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EXHIBIT 10.10
CORPORATE OFFICER INCENTIVE PLAN
HASTINGS BOOKS, MUSIC & VIDEO, INC.
BACKGROUND AND OBJECTIVES
The overall compensation strategy of Hastings Books, Music & Video, Inc.
(Hastings) is to provide key management with competitive total direct pay
opportunity. The two cash components of the Hastings compensation program are
base salary and management incentive opportunity. Periodic base salary
adjustments will be used to reward an employee's sustained job performance over
time, while also recognizing external salary market movement and increases in
job responsibility.
The Corporate Officer Incentive Plan (the COIP) for Hastings will provide
incentive cash pay at risk, with potential COIP rewards tied to performance
achievement. When COIP performance goals are met, COIP awards plus base salary
will approximate competitive total cash pay opportunity for all plan
participants. The following document defines COIP eligibility, the size of
potential award opportunities, performance measurement, form and timing of award
payments, administrative guidelines and definitions for ongoing COIP management.
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ELIGIBILITY
Award eligibility will be determined by the CEO at the beginning of each
performance/award period. Generally, COIP participants will be selected from key
executives e.g., corporate officers, who primarily are responsible for the
annual growth and profitability of the Company. The number of eligible COIP
participants is expected to vary from year to year, as Hastings expands and as
the Company's compensation strategy and programs are refined. The CEO will
determine whether a person employed by Hastings less than six months prior to
the end of the applicable performance measurement period will be eligible for an
award for that period.
INCENTIVE TARGETS
At the beginning of each performance period, each participant in the COIP will
be assigned an INCENTIVE TARGET EXPRESSED AS A PERCENT OF BASE SALARY. This
incentive target for the initial performance period can increase to 125% of the
targeted amount (or decrease to 50% of the targeted amount) based on performance
achievement. COIP incentive targets and minimum/maximum limits may be re-defined
from time to time, as modifications are made in Hastings' management
compensation strategy. Within 90 days after the end of each performance period,
each participant's base salary rate will be multiplied by the actual COIP award
percentage earned to determine the dollar value of the award for the prior
performance period. For COIP calculations "base salary rate" shall mean the base
salary rate in effect at the end of the performance period in which the award is
earned. The maximum award payable under the COIP shall be the lesser of 250% of
the participant's most recent annualized base salary rate or $1,000,000, to
comply with IRC 162(m).
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COIP AWARD POOL
The COIP award pool shall be established at the beginning of each performance
measurement period. The size of the COIP pool will equal 100% of all targeted
COIP awards for all COIP participants.
PERFORMANCE MEASURES
At the beginning of each performance period, the Compensation Committee shall
establish in writing the performance goals that shall determine the size of the
COIP award. For the initial performance period, the primary performance measures
for all COIP participants will be sales and return on equity (ROE), as defined
in the Hastings annual business plan. ROE is defined as the after-tax rate of
return on beginning shareholders' equity. Performance goals for COIP awards may
be equal to or exceed the goals in the Hastings business plan, as determined by
the Company's Compensation Committee. At the end of the performance period, the
Compensation Committee shall certify in writing the extent to which the
performance goals were satisfied.
In addition to the COIP targets, senior management and the Hastings Compensation
Committee jointly will establish minimum acceptable and outstanding COIP goals
as follows:
o MINIMUM ACCEPTABLE- Hastings performance at 50% of the target level, below
which only the minimum incentive will be paid;
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o TARGET - Hastings performance at 100% of target, where the COIP adjustment
factor is 1X, with "X" equal to the target incentive pool; and
o OUTSTANDING - Hastings performance at or above 150% of target, where the
COIP adjustment factor is 1.25X, with "X" equal to the target incentive
pool.
Semi-annually, the Company will review actual results measured against overall
Hastings goals to establish the size of the COIP pool earned. Simultaneously,
senior management will recommend to the Compensation Committee appropriate COIP
goals for the next performance period.
Exhibit 1 presents a sample performance matrix that would be used to modify the
initial COIP award pool for performance goal achievement.
If, during a performance period, Hastings' Compensation Committee determines
that an accounting reserve needs to be set aside to fund a future financial
contingency for Hastings, the Board shall establish such a reserve and determine
if adjustment(s) in the COIP target(s) for the affected performance period(s)
are warranted. Similarly, the Compensation Committee has the authority to modify
the COIP targets at the end of a performance period to adjust for extraordinary
circumstances, including mergers, acquisitions, recapitalizations, or any other
substantial changes in the Hastings business plan(s).
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The Board of Directors and the Compensation Committee also retain the right and
authority to adjust, amend, or suspend any current payments in the COIP for any
given performance period, if, in the good faith determination of the Board of
Directors or Compensation Committee, the payments of such COIP amounts would
result in a material adverse change to, or a material decline in, the financial
condition or prospects of Hastings.
CEO DISCRETIONARY ADJUSTMENTS
After the size of each COIP award has been determined based on COIP performance
achievement, the CEO shall have the authority to make limited adjustments in
COIP awards based on individual performance contributions. Such CEO
discretionary adjustments, if any, shall be limited to -30%, and shall be
restricted to downward adjustments only to comply with IRC 162(m). Exhibit 2
presents a sample COIP award calculation.
FORM AND TIMING OF AWARDS
COIP award calculations will be finalized within 90 days after the end of each
performance period. COIP awards will be paid in cash in two distributions
annually (initially in April for August through January performance and in
October for February through July performance), unless a participant makes an
election to voluntary defer a portion of his/her award.
o Voluntary deferrals must be submitted to the CEO in writing at the
beginning of the fiscal year to avoid constructive receipt, i.e., tax
liability before the award is actually paid to the executive.
