Professional and Leadership Incentive Plan-Fiscal Year 2004



 Exhibit 10.3 
  
 CISCO SYSTEMS, INC. 
  
 PROFESSIONAL AND LEADERSHIP INCENTIVE PLAN 
 FY 2004 
  

	I.	INTRODUCTION 

  

	 	A.	The Objective of the Professional and Leadership (P&L) Incentive Plan (the “Plan”) is to provide a fully discretionary payment to eligible employees of Cisco
Systems, Inc. and its subsidiaries (as defined in Paragraph III.D. below) as provided in this document (Cisco and its subsidiaries are referred to herein as the “Company”). Employees may receive a payment for their contributions to the
success and profitability of the Company. 

  

	 	B.	Participants: This Plan, as determined by the Company’s Board of Directors on a fully discretionary basis, applies solely to regular employees of Cisco Systems, Inc. and
its subsidiaries (as defined in Paragraph III.D. below) in salary grades 1 through 14, 083, 084, 090, 150, 200, and 888. For purposes of this Plan and unless otherwise prohibited by applicable law, the term “regular employees” means an
individual who is in the employ of the Company (or a subsidiary) for an unspecified period of time, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.


  

	 	C.	Effective Date: This Plan is only effective for the Company’s fiscal year 2004 beginning July 27, 2003, through July 31, 2004 (the “Fiscal Year”). This Plan is
limited in time and will expire automatically on July 31, 2004 (“Expiration Date”). This Plan also supersedes all prior bonus or commission incentive plans, whether with Cisco Systems, Inc. or a subsidiary or affiliate thereof or any
written or verbal representations regarding the subject matter of this Plan. 

  

	 	D.	Changes in Plan: Cisco Systems, Inc. reserves the right to modify or cancel the Plan in total or in part, at any time. Any such change must be in writing and signed by the
President/CEO of Cisco Systems, Inc. (“President/CEO”) and must specifically state that it is amending this Plan. The President/CEO or Plan designers reserve the right to interpret the Plan document as needed. Nothing in this Plan is
intended to create an entitlement to any employee for any incentive payment hereunder. 

  

	 	E.	Entire Agreement: This Plan, and any changes signed by the President/CEO specifically stating it is an amendment to this Plan and any Compensation Committee resolutions
amending the Plan, is the entire understanding between Cisco Systems, Inc. and its subsidiaries (as defined in paragraph III D below) and the employee regarding the subject matter of this Plan and supersedes all prior bonus or commission incentive
plans, or employment contracts whether with any holding company, subsidiary, or affiliate thereof (including Cisco Systems, Inc.) or any written or verbal representations regarding the subject matter of this Plan unless superseded by local law. All
payments under this Plan are fully discretionary payments. Participation in this Plan during the Fiscal Year will not convey any entitlement to participate in this or future plans or to the same or similar bonus benefits. Payments under this Plan
are an extraordinary item of compensation that is outside the normal or expected compensation for the purpose of calculating any extra benefits, termination, severance, redundancy, end-of-service premiums, bonuses, long-service awards, overtime
premiums, pension or retirement benefits or other similar payment. 

  

	II.	ELIGIBILITY AND INCENTIVE PLAN ELEMENTS 

  

	 	A I.	Eligibility: To be eligible to receive an incentive under this Plan, an individual who may be deemed to be a participant must be employed by the Company as a regular
employee in an incentive-eligible position on or before the first working day of the last fiscal quarter of the Fiscal Year and must be employed on the last working day of the Fiscal Year. Employees deemed to be participants in the Plan with less
than one year of service will be eligible to receive an incentive subject to proration from the effective date of participation in the Plan up to and including the Expiration Date. Unless otherwise required by law, in no event will an employee be
eligible to receive an incentive under this Plan unless that individual is employed on the last working day of the Fiscal Year. 










			
	Professional and Leadership Incentive Plan FY2004	  	Page 2 of 5

  

 Any exceptions to the above must be in writing and approved in writing by the President/CEO. 

