Exhibit 10.1
R.R Donnelley & Sons Company
Annual Management Incentive Compensation
(Effective Date: January 1, 2002)
OVERVIEW
R.R. Donnelley Annual Management Incentive Compensation (the "Plan") is designed
to promote the growth and profitability of R.R. Donnelley and its subsidiaries
with incentives to achieve enterprise-wide and business objectives. The
enterprise is made up of the individual businesses of the company - R.R.
Donnelley Print Solutions, R.R. Donnelley Logistics, R.R. Donnelley Financial
and others - plus the corporate function. Awards depend on how well the
Enterprise and the individual businesses do in meeting their annual financial
goals, Strategic Inclusion Plan objectives, and on how well an individual
performs against goals that link to and support the Company's strategic and
financial priorities. The Human Resources Committee of the Board of Directors
('the Committee') shall administer and establish rules and regulations for the
plans concept and the administration of the plan as pertains to interpretation
of the plan, and impose any conditions with respect to competitive employment or
other activities not inconsistent with or conflicting with the plan.
PARTICIPATION
Eligible participants include selected officers and other key executives.
TARGET BONUS AMOUNT
Each eligible participant's target incentive opportunity under the Annual
Management Incentive Compensation plan is stated as a percentage of eligible
wages paid in a calendar year. This is referred to as the "Target Award
Percentage" and will be communicated to eligible participants annually. Eligible
wages for non-exempt employees include overtime.
Any actual award earned under the Annual Management Incentive Compensation plan
can range from 0% to in excess of 200% of the Target Award Percentage, depending
upon the funding of the Plan; the enterprise-wide performance against
pre-determined objectives; if appropriate, business performance against
pre-determined objectives; and personal performance. The Committee reserves the
discretion to increase or decrease the aggregate amount payable to any eligible
participant.
FUNDING OF THE ANNUAL MANAGEMENT INCENTIVE COMPENSATION PLAN POOLS
All incentive awards will be paid out of pools created based upon achievement of
financial goals established for both the enterprise and its businesses. For
Corporate employees, 100% of any incentive award earned will be paid out of
funds available, if any, in the Corporate pool. For employees of a business, a
portion of any incentive award earned will be paid out of funds available, if
any, in a pool a portion of which is funded based on business performance and a
portion of which is funded based on enterprise-wide performance.
Pools are only funded to the extent that the Enterprise's or the business'
financial performance exceeds threshold earnings per share (EPS) and threshold
EVA (in the case of the Corporate pool) or threshold EVA (in the case of
businesses). This assures that stockholders are receiving a return on their
investment in R. R. Donnelley before management begins to share in this return.
The size of each pool increases to the extent that performance exceeds the
established thresholds. While the Committee retains the discretion to change the
percentages, for the initial Plan year in the case of the Corporate pool, 50% of
the funding results from exceeding the EPS threshold and 50% results from
exceeding the EVA threshold, and in the case of the businesses pools, 30% of the
funding results from exceeding the Corporate
thresholds and 70% results from exceeding the EVA threshold for a business. For
all pools, after threshold is reached, a portion of further EPS or EVA earnings
go to funding the relevant pool until "maximum" is reached and the pools are
capped.
A business may fail to achieve its threshold performance at a time when
enterprise-wide performance exceeds threshold performance, and the business will
have funding in its pool due to enterprise-wide performance. Similarly, if a
business' performance exceeds threshold at a time when the enterprise does not
reach the EVA and EPS thresholds, the business pool will be funded to the extent
of its own performance.
PAYOUTS FROM POOLS
The thresholds and maximums described above will result in pools funded between
0 and 200% of target. This is the "Total Pool Funding Percentage". If a pool is
funded, participants in that pool can receive Annual Management Incentive
Compensation payouts. The Committee will determine the percentage of any
participant's award to be determined by financial performances of the enterprise
and the business (if appropriate), SIP goals (if any), personal performance, or
any other performance factors deemed relevant by the Committee.
A. FINANCIAL GOALS
The financial goals for the enterprise and the businesses are reflected in
the funding of the pools. Therefore, if a pool is funded at all, an
eligible participant will receive that portion of his or her target award
determined as follows: (Percentage of Award tied to Financial Performance)
x (Target Award Percentage) x (Total Pool Funding Percentage).
