EXHIBIT 10.2
 
SENIOR EXECUTIVE INCENTIVE COMPENSATION PLAN
 
1. Purpose. This document sets forth the annual incentive plan applicable to
employees of Eaton Corporation (the “Company”) who are executive officers of the
Company, including those whose annual incentive compensation for any taxable
year of the Company commencing on or after January 1, 2008 the Committee
(hereafter defined) anticipates would not be deductible due to Section 162(m) of
the Internal Revenue Code of 1986, as amended (the “Code”). This plan is
hereinafter referred to as the “Plan.”
 
The Plan is designed to promote the profitable growth of the Company by:
 
a. Providing rewards for achieving specified performance goals.
 
b. Recognizing corporate, business unit and individual performance and
achievement.
 
c. Attracting, motivating and retaining superior executive talent.
 
2. Administration. The Plan shall be administered by the Compensation and
Organization Committee of the Board of Directors (the “Board”), or by any other
committee of the Board to whom this authority is delegated by the Board (the
“Committee”). The Committee shall be comprised exclusively of three or more
directors who are not employees and who are “outside directors” within the
meaning of Section 162(m)(4)(C) of the Code. The Committee will approve the
goals, participation, target bonus awards, actual bonus awards, timing of
payment and other actions necessary to the administration of the Plan. Any
determination by the Committee pursuant to the Plan shall be final, binding and
conclusive on all employees and participants and anyone claiming under or
through any of them. The provisions of the Plan are intended to ensure that all
awards granted hereunder to any individual who is or may be a “covered employee”
(within the meaning of Section 162(m)(3) of the Code) qualify for the
Section 162(m) exception for performance-based compensation, and all awards and
the Plan shall be interpreted and operated consistent with that intention.
 
3. Participation. The participant group will consist of the Chief Executive
Officer and any Officer reporting directly to the Chief Executive Officer. An
employee participating in the Plan shall not participate in the Company’s
Executive Incentive Compensation Plan.
 
4. Establishment of Incentive Opportunities.
 
a. On or before March 30 of each year, the Committee shall establish in writing
performance goals (the “Corporate Performance Goals”) to be used in determining
an aggregate amount to be distributed under the Plan (the “Aggregate Incentive
Opportunity”). The Aggregate Incentive Opportunity will be a dollar amount
calculated by reference to specified levels of, growth in, or ratios involving,
the Corporate Performance Goals, which may include any one or more of the
following: the Company’s earnings per share, operating earnings per share, total
return to shareholders, cash flow return, cash flow return on gross capital, net
income, net income before tax, return on equity, or return on assets. The
Corporate Performance Goals may be described in terms of Company-wide objectives
or objectives that are related to the performance of any subsidiary, division,
department, or region of, or function in, the Company. The Corporate Performance
Goals may be made relative to the performance of other corporations.
 
b. On or before March 30 of each year, the Committee will establish in writing a
percentage share of the Aggregate Incentive Opportunity to each participant (the
“Individual Incentive Opportunity”). The sum of all Individual Incentive
Opportunities will not exceed 100% of the Aggregate Incentive Opportunity. No
participant will be assigned an Individual Incentive Opportunity greater than
$7,500,000.
 
c. The method to determine the Aggregate and Individual Incentive Opportunities
shall be stated in terms of objective formulas that preclude discretion to
increase the amount of the award that would otherwise be due upon attainment of
the goals. No provision of the Plan shall preclude the Committee from exercising
negative discretion to reduce any award hereunder.
 
d. A participant’s Individual Incentive Opportunity in any year is the maximum
amount that the participant may receive under the Plan in that year. Whether or
not a participant will receive all or any portion of his or her Individual
Incentive Opportunity will be based on the achievement of corporate and business
unit financial and strategic objectives established for the year (which may be
based on the

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Corporate Performance Goals selected for the year, any of the other performance
goals listed above) and on the achievement of individual goals (collectively,
the “Individual Performance Goals”).
 
5. Award Determination.
 
a. At the end of each year, the Committee will determine the Aggregate Incentive
Opportunity based on the results of the Corporate Performance Goals. The
Committee will certify in writing whether and to what extent the goals have been
achieved.
 
b. At the end of each calendar year, the Committee will assess each
participant’s performance against the Individual Performance Goals established
for each participant. Based on this assessment, the Committee will determine
whether or not to award the entire Individual Incentive Opportunity or a lesser
amount. In no event will the Individual Incentive Opportunity be greater than
the portion of the Aggregate Incentive Opportunity allocated to the participant.
 
c. Awards shall be paid under the Plan for any year solely on account of the
attainment of the performance goals established by the Committee for the entire
year. Awards shall also be contingent on continued employment by the Company
during the entire year. Exceptions to the requirement of continued employment
will apply in the event of termination of employment by reason of death or
disability (as determined by the Committee). In the event of termination of
employment for these reasons, awards for any incomplete performance year shall
be prorated for the amount of service by the participant during the performance
year and shall be payable to the participant (or his or her estate) at the same
time as awards for such performance year are paid to the other participants and
shall be subject to the same requirements for achievement of the specified
performance goals as apply to such other participants’ awards.
 
6. Bonus Payments. Awards under the Plan will be paid annually in cash not later
than March 15 of the year following the performance year, provided that awards
or portions thereof may be deferred under the Company’s Deferred Incentive
Compensation Plan II. Awards granted under the Plan are subject to the Company’s
policy, adopted by the Board, that provides that, if the Board determines that
an executive engaged in any fraud, misconduct or other bad-faith action that,
directly or indirectly, caused or partially caused the need for a material
accounting restatement for any period as to which a performance-based award was
paid or credited to the executive, the performance-based award is subject to
reduction, cancellation or reimbursement at the discretion of the Board.
 
7. Shareholder Approval and Committee Certification Contingencies; Payment of
Awards. Payment of any awards under the Plan shall be contingent upon the
affirmative vote of the shareholders of at least a majority of the votes cast
(including abstentions) at the annual meeting of the shareholders held in 2008.
Unless and until such shareholder approval is obtained, no award shall be paid
pursuant to the Plan. Subject to the provisions of Paragraph 5 above, payment of
any award under the Plan shall also be contingent upon the Committee’s
certifying in writing that the performance goals and any other material terms
applicable to such award were in fact satisfied, in accordance with applicable
regulations under Section 162(m) of the Code. Unless and until the Committee so
certifies, such award shall not be paid. Unless the Committee provides
otherwise, (a) earned awards shall be paid promptly following such
certification, and (b) such payment shall be made in cash (subject to any
payroll tax withholding the Company may determine applies).
 
To the extent necessary for purposes of Section 162(m) of the Code, the Plan
shall be resubmitted to shareholders for their reapproval in 2013 with respect
to awards payable for the tax year commencing on and after January 1, 2014.
 
8. If the Company’s shareholders do not approve the Plan, payments that would
have been made pursuant to awards that were made contingent upon obtaining such
approval will not be made. No provision of the Plan shall prevent the Committee
from making any payments or granting any awards outside of the Plan whether or
not such payments or awards qualify for tax deductibility under Section 162(m)
of the Code.

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