KERR-McGEE CORPORATION ANNUAL INCENTIVE COMPENSATION PLAN



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                  KERR-McGEE CORPORATION ANNUAL INCENTIVE COMPENSATION PLAN


                                TABLE OF CONTENTS


Article                                                                  Page

   I         Establishment And Purpose.................................     1

  II         Definitions...............................................     1

 III         Administration............................................     3

  IV         Eligibility And Participation.............................     3

   V         Award Determination.......................................     3

  VI         Payment Of Final Awards...................................     7

 VII         Termination Of Employment.................................     7

VIII         Rights Of Officers........................................     7

  IX         Change In Control.........................................     8

   X         Miscellaneous.............................................     9





                  KERR-McGEE CORPORATION ANNUAL INCENTIVE COMPENSATION PLAN


                                    Article I

                            Establishment And Purpose


        1.1  Establishment  of the  Plan.  Kerr-McGee  Corporation,  a  Delaware
corporation (the "Company"), hereby establishes an annual incentive compensation
plan to be known as "The Kerr-McGee  Corporation  Annual Incentive  Compensation
Plan (the "Plan"),  as set forth in this document.  The Plan permits annual cash
awards to Officers of the Company,  based on the achievement of  pre-established
performance goals.

               The Plan shall become  effective  January 1, 1998 (the "Effective
Date") and shall  remain in effect  until  terminated  as provided in Article V,
Section 5.12 herein.

        1.2    Purpose.  The purposes of the Plan are to:

        (a) Provide  incentives  to achieve  annual  goals that are within group
        and/or  individual  control  and  are  considered  key to the  Company's
        success;

        (b  Encourage teamwork in various segments of the Company;

        (c) Reward performance with pay that varies in relation to the extent to
        which the pre-established goals are achieved; and

        (d) Ensure all  amounts  paid under the Plan be  "qualified  performance
        based compensation" within the meaning of Section 162(m) of the Code and
        its accompanying regulations.

                                   Article II

                                   Definitions

        Whenever used in the Plan,  the following  terms shall have the meanings
set  forth  below  and,  when  the  defined  meaning  is  intended,  the term is
capitalized:

        (a) "Award  Opportunity"  means the various  levels of  incentive  award
        payouts  which an  Officer  may earn  under the Plan,  including  Target
        Incentive Awards, as established by the Committee pursuant to Article V,
        Sections 5.1 and 5.2 herein.

        (b) "Board" or "Board of Directors"  means the Board of Directors of the
        Company.

        (c) "Code" means the Internal Revenue Code of 1986, as amended.

        (d) "Committee"  means a  committee  of two (2) or  more  members of the
        Board of Directors,  all of whom shall be "outside directors" within the
        meaning of the Regulations  under Code Section 162(m),  appointed by the
        Board to administer the Plan, pursuant to Article III herein.

        (e) "Company"  means  Kerr-McGee  Corporation,  a  Delaware  corporation
        (including any and all Subsidiaries and Limited Liability Companies) and
        any successor thereto.

        (f) "Effective Date" means the date the Plan becomes  effective,  as set
        forth in Article I, Section 1.1 herein.

        (g) "Employee" means a full time, salaried employee of the Company.

        (h) "Exchange Act" means the Securities Exchange Act of 1934, as amended
        from time to time, or any successor act thereto.

        (i) "Final Award" means the actual award earned during a Plan Year by an
        Officer, as determined by the Committee.

        (j) "Limited  Liability  Company" means any Limited Liability Company in
        which the Company or a Subsidiary  owns fifty  percent  (50%) or more of
        the Limited Liability Company.

        (k) "Officer"  means  an  Employee  who,  as  of  the  last  day  of the
        applicable Plan Year, is an officer of the Company at or above the level
        of Corporate Vice President.

        (l) "Plan Year" means the Company's fiscal year.

        (m) "Subsidiary" means any corporation (other than the Company) in which
        the Company,  a Subsidiary or a Limited Liability Company of the Company
        owns fifty percent (50%) or more of the total  combined  voting power of
        all classes of stock.

