Exhibit 10.20

 

LOGO [g39177image1.jpg]

 

Micromuse Inc.

 

FY2005

Incentive Compensation Program (ICP)

 

Worldwide Plan Description

 

FINAL– February 3, 2005

 

NOTE: Certain information on page 5 of this document (indicated by *) has been
omitted and filed separately with the Securities and Exchange Commission
pursuant to a request for confidential treatment.

 

Worldwide 2005 ICP Plan Description

Final – February 3, 2005

  

Micromuse Confidential

   Page 1

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FY2005 Worldwide Incentive Compensation Program (ICP) Overview

 

Micromuse seeks to provide special rewards to those employees who exhibit
exceptionally high levels of performance in relation to the Company’s goals.
Micromuse also links its rewards programs to the Company’s financial
performance. This orientation to link rewards to both individual and
company-wide performance is exemplified in the Worldwide Incentive Compensation
Program (ICP) for FY2005.

 

This document describes Micromuse’s Worldwide ICP for FY2005 (effective October
1, 2004 through September 31, 2005). The program may be modified at any time,
and for any reason, at the request of the Board of Directors of Micromuse.

 

The ICP is an “incentive” plan, in that it identifies a bonus target for
participants up front, at the beginning of the program period (Micromuse’s
fiscal year). The ICP is subject to termination or change for any reason by
Micromuse at any time.

 

The ICP program is designed for 1) non-commissioned employees, that is, for
employees who are not participants in a sales compensation or commission plan 2)
employees who do not participate in any other bonus program, and 3) those
countries where, in the judgment of local management, it is culturally
appropriate and competitively necessary to have an incentive compensation plan
to attract and retain talented employees.

 

The level of achievement of Micromuse’s Company-wide financial goals determines
funding level of the FY2005 worldwide ICP. In measuring achievement of the
Company-wide financial goals, two of Micromuse’s financial performance metrics
are the key drivers for funding: 1) FY2005 quarterly net revenue, and 2)
quarterly pro-forma fully diluted earnings per share.

 

The “annual ICP bonus target” for participants is determined at the beginning of
the program period. Bonus targets are determined locally (in countries with
employees that participate in the program), taking into account local
competitive salary and incentive compensation data, as reviewed and approved by
Human Resources.

 

The annual ICP bonus target is divided into quarterly amounts, which provides
participants with four opportunities to receive a bonus each year. Salaried
eligible participants are given specific goals to accomplish each quarter, and
their performance against those goals is formally tracked and evaluated,
resulting in a payout determination at the end of each quarter. In general,
quarterly ICP goals should be “stretch” goals requiring performance above
“normal” levels for the employee’s job. Eligible participants who are hourly
(non-exempt) will not have set goals, but will be similarly assigned an overall
bonus rating each quarter.

 

Quarterly payouts for the FY2005 ICP program will occur as soon as practical
after the public announcement of Micromuse’s financial performance for each
period.

 

Worldwide 2005 ICP Plan Description

Final – February 3, 2005

  

Micromuse Confidential

   Page 2

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How the ICP Works

 

Eligibility

 

In countries where it is determined that the Worldwide ICP program is to be
used, all employees who 1) are non-commissioned (e.g. not eligible to receive
any compensation in the form of a commission) 2) do not participate in any other
bonus program 3) are full-time and part-time (at least 20 hours a week)
employees of Micromuse are eligible to participate in the ICP. Contractors,
interns and temporary employees are not eligible to participate in the ICP.

 

New hires are eligible to participate in the ICP if they are on payroll within
the first 21 days of the quarter. In other words, if a new employee joins
Micromuse after the first 21 days of a given quarter, they become eligible to
participate in the ICP at the beginning of the next quarter.

 

Any employee who is eligible to participate in the ICP must be employed by
Micromuse on the last day of the quarter to receive the ICP payout for that
quarter.

 

In the event of disability, the employee will be eligible to receive a pro-rated
ICP payout for the quarter, based on the number of days worked by the employee
in the quarter, and based on their individual performance rating and the
financial performance measures for the quarter.

 

Employees must be in good standing at the time of the ICP payout (i.e. not on
probationary status, subject to any disciplinary action, or in breach of their
employee duties) to be eligible to receive an ICP payout. Because of this, an
employee on a performance improvement plan is ineligible to participate in the
program until the first quarter following satisfactory completion of the
improvement plan.

 

Salaried employees who are otherwise eligible, but do not complete the ICP goal
setting process, are not considered to be eligible to participate in the ICP.

 

ICP Bonus Target

 

The bonus target for each participant in the ICP is set based on assessment of
prevailing local Country market rates for that employee’s job responsibilities.
Bonus targets are not based strictly on compensation grade or job title.

 

Each participant in the ICP is assigned a bonus target by management, with
approval by Human Resources. Bonus targets are determined at the beginning of
the program period. Base salary is defined as the annual rate of base pay in
effect for the employee at the start of each quarter in which he or she
participates in the ICP. In the event an employee’s base salary is increased or
decreased during the quarter, the bonus target of the employee under the ICP may
be modified.

