EXHIBIT 10.5

 

ADOBE SYSTEMS INCORPORATED

EXECUTIVE ANNUAL INCENTIVE PLAN

FISCAL YEAR 2011

 

Purpose:

 

As part of the total compensation program, Adobe has designed an annual
cash-based incentive plan for its 2011 fiscal year for certain executive
officers.  This Executive Annual Incentive Plan for Fiscal Year 2011 (“AIP”) is
designed to drive revenue growth and operating profits, encourage
accountability, drive execution of long-term strategy and annual operating plan
objectives, and recognize and reward executives upon the achievement of our
objectives.  This AIP operates under, and is subject to the terms of, the Adobe
Systems Incorporated Executive Cash Performance Bonus Plan (the “Master Bonus
Plan”) that was approved by Adobe’s Board of Directors in January 2011. 
Capitalized terms not defined herein have the meanings set forth in the Master
Bonus Plan.  Note that the Master Bonus Plan is being submitted for the approval
by Adobe’s stockholders at the 2011 Annual Meeting of Stockholders.  If the
stockholders do not approve the Master Bonus Plan at that meeting, no bonuses
will be paid under this AIP to participants who are determined to be “covered
employees” under Section 162(m) for the 2011 fiscal year and such individuals
will have no other contractual rights to any annual bonus amounts; however, this
AIP will remain in full force and effect for all other eligible participants.

 

Eligibility:

 

Executive officers of the Company who are employed (full time or part time)
during Adobe’s 2011 fiscal year (the “Performance Period”), who are at least
Senior Vice President level, who are regular employees of Adobe at the end of
the Performance Period and who remain employees of Adobe through the date the
Actual Award is paid are eligible to participate in the AIP.  If an executive
officer is hired after the beginning of the AIP Performance Period and the
Committee determines that such executive should be eligible to earn compensation
under the AIP, the executive officer’s Target Award will be pro-rated based on
the actual earned salary during the AIP Performance Period — that is, the Target
Award will be calculated by reference to actual salary earned during the AIP
Performance Period.  If the executive officer’s salary and/or AIP annual bonus
target percent changes during the AIP Performance Period, the officer’s Target
Award will be pro-rated based on those adjusted figures as follows:  the Target
Award will be based on the number of business days in the AIP Performance Period
with the former AIP annual bonus target percent/earned salary and the number of
business days in the AIP Performance Period with the new AIP annual bonus target
percent/earned salary.  If the executive’s employment terminates before the date
the Actual Award is paid, the executive will not be eligible for a bonus
payment, or any portion of a bonus payment, except as provided in an applicable
severance plan or in an individual retention agreement with an executive.  If an
executive is on a leave of absence for the entire AIP Performance Period, the
executive is not eligible for an AIP bonus.  If the executive officer is on a
leave of absence for a portion of the AIP Performance Period, the officer will
be eligible for a bonus under the AIP based on actual salary earned during the
Performance Period (exclusive of any salary replacement benefits paid during the
leave via insurance) — that is, the Target Award will be calculated by reference
to the actual salary earned during the AIP Performance Period.

 

Employees Covered by Internal Revenue Code Section 162(m):

 

Notwithstanding the foregoing eligibility provisions, to the extent it
determines to be necessary or desirable to achieve full deductibility of bonus
compensation awarded under the AIP, the Committee, in its sole discretion, (i)
may exclude from participation under the AIP those individuals who are or who
may likely be “covered employees” under Section 162(m) of the Internal Revenue
Code of 1986, as amended (“Section 162(m)”) whose employment in an eligible
position commenced after the Committee established the Threshold Goal (described
below), which generally will be a date not later than the 90th day of the AIP
Performance Period and (ii) may take other actions as necessary to ensure
deductibility of the compensation paid under the AIP.

 

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

 

HOW THE AIP WORKS

 

AIP Components:

 

Target Award, Maximum Award, Threshold Goal, Corporate Result, Individual
Result, and Actual Award

 

Target Award:

 

An annual bonus target percent is designated for each eligible participant by
the Committee.  Each participant’s Actual Award (as defined below) is
calculated, in part (as further described below), by reference to his or her
“Target Award.”  The Target Award equals the product of the annual bonus target
percent and the actual base salary earned by the participant in the fiscal
year.  For example, a Senior Vice President whose annual bonus target percent is
60% and whose actual earned annual base salary is $400,000 would have his Actual
Award calculated by reference to a Target Award of $240,000 ($400,000 x 60%). 
The Target Award is the amount that would be earned under the AIP upon
achievement at the 100% level of both the Corporate Result and the Individual
Result.

