Exhibit 10.16
TENNESSEE VALLEY AUTHORITY EXECUTIVE ANNUAL INCENTIVE PLAN
Note About This Exhibit 10.16
     In 2006, performance metrics and goals identified on the TVA Winning
Performance Balanced Scorecards were reviewed and approved by the Board during
the first quarter of the fiscal year. The TVA Winning Performance Balanced
Scorecards served as the basis for determining the Executive Annual Incentive
Plan (“EAIP”) awards made to all EAIP participants in 2006, including those made
to the CEO and all managers who reported directly to the CEO.
     In this Exhibit 10.16, the term “base compensation” has the same meaning as
the term “salary plus additional annual compensation” has in the Annual Report
to which this exhibit relates. In addition, the term “additional annual
compensation” as used in the Annual Report is synonymous with “applicable
deferred compensation” and “Deferred Compensation” as those terms are used in
this Exhibit 10.16. Also, all references made to the Executive Compensation
Review Committee in this Exhibit 10.16 are obsolete since the committee no
longer exists.

 

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TENNESSEE VALLEY AUTHORITY
EXECUTIVE ANNUAL INCENTIVE PLAN
PURPOSE
The Executive Annual Incentive Plan is designed to encourage and reward TVA
officers and other participants for their performance and contribution to the
successful achievement of financial, operational, and individual goals.
This is accomplished by linking a significant element of variable annual
compensation to the accomplishment of selected financial, operational, and
individual performance standards. The Plan, in conjunction with base
compensation (salary plus applicable deferred compensation), provides total
annual compensation opportunities similar to those found at competing companies,
thus assisting TVA in retaining and recruiting executive talent critical to
TVA’s success.
EFFECTIVE DATE
The Executive Annual Incentive Plan will be effective in fiscal year 1999.
PARTICIPATION
Executives, as defined in this plan, and as approved by the Board of Directors
are participants in this Plan.
PERFORMANCE PERIOD
Each performance period follows TVA’s fiscal year (October 1 through
September 30).
AWARD OPPORTUNITY
Award opportunities are based on market data, level of responsibility, and
relationship with other TVA positions in order to ensure a consistent approach
among TVA organizations. Award opportunities under the Plan are designed to
align each participant’s total annual compensation with TVA Board approved
relevant labor market practices at a targeted level of performance.
Award opportunity targets are established for each position. The basis of a
target award opportunity is a percentage of the participant’s base compensation
(salary plus applicable deferred compensation), which is established in accord
with the participant’s position within TVA.
Award opportunity targets established under this Plan allow management
flexibility in establishing award opportunities based on position. Guidelines
for establishing target award opportunities based on position are presented
below:

 

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Target Award Opportunity Guideline

              Award Opportunity Targets
Position 
  (Percentage of Base Compensation)
President & COO
    50 %
Chief Officers / General Counsel
    40 %
Executive Vice President
    30% – 40 %
Senior Vice President / Vice President
    10% – 30 %
Other Positions
    5% – 20 %

Actual awards may vary based on performance and achievements.
PERFORMANCE GOALS AND MEASURES
The Plan incorporates the use of performance measures which focus on key areas
essential for the achievement of TVA’s strategic objectives. These measurement
areas typically include:

  •   Financial     •   Operating     •   Individual Performance

The selection of performance measures is specific to each position. Weighting of
the measures, when appropriate, will be based on the relevance of the measure to
the organization, the position purpose, accountabilities, scope and impact.
The performance measure selection process, including the identification of
standards for each measure, will be established for each fiscal year consistent
with guidelines issued by the Senior Vice President, Human Resources, in
consultation with the Executive Compensation Review Committee.
Performance goals and measures established for participants who are direct
reports to the Board require approval by the Board of Directors on an annual
basis prior to the beginning of the fiscal year for which the performance
measure is established. The Executive Compensation Review Committee is
responsible for approving performance goals and measures for all other
participants.
AWARD DETERMINATION
Final awards are based on performance against predefined performance measures
and the award opportunity target for each participant. Awards may be adjusted
based on the evaluation of individual achievements and performance results. The
maximum award allowed under this Plan is 125 percent of the award opportunity
target for a given participant.
AWARD ELIGIBILITY
A participant must be a full-time employee at the end of the Plan year in order
to be eligible to receive an award.
Participants who have been employed for the entire Plan year are eligible to
receive a full award.

