Exhibit 10.8

 

 

The Officer’s
Incentive Compensation Plan
(OICP)

 

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PLAN OBJECTIVES

American Retirement Corporation believes it is important to reward key
executives who perform at exceptional levels resulting in outstanding company
results.

The Officer’s Incentive Compensation Plan (OICP) is considered an important
element of a competitive total compensation plan for Officers. The OICP
strengthens the alignment of Officers’ individual performance with annual and
quarterly company objectives by linking their individual performance to the
financial and strategic success of the company. These rewards are at amounts and
proportions commensurate with the level of each officer’s responsibilities.

ELIGIBLE PARTICIPANTS

Participants in the OICP include ARC associates who meet the necessary
eligibility requirements and hold the titles of Vice President, Senior Vice
President, Executive Vice President, Chief Financial Officer, Chief Operating
Officer or Chief Executive Officer, as approved by the Compensation Committee.

INCENTIVE REWARD OPPORTUNITY BY COMPONENTS
 
Officers’ total incentive reward opportunity is based upon their level of job
responsibilities as reflected by their title. This total incentive reward is
comprised of three components and is weighted based upon the job title held.
These three components are: Individual Quarterly Performance (Part A), Company
Quarterly Performance (Part B), and Annual Company Performance (Part C). The
total incentive opportunity and their weights are reflected below:

Officer Title
TOTAL ANNUAL POTENTIAL
Incentive Pay Components
Individual Quarterly Performance Opportunity
(MBO’s)
Part A
Company Quarterly Performance Opportunity
 
Part B
Annual Company Performance Opportunity
 
Part C
As % of Earnings
Vice President
60%
20%
30%
10%
Senior Vice President
80%
20%
30%
30%
Executive Vice President
100%
20%
20%
60%
Chief Financial Officer
Chief Operating Officer Chief Executive Officer
120%
20%
20%
80%

 

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THE INDIVIDUAL QUARTERLY PERFORMANCE (Part A)

Each Participant is required to develop individual quarterly performance
objectives (MBO’s) that are discussed, weighted and approved by their immediate
supervisor and Executive Committee. The opportunity for awards under the
Individual Quarterly Performance (Part A) component is determined and modified
by how well the predetermined objectives are achieved and is not contingent upon
the Company’s overall performance during the quarter. The degree of achievement
by each Participant is determined and approved by his or her immediate
supervisor and is further reviewed and approved by the Executive Committee.

EXAMPLE
 
Kelly Scott is a Vice President of ARC. Kelly makes $100,000 per year and has
the opportunity to receive up to 20% of her total quarterly earnings from this
component of OICP, the Individual Quarterly Performance. For Kelly, the
Individual Quarterly Performance Award Opportunity (Part A) will be $5,000 or
20% of her total quarterly earnings of $25,000.
 
The chart below reflects Kelly’s objectives, their weight as a percentage of the
total individual performance objectives and Kelly’s completion of them.
According to this chart, Kelly completed 55% of her individual quarterly
performance objectives.
 

 
Kelly’s First Quarter Objectives and Achievements
 
Objectives
 
Weight of Objective
 
X
 
% of Objective Achieved
 
=
 
% of Quarterly Individual Performance Achieved
 
Objective 1
30%
 
X
 
0%
 
=
 
0%
 
Objective 2
25%
 
X
 
80%
 
=
 
20%
 
Objective 3
25%
 
X
 
60%
 
=
 
15%
 
Objective 4
20%
 
X
 
100%
 
=
 
20%
 
Total Objectives
 
100%
 
% of Total Quarterly Individual Performance Achieved
 
= 55%
 

Achievement of First Quarter Individual Quarterly Performance Opportunity:

$5,000 X 55% = $2,750

 

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THE COMPANY QUARTERLY PERFORMANCE (Part B)

The Company Quarterly Performance component is funded when the Company meets its
quarterly target (net of incentive accruals for the Company Quarterly
Performance component for the OICP and the Management Incentive Plan (MIP)).
Performance measure(s) and quarterly target(s) will be established and approved
each quarter by the Compensation Committee of the Board of Directors.
 
Upon achieving the approved target, the Company Quarterly Incentive begins to be
funded.   When the target is exceeded, 100% of the excess will be applied to
fund the Company Quarterly Incentive [under the OICP and the Management
Incentive Plan]. The Company Quarterly Incentive will be fully funded to the
extent that such excess is sufficient to fund all amounts due under the Company
Quarterly Incentive [and the Management Incentive Plan], and will be partially
funded to the extent such excess is not sufficient to fund all such amounts due.
[For quarters where the OICP and the Management Incentive Plan are partially
funded, funding for both plans will occur on a pro rata basis.]  Each
Participant's Company Quarterly Incentive opportunity is modified by the
percentage of funding and is subsequently adjusted by the percentage of
Individual Performance Objectives achieved.
 
 
 
EXAMPLE
 
As a Vice President of ARC, each quarter, Kelly has the opportunity to earn 30%
of her total quarterly earnings of $25,000. This amount is further adjusted by
her percentage of Individual Quarterly Performance achieved. Assuming that the
Company Quarterly Performance pool (Part B) is completely funded and her
Individual Quarterly Performance achievement was 55%, Kelly has earned the
following under this component, Part B, for the first quarter:
$25,000 X 30% X 55% = $4,125
If the Company’s Quarterly Performance pool had been partially funded at the 80%
level, Kelly would have earned the following:
$25,000 X 30% X 80% X 55% = $3,300

 

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THE ANNUAL COMPANY PERFORMANCE (Part C)

Performance measures and annual targets will be established and approved by the
Compensation Committee of the Board of Directors. The amount earned under this
component is contingent upon the Company exceeding the approved annual company
target which funds this component. It is NOT modified by the Individual
Quarterly Performance percentage, or percentage of objectives achieved.

