EXHIBIT 10.3

INTERNATIONAL PAPER COMPANY

MANAGEMENT INCENTIVE PLAN (MIP)

Amended and Restated as of January 1, 2012

 

I. Purposes of the Plan and Plan Description

The purposes of this Plan are to: (a) provide an incentive to reward
Participants for results in improving the financial performance of the Company;
(b) attract and retain the best talent available; and (c) further align the
interests of the Participants and the Company’s shareowners.

The Plan is an annual cash incentive plan developed around the achievement of
pre-established Performance Objectives and funded based on the Company’s
achievement level against those Performance Objectives.

 

II. Definitions

 

  •  

Award Scale

“Award Scale” means the conversion of the Performance Objective Rating to a
percent of Target Award earned.

 

  •  

Cash Flow from Operations

“Cash Flow from Operations” includes cash flow from discontinued and continuing
operations as well as cash flow from special items, and is shown in the
Company’s Statement of Cash Flow as “Cash Provided by (Used for) Operations.”
Cash flow as a result of pension contributions, alternative fuel mixture tax
credits or other unanticipated, highly unusual items may, at the Committee’s
discretion, be excluded in the calculation of “Cash Flow from Operations” for
purposes of determining achievement of this cash flow metric.

 

  •  

Cause

“Cause” includes but is not limited to misconduct or other activity detrimental
to the business interest or reputation of the Company or continued
unsatisfactory job performance without making reasonable efforts to improve.
Examples include insubordination, protracted or repeated absence from work
without permission, illegal activity, disorderly conduct, etc.

 

  •  

CEO Special Award Pool

“CEO Special Award Pool” means the amount payable for CEO Special Awards as
determined in Section III.

 

  •  

Committee

“Committee” means the Management Development and Compensation Committee of the
Company’s Board of Directors.

 

  •  

Company

“Company” means International Paper Company, a New York corporation, together
with its Subsidiaries.

 

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  •  

Employee

“Employee” means a regular, active, full-time salaried employee employed on a
non-temporary basis.

 

  •  

Misconduct

“Misconduct” includes but is not limited to an act detrimental to the business
interest or reputation of the Company or any act determined to be a deliberate
disregard of the Company’s rules, or violation of the Employee’s Non-Competition
or Non-Solicitation Agreement.

 

  •  

Participant

“Participant” means a person who has been designated as a participant in the
Plan, according to Section V.

 

  •  

Performance Objective Rating

“Performance Objective Rating” means the percentage amount assigned to a
Performance Objective for a level of performance achievement.

 

  •  

Performance Objectives

“Performance Objectives” mean the measures identified by the Company and
approved by the Committee identified in Section VI.

 

  •  

Plan or MIP

“Plan” or “MIP” means this Management Incentive Plan, amended and restated as of
January 1, 2012.

 

  •  

Plan Year

“Plan Year” means the twelve month period corresponding to the Company’s fiscal
year (January 1 through December 31).

 

  •  

Return on Investment or ROI

“Return on Investment” or “ROI” means after-tax operating earnings, including
both earnings from continuing and discontinued operations (up through the date
of sale), and before the impact of special items divided by average capital
employed. Capital employed is total assets, less short-term,
non-interest-bearing liabilities. The Company’s ROI metric excludes the impact
of special items, such as gains or losses associated with asset sales,
restructuring costs, changes in pension funding, significant out-of-period or
“one-off” items.

 

  •  

Subsidiary

“Subsidiary” means any company that is owned (50% or more) or controlled by the
Company, directly or indirectly.

 

  •  

Target Award

“Target Award” means an amount equal to the percentage of salary range midpoint
applicable to the actual position level of each Participant, shown in Appendix
A.

 

  •  

Total MIP Award Pool

“Total MIP Award Pool” means an amount generated by the sum of eligible
Participants’ Target Awards multiplied by the Company’s percentage achievement
of its Performance Objectives.

 

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III. CEO Special Award Pool

The CEO may designate a portion of the Total MIP Award Pool to fund CEO Special
Awards for extraordinary individual performance to award to Employees,
regardless of whether such Employees are otherwise eligible to participate in
the Plan. The CEO Special Award Pool, if any, has historically been in the range
of 1.5% to 3.0% of the Total MIP Award Pool. The CEO Special Awards are funded
out of the Total MIP Award Pool.

