Document:

Ex-10.16 Executive Annual Incentive Plan

 

Exhibit 10.16

TENNESSEE VALLEY AUTHORITY EXECUTIVE ANNUAL INCENTIVE PLAN

Note About This Exhibit 10.16

     In 2006, performance metrics and goals identified on the TVA Winning
Performance Balanced Scorecards were reviewed and approved by the Board during the first
quarter of the fiscal year. The TVA Winning Performance Balanced Scorecards served as the
basis for determining the Executive Annual Incentive Plan (“EAIP”) awards made to all EAIP
participants in 2006, including those made to the CEO and all managers who reported directly
to the CEO.

     In this Exhibit 10.16, the term “base compensation” has the same meaning as the
term “salary plus additional annual compensation” has in the Annual Report to which this
exhibit relates. In addition, the term “additional annual compensation” as used in the Annual
Report is synonymous with “applicable deferred compensation” and “Deferred Compensation” as
those terms are used in this Exhibit 10.16. Also, all references made to the Executive
Compensation Review Committee in this Exhibit 10.16 are obsolete since the committee no
longer exists.

 

 

TENNESSEE VALLEY AUTHORITY

EXECUTIVE ANNUAL INCENTIVE PLAN

PURPOSE

The Executive Annual Incentive 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 financial, operational, and individual performance standards.
The Plan, in conjunction with base compensation (salary plus applicable deferred
compensation), 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.

EFFECTIVE DATE

The Executive Annual Incentive Plan will be effective in fiscal year 1999.

PARTICIPATION

Executives, as defined in this plan, and as approved by the Board of Directors are
participants in this Plan.

PERFORMANCE PERIOD

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

AWARD OPPORTUNITY

Award opportunities are based on market data, level of responsibility, and relationship with
other TVA positions in order to ensure a consistent approach among TVA organizations. Award
opportunities under the Plan are designed to align each participant’s total annual
compensation with TVA Board approved relevant labor market practices at a targeted level of
performance.

Award opportunity targets are established for each position. The basis of a target award
opportunity is a percentage of the participant’s base compensation (salary plus applicable
deferred compensation), which is established in accord with the participant’s position within
TVA.

Award opportunity targets established under this Plan allow management flexibility in establishing
award opportunities based on position. Guidelines for establishing target award opportunities
based on position are presented below:

 

 

Target Award Opportunity Guideline

	 	 	 	 	 
	 	 	Award Opportunity Targets
	Position 
	 	(Percentage of Base Compensation)
	President & COO
	 	 	50	%
	Chief Officers / General Counsel
	 	 	40	%
	Executive Vice President
	 	 	30% – 40	%
	Senior Vice President / Vice President
	 	 	10% – 30	%
	Other Positions
	 	 	5% – 20	%

Actual
awards may vary based on performance and achievements.

PERFORMANCE GOALS AND MEASURES

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
	 
	 	•	 	Operating
	 
	 	•	 	Individual Performance

The selection of performance measures is specific to each 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.

The performance measure selection process, including the identification of standards for each
measure, will be established for each fiscal year consistent with guidelines issued by the
Senior Vice President, Human Resources, in consultation with the Executive Compensation
Review Committee.

Performance goals and measures established for participants who are direct reports to the Board
require approval by the Board of Directors on an annual basis prior to the beginning of the
fiscal year for which the performance measure is established. The Executive Compensation
Review Committee is responsible for approving performance goals and
measures for all other
participants.

AWARD DETERMINATION

Final awards are based on performance against predefined performance measures and the
award opportunity target for each participant. Awards may be adjusted based on the evaluation
of individual achievements and performance results. The maximum award allowed under this Plan
is 125 percent of the award opportunity target for a given participant.

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.

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Participants who have been employed for less than the entire Plan year may receive a prorated
award.

Plan participants who change organizations during the performance period will have their awards
based on performance results of the Plan measures established for them as of the end of the
Plan year.

PAYMENT OF AWARDS

Awards are paid in a lump sum during the first quarter of the next fiscal year. All Plan
awards will be approved by The Board of Directors prior to payment.

DEFERRED OPTION

Participants may elect to defer all or a portion of their Executive Annual Incentive Plan
award to MISRIP with the following restrictions:

	 	•	 	Deferral election must be made prior to the beginning of the Plan year.
	 
	 	•	 	The Plan award may be deferred in 25% increments of the
actual award and is irrevocable.

PLAN ADMINISTRATION

The Board of Directors have final approval of all Plan participants, award opportunity
targets, and actual award payments.

The Board
of Directors approve all performance goals and results for the Board Direct Reports.

The Executive Compensation Review Committee approves performance goals and reviews
award opportunity targets and award amounts for all participants except those who report
directly to the Board.

The Plan will be administered by the Senior Vice President, Human Resources, in consultation with
the Executive Compensation Review Committee.

The Senior Vice President, Human Resources is responsible for:

	 	•	 	Establishing the process for goal setting, performance measurement, reporting
progress performance achievement, and award determination.
	 
	 	•	 	Developing additional procedures as necessary to implement the Executive
Annual Incentive Plan.

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 may at any time modify, suspend, terminate, or amend the Plan in whole
or in part.

DEFINITION OF TERMS

	 	 	 
	Annual Incentive Award

	 	Actual dollar amount paid to a participant
under the EAIP (Awards may be
deferred).
	 
	 	 
	Award Opportunity Target

	 	Award opportunity expressed as a percent of
the participant’s base compensation.

3

 

	 	 	 
	 
	 	 
	Base Compensation

	 	Salary plus Deferred Compensation (i.e. annual
MISRIP excluding any contributions received as part of a
deferred option and /or Long-Term Deferred, if
applicable).
	 
