2011 Senior Executive Incentive Plan


 


 


Background and Objectives


 


The overall executive compensation strategy of The Edelman Financial
Group Inc. (formerly Sanders Morris Harris Group Inc.) (“TEFG” or the “Company”) is to provide
key executives with targeted total cash pay opportunities that generally are competitive with median total cash pay opportunities
in wealth and asset management companies of similar size. The two primary elements of the TEFG cash compensation program are base
salary and the 2011 Senior Executive Incentive Plan (the “Plan” or “SEIP”). TEFG base salaries
are designed to be broadly competitive with industry standards and are used to reward an executive’s job performance over
time. All awards under the Plan are determined and awarded at the sole discretion of the Compensation Committee of the TEFG Board
of Directors (the “Committee”).


 


The Plan provides annual incentive compensation opportunity
for key executives for achieving critical financial and other goals of and for TEFG. The following document defines Plan eligibility,
the size of potential award opportunities, performance measurement and adjustments, form and timing of award payments, administrative
guidelines, and definitions for ongoing Plan management.


 


The Plan does not include potential equity-based awards, which
are covered by the Company’s separate Restricted Stock Unit Plan a sub-plan under the TEFG Long-Term Incentive Plan.


 


Capitalized terms that are used but not defined in the Plan
shall have the meaning ascribed to them in the TEFG Long-Term Incentive Plan.


 


Eligibility


 


Employees who are eligible to participate in the Plan (“Participants”)
will be proposed by the Chairman of the Board, Chief Executive Officer, President, and Chief Financial Officer of the Company (the
“Plan Committee”) and approved by the Compensation Committee at the beginning of each performance/award period.
Generally, Participants will be selected from senior executives who primarily are responsible for the annual growth and profitability
of TEFG, i.e., generally members of the Company’s Management Committee. For 2011, seven senior officers and executives are
proposed as Participants.


 


Targeted Award Opportunities


 


At the beginning of each fiscal year, each Participant will
be assigned a targeted award opportunity proposed by the Plan Committee and approved by the Committee that can increase or decrease
in value, based on actual performance achievement. Targeted award opportunities for Participants for 2011 are shown in Exhibit
1. Plan targeted award opportunities may be re-defined from time to time by the Plan Committee, as modifications are made in
TEFG’s executive compensation strategy.


 


On or before March 31, 2012, (a) each Participant’s salary
rate at December 31, 2011, will be multiplied by his or her actual SEIP award percentage earned (determined by applying the performance
measures set forth below) to determine a provisional award and (b) the provisional award will be adjusted by the ROE adjustment
(determined as set forth below), to determine the dollar value of the award for the prior performance cycle.


 


Performance Measures


 


Four Plan financial performance measures, totaling 80% by weight
of all performance measures, are proposed for the 2011 performance period, as follows:


 


		·	Adjusted
                                                                                                                                                                              cash
                                                                                                                                                                              flow
                                                                                                                                                                              from
                                                                                                                                                                              operations1
                                                                                                                                                                              (“ACF”)
                                                                                                                                                                              —
                                                                                                                                                                              weighted
                                                                                                                                                                              30%
                                                                                                                                                                              (target
                                                                                                                                                                              —
                                                                                                                                                                              110%
                                                                                                                                                                              of
                                                                                                                                                                              2010
                                                                                                                                                                              ACF).



		·	Client
                                                                                                                                                                                investment
                                                                                                                                                                                results
                                                                                                                                                                                —
                                                                                                                                                                                weighted
                                                                                                                                                                                20%
                                                                                                                                                                                (target
                                                                                                                                                                                —
                                                                                                                                                                                change
                                                                                                                                                                                in
                                                                                                                                                                                adjusted
                                                                                                                                                                                60/402
                                                                                                                                                                                in
                                                                                                                                                                                2011).



		·	Net new client money — weighted 20% (target— 4%
increase over 2010 year-end client assets).



		·	Expenses adjusted for non-recurring and extraordinary items as
a percentage of revenue — weighted 10% (target — no greater than 2010



 





 






	1	
        Cash flow from operations will be adjusted by excluding
        from the calculation any cash flow items related to (a) discontinued operations of the Company, (b) marketable securities owned,
        (c) securities sold, not yet purchased, and (d) other non-recurring and extraordinary items.

        

	2	Investment performance of portfolio invested 60% in Standard & Poors 500 Index and 40% in Barclay’s Capital U.S. Aggregate Bond Index from January 1, 2011 to December 31, 2011, less 50 basis points.







 



    	 



    	 



    
 


	Sanders Morris Harris Group	Page 2  of 7
	2011 Executive Incentive Plan	 









 








The Plan performance targets will be proposed by the Plan Committee
and approved by the Committee as soon as possible after the beginning of each fiscal year.


