Exhibit 10.1


    
      

    

    Exhibit
      10.1 

     

    


    

       

      ANNUAL
        INCENTIVE PLAN

      


      2006
        Plan
        Year

      


      Guidelines

       

      


      KIRBY
        CORPORATION

       

      January
        2006

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      TABLE
        OF CONTENTS

       

      
        	
                Introduction

              	
                2

              
	 	 
	
                The
                  Annual Incentive Plan

              	
                3

              
	 	 
	
                Performance
                  Measurement Period

              	
                3

              
	 	 
	
                Eligibility

              	
                3

              
	 	 
	
                Plan
                  Objectives

              	
                4

              
	 	 
	
                Performance
                  Measures

              	
                4

              
	 	 
	
                Corporate
                  and Business Group Weighting

              	
                5

              
	 	 
	
                Individual
                  Bonus Targets

              	
                6

              
	 	 
	
                Annual
                  Incentive Plan Concept

              	
                6

              
	 	 
	
                Performance
                  Measures and Weighting

              	
                7

              
	 	 
	
                Performance
                  Standards and Award Opportunities

              	
                7

              
	 	 
	
                Example
                  Award Calculation

              	
                8

              
	 	 
	
                Administration

              	
                9

              


      


      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      


      Introduction

       

      Kirby
        Corporation established its Annual Incentive Plan to focus employees on
        identifying and achieving business strategies that will grow the business
        and
        lead to an increase in shareholder value. The Annual Incentive Plan is also
        intended to reward superior performance by employees, for their contributions
        toward achieving Kirby’s objectives. This program may be offered, in whole or in
        part, to wholly owned subsidiaries of the Company, at the Company’s
        discretion.

      


      Certain
        aspects of this Bonus Plan are complex. Although these guidelines establish
        rules for Plan operation, those rules may not work in all cases. Therefore,
        the
        Compensation Committee of the Kirby Board of Directors shall have the
        discretionary authority to interpret, and if determined appropriate, deviate
        from the Guide to insure that the awards are consistent with the Plan’s purposes
        and the Company’s interests. All decisions by the Compensation Committee shall
        be final and binding.

      


      This
        Plan, or any part thereof, may be amended, modified, or terminated at any
        time,
        without prior notice, by written authorization of the President and Chief
        Executive Officer of the Company.

      


      This
        Plan
        supercedes all prior annual incentive bonus plans or programs maintained
        by the
        Company.

      


      The
        initial Plan became effective January 1, 2003.


      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      


      The
        Annual Incentive Plan

      


      The
        Annual Incentive Plan is an award for total Company performance, and for
        the
        performance of our four Business Groups; Kirby Inland Marine, Kirby Engine
        Systems, Dixie Offshore Transportation and Osprey, Line. Awards are 75%
        formula-driven and 25% driven by individual performance, and are based on
        achieving Company, Business Group and individual performance
        objectives.

      


      Performance
        Measurement Period

      


      Performance
        is measured on a calendar year basis for the Annual Incentive Plan. The
        Performance Period begins on January 1 and ends on December 31.

      


      Eligibility

      


      
        	
                ·

              	
                Generally,
                  shore staff managerial employees in salary grades 15 and above,
                  and
                  Wheelhouse employees classified as Captain, Relief Captain or Pilot,
                  will
                  be eligible for consideration to be participants. Selection for
                  participation in the Plan will be based upon each position’s ability to
                  impact long-term financial results of the Company. Consequently,
                  all
                  employees in positions at salary grades 15 and above might not
                  be included
                  in the Plan, and employees in positions below salary grade 15 might
                  be
                  included.

              


      

      


      
        	
                ·

              	
                In
                  order to be eligible to receive an award participants must be employed
                  on
                  the last day of the Performance Period, and on the date bonuses
                  are
                  actually paid for the respective Performance Period, unless their
                  earlier
                  termination is due to death, normal retirement1 
                  or
                  disability1.

              


      

      


      
        	
                ·

              	
                It
                  should also be noted that participation in the Bonus Plan in one
                  year does
                  not guarantee participation in future years. Participants in the
                  Plan will
                  be notified annually of their selection for
                  participation.

              


      

       

       

      _____________________________

      1
        Normal
        retirement or disability as defined for shore based employees in the Company’s
        Profit Sharing Plan, and as defined for wheelhouse employees in the Vessel
        Pension Plan

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      Plan
        Objectives

      


      The
        Annual Incentive Plan has five key objectives:

      


      
        	 	
                ·

              	
                Provide
                  an annual incentive plan that drives performance toward objectives
                  critical to creating shareholder
                  value.

              


      

      


      
        	 	
                ·

              	
                Offer
                  competitive cash compensation opportunities to key Kirby
                  employees.

