This excerpt taken from the MOLX DEF 14A filed Sep 23, 2005.
The merit bonus is a short-term incentive calculated as a percentage of base salary according to a plan that covers all Executive Officers, including the CEO. There have been instances in the past where, due to difficult business conditions or imminent restructuring, officer bonuses have been eliminated despite the fact that the goals necessary to merit a bonus had been achieved.
The merit bonus percentage calculated for each Executive Officer for fiscal year 2005 was based on three financial components and one discretionary non-financial component. The goals on which these components are based are recommended by top management and reviewed, modified and approved by the Committee at the beginning of each fiscal year. A percentage is awarded for each of the components that correspond to the following goals:
The percentage awarded for each component described above is subject to a sliding scale ranging between 0% and a predetermined maximum percentage depending upon how far below or above the year-end results achieved are from the stated goal. In order to be eligible to receive a bonus, two conditions must take place: (1) the sum of the percentages awarded for the first two financial components and the non-financial component must be greater than zero and (2) the percentage awarded for the net after tax component must be greater than zero.
Under the bonus plan, the maximum bonus percentage that can be paid to the CEO is 102% of base salary plus a discretionary amount, if any, in the event that the Committee, in its judgment, believes that unusual circumstances warrant such an additional amount. The amount of any bonus set forth above can be downwardly adjusted within the discretion of the Committee if the business conditions warrant the adjustment. No Executive Officer received a merit bonus for fiscal year 2005 because the financial criteria set forth above were not met.
The Compensation Committee reviewed and approved a new cash merit bonus plan for fiscal year 2006 that is calculated as a percentage of base salary. The new plan covers all Executive Officers, including the CEO. This plan provides that cash bonuses will be paid to Executive Officers based on the achievement of two components: a certain profit before tax (“PBT”) goal and individual performance objectives. The cash bonus opportunity for Executive Officers under such plan ranges from 0% to 150% of base salary. Payments to Executive Officers under the plan may be more or less than a target bonus as a function of the Company’s results and individual performance. The cash bonus opportunity is 30% of base salary based on achievement of minimum performance goals, 60% of base salary based on achievement of target performance goals (the “Target”) and 120% of base salary based on achievement of maximum performance goals. If the minimum performance goals are not achieved, no bonus is payable under this plan.
The Compensation Committee, in its discretion, may downwardly adjust the potential bonus award to a lesser percentage, if any, to take into consideration unusual events. In addition, the Committee, in its discretion, may award an additional percentage not to exceed 30% of base salary to reflect unusual contributions to Molex.
An overview of the cash merit bonus plan is shown in the table below.