ex10_3.htm


    
      

    

    Exhibit
10.3

     

    January
2009

    


    TENNESSEE
VALLEY AUTHORITY

    EXECUTIVE
ANNUAL INCENTIVE PLAN

     

    PURPOSE

    


    The
Executive Annual Incentive Plan (“EAIP” or “Plan”) is designed to encourage and
reward TVA officers and other participants for their performance and
contribution to the successful achievement of financial, operational, and
individual goals.

    


    This is
accomplished by linking a significant element of variable annual compensation to
the accomplishment of selected short-term financial, operational, and individual
performance standards.  The Plan, in conjunction with salary, provides
total annual compensation opportunities similar to those found at competing
companies, thus assisting TVA in retaining and recruiting executive talent
critical to TVA’s success.

    


    


    PARTICIPATION

    


    The Board
of Directors, the Chief Executive Officer (“CEO”), or their delegatees, approve
the Participants in the Plan in accordance with then existing delegations of
authority.

    


    


    PERFORMANCE
PERIOD

    


    Each
performance period follows TVA’s fiscal year (October 1 through September
30).

    


    


    ANNUAL
INCENTIVE OPPORTUNITY

    


    Annual
Incentive Opportunities for each Participant are established based on market
data, level of responsibility, and relationship with other TVA positions in
order to ensure a consistent approach among TVA organizations.  Annual
Incentive Opportunities under the Plan are designed to align each Participant’s
Total Annual Compensation with relevant labor market practices.

    


    The basis
of a target award opportunity is a percentage of the Participant’s salary, which
is established based on the Participant’s position within TVA.

    


    


    PERFORMANCE
MEASURES AND GOALS

    


    The Plan
incorporates the use of Performance Measures which focus on key areas essential
for the achievement of TVA’s strategic objectives.  These measurement
areas typically include:

    


    
      	
               
      

            	
              ·

            	
              Financial

            


    

    
      	
               
      

            	
              ·

            	
              Assets/Operations

            


    

    
      	
               
      

            	
              ·

            	
              Customers

            


    

    
      	
               
      

            	
              ·

            	
              People

            


    

    
      	
               
      

            	
              ·

            	
              Individual
      Performance

            


    


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    The
selection of Performance Measures is specific to each Participant’s
position.  Weighting of the measures, when appropriate, will be based
on the relevance of the measure to the organization, the position purpose,
accountabilities, scope and impact applicable to the Participant.

    


    Performance
Measures, Performance Measure weighting, and the identification of Performance
Goals for each Performance Measure, will be established for each performance
period in accordance with reservations and delegations of authority under the
TVA Compensation Plan and communicated in administration of the Plan by the Vice
President, Human Resources.

    


    


    AWARD
DETERMINATION

    


    Annual
Incentive Awards are based on performance against the predefined Performance
Measures and Goals and the Annual Incentive Opportunity for each Participant
calculated as follows:

    


    
      
        
          
            	
                    Annual
      Incentive

                  	
                    =

                  	
                    Salary

                  	
                    x

                  	
                    Annual
      Incentive

                  	
                    x

                  	
                    Percent
      of Opportunity

                  
	
                    Award

                  	 
      	 
      	 
      	
                    Opportunity

                  	 
      	
                    Achieved

                  


          

        

      

    

    


    Final
Annual Incentive Awards for each Participant may be adjusted by the Board of
Directors, the CEO, or other appropriate delegated officer based on the
evaluation of the Participant’s individual achievements and performance results
over the fiscal year.  The maximum Annual Incentive Award allowed
under this Plan is 125 percent of the Annual Incentive Opportunity for each
Participant, unless a different maximum is approved by the Board of Directors or
its delegatee.

    


    


    AWARD
ELIGIBILITY

    


    A
Participant must be a full-time employee at the end of the Plan year in order to
be eligible to receive an award.

    


    Participants
who have been employed for the entire Plan year are eligible to receive a full
award.

    


    Except as
set forth above, Participants who become participants in the Plan at a time
other than the beginning of the Plan year, and who are employed at the end of
the Plan year, will
be eligible to receive a Prorated Award based on the number of full months
he/she has been a Participant in the Plan year.

    


    Notwithstanding
the above, if a Participant’s employment is terminated due to death or
Disability during the Plan year, then the Participant will receive a Prorated
Award.

    


    


    PAYMENT
OF AWARDS

    


    Annual
Incentive Awards are paid in a lump sum during the first quarter of the next
fiscal year but no later than March 15th of
the next calendar year following the year in which the Awards are
earned.  All Annual Incentive Awards will be approved by the Board of
Directors, the CEO, or other delegated officer prior to payment.

    


    In the
event a Participant’s employment is terminated due to death or Disability, the
Prorated Award will be calculated assuming target achievement and paid either
(i) by the last day of the first full calendar month following the receipt of
proper proof of the Participant’s death, or (ii) within 90 days of termination
of employment due to Disability.


