Exhibit 10.1

 

POPE & TALBOT, INC.

EXECUTIVE INCENTIVE PLAN

(As Amended as of March 2, 2005)

 

I. PURPOSE OF THE PLAN

 

The purpose of the Executive Incentive Plan (“Plan”) is to promote the interest
of Pope & Talbot, Inc. (“Company”) by rewarding its employees who are primarily
responsible for the management, growth and success of the business for services
rendered the Company and to encourage them to remain in the employ of the
Company.

 

II. ADMINISTRATION OF THE PLAN

 

  A. The Plan shall be administered by the Compensation Committee (“Committee”)
appointed by the Company’s Board of Directors (“Board”).

 

  B. The Committee shall have full authority to administer the Plan, including
authority to interpret and construe any provisions of the Plan and to adopt such
rules and regulations for administering the Plan as it may deem necessary.
Decisions of the Committee shall be final and binding on all persons who have an
interest in the Plan.

 

  C. Prior to the beginning of each fiscal year, the Chief Executive Officer
will review the design and operation of the Plan and may recommend to the
Committee changes to the Plan that seem to be in the best interest of the
Company and its shareholders.

 

III. ELIGIBILITY OF PARTICIPANTS

 

  A. Eligibility of employees to participate in the Plan shall be determined by
the Committee. At a minimum eligible employees shall include all executive
officers and all key managers whose accountability points are equal to or exceed
184 points (see paragraph C. below) as follows:

 

Executive Officers

Management Level 1             (320 accountability points and above)

Management Level 2             (280 to 319 accountability points)

Management Level 3             (184 to 279 accountability points)

 

  B. The Committee shall from time to time identify key positions in the Company
which are likely to have a significant impact upon the profitability of Company
operations and shall assign to each position accountability points on the basis
of relative impact on profitability.

 

  C. The Committee shall also periodically establish or revise the minimum
number of accountability points required for participation in the Plan.

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  D. Key employees of the Company will become eligible for participation in the
Plan, and accordingly qualify for a bonus award for each fiscal year of
participation, in accordance with the following terms and conditions:

 

  1. Each individual who is employed for an entire fiscal year of the Company in
one or more positions to which have been assigned at least the minimum number of
accountability points required for participation for that year shall be a
participant in the Plan for such year.

 

  2. If the individual’s initial hire date occurs after the start of the
Company’s fiscal year but before July 1 of that year, then such individual shall
be a participant in the Plan for such year if he/she is continuously employed
from his/her initial date of hire through the last day of such year in one or
more positions to which the Committee has assigned the minimum number of
accountability points required for participation for that year. Such
individual’s bonus award for the initial fiscal year of participation shall be
calculated by multiplying (i) the bonus award (if any) to which he/she would
have been entitled under the Plan had he/she been an employee for the entire
fiscal year by (ii) a fraction the numerator of which is the actual number of
days of employment with the Company during such fiscal year and the denominator
of which is 360.

 

  3. Except as provided in subparagraph 4 below, no participant shall be
entitled to a bonus award under the Plan unless he/she continues as an employee
of the Company through the last day of the fiscal year for which the bonus is
awarded.

 

  4. Should a participant’s employment in a position with the Company to which
there has been assigned the minimum number of accountability points for
participation in the Plan terminate prior to the last day of the fiscal year by
reason of (i) death, (ii) permanent disability or (iii) early or normal
retirement under the provisions of the Company’s Retirement Plan for Salaried
Employees, then such participant shall be eligible for a prorated bonus award
for such year, calculated by multiplying (i) the bonus award (if any) to which
he/she would have been entitled under the plan had he/she remained an employee
through the last day of such fiscal year by (ii) a fraction the numerator of
which is the actual number of days of employment with the Company during such
fiscal year and the denominator of which is 360.

 

  5. For purposes of the Plan, an individual will be deemed to be permanently
disabled if he/she is unable, by reason of any physical or mental illness or
injury expected to result in death or to continue for a period of at least 12
months, to engage in any substantial gainful employment.

 

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  E. The Committee shall assign each participant to a Bonus Group, based upon
the business unit in which the participant is employed. The individual’s bonus
award (if any) for the fiscal year will be dependent in part upon the
performance of the Bonus Group to which he/she is assigned as follows:

 

  1. Corporate Bonus Group. This group shall consist of the Chief Executive
Officer, the Chief Financial Officer, eligible participants of the Corporate
Finance Department and Corporate Human Resources Department, and any other
eligible participant not assigned to any key business unit. For this group, the
individual bonus award shall be 70% dependent upon Corporate Performance Against
Target (see Section IV) and 30% dependent upon Individual Performance (see
Section IV).

