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  Table of Contents




 

Exhibit 10.2    
    


         

  


ALLIANCE DATA SYSTEMS CORPORATION  


2004 Incentive Compensation Plan  


(As Amended and Restated Effective January 1, 2004)  







 
  

    Table of Contents    
    


        
 



	

Plan Philosophy
	

Effective Date
	

Eligibility
	

Base Compensation Used in Calculating IC Payout
	

Determining IC Targets
	

IC Components
	

Standard Weightings Chart for IC Components
	

Determining Payment Calculations
	

Timing of Payment
	

Status Changes That May Affect IC Targets and Payouts
	

Other Terms and Conditions
	

Attachment A—Example Individual Expectations Worksheet
	

Attachment B—Performance/Payout Table




2







 

 

Plan Philosophy    
    



The
intent of the Alliance Data Systems Incentive Compensation ("IC") Plan ("Plan") is to: 


	•
	Provide
IC to round out an eligible associate's total compensation package in order to attract and retain high performing associates; 
	•
	Improve
organizational performance by driving financial and individual performance and increasing associate satisfaction; 
	•
	Improve
the alignment between strategic imperatives and initiatives with the Alliance Scorecard; and 
	•
	Provide
an opportunity for associates to share in the success they help create. 



Participation
in this Plan reflects the importance of an associate's position and the impact that the associate's performance can have on the success of the Company. 


 

Effective Date    
    


The
Plan Year is January 1, 2004 through December 31, 2004. 


 

Eligibility    
    


Subject
to the provisions of this Plan, Associates are eligible to receive IC under this Plan if they are: 


	•
	Employed
by Alliance Data Systems Corporation or any of its subsidiaries (collectively, the "Company") and are either (a) a member of the Alliance Senior Leadership
Team, as defined by the title Director through Chairman & CEO, or (b) in an Exempt position that is designated by the Senior Director of Compensation as IC eligible (currently jobs in
pay grades 8-11, 21-23, 32-35, 94 and 95); 
	•
	Employed
or promoted into an IC eligible position by the Company before October 1, 2004; 
	•
	On
active status on the date of the award distribution or are eligible under the guidelines for retirement, disability or leave of absence; and 
	•
	In
the case of part-time associates in one of the specified pay grades listed above, working a schedule equal to a minimum of 25 hours per week. 



Associates
are not eligible if they: 


	•
	Do
not meet one of the eligibility requirements listed above; 
	•
	Are
participating in a sales commission or other incentive plan, unless approved by the appropriate Executive Vice President of a Line of Business ("LOB") or of a Business
Support Group ("BSG") and confirmed by the Senior Vice President of Human Resources and the Senior Director of Compensation; 
	•
	Are
temporary or on-call associates or contractors; 
	•
	Are
hired on or after October 1, 2004 or are promoted into an IC eligible pay grade on or after October 1, 2004; or 
	•
	Are
on a documented performance improvement plan as of the date of award distribution. 



 

Base Compensation Used in Calculating IC Payout    
    


Annualized
base pay as of October 1, 2004 will be used as part of the IC calculation. The IC target percentage(s) will be applied to October 1, 2004 base salary for purposes of
calculating the dollar target amount. 


3







 
 

Determining IC Targets  


Each
participant has an IC target. The Compensation Committee of the Board of Directors assigns IC targets for the Executive Committee members. IC targets for other positions are determined by the
participant's manager using the guidelines established by the Senior Director of Compensation in the following table: 



	Grade Level
 
	 	IC Target

	Executive Committee Member	 	Determined by the Board's Compensation Committee
	(Senior Vice President) 3	 	35% or 40% or 45%
	(Vice President) 4	 	25% or 30% or 35%
	(Director/Senior Director) 5	 	15% or 20% or 25%
	8-10, 21-23, 33-35 and 95	 	10% or 15%
	11, 32 and 94	 	5% or 10%






IC
targets are set in 5% increments. When determining the appropriate target, the following are considered: 


	•
	The
associate's position relative to those of other participants in the department; 
	•
	The
associate's anticipated contribution to the organization's success; and 
	•
	Targeted
total compensation package that is competitive with similar positions in the appropriate labor market or industry. 




