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  Exhibit 10.31  


 
 

COVANCE INC.
  VARIABLE COMPENSATION PLAN
  Effective January 1, 2004    



        1.    Purpose:    The purpose of the Covance Inc. Variable
Compensation Plan (as amended, modified or supplemented, from time to time, the "Plan") is to reward the accomplishments of participating employees of Covance Inc. ("Covance") and its
subsidiaries (collectively, the "Company") in achievement of company performance versus targets. The Plan does not constitute an amendment, supplement or modification of any individual employment
agreement between the Company and an employee. 


        2.    Eligibility:    Variable compensation awards under the Plan may
be made to individuals who are full-time or part-time employees of the Company (including executives of the Company) provided
that: 



        (a)   The
employee is employed with the Company on or before October 1 of the performance year in question; provided,  however, that in the event an individual
commences employment with the Company after October 1 of the performance year in question but otherwise
satisfies the eligibility or performance requirements of the Plan, then a variable compensation award may be made upon the chief executive officer's ("CEO") recommendation. If the employee commences
employment with the Company after January 1 of the performance year in question but before October 1 of such year and otherwise satisfies the eligibility or performance requirements of
the Plan, then such employee's variable compensation award, if any, shall be prorated based on the actual service provided by the employee for the performance year in question based either on time
worked or base pay earned. 


        (b)   In
the case of Individual Contributor employees (as defined in Appendix 2), the employee is employed by the Company on the award payment date and, in the case of
other employees, the employee is employed by the Company both on December 31 of the performance year and on the payment date (usually mid-March of the following calendar year),  provided,
however, that (i) in the event an employee leaves the Company as a result of death or
disability the employee shall be eligible for an award 






 

which
shall be prorated based on actual service provided by the employee for the performance year in question based on time worked or base pay earned in the performance year in question; and
(ii) in the event a Manager/Supervisor or Key Executive employee's employment is terminated by the Company due to a reduction in force between December 31 and the payment date, the
employee shall be eligible for an award. 


        (c)   The
employee is in good standing, not on probation or involved in a formal work improvement program on the payment date; and 



        (d)   The
employee is not eligible to participate in any other Company variable compensation plan, sales compensation plan or other similar plan. 




        3.    Administration/Disputes:    The Compensation and Organization
Committee of the Covance Board of Directors (the "Committee"), consisting of at least two members who qualify as outside directors under applicable Internal Revenue Code and Securities and Exchange
Commission (the "SEC") rules, codes and regulations, shall manage and administer the Plan. No member of the Committee shall be eligible for awards under the Plan. The Committee may adopt such
policies, rules and regulations that it deems necessary for governing, managing or administering the Plan. To the extent consistent with the Company's Amended and Restated Certificate of
Incorporation, no member of the Committee shall be liable for any action or determination with respect to the Plan, and the members shall be entitled to indemnification and reimbursement in the manner
provided in the Company's Amended and Restated Certificate of Incorporation, as amended, modified or supplemented from time to time. In the performance of its functions under the Plan, the Committee
shall be entitled to rely upon information and advice furnished by the Company's officers, accountants, counsel and any party the Committee deems necessary, and no member of the Committee shall be
liable for any action taken or not taken in reliance upon any such advice. Any dispute or disagreement which shall arise under, or as a result of, or pursuant to, this Plan shall be finally determined
by the Committee in its absolute and uncontrolled discretion, and any such determination or any other determination by the Committee under or pursuant to this Plan 


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and
any interpretation by the Committee of the terms of this Plan, shall be final, binding and conclusive on all persons affected thereby. 


        4.    Performance Year:    The plan year is from January 1
through December 31. 


        5.    Performance Targets:    



        (a)    Business Units.    The CEO shall propose for the approval of the Committee the performance targets for each
Business Unit of the Company, including Covance Corporate (see Appendix 1 for a list of units for the 2003 performance year). The performance targets shall be based on pre-bonus
operating margin, or such other financial targets as the Committee shall determine. Corporate HR and Finance shall maintain a copy of the objectives. 



        (b)    Individual Objectives.    The Committee shall approve the objectives for the performance year of the CEO and
the CEO shall approve the objectives of his direct reports, including the Corporate Senior Vice Presidents. In the case of the CEO and his executive management team, including the Corporate Officers,
such objectives shall be based on a variety of performance measures, such as operating margin, and measures of customer satisfaction and operational and people excellence. 


        (c)    Percentage Payout.    The Committee shall establish performance pool percentage payouts setting the percentage
payout level, including the lowest and highest percentage payout that the pool will pay out for actual business unit results against target for each category of employee participating in the Plan. 


        (d)    Bonus Target Percentages.    The Committee shall review bonus target percentages for each category of
participating employee. The target is reflected as a percentage of an employee's base pay earned during the performance year in question (the "Employee Bonus Percentage"). The product of an employee's
base pay earned during the performance year and the applicable Employee Bonus Target Percentage is the "Employee Bonus Target Amount"). 



