1998 ANNUAL INCENTIVE PLAN
Published on
Exhibit 10.11
1998
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Prudential Annual
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Incentive Plan
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August 1998
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.
Table of Contents
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. I. Program Concept
. II. Eligbility
. III. Creation of Bonus Pools
. IV. Adjusting a Bonus Pool
. V. Bonus Allocation
. VI. Payment of Bonus
. VII. Termination of Employment
. VIII. Plan Administration
. IX. Plan Amendment and Termination
. X. No Contract of Employment
. XI. Successors
. XII. Taxes
I. Program Concept
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The Prudential Annual Incentive Plan effective as of January 1, 1998, was
developed to recognize and reward contributions that the Participants make
towards The Prudential Insurance Company of America's ("Prudential" or "the
Company") annual objectives. The design, based on the "bonus pool" concept, is
intended to provide greater flexibility to deliver market competitive
compensation that also recognizes Company, Business Group, and individual
performance.
The annual incentive award or bonus is one of the four elements of Total
Compensation applicable to Executives in Prudential. The other elements are Base
Salary, Long Term Incentive Award, and Benefits/Perquisites. Each element is
designed to serve a specific purpose. Together, the four elements are intended
to provide Total Compensation that is externally competitive given satisfactory
performance.
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").
III. Creation of Bonus Pools
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A number of bonus pools are to be created to provide annual incentive awards for
Participants covered by each bonus pool. The amount allocated to each bonus pool
is based on the number of people included in the pool, competitive market
requirements and the performance of the business or group as described below.
For 1998, the following bonus pools are to be created:
. A CEO pool. The direct reports of the CEO will be paid from this pool.
. A Business Group pool for each designated Business Group. The annual
incentive awards for all Participants working in a Business Group including
corporate functional staff assigned to the business will be paid from that
pool.
. A Corporate Function pool for each designated Corporate Center Function. The
annual incentive awards for all Participants in the Corporate Center Function
will be paid from that pool.
The aggregate of the "par" or target bonus of all Participants in the pool at
the end of the performance period will be used initially to establish the target
size of the bonus pool. Adjustments will be made where the "par" amounts are not
in keeping with market practice. Over time, the "par" amounts will be replaced
by market driven factors.
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IV. Adjusting a Bonus Pool
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At the beginning of each calendar year, annual performance contracts are to be
established for the Company, for each Business Group and for each Corporate
Center Function having a separate bonus pool. The amount of the target bonus
pool will be adjusted at the end of the calendar year based on the actual
performance of the Company, the Business Group, or the Corporate Center Function
against these performance contracts. The Company's performance will be focused
primarily on financial results achieved versus pre-established targets. The
performance for the Business Groups will be measured against several
"performance drivers." The performance of Corporate Center Functions will be
measured against performance objectives established for the year.
The results achieved are to be assessed on a scale ranging from 0 to 2.0 and
assigned a score called a Performance Factor ("PF").
For the CEO bonus pool, the target bonus pool amount is to be multiplied twice
by the PF to arrive at the adjusted bonus pool amount.
For each Business Group bonus pool, 25% of the bonus opportunity is to be
adjusted according to the Company's PF and the remaining 75% adjusted according
to the PF for the individual Business Group. The target bonus pool amount is to
be multiplied by the resulting weighted PF twice to arrive at the adjusted bonus
pool amount.
For each Corporate Center Function bonus pool, the target bonus pool amount is
to be multiplied once by an adjusted Company PF to arrive at the adjusted bonus
pool amount. The adjusted Company PF is the square of the Company PF adjusted by
up to plus or minus 0.2 based on the Corporate Center Function's performance
versus the performance objectives for the year.
The following is an illustration of how a Business Group's target bonus pool
amount is impacted by results achieved. For the purpose of this illustration,
assume that the Business Group's target bonus pool is $7 million, the Company PF
is 1.10 and the Business Group's PF is 1.20.
Company weighting of 25% X PF of 1.10 = 0.275
Business Group weighting of 75% X PF of 1.20 = 0.900
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Weighted PF = 1.175
Weighted PF squared X 1.175
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Resulting PF = 1.380
Target Bonus Pool X $7 million
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Adjusted Bonus Pool = $9.66 million
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To illustrate the operation of the use of the adjusted PF for a Corporate Center
Function, assuming a target bonus pool of $1.0 million, a Company PF of 1.10 and
an adjustment factor of +0.1, the adjusted pool amount would be as follows:
Square of 1.10 Company PF (1.1 x 1.1) = 1.21
Adjustment +0.10
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Resulting Adjusted PF = 1.31
Target Bonus Pool X $1 million
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Adjusted Bonus Pool = $1.31 million
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V. Bonus Allocation
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The allocation or payment of bonus awards to Participants from the adjusted
bonus pool will be based on the following:
. The size of the bonus pool achieved
. The Participant's performance
. Value of the Participant's contribution
. Market value of the Participant's position
In the case of functional employees working in a Business Group, the amounts to
be allocated are to be arrived at jointly between the head of the Business Group
and the head of the Corporate Center Function.
VI. Payment of Bonus
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Payment under this Plan is normally made within the first quarter of the year
following the performance to those Participants actively employed by Prudential
at the time of payment. Payments made under this Plan will be included as
Earnings under The Prudential Retirement Plan Document (a component of The
Prudential Merged Retirement Plan) for the year in which the payment was earned
(i.e., the calendar year preceding the year in which the payment was made).
These payments will also be included in determining benefits under the long-term
disability coverages provided under the Company's Group Insurance Plan. These
payments will not be taken into account in determining benefits or contribution
amounts under any other employee benefit plan of the Company of any of its
affiliates.
VII. Termination of Employment
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If employment is terminated prior to the payment of the bonus award, the bonus
award shall be canceled and forfeited and no amount will be payable. If a
Participant retires, dies, qualifies for Long-Term Disability, or is
involuntarily terminated from employment for reasons other than failure of job
performance or cause (as determined by the Compensation Committee), the
Compensation Committee may, in its discretion, provide the participant with a
bonus award.
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VIII. Plan Administration
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The Compensation Committee shall be the administrator of the Plan. The
Compensation Committee may assign all or some of its duties hereunder to
Corporate Compensation or to an officer or other employee of the Company. The
Compensation Committee 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, to determine Plan payments, and to determine
Bonus Pool targets and adjustments. The Compensation Committee 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 Compensation Committee shall be final and
binding on all employees, Participants and all other persons.
IX. Plan 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. No Contract of Employment
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The establishment of this Plan, and amendment or modification to the Plan, or
any payment of a bonus award 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.
XI. 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.
XII. 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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