1998 AMENDED LONG TERM PERFORMANCE UNIT PLAN
Published on
Exhibit 10.10
1998 Amended
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Prudential Long-Term
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Performance Unit Plan
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November 1999
The Compensation Committee may, in its sole discretion, at any time and from
time to time amend, modify, suspend or terminate this Plan, in whole or in part,
without notice to or consent of any Participant or employee.
Table of Contents
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. I. Program Concept
. II. Eligibility
. III. Granting of Performance Units
. IV. Performance Measurement
. V. Final Valuation and Payment
. VI. Termination of Employment
. VII. Plan Funding
. VIII. Plan Administration
. IX. Revocation, Amendment, and Termination
. X. Limitation on Liability
. XI. No Contract of Employment
. XII. No Right to Participate
. XIII. Taxes
. XIV. Successors
. XV. Captions
. XVI. Third Parties
. XVII. Non-Alienation Provision
Appendix A - Illustration of 1998 Funding Potential
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I. Program Concept
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The 1998 Prudential Long-Term Performance Unit Plan ("the Plan") has been
developed to recognize and reward the contributions that Participants will make
towards The Prudential Insurance Company of America's ("Prudential" or "the
Company") long-term growth and success.
The Long-Term Performance Unit Plan is one of the four elements of Total
Compensation applicable to designated Executives in Prudential. The other
elements are: Base Salary, Annual Incentive Award, and Benefits/Perquisites. The
Long-Term Incentive Award is designed to focus attention on the importance of
sustained company performance over a period of years as well as to assist in the
retention of eligible employees.
II. Eligibility
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Employees at the Department Vice President or equivalent level and above are
eligible to participate in this Plan ("Participants"). In addition, the
Compensation Committee retains the discretion to add certain individuals below
the rank of Department Vice President as Participants under the Plan, provided
the Committee determines (i) that such individuals are included in a select
group of management or highly compensated employees of the Company and (ii) that
making such individuals Participants under the Plan is in the best interests of
the Company.
III. Granting of Performance Units
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Participants will be eligible for an annual grant of Performance Units. The
decision to grant Performance Units and the number of Performance Units granted
to Plan Participants will be at the discretion of the Compensation Committee.
However, significant emphasis will be given to the individual's performance,
market considerations, internal guidelines and the number of Performance Units
available for grant in arriving at the number to be granted, if any.
The 1998 Performance Unit grants will be valued based upon Company performance
from January 1, 1998 through December 31, 2000 (the "performance period"). There
are, in total, 100,000 Performance Units available for grant in the 1998 Plan.
Each Performance Unit will be valued at 1/100,000/th/ of the amount allocated to
the Plan at the end of the performance period.
A limited number of Performance Units are normally held in reserve to
accommodate new hires and promotions during the year as well as other special
circumstances. The number of Performance Units granted to new hires and those
receiving promotions during 1998 shall be at the discretion of the Compensation
Committee.
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IV. Performance Measurement
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The value of the Performance Units at the end of the performance period will be
determined by two principal performance measurements: 1) Cumulative Operating
Earnings; and 2) Cumulative Operating Margin achieved over the three year
performance period.
Operating Earnings is defined as Income Before Tax, Capital Gains, Remediation
Expenses, Restructuring Reserves, Market Standards and Demutualization Expenses.
Capital Gains are net of the Loss Recognition Reserve and the Deferred
Acquisition Cost (DAC) Amortization for Capital Gains. Operating Margin is
Operating Earnings as defined, divided by Revenue, as defined, for the same
period, expressed as a percentage. Revenue is defined as all items in the
Revenue section of a GAAP income statement, including but not limited to
Premiums, Policy Charges and Fees, Net Investment Income and Other Revenue, but
excluding Realized Gains or Losses. The planned Cumulative Operating Earnings is
$6.975 billion and the planned Cumulative Operating Margin is 8.99%. In the
event of a subsequent change in accounting methodology or significant
acquisition or divestiture, the above will be reviewed and amended as
appropriate.
The value of the Performance Units at the end of the performance period depends
on the amount allocated to the Plan. When threshold performance is achieved, $35
million will be allocated to the Plan. Threshold performance is achievement of
75% of planned Cumulative Operating Earnings amount, or $5.231 billion. If
threshold performance is not achieved, allocation to the Plan will not be made.