 
 The amount of any incentive payment payable to any employee pursuant to
this Plan shall be reduced by the actual amount of any outstanding debt to the Company incurred on a sales commission plan. 
  
 AND 
  
 The employees deemed to be participants may be eligible for the incentive payout if they meet the following requirements at both the time of calculation
of such payments and at payout: 
  

	 	•	are not concurrently on a sales incentive or commission plan 

  

	 	•	have not entered into an employment termination agreement (including, but not limited to, any agreement, other than an employment agreement or offer letter, in respect of an
employee’s termination of employment) 

  

	 	•	are not on a Performance Improvement Plan, letter of concern, work plan, etc. 

  


	 	•	are not rated as N in their most recent performance evaluation 

  
 Any payout for employees ranked in the bottom 5% of their organization and/or for employees who have been offered (but not accepted) an Employment
Termination Agreement is at manager’s discretion and subject to Human Resource agreement. 
  

	 	B.	Elements of Calculation: 

  

																													
	Base Salary	 	X	 	Incentive Target Percentage	 	X 	 	Individual Performance Factor	 	 X	 	Teamwork and Collaboration Factor	 	X 	 	Company Performance Factor	 	 X	 	 Customer
 Satisfaction
 Factor
	 	X	 	Proration Factor	 	=	 	 Total Annual
 Incentive


  

	 	C.	The Annual Base Salary in effect at the end of Q2 for midyear and the end of Q4 for year-end represents the basis for the bonus payout including cases where the
employee’s salary currency has changed during the Fiscal Year. If the employee’s salary currency changed during the Fiscal Year, the employee’s current base pay in effect the last day before the currency change will be the basis for
the incentive calculation for the period of time that currency was in effect during the Fiscal Year. This prorated incentive calculation will be added to the post-currency change incentive calculation of the employee’s annual base salary in the
new currency. Bonus payments will be made in the employee’s salary currency in effect at the end of Q2 for midyear and at the end of Q4 for year-end. 

  

	 	D.	Incentive Target Percentage is a percentage of base salary determined by the grade level and may be changed at the discretion of the President/CEO at any time during the
Fiscal Year. If the target is modified impacted employees will be notified. 

  

			
	 Grades

	  	 Incentive Target %


	 1 – 4
	  	  7%
	 5 – 7
	  	10%
	 8 and 9
	  	14%
	 10 and 11
	  	17%
	 12
	  	30%
	 013, 014, 083, 084, and 090
	  	40%
	 200 and 888
	  	50%
	 150
	  	60%










			
	Professional and Leadership Incentive Plan FY2004	  	Page 3 of 5

  


	 	E.	Individual Performance Factor (IPF) is based upon the manager’s evaluation of a participant’s performance and contribution for the Fiscal Year. As a factor to the
incentive target percentage for the grade, this factor can range from 0.0 to 1.5 (i.e., 0.0 X 14% = 0%, 0.5 X 14% = 7%, 1.0 X 14% = 14%, or, 1.5 X 14% = 21%).  

  

	 	F.	Teamwork and Collaboration Factor (TCF) is based upon the manager’s evaluation of a participant’s ability to work as a team player and collaborate with others
across the company, suppliers and/or customers. The factor can range from 0.8 to 1.2.  

  

	 	G.	Company Performance Factor is based upon achievement of an established worldwide Revenue target and a worldwide Profit Before Interest and Tax (PBIT) target per the current
Plan by Cisco Systems, Inc. and all of its subsidiaries. The PBIT achievement to target is more heavily weighted relative to the worldwide Revenue target. Eighty percent of each objective must be achieved for any incentive to be paid. Maximum payout
under the Plan is 175% of the Incentive Target Percentage, or a factor of 1.75. When the Revenue and PBIT percentages of goal fall between the stated percentages on the matrix, the Performance Factor will be determined using a straight-line
interpolation approach. The applicable targets for the Fiscal Year may be amended at any time. 

