EXHIBIT 10.43.1
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PNM RESOURCES, INC.
2004 OFFICER INCENTIVE PLAN
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INTRODUCTION
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This document serves as a comprehensive single source of information about the
PNM Resources, Inc. Officer Incentive Plan (the "Plan"). It describes the
objectives of the Plan, its various elements, and how they function. If you have
questions that are not addressed by this document, please direct them to the
Compensation Department.
PLAN OBJECTIVES
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The Plan is designed to motivate and reward participants for achieving and
exceeding annual company, business unit and individual goals, and the
company-wide earnings per share ("EPS") goal.
EFFECTIVE DATES
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The Plan is effective from January 1, 2004 through December 31, 2004 (the "Plan
Year"). Management reserves the right, however, to adjust, amend or suspend the
Plan at its discretion during the Plan Year, with the approval of the Human
Resources and Compensation Committee (the "Committee") of the Board of Directors
(the "Board").
ADMINISTRATION
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o Plan Year Goals
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Individual goal sets (e.g. combined company, business unit, and individual)
will be established for each Officer. After considering the recommendations
of management, the Committee will approve the company-wide EPS goals
against which performance will be measured for the Plan Year.
o Incentive Award Approvals and Payout Timing
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Shortly after the end of the Plan Year, the Committee or the Board will, in
its sole discretion, determine the final performance results which will be
used to calculate awards, if any. Awards will be distributed by check to
eligible participants following such approval during the first quarter
following the end of the Plan Year.
ETHICS
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The purpose of the Plan is to fairly reward performance achievement. Any
employee who manipulates or attempts to manipulate the Plan for personal gain at
the expense of customers, other employees or company objectives will be subject
to appropriate disciplinary action, up to and including termination of
employment.
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ELIGIBILITY
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All officers are eligible to participate in the Plan. For purposes of this Plan,
officer means any employee of the company with the title of Chief Executive
Officer, President, Executive Vice President, Senior Vice President or Vice
President.
o Pro Rata Awards for Partial Service Periods
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Pro rata awards for the number of months actively employed at each
eligibility level during the Plan Year will be paid to the following
participants at the time awards are paid to all participants: (Note: Any
month in which a participant is actively on the payroll for at least one
day will count as a full month.)
- Participants who are newly hired during the Plan Year.
- Participants who are promoted, transferred or demoted during the Plan
Year.
- Participants who are on leave of absence for any full months during the
Plan Year.
- Participants who are impacted or leave the company due to retirement or
disability during the Plan Year. (Note: For purposes of the Plan,
"retirement" means termination of employment with the company and all
affiliates after the employee has attained: (1) age forty-five and twenty
years of service; (2) age fifty-five and ten years of service; (3) the
age at which the early distribution penalty of Section 72(t) of the
Internal Revenue Code no longer applies and five years of service; or (4)
any age and thirty years of service.)
- Participants who die during the Plan Year, in which case the award will
be paid to the spouse of a married participant or the legal
representative of an unmarried participant.
o Forfeiture of Awards
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Any participant who terminates employment on or before awards are
distributed for the Plan Year for any reason other than death, impaction or
retirement (e.g., voluntary separation, termination for performance or
misconduct - even if the terminated participant elects to take retirement)
will not be eligible for payment of an award.
o Provisions for a Change in Control
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Please refer to the PNM Resources, Inc. Officer Retention Plan for
additional information.
o Eligible Base for Incentive Purposes
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For the purpose of incentive calculations, the applicable salary grade
midpoint is the participant's salary grade midpoint effective December 31
of the Plan Year unless the participant has been demoted during the Plan
Year. In this event, the participant's salary grade midpoint may be
prorated based on the period of time worked at each level.
AWARD DETERMINATION
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Awards may be earned for performance that provides additional value to our
shareholders. The incremental performance needed to fund awards is taken into
consideration in establishing performance thresholds and goals under the Plan.
o Performance Thresholds
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In order to be eligible for incentive awards, the following performance
threshold must be met for 2004 (Individual Award):
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- Overall combined company, business unit, and individual goal performance
that at least achieves the threshold performance level. If this
performance threshold is not met, no award will be paid for the Plan
Year.
