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CTS Corporation

Form 10-Q

Third Quarter 2005

 





EXHIBIT (10)(a)




DIRECTOR AND NAMED EXECUTIVE OFFICER COMPENSATION




Director Compensation 



Employee directors receive no additional compensation for serving on the Board of Directors or
Board Committees. The non-employee director fees established by the Board for 2005 are as follows:
annual board retainer — $25,000; annual retainer for each Audit Committee member — $5,000; annual
retainer for each Compensation Committee member — $4,000: annual retainer for each Finance and
Nominating and Governance Committee member — $3,000; annual retainer for each Leadership Continuity
Committee member — $4,000; additional annual retainer for Audit Committee Chairman — $5,000;
additional annual retainer for Compensation Committee Chairman — $4,000; additional annual retainer
for Finance and Nominating and Governance Chairman — $3,000; additional annual retainer for
Leadership Continuity Committee Chairman — $4,000; meeting fee for each Board or Committee Meeting
— $1,500. All committee meetings, including special meetings called by the committee chairman, are
compensated at the regular meeting fee rate. Special activity by the committee chairman, as well as
any special activity by another committee member that is requested or approved by the committee
chairman, is also compensated at the regular meeting fee rate. Non-employee directors are
reimbursed by the corporation for reasonable travel expenses related to their performance of
services and for director education programs.



In 1990, CTS adopted the Stock Retirement Plan for Non-Employee Directors. Under that plan, a
deferred stock unit account was established for each non-employee director. Through January 2004,
800 common stock units and additional units representing dividends on CTS common stock paid were
credited annually to each non-employee director’s account. When a non-employee director retires
from the Board, he or she receives one share of CTS common stock for each deferred stock unit
credited to his or her account. On December 1, 2004, the Board of Directors amended the plan to
preclude crediting any additional units to the deferred stock unit accounts. On December 1, 2004,
each non-employee director received a grant of restricted stock units under the CTS Corporation
2004 Omnibus Long-term Incentive Plan equivalent to the number of deferred stock units which would
have been credited to the director for 2004 service under the Stock Retirement Plan for
Non-Employee Directors. Under the terms of this award, each non-employee director will receive one
share of CTS common stock for each restricted stock unit upon retirement from the Board.



In 2002, the Board established a $30,000 annual stock-based compensation target for each
non-employee director. Through 2004, this target was achieved by calculating the value of the 800
common stock units to be credited under the Stock Retirement Plan for Non-Employee Directors based
on the closing price of CTS common stock on the New York Stock Exchange on the credit date. If the
calculated value of the common stock units was less than $30,000, each non-employee director
received a stock option award sufficient to make up the difference between that value and $30,000,
based on the closing price of CTS common stock on the New York Stock Exchange on the credit date.
For 2005, the stock-based compensation target was achieved by awarding each non-employee director
2300 restricted stock units under the CTS Corporation 2004 Omnibus Long-term Incentive Plan. The
awards were granted on December 1, 2004 and became distributable on January 11, 2005 absent a
deferral election by the non-employee director. Upon distribution, one share of CTS common stock
for each restricted stock unit is transferred to the non-employee director. A prototype
non-employee director restricted stock unit agreement has been previously filed with the
commissions as an exhibit to this corporation’s Annual Report on Form 10-K.




 









 








Named Executive Officer Compensation



CTS has an employment agreement with Donald K. Schwanz which has been previously filed with the
Commission as an exhibit to the corporation’s Annual Report on Form 10-K and an employment
agreement with Vinod M. Khilnani filed herewith. CTS does not have written employment agreements
with the other named executive officers. Annual salary for each named executive officer is
determined by the Compensation Committee of the Board of Directors. The annual salaries for named
executive officers set in 2005 were as follows: Donald K. Schwanz — $749,280; Vinod M. Khilnani —
$350,000; Donald R. Schroeder — $309,800; James L. Cummins — $238,300; Richard G. Cutter —
$233,700.



Each named executive officer participates in the CTS Corporation Management Incentive Plan which
has been previously filed with the Commission as an exhibit to CTS’ Annual Report on Form 10-K. The
plan provides cash bonuses determined by the Compensation Committee, based on achievement of annual
performance goals established by the Committee.



The Compensation Committee has historically awarded stock-based compensation to named executive
officers on an annual basis. In 2005, the Compensation Committee awarded the named executive
officers restricted stock units and incentive stock options under the CTS Corporation 2005 Omnibus
Long-term Incentive Plan. Restricted stock unit agreements are filed herewith. Prototype incentive
stock option agreements have been previously filed with the Commission as an exhibit to the
corporation’s annual Report on Form 10-K.



Mr. Schwanz receives a quarterly perquisite allowance of $4,300. Each other named executive officer
receives a quarterly perquisite allowance of $4,000. Mr. Schroeder receives an additional $4,000
per month cost-of-living allowance related to his relocation to Southern California as a result of
his appointment as President of CTS Electronics Manufacturing Solutions, a strategic business unit
of the corporation, during his first thirty-six months in this position.



Each named executive officer has executed a change-in-control severance agreement which provides
severance benefits only upon a change-in-control of CTS. Prototype change-in-control severance
agreements have been previously filed with the Commission as an exhibit to the corporation’s Annual
Report on Form 10-K. On September 30, 2005, CTS issued a notice of non-renewal of these
agreements. As a result, these agreements will expire on December 31, 2007.