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        (e)    Performance Assessment Categories.    The CEO shall establish, and the Committee shall review, performance
assessment categories and the impact of such performance assessment on such individuals' variable compensation award, if any, under the Plan. 




        6.    Determination of Business Unit Bonus Pools and Total Bonus
Pool:    The Committee shall certify the Business Units' financial results and approve the amount of the total Bonus Pool before the payment of any variable
compensation under the Plan; provided, however, that for the purpose of determining the awards to
Individual Contributor employees, the CEO shall estimate the Business Unit financial results based on performance through November 30 of the performance year in question. Payout shall be made
to such employees on the basis of such estimates. The total Bonus Pool shall be the aggregate of the bonus pools for all of the Business Units determined in accordance with Section 5. The
Committee shall also determine whether the objectives of the CEO have been satisfied for the performance year in question. The CEO shall assess the performance of his executive management, including
the Corporate Senior Vice Presidents, compared to their applicable objectives for the performance year in question and shall, at the Committee's request, review such assessments with the Committee. 


        7.    Bonus Pool Allocations:    



        (a)    Individual Contributor Awards.    The variable compensation award for Individual Contributor employees shall be
determined by considering the employee's Business Unit's performance compared to its Financial Target, the bonus payout percentage represented by such results (the "Business Unit Target Percentage"),
and the employee's Employee Bonus Target Percentage. 


        (b)    Managers/Supervisors and Key Executive Management.    The variable compensation award for Manager/Supervisor
employees and Key Executive/Executive Management employees shall be determined by considering the employee's Business Unit Target Percentage, the employee's Employee Bonus Percentage and individual
performance assessment; provided, however, that with respect to employees who are not Corporate Vice
Presidents of the Company or higher, the CEO shall have the authority to adjust, after consultation with appropriate members of management, any individual's variable compensation award under the Plan;  provided, further, however, that in no 



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event
shall the aggregate amount of the variable compensation payments to a Business Unit for a performance year exceed such Business Unit's bonus pool. 



        (c)    General Manager Discretionary Awards.    Each Business Unit General Manager and, in the case of Covance
Corporate, the CEO, shall have the discretion and authority to reserve up to 5% of the Business Unit bonus pool or such greater amount as the Committee shall authorize in any performance year (the
"Discretionary Bonus") for any plan participant(s) who is not a Corporate Vice President or higher based on his/her sole and absolute judgment that such individual or entity has made a significant
contribution to the Company's success or for some other important business reason. Such Discretionary Bonus shall not be paid until all other amounts payable under the Plan have been
paid.


        (d)    Special Incentive Pool.    ("SIP") In the event a Business Unit exceeds its performance target, a special
incentive pool shall be established from which additional incentive awards shall be made to Key Executives/Executive Management, provided,  however, that
members of the Global Leadership Council (which shall include the CEO and all Corporate Senior Vice Presidents) and recipients of
performance shares under the Employee Equity Participation Plan during the performance year in question shall not be eligible for awards from the Special Incentive Pool. The SIP will be capped at one
times the unit baseline incentive pool, and no individual will receive an aggregate bonus award greater than his or her annual salary. 




        8.    Adjustments:    



        (a)    Discretionary Adjustments.    The CEO or the Committee, as applicable, may in calculating the amount of the
total Bonus Pool and Bonus Pool for each Business Unit as of the end of the performance year in question and assessing whether the financial targets and objectives, in each case, have been satisfied,
in whole or in part, as applicable, or exceeded on a basis consistent with circumstances existing when such financial targets and objectives, in each case, were established include or exclude, as
applicable, the effect on the financial targets and objectives arising from any acquisition of the stock or assets of any other person or entity, the divestiture of all or any of the Company's
businesses, restructurings, strategic expenditures by Covance 



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identified
to the Covance Board of Directors as such, force majeure events, material litigation, or any other unexpected or unforeseen extraordinary
event or occurrence during the performance year. 


        (b)    Prorations.    In furtherance of the second proviso of Paragraph 7(a), the computation of any individual
variable compensation award to any employee under this Plan (including the CEO and executive management) shall be prorated for the aggregate effect of individual performance assessments that, without
giving effect to such proration, would result in variable compensation awards that would otherwise exceed the amount of the Bonus Pool for any Business Unit for the performance year in question. 




        9.    Payment Dates:    Awards shall be paid no later than
December 31 of the applicable performance year for the Individual Contributor employees and no later than March 15 following the close of the applicable performance year for the
Manager/Supervisors and Key Executive/Executive Management employees. Awards are subject to all applicable tax laws and withholding requirements. 