For any additional cumulative Operating Earnings above the threshold, 2.01% of
the incremental amount will be allocated to the Plan (the Basic Allocation
Rate). When Cumulative Operating Earnings exceeds the planned amount, or $6.975
billion, an additional 1.31% of the amount in excess of the planned amount will
be allocated to the Plan (the Premium Allocation Rate). The amount allocated to
the Plan as a result of Cumulative Operating Earnings is not subject to any
cap or maximum.
The allocation formulae described above (i.e., the 2.01% or 1.31%) will be
increased by 0.131% for every 10% improvement in Cumulative Operating Margin
over the planned Cumulative Operating Margin. Partial percentage increases will
be prorated. The maximum increase is 0.655%, which corresponds to a 50%
improvement in cumulative Operating Margin over plan. This increase in the
allocation rate(s) is called the Operating Margin Adjustment Factor. No negative
adjustment will be made if the planned Cumulative Operating Margin is not
achieved. The Operating Margin Adjustment Factor will only have a positive
impact on the total amount allocated to the Plan.
To ensure that other critical performance factors are also given consideration
and reflected in the final Plan allocation, the Compensation Committee may,
under normal circumstances, adjust the total amount allocated to the Plan by up
to plus or minus 15%. When considering this adjustment, the Compensation
Committee will take into account such financial and non-financial factors as
change in market share, expansion for new
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distribution channels, overall changes in financial rating, reputation of
management, customer satisfaction, employee satisfaction and change in most
admired company status. In the event of circumstances that the Compensation
Committee deems extraordinary, the Compensation Committee reserves the right to
make any additional adjustment to the total amount allocated.
The following are three illustrations of how the amount allocated can
potentially be impacted by Cumulative Operating Earnings and Cumulative
Operating Margin. For purposes of the illustrations the calculated amounts have
been rounded. For a summary of the funding potential, refer to Appendix A of
this document.
Example 1:
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Cumulative Operating Earnings Achieved = $7.671 billion or $2.44 billion above
threshold
Cumulative Operating Margin Achieved = 9.889% or 10% above plan
Example 2:
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Cumulative Operating Earnings Achieved =$7.671 billion or $2.44 billion above
threshold
Cumulative Operating Margin Achieved = 8.091% or 10% below plan
Example 3:
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Cumulative Operating Earnings Achieved = $6.975 billion or $1.744 billion above
threshold
Cumulative Operating Margin Achieved - 10.79% or 20% above plan
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V. Final Valuation and Payment
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At the close of the performance period, the amount allocated to the Plan
pursuant to the allocation formulae will be calculated and presented to the
Compensation Committee for review and possible adjustment. When the final
amount to be allocated is approved by the Compensation Committee, Corporate
Compensation will compute the individual payment for each Participant based on
the number of Performance Units granted to the Participant. When the amount to
be paid each Participant under the Plan is computed, the Company will pay such
amounts in a single sum to Participants who are on the active payroll on the
date of payment. At the option of the Company, up to one-half of the amount
payable may be paid in equivalent number of publicly traded Common Shares of the
Company if they are available and legally permissible at that time. Any 1998
Performance Unit not granted or any Performance Unit canceled under the
circumstances described below, and not re-granted to other Participants, shall
not be paid to any Participant and any Plan allocation not paid to the
Participants shall revert to the Company.
Payments made under this Plan will not be taken into account in determining
benefits or contribution amounts under any employee benefit plan of the Company
or any of its affiliates.
VI. Termination of Employment
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If employment is terminated prior to the payment of the Performance Units,
treatment of the Performance Units will be as follows.
A. Discharge, Voluntary Termination, or Competing Business - If, prior to the
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end of the performance period, the Participant is separated from employment
for cause, as determined by the Compensation Committee, or the Participant
engages in any business that is directly or indirectly competitive with or
detrimental to the interests of Prudential as determined by the Compensation
Committee, or if, before the end of the performance period, the Participant
resigns or otherwise terminates employment under circumstances not described
in Section VI B-E below, the Participant's Performance Units shall be
canceled and the Participant shall receive no payment under this Plan.
Canceled Performance Units may be granted to other participants.