IC
targets will be set at the beginning of the Plan year or at time of hire. If the IC target percentage changes, the manager will explain how the target will be prorated for payout purposes (if
appropriate) and whether or not the performance expectations and weightings will change for the current Plan year. 


 

IC Components    
    


All
performance goals should be established and communicated to the participant at the beginning of the Plan year or within 30 days of becoming a participant in the Plan. The degrees to which
these performance goals are accomplished have an impact on the actual incentive earned from the Plan. 



        Alliance Revenue and EBITDA Targets:    The Revenue and Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") targets make up 25%-75% of a participant's IC payment (see Standard Weightings Chart below). 


        LOB Revenue and EBITDA Targets:    There are a number of financial measures that can be used to determine success for a
particular area or individual. The appropriate Executive Vice President, along with the Senior Vice President of Human Resources and the Senior Director of Compensation will determine if
sub-measures will be used for a particular LOB or a particular individual. However, it is intended that the Board of Directors approve the achievement of LOB Revenue and EBITDA for payout
purposes. 


4







 



        Associate Satisfaction Index:    The annual administration of the Associate Survey and the tracking of data (i.e., improvement
expectations) are designed to motivate ongoing attention to issues that affect quality of client service, as well as the development and retention of associates. The Associate Satisfaction Index
("ASI") is a component of the Associate Survey process. The ASI component is designed to recognize and incent critical non-financial organizational factors that contribute to sustainable
business performance and provide a competitive advantage in recruiting, developing and retaining high performing associates. Targets are set at the beginning of each year along with a payout schedule. 


        Individual Expectations:    The Weightings Chart identifies those participants that have 25%—50% of their IC
payments based upon the achievement of individual expectations or team strategic imperatives (or action steps to accomplish the strategic imperatives) as determined between the participant and his or
her manager. A sample worksheet has been provided in Attachment A. 


 

Standard Weightings Chart for IC Components    
    


IC
objectives are weighted to drive financial and individual performance and increase associate satisfaction. LOBs have the ability to use specific components that closely reflect Alliance Scorecard
measurements. In addition, LOBs may adjust the standard components to include measurable financial drivers, such as bad debt or specific client revenue goals, with review and approval by the
appropriate Executive Vice President, along with the Senior Vice President of Human Resources and the Senior Director of Compensation. The participant's grade/job level as of October 1, 2004
will be used to determine the overall weightings. 


2004 IC Plan

Standard Components and Weightings  



	 
	 	 
	 	Senior

Leadership

Team1
	 	Exempts with Direct Supervisory Responsibility
	 	All Other Exempts2

	LOB	 	LOB EBITDA	 	50%	 	25%	 	25%
	 	 	LOB Revenue	 	25%	 	25%	 	25%
	 	 	Associate Satisfaction3	 	25%	 	25%	 	0%
	 	 	Individual Expectations4	 	0%	 	25%	 	50%
	
BSG	
 	
Alliance EBITDA	
 	

50%	
 	

25%	
 	

25%
	 	 	Alliance Revenue	 	25%	 	25%	 	25%
	 	 	Associate Satisfaction3	 	25%	 	25%	 	0%
	 	 	Individual Expectations4	 	0%	 	25%	 	50%







	1
	The
LOB/BSG executive has some flexibility to establish targets that are important for the success of his or her respective area. The Individual Expectations weighting
should not be used for SLT members unless it is used to drive financial performance. Any changes to the standard components, weightings or payout tables should be sent to the Senior Director of
Compensation for approval by the appropriate Executive Vice President, along with the Senior Vice President of Human Resources. 
	2
	The
LOB/BSG has some flexibility in reassigning Revenue targets for those associates who fall into an all other eligible exempt category or in unique cases. 
	3
	Some
participants, such as National Account Managers ("NAMs"), may have more emphasis on client relationships than Associate Satisfaction. LOB/BSG executives can determine
how they want to distribute the weightings for these positions. 
	4
	Eligible
exempt associates below the Director level should have Individual Expectations that support strategic imperatives ensuring the success of their LOB/BSG and the
Company. 


