APPENDIX A

EX-10.1 2 dex101.htm ANNUAL SHORT-TERM INCENTIVE PLAN Annual Short-Term Incentive Plan
    

EXHIBIT 10.1

     Annual Short-Term
Bonus Plan
     Plan Document

 

El Paso Electric Company

 


Plan Overview

 

Purpose

 

Short–term incentives (annual variable pay) serve to communicate, align, and pay for contributions toward organizational objectives and performance goals. The objectives for the El Paso Electric Company (“EPE”) Plan are to:

 

    Develop a common understanding of the EPE’s initiatives, objectives, and goals for the coming year;

 

    Develop clear expectations and understanding of an individual’s contribution to overall EPE’s goals;

 

    Reward employees when goals are obtained;

 

    Provide opportunity to earn a competitive level of incentive pay for efforts toward achieving corporate and individual performance goals; and

 

    Compensate employees at the 50th percentile through annual incentives in years when the EPE and the individual achieve target level performance; the incentive plan should offer upside potential for years in which EPE and individual performance exceed expectations.

 

Plan Name

 

Annual Short-Term Bonus Plan (“the Plan”)

 

Effective Date

 

The Plan is effective as of January 1, 2005, as approved by the Compensation Committee of the Board of Directors of EPE (the “Compensation Committee”).

 

Eligibility

 

Eligible employees for the Plan include all regular full-time and part-time employees of EPE, except temporary and Mirasol employees unless otherwise determined by the Compensation Committee.

 

The Compensation Committee may revise or amend the eligibility criteria from time to time, which may be on the recommendation of EPE management.

 

Participation

 

Newly eligible employees begin participating in the Plan during the calendar year in which they become eligible. Overall awards will be prorated based upon active employment with EPE.

 

Award Opportunities

 

Each eligible plan participant will be assigned a target award opportunity, which will be communicated at the beginning of the plan year. Target award opportunities will be expressed as a percentage of base salary for

 


exempt employees and as a percentage of total earnings, which includes overtime for nonexempt employees. The target awards are intended to deliver competitive incentive opportunities that are generally in line with the desired competitive compensation levels for EPE. The target award represents the level of bonus payment the participant may earn in the event plan performance is achieved at “target,” and acceptable organizational standards are met.

 

In addition, a threshold and maximum award level will be established (as a percent of target) adjusting payouts for performance levels that exceed or fall below expectations.

 

The annual award opportunities for the anticipated current plan year participants are summarized in Appendix A attached hereto (with the Compensation Committee to establish the annual award opportunities for future years by resolution).

 

Performance Measurement

 

Near the beginning of each calendar year, senior management will establish and communicate the specific range of performance objectives for EPE. The goals and key performance factors will be recommended by management and approved by the Compensation Committee.

 

At the end of the calendar year, the overall performance against these goals will be assessed and the resulting incentive amounts will be calculated. The formula calculation will be applied in a consistent manner across EPE, and will be communicated to employees. The Compensation Committee will review and approve the aggregate payment of the final awards.

 

Performance Measures

 

The following three elements of performance will be measured, unless otherwise determined by the Compensation Committee for any year:

 

Financial Performance   

•      Earnings Per Share (“EPS”)

Operational Performance   

•      Customer Satisfaction

 

•      Safety

Individual Performance   

•      Performance Rating (through EPE Performance Management process)

 


Each measure will be weighted as a percent of total incentive opportunity. The following table illustrates the performance measures used and the corresponding weighting of each, unless otherwise determined by the Compensation Committee for any year:

 

Performance Measures


   Executives,
Managers, Supervisors
and Employees
(Low Risk)


    Medium and High Risk
Supervisors and
Employees


 

Financial Performance

            

EPS

   70 %   70 %

Operational Performance

            

Customer Satisfaction

   25 %   30 %

Safety

   5 %   Quarterly Safety Plan1  

Total (as a % of target)

   100 %   100 %

 

Performance Goals

 

The table attached hereto as Appendix B outlines the actual performance measures defined for the current plan year (with the Compensation Committee to establish the performance measures for future years by resolution). The EPS threshold acts as a plan trigger; no plan payouts will be made unless EPE achieves at least the EPS recommended by management and approved by the Compensation Committee. Safety will only be measured in the Plan for executives, managers, and low risk employees. Medium and high-risk employees are rewarded for safety on the Company’s quarterly safety plan. The Compensation Committee may interpolate between defined levels for financial performance only.

 

Individual Performance Modifier

 

An individual performance modifier will be applied to the calculation of financial and operational performance. Individual performance is defined as achievement of goals and objectives as specified through EPE’s performance management process. The total percent of calculated award is adjusted depending upon the assigned multiplier, unless otherwise determined by the Compensation Committee.

 

Individual Overall Rating


   Multiplier
Range


Top 20% of performers

   1.30-1.50

Next 35% of performers

   0.95-1.15

Next 35% of performers

   0.65-0.85

Bottom 10% of performers

   0.00

1 Overall bonus paid is reduced by quarterly safety bonuses paid during performance period under the Company’s quarterly safety plan.