        10.    Earned Base Pay:    For purposes of the Plan, earned base pay
is defined as the cumulative base salary paid to an employee during the Plan year. Because Individual Contributor awards shall be paid out before the end of the Plan year. Earned base pay will be
defined as cumulative base salary paid up to Mid-November plus an estimated amount of earned base pay for the remainder of the Plan year, using the formula stated below: 


        (Cumulative
Earned Salary) + (Per Pay Period Salary times the # of Pay Periods Remaining in Plan Year) 



        11.    Governing Law; Binding Effect:    THIS PLAN SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY (WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF) AND ALL QUESTIONS CONCERNING THE VALIDITY AND CONSTRUCTION THEREOF
SHALL BE GOVERNED IN ACCORDNACE WITH THE LAWS OF SAID STATE; PROVIDED, HOWEVER, THAT ALL MATTERS OF
CORPORATE GOVERNANCE AND OTHER CORPORATE MATTERS 


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CONCERNING
DELAWARE CORPORATION SHALL BE GOVERNED BY THE DELAWARE GENERAL CORPORATION LAW. Except as otherwise expressly provided herein, this Plan shall be binding upon and inure to the benefit of
the parties hereto, their legal representatives, successors and assigns. 


        12.    Termination of Employment:    Participation in the Plan does
not create a contract of employment, or grant any employee of the Company the right to be retained in the service of, or otherwise employed by, the Company. Individuals will not receive a variable
compensation award under this Plan for the performance year in which their employment terminates for any reason or no reason or if they are terminated for any reason or no reason prior to the date the
variable compensation is actually paid for the performance year in question, except where otherwise provided in Paragraph 2 hereof. Without limiting the foregoing or Paragraph 2 hereof,
any individual whose
employment is terminated for wrongdoing, including, but not limited to, a violation of the Company's Business Integrity Plan, including the code of conduct, will forfeit all rights to payment under
this Plan. 


        13.    Amendment, Suspension, or Termination:    The Board or
Committee may, at any time, suspend, terminate, waive or amend the Plan (or provisions hereof, as applicable), in such respects as the Board or Committee deems to be in the best interest of the
Company. No amendment will adversely affect any right of any grantee, or his successors in interest, to keep any variable compensation award actually made hereunder before the effective date of the
amendment. Plan deferrals, if any, in effect at the Plan's termination remain in effect according to their original terms. 


        14.    Effective Date:    The Plan will take effect as of
January 1, 2004 and supersedes in its entirety all previous Covance Inc. Variable Compensation Plans, as well as the Covance Way Covance Inc. Variable Compensation Plan, as
amended, effective January 1, 1998, the Covance Inc. Variable Compensation Plan, as amended, and effective January 1, 1997, the Covance Inc. General Employee Variable
Compensation Plan, as amended, and effective January 1, 1997 and the Covance Biotechnology Services Inc. Variable Compensation Plan, as amended, and effective January 1, 1997. 


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Appendix 1  


COVANCE VARIABLE COMPENSATION PLAN BUSINESS UNITS

FOR ACCRUALS AND BONUS POOLS  



	•
	Global
Labs



	•
	Global
Phase I Clinics



	•
	Research
Products



	•
	Labs
Corp Group



	•
	IVRS



	•
	Clinical



	•
	Global
Central Labs



	•
	CCD



	•
	Periapproval
Services



	•
	CHEOS



	•
	IT



	•
	Corporate 










Appendix 2  


Effect of Business Unit

Performance on Individual Payouts  


        Employee categories shall be determined by the General Manager of each Business Unit (except for Key Executive/Executive Management employees who shall be
determined by the Global Leadership Council). Category guidelines and payout percentages are set forth below. 


        Individual Contributor*—generally defined as: 



1.    Clerical,
administrative, support-type positions

2.    For US employees—Non-exempt status

3.    No supervisory responsibilities 



			
	Business Unit Pre-Bonus Operating Margin
 
	 	Percentage Bonus Payout of Target

	 Less than 90% of target
	 	80%
	 90% to 110% of target
	 	100%
	 More than 110% of target
	 	120%
	 	 	 





	*
	Individual performance assessment does not influence payout



        Manager/Supervisor—generally defined as: 



1.    Professional,
managerial and/or technical expertise

2.    For US employees, Exempt status

3.    May have supervisory responsibilities

4.    Employees for whom clear personal objectives are set

5.    Leadership position within the business unit 



			
	Business Unit Pre-Bonus Operation Margin
 
	 	Percentage Bonus Payout of Target**

	 0% to 80% of target
	 	75%
	 100% of target
	 	100%
	 120% of target
	 	125%**
	 	 	 






        Key Executive/Executive Management—Corporate Officers and select senior management employees to be determined annually by the
Global Leadership Council (GLC). 



					
	Business Unit Pre-Bonus Operation Margin
 
	 	Percentage Bonus Payout of Target** ***
	 	Orders Target Multiplier

	 0% to 80% of target
	 	65%	 	+/- 5% for every 1% orders target is
	 100% of target
	 	100%	 	exceeded (or missed) to a maximum of
	 115% or greater of target
	 	125%	 	+/- 25% change in the regular bonus pool
	 	 	 	 	 








	**
	Incremental payout rate between minimum and maximum is linear for the Manager/Supervisor and Key Executive/Executive Management
categories.



	***
	The maximum for Senior Managers is exclusive of any payouts under the Special Incentive Pool.









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COVANCE INC. VARIABLE COMPENSATION PLAN Effective January 1, 2004