 
When the target is exceeded, 100% of the excess will be applied to fund the
Annual Company Incentive.  The Annual Company Incentive will be fully funded to
the extent that such excess is sufficient to fund all amounts due under the
Annual Company Incentive, and will be partially funded to the extent such excess
is not sufficient to fund all such amounts due.
 

EXAMPLE
 
As a Vice President of ARC, each year, Kelly has the opportunity to earn 10% of
annual earnings. (10% X $100,000 = $10,000) based upon the company’s achievement
of the Annual Company Performance target. Assuming the company achieved complete
funding of the annual incentive, Kelly would receive the following for the year:
$100,000 X 10% = $10,000
If the Company’s Annual Incentive was partially funded at 75%, Kelly would
receive the following for the year:
 $100,000 X 10% X 75% = $7,500

AWARD PAYMENT
The total of all components (Part A, Part B and Part C awards) will be
calculated and paid annually after the completion of the company’s annual audit
and the review and approval of the Compensation Committee of the Board of
Directors.

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OICP Administrative Rules

1.  
Newly hired Officers

Newly hired Officers become eligible to participate in the OICP in their first
full quarter of service as an Officer in which individual quarterly performance
objectives (MBO’s) have been approved and established.

2.  
Newly appointed and promoted Officers

Quarterly Incentives
Officers will become eligible for their new OICP incentives in the quarter in
which they are promoted provided their approved, individual quarterly
performance objectives (MBO’s) are established and approved and applicable to
the new position. Otherwise, newly promoted Officers will become eligible for
their new OICP incentives upon the first full quarter of service in their new
role following their promotion or appointment where approved individual
quarterly performance objectives (MBO’s) are applicable to their new role.

Annual Incentive
Annual incentives will be prorated on a quarterly basis, beginning upon the
participant’s date of OICP eligibility.

3.  
Earnings used for the calculation of OICP awards 

OICP award calculations will be based upon the participant’s total quarterly
earnings attributable to base salary.

4.  
Plan Year

The plan year coincides with the fiscal year which is also the calendar year.

5.  
Award Payments 

A participant’s total realized incentive compensation under this Plan (Part A,
B, & C) shall be disbursed according to performance measures, target
achievements and calculations as approved by the Audit and the Compensation
Committees of the Board of Directors. In the event payment cannot be made on or
prior to March 15 of the year subsequent to the year earned, any authorized
payments made through this plan will be made on April 15 of such year.

6.  
Performance Expectations

One time, extraordinary events that have a significant impact (positive or
negative) on objectives, may be reviewed by the CEO on an individual basis and
potentially offset when calculating final awards.

7.  
Termination of Employment

An officer forfeits his or her eligibility for an incentive award if he or she
leaves the Company before awards are paid. The only exceptions to this rule are
terminations resulting from death, permanent or total disability, retirement or
as otherwise approved by the CEO. In these cases, an officer or his or her
estate will receive a prorated award as of the date of termination, subject to
the other terms and conditions of this plan.
 
 

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8.  
Awards subject to state and federal withholding taxes

All incentive awards are calculated as gross dollar awards and are subject to
the appropriate state and federal tax withholdings.

9.  
Maximum Awards

Awards for the OICP are capped at the Participant’s maximum percentage of
earnings as set forth herein. The only exceptions to this rule are discretionary
awards proposed by ARC’s Chief Executive Officer to award exceptional
performance.

10.  
Not a Contract. 

This Plan shall not be deemed to constitute a contract between the Company and
any Officer; neither shall it be a consideration nor an inducement for the
employment of any Officer. No provisions of this Plan shall be deemed to abridge
or limit any managerial right of the Company, give any Employee the right to be
retained in employment, or to interfere with the right of the Company to
discharge any Officer at any time regardless of the effect which such discharge
may have upon him or her as a Participant. By his and/or her act of
participation in this Plan, each Participant on behalf of himself or herself,
and his or her heirs, assigns and beneficiaries shall be deemed conclusively to
have agreed to and accepted the terms and conditions of this Plan.

11.  
Plan change or termination

ARC’s Board of Directors retains the right to amend, suspend, or terminate the
OICP in whole or in part, at any time and for any reason, without the consent of
any Participant, provided that such action does not adversely affect the right
to receive any amounts to which Participants have become entitled prior to such
action.

12.  
Availability of Funds 

Notwithstanding anything contained herein to the contrary, the payment of all
awards is subject to the availability of unrestricted funds.

13.  
No Cumulative or Duplicative Amounts

Notwithstanding anything herein to the contrary, in the event that any
Participant shall simultaneously hold two offices that would entitle him or her
to awards hereunder, the awards to be received hereunder shall not be cumulative
or duplicative, and such Participant shall be entitled to receive only the
awards associated with the highest office, and specifically shall not receive
awards associated with the lower office.

14.  
Previous OICP Terminated

Upon the effective date of this Plan, the Company’s currently outstanding OICP
shall be terminated and no further awards shall be made thereunder (other than
payment of the awards for the year ending, December 31, 2005).