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EXHIBIT 10.5
PACTIV CORPORATION
EXECUTIVE INCENTIVE COMPENSATION PLAN
(THE "Plan")
Section 1. Establishment and Purpose
1.1 Establishment of the Plan. Pactiv Corporation (the "Company")
hereby establishes the Plan effective upon the distribution of the Company's
stock to the shareholders of Tenneco Inc.
1.2 Purpose. The objectives of the Plan are to:
(a) Reinforce a results-oriented management culture with
executive pay that varies according to overall Corporate and individual
performance against aggressive business goals and core behavioral standards.
(b) Provide incentives, in the form of substantial reward
potential, for Executives to remain employees of the Company.
(c) Focus on business results that include financial measures
such as return on capital employed, net income, cash flow, working capital, and
earnings per share, with improvement in customer satisfaction, quality, safety,
environmental, effective leadership and workforce diversity.
(d) Place greater emphasis on variable performance-based (versus
fixed) compensation.
(e) Provide key Executives with competitive levels of total
current compensation and incentive earning opportunities commensurate with the
business results achieved and individual performance.
(f) Provide a plan that is easy to describe and understand.
Section 2. Plan Definitions
(a) "Company" includes any successor employer which adopts the
Plan and any subsidiary corporation designated by the Compensation / Nominating
/ Governance Committee of the Board of Directors of the Company (the
"Committee") as eligible to participate in the Plan; except that when used with
reference to authority under the Plan, Company shall mean Company as defined in
Section 1.1 hereof.
(b) "Corporate" means the entity which is responsible for the
overall management and staff support functions of the Company.
(c) "Division" means each operating organizational entity which,
through the conduct of its business, produces revenues for the Company.
(d) "Executive" means a regular, full-time salaried employee of
the Company who is in a position meeting the defined eligibility criteria for
participation in the Plan.
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(e) "Participant" means an Executive who has been approved for
participation in the Plan.
(f) "Plan Year" means the calendar year.
(g) "Salary Grade" means the position classification assigned to
the Participant in accordance with the position evaluation system adopted by
Company Management for Plan purposes.
(h) "EICP Objectives" means the "Target" (Budget) level of
financial objectives (e.g., net income, cash flow, and earnings per share) or
other operating measurements for the Plan Year, assigned annually by the Company
to each Division. This represents the expected level of achievement for the Plan
Year. The target goal (budget) for Corporate will be the Company's consolidated
operating measurements.
(i) "Individual Incentive Target Award" means the anticipated
individual incentive award to be allocated to a Participant in the event EICP
Objectives are met and his/her individual performance is fully satisfactory. The
schedule of individual incentive target awards applicable to the various Salary
Grades shall be determined by the Company.
Section 3. Eligibility and participation
3.1 Eligibility and Participation. Eligibility for participation in
the Plan will be limited to those key Executives who, by the nature and scope of
their positions, regularly and directly make or influence policy decisions which
significantly impact the overall results and success of the Company. The Company
will receive recommendations for participation from Division Heads and
appropriate Corporate Staff Officers. Each such nominated Executive shall become
a Participant upon being approved by the Company. All such Executives approved
for participation shall be notified of their selection as soon as practical
following approval.
3.2 Cessation of Participation. The Company may withdraw its approval
of an existing position at any time during the Plan Year. Participants whose
employment is terminated during the Plan Year for reasons other than disability,
death, or normal retirement under a Company retirement plan shall forfeit
participation in the Plan unless otherwise authorized by the Company. At the
sole discretion of the Company, participation may be prorated for Participants
who become disabled, die, normal retire or are assigned to non-eligible position
during the Plan Year.
Section 4. Fund Generation
4.1 Incentive Amounts. Annually, the Company shall establish EICP
Objectives (Target/Budget). In addition, the Company shall determine for a
target incentive amount equal to the sum of individual incentive targets. The
Company may adjust the target incentive amount during the Plan Year to
accommodate the admission or elimination of Participants to the Plan and to
incorporate adjustments to individual incentive targets of Participants whose
Salary Grade changes
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during the Plan Year. Incentive funds will be determined based on the budgeted
financial objectives (e.g., net income, cash flow, and earnings per share) with
each weighted to reflect appropriate emphasis.