 

Maximum Award:

 

No executive may earn a bonus in respect of the Performance Period in excess of
200% of his or her Target Award (and in no event more than $5 million) (“Maximum
Award”).

 

Funding the Bonus Pool:

 

If the Threshold Goal is attained, the AIP will be funded at 200% of the Target
Award for all participants, and each participant will be credited with the
Maximum Award.  The Company is under no obligation to pay out the entire funding
of the bonus pool.

 

The Threshold Goal is defined as achievement during the Performance Period of at
least 90% of the Company’s budgeted GAAP revenue target (“GAAP Revenue”),
disregarding the effects of any material acquisitions not incorporated into the
operating plan, as set forth in the annual operating plan approved by Adobe’s
Board of Directors at the beginning of the fiscal year.  If the Company does not
achieve the Threshold Goal, the AIP will not be funded and eligible executives
will earn no bonus under the AIP.  If the Company achieves the Threshold Goal,
executives will be credited with their Maximum Award that will be adjusted
downward to the Actual Award.

 

Determination of Actual Award:

 

Upon the funding of the AIP and crediting of the Maximum Award, the Company will
determine the actual award earned by that participant (the “Actual Award”) by
reducing the Maximum Award based on (i) achievement against specific Company
financial goals, as reflected by the calculation of the Corporate Result
(defined below), and (ii) achievement against individual performance goals
reflected by the calculation of the Individual Result (defined below).  In
addition, the Actual Award is subject to further adjustment as described below
under “Additional Adjustments to Actual Awards.”

 

Specifically, each executive’s Actual Bonus under the AIP is reduced from the
Maximum Award based on a formula that multiplies the executive’s Target Award by
1) the Corporate Result, and 2) that executive’s Individual Result.

 

Corporate Result:

 

If the Company has achieved the Threshold Goal, the “Corporate Result”
(expressed as a percentage not to exceed 200%) is determined by calculating the
applicable percentage under the AIP matrix (attached) based on the Company’s
achievement of both (1) Adjusted Non-GAAP Operating Profit (that is, GAAP
operating profit, adjusted to include the operating profit associated with
shippable backlog at the end of the fiscal year and to exclude (i) any annual
incentive plan payments, (ii) the effects of any material acquisitions not
incorporated into the operating plan, (iii) the impact of stock compensation
(iv) deferred

 

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

 

compensation expense, (v) restructuring charges, and (v) amortization of
purchased intangibles, technology license arrangements and incomplete
technology) and (2) Adjusted Revenue (that is, GAAP Revenue, adjusted to reflect
shippable backlog at the end of the fiscal year and to disregard the effects of
any material acquisitions not incorporated into the operating plan). 
Achievement of Adjusted Non-GAAP Operating Profit and Adjusted Revenue is
determined by reference to the respective targets for such measures set forth in
the annual operating plan approved by Adobe’s Board of Directors at the
beginning of the fiscal year.  The Company may exercise negative discretion to
reduce the Corporate Result, in its sole discretion.  The Corporate Result
Percentage is zero, and each participant’s Maximum Award is reduced to zero, if
Adobe achieves less than 75% of its Adjusted Non-GAAP Operating Profit target or
less than 90% of its Adjusted Revenue target.

 

Individual Result:

 

The Committee, in consultation with the CEO (other than with respect to his own
performance), determines each participant’s “Individual Result” multiplier
(expressed as a percentage not to exceed 100%), based in part on that
executive’s achievement of certain goals selected for such executive at the
beginning of the AIP Performance Period, with such goals weighted in the sole
discretion of the Committee.  If the Corporate Result exceeds 100%, the
Individual Result multiplier may also reflect, in the Committee’s discretion,
the individual’s contribution toward the achievement of the Corporate Result
level in excess of 100%.  No participant will earn an Actual Award under the AIP
in excess of his or her Target Award unless the Corporate Result exceeds 100%.

 

Additional Adjustments to Actual Awards:

 

A 5% reduction will be applied to the Actual Award otherwise earned by any
executive who fails to meet the annual performance appraisal submission
deadline. A separate 5% reduction will be applied to the Actual Award that would
otherwise be earned by any executive who fails to timely complete mandatory
training during the fiscal year.

