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Exhibit 10(xiv)
THE NORTH AMERICAN COAL CORPORATION
1995 INCENTIVE COMPENSATION PLAN
December, 1994
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1995 INCENTIVE COMPENSATION PLAN
SUMMARY
The Incentive Compensation Plan (Plan) offers a strongly competitive
incentive 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 salary midpoint, that establishes the incentive
amount they will receive when performance objectives are met.
- The individual target amount is allocated among the following
performance components:
- 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 around each performance objective.
- A payout range is defined which provides for incentive payments up to
150 percent of the incentive target, EXCEPT TO THE EXTENT THE COMMITTEE
ELECTS TO INCREASE THE ACTUAL POOL BY UP TO 10%, AS DESCRIBED BELOW.
- A performance/payout schedule combines the two ranges into a matrix
that defines the level of payout 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.
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1995 INCENTIVE COMPENSATION PLAN
This incentive compensation plan will allow management and the Board to
establish, in advance, the performance expectations and related incentive
potential that NAC's executives will work with for the year. At year-end, the
structure channels judgment of the managements team's performance along
predetermined lines that should convey a sense of fairness in the deter-
mination of rewards.
PLAN STRUCTURE
INDIVIDUAL INCENTIVE TARGETS
----------------------------
The fundamental building block of the proposed Plan structure is the
individual incentive target. Each participant is assigned a target, stated as a
percentage 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 be exactly equal
to the established performance goals. Therefore, the Plan is designed to
provide payouts ranging up to 150 percent of the target award if actual results
fall within a predetermined range of acceptable performance.
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1995 INCENTIVE COMPENSATION PLAN
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 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.
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1995 INCENTIVE COMPENSATION PLAN
PERFORMANCE RANGE
-----------------
A range of performance acceptable for incentive payment will be
established around 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 as clearly as possible.
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 in line with the definitions.
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 payout and performance ranges yields a performance/payout
schedule as in the following example:
Performance Definition Results Levels Payout
----------- -------------- ------- ------------ ------
Threshold Just bonusable 75% Threshold 50%
Objective On plan 100% Target 100%
Maximum Heavy stretch 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 awards will be earned under the Plan in any year unless
the threshold level under the corporate performance component is achieved. Once
the corporate performance threshold is attained each performance objective is
separate and distinct. This means that partial
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1995 INCENTIVE COMPENSATION PLAN
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 pro
ratio 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 ten percent the total incentive compensation or may approve
an incentive compensation payment where there would normally be no payments due
to corporate performance which is below the criteria established for the year.
1995 PERFORMANCE TARGETS
See Plan Summary.
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