The size of the incentive fund will be determined as follows:
FINANCIAL OBJECTIVES
A preliminary fund will be established based on performance against financial
objectives from the Annual Operating Plan ("AOP") which will be approved
annually by the Company's Board of Directors. The preliminary fund can range
from 0% to 200% of the sum of the individual target awards based on the
Company's performance against its AOP.
- - Performance on AOP will generate a fund equal to the sum of individual
target awards.
- - Performance below AOP will result in a lower incentive fund as
recommended by Company Management and approved by the Board of
Directors taking into consideration the reasons that AOP was not
attained.
- - Performance above AOP may result in a higher than target level fund as
recommended by Company Management and approved by the Board of
Directors taking into consideration the reasons that AOP was exceeded.
The preliminary fund can be adjusted, upward or downward, based on the
recommendation of Company Management and approved by the Board of Directors
taking into account unusual events.
NON-FINANCIAL OBJECTIVES
Quantitative Adjustments
Once the preliminary fund is established, the following quantitative
adjustment factors will be applied to determine a final incentive fund:
Factor Maximum
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- Return on Capital Employed 10%
- Working Capital Measures 5%
- Environmental Measures 5%
- Safety & Health Measures 5%
Each of these quantitative adjustment factors will be applied for a
total increase (decrease) to the fund of as much as 25%.
Qualitative Adjustments
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The following qualitative adjustment factors for overall leadership
will also be applied.
- Innovation
- Customer Satisfaction / Quality
- Leadership of Change
- Workforce Diversity
- Operational Considerations (Quality of Earnings)
These qualitative factors will be applied to a maximum of 2%, for a
total increase/decrease to the fund as much as 10%.
4.2 Committee Authority. The Committee shall have the right at any
time in its sole discretion to modify, eliminate or withdraw for such period or
periods as it may determine, the incentive amounts, in part or in whole, to be
made available under this Section 4 for payment of awards to any or all
participating Corporate or Division entities or any Participant or Participants
hereunder.
Section 5. Determination of Individual Awards
5.1 Determination of Individual Incentive Target Awards. Annually,
the Committee shall determine the Salary Grade applicable to the Chief Executive
Officer of the Company, and the Company shall determine the Salary Grade
applicable to all other Participants. Each Participant's Individual Incentive
Target Award will be determined by the Company.
5.2 Determination of Individual Incentive Awards. Actual individual
awards to be paid to Participants will vary above or below the assigned
Individual Incentive Target Awards dependent upon each individual's performance
in accordance with guidelines prescribed by the Company. The actual award to a
Participant must be approved by both the Company and the Committee (or only the
Committee for awards applicable to the Chief Executive Officer of the Company)
and shall not exceed 100% of the Participant's annual base salary without
approval of the Committee.
Section 6. Form of Timing of Awards
Payment of Individual Awards. The actual awards to be paid to
Participants in accordance with Section 5.2 shall be paid in cash as soon as
practical once final operating performance is available.
Section 7. Administration
This Plan shall be administered by the Company in accordance
with rules that may be established from time to time by the Committee. The
determination of the Company as to any disputed question arising under this
Plan, including any question of construction or interpretation, shall be final,
binding, and conclusive upon all persons.
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Section 8. Amendment and Termination
The Committee, in its absolute discretion and without notice,
may at any time and from time to time modify or amend, in whole or in part, any
or all of the provisions of this Plan, or suspend or terminate it entirely.
Section 9. Applicable Laws
This Plan shall be construed, administered and governed in all
respects under the laws of the State of Illinois.
IN WITNESS WHEREOF, the Company has caused the Plan to be
executed on its behalf by its respective officers thereunder duly authorized, on
the day and year set forth below.
PACTIV CORPORATION
Date: November 1, 1999 By: /S/ John Potempa
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Its: Vice President Employee
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Relations and Administration
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