5







 

 

Determining Payment Calculations    
    


        Attachment A:    Example Individual Expectations Worksheet 



        The
sample form is provided to facilitate the setting of the Individual Expectations. If a participant is being held accountable for a Company-level strategic imperative (or an action
item to accomplish the strategic imperative for the LOB/BSG), that form may also be used. Regardless of the form used, an overall percentage of achievement of the Individual Expectations will be
required at the end of 2004 in order to determine the dollar payment for this IC component. 


        Attachment B:    Performance/Payout Table for Revenue, EBITDA, Associate Satisfaction and Individual Expectations 



        Identifies
the relationship between level of performance and the percentage to be paid for the achievement of the Alliance Revenue & Alliance EBITDA, LOB Revenue & LOB
EBITDA, ASI and Individual Expectations targets. A minimum of 80% must be achieved for any payment to be received; performance of 120% or greater receives the maximum payment of 150%. Percentages are
rounded to the nearer whole number. 


        For
BSGs, both the Alliance EBITDA and Alliance Revenue targets must be achieved at 100% or greater in order for ASI or Individual
Expectations to be paid above 100% of target. For LOBs, both the LOB EBITDA and LOB Revenue targets must be achieved at 100% or greater in order for ASI
or Individual Expectations to be paid above 100% of target. 


 

Timing of Payment    
    


IC
earned for the 2004 Plan year is paid in the first quarter of the following year. A participant must be actively employed on the date payment is made to receive his or her award. Any participant
who is on an approved leave of absence or disability leave but is still on active status will receive his or her payment even if he or she is not actively at work on the date payment is made. 


 

Status Changes That May Affect IC Targets and Payout  


Status
changes can affect the amount of incentive a participant receives. Status changes include: 


	•
	Transfers; 
	•
	New
Hires; 
	•
	IC
Target Changes; 
	•
	Leaves
of Absence; and 
	•
	Terminations.




        Transfers:    The LOB or BSG a participant is assigned to as of October 1, 2004 will be used to determine any payments
dependent upon LOB/BSG level of performance (see Standard Weightings Chart). Year-end performance for the LOB/BSG will be used to calculate the incentive amount to be paid for this
component. No prorating will be done for the amount of time spent in another LOB/BSG or in a different IC eligible grade over the Plan year without prior approval of the appropriate Executive Vice
President, along with the Senior Vice President of Human Resources and the Senior Director of Compensation. 


For
the ASI component, leaders who have moved or transferred during the course of the year, and who could therefore have their compensation tied to different reporting groups, will be reviewed as
follows: 


	•
	Determine
where the associate spent the most time during the action planning cycle; 
	•
	Assess
where the associate had the greatest opportunity to influence Associate Satisfaction; and 
	•
	Before
the end of December, the appropriate HR Executive will make a report recommendation to the Senior Director of Compensation, to be approved by the appropriate
Executive Vice President, along with the Senior Vice President of Human Resources. 


6







 

        New Hires:    For associates hired between January 1 and September 30, 2004 into an IC eligible position, the base
salary as of October 1, 2004 will be used to calculate the IC dollar target. The dollar target will be prorated as follows: 



	Hired Between These Dates
 
	 	Prorated Amount

	January 1-March 31	 	100%
	April 1-June 30	 	75%
	July 1-September 30	 	50%
	October 1-December 31	 	No IC






For
example, if an associate is hired on March 12, the IC dollar target will not be prorated. If an associate is hired on July 4, then the IC dollar target will be prorated by 50%. 


        IC Target Changes:    For current Company associates, if there is a promotion or a grade level change during the Plan year but
before October 1 which results in either (a) an associate becoming newly IC eligible or (b) a change in IC target, the IC target will be prorated according to the chart below
depending on the associate's IC eligible effective date. Note: changes in IC targets after October 1,
2004 will not be used to calculate IC payout for the 2004 Plan year. 



