Exhibit 10.8
TENNECO AUTOMOTIVE, INC.
TENNECO AUTOMOTIVE VALUE ADDED "TAVA" INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSES OF THE PLAN.
The purpose of the Plan is to more closely link incentive cash
compensation to the creation of shareholder value. The Plan is intended to
foster a culture of performance and ownership, promote employee accountability,
and establish a framework of manageable risks imposed by variable pay. The Plan
is also intended to reward long-term, continuing improvements in shareholder
value with an opportunity to participate in a portion of the wealth created.
SECTION 2. DEFINITIONS.
"Actual Improvement" means the annual change in EVA, as determined
under Section 5(b)(1) of the Plan, which can be positive or negative.
"Annual Salary" means, with respect to a Participant, his or her annual
base salary rate in a particular fiscal year of the Company.
"Board" means the Board of Directors of the Company.
"Bonus Amount" means the amount of a Participant's TAVA Bonus and, if
applicable, a portion of amounts which were previously credited to a
Participant's Bonus Reserve Account, which is payable to a Participant under
Section 6 of the Plan.
"Bonus Interval" means the amount of EVA growth or diminution as a
variance from Target Improvement that would either (i) result in the doubling of
the Target Bonus for EVA performance above Target Improvement; or (ii) result in
the realization of no Target Bonus for EVA performance below Target Improvement.
"Bonus Reserve Account" means the amount of a Plan Participant's Bonus
potential that is not yet earned and which is accounted for by the Company in a
non-interest bearing book entry account until such time as it may be earned and
paid in the form of Bonus Amounts under the Plan.
"Capital Charge" means the Cost of Capital multiplied by the Company's
aggregate capital, as determined by the Committee.
"Cause" means the Participant's (i) commission of an act of fraud,
embezzlement or theft in connection with the Participant's employment, (ii)
commission of intentional wrongful damage to property of the Company, (iii)
failure to perform the material duties of employment after receipt of written
notice from the Company, or (iv) conviction of a felony (or plea of guilty or
nolo contendre).
"Change in Control" shall be as defined in the Tenneco Automotive Inc.
Change of Control Severance Benefits Plan for Key Executives.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation/Nominating/Governance Committee of
the Board, or any successor Committee thereto.
"Company" means Tenneco Automotive, Inc.
"Cost of Capital" means the Company's cost of equity plus its cost of
debt, expressed as a percentage, as determined by the Committee using a weighted
average of the expected return on the Company's debt and equity capital. Cost of
Capital is intended to reflect the rate of return that an investor could earn by
choosing another investment with equivalent risk.
"Disability" means permanent and total disability as determined under
the rules and guidelines established by the Committee for purposes of the Plan.
"EVA" means the "economic value added" of the Company determined each
Plan Year by deducting the Company's Capital Charge from NOPAT, as determined by
the Committee. EVA is intended to reflect a measure of profit after subtracting
the cost of all capital employed. EVA(R) is a registered trademark of Stern
Stewart & Co.
"NOPAT" means the Company's net operating profit after tax, as
determined by the Committee from the Company's audited financial statements.
"Participant" shall be as defined in Section 3.
"Plan" means the Tenneco Automotive, Inc. Tenneco Value Added "TAVA"
Incentive Compensation Plan.
"Plan Year" means the fiscal year of the Company.
"Retirement" means the termination of a Participant's employment with
the Company or a Subsidiary after a Participant attains normal retirement age as
established by the Committee.
"Subsidiary" means any corporation at least eighty percent (80%)
percent of the outstanding voting stock of which is owned by the Company.
"Target Bonus" means the annual bonus a Participant may earn which
shall be based 75% on the TAVA Target Bonus and 25% on a discretionary bonus as
established and determined by the Company.
"Target Improvement" means the targeted improvement in annual EVA
growth for the TAVA Target Bonus Percentage to be earned in full.
"TAVA" means Tenneco Automotive Value Added.
"TAVA Bonus" means the annual bonus amount for a Plan Year, as
determined under Section 5 of the Plan.
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"TAVA Bonus Factor" means the multiple determined in accordance with
Section 5(b)(4) of the Plan for purposes of determining a Participant's TAVA
Bonus.
"TAVA Target Bonus" means the annual TAVA Bonus a Participant would
earn, if any, for a Plan Year if Actual Improvement equaled Target Improvement,
determined by multiplying a Participant's Annual Salary for that Plan Year by
the Participant's TAVA Target Bonus Percentage for that Plan Year.
