EXHIBIT 10(xlv)
THE NORTH AMERICAN COAL CORPORATION
2003 INCENTIVE COMPENSATION PLAN
SUMMARY
The Incentive Compensation Plan (Plan) offers a highly attractive incentive
compensation opportunity to senior managers when all performance objectives
under their control or influence are achieved. This is accomplished through a
structure containing the following elements:
- Each participant is assigned an individual incentive target,
stated as a percentage of their salary midpoint, that
establishes the incentive compensation amount they will
receive when performance objectives are met.
- The individual target amount is allocated among the following
performance components:
- North American Coal (NAC) corporate performance.
- Bellaire Corporation cash flow.
- Business unit results.
- Individual achievement.
- Percentage weightings are assigned to each component, based on
the participant's accountabilities and their impact on each
component.
- One or more performance objectives will be established at the
beginning of the year for each performance component.
- A performance range, which defines the acceptable level of
results, from threshold to maximum, is created for each
performance objective.
- A payout range is defined, which provides for incentive
payments of up to 150 percent of the incentive target, except
to the extent the Committee elects to increase the actual pool
by up to 10 percent, as described below.
- A performance/payout schedule combines the two ranges into a
matrix that defines the level of incentive compensation
payment that will result from each level of performance.
- After audited financials are available, awards will be
calculated based on actual results against the established
objectives.
- A final individual performance adjustment may be made, within
a range of +/- 10 percent of the calculated award, based on a
judgment of the participant's overall performance.
This Incentive Compensation Plan will allow management and the Board to
establish, in advance, the performance expectations and related incentive
compensation potential that NAC's executives can expect for the year. At
year-end, the Plan focuses judgment of the management team's performance on
predetermined objectives that should produce fairness in the determination of
rewards.
PLAN STRUCTURE
INDIVIDUAL INCENTIVE TARGETS
The primary focus of the proposed Plan is the individual incentive
compensation target. Each participant is assigned a target, stated as a
percentage of the mid-point of base salary, which will be paid when all
relevant performance objectives are achieved. The Plan provides for
payments above or below the target to reflect acceptable variances from
performance objectives.
PERFORMANCE GOALS
Four sets of goals are proposed:
Intentionally Omitted
INCENTIVE AWARD RANGE
Actual performance results attained probably will not match the
established performance goals exactly. Therefore, the Plan is designed
to provide incentive compensation payouts of up to 150 percent of the
target award if actual results fall within a predetermined range of
acceptable performance.
The award range is defined as follows:
% OF
AWARD LEVEL TARGET DESCRIPTION
- ------------------------ ---------------- ----------------------------------------------
Maximum 150% Highest level of incentive paid.
Target 100% Competitive incentive opportunity for
achieving all-important goals.
Threshold 25% to 50% Incentive paid when results meet minimum
acceptable standards.
Below threshold 0% Performance does not merit incentive
payment.
COMPONENT WEIGHTINGS
Participants' potential incentive awards will be allocated between
performance components based on their individual impact on results. The
allocations allow for awards to be earned based on the achievement of
the performance objectives over which each executive has the most
control. Weightings will be stated as a percentage and total 100
percent for each participant. The weightings will be established each
year to reflect current organizational accountabilities and the
relative importance of the various performance components. Our
recommended weightings are as follows:
Intentionally Omitted
When there is more than one goal for a performance component, further
percentage weightings may be assigned, within the overall weightings,
to reflect the relative priority of each goal. For example, if the
individual component has a 40 percent weighting and there are five
individual goals, each individual goal might be assigned a priority
weighting of 20 percent.
PERFORMANCE RANGE
A range of performance acceptable for incentive compensation payment
will be established for each performance objective. For quantitative
goals, the range may be set as a percentage of the objective. For goals
that cannot be quantified, the range will be defined in narrative form.
The following general definitions will apply. The percentage ranges
indicated are only guidelines; specific percentage ranges or narrative
descriptions should be determined for each goal based on the
definitions.
PERFORMANCE
PERFORMANCE PERCENTAGE
LEVEL GUIDELINE DEFINITION
- ------------- ------------------- -----------------------------------------------
Threshold 75% Minimum acceptable results justifying payment
of incentives.
Objective 100% Results meet high performance demands justifying
fully competitive rewards.
Maximum 125% Highest foreseeable level of performance.
PERFORMANCE/PAYOUT SCHEDULE
Combining the performance and payout ranges yields a performance/
payout schedule as in the following example:
PERFORMANCE DEFINITION RESULTS AWARD LEVELS PAYOUT
- ------------- ---------------------------- ----------- -------------------- -----------
Threshold Minimum 75% Threshold 50%
Objective On plan 100% Target 100%
Maximum Exceeding expectations 125% Maximum 150%
This schedule is applied separately to the results of each established
performance element to determine the incentive amount earned in
accordance with assigned weightings. Performance that falls between the
defined levels would result in proportionally adjusted payouts, which
may be calculated mathematically or determined judgmentally.
CORPORATE PERFORMANCE THRESHOLD
No incentive compensation awards will be earned under the Plan in any
year unless the threshold level of the corporate performance component
is achieved. Once the corporate performance threshold is attained, each
performance objective is separate and distinct. This means that partial
awards can be earned for the attainment of one performance objective
even if another is not sufficient to generate a payout.
INDIVIDUAL ADJUSTMENT FACTOR
Each individual award, as calculated above, may be adjusted upward or
downward by as much as 10 percent of the total award, based on
management's' perceptions of each individual's overall performance.
PARTIAL AWARDS
Executives who are hired or promoted during the year to positions
eligible for participation in the Plan may be included in the Plan on a
prorata basis.
COMMITTEE DISCRETION
It is the intent of the Plan that the total incentive compensation, as
determined above, will be the final total corporate incentive
compensation to be paid. However, the Committee, in its sole
discretion, may increase or decrease, by up to 10 percent, the total
incentive compensation or may approve an incentive compensation payment
where normally there would be no payment, due to corporate performance
which is below the criteria established for the year.
2003 PERFORMANCE TARGETS
See Schedule - Intentionally Omitted.