              


      

      


      
        	 	
                ·

              	
                Award
                  outstanding achievement among employees who can directly affect
                  Kirby’s
                  results.

              


      

      


      
        	 	
                ·

              	
                Assist
                  Kirby in attracting and retaining high quality
                  employees.

              


      

      


      
        	 	
                ·

              	
                Reflect
                  both quantitative and qualitative performance factors in actual
                  bonus
                  payouts.

              


      

       

      Performance
        Measures

      


      The
        performance measures for the Annual Incentive Plan are:

      
        


        
          	 	
                  ·

                	
                  EBITDA

                


        

        
          	 	
                  ·

                	Return on Total Capital 


        

        
          	 	
                  ·

                	Earnings
                  per share 


        

      

      


      Annual
        performance targets will be established for each measure based on Kirby’s
        projected budget, and individual bonus payments will be based on a combination
        of Company performance and individual performance.

      


      Participants
        will receive 75% of their award based on Company performance in achieving
        the
        three performance measures, with the remaining 25% based on an assessment
        of
        individual performance for the year.

      


      Each
        of
        the performance measures will have equal weight in calculating the bonus
        payout
        pool.


      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      Corporate
        & Business Group Weighting

      


      The
        Annual Incentive Plan bonus is calculated at the end of the year based on
        the
        performance of Kirby and the performance of our four Business Groups, Kirby
        Inland Marine, Kirby Engine Systems, Dixie Offshore Transportation and Osprey
        Line, relative to objectives established at the beginning of the
        year.

      


      The
        award
        for Business Group employees will be primarily tied to Business Group
        performance, with a defined portion tied to Company performance.

      


      The
        award
        for Corporate employees will be tied entirely to total Kirby
        performance.

       

      
        
          	
                   Annual
                    Incentive Plan
                    Calculation

                	 
	 	 	 	 
	 	 	
                  Incentive

                  Bonus
                    Calculation %

                	 
	 	 	
                  Kirby
                    (Company)

                	 	
                  Business
                    Group

                	 
	 	 	 	 	 	 
	
                  All
                    Corporate Employees

                	 	 	
                  100

                	
                  %

                	 	
                  0

                	
                  %

                
	 	 	 	 	 	 	 	 
	
                  Business
                    Group Employees

                	 	 	 	 	 	 	 
	
                  (Inland,
                    Engine Systems, Offshore and Osprey)

                	 	 	
                  30

                	
                  %

                	 	
                  70

                	
                  %

                
	 	 	 	 	 	 	 	 
	
                  Inland
                    & Engine Systems Presidents

                	 	 	
                  50

                	
                  %

                	 	
                  50

                	
                  %

                


        

      


      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      


      Individual
        Bonus Targets

      


      Each
        participant will be assigned a bonus level which is based on competitive
        market
        practices, as well as the employee’s ability to impact long-term Company
        performance. Market practices will be determined using data from either general
        industry, the marine transportation industry, or the diesel repair industry,
        depending upon the individual position being considered. It is the Company’s
        intent that salary plus target annual bonus be positioned to provide a
        competitive market opportunity for target performance.

      
 

      Annual
        Incentive Plan Concept

      

        

      


      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      


      Performance
        Measures and Weighting

       

      
        
          	
                  Measure

                	 	
                  Weight

                	 
	 	 	 	 
	
                  n
                    EBITDA (Earnings Before Interst, Taxes, Depreciation
                    and Ammortization)

                	 	 	
                  33-1/3
                    

                	
                  %

                
	 	 	 	 	 
	
                  n
                    Return on Total Capital (Earnings before interest and taxes divided
                    by
                    average beginning and ending shareholders equity plus long-term
                    debt)

                	 	 	
                  33-1/3
                    

                	
                  %

                
	 	 	 	 	 
	
                  n
                    Earnings per Share

                	 	 	
                  33-1/3
                    

                	
                  %

                
	 	 	 	 	 
	 	 	 	
                  100
                    

                	
                  %

                


        

      

       

       

      Performance
        Standards & Award Opportunities

       

      
        
          	
                  Performance

                  Level

                	
                  Definition

                	
                  Relationship
                    to 

                  Budget

                	
                  %
                    of Target 

                  Earned

                
	 	 	 	 
	
                   

                  Threshold

                   

                	
                   

                  Minimal
                    acceptable performance for payout

                	
                   

                  80%
                    of Budget

                	
                   

                  50%

                
	 	 	 	 
	
                   

                  Target

                   

                	
                   

                  Expected
                    performance at a stretch level

                   

                	
                   

                  100%
                    of Budget

                   

                	
                   

                  100%

                   

                
	 	 	 	 
	
                   

