Exhibit 10.18


 


The
MENTOR  Executive Leadership Incentive
Plan


 


“Mentor/the
Company” shall mean National Mentor Holdings, Inc., a Delaware
corporation, and (except to the extent the context requires otherwise) any
subsidiary corporation of National Mentor Holdings, Inc., a Delaware
corporation, as such term id defined in Section 425 of the Code.


 


Incentive
Compensation Philosophy


 


MENTOR’s primary objectives are
to provide quality care and services to people with special needs, continue as
an attractive employer of choice and achieve strong organizational and
financial growth.


 


Competitive base salary levels
and merit increases are intended to reward executives for performing the
ongoing aspects of their jobs in a high quality manner.


 


MENTOR has developed this
Leadership Incentive Plan (the “Plan”) to align variable compensation with
organization goals and participant performance.


 


The Plan has been designed to compliment the other elements of total
pay and to support achievement of Company growth and quality goals by
providing:


 


•                  incentives
that closely align pay with quality care and leader, divisional, and
organizational-wide performance goals related to the financial growth of
MENTOR; and


 


•                  meaningful
and competitive variable compensation opportunities that effectively attract
and retain talented executives.


 


Incentive Plan
Guiding Principles


 


The Plan is based on a set of principles necessary for an effective
incentive system.  They are as follows:


 


1.               Variable
Compensation.  MENTOR recognizes that we
attract, motivate and retain our high performing leaders and executives by
providing total compensation that is fair, competitive and reflective of their
performance and contribution to our success. 
Because of their greater responsibilities for and impact upon our
business results, a greater portion of leaders’ and executives’ annual total
cash compensation opportunities (base salary plus incentive) will be comprised
of incentive compensation award opportunities than for other employees.


 





















 


2.               Corporate Growth &
Quality.  Incentives are linked with
MENTOR’s core values, critical success factors and strategic intent.  MENTOR intends to provide incentives to
leaders and executives commensurate with their levels of responsibility and
results achieved. While financial performance is the key component for funding
incentive payouts, service quality will not be overlooked. Individual and unit
performance reviews will specifically examine quality, service and operational
excellence as key criteria for determining incentive plan payouts.   The Plan is designed to closely link
incentives to growth in EBITDA and potentially to other growth metrics over
time.


 


Administration


 


The Plan is to be approved by the Board of Directors,  and will be 
interpreted  and administered by a
designated Compensation Committee.  The
administrative duties shall include:


 


•                  Determining
eligibility criteria and approving which leaders & executives shall
participate in the Plan.


 


•                  Approving
any changes to the threshold, target or maximum payout opportunities as a
percentage of base salary.


 


•                  Approving
each Plan Year, the performance measures and goals to be used for measuring
performance at the threshold, target and maximum levels.


 


•                  Determining/approving
actual performance achieved vs. goals at the end of each Plan Year.


 


•                  Determining
the size of the discretionary pool for awarding high performing individuals or
units in years where consolidated, division or unit growth was insufficient to
create an equitable incentive pool.


 


•                  Approving,
at the end of each Plan Year, the percentage of base salary (or dollar) amount
to be paid to each Plan participant.


 


•                  Reviewing
and approving the policies and procedures to be used in administration of the
Plan.


 


•                  Rendering
any decisions necessary with regard to the interpretation of the Plan’s
policies and procedures.


 


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Eligibility &
Award Opportunity


 


Initial eligibility for
participation in the Plan shall be limited to those individuals in the following
positions, and the corresponding initial threshold, target and maximum payout
opportunities as a percentage of base salary are:


 


	
  Participants

  	
   

  	
  Payout Opportunity:

  Thresh/Target/Max

  
	
  •     Chief
  Executive Officer

  	
   

  	
  20%/40%/80%

  
	
  •     Executive
  Group/EVP’s

  	
   

  	
  20%/40%/80%

  
	
  •     Senior
  Vice Presidents and Division Presidents

  	
   

  	
  15%/30%/45%

  



 


The payout opportunities
indicated in the preceding table are subject to plan funding, as explained in
the next section of the plan document, and actual payouts may be prorated
or even zero if individual performance is below expectations or if sufficient
funding is not achieved to pay the awards.