    
      
         


      

      
        2

        
          

        

      

      
         


      

    


    DEFERRAL
ELECTION OPTION

    


    Performance-Based
Compensation

    


    Participants
may be eligible to elect to defer all or a portion of any eligible Annual
Incentive Award for a performance period to the TVA Deferred Compensation Plan
under the following conditions:

    


    
      	
               
      

            	
              ·

            	
              Deferral
      election must be made on or before the date that is six (6) months before
      the end of the performance period;

            


    

    
      	
               
      

            	
              ·

            	
              The
      deferral must be made in 25% increments of the actual Annual Incentive
      Award and is irrevocable as of the date set forth
  above;

            


    

    
      	
               
      

            	
              ·

            	
              Deferred
      amounts will be paid out upon the Participant’s Separation from Service in
      either a lump sum or in 5 or 10 annual installments, as elected by the
      Participant; and

            


    

    
      	
               
      

            	
              ·

            	
              The
      Participant performs services at TVA continuously from the date the
      Participant’s performance criteria are established through the date a
      deferral election is made.

            


    

    


    Annual
Incentive Awards are eligible for deferral to the extent (i) they constitute
“performance-based compensation,” as that term is defined in 26 CFR §1.409A-1(e)
of the Internal Revenue Code section 409A final regulations, and (ii) the amount
of the awards has not become readily ascertainable at the time of the deferral
election.

    


    First Year of
Eligibility

    


    Participants
who become participants in the Plan at a time other than the beginning of the
Plan year may be eligible to elect to defer a portion of any eligible Annual
Incentive Award for the performance period to the TVA Deferred Compensation Plan
under the following conditions:

    


    
      	
               
      

            	
              ·

            	
              Deferral
      election must be made within thirty (30) days after the date the
      Participant becomes eligible to participate in the
  Plan;

            


    

    
      	
               
      

            	
              ·

            	
              The
      deferral election choices are 25%, 50% or 75% of the actual Annual
      Incentive Award, to the extent such choices are available to the
      Participant;

            


    

    
      	
               
      

            	
              ·

            	
              The
      deferral is irrevocable as of the date set forth above;
  and

            


    

    
      	
               
      

            	
              ·

            	
              Deferred
      amounts will be paid out upon the Participant’s Separation from Service in
      either a lump sum or in 5 or 10 annual installments, as elected by the
      Participant.

            


    

    


    The
amount of Annual Incentive Award eligible for deferral depends on the number of
days remaining in the performance period after the date of the Participant’s
election over the total number of days in the performance period as set forth in
26 CFR §1.409A-2(a)(7) of the Internal Revenue Code section 409A final
regulations

    


    


    PLAN
ADMINISTRATION

    


    Annual
Incentive Opportunities, Performance Measures and Goals, and the results of the
Performance Measures and Goals for each Participant are approved on an annual
basis in accordance with the TVA Compensation Plan and the delegations
thereunder.

    


    The Plan
will be administered by the Vice President, Human
Resources.  Corporate Human Resources will develop and interpret all
rules for the administration of the Plan.

    


    


    TERMINATION
OR AMENDMENT OF THE PLAN

    


    The Board
of Directors, or its delegatee, may at any time modify, suspend, terminate, or
amend the Plan in whole or in part.


    
      
         


      

      
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    COMPLIANCE
WITH SECTION 409A

     

    At all
times, to the extent Internal Revenue Code section 409A and its implementing
regulations (collectively, “Section 409A”) applies to amounts deferred under
this Plan: (a) this Plan shall be operated in accordance with the requirements
of Section 409A; (b) any action that may be taken (and, to the extent possible,
any action actually taken) by the Board, or its delegatee, and the Participants
shall not be taken (or shall be void and without effect), if such action
violates the requirements of Section 409A; (c) any provision in this Plan that
is determined to violate the requirements of Section 409A shall be void and
without effect; and (d) any provision that is required by Section 409A to appear
in this Plan that is not expressly set forth shall be deemed to be set forth
herein, and this Plan shall be administered in all respects as if such provision
were expressly set forth herein.

    


    


    DEFINITION
OF TERMS

    


    
      
        
          
            	
                    Annual
      Incentive Award

                  	
                    Actual
      dollar amount awarded to a Participant under the EAIP.

                  
	 
      	 
      
	
                    Annual
      Incentive Opportunity

                  	
                    Award
      opportunity expressed as a percent of the Participant’s
      salary.

                  
	 
      	 
      
	
                    Disability

                  	
                    Term
      “disability” as defined in 26 CFR §1.409A-3(j)(4)(xii) of the Internal
      Revenue Code section 409A final regulations.

                  
	 
      	 
      
	
                    Participant

                  	
                    An
      officer or other Manager/Specialist employee approved to be eligible to
      receive an award under the EAIP.

                  
	 
      	 
      
	
                    Performance
      Goals

                  	
                    The
      goals established for each Performance Measure used to determine the
      Annual Incentive Award.

                  
	 
      	 
      
	
                    Performance
      Measures

                  	
                    The
      specific metrics used to measure performance.

                  
	 
      	 
      
	
                    Prorated
      Award

                  	
                    Method
      used to determine the Annual Incentive Award amount for an employee not
      eligible to receive a full award.  Pro-ration is based on the
      number of full months employed.

                  
	 
      	 
      
	
                    Separation
      from Service

                  	
                    Term
      “separation from service” as defined in 26 CFR §1.409A-1(h) of the
      Internal Revenue Code section 409A final regulations.

                  
	 
      	 
      
	
                    Total
      Annual Compensation

                  	
                    Term
      used by TVA that includes salary plus Annual Incentive
      Award.

                  


          

        

      

    

     

     

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