2012 Executive Incentive Plan

2012 Executive Incentive Plan

Background and Objectives

The overall executive compensation strategy of The Edelman Financial Group Inc. (“TEFG” or the “Company”) is to provide key executives with targeted total cash pay opportunities that generally are competitive with median total cash pay opportunities in wealth and asset management companies of similar size. The two primary elements of the TEFG cash compensation program are base salary and the 2012 Executive Incentive Plan (the “Plan” or “EIP”). TEFG base salaries are designed to be broadly competitive with industry standards and are used to reward an executive’s job performance over time. All awards under the Plan are determined and awarded at the sole discretion of the Compensation Committee of the TEFG Board of Directors (the “Committee”).

The Plan provides annual incentive compensation opportunity for key executives for achieving critical financial and other goals of and for TEFG. The following document defines Plan eligibility, the size of potential award opportunities, performance measurements, and form and timing of award payments, administrative guidelines, and definitions for ongoing Plan management.

The Plan does not include potential equity-based awards, which are covered by the Company’s separate Restricted Stock Unit Plan a sub-plan under the TEFG Long-Term Incentive Plan.

Capitalized terms that are used but not defined in the Plan shall have the meaning ascribed to them in the TEFG Long-Term Incentive Plan.

Eligibility

Employees who are eligible to participate in the Plan (“Participants”) will be proposed by the Chairman of the Board, Chief Executive Officer, President, and Chief Financial Officer of the Company (the “Plan Committee”) and approved by the Compensation Committee at the beginning of each performance/award period. Generally, Participants will be selected from key executives who primarily are responsible for the annual growth and profitability of TEFG, i.e., generally senior managers and officers. For 2012, 14 senior officers and executives are proposed as Participants.

Targeted Award Opportunities

At the beginning of each fiscal year, each Participant will be assigned a targeted award opportunity proposed by the Plan Committee and approved by the Committee that can increase or decrease in value, based on actual performance achievement. Targeted award opportunities for Participants for 2012 are shown in Exhibit 1. Plan targeted award opportunities may be re-defined from time to time by the Plan Committee, as modifications are made in TEFG’s executive compensation strategy.

On or before March 31, 2013, each Participant’s salary rate at December 31, 2012, will be multiplied by his or her actual EIP award percentage earned (determined by applying the performance measures set forth below) to determine the dollar value of the award for the prior performance cycle.

Notwithstanding any provision of this Plan to the contrary, no Participant shall have any legally binding right to payment of any amounts under this Plan unless and until the Committee, in its sole discretion, determines the amount of such Participant’s award and that such award shall be paid. Prior to such time, the Committee, in its sole discretion, may revoke or cancel any award made to a Participant hereunder.

Performance Measures

Four Plan financial performance measures, totaling 80% by weight of all performance measures, are proposed for the 2012 performance period, as follows:

The Plan performance targets will be proposed by the Plan Committee and approved by the Committee as soon as possible after the beginning of each fiscal year.

The final 20% portion of the performance measures will be determined on a discretionary basis by the Committee for the Chief Executive Officer and by the Plan Committee for the other Participants and will be based on the degree to which the executive has mastered the primary duties and responsibilities of his or her present job.

TEFG performance calculations for the Plan shall exclude nonrecurring and extraordinary items, which are defined at the sole discretion of the Committee. Performance goals for EIP awards may be adjusted during the year if a major change occurs in the Company’s operations or capital structure, e.g., an acquisition or merger. In addition to the EIP targets, the Committee and the Plan Committee jointly will establish minimum acceptable and outstanding Plan goals, which are currently as follows:

EIP awards will be interpolated for actual performance falling closest to the nearest 5% increment between any of the foregoing goals.

Exhibit 2 presents the performance matrix for calculating EIP awards. This performance matrix may be revised by the Plan Committee with approval of the Committee if the Company’s business strategy and performance focus changes.

Form and Timing of Awards

SEIP award calculations will be finalized on or before Mach 30, 2013. All SEIP awards will be paid in cash in quarterly installments in the year immediately following a performance cycle, as follows:

In no event will any payment of an award be made subsequent to December 31, 2013.

In the case of a Change in Control (as defined in the Company’s Long-Term Incentive Plan) prior to December 31, 2012, the Company may in its discretion amend, suspend, or terminate the Plan. In the case of a Change in Control (as defined in the Company’s Long-Term Incentive Plan) subsequent to December 31, 2012 and prior to November 30, 2013, all SEIP awards shall be paid in cash on the effective date of such Change in Control. Notwithstanding the foregoing, if and to the extent that any provision of this Plan or an award would cause a payment of deferred compensation that is subject to Section 409A(a)(2) of the Internal Revenue Code of 1986, as amended (the “Code”), to be made upon the occurrence of a “Change in Control,” then such payment shall not be made unless such “Change in Control” satisfies the requirements of Section 409A(2)(A)(v) of the Code and applicable regulations and rulings thereunder.