In order to be eligible for the award enhancement, the following
performance threshold must be met for 2004:
- Company-wide EPS that at least achieves $1.90. If this performance
threshold is not met, no award enhancement will be applied.
o Combined Company, Business Unit, and Individual Performance Award
Opportunity
For the 2004 Plan Year, the combined company, business unit, and individual
performance (Individual Award) opportunities are as follows:
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Award Eligibility Level Individual Goal Set
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Threshold* Stretch* Optimal*
----------------------------------- ------------ ------------ -----------
Vice-President 4.0% 7.0% 10.0%
----------------------------------- ------------ ------------ -----------
Senior Vice-President 4.8% 8.4% 12.0%
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Executive Vice-President 5.6% 9.8% 14.0%
----------------------------------- ------------ ------------ -----------
Chairman, President, and CEO 11.2% 19.6% 28.0%
----------------------------------- ------------ ------------ -----------
* Award calculated as a percentage of salary grade midpoint
o Earnings Per Share (EPS) Award Enhancement
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For the 2004 Plan Year, the EPS award enhancement opportunities are as
follows:
- ------------------------------- ------------------------------------ -----------------------------------------
EPS Threshold Target = $1.90 EPS = $1.91 to $2.14 EPS Optimal Target = $2.15
- ------------------------------- ------------------------------------ -----------------------------------------
Individual Award is enhanced 2x Workgroup Award is enhanced 2x to 5x Individual Award is enhanced a maximum of
using straight-line interpolation 5x
- ------------------------------- ------------------------------------ -----------------------------------------
For this Plan, EPS is defined as net income related to running the business
(excluding certain extraordinary items or events that result in windfalls
or penalties which are not in keeping with the spirit of the Plan) divided
by the number of shares of PNM Resources, Inc. common stock outstanding.
Note: See Appendix for award opportunity matrix.
o Award Calculation
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Combined company, business unit, and individual goal performance that meets
or exceeds the threshold target level will be eligible for an award. The
amount of each participant's award is determined by the participant's
eligibility level and the level of combined company, business unit, and
individual goal performance in the "Combined Company, Business Unit, and
Individual Performance Award Opportunity" table above.
Company EPS performance that meets or exceeds the threshold target will
serve as an enhancement to the award paid for workgroup performance. As
identified in the "EPS Award Enhancement" table above, the award
enhancement will be a minimum of 2x at the EPS threshold target, a maximum
of 5x at the EPS optimal target, and interpolated between the EPS threshold
and optimal targets.
The resulting percent is multiplied by the participant's eligible salary
grade midpoint to determine the amount of the participant's award.
For Example: Assume that overall workgroup results are at the optimal
performance level and company-wide EPS performance is $2.03 (halfway point
between EPS threshold and optimal targets). A participant who is eligible
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for an award at the Vice-President eligibility level would receive an award
of 35% of salary grade midpoint for the Plan Year. That is, workgroup
optimal performance resulting in an award of 10%, which is then enhanced
3.5x (halfway point between threshold and optimal multipliers) for EPS
performance. Assuming the participant's salary grade midpoint is $160,000
the award would be $56,000 ($160,000 x 35.0%).
Appendix
2004 Officer Incentive Plan
Award Matrix
CEO
Payout as Percent of Midpoint
Workgroup Goals EPS Multiplier
Level Payout Threshold (2x) Stretch Optimal (5x)
(3.5x)
- ---------------- ------------ --------------- ------------- -------------
Threshold 11.2% 22.4% 39.2% 56.0%
Stretch 19.6% 39.2% 68.6% 98.0%
Optimal 28.0% 56.0% 98.0% 140.0%
EVP
Payout as Percent of Midpoint
Workgroup Goals EPS Multiplier
Level Payout Threshold (2x) Stretch Optimal (5x)
(3.5x)
- ---------------- ------------ --------------- ------------- -------------
Threshold 5.6% 11.2% 19.6% 28.0%
Stretch 9.8% 19.6% 34.3% 49.0%
Optimal 14.0% 28.0% 49.0% 70.0%
SVP
Payout as Percent of Midpoint
Workgroup Goals EPS Multiplier
Level Payout Threshold (2x) Stretch Optimal (5x)
(3.5x)
- ---------------- ------------ --------------- ------------- -------------
Threshold 4.8% 9.6% 16.8% 24.0%
Stretch 8.4% 16.8% 29.4% 42.0%
Optimal 12.0% 24.0% 42.0% 60.0%
VP
Payout as Percent of Midpoint
Workgroup Goals EPS Multiplier
Level Payout Threshold (2x) Stretch Optimal (5x)
(3.5x)
- ---------------- ------------ --------------- ------------- -------------
Threshold 4.0% 8.0% 14.0% 20.0%
Stretch 7.0% 14.0% 24.5% 35.0%
Optimal 10.0% 20.0% 35.0% 50.0%
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