 


The final 20% portion of the performance measures will be determined
on a discretionary basis by the Committee for the Chief Executive Officer and by the Plan Committee for the other Participants
and will be based on the degree to which the executive has mastered the primary duties and responsibilities of his or her present
job.


 


TEFG performance calculations for the Plan shall exclude nonrecurring
and extraordinary items, which are defined at the sole discretion of the Committee. Performance goals for SEIP awards may be adjusted
during the year if a major change occurs in the Company’s operations or capital structure, e.g., an acquisition or merger.
In addition to the SEIP targets, the Committee and the Plan Committee jointly will establish minimum acceptable and outstanding
Plan goals, which are currently as follows:


 


		·	Minimum Acceptable — The TEFG performance level at or
below which no incentive will be paid is 75% of the SEIP performance measure target;



		·	Target — The TEFG performance
level where the Plan adjustment factor is 1X, with “X” equal to the target incentive, is 100% of the SEIP performance
measure target; and



		·	Outstanding — The TEFG performance level at or above
which the Plan adjustment factor is 2X, with “X” equal to the target incentive is 125% of the SEIP performance
measure target.



 


SEIP awards will be interpolated for actual performance falling
closest to the nearest 5% increment between any of the foregoing goals.


 


Exhibit 2 presents the performance matrix for calculating
SEIP awards. This performance matrix may be revised by the Plan Committee with approval of the Committee if the Company’s
business strategy and performance focus changes.


 


ROE Adjustment


 


The provisional SEIP awards as determined
above will be adjusted depending on the ratio of the Company’s net income from continuing operations before income taxes
to average total equity (i.e., net income from continuing operations before income taxes divided by average total equity, the return
on equity or “ROE”); provided that net income may exclude extraordinary items (including, but not limited to,
goodwill impairment charges, expenses related to growth and acquisition activities, and other extraordinary charges) as determined
by the Plan Committee, and average total equity will be the average of total equity at December 31, 2010 and December 31, 2011.
If ROE is less than 5.0%, the grant of SEIP awards will be purely in the discretion of the Plan Committee. If ROE is equal to or
greater than 5.0% but less than 12.5%, SEIP awards will be paid at the percentage shown below applied to each individual’s
provisional award but only up to a maximum of 100% of an individual’s targeted award opportunity. Only if ROE equals or exceeds
12.5% may SEIP awards be paid at levels above 100% of the targeted award opportunities.


 



    	 



    	 



    
 





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	2011 Executive Incentive Plan	 









 





 





	ROE	    Maximum % of Provisional Award
	12.5% or greater	No Limit
	10.0%, but less than 12.5%	100.0%3
	9.0%, but less than 10.0%	90.0%3
	8.0%, but less than 9.0%	80.0%3
	7.0%, but less than 8.0%	70.0%3
	6.0%, but less than 7.0%	60.0%3
	5.0%, but less than 6.0%	50.0%3
	less than 5.0%	Discretionary










 


SEIP award adjustments will be interpolated for actual ROE falling
closest to the nearest 0.1% increment between any of the foregoing goals for ROE falling in the 5% to 10% range.


 


Form and Timing of Awards


 


SEIP award calculations will be finalized on or before Mach
30, 2012. All SEIP awards will be paid in cash in quarterly installments in the year immediately following a performance cycle,
as follows:


 


		·	50% of the final award on March 31, 2012



		·	25% of the final award on August 15, 2012



		·	25% of the final award on November 30, 2012



 


In no event will any payment of an award be made subsequent
to December 31, 2012.


 


In the case of a Change in Control (as defined in the Company’s
Long-Term Incentive Plan) prior to November 30, 2012, all SEIP awards shall be paid in cash on the effective date of such Change
in Control. Notwithstanding the foregoing, if and to the extent that any provision of this Plan or an award would cause a payment
of deferred compensation that is subject to Section 409A(a)(2) of the Internal Revenue Code of 1986, as amended (the “Code”),
to be made upon the occurrence of a “Change in Control,” then such payment shall not be made unless such “Change
in Control” satisfies the requirements of Section 409A(2)(A)(v) of the Code and applicable regulations and rulings thereunder.


 


 


Administrative Guidelines and Definitions


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. Once the Compensation Committee approves
Plan participants, award targets, and performance goals, the Plan Committee is delegated authority to administer the Plan. All
decisions of the Committee and the Plan Committee are final, conclusive, and binding on all parties,
including the Company, its stockholders, and employees.


 


		·	Employee Termination — 



 


Termination during 2011. Except as expressly set forth
below, in the event a Participant’s employment with TEFG terminates for any reason prior to the end of the workday on December 31,
2011, such Participant will be ineligible for any award under the Plan. In other words, if a Participant is employed according
to Company records through the end of the workday on December 31, 2011, the Participant will, subject to the following provisions,
be eligible for any award earned under the Plan for 2011.