B. Retirement - Subject to compliance with the conditions outlined below, if
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during the performance period, a Participant separates from employment by
reason of retirement upon or after qualifying to retire (whether at early or
normal retirement) under the terms and conditions of any Company sponsored
pension plan in which the Participant participates, the number of Performance
Units granted will be reduced by multiplying the grant by a fraction, the
numerator of which is the number of full months in the performance period
during which the Participant was an active employee and the denominator of
which is the number of months in the performance period (36). A partial
month worked shall be counted as a full month if the Participant is an active
employee for 15 days or more in that month. The resulting
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reduced number of Performance Units shall be considered vested and payment
made to the Participant following the final valuation of the Plan as
described in Section V, provided that the Company reserves the right to
cancel such Performance Units if the Participant, prior to the end of the
applicable performance period, (i) performs any services, whether as an
employee, officer, director, agent, independent contractor, partner or
otherwise, for a competitor of the Company or any of its affiliates without
the consent of the Administrator, as defined below, or (ii) takes any other
action, including, but not limited to, interfering with the relationship
between the Company or any of its affiliates and any of its employees,
clients or agents, which is intended to damage or does damage to the business
or reputation of the Company.
The portion of any Performance Units reduced pursuant to the first sentence
of this section (and therefore not payable to a Participant under any
circumstances) shall be canceled and shall not be payable. In addition, if a
Participant fails to comply with the conditions of payment, the pro-rated
Performance Units shall also be canceled and shall not be payable.
C. Death - If a Participant dies during the performance period, the number of
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Performance Units granted will be reduced by multiplying the grant by a
fraction, the numerator of which is the number of full months in the
performance period during which the Participant was an active employee and
the denominator of which is the number of months in the performance period
(36). A partial month worked shall be counted as a full month if the
Participant is an active employee for 15 days or more in that month. The
resulting reduced number of Performance Units shall be considered vested and
payment made to the Participant's estate following the final valuation of the
Plan as described in Section V. If the Performance Units are reduced pursuant
to this paragraph, the portion of the Performance Units eliminated shall be
canceled and shall not be payable.
D. Disability - If a Participant qualifies for Long Term Disability during the
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performance period, the number of Performance Units granted will be reduced
by multiplying the grant by a fraction, the numerator of which is the number
of full months in the performance period during which the Participant was an
active employee and the denominator of which is the number of months in the
performance period (36). The period of time that the employee was on Short
Term Disability shall be counted as active employment. A partial month worked
shall be counted as a full month if the Participant is an active employee for
15 days or more in that month. The resulting reduced number of Performance
Units shall be considered vested and payment made to the Participant
following the final valuation of the Plan as described in Section V. If the
Performance Units are reduced pursuant to this paragraph, the portion of the
Performance Units eliminated shall be canceled and shall not be payable.
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E. Involuntary Termination of Employment - If a Participant's employment is
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terminated during the performance period by reason of involuntary
termination of employment for reasons other than those described in Section
VI A-D above, the number of Performance Units granted will be canceled and
the Participant shall receive no payment from the Plan. The Compensation
Committee may, in its discretion, award a partial payment to such
Participant which is not paid from Plan allocations. This payment will be
based on the number of full months in the performance period that the
Participant was an active employee and on the progress towards the
cumulative performance measures in Section IV as of the Participant's
termination of employment. In no event is a Participant who terminates from
employment for reasons described in this paragraph to receive a payment
greater than that computed had the planned Cumulative Operating Earnings
amount been met, even if actual Cumulative Operating Earnings and/or actual
Cumulative Operating Margin exceeds the planned amount.
VII. Plan Funding
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The Plan shall at all times be unfunded and no provision shall at any time be
made with respect to segregating any assets of the Company for payment of any
benefits under the Plan. The right of a Participant to receive payment under
the Plan shall be an unsecured claim against the general assets of the Company,
and neither the Participant nor any other person shall have any rights in or
against any specific assets of the Company. The Company may establish a reserve
of assets to provide funds for payments under the Plan.
