EXHIBIT 10.1(b)
PENNZOIL-QUAKER STATE COMPANY
2001 LONG-TERM PERFORMANCE INCENTIVE PROGRAM
Amended and Restated
March 5, 2002
OVERVIEW
- The basic concept of the program 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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PROGRAM ELEMENT % OF EXPECTED VALUE DELIVERED BY DEVICE
--------------------------------- ---------------------------------------
Stock Options 40%
Conditional Stock 20%
Long-Term Performance Program 40%
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Total 100%
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- The employees participating in this program structure for 2001 are
executives in Tiers E-1 through E-7 and Tier X-1.
PROGRAM OBJECTIVES
- Motivate participants to achieve outstanding Company performance relative
to peers.
- Enable the Company to attract and retain key employees by having this
program serve as part of a competitive total pay package.
- 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.
BASIC PROGRAM DESIGN CONCEPT
- Under the program, participants will be provided an opportunity to receive
an award payment based on the Company's total shareholder return relative
to industry peers during overlapping three-year cycles.
- New performance cycles begin every year following the year the program was
established.
ELIGIBILITY
- Eligibility for the program will be reviewed and determined annually by
the Company's CEO and the Compensation Committee of the Company's Board.
- Program participation will 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,
program eligibility will be limited to executives in Tiers E-1 through
E-7, and Tier X-1.
PERFORMANCE MEASUREMENT
- The recommended program performance measure is Pennzoil-Quaker State's
total shareholder return compared to the industry peers listed below:
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.
- Total shareholder return will be defined using the same method required in
the total shareholder return graph of the proxy statement. This method
uses a compound annual growth rate. Specifically, $100 invested in
Pennzoil-Quaker State common 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.
PERFORMANCE STANDARDS
- At the start of each new performance cycle, the Company will 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 2001 to 2003 performance cycle.
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PENNZOIL-QUAKER STATE
PERFORMANCE LEVEL DEFINITION TSR RANKING 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 incentive payout 12th of 16 (27th%ile)
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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.
** The Company 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 program.
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AWARD OPPORTUNITIES
- The long-term performance program award opportunities for the
program-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 X-1
------------------------ ------------ ----------- ------------ ----------- ----------- ------------ ----------- ------------
Maximum 330% 306% 270% 198% 180% 168% 120% 75%
Target 110% 102% 90% 66% 60% 56% 40% 25%
Threshold 28% 26% 23% 17% 15% 14% 10% 6%
Below Threshold 0% 0% 0% 0% 0% 0% 0% 0%
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- These award ranges are for each three-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 will 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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PROGRAM PAYOUTS
- Payouts under the program will be made as soon as possible after the
completion of each performance cycle.
- As a rule, the payouts will be made within three months after the
completion of the cycle.
- All awards typically will be paid as one-time lump-sum cash payments with
taxes withheld at a flat rate of 28%.
- Payouts under the program are both Savings and Investment Plan and
Retirement Plan eligible.
RETIREMENT AND TERMINATIONS
- To receive an award under the program, the participant must generally be
employed on the last day of the performance cycle.
- Exceptions to this policy will 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
multiplied by their target payout percentage, with such payout to be for the
full three-year program.
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 will receive 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
program will be an expense that will be estimated and accrued periodically
on its financial statements.
PROGRAM ADMINISTRATION
- The program will be administered by the Company's CEO for all positions
except his own, in which case the Compensation Committee will administer
the program.
- The Compensation Committee will be responsible for approving award
opportunities, performance measures, performance standards, and actual
award payments.
- Also, any modifications or amendments to the program will be made at the
sole discretion of the Compensation Committee.
- In addition, the Company will retain the right to terminate or modify the
program at any time. (However, cycles that have already begun are a
contractual obligation of the Company.)