        (n) "Target  Incentive  Award" means the award,  as  established  by the
        Committee at a competitive  level,  which may be paid to an Officer when
        "targeted" performance results are attained; however, in no case can the
        Target Incentive Award exceed 100% of an officer's base salary.

                                   Article III

                                 Administration

        3.1 The Committee.  The Plan shall be  administered by a Committee which
initially shall be the Executive Compensation Committee of the Board. Subject to
the  terms of this  Plan,  the  Board  may  appoint  a  successor  Committee  to
administer the Plan. The members of the Committee shall be appointed by, must be
members of, and shall serve at the discretion of the Board.

        3.2 Authority of the Committee.  Subject to the provisions  herein,  the
Committee  shall  have the full power to  determine  the size and types of Award
Opportunities  and Final Awards,  to determine the terms and conditions of Award
Opportunities  in a manner  consistent  with the Plan, to construe and interpret
the Plan and any  agreement  or  instrument  entered  into  under the  Plan,  to
establish,  amend or waive rules and regulations for the Plan's  administration,
and  (subject  to the  provisions  of  Article IV herein) to amend the terms and
conditions of any  outstanding  Award  Opportunity  to the extent such terms and
conditions  are within the sole  discretion  of the Committee as provided in the
Plan. Further,  the Committee shall make all other  determinations  which may be
necessary or advisable for the  administration of the Plan. As permitted by law,
the Committee may delegate its authority hereunder.

        3.3 Decisions Binding. All determinations and decisions of the Committee
as to any  disputed  question  arising  under the Plan,  including  questions of
construction and interpretation, shall be final, binding and conclusive upon all
parties.

                                   Article IV

                          Eligibility And Participation

        4.1 Eligibility. All Officers as of the first day of each Plan Year.

        4.2 No Right to Participate.  No Employee shall at any time have a right
to  be  selected  for  participation  in  the  Plan  despite  having  previously
participated in the Plan.

                                    Article V

                               Award Determination

        5.1 Performance  Measures and Performance Goals. For each Plan Year, the
Committee  shall establish  ranges of attainment of the performance  goals which
will correspond to various levels of Award Opportunities.  Each performance goal
range shall include a level of performance  at which one hundred  percent (100%)
of the Target  Incentive  Award may be earned.  In  addition,  each range  shall
include  levels of  performance  above and below the one hundred  percent (100%)
performance  level at which a greater or lesser percent of the Target  Incentive
Award may be earned.

               After the performance  goals are established,  the committee will
align the achievement of the performance goals with the Award  Opportunities (as
described in Article V, Section 5.2 herein),  such that the level of achievement
of the  pre-established  performance  goals  at the end of the  Plan  Year  will
determine the Final Awards.

               The Committee may establish one or more Company wide  performance
measures which must be achieved for any Officer to receive a Final Award payment
for that Plan Year.

               Following the  completion  of each Plan Year, if the  performance
goals were met, the Committee shall certify in writing prior to payment of Final
Awards that the performance goals for such Plan Year were satisfied.

        5.2 Award  Opportunities.  No later  than  ninety  (90)  days  after the
beginning of each Plan Year, the Committee shall  establish,  in writing,  Award
Opportunities   which  correspond  to  various  levels  of  achievement  of  the
pre-established  performance goals. The established Award Opportunities may vary
in relation to the job  classification  of each Officer or among Officers in the
same job  classification.  Except as provided in Article V, Section 5.11 herein,
Award  Opportunities  for Officers  shall be  established  as a function of each
Officer's Base Salary (as defined  below).  No later than ninety (90) days after
the beginning of each Plan Year,  the  Committee  shall  establish,  in writing,
various  levels of Final  Awards  which may be paid with  respect  to  specified
levels of attainment of the pre-established performance goals.

               For purposes of this Article V, "Base  Salary"  shall mean, as to
any specific Plan Year, an Officer's  regular  annual salary rate as of the last
day of the Plan Year.  Regular  salary  shall not be  reduced  by any  voluntary
salary  reductions  or any  salary  reduction  contributions  made to any salary
reduction plan, defined  contribution plan or other deferred  compensation plans
of the  Company,  but shall not include any payments  under this Plan,  the 1998
Long Term Incentive Plan, or any other bonuses, incentive pay or special awards.