 


Plan
Structure & Funding


 


To provide funding for the
approved participants’ payout percentages of salary (threshold-maximum) as
covered in the previous section, consolidated growth between pre-approved
threshold, target and maximum goals must be achieved. In the initial year, the
total pool of funds allocated for incentive awards will be based upon
consolidated growth in EBITDA. Acquisitions, divestitures and other
extraordinary items will be excluded, or appropriate adjustments will be made
by the Committee. In subsequent years, a combination of revenue and EBITDA
growth or other key metrics may be used, as approved by the Committee. Based upon
the level of growth on a consolidated basis, an example
of funding for a single-factor plan is illustrated in the chart below:


 


Single Factor
Funding Chart


 


	
  EBITDA
  Growth

  	
   

  	
  5%

  	
   

  	
  10%

  	
   

  	
  15%

  
	
  Pool
  Funding

  	
   

  	
  50%

  	
   

  	
  100%

  	
   

  	
  200%

  



 


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Upon creation of the overall
funding pool, each reporting level will then receive incentive compensation
funding based upon the performance of the consolidated organization and/or
their division as follows:


 


Pool
Allocation


 




	
  Job Level

  	
   

  	
  Corporate

  	
   

  	
  Division

  	
   

  
	
  Corporate

  	
   

  	
  100

  	
  %

  	
  0

  	
  %

  
	
  Division
  Pres.

  	
   

  	
  25

  	
  %

  	
  75

  	
  %

  






 


For example, the funding for a Division President would be based upon
both the performance of the consolidated organization as well as the President’s
division.


 


The “Consolidated Funding” portion
would be obtained from the funding chart above. 
The “Division Funding” portion would be based upon the proportion of
consolidated growth which was achieved by each division, and subsequently
allocated to division participants, states and subunits.


 


An example of how funding, pool
allocations, performance reviews and actual payouts are calculated/determined
is included in the appendix.


 


Discretionary
Payout Pool


 


In the event that there is not
sufficient funding of the overall pool based upon consolidated performance
results or a division, state or unit pool based upon division growth to
adequately fund the division/state/unit pools, the Plan administrators will
have a contingency pool from which to approve discretionary awards to high
performing participants in those organizations.


 


Performance
Focus Areas and Weights


 


Participants will have their performance evaluated by their supervisors
and leadership based upon the growth of their division and/or of the overall
organization, as well as their personal achievements in the quality, service
and operational excellence areas. Participants may be assigned a limited number
of other key, annual business goals, depending upon job roles and levels.  Growth is defined as increases in revenue,
EBITDA and/or service volumes. EBITDA growth will be used for the first year to
facilitate implementation and clear communications.


 


Significant client service or quality lapses can result in reduction or
even total forfeiture of incentive payouts, based upon individual performance
reviews.


 


Goals and performance weights
will be finalized based upon business plan cycles, and should be communicated
to participants and in place prior to the start of each Plan year.


 


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(Note:  To meet the IRC section 162m $ million
dollar cap performance plan safe harbor for top 5 named executive officers in
public companies, the goals must be measurable, approved by the Board and
disclosed to shareholders for their approval.)


 


Target, minimum Threshold and
Maximum performance levels will be established for each Performance Focus Area
measure (EBITDA, revenue growth, and other key business goals or volume growth
where applicable) and linked to payout percentage opportunities, which are
typically:


 


•                  50%
of target payout for the threshold compared to target performance level;


•                  100%
of target payout for 100% of target performance; and


•                  150%
to 200% (depending upon organizational level) of target payout for maximum
performance.


 


Payouts for performance levels between
threshold and maximum will be calculated based upon pro-ration/interpolation.


 


Performance Period, Award Calculation/Payment
Methodology and Timing


 


Performance goals (and possibly weights) will be set and measured on a
fiscal year basis with incentive payments to be made based upon audited results
following the end of each year.


