EXHIBIT 10.1

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Short-Term Incentive Plan (STI Plan)
Terms and Conditions

 

 

COMPENSATION PHILOSOPHY

Cubist’s compensation philosophy is to attract, motivate, retain and reward
employees with base pay, short-term and long-term incentives, and benefits that
competitively target the market.  Cubist’s compensation programs provide
employees with the opportunity to earn increased compensation – based on
Cubist’s and the employee’s achievement of pre-established performance targets.

PLAN OVERVIEW

Cubist’s Short-Term Incentive Plan (“STI Plan”) is a bonus plan for all Cubist
employees (“Participants”) which is designed to reward them  for their roles in
the achievement of Cubist’s annual goals, as established by the Company (“Annual
Goals”).  STI Plan awards (“Plan Awards”) are determined on an annual basis,
based on whether and to what extent Cubist achieves its Annual Goals and each
Participant achieves the Participant’s individual goals for the relevant
calendar year (the “Performance Period”).

PLAN OBJECTIVE

The intent of the STI Plan is to provide highly competitive total cash
compensation through an annual variable pay program that reflects Cubist’s
performance and the Participant’s performance against goals and objectives.  The
STI Plan is an important variable component of the total compensation package
for all employees.

ELIGIBILITY

All employees of Cubist are eligible to participate in the STI Plan. 
Participation in the STI Plan in one year does not automatically guarantee
participation in a future year.  Compliance with all Cubist policies, guidelines
and all applicable laws  is a prerequisite to receiving an STI award. A
determination that an employee is not eligible to receive an STI award due to
his or her failure to demonstrate compliant behavior may be made by the CEO and
Chief Compliance Officer.

Performance Periods

Each calendar year, beginning on January 1 of each year, constitutes a separate
Performance Period.

FINANCIAL MEASURES

Prior to the beginning of each Performance Period, the Company will establish
financial measures and weightings for each of the Company’s Annual Goals. Cubist
needs to achieve at least 70% of its Annual Goals for any Participant to be
eligible for a Plan Award. For 2007, company achievement will be capped at a
200% payout.  In addition to achievement of Annual Goals, Plan Awards are also
determined on the basis of individual performance and achievement of objectives.

INDIVIDUAL OBJECTIVES

As part of Cubist’s annual (or in the case of Participants who join the Company
after the commencement of a Performance Period, ongoing) goal setting process,
each Participant should propose individual objectives for his or her manager’s
approval. Each Participant will be measured by his or her manager against these
objectives, and the manager shall make a recommendation to the CEO as to whether
the Participant should receive a Plan Award, and, if so, the amount of such Plan
Award (assuming Cubist’s Annual Goals have been achieved to the requisite level
noted above).

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FUNDING

After the end of each Performance Period, the CEO shall determine the aggregate
amount available for Plan Awards (if any) based on the Company’s performance
relative to the Annual Goals (the “Pool”).  The Pool will be funded based on the
Company’s performance.  Assuming the Company has achieved the requisite
performance level, the CEO shall then determine the award and amount of any Plan
Awards to  Participants in accordance with the STI Target Percentages noted
below; provided that the Compensation Committee of the Company’s Board of
Directors shall make such determinations with respect to the CEO’s bonus and
shall approve the CEO’s recommendations with respect to the Executive Officers
bonuses.

CALCULATING THE AMOUNT OF ANY TARGET AWARD

Each Participant is eligible for Plan Awards at a target percentage of base
salary (“Target Percentage”) as listed in Figure 1 below. The “Target Award” is
the Participant’s target percentage, multiplied by his or her base salary for
the Performance Period. The Target Award will be pro-rated based on the portion
of the performance period worked by the Participant if the Participant (a)
commenced employment with Cubist after the commencement of the Performance
Period, (b) worked part-time during the Performance Period, or (c) took a leave
of absence during the Performance Period.  Examples of calculations are included
in Figure 2 below.

FIGURE 1: TARGET PERCENTAGE BY LEVEL

Eligibility Group

 

2007 Target
Percentage (as %
of base salary)

 

CEO

 

80

%

Senior Vice President

 

40

%

Vice President

 

35

%

Executive Director

 

25

%

Senior Director

 

25

%

Director

 

20

%

Senior Manager/ equivalent individual contributor

 

15

%

Manager/ equivalent individual contributor

 

10

%

Employee

 

5

%

 

Figure 2: Target Award Calculation Examples

Level

 

Full-time or
Part-Time

 

Base Salary

 

Target
Percentage

 

Pro-Ration
Factor

 

Target Award

 

Manager

 

Part Time (20 hours/wk)

 

$

75,000

 

10

%

50

%

($75,000 x 10% x 50%)= $3,750

 

Senior Manager

 

Full Time

 

$

90,000

 

15

%

100

%

($90,000 x 15% x 100%)= $13,500

 

 

CALCULATING ACTUAL AWARDS

A Participant’s Actual Award is calculated in two portions, which are then added
to form the Actual Award.  The first portion is tied to company results, while
the second portion is tied to the Participant’s performance against goals as
assessed by the participant’s Manager.  As the Participant’s level of
responsibility in the organization increases, the portion tied to company
results increases and the portion tied to individual results decreases, as
listed in Figure 3 below.  Actual Awards are subject to approval by the CEO.  In
addition, Actual Awards for Executive Officers are subject to approval by the
Compensation Committee.