 

IV. Administration of the Plan

The Plan operates at the discretion of the Committee. The Committee may exercise
considerable discretion and judgment in interpreting the Plan, and adopting,
from time to time, rules and regulations that govern the administration of the
Plan.

The Committee has delegated authority to the CEO or his designee for the
day-to-day administration of the Plan, except with respect to the CEO’s award or
any award to a Senior Vice President of the Company or above.

Decisions of the Committee are final, conclusive and binding on all parties,
including the Company, its shareowners, and employees.

 

V. Participation in the Plan

Participation in the Plan is generally limited to individuals who meet the
definition of Employee set forth in Section II whose position level is 14 or
higher. Except as set forth in Section VII, a Participant must be an Employee as
of September 30 of the Plan Year and on the date of the award payout in order to
be eligible to receive a payout.

Employees who are eligible for participation in any other short-term, cash-based
incentive compensation plan of the Company are not eligible for participation in
this Plan.

An Employee who becomes eligible to participate in the Plan during the Plan Year
or who moves from one eligible position level to another will be eligible for a
prorated award. An Employee who moves from an eligible position to a
non-eligible position during the Plan Year will be eligible for a prorated award
based on the number of months the employee was eligible during the Plan Year.

Participation in this Plan, or receipt of an award under this Plan, does not
give a Participant or Employee any right to a subsequent award, or any right to
continued employment by the Company for any period.

 

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VI. Award Pool and Award Scale

A. Performance Objectives – Funding the Total MIP Award Pool

The Company must achieve at least a minimum level of performance in order to
fund the Total MIP Award Pool.

The Total MIP Award Pool will be determined based on achievement of the
Performance Objectives listed below during the Plan Year.

The maximum level of performance achievement that may be applied to calculate
the Total MIP Award Pool for the Plan Year is 200%.

 

  •  

50% Weight: Cash Flow from Operations *

 

Performance

 

Award %

Greater than $3,200 MM and

up to $3,800 MM

 

+ .1667% for each $1MM

improvement greater than

$3,200 MM up to $3,800 MM

$3,200 MM   100%

From $2,400 MM to

less than $3,200 MM

 

-.0625% for each $1MM

drop below

$3,200 MM down to $2,400 MM

 

*

The financial results of Temple-Inland’s Building Products business (which the
Company is holding for sale) will be excluded from the Cash Flow from Operations
calculation. In addition, the cash impact of one-time costs associated with the
Temple-Inland acquisition (e.g., fees, settlements, costs to achieve synergies,
etc.) will be excluded from this metric.

 

  •  

50% Weight: Absolute Return on Investment *

 

Performance

 

Award %

Greater than 6.5% and up to 8.5%  

+ 5.0% for each 0.1%

improvement greater than

6.5% up to 8.5%

6.5%   100% From 4.9% to less than 6.5%  

-3.13% for each 0.1%

drop below

6.5% down to 4.9%

 

*

The financial results of Temple-Inland’s Building Products business (which the
Company is holding for sale) will be excluded from the ROI calculation.

 

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  •  

Performance Objective Rating

The Company’s achievement of each Performance Objective will be evaluated by the
Company as of the end of the Plan Year, and reviewed and verified by the
Company’s external auditors.

The Company’s determination of performance achievement will be presented to the
Committee for its review and approval in February following the end of the Plan
Year.

B. Approval by the Committee of the Total MIP Award Pool

The Committee approves the Total MIP Award Pool based on the Company’s
performance achievement against the Performance Objectives described above.

The Committee may determine in its sole discretion to reduce or eliminate the
Total MIP Award Pool based upon any objective or subjective criteria it deems
appropriate.

The Committee may determine it its sole discretion to increase the Total MIP
Award Pool above the calculated amount by no more than 25% based upon any
objective or subjective criteria it deems appropriate. In no event shall the
Total MIP Award Pool exceed the Maximum Award Pool of 200%.

The Company shall make every effort to provide projected performance achievement
to the Committee by the December meeting of the Board of Directors with the
intent of understanding the Committee’s desire to exercise discretion with
regard to the Total MIP Award Pool.