 


Prior to the beginning of each
Plan Year, the CEO and leadership team will:


 


•                  Determine and
recommend to the Plan Administrators for approval:


•                  Potential
payout ranges;


•                  Measures,
weights, percentages and goals for each eligible employee; and


•                  Administration
procedures changes, if any.


•                  Communicate
to each participant the applicable performance measures and levels, as well as
potential payout range.


 


During the year, situations may arise which warrant legitimate changes
to the measures and goals of a participant. 
Such changes would only be allowed if they are consistent with the goals
and objectives of MENTOR and occur within the first half of the annual incentive
period.   In such cases, the Plan
Administrators and/or an official designee shall review and approve any changes
to a participant’s measures and goals.


 


(Note: to meet IRC section 162m
million dollar cap performance plan safe harbor requirements for top 5 named
executive officers, as determined for SEC disclosure purposes, goals cannot be
changed after approved by Board and shareholders.)


 


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Within two-and-one-half months
after the end of the fiscal year, the Plan Administrators and/or an official
designee shall:


 


•                  Review,
evaluate and determine each participant’s performance against the general
quality, service & operational excellence expectations & any
predetermined performance goals.


•                  Determine
the amount of incentive compensation payable to each participant.


•                  Communicate
the performance and payouts linkage/amounts, and ensure checks are delivered
within the necessary timeframe.


 


Award payments will be calculated using the following methodology:


 


1.               Funding pools will
be calculated based upon consolidated growth vs. the pre-establishes targets,
with further allocation to divisions and units based upon their
relative/proportional growth contributions compared to other divisions/units.
Growth results will be determined by the Committee, and will reflect any
necessary adjustments for acquisitions, divestitures and other extraordinary
items.


 


2.               Discretionary pool
funding, if any, for awards to high performing individuals in divisions/units
without (sufficient) funding will be determined by the committee.


 


3.               Based upon pool
funding, schedules will be prepared and shared with “supervisors” indicating
the “mechanically-allocated” payout opportunity allocated for each individual
along with their threshold, target and maximum 
percentages of base salary.


 


4.               Did the participant’s
results vs. assigned performance goals meet minimum threshold, target or
maximum expectations and demonstrate growth in each of the assigned  EBITDA, revenue and/or service volume categories?


 


5.               Were there any  quality or service problems within the
participant’s control that should potentially reduce or nullify the payouts?


 


6.               Supervisors will
then document performance results along with actual payout  recommendations. Within the pool,  upwards or downwards adjustment to the
individual incentive allocation will be made.


 


7.               The performance
reviews and recommended payouts will be reviewed by the CEO and recommended to
the Compensation Committee for approval. The Committee will assess the CEO’s
performance to determine the actual incentive payout.


 


8.               A detailed example
is included in the appendix.


 


Sale of
Company/Change in Control Provisions


 


In the event of a Sale of the Company/Change in Control, as defined
below, the Plan Year will terminate and all eligible employees will receive a
pro-rated portion of their earned incentive.


 


Sale of the Company shall mean the sale to a third party or affiliated
group of third parties, as determined by the Board Compensation Committee in
its discretion, of (i) capital stock of the Company possessing the voting
power to elect a majority of the Company’s nBoard of Directors(whether by
merger, consolidation or sale or transfer of the Company’s capital stock) or (ii) more
than 50% of the Company’s assets determined on a consolidated basis; provided
that in any event, the term “Sale of the Company” shall not include an offering
of securities tom the public.


 


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Termination
Provisions


 


a.               Voluntary termination – employees who terminated employment
voluntarily prior to the actual payment date, other than by retirement, will
not be paid any incentive under the plan for the performance year.


 


b.              Involuntary
termination for cause – employees whose employment is involuntarily
terminated for cause will not be eligible for any incentive payments under the
Plan.


