Exhibit 10.1
FY06 Performance Share Bonus Incentive Program


Watson
Wyatt Worldwide, Inc.

Performance Share Bonus Incentive Program

FY06


Summary


The Performance Share
Bonus Incentive Program (the Program) is a long-term bonus program for senior
executives, designed to strengthen incentives and align behaviors to grow the
business in a way that is consistent with the strategic goals of the Company. Incentives
are provided through grants of deferred stock units tied to a 3-year
performance period with vesting contingent upon meeting certain Company goal
thresholds. This bonus program does not replace the Fiscal Year End Bonus
(FYEB).


Eligibility


Associates of Watson
Wyatt & Company and its Affiliates will be eligible for nomination to
participate in the Program. Eligible participants will be nominated and
approved by the Compensation Committee of the Board (the Committee). Generally,
associates eligible for nomination will be high performing, senior-level
executives that have direct impact or responsibility for driving strategy
throughout the organization.


Performance Period


The performance period is
a 3-year period that begins on July 1, 20xx and ends on June 30,
20xx+3. For example, the performance period that began on July 1, 2005
will end on June 30, 2008. Baseline metrics are established at the
beginning of the performance period. At the end of the performance period,
performance metrics will then be measured. The Company will follow its standard
process for financial reporting following the close of the fiscal year. Once
Company financial results are finalized (August following end of fiscal
year) the final performance metric results for the most recent performance
period can be determined.


Grants


Grants of stock
(performance shares) are made under the 2001 Deferred Stock Unit Plan for
Selected Employees. Grants are based on the value of the cash portion of
the Fiscal Year End Bonus target. A multiplier, which varies by participation
tier, is then applied to that value to determine the cash value of the performance
shares. The cash value is then converted to a number of shares of stock based
on the stock market closing price on the last day of the fiscal year prior to
the grant. For calculation purposes, band and salary information will be based
on what is in effect as of October 1 of the first fiscal year of the
performance period.









 



 


All performance share
grants will be made by the Committee at the beginning of each performance
period (following the fiscal year end close process). Final grant amounts will
generally be determined by the method outlined here. However, the Committee, at
its discretion, may adjust final grant amounts.


Vesting


The performance shares
will vest 3 years from the date of grant based on the achievement of certain
performance metrics and subject to the participant’s continued employment on
the vesting date unless waived in accordance with the Termination Provisions
herein. Company performance goals are established by the Committee at the
beginning of each performance period. At the conclusion of each performance
period, Company performance metrics are measured against goals over the same
period to determine the percentage of the grant to be awarded. The actual award
is determined by an earnout schedule which defines performance level ranges and
associated earnout of grants. Vested shares are distributed to participants in September following
the end of the performance period and the fiscal year end close.


Performance Metrics and
Earnout


The earnout for each
performance period is determined by evaluating actual Company performance,
using pre-defined metrics, for the full 3year performance period. Baselines for
each metric will be established at the beginning of each performance period by
the Committee. The baseline will be determined by recording the metric as of
the last day of the prior fiscal year (6/30).


For grants under the
Program covering 2006-2008, two types of financial metrics will be used:


1.  Earnings Per
Share (“EPS”) Growth; and


2.   Revenue Growth.









 



 


Earnout
Schedule


An earnout schedule using
total growth over the 3-year performance period for E.P.S and Revenue is
shown below:


	
  E.P.S. Growth

  	
   

  	
  30

  	
  %

  	
  100

  	
  %

  	
  135

  	
  %

  	
  170

  	
  %

  
	
   

  	
  20

  	
  %

  	
  65

  	
  %

  	
  100

  	
  %

  	
  135

  	
  %

  
	
   

  	
  10

  	
  %

  	
  30

  	
  %

  	
  65

  	
  %

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
  10

  	
  %

  	
  12.5

  	
  %

  	
  20

  	
  %

  
	
   

  	
   

  	
  Revenue
  Growth

  	
   

  



 


Performance Metrics for Performance
period 7/1/2005 — 6/30/2008


Earnings Per Share
(E.P.S.) Growth — E.P.S. for the fiscal year before the start of the
performance period compared to E.P.S. of the 3rd year of the performance period, expressed as a
percentage. E.P.S. is defined as fully
diluted earnings per share from continuing operations. The E.P.S. to be used
for the fiscal year before the start of the performance period is $1.65 which
reflects fiscal 2005 full diluted earnings per share from continuing operations
adjusted for the $0.09 loss related to the foreign currency hedge contract.


Revenue Growth — Revenue
growth is defined as the percentage change in revenue from the fiscal year
prior to the performance period of the plan to the third year of the
performance period.


Revenue will be defined
as the amount stated in the Form 10-K.


In performance periods
where acquisitions occur:


Revenue at the start of the performance period (as
published in the Form 10-K) will be increased by the revenue
generated by the acquired company during the annual period preceding the
acquisition. In the event an
acquisition occurs after the first day of the performance period, the
acquisition revenue from the year preceding the acquisition will be discounted,
using Watson Wyatt’s revenue growth rate, from the year preceding the
acquisition to the beginning of the performance period. In addition, the
revenue to be counted for the acquired company in the year of acquisition will
be adjusted to be representative of a full year’s revenue. Acquisition
revenue used will be as reported in the acquired company’s published financial
reports (Form 10-K). In the event such financial reports are
unavailable, revenue generated by the acquired company will be provided by the
investment bankers familiar with the acquired company.









 



 


Termination Provisions


Performance shares
granted to a participant whose employment terminates prior to the scheduled
vesting date on account of the participant’s death, or permanent disability
(permanent disability to be determined pursuant to the terms of the Company’s
tax-qualified pension plan) shall vest as if the participant remained employed
through the scheduled vesting date. Performance shares granted to a participant
whose employment terminates prior to the scheduled vesting date on account of
retirement (determined pursuant to the terms of the Company’s qualified pension
plan) shall vest as the Committee may determine, in its sole discretion and on
a case-by-case basis. Performance shares granted to a participant whose
employment terminates for reasons other than death, permanent disability or
retirement will not vest and shall be forfeited; provided, however, that the
Committee may determine, in its sole discretion and on a case-by-case basis, to
permit some or all of such participant’s performance shares to vest.


Change in Control or
Capitalization 


A change in control or
capitalization (merger, consolidation, reorganization, stock split,
acquisition, etc.) may affect the value of performance shares granted, earnout
of vested performance shares or other provisions of the Program. To assure fair
and equitable treatment of participants in the event of such a change in
control or capitalization, the Committee, at its discretion, may make changes
to grants and/or vesting that is consistent with the Change in Control and
Change in Capitalization provisions described in the 2001 Deferred Stock
Unit Plan for Selected Employees. Under these circumstances, the Committee
may make appropriate adjustments to the number of performance shares granted
for any performance period, accelerate the vesting of any performance shares
granted, or provide for payment in cash in lieu of shares.