"TAVA Target Bonus Percentage" means the percentage of a Participant's
Annual Salary, as established or approved by the Committee for purposes of
determining a Participant's TAVA Target Bonus.
SECTION 3. ELIGIBILITY
An employee of the Company or a Subsidiary who, individually or as part
of a group, is selected by the Committee to be eligible to participate in the
Plan for a Plan Year shall become a Participant as of the first day of such Plan
Year, unless otherwise determined by the Committee.
SECTION 4. ADMINISTRATION.
(a) The Committee. The Compensation/Nominating/Governance Committee of
the Board shall be the Committee hereunder unless a new Committee is selected by
the Board.
(b) Powers. The Committee shall have full and exclusive discretionary
power to:
(1) interpret the Plan,
(2) to determine those employees of the Company and its
Subsidiaries who are eligible to participate in the Plan, and
(3) adopt such rules, regulations, and guidelines (including
the establishment of performance criteria), for administering the Plan
as the Committee may deem necessary or proper, including the full
discretion not to make payment of any or all of the Bonus amount
determined in Section 5.
(c) Adjustment to Payments. Subject to final approval of the Committee,
individual Participant payments may be subject to change by recommendation of
the Participant's manager and senior management team, with consideration given
to the individual's successful job performance. The Company retains the right to
withhold any payment amounts determined hereunder from any Participant who
violates Company policies.
(d) Third-party Advisors. The Committee may employ attorneys,
consultants, accountants, and other persons. The Board, Committee, the Company,
and its officers shall be entitled to rely upon the advice or opinion of such
persons.
(e) Binding Effect of Committee Actions. All actions taken and all
interpretations and determinations made by the Committee shall be final and
binding upon the Participants, the Company, and all other interested persons. No
member of the Committee shall be personally liable
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for any action, determination, or interpretation made in good faith with respect
to the Plan. All members of the Committee shall be fully protected and
indemnified by the Company, to the fullest extent permitted by applicable law,
in respect of any such action, determination, or interpretation of the Plan.
(f) Annual Certification. In the event that any portion of the Bonus
Amount is intended to constitute "incentive-based compensation" as defined in
Section 162(m) of the Code, each Plan Year prior to payment of such Bonus
Amount, the Committee shall certify that the performance requirements of the
Plan have been satisfied in accordance with Section 5(a)(2) of the Plan and
Section 162 (m) of the Code.
(g) Foreign Jurisdictions. The Committee shall have the discretion to
modify or amend the Plan, or adopt additional terms and or conditions, as may be
deemed necessary or advisable in order to comply with the local laws and
regulations of any jurisdiction.
SECTION 5. DETERMINATION OF TAVA BONUS.
(a) Determination of EVA and Actual Improvement.
(1) Beginning of Plan Year Determinations. Prior to the
commencement of each Plan Year, the following determinations shall be
made:
(i) The Committee shall determine the Company's EVA
as of the beginning of the Plan Year.
(ii) The Committee shall determine or approve TAVA
Target Bonus Percentages for each Participant and the
Company's Cost of Capital for the Plan Year.
(iii) The Committee shall establish the Target
Improvement and the Bonus Interval for each Plan Year, which
standards may each be set by the Committee for one or more
Plan Years.
(2) End of Plan Year Determinations. As of the end of each
Plan Year, the following determinations shall be made:
(i) The Committee shall determine the Company's EVA
as of the end of the Plan Year and the resulting Actual
Improvement.
(ii) The Committee shall determine, or approve the
determination of, the TAVA Bonus Factor for each Plan Year,
consistent with the terms of the Plan.
(b) Determination of TAVA Bonus. Each Participant shall be credited
with a TAVA Bonus, if any, for a Plan Year according to the following:
(1) The Actual Improvement in EVA for a Plan Year shall be
determined by subtracting the EVA for the immediately preceding Plan
Year from the EVA for the Plan Year;
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(2) If the Actual Improvement exceeds the Target Improvement,
the amount of that excess shall be the "Excess Improvement";
(3) If the Target Improvement exceeds the Actual Improvement,
the amount of that excess shall be the "Shortfall";
(4) The TAVA Bonus Factor shall be determined by comparing the
Excess Improvement or Shortfall to the Target Improvement and Bonus
Interval, according to the following:
(i) If the Actual Improvement equals the Target
Improvement, the TAVA Bonus Factor shall equal one (1).