 


“Cause” shall mean any of the following: (i) theft
or embezzlement, or attempted theft or embezzlement, of money or property of
the Company or any subsidiary, perpetration or attempted perpetration of fraud,
or participation in a fraud or attempted fraud, on the Company or any
subsidiary or unauthorized appropriation of, or attempt to misappropriate, any
tangible or intangible assets or property of the Company or any subsidiary, (ii) any
act or acts of disloyalty, misconduct or moral turpitude injurious to the
interest, property, operations, business reputation of the Company or any
subsidiary or (iii) failure or inability (other than by reason of
disability) to carry out effectively a participant’s duties and obligations to
the Company and its subsidiaries or to participate effectively and actively in
the management of the Company and its subsidiaries, as determined in the
reasonable judgment of the Compensation Committee of the Board.


 


c.               Reduction in Force – based upon actual performance and
service achieved, any partial, pro-rated incentives earned will be paid at the
normal payout date to employees who have been terminated by reason of a
reduction in force.


 


d.              Retirement
– based upon actual performance and service achieved, any partial, pro-rated
incentives earned will be paid at the normal payout date to employees who
terminate employment through retirement.


 


e.               Death – based upon actual performance and service achieved,
any partial, pro-rated incentives earned will be paid to participants’ estates
at the normal payout date for any who cease employment during the year due to
the death.


 


Exclusions


 


Not withstanding the above,
participants are eligible for an incentive payout only if their reviewer
certifies that their performance is acceptable, based on the following:


 


•                  Fulfilling
general responsibilities and expectations, including a demonstrated commitment
to the quality of programming, service to customers, and the effectiveness of
the work environment for employees;


 


•                  Successfully
meeting financial objectives;


 


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•                  Meeting
their organizational/business objectives; and


 


•                  Conducting
themselves in alignment with the values of the company.


 


Mentor generally believes that
executive supervision involves regular clarification of expectations, straight
forward feedback on performance, support for success, and regular guidance on
areas where performance requires improvement. 
In light of this, supervisors will be asked to provide feedback on a
quarterly basis as to whether or not an incentive eligible leader is meeting
these basic performance expectations. 
These conversations should be documented for any quarter where a
participant is judged as not meeting requirements and fully for the annual
review.  On an annual basis, supervisors
of incentive eligible leaders will be expected to fill out a form to document
performance appraisal and  to activate
any incentive eligibility of the leaders reporting to them.


 


Special Provisions


 


a.               Promotions, job transfers – incentive plan goals and payout
opportunities will be reestablished upon transfer or promotion to a new
position.  At the end of the performance
period, earned incentive pay will be prorated for performance achieved prior to
transfer and in the new position based on the date of transfer.


 


b.              Interruptions
in work


 


i)                             Long-term
illness or disability:  generally, a
long-term illness or disability will not affect the eligibility of an employee
in the incentive plan.  Performance
objectives will not be adjusted based on the work interruption, although actual
performance achieved will be evaluated and corresponding incentive pay out will
be prorated based on the amount of time worked during the performance period.


 


“Disability” shall mean the
inability, due to illness, accident, injury, physical or mental incapacity or
other disability, of any participant to carry out effectively their duties and
obligations to the Company or to participate effectively and actively in the
management of the Company for a period of at least 90 consecutive days or for
shorter periods aggregating at least 90 days (whether or not consecutive)
during any 180-day period, as determined in the reasonable judgment of the
Compensation committee of the Board.


 


ii)                          Special
assignments:  will generally not impact
either the target goals or incentive pay out. 
If the special assignment is of a significant nature or duration,
incentive plan goals may be renegotiated and incentive earnings will be
prorated based on the time spent in each position during the performance period
as in promotions or job transfers.


 


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Section 162(m)
Provisions


 


In the event the company partakes in an Initial Public Offering or
otherwise becomes a publicly held company without an Initial Public Offering
and becomes subject to Section 162(m) of the Internal Revenue Code, and
applicable regulations, the plan terms shall be disclosed in the prospectus
accompanying the initial public offering. 
Furthermore, prior to the beginning of the next plan year following the
Company becoming publicly held without an Initial Public Offering or prior to
the beginning of the third plan year following an Initial Public Offering, the
Plan, as currently stated or amended, shall be presented for shareholder
approval as required by Section 162(m) and applicable regulations.


 


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APPENDEX-replace with new example


 


 


MENTOR INCENT PLAN FUNDING &
ALLOCATION EXAMPLE


 


 


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