The amount allocated for payment of awards under the Plan and for the CEO
Special Award Pool may not exceed the Total MIP Award Pool.

 

VII.

Individual Participant Awards

A. Individual Award Recommendations

In February following the end of the Plan Year, the CEO (in consultation with
the Senior Vice President, Human Resources and Communications) will recommend to
the Committee the individual MIP awards for Senior Vice Presidents of the
Company and above (other than the CEO) and an aggregate award amount for all
other Participants.

The Committee will recommend to the independent members of the Board the amount
of the MIP award for the CEO and any other employee-director, if any.

B. Payout of Individual Awards

Participants each have a Target Award expressed as a percentage of the midpoint
of a defined salary range based on position level as set forth on the attached
Appendix A.

A Participant’s Calculated Award is equal to the Participant’s Target Award
multiplied by the Company’s actual performance percentage achieved as reduced by
the percentage designated for the CEO Special Award Pool.

A Participant’s Final Award is equal to the Participant’s Calculated Award
adjusted by the Participant’s individual performance achievement as determined
by his or her manager against pre-established performance objectives. A
Participant’s individual award is capped at 200% of his or her Target Award.

 

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A Participant may be eligible to receive a CEO Special Award in addition to his
or her Final Award, which may cause the Participant’s actual award to be paid to
exceed 200%, provided, however, that the sum of all Final Awards plus CEO Awards
may not exceed the Total MIP Award Pool.

The following is an example of an award payout calculation for a Participant.

 

     Weight     Achieve     Payout  

Company Performance

(as reduced by CEO Special Award Pool)

     100 %      106.79 %      106.79 % 

PL15 Target

       $ 16,600   

Calculated Award

       $ 17,700             (106.79% X $16,600 )

Individual Performance

         115 % 

Final Award

       $ 20,400             (115% X $17,700 ) 

C. Impact of Temporary Layoff for Salaried Employees

The MIP award of a Participant who is involuntarily, temporarily laid off by the
Company will be determined as follows:

 

  •  

Layoff of three months or less followed by return to active employment for
Company: The Participant will be eligible for his or her Calculated Award
payable under the terms of the Plan. The Calculated Award will not be reduced
for the period of temporary layoff.

 

  •  

Layoff of three months or less followed by termination of employment: The
Participant will be eligible for his or her Calculated Award payable under the
terms of the Plan. The Participant’s eligibility for an award will be determined
under Section VII(E) and (F). The award payable, if any, will not be reduced for
the period of temporary layoff.

D. Cancellation of Award Upon Certain Events Prior to Payout

An award not yet paid will cancel as of the Participant’s termination of
employment date in the following events that occur prior to actual payment:

 

  •  

Voluntary resignation before retirement eligibility

 

  •  

Termination for Cause

 

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  •  

Violation of a Non-Compete, Non-Solicitation or Confidentiality Agreement, as
applicable

 

  •  

Failure by any participant in the Company’s Unfunded Supplemental Retirement
Plan for Senior Managers (“SERP”) to submit notice of retirement one year in
advance of the effective date of his or her retirement, except in the event of
death, Disability or waiver by the Management Development and Compensation
Committee

 

  •  

Misconduct. The determination of whether a Participant has engaged in Misconduct
shall be made by the Senior Vice President, Human Resources and Communications,
or by the Management Development and Compensation Committee for Senior Vice
Presidents and above, or by the Board of Directors for a determination with
regard to the Chief Executive Officer.

Note: Awards will be cancelled in the situations listed above even if time and
performance have been met but the award has not yet been paid at the time of
termination. Any dispute as to whether any of the events described in this
paragraph have occurred will be resolved by the Committee in its sole discretion
in accordance with Section IV.

 

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E. Proration Upon Certain Events

An award not yet paid will be prorated based upon the number of months of
employment during the Plan Year in which the Participant worked 15 days or more.
Awards paid at target as severance payments during the Plan Year are not paid
from the Total MIP Award Pool, but rather are charged accordingly to the
appropriate cost center.

