EXHIBIT 10.1(c)
PENNZOIL-QUAKER STATE COMPANY
2002 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 2002 are
executives in band levels 6 through 11.
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 continue to be limited to executives in band
levels 6 through 11.
PERFORMANCE MEASUREMENT
- The recommended program performance measure is the Company's total
shareholder return compared to the industry peers listed below.
Blythe, Inc. Newell Rubbermaid Inc.
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.
- 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 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 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 2002 to 2004 performance cycle.
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PENNZOIL-QUAKER STATE TSR
PERFORMANCE LEVEL DEFINITION 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 non-negative actual total shareholder
return (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 PERFORMANCE AWARDS AS % OF BASE SALARY, BY EXECUTIVE BAND LEVEL*
- --------------------------- --------------- --------------- --------------- --------------- --------------- --------------
11 10 9 8 7 6
- --------------------------- --------------- --------------- --------------- --------------- --------------- --------------
Maximum 330% N/A 198% 180% 105% 75%
Target 110% N/A 66% 60% 35% 25%
Threshold 28% N/A 17% 15% 9% 6%
Below Threshold 0% N/A 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.
NEW HIRES/PROMOTIONS
- Employees promoted into eligible positions for the first time and eligible
new hires will be prorated (rounded down to the first of the month
eligible).
- Employees currently participating who are promoted to a higher level
position during the three year cycle will be prorated (rounded down to the
first of the month promoted).
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 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
program would 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.
- 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.)