(ii) If the Actual Improvement exceeds the Target
Improvement, the TAVA Bonus Factor shall equal the Excess
Improvement divided by the Bonus Interval, plus one (1).
(iii) If the Actual Improvement is less than the
Target Improvement, the TAVA Bonus Factor shall equal the
Shortfall (expressed as a negative number) divided by the
Bonus Interval, plus one (1).
(5) The TAVA Bonus for each Participant shall equal the
Participant's TAVA Target Bonus, multiplied by the TAVA Bonus Factor,
with such amount being credited to the Participant's Bonus Reserve
Account in accordance with Section 6 of this Plan.
SECTION 6. PAYMENT OF BONUS AMOUNT.
(a) Bonus Reserve Account Determination. Each Participant shall have a
Bonus Reserve Account to which the TAVA Bonus shall be credited. Each Plan Year
the Bonus Reserve Account shall be increased by the amount of any positive TAVA
Bonus or decreased by the amount of any negative TAVA Bonus. The bonus payable
to a Participant as of the end of a Plan Year, if any ("Bonus Amount"), shall be
based upon the Participant's Bonus Reserve Account as of the end of each Plan
Year.
(b) Determination of Bonus Amount. At the end of each Plan Year, after
first crediting the Participant's Bonus Reserve Account with the Participant's
TAVA Bonus (which may be positive or negative), the Company shall pay each
Participant a Bonus Amount equal to the sum of (i) the Participant's TAVA Bonus,
if positive (but not exceeding 120% of the TAVA Target Bonus), plus (ii)
one-third of the Participant's remaining Bonus Reserve Account balance as of the
end of that Plan Year (after reducing for (i)); provided that the Bonus Amount
may not exceed the Participant's Bonus Reserve Account. If the amount in a
Participant's Bonus Reserve Account prior to determining the Bonus Amount is
less than the Participant's TAVA Bonus, the entire amount of the Participant's
Bonus Reserve Account shall be paid. No Bonus Amount shall be payable to a
Participant unless and until the Participant has a positive balance in his or
her Bonus Reserve Account as of the end of the Plan Year. The Bonus Amount shall
be paid by the Company within thirty (30) days following the Committee's
determination of the TAVA Bonus Factor. The Bonus Amount determined under this
subsection shall not be earned by the Participant until such time as the date on
which it is paid.
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(c) Allocation of TAVA Bonus Factor. A Participant's TAVA Bonus may be
based upon the TAVA Bonus Factor for the Company only, or at the discretion of
the Committee, a Participant's TAVA Bonus may be based upon the TAVA Bonus
Factor for a particular division, operation, or Subsidiary of the Company, or
combination thereof as determined by the Committee.
(d) Payment Upon Death, Retirement, Disability or Termination by the
Company Other Than for Cause. In the event of a Participant's termination of
employment due to death, Retirement, Disability or by the Company other than for
Cause, the Participant's Bonus Reserve Account shall be credited as of the end
of the Plan Year in which termination occurs (the "Termination Year"), with a
TAVA Bonus determined in accordance with Section 5 of the Plan, multiplied by a
fraction (the "Completion Multiple"), the numerator of which shall equal the
total number of days during the Termination Year in which the Participant was
employed by the Company, and the denominator of which shall be 365. Thereafter,
following the payment, if any, of the Bonus Amount for the Termination Year, the
full amount of the Participant's Bonus Reserve Account (if a positive balance
then exists) shall be considered earned as of the termination date and shall be
paid by the Company to the former Participant, or in the event of his or her
death, to his or her estate or designated beneficiary, in one lump sum within
the time frame set forth in subsection (b) above and the Participant shall have
no rights or interests in the Plan thereafter.
(e) Voluntary Termination of Employment by Participant. In the event of
a Participant's voluntary termination of employment, (i) the Participant shall
not earn, and Participant's Bonus Reserve Account shall not be credited with any
TAVA Bonus for the Termination Year, and (ii) in the event that the prior Plan
Year Bonus Amount has not yet been paid, the Participant shall not earn, and the
Participant's Bonus Reserve Account shall not be credited with, any TAVA Bonus
for such prior Plan Year. The full amount of the Participant's Bonus Reserve
Account (if a positive balance then exists) shall be considered earned as of the
termination date and shall be paid by the Company to the former Participant in
one lump sum within the time frame set forth in subsection (b) above and the
Participant shall have no rights or interests in the Plan thereafter.