 

An employee’s bonus target under the ICP may change due to a promotion, demotion
or other significant change in job responsibilities. The Manager and Director of
the department, in coordination with Human Resources, must approve changes in
the bonus target. If a participant’s bonus target under the ICP is changed
during the quarter, a pro-ration will be calculated for that quarter to
determine the overall quarterly bonus target.

 

Worldwide 2005 ICP Plan Description

Final – February 3, 2005

  

Micromuse Confidential

   Page 3

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Bonus Calculation

 

The actual quarterly bonus to be paid to an eligible participant is a
straightforward calculation taking into account 1) the Quarterly ICP Target, 2)
the funding level of the ICP for the quarter, and 3) the individual ICP
performance rating received for the quarter.

 

1) Determining Quarterly ICP Targets

 

Annual ICP Bonus

Target

   X    25%    =    Quarterly ICP Target                   (1)

 

2) Determining Total Quarterly Payout Amounts for the ICP

 

Quarterly ICP

Target

   X   

Overall

ICP Funding %

   X   

Individual

Performance %

   =    Quarterly
Payout (1)         (2)         (3)          

 

Company-wide Financial Measures – ICP Funding

 

ICP funding is a function of the Company’s ability to achieve certain financial
goals at the company-wide level, specifically, quarterly net revenue and
pro-forma fully diluted earnings per share (EPS) (see table, page 5).

 

Simply put, if the company does well financially, bonuses will “fund” (and
include “upside” potential or payouts above 100%); if we do not achieve our
financial goals, bonus funding will be reduced (or, potentially, go away
altogether).

 

Worldwide 2005 ICP Plan Description

Final – February 3, 2005

  

Micromuse Confidential

   Page 4

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Q1 2005 Company-wide Financial Performance ICP Funding Grid

 

Net
    Revenue    

--------------------------------------------------------------------------------

  

Pro-forma Fully Diluted Earnings Per Share

--------------------------------------------------------------------------------

  

< *

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*

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*

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*

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*

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> *

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³ *M

   *%    *%    *%    *%    100%    *%    *%    *%    *%

   *M

   *%    *%    *%    *%    100%    *%    *%    *%    *%

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   *%    *%    *%    *%    100%    *%    *%    *%    *%     

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   *M

   0%    35%    53%    76%    100%    105%    110%    115%    120%     

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   *M

   *%    *%    *%    *%    85%    *%    *%    *%    *%

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   *%    *%    *%    *%    67%    *%    *%    *%    *%

   *M

   *%    *%    *%    *%    50%    *%    *%    *%    *%

< *M

   *%    *%    *%    *%    0%    *%    *%    *%    *% Q2 2005 Company-wide
Financial Performance ICP Funding Grid

Net
    Revenue    

--------------------------------------------------------------------------------

  

Pro-forma Fully Diluted Earnings Per Share

--------------------------------------------------------------------------------

  

< *

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*

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*

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*

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> *

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   *%    *%    *%    *%    100%    *%    *%    *%    *%

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   0%    35%    53%    76%    100%    105%    110%    115%    120%     

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   *M

   *%    *%    *%    *%    85%    *%    *%    *%    *%

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   *%    *%    *%    *%    67%    *%    *%    *%    *%

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   *%    *%    *%    *%    50%    *%    *%    *%    *%

< *M

   *%    *%    *%    *%    0%    *%    *%    *%    *% Q3 2005 Company-wide
Financial Performance ICP Funding Grid

Net
    Revenue    

--------------------------------------------------------------------------------

  

Pro-forma Fully Diluted Earnings Per Share

--------------------------------------------------------------------------------

  

< *

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   0%    35%    53%    76%    100%    105%    110%    115%    120%     

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   *M

   *%    *%    *%    *%    85%    *%    *%    *%    *%

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   *%    *%    *%    *%    67%    *%    *%    *%    *%

   *M

   *%    *%    *%    *%    50%    *%    *%    *%    *%

< *M

   *%    *%    *%    *%    0%    *%    *%    *%    *% Q4 2005 Company-wide
Financial Performance ICP Funding Grid

Net
    Revenue    

--------------------------------------------------------------------------------

  

Pro-forma Fully Diluted Earnings Per Share

--------------------------------------------------------------------------------

  

< *

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   *%    *%    *%    *%    100%    *%    *%    *%    *%     

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   *M

   0%    35%    53%    76%    100%    105%    110%    115%    120%     

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   *M

   *%    *%    *%    *%    85%    *%    *%    *%    *%

   *M

   *%    *%    *%    *%    67%    *%    *%    *%    *%

   *M

   *%    *%    *%    *%    50%    *%    *%    *%    *%

< *M

   *%    *%    *%    *%    0%    *%    *%    *%    *%

 

Note: * indicates material that has been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.