	IC Eligible Effective Date Between These Dates
 
	 	Prorated Amount For

Old/New IC % Target

	January 1-March 31	 	0%/100%
	April 1-June 30	 	25%/75%
	July 1-September 30	 	50%/50%
	October 1-December 31	 	100%/0%






The
base salary as of October 1 will be used to calculate the dollar target, even if there is a corresponding change in base salary at the time of the promotion or IC target change. For
example, a grade level change in April results in an IC target change from 5% to 10% and a base salary change from $35,000 to $40,000. The base salary on October 1 is $40,000, so that is the
salary used in the calculation. The IC dollar target is then calculated using the following formula: 



	 
	 	10/01 Base
	 	IC
	 	Target
	 	Prorate
	 	Subtotal

	Old	 	$	40,000	 	5%	 	$	2,000	 	25%	 	$	500
	New	 	$	40,000	 	10%	 	$	4,000	 	75%	 	$	3,000
	TOTAL	 	 	 	 	 	 	 	 	 	 	 	$	3,500






The
participant's manager should communicate to the participant the new weightings of financial and Individual Expectations (if applicable). 


        Leaves of Absence:    If a participant takes a leave of absence in excess of 30 consecutive days, either paid or unpaid, during
the Plan year, he or she may be eligible for a prorated award at the discretion of the appropriate Executive Vice President, along with the Senior Vice President of Human Resources and the Senior
Director of Compensation. 


        Terminations:    If a participant terminates his or her position voluntarily or involuntarily during the Plan year, he or she
will not be eligible for an IC payment because he or she would not be on active status on the date of the award distribution. If a participant retires,
becomes disabled or dies during the Plan year, he or she may be eligible for a prorated award at the discretion of the appropriate Executive Vice President, along with the Senior Vice President of
Human Resources and the Senior Director of Compensation. In the event of death, any incentive award is made to the beneficiary named in the Company-paid life insurance program. 


7







 



 

Other Terms and Conditions    
    


	•
	All
decisions by the Company will be final in the interpretation and administration of the Plan and shall lie within the Company's sole and absolute discretion. Decisions
shall be final, conclusive and binding on all parties concerned. 
	•
	This
Plan does not constitute a contract for the participant's continued employment with the Company. All Company associates are employed "at-will" which means
either the Company or the associate may terminate the employment relationship at any time with or without cause. 
	•
	Participant's
rights under the Plan may not be assigned or transferred in any way, except as otherwise set forth herein. 
	•
	The
Alliance Data Systems 2004 IC Plan may be amended, modified, suspended or terminated by the Company at any time, without prior consent by or prior notice to associates.
The Company at its sole discretion may change objectives at any time without prior consent by or prior notice to associates. 
	•
	The
Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make other segregation of assets to assure the payment of the
amounts under the Plan. Rights to the payment of amounts under the Plan shall be no greater than the rights of the Company's general creditors. 
	•
	Texas
state law governs the validity, construction, interpretation, administration and effect of the Plan and the substantive laws, but not the choice of law rules of the
State of Texas, shall govern rights relating to the Plan. 
	•
	Generally,
all applicable employment and tax deductions plus 401(k) contribution deferrals will be withheld from the IC payout. 
	•
	No
associate has the right nor is guaranteed the right to participate in the Plan by virtue of being an associate or fulfilling any specific position with the Company.
Selection for participation in the Plan is solely within the discretion of the Company. The Company may offer participation in the Plan to additional associates or terminate the participation of any
participant in the Plan at any time during the Plan Year. 
	•
	Revenues
and earnings classified as "windfalls" or business losses may or may not be excluded in whole or in part from the calculation of Revenue and EBITDA at the
discretion of the Company. 
	•
	Notice
to participate in the Plan shall not impair or limit the Company's rights to transfer, promote or demote Plan participants to other jobs or to terminate their
employment, nor shall it create any claim or right to receive any payment under the Plan or any right to be retained in the employ of the Company. 
	•
	The
Plan is established for the current fiscal year. There shall be no obligation on the part of the Company to continue the Plan in the same or modified form for any future
years. 
	•
	In
the event that a participant has a dispute concerning the administration of this Plan, it shall first be submitted in writing to the Senior Director of Compensation. In
the event that the Senior Director of Compensation does not provide a response satisfactory to the participant within 30 business days, the participant may submit the dispute in writing within five
business days thereafter to the Senior Vice President of Human Resources, whose decision regarding the dispute shall be final and binding on each participant or person claiming under the Plan. 
	•
	The
Plan is effective January 1, 2004, and supersedes and replaces all previous IC Plans. All such previous plans, unless earlier terminated, are terminated at
midnight, December 31, 2003. If not renewed by the Company, this Plan will automatically terminate on December 31, 2004. 
	•
	In
the event an eligible associate's performance falls below satisfactory standards during the Plan year, the associate may receive a reduced IC payment, at the discretion
of the Company, regardless of the performance results of the Company, LOB, BSG or the ASI results (if applicable). 
	•
	The
Company, at its sole discretion, may adjust or modify the methodology for calculating IC payments, the eligibility for receiving IC payments, and the actual amount of IC
payments. All adjustments or modifications must be approved by the CEO, the appropriate Executive Vice President, the Senior Vice President of Human Resources and the Senior Director of Compensation. 