 

TERMINATION

SCENARIO

  

DATE OF
TERMINATION

  

AMOUNT

TO BE PAID

  

TIME OF PAYMENT

For All MIP-eligible Employees other than Senior Vice Presidents & CEO DURING
PLAN YEAR

•      Death

•      Disability

•      Approved Leave of Absence

•      Severance*

   1/1 through 12/31    Pro rata Target Award    At termination or as soon as
practical

•      Retirement eligible (including early retirement)

   1/1 through 11/30    Pro rata Target Award    At termination or as soon as
practical             Month of December    Full Calculated Award based on Actual
performance    At time of normal MIP payout AFTER PLAN YEAR BUT BEFORE MIP
PAYOUT

•      Death

•      Disability

•      Approved Leave of Absence

•      Severance*

•      Retirement eligible (including early retirement

   1/1 (of year following plan year) through MIP payout date   

Full prior year Calculated Award based on Actual performance

 

AND

 

Pro rata Target Award for year of termination

  

Calculated Award is paid at time of normal MIP payout

 

AND

 

Pro rata Target Award is paid at termination or as soon as practical

For Senior Vice Presidents and CEO

•      Death

•      Disability

   1/1 through 12/31    Pro rata Target Award    At termination or as soon as
practical

•      Retirement eligible (including early retirement)

•      Severance

•      Approved leave of Absence

   1/1 through 12/31    Pro rata Calculated Award based on Actual performance   
At time of normal MIP payout

 

*

NOTE: A Participant who does not sign a Termination Agreement and Release in
connection with a severance payment will forfeit his or her MIP award, unless
retirement eligible.

 

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VIII.

Allocation of MIP Award Pool among Business Units and Corporate Staff
Organizations

Each Business Unit and Corporate Staff Organization is allocated a portion of
the Total MIP Award Pool as reduced by the CEO Special Award Pool based on the
Company’s performance achievement of the Performance Objectives, however, such
allocations may be further adjusted by the CEO based upon any objective or
subjective criteria the CEO deems appropriate.

 

IX.

Payment of Awards

A. Type of Payment

MIP awards are paid in cash unless deferred by the Participant. Alternatively,
the Committee may, in its sole discretion, authorize payment of all or a portion
of earned MIP awards to all or certain groups of Participants under the
Company’s 2009 Incentive Compensation Plan in shares of Company stock.

B. Time of Payment

Awards may be paid in up to two installments, as determined by the Committee.
Each such installment will be deemed to be a separate payment for purposes of
Section 409A of the Internal Revenue Code and Treas. Reg. §1.409A-2(b)(2)(iii).
In the event an award is paid in one installment, it will be made no later than
March 15 following the Plan Year. In the event an award is paid in more than one
installment, the first such payment will be made no later than March 15
following the Plan Year and the second such payment will be made no later than
December 31 following the Plan Year. In no event will an award or any portion
thereof be paid in the current Plan Year.

C. Payment to Beneficiaries

If a Participant dies prior to receipt of an approved award under the Plan, the
award will be paid in accordance with the chart under Section VII(F) in a lump
sum to the Participant’s estate as soon as practicable but in no event later
than 90 days after the date of death.

D. Deferral of Payment

Any Participant who is eligible for and has elected to participate in the
Company’s Deferred Compensation Savings Plan (“DCSP”) may elect to defer
payment, not to exceed 85%, of any award under this Plan by filing an
irrevocable MIP Deferral Election by the last business day in December of the
year prior to the year in which such award would be earned. Awards or portions
elected to be deferred will be credited with investment earnings or losses in
accordance with provisions of, and the Participant’s elections under, the DCSP.
MIP awards that are deferred will be paid in accordance with the payment terms
of the DCSP.

 

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X.

Recoupment or Forfeiture of Awards

If the Company reasonably believes that a Participant has committed an act of
Misconduct either during employment or within 90 days after such employment
terminates, the Company may terminate the Participant’s participation in the
Plan or seek recoupment of an Award paid under this Plan. Recoupment may be
effectuated by a notice of recapture (“Recapture Notice”) sent to such
Participant within the 90-day period following the termination of employment.
The Participant will be required to deliver to the Company an amount in cash
equal to the gross cash payment of the Award to which such Recapture Notice
relates within 30 days after receiving such Recapture Notice from the Company.

The Company has sole and absolute discretion to take action or not to take
action pursuant to this Section X upon discovery of Misconduct, and its
determination not to take action in any particular instance does not in any way
limit its authority to terminate the participation of a Participant in the Plan
and/or send a Recapture Notice in any other instance.