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Participants who have been employed for less than the entire Plan year may
receive a prorated award.
Plan participants who change organizations during the performance period will
have their awards based on performance results of the Plan measures established
for them as of the end of the Plan year.
PAYMENT OF AWARDS
Awards are paid in a lump sum during the first quarter of the next fiscal year.
All Plan awards will be approved by The Board of Directors prior to payment.
DEFERRED OPTION
Participants may elect to defer all or a portion of their Executive Annual
Incentive Plan award to MISRIP with the following restrictions:

  •   Deferral election must be made prior to the beginning of the Plan year.  
  •   The Plan award may be deferred in 25% increments of the actual award and
is irrevocable.

PLAN ADMINISTRATION
The Board of Directors have final approval of all Plan participants, award
opportunity targets, and actual award payments.
The Board of Directors approve all performance goals and results for the Board
Direct Reports.
The Executive Compensation Review Committee approves performance goals and
reviews award opportunity targets and award amounts for all participants except
those who report directly to the Board.
The Plan will be administered by the Senior Vice President, Human Resources, in
consultation with the Executive Compensation Review Committee.
The Senior Vice President, Human Resources is responsible for:

  •   Establishing the process for goal setting, performance measurement,
reporting progress performance achievement, and award determination.     •  
Developing additional procedures as necessary to implement the Executive Annual
Incentive Plan.

Corporate Human Resources will develop and interpret all rules for the
administration of the Plan.
TERMINATION OR AMENDMENT OF THE PLAN
The Board of Directors may at any time modify, suspend, terminate, or amend the
Plan in whole or in part.
DEFINITION OF TERMS

     
Annual Incentive Award
  Actual dollar amount paid to a participant under the EAIP (Awards may be
deferred).
 
   
Award Opportunity Target
  Award opportunity expressed as a percent of the participant’s base
compensation.

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Base Compensation
  Salary plus Deferred Compensation (i.e. annual MISRIP excluding any
contributions received as part of a deferred option and /or Long-Term Deferred,
if applicable).
 
   
Deferred Compensation
  Compensation that is deferred and paid at a future date.
 
   
Executives
  Officers or other high level Managers and Specialists responsible for
establishing business vision, strategic direction and policy, or whose decisions
have major impact on TVA or operations of business units. Incumbents report to
the Board of Directors, head of an organization (CAO, COO, CFO, GC) or head of a
major organizational unit (CNO, TPS, CS&M, etc). Positions of like size in the
relevant labor market are generally titled President, Chief Officer, Vice
President, Senior Executive (or similar titles), or receive total compensation
at a level that makes participation in the Executive Compensation Plan
appropriate. Employees in the “Officer / Executive” pay band are executives.
Designation of Executives is approved by the Board of Directors.
 
   
Executive Compensation Review Committee
  A Committee established by the Board of Directors of TVA to provide additional
oversight of executive compensation.
 
   
Long-Term Deferred
  Compensation that is deferred and paid at a future date if the employee
remains employed by TVA for a specific period of time.
 
   
MISRIP
  “Merit Incentive Supplemental Retirement Income Plan” — Deferred compensation
plan.
 
   
Participant
  An officer or other Manager/Specialist employee designated by the Board of
Directors to be eligible to receive an award under the new Executive Annual
Incentive Plan.
 
   
Performance Goals
  The goals against which performance is measured.
 
   
Performance Measures
  The specific business indicators where performance will be measured against
the performance goals.
 
   
Prorated Award
  Method used to determine the award amount for an employee not eligible to
receive a full award. Pro-ration is generally based on the number of months
employed divided by 12. Any partial month is considered a full month.
 
   
Total Annual Compensation
  Term used by TVA that includes Base Compensation plus Annual Incentive.
 
   
Variable Annual Compensation
  Compensation that varies from year to year based on level of achievement
(performance).

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