Filed by Bowne Pure Compliance





Exhibit 10.5




KEITHLEY INSTRUMENTS, INC.

Annual Incentive Compensation Plan




(Amended and Restated as of January 1, 2008)




Introduction




Keithley Instruments, Inc. (the “Company”) established an Annual Incentive Compensation Plan
(the “Plan”) as part of a competitive compensation program for the officers and key management
employees of the Employers (as defined below). This Plan is also referred to as the Short-Term
Incentive Compensation Plan. This Plan is modified to conform to the requirements of Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations and guidance
issued thereunder, effective January 1, 2008.



Plan Objective




The Company desires to attract, retain and incent talented employees to enable the Company to
meet its financial and business objectives. The objective of the Plan is to provide an opportunity
to those employees whose performance has a significant impact on the Company’s short-term and
long-term profitability to earn annual incentive compensation based on such profitability.



Administration




The Plan is administered by the Compensation and Human Resources Committee of the Board of
Directors of the Company (the “Committee”). The Committee:




	 	a.	 	May amend, modify, or discontinue the Plan.

	 
	 	b.	 	Will designate Plan Participants at the officer level.

	 
	 	c.	 	Will review and approve the annual performance criteria.

	 
	 	d.	 	Will approve individual incentive compensation Awards to Participants who are
officers.

	 
	 	e.	 	Delegates to the Chief Executive Officer of the Company the power to designate
Plan Participants and approve incentive compensation Awards to Participants who are not
officers.

	 
	 	f.	 	Except as determined by the Committee, a Participant must be employed on
September 30 of the Award Term in order to be entitled to receive an Award hereunder.
Notwithstanding the foregoing, the Committee may approve a pro rata incentive
compensation Award for Participants who terminate employment prior to September 30 of
the Award Term, provided those Participants were actively at work for the first one
hundred and eighty days in the Award Term and (1) whose employment is terminated due to
death, Disability, Retirement or (2) at the recommendation of the Chief Executive
Officer.





 


 









 










The Committee shall have complete authority to interpret all provisions of this Plan
consistent with law, to prescribe the form of any instrument evidencing any Award granted or paid
under this Plan, to adopt, amend and rescind general and special rules and regulations for its
administration, and to make all other determinations necessary or advisable for the administration
of this Plan. A majority of the Committee shall constitute a quorum, and the action of members of
the Committee present at any meeting at which a quorum is present or acts unanimously approved in
writing by all Committee members, shall be the act of the Committee. All acts and decisions of the
Committee with respect to any questions arising in connection with the administration and
interpretation of this Plan, including the severability of any or all of the provisions hereof,
shall be conclusive, final and binding upon the Company and all present and former Participants and
employees and their respective descendants, successors and assigns. No member of the Committee
shall be liable for any such act or decision made in good faith.



Determination of Individual Incentive Compensation Awards




Target incentive percentage for each Participant in the Plan will be established at the
beginning of each Award Term and approved by the Committee, if required, or the Chief Executive
Officer in cases where he has been delegated power by the Committee and will be established with
consideration of competitive market data. Individual target incentive compensation will be
calculated at the end of the Award Term based on performance against the criteria. Individual
incentive compensation may then be further modified based on a Participant’s performance and
contributions for the year by up to 25% either plus or minus of target payout. If a Participant’s
performance during the Award Term is determined to be unsatisfactory, the Committee, or the Chief
Executive Officer in the case of non-officers, reserves the right to reduce the Participant’s Award
for the Award Term to zero. Individual incentive compensation Awards may not exceed three (3) times
the Target Incentive Award.



Payment Date/Taxes




Promptly following the Committee’s or the Chief Executive Officer’s approval, as appropriate,
of the final Awards, the Participants’ Employer shall pay the amount of such Awards to the
Participants in cash, subject to all withholdings and deductions described in the following
sentence; provided, however, that (i) no Award shall be payable to a Participant except as
determined by the Committee or the Chief Executive Officer, as appropriate and (ii) and Awards
earned during the Award Term shall be paid no later than December 15th of the fiscal
year following the Award Term. Any Award paid to a Participant under this Plan shall be subject to
all applicable foreign, federal, state and local income tax, social security and other standard
withholdings and deductions.



Definitions




(a) “Award” means cash paid to a Participant under the Plan for the applicable Award Term in
an amount determined in accordance with the Plan.



(b) “Award Term” means the period corresponding with the Company’s fiscal year beginning
October 1 through the following September 30. The initial Award Term is October 1, 2007 through
September 30, 2008.