  

	 	H.	Customer Satisfaction Factor is based upon the average achievement of two overall worldwide customer satisfaction survey scores drawn from all Cisco Systems Inc. and all of
its subsidiaries together worldwide. This factor will be based on a 50/50 blend of the Primary and Secondary Customer Satisfaction multipliers, and may range from 0.95 to 1.20 based on the following criteria: 

  

			
	 Primary Satisfaction Score

	  	Customer Satisfaction Multiplier


	 < 4.25
	  	0.95
	 4.25 – 4.34
	  	1.00
	 4.35 – 4.44
	  	1.05
	 4.45 – 4.59
	  	1.10
	 >4.59
	  	1.20
		
	 Secondary Satisfaction Score

	  	Customer Satisfaction Multiplier


	 < 4.10
	  	0.95
	 4.10 – 4.14
	  	1.00
	 4.15 – 4.18
	  	1.05
	 4.19 – 4.24
	  	1.10
	 >4.24
	  	1.20

  

	 	I.	Transfers and Terminations: Employees who are participants in the Plan and who transfer to a new position not governed by this Plan will be eligible on a pro-rata
basis for the applicable period and paid (or not paid) as defined by the Plan. Employees who transfer into the Plan from another plan will be subject to proration as well, and consequently will be eligible to participate in the Plan based on their
participation in this Plan during the Fiscal Year, applying the Proration factors referred to below. Any payments from the Plan are subject to reduction by advances, unearned commission advances, draws or prorations and appropriate withholdings.


  
 A participant must be employed on the last
working day of the Fiscal Year to be eligible for the year-end payment. A participant must be employed on the day of distribution to receive a partial midyear payment under paragraph II-M. Unless otherwise required by law, if an employee
terminates prior to the applicable date, the employee will not be eligible for such incentive or partial payment. 









			
	Professional and Leadership Incentive Plan FY2004	  	Page 4 of 5

  


	 	J.	Proration Factor accounts for the number of calendar days during the Fiscal Year that the employee was in the incentive-eligible position. For example, the Proration factor
for an employee who has been in the Plan the entire year will be 1.00. For an employee who has been in the Plan for 6 months, this factor will be 0.50. Unless otherwise provided by law, employees in the following situations will have a Proration
factor of less than 1.00: 

  

	 	•	Employees in the Plan who transferred to a new position not covered by the Plan. 

  

	 	•	Employees who transferred from one incentive-eligible position to another incentive-eligible position. Employees in this situation will have their eligibility under the Plan
prorated based on length of time in each position. 

  

	 	•	Employees who have been in the Plan less than 12 months (such as a New Hire). 

  


	 	•	Employees who have been on a leave of absence of any length during the fiscal quarter with the exception of Emergency Call-up Military Leave. 

  

	 	•	Employees working less than the full-time standard work week will be eligible to receive an incentive subject to proration of any such payment according to the following schedule:


  

			
	 Hours Worked

	  	 Incentive Eligibility


	Less than full-time as defined by standard work week	  	Prorated according to the average number of hours worked

  
 Any modification to
the above schedule must be approved by the next-level Manager and the Director of Compensation in advance of the year-end close date. 
  

	 	K.	Incentive Formula and Calculation Example: Assume an employee with a base salary of $95,000, Incentive Target of 14%, Individual Performance factor of 1.00, Teamwork and
Collaboration factor of 1.0, Cisco Systems, Inc. and all of its subsidiaries’ Company Performance factor of 1.00, a Customer Satisfaction factor of 1.05, and a Proration factor of 1.00. 

  
 Sample Calculation 
  

																													
	 Base
Salary

	  	 	  	 Incentive Target
Percentage

	  	 	  	 Individual
Performance
Factor

	  	 	  	 Teamwork and
Collaboration
Factor

	  	 	  	 Company
Performance
Factor

	  	 	  	 Customer
Satisfaction
Factor

	  	 	  	 Proration Factor

	  	 	  	 Total Annual
Incentive


	$95,000	  	X	  	0.14	  	X	  	1.0	  	X	  	1.0	  	X	  	1.0	  	X	  	1.05	  	X	  	1.0	  	=	  	$13,965.00*

  

	*	less any advance paid 

  
 In this example, the total incentive equals 14.7% of base salary. 
  

