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Exhibit 10(xlv)
THE NORTH AMERICAN COAL
CORPORATION
1997 INCENTIVE COMPENSATION
PLAN
DECEMBER, 1996
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1997 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:
- 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 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 + or - 10 percent of the calculated award, based on a
judgment of the participant's overall performance.
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1997 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 determination
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 LEFT BLANK
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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1997 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 LEFT BLANK
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
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1997 INCENTIVE COMPENSATION PLAN
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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1997 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
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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
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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
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1997 INCENTIVE COMPENSATION PLAN
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
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Each individual award, as calculated above, may be adjusted upward or
downward by as much as 10 percent of the total award based on
managements' perceptions of each individual's overall performance.
PARTIAL AWARDS
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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
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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.
1997 PERFORMANCE TARGETS
See Plan Summary.
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