                  Maximum

                   

                	
                   

                  Outstanding
                    performance

                   

                	
                   

                  120%
                    of Budget

                   

                	
                   

                  200%

                   

                


        

      

      


      Performance
        must be at least to Threshold to earn a bonus payment.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      


      Example
        Award Calculation 

       

      
        
          	 	
                  Performance
                    Standards

                	
                  Example
                    Calculation

                
	
                  Performance
                    Objectives

                	
                  Below
                    Threshold

                	
                  Threshold

                	
                  Target

                	
                  Maximum

                	
                  Assumed
                    Actual Results (% Budget Achieved)

                	
                  Percent
                    of Target Award Earned

                	
                  Objective
                    Weight

                	
                  Weighted
                    Percent of Target Award Earned

                
	
                  Percent
                    of Target Award Earned:

                	
                  0%

                	
                  50%

                	
                  100%

                	
                  200%

                
	 	 	 	 	 	 	 	 	 
	
                  EBITDA

                  (%
                    Budget Achieved)

                	
                  <
                    80%

                	
                  80%

                	
                  100%

                	
                  120%

                	
                  90%

                	
                  75%

                	
                  33-1/3%

                	
                  25%

                
	 	 	 	 	 	 	 	 	 
	
                  Return
                    on Total Capital (% Budget Achieved)

                	
                  <
                    80%

                	
                  80%

                	
                  100%

                	
                  120%

                	
                  110%

                	
                  150%

                	
                  33-1/3%

                	
                  50%

                
	 	 	 	 	 	 	 	 	 
	
                  Earnings
                    per Share (% Budget Achieved)

                	
                  <
                    80%

                	
                  80%

                	
                  100%

                	
                  120%

                	
                  100%

                	
                  100%

                	
                  33-1/3%

                	
                  33.3%

                
	 	 	 	 	 	 	 	 	 
	 	 	
                  Total
                    Percent of Target Awards Earned for Bonus Pool:

                	
                  108.3%

                


        

      

       

      
        	
              	
                n

              	
                As
                  shown in the exhibit, actual performance on each objective results
                  in a
                  corresponding percent of target award
                  earned.

              


      

      
         

        
          	
                	
                  n

                	
                  The
                    percents of target award earned for each objective are then multiplied
                    by
                    the weight for the objective, producing a weighted percent of
                    target award
                    earned for each objective.

                


        

        
           

          
            	
                  	
                    n

                  	
                    
                      The
                        weighted percents of target award earned for all objectives
                        are summed to
                        produce a total percent of target awards earned. This factor,
                        when
                        multiplied by the sum of target bonuses for plan participants,
                        equals the
                        bonus funding pool.

                    

                  


          

          
             

            
              	
                    	
                      n

                    	
                      75%
                        of the total pool is paid to participants pro-rata, based
                        on their
                        individual bonus level and their applicable base salary for
                        the
                        period.

                    


            

            
               

              
                	
                      	
                        n

                      	
                        The
                          remaining 25% is awarded to participants based on individual
                          performance.

                      


              

               

            

          

        

      

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      


      Administration

      


      Award
        Payout

      A
        participant’s Final Award is paid out in cash within 90 days following the end
        of the Company’s fiscal year, based on audited financials.

      


      Eligibility
        Limitation

      Unless
        otherwise provided for as a special circumstance (below), selected participants
        must be employed by the Company on the last day of the Performance Period,
        and
        on the date bonuses are actually paid for the respective Performance Period,
        in
        order to be eligible to receive a bonus award.

      


      Special
        Circumstances

      Listed
        below are guidelines addressing termination and other events. The Committee
        will
        have the sole authority to resolve disputes related to Plan administration.
        Decisions made by the Committee will be final and binding on all
        participants.

      


      New
        Employees.
        New
        employees hired after the beginning of a Performance Period who are selected
        for
        participation in the Plan, will receive prorated awards for the then current
        Performance Period, subject to the Termination of Employment restrictions.
        

      


      Termination
        of Employment.
        If
        employment terminates before the end of the full Performance Period, or before
        the date bonuses are actually paid for the respective Performance Period,
        as a
        result of death, normal retirement3,
        or
        disability3,
        the
        participant (or the participant’s heirs) will be entitled to receive a prorated
        award at the end of the Performance Period, based upon base wages earned
        while
        employed during the Performance Period. 

      


      If
        employment terminates prior to the last day of the applicable Performance
        Period, or prior to the date bonuses are actually paid for the respective
        Performance Period, for any reason other then death, normal
        retirement3,
        or
        disability3,
        the
        participant will be ineligible to receive an award.

      


      ________________________

      3
        Normal
        retirement or disability as defined for shore based employees in the Company’s
        Profit Sharing Plan, and as defined for wheelhouse employees in the Vessel
        Pension Plan.