If any provision of this Section X is determined to be unenforceable or invalid
under any applicable law, such provision will be applied to the maximum extent
permitted by applicable law, and shall automatically be deemed amended in a
manner consistent with its objectives to the extent necessary to conform to any
limitations required under applicable law.

 

XI.

Impact of Restatement of Financial Statements Upon Previous Awards.

If any of the Company’s financial statements are required to be restated,
resulting from errors, omissions, or fraud, the Committee may (in its sole
discretion, but acting in good faith) direct that the Company recover all or a
portion of any such Award made to any, all or any class of Participants with
respect to any fiscal year of the Company the financial results of which are
negatively affected by such restatement. The amount to be recovered from any
Participant shall be the amount by which the affected Award(s) exceeded the
amount that would have been payable to such Participant had the financial
statements been initially filed as restated, or any greater or lesser amount
(including, but not limited to, the entire award) that the Committee shall
determine. The Committee may determine to recover different amounts from
different Participants or different classes of Participants on such bases as it
shall deem appropriate. In no event shall the amount to be recovered by the
Company be less than the amount required to be repaid or recovered as a matter
of law. The Committee shall determine whether the Company shall effect any such
recovery (i) by seeking repayment from the Participant, (ii) by reducing
(subject to applicable law and the terms and conditions of the applicable plan,
program or arrangement) the amount that would otherwise be payable to the
Participant under any compensatory plan, program or arrangement maintained by
the Company or any of its affiliates, (iii) by withholding payment of future
increases in compensation (including the payment of any discretionary bonus
amount) or grants of compensatory awards that would otherwise have been made in
accordance with the Company’s otherwise applicable compensation practices, or
(iv) by any combination of the foregoing.

 

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XII.

Modification, Suspension or Termination of Plan

The Committee may at any time suspend, terminate, modify or amend any or all of
the provisions of this Plan.

 

XIII.

Governing Law

The Plan is governed by the laws of the State of New York.

 

XIV.

Tax Withholding

The Company has the right to make such provisions as it deems necessary or
appropriate to satisfy any obligations it may have under law to withhold
federal, state or local income or other taxes incurred by reason of payments
pursuant to the Plan.

 

XV.

IP Political Action Committee (“PAC”) Contributions

A Participant who makes a valid election in accordance with the Company’s
procedures may deduct a specified amount or percentage from his or her MIP award
for the purpose of contributing to the IP-PAC. The amount of the contribution
may not exceed the federal limit for individual contributions to a political
action committee. In no event shall a Participant’s election to contribute or
not contribute to the IP-PAC have any impact on a Participant’s eligibility for,
or amount of, his or her MIP award.

 

XVI.

Section 409A

The Plan is intended to comply with the applicable requirements of Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”), and will be
limited, construed and interpreted in accordance with such intent.

 

XVII.

Non-Transferability of Award

No award under this Plan, and no rights or interests therein, will be assignable
or transferable by a Participant (or legal representative).

 

XVIII.

Effective Date

This Plan is effective as of January 1, 2012 and continues until terminated,
suspended, modified, or amended by the Committee.

 

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Appendix A

Management Incentive Plan (MIP)

2012 Target Awards

 

Position Level

 

Target Award

(% of Midpoint)

 

Target Award

(Value)

43

  145%   $2,037,100

42

  90%   $994,500

41

  85%   $853,900

40

  85%   $776,200

39

  80%   $664,200

38

  80%   $603,800

37

  75%   $514,500

36

  75%   $471,600

35

  70%   $402,400

34

  70%   $368,000

33

  65%   $312,700

32

  65%   $286,100

31

  60%   $241,700

30

  55%   $208,900

29

  50%   $172,000

28

  50%   $159,400

27

  45%   $131,200

26

  45%   $120,000

25

  40%   $97,600

24

  40%   $91,300

23

  35%   $73,000

22

  30%   $57,200

21

  30%   $52,400

20

  25%   $40,000

19

  25%   $37,200

18

  20%   $27,600

17

  20%   $25,800

16

  20%   $23,900

15

  15%   $16,600

14

  15%   $15,400

 

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