 

Administration:

 

Actual Awards earned are paid on an annual basis approximately 45-60 days after
fiscal year-end, but in all cases in compliance with the short term deferral
exception from Section 409A of the Internal Revenue Code of 1986, as amended. 
Participation in the AIP is at the discretion of the Committee, in consultation
with Company management.  The Company reserves the right to interpret and to
make changes to or withdraw the AIP at any time, subject to applicable legal
requirements.  All terms and conditions of the AIP are subject to compliance
with applicable law.

 

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

 

AIP CORPORATE RESULT MATRIX:

 

AIP Matrix

 

 

 

90% Gate

 

Revenue

 

Operting Profit $s

 

90%

 

91%

 

92%

 

93%

 

94%

 

95%

 

96%

 

97%

 

98%

 

99%

 

 

100%

 

 

101%

 

102%

 

103%

 

104%

 

105%

 

106%

 

107%

 

108%

 

109%

 

110%

 

75% Gate

 

125

%

166

%

168

%

169

%

171

%

173

%

175

%

176

%

178

%

180

%

182

%

 

183

%

 

186

%

189

%

192

%

195

%

198

%

200

%

200

%

200

%

200

%

200

%

 

 

124

%

163

%

164

%

166

%

168

%

170

%

171

%

173

%

175

%

177

%

178

%

 

180

%

 

183

%

186

%

189

%

192

%

194

%

197

%

200

%

200

%

200

%

200

%

 

 

123

%

159

%

161

%

163

%

164

%

166

%

168

%

170

%

171

%

173

%

175

%

 

177

%

 

180

%

182

%

185

%

188

%

191

%

194

%

197

%

200

%

200

%

200

%

 

 

122

%

156

%

158

%

159

%

161

%

163

%

165

%

166

%

168

%

170

%

172

%

 

173

%

 

176

%

179

%

182

%

185

%

188

%

191

%

193

%

196

%

199

%

200

%

 

 

121

%

153

%

154

%

156

%

158

%

160

%

161

%

163

%

165

%

167

%

168

%

 

170

%

 

173

%

176

%

179

%

182

%

184

%

187

%

190

%

193

%

196

%

199

%

 

 

120

%

149

%

151

%

153

%

154

%

156

%

158

%

160

%

161

%

163

%

165

%

 

167

%

 

170

%

172

%

175

%

178

%

181

%

184

%

187

%

190

%

193

%

196

%

 

 

119

%

146

%

148

%

149

%

151

%

153

%

155

%

156

%

158

%

160

%

162

%

 

163

%

 

166

%

169

%

172

%

175

%

178

%

181

%

183

%

186

%

189

%

192

%

 

 

118

%

143

%

144

%

146

%

148

%

150

%

151

%

153

%

155

%

157

%

158

%

 

160

%

 

163

%

166

%

169

%

172

%

174

%

177

%

180

%

183

%

186

%

189

%

 

 

117

%

139

%

141

%

143

%

144

%

146

%

148

%

150

%

151

%

153

%

155

%

 

157

%

 

160

%

162

%

165

%

168

%

171

%

174

%

177

%

180

%

183

%

186

%

 

 

116

%

136

%

138

%

139

%

141

%

143

%

145

%

146

%

148

%

150

%

152

%

 

153

%

 

156

%

159

%

162

%

165

%

168

%

171

%

173

%

177

%

180

%

183

%

 

 

115

%

133

%

134

%

136

%

138

%

140

%

141

%

143

%

145

%

147

%

148

%

 

150

%

 

153

%

156

%

159

%

162

%

164

%

167

%

170

%

173

%

176

%

180

%

 

 

114

%

129

%

131

%

133

%

134

%

136

%

138

%

140

%

141

%

143

%

145

%

 

147

%

 

150

%

152

%

155

%

158

%

161

%

164

%

167

%

170

%

173

%

176

%

 

 

113

%

126

%

128

%

129

%

131

%

133

%

135

%

136

%

138

%

140

%

142

%

 

143

%

 

146

%

149

%

152

%

155

%

158

%

161

%

164

%

167

%

170

%

173

%

 

 

112

%

123

%

124

%

126

%

128

%

130

%

131

%

133

%

135

%

137

%

138

%

 

140

%

 

143

%

146

%

149

%

152

%

154

%

157

%

161

%

164

%

167

%

170

%

 

 

111

%

119

%

121

%

123

%

124

%

126

%

128

%

130

%

131

%

133

%

135

%

 