	 	L.	Midyear Advance of Year-End Incentive Payment: If the Cisco Systems, Inc. and all of its subsidiaries’ Company Performance Factor is at a minimum of 1.00, (measured on
the basis of midyear revenue and PBIT), a discretionary partial payment may be distributed to eligible employees midway through the Fiscal Year. This advance will not be more than 50% of the incentive target times current base salary, reduced by
advances, unearned commission advances, draws, prorations, and any outstanding debts owed to the company. This advance will be deducted from the year-end payout. Only Plan participants who have met job expectations, were hired on or before the first
working day of the second quarter of the Fiscal Year and are actively employed on the day of distribution will be eligible to receive a midyear advance. In no event, however, will any eligible participant receive such a partial payment unless that
individual is employed by Cisco Systems, Inc. or a participating Cisco subsidiary on the distribution date. 










			
	Professional and Leadership Incentive Plan FY2004	  	Page 5 of 5

  

 If Cisco Systems, Inc. and all of its subsidiaries’ Company Performance Factor is not at a minimum
of 1.00 (measured on the basis of midyear revenue and PBIT) but is at least .80, then a partial payment may, at the sole discretion of President/CEO, be distributed midway through the Fiscal Year to all or part of the employee population eligible
for the Plan, with the actual recipients to be determined by the President/CEO. Any such discretionary payment may be in an amount up to 25% of the incentive target by level, and will be deducted from the year-end payout, if any. However, only
employees who have met job expectations and were hired on or before the first day of the second quarter of the Fiscal Year and are actively employed on the day of distribution will be eligible for such a discretionary payment. 
  

	 	M.	Year-End Discretionary Incentive Payment: If Cisco Systems, Inc. and all of its subsidiaries’ performance fails to achieve the minimum revenue and PBIT targets for the
Fiscal Year so that no year-end payout becomes due under the Plan, then the President/CEO may, at his or her sole discretion, authorize a year-end payment in an amount up to 25% of the incentive target to all or a portion of the employee population
covered by the Plan, but in no event will an individual be eligible for such a discretionary payment unless he or she is employed on the last day of the Fiscal Year. All payments are subject to reduction by advances, unearned commission advances,
draws or prorations and any outstanding debts owed to the company. 

  

	III.	PROCEDURES AND PRACTICES 

  

	 	A.	Procedure:  

  

	 	1.	A copy of the Plan will be made available to each participant. 

  

	 	2.	All incentive payments will be made after all required or elected withholdings have been deducted. 

  

	 	B.	Business Conduct: It is the established policy of Cisco Systems, Inc. and all of its subsidiaries to conduct business with the highest standards of business ethics. Employees
may not offer, give, solicit or receive any payment that could appear to be a bribe, kickback or other irregular type of payment from anyone involved in any way with an actual or potential business transaction. 

  

	 	C.	Employment at Will (US Only): The employment of all Plan participants at Cisco Systems, Inc. and all of its subsidiaries is for an indefinite period of time and is terminable
at any time by either party, with or without cause or advance notice by either party. This Plan shall not be construed to create a contract of employment for a specified period of time between Cisco Systems, Inc. and all of its subsidiaries and any
Plan participant. Any modification of the employment relationship inconsistent with this Section must be in writing and signed by the President/CEO. 

  

	 	D.	Subsidiaries: This Plan applies to employees of all Cisco subsidiaries, except where the employees of a subsidiary are expressly eligible for participation in a bonus plan
established by the subsidiary by which they are employed, and/or where employees of a Cisco subsidiary are expressly informed in writing that they are not eligible for participation in this Plan. Employees of Cisco-Linksys LLC are not eligible for
participation in this Plan. 

  
 It is not
Cisco’s intention that employees of Cisco and its subsidiaries be eligible for more than one bonus plan, unless expressly stated to the contrary.