 

  2. Division Bonus Groups. These groups shall consist of eligible participants
of the Wood Products Division, the Pulp Division and any other key business unit
as may be designated from time to time by the Committee. For these Bonus Groups,
the individual bonus award shall be 25% dependent upon Corporate Performance
Against Target, 45% dependent upon Group Performance Against Target (see Section
IV) and 30% dependent upon Individual Performance.

 

  3. The Committee shall have full authority to revise from time to time such
assignments and percentages.

 

IV. PERFORMANCE TARGETS

 

  A. Corporate Performance Target. At the beginning of each fiscal year, the
Committee shall determine a corporate target return on beginning shareholders’
equity. The target shall range between 8% and 17% of the beginning of the year
consolidated shareholders’ equity. The target will be set with due consideration
of economic, business, industry, and internal factors that might affect the
profitability of the Company. The target return on equity shall be converted to
a target net income amount by multiplying the Company beginning shareholders’
equity by the target return-on-equity percentage.

 

In all cases, net income shall be computed after deduction of the accrual for
payments under this Plan.

 

  B. Corporate Performance Threshold. At a minimum, the Company must have a net
income that generates a return on equity of at least 4% of beginning of the year
consolidated shareholders’ equity, before any bonuses are paid out under this
Plan.

 

  C. Corporate Performance Maximum. The Corporate Performance Maximum is equal
to two times the Corporate Performance Target minus the Corporate Performance
Threshold.

 

([2 x Target] - Threshold = Maximum)

 

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Example: If the Corporate Performance Target is 12.5% ROE, the Corporate
Performance Maximum is 21% ROE.

 

(2 x 12.5%) - 4% = 21% ROE

 

  D. Division Performance Targets. Each Division Bonus Group will have a target
level of performance established at the beginning of the fiscal year. This
target will be expressed as earnings before taxes and before corporate expenses.
Division Performance Targets will be established by the Committee as follows:

 

  1. The Corporate Performance Target will be restated as earnings before taxes
and before corporate expenses.

 

  2. The restated Corporate Performance Target will be allocated among the
various divisions based upon the following considerations:

 

  •   Corporate and Division Profit Plans

 

  •   Economic, industry, internal and/or general business factors or trends
that might affect the performance of each Division and its ability to contribute
to the overall Corporate Target.

 

  •   Total assets of each Division as a percentage of the total Corporate
assets.

 

  •   Any other factors or considerations that the Committee might deem
relevant.

 

In essence, the Committee will answer the question: if the Company achieves the
Corporate Performance Target level of performance, what is the expected level of
profit contribution that each Division will make, given the Profit Plans,
external and internal trends and factors, total investment in the Division, and
other relevant considerations?

 

  E. Division Performance Thresholds. Using the Corporate Performance Threshold
as a basis, the Committee will establish performance thresholds for each
Division using the procedure and considerations described in paragraph D above.
Therefore, the Committee will determine the expected level of contribution each
Division will make if corporate profits are at the level represented by the
Corporate Performance Threshold.

 

  F. Division Performance Maximums. Using the Corporate Performance Maximum as a
basis, the Committee will establish performance maximums for each Division using
the procedure and considerations described in paragraph D above.

 

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  G. Example:

 

     Earnings Before Taxes and Corporate Expenses (in millions)

 

     Threshold

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    Target

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   Maximum

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Corporate

   $ 8.0     $ 20.0    $ 32.0     

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Division A

     7.0       12.0      15.0

Division B

     2.0       8.0      13.0

Division C

     (1.0 )     0.0      4.0     

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     $ 8.0     $ 20.0    $ 32.0     

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  H. Individual Performance Goals. To focus attention and efforts upon key
problems and opportunities, management shall, at the beginning of each fiscal
year, determine individual subjective performance goals for each participant;
provided, however, that all such performance goals for executive officers shall
be determined by the Committee.

 

V. BONUS TARGETS

 

Bonus Targets shall be expressed as a percent of base salary. Bonus Targets for
executive officers each year shall be established and approved by the Committee.
Bonus Targets for all other participants each year shall be based on Management
Level classification (see Section III), with the percent of base salary for each
Management Level being established and approved by the Chief Executive Officer.

