Exhibit 10.1


 


Watson
Wyatt Worldwide, Inc.


 


2008
Long-Term Incentive Program for Selected Associates


 


Summary


 


The Long-Term Incentive Program for Selected Associates (the Program)
is a long-term stock bonus program for key associates designed to meet specific
retention needs in certain parts of Watson Wyatt & Company, Watson
Wyatt Limited and their Affiliates (collectively, 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 incentive program does not replace the Fiscal Year End Bonus (FYEB)
program.


 


Eligibility


 


Associates of the Company 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 associates who are critical to the
long-term success of the Company and whom the Company seeks to retain due to
various factors, including but not limited to their ability to win major new
projects or clients, their ability to build strong and profitable relationships
with our most important clients, their exceptional technical competence and
thought leadership, or their critical role in the management of the
Company.  A list of participants
nominated and approved by the Committee for the performance period beginning January 1,
2008 and ending December 31, 2010 is attached hereto as Attachment 1.


 


Performance Period


 


The performance period is a 3-year period that begins on January 1,
20xx and ends on December 31, 20xx+3. 
For example, the performance period that began on January 1, 2008
will end on December 31, 2010. 
Baseline metrics are established at the beginning of the performance
period (except that metrics for the first performance period may be established
after January 1, 2008).  At the end
of the performance period, performance metrics will then be measured.  The Company will follow its standard process
for financial reporting in conjunction with the close of the calendar year
(i.e., following the second quarter of the fiscal year).  Once Company financial results are finalized
and the Company has filed its second quarter 10-Q (February following end
of the calendar year) the final performance metric results for the most recent
performance period can be determined. 
The Chief Financial Officer will certify the final performance metric
results to the Committee, which will then determine the earnout for the
performance period.


 


Grants


 


Grants of stock (performance
shares) are made under the 2001 Deferred Stock Unit Plan for Selected
Employees.  Grants are determined
using base salary at the start of the performance period as the starting
point.  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 first quarter of the performance
period (i.e., March 31).  For
calculation purposes, salary information will be based on what is in effect as
of January 1 of the first calendar year of the performance period.


 


All performance share grants will be made by the Committee as of April 1
of the first year of the performance period. 
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 first day of the
performance period 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 March following the end of the performance period and the
filing of the 10-Q for the second quarter of the fiscal year.  A participant must be an active employee of
the Company on the payment date in order to be eligible to receive a
distribution of the vested shares.


 


Performance Metrics and Earnout


 


The earnout for each performance period is determined by evaluating
actual region and practice performance, using pre-defined metrics, for the full
3-year performance period.  Baselines for
each metric will be established at the beginning of each performance period by
the Committee and will vary by region and practice corresponding to the region
and practice of each respective participant. 
The baseline will be determined by recording the metric applicable to
the prior calendar year (year ending December 31).


 


For grants under the Program covering the performance period beginning January 1,
2008 and ending December 31, 2010, two types of financial metrics will be
used:


 


1.   Revenue Growth; and


 


2.   Net
Operating Income (NOI) Percentage


 


Revenue
Growth – Revenue growth is defined as the percentage change in revenue from the
calendar year prior to the performance period of the Program through the third
calendar year of the performance period. 
Revenue will be defined as the amounts included in the published
internal results applicable to each respective region and practice, as
adjusted, if necessary, for practice-specific adjustments for the performance
period that are excluded from the financials (e.g., for the effects of
acquisitions and divestitures — see below).


 


Net Operating Income Percentage – The net operating income percentage
will be defined as the cumulative annual amounts of NOI for each of the three
calendar years in the performance period divided by total Revenue for the same
period.  All amounts will be derived from
published internal results applicable to each respective region and practice,
as adjusted, if necessary, for practice-specific adjustments for the
performance period that are excluded from the financials (as above).


 

















 


The financial metrics by region and practice are as follows:


 


Europe


 


	
  Practice

  	
   

  	
  Revenue Growth

  	
   

  	
  NOI %

  	
   

  
	
  Benefits

  	
   

  	
  15.76

  	
  %

  	
  25.0

  	
  %

  
	
  HCG/WWDS

  	
   

  	
  33.10

  	
  %

  	
  15.0

  	
  %

  
	
  Investment

  	
   

  	
  52.09

  	
  %

  	
  30.0

  	
  %

  
	
  IFS

  	
   

  	
  33.10

  	
  %

  	
  20.0

  	
  %

  
	
  International - Global

  	
   

  	
  24.23

  	
  %*

  	
  12.5

  	
  %

  
	
  Business Services

  	
   

  	
  19.10

  	
  %

  	
  23.0

  	
  %

  



 






*The practice must also
generate more revenues each year for other practices than is generated by the
International Practice for itself (to be measured each year, and a record
maintained, by the International Practice).


 


North America


 


	
  Practice

  	
   

  	
  Revenue Growth

  	
   

  	
  NOI %

  	
   

  
	
  Benefits

  	
   

  	
  17.76

  	
  %

  	
  31.9

  	
  %

  
	
  Investment

  	
   

  	
  72.80

  	
  %

  	
  20.0

  	
  %

  
	
  Compensation

  	
   

  	
  33.10

  	
  %

  	
  20.0

  	
  %

  
	
  Growth

  	
   

  	
  25.97

  	
  %

  	
  25.3

  	
  %

  



 


Earnout Schedule


 


At the end of the 3-year performance period, a sliding scale will be
applied if the performance measures are not met.  For achievement of less than 90% of either
applicable performance metric, no vesting will occur.  For achievement of at least 90% of both
performance metrics, but not 100% of both, the vesting percentage will be equal
to the lower of the two achievement percentages (rounded down to the nearest
1/10th of a
percentage point).


 


If at least 100% of both performance metrics are achieved, vesting will
occur at 100%.


 


Notwithstanding the foregoing, however, a participant will not be
entitled to payment and vesting will not be deemed to have occurred with
respect to that particular participant unless the participant has achieved a
minimum assessed performance bonus in each of the three years (i.e., before
applying the bonus funding percentage for the participant’s region and
practice) equivalent to Performance Grade 4 (Strong Performance) with an
assessed bonus between 90% and 100% of the participant’s target bonus.


 

















 


In
performance periods where acquisitions occur:


 


Revenue
at the start of the performance period 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 calendar year preceding the acquisition will be
discounted, using Watson Wyatt’s revenue growth rate, from the calendar 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 for
purposes of this adjustment will be based on the acquired company’s audited
financials.  In the event audited
financials are unavailable, revenue generated from the acquired company will be
based on the acquired company’s internal financials as compiled in a fashion
consistent with those financials used to perform the valuation in connection
with the purchase price.


 


The
revenue growth and NOI percentage calculations will be calculated on a constant
currency basis.


 


Dividend
Equivalents


 


Participants will be entitled to the crediting of dividend equivalents
during the 3-year performance period. 
Dividend equivalents shall be credited at the same time, and in the same
manner, and shall vest as specified in Section 4.1 of the Company’s 2001
Deferred Stock Unit Plan for Selected Employees.


 


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 in the U.S.) shall vest as if
the participant remained employed through the scheduled payment date.  Performance shares granted to a participant
whose employment terminates prior to the scheduled payment date on account of
retirement (determined pursuant to the terms of the Company’s qualified pension
plan in the U.S.) 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
prior to the payment date 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.