VIII. Plan Administration
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The Compensation Committee shall be the administrator of the Plan. With respect
to its authority to award or cancel payments under the Plan to Participants
whose employment is terminated, its authority to grant Performance Units to
eligible new or promoted employees below the Senior Vice President level, and
with regard to the participation in the Plan of persons who are below the level
of Senior Vice President, the Plan shall be administered by the Prudential
Executive Vice President, Human Resources or, to the extent that the Prudential
Executive Vice President, Human Resources deems appropriate, to the Vice
President, Total Compensation. The Compensation Committee, the Prudential
Executive Vice President, Human Resources or the Vice President, Total
Compensation, as applicable, shall be referred to as the Administrator. The
Administrator shall administer the Plan in accordance with its terms and shall
have the discretion and authority necessary in the administration of the Plan,
including the authority to interpret the Plan, to make factual determinations
under the Plan and to determine Plan payments and allocations. The
Administrator shall have the discretion and authority to adopt and revise rules
and procedures relating to the Plan, to correct any defect or omission or
reconcile any inconsistency in this Plan or any payment hereunder, and to make
any other determinations that it believes necessary or advisable in the
administration of the Plan. Determinations and decisions by the Administrator
shall be final and binding on all employees, Participants and all other persons.
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IX. Revocation, Amendment, and Termination
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The Compensation Committee may, in its sole discretion, at any time and from
time to time amend, modify, suspend, or terminate this Plan, in whole or in
part, without notice to or the consent of any Participant or employee. This Plan
may be amended or terminated by resolution of the Compensation Committee and by
execution of a written instrument by a duly authorized officer of the Company.
X. Limitation On Liability
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The liability of the Company under this Plan is limited to the obligations
expressly set forth in the Plan, and no term or provision of this Plan may be
construed to impose any further or additional duties, obligations, or costs on
the Company or the Compensation Committee not expressly set forth in the Plan.
XI. No Contract of Employment
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The establishment of this Plan, and amendment or modification to the Plan, or
any grant of Performance Units under the Plan shall not be deemed to constitute
a contract of employment between Prudential and any Participant, nor shall it
constitute a right to remain in the employ of Prudential. Employment with
Prudential is employment-at-will and either Prudential or a Participant may
terminate the Participant's employment with Prudential at any time, for any
reason, with or without cause or notice.
XII. No Right to Participate
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Except as provided in Sections II and III, no Participant or other employee
shall at any time have a right to be selected for participation in the Plan,
despite having previously participated in an incentive or bonus plan of the
Company.
XIII. Taxes
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The Company shall have the right to deduct from all payments under the Plan any
federal,state, or local taxes required by law to be withheld with respect to
such payments.
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XIV. Successors
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All obligations of the Company under the Plan shall be binding upon and inure
to the benefit of any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase, merger,
consolidation, demutualization or otherwise.
XV. Captions
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The headings and captions appearing herein are inserted only as a matter of
convenience. They do not define, limit, construe, or describe the scope or
intent of the provisions of the Plan.
XVI. Third Parties
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Nothing expressed or implied in this Plan is intended or may be construed to
give any person other than eligible Participants any rights or remedies under
this Plan.
XVII. Non-Alienation Provision
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No interest of any person or entity in any Performance Units, or right to
receive Performance Units or any distribution or other benefit under the Plan,
shall be subject in any manner to sale, transfer, assignment, pledge,
attachment, garnishment, or other alienation or encumbrance or any kind; nor may
such interest in any Performance Units, or right to receive Performance Units or
any distribution or any benefit under the Plan be taken, either voluntarily or
involuntarily, for the satisfaction of the debts of, or other obligations or
claims against, such person or entity, including (but not limited to) claims for
alimony, support, separate maintenance and claims in bankruptcy proceedings.
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Appendix A
Illustration of 1998 Funding Potential @ $6.975M Operating Earnings & Target of
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$70M
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[CHART]
Plan
Oper. Earn.* Plan*
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1998 $1,919 Operating Earnings $6,975
1999 $2,293 Threshold @ 75% $5,231
2000 $2,763
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Total $6,975 Basic Allocation Funding Rate 2.01%
============ Premium Allocation Funding Rate 1.31%
Plan
Revenue* Plan Operating Margin 8.99%
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1998 $24,785
1999 $25,525 Funding rates will increase .131% for every 10%
2000 $27,291 increase in Operating Margin above plan to a
------------ maximum of .655%.
Total $77,601
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* in millions