 

VI. PERFORMANCE RATING

 

If a Bonus Group exceeds its Performance Target, the bonus will be increased
according to the weighting set forth in Section III, Paragraph E, § 1 and 2.
Likewise, if the performance is less than Target, the bonus will be reduced.
Such increases and reductions shall be interpolated on a straight line between
the minimum (zero bonus) and the maximum (two times the Target) for each of the
criteria.

 

  A. Corporate Results

 

  1. Achievement of the Corporate Performance Target will produce a rating of
100 points.

 

  2. Achievement of the Corporate Performance Maximum or more will produce a
rating of 200 points.

 

  3. Achievement of the Corporate Performance Threshold or less will produce a
rating of zero (0) points.

 

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  B. Division Results

 

  1. Achievement of the Division Performance Target will produce a rating of 100
points.

 

  2. Achievement of the Division Performance Maximum or more will produce a
rating of 200 points.

 

  3. Achievement of the Division Performance Threshold or less will produce a
rating of zero (0) points.

 

  C. Individual Performance. Individual performance will be evaluated on a
similar scale ranging from zero (0) to 200 points. All such evaluations of
individual performance of executive officers shall be approved by the Committee.

 

VII. BONUS COMPUTATION

 

The points produced according to the evaluation of results outlined above will
be multiplied by the percentage allocations for each Bonus Group (see Section
III, paragraph E) as in the following examples:

 

  A. Corporate Bonus Group

 

  •   The current salary = $78,000

 

  •   Bonus Target (25%) = $19,500

 

  •   Performance Results

 

  •   Corporate: 115 points (out of a possible 200)

  •   Individual: 110 points (out of a possible 200)

 

  •   Weighting (see Section III, paragraph E, § 1)

 

  •   Corporate Component: 70%

  •   Individual Component: 30%

 

  •   Computed Point Score

 

  •   Corporate Component: = 115 x 70% =     80.50 points

  •   Individual Component: = 110 x 30% =     33.00 points

 

  •                                              Total Score = 113.50 points

 

  •   Computed Point Score vs. Target                = 113.50/100 = 1.135

 

  •   Bonus = 1.135 x $19,500 = $22,132.50

 

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  B. Division Bonus Groups

 

  •   The current salary = $52,000

 

  •   Bonus Target (20%) = $10,400

 

  •   Performance Results

 

  •   Corporate:     115 points (out of a possible 200)

  •   Division:       165 points (out of a possible 200)

  •   Individual:     110 points (out of a possible 200)

 

  •   Weighting (see Section III, paragraph E, § 2)

 

  •   Corporate Component:     25%

  •   Division Component:       45%

  •   Individual Component:     30%

 

  •   Computed Point Score

 

  •   Corporate Component: =     115 x 25% = 28.75 points

  •   Division Component:    =    165 x 45% = 74.25 points

  •   Individual Component: =     110 x 30% = 33.00 points

                        Total Score                                = 136.00
points

  •   Computed Point Score vs. Target                   = 136/100 = 1.36

 

  •   Bonus = 1.36 x $10,400 = $14,144.00

 

VIII. BONUS PAYMENT LIMITS

 

  A. If the Corporate ROE is less than 4%, no bonuses shall be paid to any
participants under this plan irrespective of division or individual results.
(See Section IV, paragraph B.)

 

  B. Irrespective of Corporate, Division and/or individual performance no
participant will earn more than twice the assigned Target Bonus for that
Participant. Therefore, total Bonus payout is capped at twice Target.

 

IX. AMENDMENT OR DISCONTINUANCE

 

The Board, upon recommendation of the Committee, may amend, suspend or
discontinue the Plan in whole or in part at any time; provided, however, that
such action shall not adversely affect rights and obligations with respect to
incentive awards at the time outstanding under the Plan.

 

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X. SPECIAL BONUS AWARDS

 

The Chief Executive Officer shall have the authority to make special bonus
awards for any fiscal year that the Plan is in effect to one or more employees
of the Company (excluding executive officers) who make a significant
contribution in the fiscal year to the profitability or success of the Company
operations. The amount of the special bonus award shall be at the discretion of
the Chief Executive Officer.

 

XI. PAYMENT OF BONUSES

 

The bonus earned by each participant shall be paid as soon as feasible after the
close of the fiscal year for which it was made. Payment of the bonus shall be in
the form of cash paid currently, subject to applicable withholding.

 

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