        5.3    Computation of Final Awards.  Each Officer's Final Award shall be
 based on:

        (a) The Officer's Target Incentive Award;

        (b) The  potential  Final  Awards  corresponding  to  various  levels of
        achievement of the pre-established  performance goals, as established by
        the Committee; and

        (c) Company performance in relation to the  pre-established  performance
        goals.

Except as provided in Article V, Section 5.7 herein,  performance measures which
may serve as determinants of Officers' Award  Opportunities  shall be limited to
the Company's Pretax Income, Net Income, Earnings Per Share, Revenue,  Expenses,
Return on Assets,  Return on Equity,  Return on  Investment,  Net Profit Margin,
Operating  Profit  Margin,   Operating  Cash  Flow,  Total  Stockholder  Return,
Capitalization,  Liquidity,  Results of Customer  Satisfaction Surveys and other
measures  of  Quality,  Safety,  Productivity  or Process  Improvement  or other
measures the Committee approves. Such performance goals may be determined solely
by  reference  to the  performance  of the  Company,  a  Subsidiary,  a  Limited
Liability  Company or a division or unit of any of the foregoing,  or based upon
comparisons of any of the performance  measures relative to other companies.  In
establishing  a  performance  goal,  the Committee may exclude the impact of any
event or  occurrence  which the Committee  determines  should  appropriately  be
excluded such as, for example, a restructuring or other nonrecurring  charge, an
event either not directly related to the operations of the Company or not within
the reasonable  control of the Company's  management,  or a change in accounting
standards required by the U. S. generally accepted accounting principles.

        5.4  Adjustment  of  Performance  Goals  and Award  Opportunities.  Once
established,  performance  goals  normally  shall not be changed during the Plan
Year. If the Committee  determines in its sole discretion that external  changes
or other unanticipated business conditions have materially affected the fairness
of the goals,  then the Committee  may approve  appropriate  adjustments  to the
performance  goals  (either up or down) during the Plan Year as such goals apply
to the Award Opportunities of specified Officers.

               Notwithstanding any other provision of this Plan, in the event of
any change in corporate  capitalization,  such as a stock split,  or a corporate
transaction,  such  as  any  merger,  consolidation,   separation,  including  a
spin-off,  or other  distribution  of  stock or  property  of the  Company,  any
reorganization  (whether or not such reorganization  comes within the definition
of such term in Code Section 368), or any partial or complete liquidation of the
Company,  such adjustment  shall be made in the Award  Opportunities  and/or the
performance  measures or performance  goals related to then current  Performance
Periods,  as may be determined to be appropriate and equitable by the Committee,
in its sole discretion,  to prevent dilution or enlargement of rights; provided,
however, that subject to Article V herein, any such adjustment shall not be made
if it would  eliminate  the ability of Award  Opportunities  held by Officers to
qualify for the "performance  based  compensation"  exception under Code Section
162(m).

        5.5 Final Award Determinations.  As soon as practicable after the end of
each Plan Year, Final Awards shall be computed for each Officer as determined by
the Committee. Subject to the terms of Article V herein, Final Award amounts may
vary  above  or  below  the  Target  Incentive  Award,  based  on the  level  of
achievement  of  the  pre-established  corporate,   division  and/or  individual
performance  goals.  Except as provided in Article V herein, the Committee shall
have  discretion to reduce or eliminate any and all Final Awards that  otherwise
would be paid;  provided,  however, the Committee may determine prior to the end
of the Plan Year that it will not exercise such discretion.

        5.6 Award Limit.  The Committee may establish  guidelines  governing the
maximum Final Awards that may be earned by Officers (either in the aggregate, by
Employee class or among  individual  Officers) in each Plan Year. The guidelines
may be expressed as a percentage of Company wide goals of financial measures, or
such  other  measures  as the  Committee  shall  from  time to  time  determine;
provided, however, that the maximum payout with respect to a Final Award payable
to any one Officer in  connection  with  performance  in one Plan Year shall not
exceed two hundred percent (200%) of the Officer's Target Incentive Award.