(f) Termination by the Company for Cause. In the event the
Participant's employment is terminated by the Company for Cause, (i) the
Participant shall not earn, and Participant's Bonus Reserve Account shall not be
credited with, any TAVA Bonus for the Termination Year, and (ii) in the event
that the prior Plan Year Bonus Amount has not yet been paid, the Participant
shall not earn, and Participant's Bonus Reserve Account shall not be credited
with, any TAVA Bonus for such prior Plan Year. The full amount of the
Participant's Bonus Reserve Account (if a positive balance then exists) shall be
forfeited in its entirety as of the termination date and the Participant shall
have no rights or interests in the Plan thereafter.
(g) Workers' Compensation. If during any Plan Year a Participant is not
on payroll due to an authorized leave of absence, or leaves payroll through
Workers' Compensation, the amount of his or her TAVA Bonus shall be determined
in accordance with Section 5 of the Plan, multiplied by a fraction, the
numerator of which shall equal the total number of days of the Plan Year a
Participant is not on payroll, and the denominator of which shall equal 365.
(h) Ineligibility. If an employee's participation in the Plan is
terminated for reasons other than set forth in subsections (d) through (g),
whether due to changes in the Participant's
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employment status with the Company or a Subsidiary, or due to employment with an
affiliate of the Company that is not a Subsidiary, (i) the amount of his or her
TAVA Bonus shall be determined in accordance with subsection (d) of this
Section, whereby the Termination Year shall be the Plan Year in which
participation in the Plan terminates and the numerator of the Completion
Multiple shall equal the total number of days during the Termination Year in
which the employee was a Participant in the Plan, and (ii) the entire amount of
the Bonus Reserve Account shall be paid to the former Participant on or before
the 60th day following the end of the Termination Year.
SECTION 7. GENERAL PROVISIONS.
(a) No Right to Employment or Participation. No Participant or other
person shall have any claim or right to be retained in the employment of the
Company or a Subsidiary by reason of the Plan or any TAVA Bonus or Bonus Reserve
Account. Selection for eligibility to participate in the Plan for any given Plan
Year shall not entitle the Participant to participate in any subsequent Plan
Year.
(b) Plan Expenses. The expenses of the Plan and its administration
shall be borne by the Company.
(c) Plan Not Funded. The Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any TAVA Bonus or Bonus Reserve
Account under the Plan.
(d) Reports. The appropriate officers of the Company shall cause to be
filed any reports, returns, or other information regarding the Plan, as may be
required by any applicable statute, rule, or regulation.
(e) Governing Law. The validity, construction, and effect of the Plan,
and any actions relating to the Plan, shall be determined in accordance with the
laws of the state of Illinois and applicable federal law, without regard to the
conflict of laws provisions of any state.
SECTION 8. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may, from time to time, amend the Plan in any respect, or may
discontinue or terminate the Plan at any time, provided, however, that:
(a) No amendment, discontinuance or termination of the Plan shall alter
or otherwise affect the amount credited to a Participant's Bonus Reserve Account
or affect the amount of a TAVA Bonus which may be earned prior to the date of
termination;
(b) No amendment shall be made which would replace the EVA performance
measurement system for purposes of determining TAVA Bonuses under the Plan
during a Plan Year for such Plan Year, provided that the Board or Committee
shall have the authority to adjust and establish Target Improvement, Bonus
Intervals, TAVA Target Bonus Percentages, and other criteria utilized in the EVA
performance measurement system; and
(c) In the event of the termination of this Plan, the full amount, if
any, then credited to a Participant's Bonus Reserve Account shall be paid in
full within ninety (90) days following the
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effective date of termination. If the Plan is terminated prior to the end of a
Plan Year, TAVA Bonuses for that Plan Year shall be determined and credited to a
Participant's Bonus Reserve Account in accordance with Section 6(d) of the Plan.
In the event the Plan is terminated following a Change in Control, TAVA Bonuses
shall be determined in accordance with Section 6(d) of the Plan, except that the
Completion Multiple shall be one (1) and the Bonus Amount shall be paid at the
effective time of the Change in Control.
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