8









  




 
 

Attachment A    
    


EXAMPLE INDIVIDUAL EXPECTATIONS WORKSHEET  



	Name:	Target IC (%):
	


	Position Title:	Grade Level:
	


	(a)	(b)	Ratings	(e)
	Specific Expectations/Standards of

Measure (Deliverables to be Achieved)	Accomplishments/Results (Actual

Results Achieved in Performance Period)	(c)

Weighting %	(d)

Actual Perf. %	Overall Perf.

Score % (c×d)
	1.	 	 	 	 
	


	2.	 	 	 	 
	


	3.	 	 	 	 
	


	4.	 	 	 	 
	


	5.	 	 	 	 
	


	


	 	 	100%	 	 
	 	Total Score on Specific Expectations (add column "e")>	 
	


	

	







Signed by: Associate Manager 


A-1









  




 
 

Attachment B    
    


PERFORMANCE/PAYOUT TABLE

FOR REVENUE, EBITDA, ASSOCIATE SATISFACTION AND INDIVIDUAL EXPECTATIONS  



	 	 	% of Objective(s)

Achieved*	 	%

Payout*	 	 
	 	 	79% or less	 	0%	 	 
	80% is the threshold for performance achievements to result in a payout.	 	80%	 	65%	 	 
	 	 	81%	 	67%	 	 
	 	 	82%	 	69%	 	 
	 	 	83%	 	70%	 	 
	 	 	84%	 	72%	 	 
	 	 	85%	 	74%	 	 
	 	 	86%	 	76%	 	 
	 	 	87%	 	77%	 	 
	 	 	88%	 	79%	 	 
	 	 	89%	 	81%	 	 
	 	 	90%	 	83%	 	 
	 	 	91%	 	84%	 	 
	 	 	92%	 	86%	 	 
	 	 	93%	 	88%	 	 
	 	 	94%	 	89%	 	 
	 	 	95%	 	91%	 	 
	 	 	96%	 	93%	 	 
	 	 	97%	 	95%	 	 
	 	 	98%	 	96%	 	 
	 	 	99%	 	98%	 	 
	 	 	100%	 	100%	 	100% is the target for performance achievements to receive 100% payout.
	 	 	101%	 	102.5%	 	 
	 	 	102%	 	105.0%	 	 
	 	 	103%	 	107.5%	 	 
	 	 	104%	 	110.0%	 	 
	 	 	105%	 	112.5%	 	 
	 	 	106%	 	115.0%	 	 
	 	 	107%	 	117.5%	 	 
	 	 	108%	 	120.0%	 	 
	 	 	109%	 	122.5%	 	 
	 	 	110%	 	125.0%	 	 
	 	 	111%	 	127.5%	 	 
	 	 	112%	 	130.0%	 	 
	 	 	113%	 	132.5%	 	 
	 	 	114%	 	135.0%	 	 
	 	 	115%	 	137.5%	 	 
	 	 	116%	 	140.0%	 	 
	 	 	117%	 	142.5%	 	 
	 	 	118%	 	145.0%	 	 
	 	 	119%	 	147.5%	 	 
	 	 	120% or greater	 	150.0%	 	150% is the maximum payout level.





For business support groups, both Alliance EBITDA and Alliance Revenue targets must be achieved at 100% or
greater in order for ASI or Individual Expectations to be paid above 100% of target. For lines of business, both LOB EBITDA and LOB Revenue targets must
be achieved at 100% or greater in order for ASI or Individual Expectations to be paid above 100% of target. 


B-1