 

Worldwide 2005 ICP Plan Description

Final – February 3, 2005

  

Micromuse Confidential

   Page 5

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Important Notes:

 

•   For purposes of determining the appropriate funding percentage under the
ICP, the following Micromuse financial metrics will be used for each quarter:

 

  •   Pro-forma fully diluted earnings per share, and

 

  •   Net revenue

 

•   In the event the net revenue and/or pro-forma fully diluted earnings per
share results are between the percentages identified in the ICP funding matrix
above, then the percentage payout will be calculated on a linear basis between
the relevant percentages, rounding up to the nearest whole percent.

 

•   Allowances for mergers and acquisitions:

 

  •   In the case of an acquisition, revised revenue and EPS targets will be
calculated and substituted for those listed above, reflecting the combined net
revenues and new pro-forma fully diluted EPS for the combined entity.

 

  •   These changes will be made for the subsequent quarter, that is, the
quarter immediately following the close of the acquisition.

 

•   The Board of Directors of Micromuse may modify the ICP program at any time.

 

Worldwide 2005 ICP Plan Description

Final – February 3, 2005

  

Micromuse Confidential

   Page 6

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The ICP Goal Setting Process (Salaried Employees Only)

 

Salaried participants in the ICP must have a pre-determined set of 3-5 key goals
that must be accomplished well in order to receive their bonuses. These goals
should be “stretch” goals requiring performance above normal levels for the
employee’s job.

 

The Goals worksheet (attached) must be completed, and signed by both the
employee and his/her manager in order to be eligible for participation in the
program. Completed Goal worksheets should be turned into Human Resources within
30 days after the start of the quarter, and copies should be kept by both the
employee and his/her manager.

 

Employees who are otherwise eligible, but who have not completed the ICP
goal-setting process, will not be eligible for participation in the ICP.

 

Employees must be in good standing at the time of the ICP payout (i.e. not on
probationary status, subject to any disciplinary action, or in breach of their
employee duties) to be eligible to receive an ICP payout. Because of this, an
employee on a performance improvement plan is ineligible to participate in the
program until the first quarter following satisfactory completion of the
improvement plan.

 

Any employee who participates in the ICP must be employed by Micromuse on the
last day of the quarter to remain eligible to receive the ICP payout for that
quarter.

 

If goals need to be changed during the quarter, the employee and his/her manager
should complete a new Goals worksheet and submit it as soon as possible to Human
Resources. Goal changes in the last month of a quarter are not permitted.

 

Tracking Progress Against Goals

 

Participants and their managers are expected to meet at least monthly to review
progress against goals, and make changes as needed.

 

End-of-Quarter Goal Assessment

 

Within 21 days after the completion of each quarter, managers must return
completed evaluation forms to Human Resources for entry into the ICP database
and calculation of the employee’s ICP payout. A maximum rating of 100% is
allowed. Exceptions over 100% may be considered on a case-by-case basis, for
review/approval by the CEO, in cases of individual accomplishments which are
directly linked to increased Micromuse revenue.

 

Payouts

 

After the public announcement of the Company’s earnings, the company-wide
performance measures will be calculated, and a determination made regarding the
appropriate ICP funding percentage for the quarter. Payouts will occur as soon
as administratively feasible following the public announcement of the Company’s
earnings, usually in the first payroll subsequent to that date. ICP Payouts are
subject to the collection by the Company of all applicable payroll taxes.

 

ICP goal rating forms that are submitted late will be paid in the payroll run
following submission. If late submission is due to a manager’s oversight, the
manager’s payout may be delayed until all his/her direct reports’ ICP forms are
submitted for processing.

 

No Employment Rights

 

Nothing in the ICP or this summary will confer upon an employee any right to
continue as an employee for any period of specific duration or interfere with or
otherwise restrict in any way the rights of Micromuse in employment matters,
within the context of local labor laws.

 

Worldwide 2005 ICP Plan Description

Final – February 3, 2005

  

Micromuse Confidential

   Page 7

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Micromuse Worldwide Incentive Compensation Plan (ICP) – Q1 2005

 

Name:               Position:               Manager:              
Organization:              

 

Guidelines for writing ICP Goals (Salaried Employees Only):

 

There should be a minimum of three ICP goals, and no more then five. When
setting ICP goals, be sure that each is Specific, Measurable, Achievable,
Relevant and Time-bound (SMART). Each goal should be reviewed, and agreed to, by
the manager and his/her employee.

 

Goal/Objective

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% Weight

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Metrics/Success Criteria

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Actual Achievement

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% Achievement

--------------------------------------------------------------------------------

                                                                                
                            

 

Review & Acknowledgement of Goals/Objectives    Review & Acknowledgement of ICP
Completion Rating _______________________    ________    _______________________
   ________ Employee    Date    Employee    Date _______________________   
________    _______________________    ________ Manager    Date    Manager   
Date