 


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(c) “Disability” means an approved application for disability benefits under an Employer’s
long term disability plan or under any applicable government program.




(d) “Employer” means each of the Company and its wholly owned subsidiaries, as applicable.



(e) “Participant” means any person who is classified by an Employer as a salaried employee who
in the judgment of the Committee or the Chief Executive Officer, as appropriate occupies a key
position in which his efforts may significantly contribute to the profits or growth of the Company;
and provided that following the end of the Award Term the Committee, or the Chief Executive
Officer, as appropriate, may make one or more discretionary Awards to employees of an Employer who
were not previously designated as Participants. Directors of the Company or an Employer who also
are employees of the Company are eligible to participate in the Plan. The Committee, or the Chief
Executive officer in the case of a non-officer Participant, shall have the power to add
Participants at any later date in the Award Term if individuals subsequently become eligible to
participate in the Plan. Each Participant shall be notified that he is eligible to receive an Award
and the amount of his target Award. All target awards are based the salary in effect on October I
of the applicable Award Term, or in the case of a Participant added to the Plan at a later date his
starting salary or then current salary.



(f) “Retirement” means a termination of employment with the Company or any Employer at or
after age 55 and the completion of 10 or more years of service with the Company or any Employer.



General Plan Provisions




(a) No Right of Employment. Neither the adoption or operation of this Plan, nor any
document describing or referring to this Plan, or any part thereof, shall confer upon any employee
any right to continue in the employ of the Employer, or shall in any way affect the right and power
of an Employer to terminate the employment of any employee at any time with or without assigning a
reason therefor to the same extent as the Company might have done if this Plan had not been
adopted.



(b) Governing Law. The provisions of this Plan shall be governed by and construed in
accordance with the laws of the State of Ohio.



(c) Miscellaneous. Headings are given to the sections of this Plan solely as a
convenience to facilitate reference. Such headings, numbering and paragraphing shall not in any
case be deemed in any way material or relevant to the construction of this Plan or any provisions
thereof. The use of the masculine gender shall also include within its meaning the feminine. The
use of the singular shall also include within its meaning the plural, and vice versa.



(d) Code Section 409A Compliance. It is intended that this Plan be exempt from the
requirements of Code Section 409A. In the event the Plan becomes subject to Code Section 409A, any
Plan provision that fails to satisfy the provisions of Code Section 409A shall be reformed so as to
comply with Code Section 409A while preserving as closely as possible the operative terms of the
Plan; however, in the event the Company in its sole discretion determines it is not feasible to
reform a provision of this Plan as it applies to a payment due to a Participant or his or her
Beneficiary(ies), such payment shall be made without complying with Code Section 409A.


 


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(e) Limitation on Rights of Participants; No trust. No trust has been created by the
Company or any Employer for the payment of Awards granted under this Plan; nor have the
Participants been granted any lien on any assets of the Company or any Employer to secure payment
of such benefits. This Plan represents only an unfunded, unsecured promise to pay by the Company
and a Participant hereunder is a mere unsecured creditor of his Employer.



(f) Payment to Guardian. If an Award is payable to a minor, to a person declared
incompetent or to a person incapable of handling the disposition of his property, the Committee may
direct payment of such Award to the guardian, legal representative or person having the care and
custody of such minor, incompetent or person. The Committee may require such proof of
incompetency, minority, incapacity or guardianship as it may deem appropriate prior to the
distribution of such Award. Such distribution shall completely discharge the Employers from all
liability with respect to such Award.



(g) Effective Date. The original effective date of the Plan is October 1, 2007. The
effective date of this republished version is January 1, 2008.



Performance Targets





The performance targets for the Plan are attached as an Addendum to this document.



Addendum

FY2008 Performance Targets




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Individual Maximum	 
	Metric	 	Threshold	 	 	Target	 	 	Attained At (1)	 
	ROA
	 	 	19	%	 	 	34	%	 	 	~40-45	%
	Sales Growth
	 	 	1	%	 	 	14	%	 	 	~28	%








	 	 	 
	(1)	 	The Annual Bonus Plan does not cap the performance measures but rather caps an individual’s
payout at 3 times target incentive award. The number provided in this column approximates the
level at which maximum payout would be capped and is a range because of the interplay between the
two measures.





The officer of the Company named below, hereby attests that the above modifications were made
to the Plan this 31st day of December, 2008.



	 	 	 	 	 
	 	KEITHLEY INSTRUMENTS, INC.

 	 
	 	By:  	/s/ Mark J. Plush
 	 
	 	 	Title:  Vice President and Chief Financial Officer 	 




 


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