        5.7 Threshold Levels of Performance. The Committee may establish minimum
levels of performance goal  achievement,  below which no payouts of Final Awards
shall be made to any Officer.

        5.8 No  Mid-Year  Change in Award  Opportunities.  Except as provided in
Article V,  Section  5.11  herein,  each  Officer's  Final  Award shall be based
exclusively  on the  Award  Opportunity  levels  established  by  the  Committee
pursuant to Article V, Section 5.2 above.

        5.9 Nonadjustment of Performance Goals. Except as provided in Article V,
Section  5.11 herein,  performance  goals shall not be changed  following  their
establishment  and  Officers  shall not  receive  any  payout  when the  minimum
performance goals are not met or exceeded.

        5.10 Award  Adjustments.  The  Committee  shall have the  discretion  to
reduce or  eliminate  the  amount of the Final  Award  otherwise  payable  to an
Officer.

        5.11 Possible Modifications.  In the event that changes are made to Code
Section 162(m) or the Regulations  thereunder to permit greater flexibility with
respect to any Award  Opportunities  under the Plan,  the Committee may exercise
such  greater  flexibility  consistent  with the terms of the AICP  and,  to the
extent of such  changes,  without  regard to the  restrictive  provisions of the
AICP.

        5.12 Amend and Terminate.  The Board,  without notice,  at any time, may
modify or amend,  in whole or in part, any or all of the provisions of the Plan,
or  suspend  or  terminate  it  entirely;   provided,   however,  that  no  such
modification,  amendment, suspension, or termination may, without the consent of
an  Officer,  reduce  the  right of an  Officer  to a  payment  or  distribution
hereunder to which the Officer is entitled.

                                   Article VI

                             Payment Of Final Awards

        6.1 Form and Timing of Payment. Unless a deferral election is made by an
Officer  pursuant  to Article VI,  Section  6.2 herein,  or deferral of all or a
portion of an Officer's Final Award is required by Article VI, Section 6.3, each
Officer's  Final  Award shall be paid  within  seventy-five  (75) days after the
Award is approved by the Committee.

        6.2 Voluntary  Deferral  of  Final Award  Payouts.  An Officer may defer
receipt of some or all  payments  otherwise  due under the Plan  pursuant to the
terms of a deferred compensation plan sponsored by the Company.

        6.3 Deferral of Final Award Payouts.  In the event that all or a portion
of an  Officer's  Final  Award is not  deductible  by the  Company due to limits
contained in Code Section  162(m) or any successor  Code Section,  the Committee
may, in its  discretion,  require that payment of the  nondeductible  portion of
such Final Award be deferred under a deferred compensation plan sponsored by the
Company.

                                   Article VII

                            Termination Of Employment

        If before an Award is  actually  paid to an  Officer  with  respect to a
Performance Period the Officer ceases to be a regular, full time employee of the
Corporation,  any of its Subsidiaries or any of its Limited Liability Companies,
the Officer's  eligibility  under the Plan shall  terminate and no Award will be
paid.

                                  Article VIII

                             Rights Of Participants

        8.1 Employment. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Officer's  employment at any time,
nor confer upon any Officer any right to continue in the employ of the Company.

        8.2 Nontransferability.  No right or interest of any Officer in the Plan
shall be  assignable  or  transferable,  or  subject to any lien,  directly,  by
operation of law or otherwise,  including, but not limited to, execution,  levy,
garnishment, attachment, pledge and bankruptcy.




                                   Article IX

                                Change In Control

        In the event of a Change in Control, each Participant shall, in the sole
discretion of the Committee,  receive a full payment of the Participant's Target
Incentive Award for the Plan Year during which such Change in Control occurs, as
determined by the Committee. In such circumstances the Committee shall determine
the Final  Award based upon  performance  during the Plan Year until the date of
the Change in Control.  Such amounts  shall be paid in cash to each  participant
within seventy-five (75) days after the effective date of the Change in Control.