B. STRATEGIC INCLUSION PLANS (SIP)
The Strategic Inclusion Plan was implemented in 1997 to strengthen the
Company's commitment to inclusion and to increase the representation of
women and minorities in the workforce. SIP links a portion of certain
awards to accountability for strengthening Donnelley's diverse, inclusive
and capable workforce.
SIP results are based on the actual percentage of the goals achieved.
Therefore, if a pool is funded at all, an eligible participant with a SIP
goal will receive that portion of his or her target award determined as
follows: (Percentage of Award tied to SIP) x (Percentage of SIP goal
achieved) x (Target Award Percentage) x (Total Pool Funding Percentage).
C. PERSONAL PERFORMANCE
Personal goals are established to link and support Donnelley's strategic
and financial priorities. A portion of each award earned is based on
achievement of personal goals and the employee's performance rating under
the performance leadership system.
In determining any payout for this factor, management will calibrate among
Plan participants and pay the highest rated of our employees the largest
portion of the pool available for this payout. Therefore, if a pool is
funded at all, an eligible participant will receive that portion of his or
her target award determined as follows: (Percentage of Award tied to
Personal Performance) x (Target Award Percentage) x (Total Pool Funding
Percentage) x (Weighting in Calibration).
D. OTHER FACTORS
Should the Committee determine to include additional performance factors,
payouts for such factors will be determined generally as described for the
factors above.
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E. LIMIT ON PAYMENT
Actual percentages of target paid are dependent on the size of the pool
from which an award is paid. Each year during the Plan, the company intends
to pay the entire pool provided that individual performance targets are
met.
PAYMENT DATE
Awards are to be paid in March following the Plan year to allow for finalization
of all financial information and calibration of performance ratings. In general,
an eligible employee must be on the payroll as of the last work day of the
calendar year to receive an award. Special provisions apply to retirees and
employees on leave of absence or disability. (Please refer to the Changes in
Employment Status section of this document for details.)
BENEFITS AND TAX TREATMENT
Award payments are subject to deductions for federal, state, applicable local
and social security taxes.
Deductions for contributions to the R. R. Donnelley Employee 401(k) Savings Plan
will apply to award payments. Additionally, awards are included in covered
compensation for purposes of determining benefits under the R. R. Donnelley
Retirement Plan. Awards are not included in the computation of benefits under
the R. R. Donnelley Survivor and Accident Benefits Plan or the R. R. Donnelley
Disability Program.
CHANGES IN EMPLOYMENT STATUS
A. PROMOTIONS, DEMOTIONS, TRANSFERS, CHANGES IN ASSIGNMENT
If an eligible participant is promoted, demoted, transferred to or between
businesses or from Corporate during the Plan year, his or her award payout
will be calculated by prorating the payouts for each position based on the
time assigned to that position. However, any changes in assignment after
October 31st which may cause a change in an eligible participant's award
will not impact participation until January 1 of the next year. That is,
the participant will retain his or her prior target award for the balance
of the year in which the change in assignment occurs after October 31st.
B. NEW HIRE
Eligible employees hired prior to November 1 of the Plan year shall be
eligible to participate in the Annual Management Incentive Compensation
plan in the year of hire. Their awards shall be based on eligible wages
earned during the plan year. Eligible participants hired after October 31
of the plan year shall begin participation in the Plan the following year.
C. RETIREMENT OR DEATH
In the event of retirement * or death during a plan year, a prorated
payment will be paid to the participant or on the participant's behalf at
the normal award payment time. The award shall be prorated based on the
period of employment.
* For purposes of the Plan, "retirement" generally means (i) retirement at
age 65, or (ii) retirement, with the consent of the Company, at or after
age 55 with 10 or more years of continuous service.
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D. DISABILITY
In the event of an extended disability, payment for the year will be
determined by the Committee in a fair and consistent manner.
E. OTHER TERMINATION
In general, if employment terminates for reasons other than retirement (as
defined above) or death prior to December 31st of the plan year, no award
shall be payable.
ADMINISTRATION
The Committee retains all rights with respect to administration of the Plan,
including the right to amend or terminate the Plan and to determine the
performance achievement attained under the Plan. The Committee may delegate to
members of the Company's management the authority to administer the Plan and
determine performance under the Plan, except that the Committee may not delegate
its authority with respect to eligible participants who are also participants in
the Senior Officer Long Term Incentive Plan.
The Plan will be administered by the Corporate Compensation Department.
Questions regarding the Plan should be directed to the Corporate Compensation
Department.
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