137

%

 

140

%

142

%

145

%

148

%

151

%

154

%

157

%

161

%

164

%

167

%

 

 

110

%

116

%

118

%

119

%

121

%

123

%

125

%

126

%

128

%

130

%

132

%

 

133

%

 

136

%

139

%

142

%

145

%

148

%

151

%

154

%

157

%

160

%

164

%

 

 

109

%

113

%

114

%

116

%

118

%

120

%

121

%

123

%

125

%

127

%

128

%

 

130

%

 

133

%

136

%

139

%

142

%

145

%

148

%

151

%

154

%

157

%

160

%

 

 

108

%

109

%

111

%

113

%

114

%

116

%

118

%

120

%

121

%

123

%

125

%

 

127

%

 

130

%

132

%

135

%

138

%

141

%

145

%

148

%

151

%

154

%

157

%

 

 

107

%

106

%

108

%

109

%

111

%

113

%

115

%

116

%

118

%

120

%

122

%

 

123

%

 

126

%

129

%

132

%

135

%

138

%

141

%

145

%

148

%

151

%

154

%

 

 

106

%

103

%

104

%

106

%

108

%

110

%

111

%

113

%

115

%

117

%

118

%

 

120

%

 

123

%

126

%

129

%

132

%

135

%

138

%

141

%

145

%

148

%

151

%

 

 

105

%

99

%

101

%

103

%

104

%

106

%

108

%

110

%

111

%

113

%

115

%

 

117

%

 

120

%

122

%

125

%

129

%

132

%

135

%

138

%

141

%

144

%

148

%

 

 

104

%

96

%

98

%

99

%

101

%

103

%

105

%

106

%

108

%

110

%

112

%

 

113

%

 

116

%

119

%

122

%

125

%

129

%

132

%

135

%

138

%

141

%

144

%

 

 

103

%

93

%

94

%

96

%

98

%

100

%

101

%

103

%

105

%

107

%

108

%

 

110

%

 

113

%

116

%

119

%

122

%

125

%

129

%

132

%

135

%

138

%

141

%

 

 

102

%

89

%

91

%

93

%

94

%

96

%

98

%

100

%

101

%

103

%

105

%

 

107

%

 

110

%

113

%

116

%

119

%

122

%

125

%

129

%

132

%

135

%

138

%

 

 

101

%

86

%

88

%

89

%

91

%

93

%

95

%

96

%

98

%

100

%

102

%

 

103

%

 

106

%

110

%

113

%

116

%

119

%

122

%

125

%

129

%

132

%

135

%

 

 

100

%

83

%

84

%

86

%

88

%

90

%

91

%

93

%

95

%

97

%

98

%

 

100

%

 

103

%

106

%

109

%

113

%

116

%

119

%

122

%

125

%

128

%

132

%

 

 

99

%

79

%

81

%

83

%

84

%

86

%

88

%

90

%

91

%

93

%

95

%

 

97

%

 

100

%

103

%

106

%

109

%

113

%

116

%

119

%

122

%

125

%

128

%

 

 

98

%

76

%

78

%

79

%

81

%

83

%

85

%

86

%

88

%

90

%

92

%

 

94

%

 

97

%

100

%

103

%

106

%

109

%

113

%

116

%

119

%

122

%

125

%

 

 

97

%

73

%

74

%

76

%

78

%

80

%

81

%

83

%

85

%

87

%

88

%

 

90

%

 

94

%

97

%

100

%

103

%

106

%

109

%

113

%

116

%

119

%

122

%

 

 

96

%

69

%

71

%

73

%

74

%

76

%

78

%

80

%

81

%

83

%

85

%

 

87

%

 

90

%

94

%

97

%

100

%

103

%

106

%

109

%

113

%

116

%

119

%

 

 

95

%

66

%

68

%

69

%

71

%

73

%

75

%

76

%

78

%

80

%

82

%

 

84

%

 

87

%

90

%

93

%

97

%

100

%

103

%

106

%

109

%

112

%

116

%

 

 

94

%

63

%

64

%

66

%

68

%

70

%

71

%

73

%

75

%

77

%

79

%

 

81

%

 

84

%

87

%

90

%

93

%

97

%

100

%

103

%

106

%

109

%

112

%

 

 

93

%

59

%

61

%

63

%

64

%

66

%

68

%

70

%

71

%

73

%

76

%

 

78

%

 

