Exhibit 10.1

MANAGEMENT INCENTIVE PLAN (MIP)

Amended and Restated as of January 1, 2006

 

I. Purposes of the Plan

The purposes of this Amended and Restated Management Incentive Plan are: (a) to
provide incentive for Participants to exert their best efforts to increase the
profitability of the Company, (b) to attract and retain the best talent
available, and (c) to further align the interests of the participants and
shareholders. The awards made under the Plan are not a form of deferred regular
compensation with respect to the Participants’ normal performance of their
regular duties, but are instead intended to provide an incentive to achieve
higher than expected levels of performance.

 

II. Definitions

 

  •  

Business

“Business” means one of the Business Groups reporting to an Executive Officer

 

  •  

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.

 

  •  

Employees

“Employees” means those persons who are full-time employees of the Company.

 

  •  

Award Scale

“Award Scale” means the conversion of the performance objective rating to a
percent

of target award earned.

 

  •  

Industry Financial Performance Peer Group

“Industry Financial Performance Peer Group” means that representative group of
companies in the commodities and paper and forest products industries with which
the Company competes, as determined from time to time by the Company, listed in
Appendix A.

 

  •  

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 achievement which translates to a
percentage of the Target Award.

 

  •  

Performance Objectives

“Performance Objectives” mean the measures developed around ROI, customer,
operational excellence, and people or other objectives as identified by the
Company

upon which awards may be earned.

 

  •  

Plan

“Plan” means this Amended and Restated Management Incentive Plan, as may be

amended from time to time.

 

  •  

Plan Year

“Plan Year” means the twelve month period corresponding to the Company’s fiscal

year.

 

  •  

Return on Investment/ROI

“Return on Investment” or “ROI” means earnings before interest and after taxes

divided by capital employed, with or without the effect of cyclical product
pricing.

 

  •  

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
B.

 

III. Plan Description

The Plan is an annual cash incentive plan developed around the achievement of
pre-established Return on Investment (ROI) measures and appropriate key
performance objectives promoting Customers, Operational Excellence, and People
and funded by the Company’s level of performance against those objectives. Total
awards cannot exceed the amount funded for the MIP pool generated by overall
corporate performance and approved by the Committee.

 

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 delegates authority to the Chairman and Chief Executive Officer or
his designee, for the day-to-day administration of the Plan, except for any
participant considered an Officer/Insider of the Company or those designated as
corporate Senior Vice President or higher.

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

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

 

V. Participation in the Plan

Participants in the Plan are limited to employees of the Company, whose position
level is 14—43 and are considered to have a meaningful impact on the Company’s
performance as determined by the Chairman and Chief Executive Officer or his
designee. They must be full-time, and actively employed during the plan year
January 1 – December 31, 2006. If an employee moves into a MIP eligible position
during the plan year then they will be eligible for a prorated award. If an
employee moves from one MIP eligible position to another their full award is
based on the PL as of December 31.

Employees who are eligible for participation in any other annual, recurring
variable cash compensation plan of the Company are not eligible for
participation in this Plan. 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, nor any right to continued employment by the Company for any
period.

 

VI. Award Pool and Award Scale

A. Pool

The Company must achieve at least a minimum level of performance in order to
fund the award pool. The total corporate award pool will be determined by
corporate performance defined as:

 

  •  

30% Weight: Improvement of Return on Investment (ROI), including the effects of
cyclical product pricing.

 

Achievement of Objective

   % of Target Award  

125%

   225 %

100%

   100 %

70%

   50 %

Below 70%

   0 %

 

  •  

50% Weight: Return on Investment as compared to Industry Financial Performance
Peer Group rank.

 

Rank

   % of Target Award  

1

   225 %

2

   175 %

3

   150 %

4

   125 %

5

   100 %

6

   50 %

7-11

   0 %

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

  •  

20% Weight: Key Company Drivers: People, Customers, and Operational Excellence.

 

  •  

5% Aggregate Weighted Customer Objectives

 

  •  

5% Aggregate Weighted Operational Excellence Objectives

 

  •  

5% Aggregate Weighted Global Employee Survey Objectives

 

  •  

5% Aggregate Weighted Diversity Objectives

 

Improvement Goal

   % of Target Award 100% or Higher    100% 70%    70% Below 70%    0%

B. Business Objectives

 

  •  

Business objectives must reflect the 80/20 ratio of financial to non-financial
objectives. Non-Financial objectives should include specific goals under each of
the major performance drivers of People, Customers, and Operational Excellence,
and weighted as appropriate for the specific business, but not to exceed 20% of
the overall business award.

 

  •  

The business performance achievement percentage may be modified by the Chairman
and Chief Executive Officer to ensure that the overall MIP award pool is not
exceeded.