      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      


      Transfer.
        A
        participant who is transferred between business units of the Company will
        be
        entitled to receive a weighted award based upon the time spent at each of
        the
        units. The weighted award is calculated by adding (1) the participant’s prorated
        award for time spent at the first business unit, to (2) the participant’s
        prorated award for time spent at the second business unit4.
        

      


      Promotions.
        A
        participant who is promoted or reassigned during any Performance Period,
        and
        whose bonus target is subsequently increased or decreased, will be eligible
        to
        receive a weighted award. The award is calculated by adding (1) the prorated
        award for service before the promotion or reassignment, to (2) the prorated
        award for service after the promotion or reassignment4.
        

      


      Compensation
        Committee

      The
        Compensation Committee has the responsibility for the overall governance
        and
        administration of the Plan. In fulfilling its duties, the Committee will
        be
        responsible for interpreting the Plan and will rely on these guidelines in
        making all determinations that are necessary or advisable for administration
        of
        the Plan.

      


      In
        administering the Plan the Committee will, on an annual basis:

      


      
        	 	
                ·

              	
                Approve
                  the designation of Business Groups within the
                  Company

              


      

       

      
        	 	
                
                  ·

                

              	
                Approve
                  the Performance Measures and the Threshold, Target and Maximum
                  budget
                  performance levels 

              


      

       

      
        	 	
                
                  ·

                

              	
                Approve
                  linkage for participants to Company and Business Group
                  performance

              


      

       

      
        	 	
                
                  ·

                

              	
                Approve
                  the Bonus Levels for all participants whose salaries are at or
                  above
                  $100,000

              


      

       

      President
        & CEO

      The
        CEO
        will have primary responsibility for recommending Plan guidelines to the
        Committee, and for carrying out the administrative duties associated with
        annual
        award calculations. In addition, the Compensation Committee may delegate
        additional administrative duties to the CEO or any Company officer.

       

      _______________________

      4
        Company
        and Business Group performance factors are calculated using performance for
        the
        entire Performance Period.


      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      


      CFO

      The
        CFO
        will be responsible for calculating performance under the Plan and recommending
        adjustments to the performance objectives. In this capacity, the CFO
        will:

      


      
        	 	
                
                  ·

                

              	
                Provide
                  annual reports to the Compensation Committee and the CEO on each
                  Business
                  Group’s performance at the end of the Company’s fiscal
                  year

              


      

       

      
        	 	
                
                  ·

                

              	
                Maintain
                  a financial information system that reports results on an estimated
                  quarterly and annual basis

              


      

       

      
        	 	
                
                  ·

                

              	
                Coordinate
                  with the Company’s auditors to properly recognize any accounting expense
                  associated with awards under the
                  Plan

              


      

       

      
        	 	
                
                  ·

                

              	
                Provide
                  the VP of Human Resources with the performance results of each
                  Business
                  Group as well as overall Company
                  performance

              


      

       

      
        	 	
                
                  ·
                    

                

              	
                Calculate
                  new Threshold, Target and Maximum performance objectives as required
                  by
                  the Plan

              


      

       

      VP
        of Human Resources

      The
        VP of
        Human Resources will have primary responsibility for the day-to-day
        administration of the Plan. In this capacity, the VP of Human Resources
        will:

      


      
        	 	
                
                  ·

                

              	
                Develop
                  and recommend Target Award Guidelines and eligible participants
                  for each
                  new Performance Period to the CEO for
                  approval

              


      

       

      
        	 	
                
                  ·

                

              	
                Coordinate
                  communications with participants, including materials to facilitate
                  understanding the Plan’s objectives and
                  goals

              


      

       

      
        	 	
                
                  ·

                

              	
                Provide
                  quarterly performance updates to Plan
                  participants

              


      

       

      
        	 	
                
                  ·

                

              	
                Calculate
                  participants’ awards, using the performance factors provided by the
                  CFO

              


      

       

      
        	 	
                
                  ·

                

              	
                Process
                  paperwork approving individual award
                  payments

              


      

       

      Business
        Group Presidents and Vice Presidents

      Business
        Group Presidents and Vice Presidents will:

      


      
        	 	
                
                  ·

                

              	
                Recommend
                  participants for each Performance
                  Period

              


      

       

      
        	 	
                
                  ·

                

              	
                Coordinate
                  with the CFO to determine any significant changes in business conditions
                  for purposes of reviewing the Threshold, Target and Maximum performance
                  objectives

              


      

       

      
        	 	
                
                  ·

                

              	
                Insure
                  that participants are informed of the actual award earned for each
                  Performance Period

              


      

       

      11