This excerpt taken from the EGN DEF 14A filed Mar 22, 2007.
Summary of the AICP
The following summary of the AICP does not contain all of the terms and conditions of the AICP and is qualified in its entirety by reference to the AICP, which was filed with the Securities and Exchange Commission as an appendix to this proxy statement and may be obtained through the Internet from the Securities and Exchange Commissions website (http://www.sec.gov) or via the Companys website (http://www.energen.com). Interested shareholders may also obtain a copy of the AICP via mail or e-mail by contacting the Companys Investor Relations department at 800-654-3206.
Purpose. The purpose of the AICP is to increase shareholder value and the success of the Company by motivating key executives to perform to the best of their abilities and to achieve the Companys objectives. The AICP is also designed so that awards under the AICP may qualify as performance-based compensation under Section 162(m) of the Code to the greatest extent practicable. Under Section 162(m), the Company may be denied a federal income tax deduction for compensation paid to the Companys Chief Executive Officer or any of the four other most highly compensated executive officers to the extent that any of these persons receives more than $1 million of compensation from the Company in any one year. However, compensation paid by the Company that is performance-based under Section 162(m) may be excepted from the $1 million limitation. The AICP allows the Company to pay incentive compensation that under most circumstances will be performance-based and, therefore, fully deductible on the Companys federal income tax return.
Eligibility. The ORC selects the employees of the Company (and its affiliates) who will be eligible to receive awards under the AICP, including highly-paid executives such as the Companys Chief Executive Officer, the Companys Chief Financial Officer, the Companys General Counsel, the Companys President and Chief Operating Officer of Energen Resources Corporation and the Chief Operating Officer of Alabama Gas Corporation (the Covered Employees). The actual number of employees who will be eligible to receive an award during any particular year cannot be determined in advance because the ORC has discretion to select the participants.
Administration. The AICP is administered by a committee which shall be either the ORC or any subcommittee thereof consisting of not less than two members of the Board of Directors each of whom is an outside director within the meaning of Section 162(m). The ORC has the power to determine (i) which eligible employees will be participants, (ii) the performance objectives with respect to any awards made thereunder, (iii) subject to the limitations set forth in the AICP, the terms and conditions of all awards made thereunder, and (iv) subject to the maximum limitations set forth in the AICP, the amount of compensation that may be payable to any participant upon the attainment of the applicable performance objectives.
Target Awards and Performance Objectives. Each performance period, the ORC assigns each participant a target award and performance objectives that must be achieved prior to an award actually being paid to a participant. The ORC may also specify a minimum acceptable level of achievement relative to the performance objectives, as well as one or more additional higher levels of achievement, and a formula to determine the percentage of the award earned by the participant upon the attainment of each level of achievement. The participants target award is expressed as either a cash amount or a percentage of the participants salary. The performance objectives may be based on one or more of the following criteria: (i) earnings per share; (ii) net income; (iii) operating income; (iv) operations and maintenance expenses;
(v) capital expenditures; (vi) revenue; (vii) return on equity, capital or assets; (viii) cash flow; (ix) oil and/or gas production or reserve additions; (x) utility throughput, customer count, use per customer, burner tip count; (xi) customer satisfaction, customer compliant count; and (xii) safety (the Performance Objectives). The ORC may use criteria different from or supplemental to the Performance Objectives for participants who are not Covered Employees. As a result, if a participant who is not a Covered Employee at the time his or her Performance Objectives are established by the ORC becomes subject to Section 162(m) as of the last day of the year due to a promotion or pay increases, and such participant receives awards which were not based on the Performance Objectives, such awards may not qualify for the exception from Section 162(m) limitations on deductibility. The Performance Objectives selected by the ORC for each performance period will be established within 90 days of the commencement of each performance period (or at such later time as may be permitted under Section 162(m) of the Code).
Actual Awards. After the performance period ends, the ORC shall determine and certify in writing the extent to which the pre-established Performance Objectives were actually achieved or exceeded. At its discretion, the ORC may reduce a participants earned incentive by up to 25%. The AICP limits actual awards to a maximum of $1 million per person in any performance period, even if the formula used otherwise indicates a larger award. Actual awards are paid in cash in a lump sum, except to the extent that all or a portion of such payments are deferred and credited to a participants account under the Companys 1997 Deferred Compensation Plan.
If, prior to the end of a performance period, a participants employment terminates due to the participants death, disability or retirement under the terms of any retirement plan maintained by the Company or any subsidiary, the participant shall receive an incentive equal to the amount the participant would have received as an incentive if the participant had remained an employee through the end of the performance period multiplied by a fraction which reduces the award in proportion to the amount of time remaining in the performance period. If a participants employment is terminated for any other reason during a performance period, the participant shall receive no incentive payment for such performance period unless the ORC, in its discretion, determines to pay such participant up to a pro rata incentive payment.
Amendment and Termination. The Board of Directors of the Company or the ORC may amend, suspend, discontinue or terminate the AICP at any time; provided, however, that no such amendment, suspension, discontinuation or termination (i) shall adversely affect the rights of any participant in respect of any performance period which has already commenced or (ii) shall be effective without shareholder approval sufficient to continue to qualify amounts payable under the AICP to Covered Employees as performance-based compensation under Section 162(m) of the Code.
Federal Income Tax Treatment. Payments made under the AICP will be taxable to the recipients thereof when paid, subject to income and wage tax withholding, and the Company or the affiliate of the Company which employs or employed the recipient will generally be entitled to a federal income tax deduction in the fiscal year for which the amount is paid.
Awards to Certain Individuals and Groups. Awards under the AICP are determined based on actual performance, so future actual awards (if any) cannot now be determined. The following table illustrates the amounts that were payable for the 2006 fiscal year under the AICP to each of the individuals and each of the groups listed below. Non-employee directors do not participate in the AICP.