81

%

84

%

87

%

90

%

93

%

97

%

100

%

103

%

106

%

109

%

 

 

92

%

56

%

58

%

59

%

61

%

63

%

65

%

66

%

68

%

70

%

72

%

 

74

%

 

78

%

81

%

84

%

87

%

90

%

93

%

97

%

100

%

103

%

106

%

 

 

91

%

53

%

54

%

56

%

58

%

60

%

61

%

63

%

65

%

67

%

69

%

 

71

%

 

74

%

78

%

81

%

84

%

87

%

90

%

93

%

97

%

100

%

103

%

 

 

90

%

49

%

51

%

53

%

54

%

56

%

58

%

60

%

62

%

64

%

66

%

 

68

%

 

71

%

74

%

77

%

81

%

84

%

87

%

90

%

93

%

96

%

100

%

 

 

89

%

46

%

48

%

49

%

51

%

53

%

55

%

57

%

59

%

61

%

63

%

 

65

%

 

68

%

71

%

74

%

77

%

81

%

84

%

87

%

90

%

93

%

96

%

 

 

88

%

43

%

44

%

46

%

48

%

50

%

51

%

53

%

55

%

57

%

60

%

 

62

%

 

65

%

68

%

71

%

74

%

77

%

81

%

84

%

87

%

90

%

93

%

 

 

87

%

39

%

41

%

43

%

44

%

46

%

48

%

50

%

52

%

54

%

56

%

 

58

%

 

62

%

65

%

68

%

71

%

74

%

77

%

81

%

84

%

87

%

90

%

 

 

86

%

36

%

38

%

39

%

41

%

43

%

45

%

47

%

49

%

51

%

53

%

 

55

%

 

58

%

62

%

65

%

68

%

71

%

74

%

77

%

81

%

84

%

87

%

 

 

85

%

33

%

34

%

36

%

38

%

40

%

42

%

44

%

46

%

48

%

50

%

 

52

%

 

55

%

58

%

61

%

65

%

68

%

71

%

74

%

77

%

80

%

84

%

 

 

84

%

29

%

31

%

33

%

34

%

36

%

39

%

41

%

43

%

45

%

47

%

 

49

%

 

52

%

55

%

58

%

61

%

65

%

68

%

71

%

74

%

77

%

80

%

 

 

83

%

26

%

28

%

29

%

31

%

33

%

35

%

37

%

39

%

41

%

44

%

 

46

%

 

49

%

52

%

55

%

58

%

61

%

65

%

68

%

71

%

74

%

77

%

 

 

82

%

23

%

24

%

26

%

28

%

30

%

32

%

34

%

36

%

38

%

40

%

 

42

%

 

46

%

49

%

52

%

55

%

58

%

61

%

65

%

68

%

71

%

74

%

 

 

81

%

19

%

21

%

23

%

25

%

27

%

29

%

31

%

33

%

35

%

37

%

 

39

%

 

42

%

46

%

49

%

52

%

55

%

58

%

61

%

65

%

68

%

71

%

 

 

80

%

16

%

18

%

20

%

22

%

24

%

26

%

28

%

30

%

32

%

34

%

 

36

%

 

39

%

42

%

45

%

49

%

52

%

55

%

58

%

61

%

64

%

68

%

 

 

79

%

13

%

14

%

16

%

18

%

20

%

23

%

25

%

27

%

29

%

31

%

 

33

%

 

36

%

39

%

42

%

45

%

49

%

52

%

55

%

58

%

61

%

64

%

 

 

78

%

9

%

11

%

13

%

15

%

17

%

19

%

21

%

23

%

25

%

28

%

 

30

%

 

33

%

36

%

39

%

42

%

45

%

49

%

52

%

55

%

58

%

61

%

 

 

77

%

6

%

8

%

10

%

12

%

14

%

16

%

18

%

20

%

22

%

24

%

 

26

%

 

30

%

33

%

36

%

39

%

42

%

45

%

49

%

52

%

55

%

58

%

 

 

76

%

3

%

5

%

7

%

9

%

11

%

13

%

15

%

17

%

19

%

21

%

 

23

%

 

26

%

30

%

33

%

36

%

39

%

42

%

45

%

49

%

52

%

55

%

 

 

75

%

0

%

2

%

4

%

6

%

8

%

10

%

12

%

14

%

16

%

18

%

 

20

%

 

23

%

26

%

29

%

33

%

36

%

39

%

42

%

45

%

48

%

52

%

 

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