C. Performance Objective Rating

Each performance objective will be evaluated at the end of the plan year and
assigned a rating representing the level at which the objective was achieved.
Ratings will be assigned by appropriate management levels for final review and
approval by the Chairman and Chief Executive Officer before submitting to the
Committee for final approval. In connection with Company ROI and Competitive
ROI, the Committee may take into account, without limitation, such items as
unforeseen changes in economic conditions. Overall MIP awards may be reduced for
deteriorating safety performance, negative ROI results or insufficient corporate
cash flow to fund the MIP pool.

 

VII. Allocation of Incentive Compensation Pools Among Business/Corporate Staff
Units:

Pool amounts available under the MIP for payment of individual awards will be
earned and allocated to Corporate and Business Participants based upon:

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

A. Corporate Level Participants

Excutive Officers and all Corporate Staff members not specifically assigned to a
business are considered corporate participants. As such, these participants’
award pool is based:

 

  •  

100% upon Achievement of Corporate Objectives.

B. Business Level Participants

Participants other than Executive Officers or Corporate Staff members and whose
primary responsibilities rest within a business unit are considered Business
Participants. As such, these participants’ award pool is based:

 

  •  

50% upon Corporate Objectives

  •  

50% upon Business Objectives.

 

VIII. Award Recommendations.

A. Recommendations

The Chairman and Chief Executive Officer will submit to the Committee at the end
of each Plan Year individual award recommendations for participants considered
Elected Officers and an aggregate award amount for all other participants. The
Committee will recommend to the independent members of the Board the award to
the Chief Executive Officer and any other employee-director.

B. Granting of Awards

The Committee, in its sole discretion, may approve, revise or disapprove any
recommended award to an Elected Officer as it deems appropriate. Any award to
the Chief Executive Officer or any other employee-director will be subject to
approval by the independent members of the Board of Directors of the Company.

C. Death, Disability or Retirement of a Participant

A Participant whose employment terminates during a Plan Year because of death,
disability or retirement (or who is granted a leave of absence) may, at the
discretion of the Committee and under such rules as the Committee may from time
to time prescribe, be eligible for consideration for a pro-rata award based on
the period of active employment during the Plan Year. If a Participant’s
employment with the Company is terminated for any reason other than death,
disability, retirement, signed severance agreement, or the grant of a leave of
absence, prior to actual payment of an award, such award will be canceled and
the Participant will have no right to receive payment.

 

IX. Method and Time of Payment of Awards

A. Type of Payment

As soon as practical after an individual incentive award under this Plan has
been approved by the Committee (or approved by the independent members of the
Board of Directors with respect to an award to the Chief Executive Officer or
any other employee-director), the award will be paid to the Participant in cash
unless the Participant has elected to defer payment as described in Article
IX(C).

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

B. Payment to Beneficiaries

If a Participant dies prior to receipt of an approved award under the Plan, the
award will be paid to such beneficiary or beneficiaries as the Participant has
designated in writing. The beneficiary designation will state whether payment
will be made in a lump-sum or in quarterly installments over a specified period
of time (not to exceed forty calendar quarters). If a Participant dies without
having a filed a beneficiary designation, the award will be paid in a lump-sum
to the Participant’s estate.

C. Deferral of Payment

Any Participant, PL18 or higher, may elect to defer payment, not to exceed 85%,
of any award under this Plan by filing an irrevocable Election to Defer Payment
with the Company by a date determined by the Company. Awards or portions elected
to be deferred will be invested in accounts under the Company’s savings plans as
directed by the participants.

 

X. 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.

 

XI. Governing Law

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

 

XII. Tax Withholding

The Company will deduct from any award made under the Plan, a sufficient amount
to cover withholding of any federal, state, local or foreign jurisdiction taxes
required by law, or to take such other action as may be necessary to satisfy any
such withholding obligations. Effective January 1, 2006, all supplemental income
in excess of $1,000,000 will be taxed at a federal rate of 35%.

 

XIII. 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).

 

XIV. Effective Date

This Plan is effective as of January 1, 2006 and continues until terminated,
suspended, modified, or amended.

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

Appendix A

Industry Financial Performance

Peer Group

 

  •  

Bowater

 

  •  

Domtar

 

  •  

MeadWestvaco

 

  •  

M-Real

 

  •  

Packaging Corporation of America

 

  •  

SAPPI

 

  •  

Smurfit Stone

 

  •  

Stora Enso

 

  •  

UPM

 

  •  

Weyerhaeuser

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

Appendix B

Management Incentive Plan (MIP)

Target Awards

 

Position Level

  Target Award (% of Midpoint) 43   100% 42   90% 41   85% 40   85% 39   80% 38
  80% 37   75% 36   75% 35   70% 34   70% 33   65% 32   65% 31   60% 30   55% 29
  50% 28   50% 27   45% 26   45% 25   40% 24   40% 23   35% 22   30% 21   30% 20
  25% 19   25% 18   20% 17   20% 16   20% 15   15% 14   15%