 


Interpolation of Performance and Payouts

 

Financial performance and payout is generally calculated by interpolation between defined levels of performance. The table attached hereto as Appendix C demonstrates how the financial interpolation would work in the Plan.

 

Example Calculations

 

Attached hereto as Appendix D are examples of the calculation of awards for the current year based on specific employee and performance profiles.

 

Funding

 

The Plan will be considered a self-funded plan. Incentives will be accrued for accounting purposes on a quarterly basis based on EPE performance at that point in time.

 

Award Payouts

 

If performance achievement is met, all payouts of awards under the Plan will be made in cash (subject to applicable taxes and withholding), as soon as possible, after calendar year results have been finalized and approved by the Compensation Committee. The payouts will not be included in the definition of compensation for welfare and qualified benefit plan purposes.

 

Participants must be employed with EPE on the last day of the fiscal year as well as on the Plan payout date in order to receive an award.

 

Payments will be made on an annual basis, subject to plan provisions.

 

Employment Changes

 

Generally, participants must be employed with EPE on the date bonuses are paid in order to receive any award. Participants who terminate during the calendar year due to death, disability, or retirement (separation at age 55 or over) will receive a prorated portion of any payout paid based on the salary plus overtime earnings for actual period of time worked during the calendar year. The individual performance modifier will be based on the prior year performance rating. Participants that are discharged “for cause” will not be entitled to an award payment.

 

Participation in the Plan for a given plan year will not be construed to confer a right to participate in the Plan in any subsequent year, or the right to continue in EPE’s employment.

 

Governance

 

Senior management and the Compensation Committee will be responsible for the administration and governance of the Plan. The decisions of the Compensation Committee shall be conclusive and binding on all participants.

 

Amendment, Modification, or Termination of Plan

 

The EPE, by action of its Compensation Committee, reserves the right to amend, modify, or terminate the Plan at any time.

 


 

APPENDIX A

 

The annual award opportunities for the anticipated 2005 plan year participants are summarized below:

 

Grade/Level


   Threshold

   Target

   Maximum

CEO

              

EVPs / SVPs

              

VPs

              

Other Executives

              

*13 -15

              

  4 -12

              

N4-N13

              

Bargaining Unit

              

 

* Employees in Grades 11 – 12 in a position with “Manager” in the title will have the same award opportunity as those in Grades 13 - 15.

 


 

APPENDIX B

 

2005 Performance Goals

 

The table below outlines the actual performance measures defined for the 2005 plan year. The EPS threshold acts as a plan trigger; no plan payouts will be made unless EPE achieves at least $             EPS. Safety will only be measured in the Plan for executives, managers, and low risk employees. Medium and high-risk employees are rewarded for safety on the Company’s quarterly safety plan. The Compensation Committee may interpolate between defined levels for financial performance only.

 

Measure


  

Definition


   Performance Level

      Threshold

   Target

   Maximum

Financial

   EPS               

Operational

(Customer Satisfaction)

  

Customer Satisfaction

Survey Results

              

Operational

(Safety)

  

•      Lost Time incidents

 

•      Total First Aid and Medical incidents

 

•      Chargeable Vehicle Accidents

              

 


 

APPENDIX C

 

Interpolation of Performance and Payouts

 

Financial performance and payout is generally calculated by interpolation between defined levels of performance. The table following is how the financial interpolation would work in the Plan.

 

Actual EPS


  

As a Percent

of Target

   Level of Payout as a % of Pay

    
  

Level of

Performance


   Grade Exempt 12
and Below Plus
All Nonexempt
and Bargaining
Unit Employees


   Managers Grade
13-15


   Executives 1

    
                         Threshold
                          
                          
                          
                         Target
                          
                          
                          
                         Maximum
                          
                          
                          

 


Interpolation of Performance and Payouts cont.

 

    

As a Percent

of Target

   Level of Payout as a % of Pay

    

Actual EPS


  

Level of

Performance


   Executives 2

   Executives 3

   CEO

    
                         Threshold
                          
                          
                          
                         Target
                          
                          
                          
                         Maximum
                          
                          
                          

 


 

APPENDIX D

 

2005 Example Calculation

 

Employee Profile

   Performance Profile

Exempt Employee

   Corporate EPS: $____ (between threshold and target)

Low Risk

   Customer Satisfaction Score: ____ (at target)

Base Salary: $_________

   Safety: Target Level Performance

Target Opportunity %:         %

   Individual Performance: Top 20% Performer

 

Target Opportunity Award

 

__________    x    _________%    =    $__________

Eligible Pay

        Target Opp. %          

 

Financial Performance Award

 

$__________    x    _______%    x    _______%    =    $__________

Eligible Pay

        Fin. Perf. %         Weighting          

 

Operational Performance Award

 

$__________    x    ___________%    x    _________%    =    $__________

Eligible Pay

        Cust. Sat. Perf.         Weighting          
$__________    x    __________%    x    _________%    =    $__________

Eligible Pay

        Safety Perf.         Weighting          

 

Total Operational Performance Award    $__________

 

Total Award

 

[    $__________    +    $______________    =    $__________   ]    x    ____________    =    $___________
     Fin, Award         Total Oper. Award         Total Award             Ind. Perf. Mult.        

Total