Administrative Guidelines and Definitions

The Plan operates at the discretion of the Committee. The Committee has the sole discretion to: (a) adopt such rules, regulations, agreements, and instruments as it deems necessary to administer the Plan; (b) interpret the terms of the Plan; (c) determine an employee’s eligibility under the Plan; (d) determine whether a Participant is to receive an award under the Plan; (e) determine the amount of any award to a Participant; (f) determine when an award is to be paid to a Participant; (g) amend, suspend, or terminate the Plan, without notice; and (h) take any and all other actions it deems necessary or advisable for the proper administration of the Plan. The Committee may exercise considerable discretion and judgment in interpreting the Plan, and adopting, from time to time, rules and regulations that govern the administration of the Plan. Once the Compensation Committee approves Plan Participants, award targets, and performance goals, the Plan Committee is delegated authority to administer the Plan. All decisions of the Committee and the Plan Committee are final, conclusive, and binding on all parties, including the Company, its stockholders, and employees.

Termination during 2012. Except as expressly set forth below, in the event a Participant’s employment with TEFG terminates for any reason prior to the end of the workday on December 31, 2012, such Participant will be ineligible for any award under the Plan. In other words, if a Participant is employed according to Company records through the end of the workday on December 31, 2012, the Participant will, subject to the following provisions, be eligible for any award earned under the Plan for 2012.

Any Participant (or his or her estate) who ceases to be employed by the Company prior to January 1, 2013, due to the Participant’s death, Disability, or Retirement (as such terms are defined in the TEFG Long-Term Incentive Plan), subject to the Participant’s execution of a waiver and release of claims in a form and manner satisfactory to the Company, will be eligible to receive a EIP award based on an adjusted annual base salary amount, but otherwise in the same manner, to the same extent, and at the same time as the Participant would have received such EIP award if such Participant’s employment had continued through December 31, 2012 (i.e., based on achievement of applicable performance measures). The Participant’s annual base salary will be the result of the following formula: X × Y/12, where:

X = the Participant’s annual base salary as in effect as of the date of termination of employment; and

Y = the number of calendar months the Participant was actively employed by the Company during 2012, rounded up for any partial month.

Termination on or after January 1, 2013. Except as expressly set forth below, a Participant who ceases to be employed by TEFG for any reason on or after January 1, 2013, will forfeit any unpaid EIP award. Any Participant (or his or her estate) who ceases to be employed by the Company subsequent to December 31, 2012, but prior to November 30, 2013, due to the Participant’s death, Disability, or Retirement, subject to the Participant’s execution of a waiver and release of claims in a form and manner satisfactory to the Company, will be eligible to be paid all unpaid EIP awards in the same manner, to the same extent, and at the same time as the Participant would have been paid such EIP awards if such Participant’s employment had continued through November 30, 2013.

Amendment

The Committee may at any time suspend, terminate, modify, waive, or amend any or all of the provisions of this Plan; provided, however, that no such action shall defer the payment of such awards, or accelerate the payment of such awards in a manner that subjects such awards to the tax imposed under Section 409A of the Internal Revenue Code of 1986, as amended and the regulations thereunder (“Section 409A”).

Governing Law

The Plan is governed by the laws of the State of Texas.

Withholding Taxes

The Company has the right to make such provisions as it deems necessary or appropriate to satisfy any obligations it may have under law to withhold federal, state or local income or other taxes incurred by reason of payments pursuant to the Plan.

Unfunded Program

Nothing contained in this Plan will be deemed to require the Company to deposit, invest or set aside amounts for the payment of any awards. Participation in the Plan does not give a Participant any ownership, security, or other rights in any assets of the Company.

Section 409A

Notwithstanding anything to the contrary contained herein, this Plan is intended to satisfy the requirements of Section 409A. Accordingly, all provisions herein, or incorporated by reference, shall be construed and interpreted to satisfy the requirements of Section 409A. Further, for purposes of Section 409A, each payment of compensation under this Agreement shall be treated as a separate payment of compensation.

Non-transferability of Awards

No award under this Plan, and no rights or interests therein, will be assignable or transferable by a Participant (or legal representative).

Effective Date

This Plan is effective as of January 1, 2012, and continues until terminated, suspended, modified, or amended by the Committee.

Exhibit 1

Proposed 2012 Participants and Award Targets 

Exhibit 2

Proposed 2012 Performance Goals and Weights

Versus Award Opportunity Earned

Exhibit 3

Sample Award Calculation

Assumptions:

Executive’s current salary is $200,000.

Targeted Plan award is 40% of salary or 80,000.

Targeted TEFG performance goals achieved:

• 110% of Cash Flow target, providing 140% of targeted award segment;

• 100% of Client Investment Results target, providing 100% of targeted award segment;

• 90% of Net New Client Money target, providing 60% of targeted award segment;

• 90% of Expenses as Percentage of Revenue target, providing 140% of targeted award segment; and

• Plan Committee awards 100% of targeted amount based on personal goal achievement;

• ROE as adjusted is 9.1%.

Calculations:

Current Salary: $200,000

Incentive Target Percent: x .40

Incentive Target Amount: $80,000