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Calculation of portion tied to company results:

The Participant’s Target Award is multiplied by the portion (percentage) tied to
company results as listed in Figure 3 for the Participant’s eligibility group. 
That number is then multiplied by Cubist’s achievement against the Annual Goals.

Calculation of portion tied to individual results:

The Participant’s Target Award is multiplied by the portion (percentage) tied to
individual results as listed in Figure 3 for the participant’s eligibility
group.  That number is then multiplied by the percentage of individual goals met
by the Participant as assessed by the Participant’s Manager.

Calculation of Actual Plan Award:

The Actual Award is the sum of the portion tied to company results and the
portion tied to individual results.

FIGURE 3: PORTIONS TIED TO COMPANY AND INDIVIDUAL RESULTS

Eligibility Group

 

2007 Portion Tied
to Company
Results

 

2007 Portion Tied
to Individual
Results

 

CEO

 

100

%

Board discretion

 

Senior Vice President

 

60

%

40

%

Vice President

 

50

%

50

%

Executive Director

 

40

%

60

%

Senior Director

 

40

%

60

%

Director

 

30

%

70

%

Senior Manager/ equivalent individual contributor

 

20

%

80

%

Manager/ equivalent individual contributor

 

10

%

90

%

Employee

 

10

%

90

%

 

FIGURE 4: ACTUAL STI PLAN AWARD CALCULATION EXAMPLES

Level

 

Target
Award from
Figure 2

 

Company
Results

 

Individual
Results

 

Portion tied to
Company
Results

 

Portion tied to
Individual
Results

 

Actual STI Plan
Award

 

Manager

 

$

3,750

 

100% of target

 

100% of goals met

 

$3,750 x 10% x
100% = $375

 

$3,750 x 90% x
100% of goal =
$3,375

 

$375 + $3,375 =
$3,750

 

Senior Manager

 

$

13,500

 

125% of target

 

100% of goals met

 

$13,500 x 20% x
125% = $3,375

 

$13,500 x 80% x
100% of goal =
$10,800

 

$3,375 = $10,800 =
$14,175

 

 

EMPLOYMENT CHANGES

·                  New Hires:

·                  If a Participant is hired during a Performance Period, his or
her award will be pro-rated to reflect the portion of the year actually worked
with Cubist, subject to the pro-ration guidelines as described below

·                  Changes in Eligibility:

·                  If a Participant changes from one eligibility group to
another, the amount of any Plan Award will be determined by calculating the
amount of time worked in each eligible position—subject to the pro rata
guidelines noted below.

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·                  Part-time:

·                  If a Participant is not a full-time employee, any Plan Award
to the Participant shall be pro-rated based on the Participant’s regular
scheduled work hours or percentage of time worked. If a Participant has a change
in regular scheduled work hours during a Performance Period, the Participant’s
Plan Award shall be pro-rated in accordance with the pro rata guidelines below.

·                  Pro-rata Guidelines:

·                  All pro-rata adjustments occur on a whole calendar month
basis

·                  Changes occurring prior to the 16th of the month will be
effective on the first day of the month

·                  Changes occurring on or after the 16th of the month will be
effective on the first day of the following month

·                  Departure or Termination:

·                  If a Participant’s employment terminates prior to the end of
a Performance Period, the Participant shall not be entitled to a Plan Award
unless such termination is as a result of Participant’s death or retirement, or
a Participant becomes disabled, in which case the Participant, or the
Participant’s estate (as the case may be) shall be eligible for a pro-rated Plan
Award payable on the standard payment date for the Performance Period (as
opposed to an earlier date).

·                  If a Participant’s employment terminates after the completion
of the Performance Period but prior to the date that Plan Award payments are
made (the “Payment Date”), a Participant shall be eligible for a Plan Award,
unless such termination is as a result of an involuntary termination for cause
or misconduct.

STI AWARD PAYOUT PROCESS

STI Plan Awards are paid out following the end of the Performance Period and
after the measurement of Cubist’s achievement of Annual Goals has been
completed.  Plan Awards will generally be paid out in the first quarter
following the end of the relevant Performance Period. Applicable taxes other
withholdings will be deducted from the Plan Award, as appropriate for each
jurisdiction. In the United States, individual contributions to the 401(k) Plan
as well as applicable taxes will be deducted from the award payment.

GLOSSARY OF KEY TERMS

Actual Award: the Plan Award based on the sum of the portion of the Plan Award
tied to company results and the portion tied to individual results

Payment Date: the date that payments, if any, will be made to Participants under
the STI Plan

Performance Period:  the twelve month period beginning on January 1 of each
calendar year

Target Award:  the Participant’s Target Percentage multiplied by his or her base
salary for the Performance Period

Target Percentage: the maximum amount of a Participant’s Plan Award eligibility
expressed as a percentage of such Participant’s base salary

The Company reserves the right to amend or discontinue the Plan at any time
without prior notice. In no event does this STI Plan alter the
“employment-at-will” relationship between Cubist and its employees. Cubist and
its employees are free to terminate the employment relationship at any time,
without cause or notice.

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