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o Cash deferral elections shall be limited to one half or all of the award
and should be limited to a maximum of three payments to avoid
administrative complexity.
o Participants also may elect to apply the lesser of $50,000 or 50% of the
earned COIP award to purchase discounted Hastings common stock through the
1996 Management Stock Purchase Plan.
To ensure deferral of taxes on the purchase (and discount) amount, the purchase
would be made in restricted stock units, which would be converted to shares of
Hastings stock after an additional three years of employment, as described
below:
~ The purchase price of each restricted stock unit would be 75% of the fair
market value of one share of common stock on the date the COIP cash award
is payable.
~ Each restricted stock unit will fully vest and will be exchanged for one
share of Hastings common stock if employment is not terminated before the
end of a three-year restriction period.
~ The restriction period would begin on the date the performance units are
purchased.
~ If employment is terminated during the three-year restriction period (other
than "for cause"), the conversion value of the restricted stock units would
be the lessor of the initial unit purchase price or the fair market value
of the stock at the date of termination. If employment is terminated "for
cause" during the restriction period, all restricted stock units would be
forfeited.
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~ The employee would owe taxes on the (fully appreciated) value of the shares
when the units are converted to Hastings stock.
ADMINISTRATIVE GUIDELINES AND DEFINITIONS
The COIP shall be administered by the CEO and the Associate Resources
Department, with final approval for all performance goals and award targets
resting with the Compensation Committee ("the Committee") of the Company's Board
of Directors. All decisions made by the Committee shall be final and binding.
o Employee Termination - A participant must be an employee of the Company on
the day the COIP award is finalized and approved for payment by the
Hastings Compensation Committee.
o New Hires - Newly hired participants shall earn COIP awards on a pro-rata
basis, based on their date of employment. The CEO will determine whether a
person employed by Hastings less than six months prior to the end of the
applicable performance measurement period will be eligible for an award for
that period.
o Base Salary - Base salary for COIP award calculations shall be the ending
rate of pay for the performance period in which the award is earned.
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o Support Documentation - The CEO and Associate Resources Department of the
Company shall be responsible for maintaining all necessary support
documentation regarding performance and bonus calculations under the COIP.
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EXHIBIT 1
HASTINGS BOOKS, MUSIC & VIDEO, INC.
CORPORATE OFFICER INCENTIVE PLAN
INCENTIVE TARGET ADJUSTMENT VS. PERFORMANCE:
1996 ROE VERSUS PLAN
1996
SALES VS. <60% 60% 70% 80% 90% 100% 110% 120% 130% 140% >150%
PLAN
>150% 100% 105% 110% 115% 120% 125% 125% 125% 125% 125% 125%
140% 95% 100% 105% 110% 115% 120% 120% 120% 120% 120% 125%
130% 90% 95% 100% 105% 110% 115% 115% 115% 115% 120% 125%
120% 85% 90% 95% 100% 105% 110% 110% 110% 115% 120% 125%
110% 80% 85% 90% 95% 100% 105% 105% 110% 115% 120% 125%
100% 75% 80% 85% 90% 95% 100% 105% 110% 115% 120% 125%
90% 70% 75% 80% 85% 90% 95% 100% 105% 110% 115% 120%
80% 65% 70% 75% 80% 85% 90% 95% 100% 105% 110% 115%
70% 60% 65% 70% 75% 80% 85% 90% 95% 100% 105% 110%
60% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% 105%
<60% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%
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EXHIBIT 2
HASTINGS BOOKS, MUSIC & VIDEO, INC.
CORPORATE OFFICER INCENTIVE PLAN
SAMPLE AWARD CALCULATION
ASSUMPTIONS:
Management current salary is $50,000.
Annual COIP award target is 30% of salary or $15,000. Semi-annual COIP award
target is 15% of salary or $7,500.
Actual sales are 90% of Plan and ROE is 100% of Plan (95% of Targeted COIP
component earned based on matrix).
CEO Discretion: Assume individual performance is satisfactory and CEO deducts
nothing from earned award.
CALCULATIONS FOR: SEMI-ANNUAL ANNUAL AWARD
Current Salary: $50,000 $50,000
Semi-annual Target: x.15 x.30
$7,500 $15,000
Performance Adjustment re:Matrix: x.95 x.95
Semi-annual COIP award earned: $7,125 $14,250
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EXHIBIT 0
HASTINGS BOOKS, MUSIC & VIDEO, INC.
CORPORATE OFFICER INCENTIVE PLAN
INCENTIVE TARGETS AS A % OF SALARY
SEMI-ANNUAL OPPORTUNITY ANNUAL OPPORTUNITY
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POSITION MINIMUM TARGET MAXIMUM MINIMUM TARGET MAXIMUM
(.50X) (1.0X) (1.25X) (.50X) (1.0X) (1.25X)
CEO 38% 75% 94% 75% 150% 188%
EVP/COO 30% 60% 75% 60% 120% 150%
SVP/COO 28% 55% 69% 55% 110% 137%
VP FINANCE 22% 45% 56% 44% 90% 111%
VP IS 15% 30% 38% 30% 60% 75%
VP DISTRIBUTION 13% 25% 32% 25% 50% 63%
VP RE 10% 20% 25% 20% 40% 50%
DIRECTOR A 8% 15% 19% 15% 30% 38%
DIRECTOR B 7% 13% 16% 13% 25% 32%
DIRECTOR C 5% 10% 13% 10% 20% 25%
MANAGER A 4% 8% 10% 8% 15% 19%
MANAGER B 3% 5% 7% 5% 10% 13%
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