        For purposes of the Plan, a "Change in Control"  shall be deemed to have
occurred if :

        (a) Any  "Person",  as such term is used in Sections  13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than
the Company, any trustee or other fiduciary holding securities under an employee
benefit plan of the Company,  or any corporation owned,  directly or indirectly,
by the  stockholders  of the Company in  substantially  the same  proportions as
their ownership of stock of the Company),  is or becomes the "Beneficial  Owner"
(as defined in Rule 13d-3 under the Exchange Act),  directly or  indirectly,  of
securities of the Company  representing 25% or more of the combined voting power
of the Company's then outstanding securities;

        (b) During any period of 24 months (not  including  any period  prior to
the  execution  of this  Agreement),  individuals  who at the  beginning of such
period  constitute  the Board,  and any new director  (other than (1) a director
designated  by a person who has entered  into an  agreement  with the Company to
effect a transaction  described in clause (a), (c) or (d) of this Article; (2) a
director designated by any Person (including the Company) who publicly announces
an intention to take or to consider taking actions  (including,  but not limited
to, an actual or threatened proxy contest) which if consummated would constitute
a Change in  Control;  or (3) a  director  designated  by any  Person who is the
Beneficial  Owner,  directly  or  indirectly,   of  securities  of  the  Company
representing  10% or  more  of  the  combined  voting  power  of  the  Company's
securities  whose  election  by the  Board or  nomination  for  election  by the
Company's  stockholders  was approved by a vote of at least  two-thirds (2/3) of
the directors then still in office who either were directors at the beginning of
the period or whose  election or  nomination  for  election  was  previously  so
approved cease for any reason to constitute at least a majority thereof;

        (c) The stockholders of the Company approve a merger or consolidation of
the Company with any other  corporation other than (1) a merger or consolidation
which  would  result  in  the  voting  securities  of  the  Company  outstanding
immediately   prior  thereto   continuing  to  represent  (either  by  remaining
outstanding  or by being  converted  into  voting  securities  of the  surviving
entity) more than 50% of the combined  voting power of the voting  securities of
the Company or such surviving entity  outstanding  immediately after such merger
or consolidation and (2) after which no Person holds 25% or more of the combined
voting power of the then outstanding securities of the Company or such surviving
entity; or

        (d)  The  stockholders  of  the  Company  approve  a  plan  of  complete
liquidation  of the Company or an agreement for the sale or  disposition  by the
Company of all or substantially all of the Company's assets.

                                    Article X

                                  Miscellaneous

        10.1 Governing Law. The Plan,  and all  agreements  hereunder,  shall be
governed by and construed in accordance with the laws of the State of Oklahoma.

        10.2 Withholding  Taxes. The Company shall have the right to deduct from
all payments under the Plan any foreign, federal, state or local income or other
taxes  required  by law to be withheld  with  respect to such  payments.  Before
payment of any Final  Award may be  deferred  under  Article VI, the Company may
require that the Officer pay or agree to withholding  for any foreign,  federal,
state  or local  income  or other  taxes  which  may be  imposed  on any  amount
deferred.

        10.3 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular, and the singular shall include the plural.

        10.4 Severability.  In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.

        10.5 Costs of the Plan. All costs of implementing and  administering the
Plan shall be borne by the Company.

        10.6 Successors.  All obligations of the Company under the Plan shall be
binding upon and inure to the benefit of any  successor to the Company,  whether
the existence of such successor is the result of a direct or indirect  purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.

        10.7 Other Plans. Nothing contained in this Plan shall prevent the Board
from  adopting  other  or  additional  compensation  arrangements,   subject  to
stockholder approval if such approval is required;  and such arrangements may be
either generally applicable or applicable only in specific cases.

        10.8  Construction.  The Committee  shall have such duties and powers as
may be necessary to discharge its responsibilities  under this Plan,  including,
but not limited to, the ability to construe and  interpret  the Plan and resolve
any  ambiguities  with  respect  to any of the  terms and  provisions  hereof as
written and as applied to the operation of the Plan.



                                            KERR-McGEE CORPORATION



                                            By:_____________________________
                                               John J. Murphy
                                               Director and Chair of the
                                               Executive Compensation Committee