reduction in the number of
peer companies during the cycle, these rankings will be
converted to equivalent percentiles to calculate awards.
** Pennzoil-Quaker State must also achieve a minimum actual total
shareholder return of 6% per year (averaged over the
performance cycle) before any payouts may be made under the
plan.
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AWARD OPPORTUNITIES
- The suggested long-term performance plan award opportunities for the plan
eligible positions (by performance level) are shown below.
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CORPORATE AWARDS AS % OF BASE SALARY, BY EXECUTIVE TIER*
PERFORMANCE
--------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
E-7 E-6 E-5 E-4 E-3 E-2 E-1 X1
--------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Maximum 315% 285% 240% 192% 171% 120% 111% 72%
Target 105% 95% 80% 64% 57% 40% 37% 24%
Threshold 26% 24% 20% 16% 14% 10% 9% 6%
Below Threshold 0% 0 0 0 0 0 0 0
===================== =========== =========== =========== =========== =========== =========== =========== ===========
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- These award ranges are for each 3-year performance cycle and assume that a
new cycle is established each year.
- Awards for performance between stated levels would be calculated using the
awards matrix described later in this report.
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* The long-term performance awards should be calculated using the
percentages shown in the table and the participant's base salary on
the last day of the applicable performance cycle. These award
levels, at target, represent market 55th percentile rates when
combined with recommended stock option and conditional stock
awards.
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PLAN PAYOUTS
- Payouts under the plan should be made as soon as possible after the
completion of each performance cycle.
- As a rule, the payouts should be made within three months after the
completion of the cycle.
- All awards typically should be paid as one-time lump-sum cash payments
with taxes withheld at a flat rate of 28%. (Note: If Pennzoil-Quaker State
makes all award payments in cash no shareholder approval is required. If
the Company wants to retain flexibility to make award payments in company
shares, shareholder approval is required.)
- Please note that payouts under the plan are both savings and investment
plan and retirement plan eligible.
RETIREMENT AND TERMINATIONS
- To receive an award under the plan, Towers Perrin recommends that the
participant must generally be employed on the last day of the performance
cycle.
- Exceptions to this policy should be made for retirement, long-term
disability, death, or involuntary termination during the cycle for reasons
other than cause, in which case the award should be prorated to reflect
the actual months of service during the cycle. Award payouts under these
exceptions would still be made at the end of the performance cycle.
CHANGE IN CONTROL
In the event of a change in control (as defined in the existing Pennzoil-Quaker
State Executive Severance Plan), there will be an accelerated payout of awards
based on participants' annual salary rate as of the date of a change in control
and the percentage of salary rate payout as of the end of the performance
period had occurred as of the day before an announcement of any change in
control.
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TAX TREATMENT
- The employee will have to pay ordinary income tax on all awards when they
are paid to the participant (not when they are earned).
- The company receives a tax deduction in the amount of income realized by
the participant in the year the award is paid.
ACCOUNTING TREATMENT
- The Company's projected obligation under the long-term performance cash
plan would be an expense that should be estimated and accrued periodically
on its financial statements.
PLAN ADMINISTRATION
- The plan should be administered by Pennzoil-Quaker State's CEO for all
positions except his own, in which case the Compensation Committee should
administer the plan.
- The Compensation Committee should be responsible for approving award
opportunities, performance measures, performance standards, and actual
award payments.
- Also, any modifications or amendments to the plan should be made at the
sole discretion of the Compensation Committee.
- In addition, the company should retain the right to terminate or modify
the plan at any time. (However, cycles that have already begun are a
contractual obligation of the company.)
PLAN COST
- Towers Perrin estimates the annualized cost of the performance plan for
each of the next 4 years would be as follows, assuming four different
levels of performance:
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2000 ESTIMATED ANNUAL COST
PERFORMANCE LEVEL ($000)
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Maximum $11,634
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Target $ 3,878
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Threshold $ 970
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Below Threshold $ 0
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- These costs would obviously change each year depending on movements in the
company's executive salaries and the specific positions covered by the
plan. The costs shown above assume the Company's current executive
salaries and that executives in tiers E-7 through E-1, and X-1 are the
only plan participants.
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AWARD CALCULATIONS
- Exhibit 3 provides an example of how plan performance and payouts would be
determined for one 3-year performance cycle.
- As shown in the exhibit, award payouts are tied directly to
Pennzoil-Quaker State's total shareholder return performance relative to
peers.