    


Any Participant (or his or her estate) who ceases to be employed
by the Company prior to January 1, 2012, due to the Participant’s death, Disability, or Retirement (as such terms are
defined in the TEFG Long-Term Incentive Plan), subject to the Participant’s execution of a waiver and release of claims in
a form and manner satisfactory to the Company, will be eligible to receive a SEIP award based on an adjusted annual base salary
amount, but otherwise in the same manner, to the same extent, and at the same time as the Participant would have received such
SEIP award if such Participant’s employment had continued through December 31, 2011 (i.e., based on achievement
of applicable performance measures). The Participant’s annual base salary will be the result of the following formula: X
× Y/12, where:


 





 



 


3      %
of Target Award Earned (Exhibit 2) may not exceed 100%.


 






    	 



    	 



    
  





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	2011 Executive Incentive Plan	 









 





X = the Participant’s annual base
salary as in effect as of the date of termination of employment; and


Y = the number of calendar
months the Participant was actively employed by the Company during 2011, rounded up for any partial month.


 


Termination on or after January 1, 2012.  Except
as expressly set forth below, a Participant who ceases to be employed by TEFG for any reason on or after January 1, 2012, will
forfeit any unpaid SEIP award. Any Participant (or his or her estate) who ceases to be employed by the Company subsequent to December
31, 2011, but prior to November 30, 2012, due to the Participant’s death, Disability, or Retirement, subject to the Participant’s
execution of a waiver and release of claims in a form and manner satisfactory to the Company, will be eligible to be paid all unpaid
SEIP awards in the same manner, to the same extent, and at the same time as the Participant would have been paid such SEIP awards
if such Participant’s employment had continued through November 30, 2012.


 


		·	New Hires — Employees must have a minimum of six months
of service to be eligible for an award, unless waived by the Plan Committee. SEIP awards for new hires are earned on a pro-rata
basis, based on their date of employment. 



		·	Base Salary Rate — Base salary for SEIP award calculations
shall be the annualized base rate in effect on December 31, 2011.



		·	Support Documentation — The Chief Financial Officer of
the Company shall be responsible for maintaining all necessary support documentation regarding performance and bonus calculations
under the Plan.



 


Amendment


 


The Committee may at any time suspend,
terminate, modify, waive, or amend any or all of the provisions of this Plan; provided, however, that no such action shall,
without the written consent of the affected Participants, reduce the Company’s obligation for the payment of any outstanding
awards under the Plan with respect to such Participants, or further defer the payment of such awards, or accelerate the payment
of such awards in a manner that subjects such awards to the tax imposed under Section 409A of the
Code and the regulations thereunder (“Section 409A”).


 


Governing Law


 


The Plan is governed by the laws of the State of Texas.


 


Withholding Taxes


 


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.


 


Section 409A


 


Notwithstanding anything to the contrary contained herein, this
Plan is intended to satisfy the requirements of Section 409A. Accordingly, all provisions herein, or incorporated by reference,
shall be construed and interpreted to satisfy the requirements of Section 409A. Further, for purposes of Section 409A, each payment
of compensation under this Agreement shall be treated as a separate payment of compensation.


 


Non-transferability of Awards


 


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


 


Effective Date


 


This Plan is effective as of January 1, 2011, and continues
until terminated, suspended, modified, or amended by the Committee.


 



    	 



    	 



    



 





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	2011 Executive Incentive Plan	 









 





Exhibit 1


 


Proposed 2011 Participants and Award
Targets


 


 


	Title	Targeted Award
	Chairman	60% of SMH salary
	Chief Executive Officer	60% of SMH salary
	President (if not also CEO)	60% of SMH salary
	EVP Wealth Management 	80% of SMH salary
	Corporate Chief Financial Officer	50% of SMH salary
	EVP Corporate	50% of SMH salary
	EFS Chairman Chief Executive Officer	60% of EFS salary
	Chief Information Officer	50% of SMH salary
	EFS  Chief of Staff (w/Operations responsibility)	50% of EFS salary


 






    	 



    	 



    
 





	Sanders Morris Harris Group	Page 6 of 7
	2011 Executive Incentive Plan	 









 





Exhibit
2





Proposed 2011 Performance Goals and Weights


Versus Award Opportunity Earned


 





	Level of Performance Achievement	Adjusted Cash Flow from Operations	Client Investment Results	Net New Client Money	Expenses as Percentage of Revenue	%  of Target Award Earned	Discretionary
	 	 	 	 	 	 	 
	(Weight)	(30%)	(20%)	(20%)	(10%)	 	(20%)
	 	 	 	 	 	 	 
	Outstanding	125%	125%	125%	75%	200%	100%
	 	120%	120%	120%	80%	180%	
	 	115%	115%	115%	85%	160%
	 	110%	110%	110%	90%	140%
	 	105%	105%	105%	95%	120%
	Target	100%	100%	100%	100%	100%
	 	95%	95%	95%	105%	80%
	 	90%	90%	90%	110%	60%
	 	85%	85%	85%	115%	40%
	 	80%	80%	80%	120%	30%
	Min Acceptable	75%	75%	75%	125%	20%
	 	>75%	>75%	>75%	<125%	0%	0%

















    	 



    	 



    
 








	Sanders Morris Harris Group	Page 7  of 7
	2011 Executive Incentive Plan	 









 







Exhibit 3


Sample Award Calculation


 


Assumptions:


Executive’s current salary is $200,000.


Targeted Plan award is 40% of salary or
80,000.


Targeted SMH performance goals achieved:


•110% of Cash Flow target, providing
140% of targeted award segment;


•100% of Client Investment Results
target, providing 100% of targeted award segment;


•90% of Net New Client Money target,
providing 60% of targeted award segment;


•90% of Expenses as Percentage
of Revenue target, providing 140% of targeted award segment; and


•Plan Committee awards 100% of
targeted amount based on personal goal achievement;


•ROE as adjusted is 9.1%.


 


Calculations:


Current Salary:$200,000


Incentive Target Percent:x .40 


Incentive Target Amount:$80,000


	 	 	 	 	 	 	 	 
	A.Component for SMH Cash Flow:	 	 	 	 	 	 
	        Incentive Target:	 	$80,000	 	 	 	 
	                Cash Flow Performance Adjustment: 	 	x 1.40	 	 	 	 
	                Non-weighted Cash Flow Allocation:	 	 	 	$112,000	 	 
	                Cash Flow Weighting:	 	 	 	    x .30 	 	 
	Weighted SMH Cash Flow Component:	 	 	 	 	 	$33,600
	 	 	 	 	 	 	 
	B.Component for Client Investment Results (CIR):	 	 	 	 	 	 
	        Incentive Target:	 	$80,000	 	 	 	 
	                CIR Performance Adjustment: 	 	x 1.00	 	 	 	 
	                Non-weighted CIR Allocation:	 	 	 	$80,000	 	 
	                CIR Weighting:	 	 	 	    x .20 	 	 
	Weighted CIR Component:	 	 	 	 	 	$16,000
	 	 	 	 	 	 	 
	C.Component for Net New Client Money:	 	 	 	 	 	 
	        Incentive Target:	 	$80,000	 	 	 	 
	                New Client Money Performance Adjustment: 	 	x .60	 	 	 	 
	                Non-weighted New Client Money Allocation:	 	 	 	$48,000	 	 
	                New Client Money Weighting:	 	 	 	    x .20 	 	 
	Weighted Net New Client Money Component:	 	 	 	 	 	$9,600
	 	 	 	 	 	 	 
	D.Component for Non-Recurring & Extraordinary Item (NREI) Expense Ratio:
	        Incentive Target:	 	$80,000	 	 	 	 
	                NREI Performance Adjustment: 	 	x 1.40	 	 	 	 
	                Non-weighted NREI Allocation:	 	 	 	$112,000	 	 
	                NREI Weighting:	 	 	 	    x .10 	 	 
	Weighted NREI Expense Ratio Component:	 	 	 	 	 	$11,200
	 	 	 	 	 	 	 
	E.Component for Personal Goal (PG) Achievement:
	        Incentive Target:	 	$80,000	 	 	 	 
	                PG Performance Adjustment: 	 	x 1.00	 	 	 	 
	                Non-weighted PG Allocation:	 	 	 	$80,000	 	 
	                PG Weighting:	 	 	 	    x .20 	 	 
	Weighted Personal Goal Component:	 	 	 	 	 	$16,000
	 	 	 	 	 	 	 
	F.Total Prospective Plan Award:	 	 	 	 	 	$86,400
	                Percent of Targeted Award Opportunity: 	 	 	 	 	 	108%
	 	 	 	 	 	 	 
	G.    ROE Adjustment:	 	 	 	 	 	 
	ROE, as adjusted 9.1%	 	 	 	 	 	 
	ROE Adjustment factor 91%	 	 	 	 	 	 
	        Total Plan Award, as adjusted:	 	($86,400/108% * 100%) * 91%	$72,800
	 	 	 	 	 	 	 
	H.    Payout Schedule:	 	 	 	 	 	 
	        First Installment on March 31, 2012	 	 	 	$36,400	 	 
	        Second Installment on August 15, 2012: 	 	 	 	$18,200	 	 
	        Third Installment on November 30, , 2012:	 	 	 	$18,200	 	 
	 	 	 	 	 	 	$72,800