	 	 
	Deferred Compensation

	 	Compensation that is deferred and paid at a future date.
	 
	 	 
	Executives

	 	Officers or other high level Managers and
Specialists responsible for establishing business vision,
strategic direction and policy, or whose decisions have major
impact on TVA or operations of business units. Incumbents
report to the Board of Directors, head of an organization (CAO,
COO, CFO, GC) or head of a major organizational unit (CNO,
TPS, CS&M, etc). Positions of like size in the relevant
labor market are generally titled President, Chief Officer,
Vice President, Senior Executive (or similar titles), or
receive total compensation at a level that makes participation
in the Executive Compensation Plan appropriate. Employees in
the “Officer / Executive” pay band are executives. Designation
of Executives is approved by the Board of Directors.
	 
	 	 
	Executive Compensation Review Committee

	 	A Committee established by the Board of Directors of TVA
to provide additional oversight of executive compensation.
	 
	 	 
	Long-Term Deferred

	 	Compensation that is deferred and paid at a future date if
the employee remains employed by TVA for a specific period
of time.
	 
	 	 
	MISRIP

	 	“Merit Incentive Supplemental
Retirement Income Plan” — Deferred compensation plan.
	 
	 	 
	Participant

	 	An officer or other Manager/Specialist employee
designated by the Board of Directors to be eligible to receive
an award under the new Executive Annual Incentive Plan.
	 
	 	 
	Performance Goals

	 	The goals against which performance is measured.
	 
	 	 
	Performance Measures

	 	The specific business indicators where performance will
be measured against the performance goals.
	 
	 	 
	Prorated Award

	 	Method used to determine the award amount for an employee
not eligible to receive a full award. Pro-ration is generally
based on the number of months employed divided by 12. Any
partial month is considered a full month.
	 
	 	 
	Total Annual Compensation

	 	Term used by TVA that includes Base Compensation
plus Annual Incentive.
	 
	 	 
	Variable Annual Compensation

	 	Compensation that varies from year to year based on level
of achievement (performance).

4Ex-10.17 Executive Long-Term Incentive Plan

 

Exhibit 10.17

TENNESSEE VALLEY AUTHORITY EXECUTIVE LONG-TERM INCENTIVE PLAN

Note About This Exhibit
10.17

     In order to focus on the goal of reducing TVA’s total financing obligations, the
Executive Long-Term Incentive Plan (“ELTIP”) administratively functioned in a manner similar
to an annual incentive plan with awards made and targets set with respect to a one year
period and with payments made in the first quarter of the following
fiscal year. ELTIP
awards made in the performance cycle ending in 2006 were based solely on the reduction of
TVA’s total financing obligations in 2006,

     In this Exhibit 10.17, the term “base compensation” has the same meaning as the
term “salary plus additional annual compensation” has in the Annual Report to which this
exhibit relates. In addition, the term “additional annual compensation” as used in the Annual
Report is synonymous with “applicable deferred compensation” and “Deferred Compensation” as
those terms are used in this Exhibit 10.17. Also, all references made to the Executive
Compensation Review Committee in this Exhibit 10.17 are obsolete since the committee no
longer exists.

 

 

TENNESSEE VALLEY AUTHORITY

EXECUTIVE LONG-TERM INCENTIVE PLAN

PURPOSE

The
Executive Long-Term Incentive Plan (ELTIP) is designed to provide Manager/Specialist
employees in “especially critical” positions with incentive opportunities based on successful
achievement of established financial and/or operational goals measured over a multi-year
period. The plan, in conjunction with base compensation and annual incentive compensation,
provides total direct compensation opportunities similar to those found at competing
companies.

EFFECTIVE DATE

The Executive Long-Term incentive Plan follows three-year performance cycles. Each year of
the performance cycle follows TVA’s fiscal year (October 1 through September 30). A new
three-year performance cycle begins at the start of each fiscal year. The Plan will be
effective in fiscal year 1999.

PARTICIPATION

Participation
is limited to Executives in “especially critical” positions who have the ability
to directly impact TVA’s long-term strategic objectives. Participants must be approved by the
Board of Directors.

PERFORMANCE CYCLE

Each
performance cycle extends for a period of three consecutive fiscal years.

A new performance cycle begins at the start of each TVA fiscal year.

An example of the three-year performance cycle with overlapping cycles is illustrated below:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Performance Cycle	 	FY 1999	 	FY 2000	 	FY 2001	 	FY 2002	 	FY 2003	 	 	 	 
	1 - FY99
	 	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 	 	 	 	 	 	 	 	 
	2 - FY00
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 	 	 	 	 
	3 - FY01
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	 	 

PERFORMANCE GOALS AND MEASURES

Performance goals and measures are established at the beginning of each performance cycle
and measured over the three-year period.

The performance measures focus primarily on the achievement of TVA’s long-term financial
and/or operational goals.

Performance goals and measures require approval by the Board of Directors prior to the beginning of
the performance cycle for which they are established.

 

 

AWARD OPPORTUNITY

Award opportunities are based on market data, level of responsibility, and relationship with
other TVA positions in order to ensure a consistent approach among TVA organizations.

Award opportunity targets are established for each position. The basis of the target award
opportunity is a percentage of the participant’s base compensation (salary plus any
applicable deferred compensation), which is established based on the participant’s position
within TVA.

An award opportunity target is established for each participant at the beginning of each
performance cycle and may be adjusted with Board approval.

The following guidelines for determining long-term incentive award opportunity targets have
been established under this plan:

Long-Term Award Opportunity Target Guideline

	 	 	 	 	 
	 	 	Award Opportunity Target Maximum
	Position 
	 	(Percentage of Base Compensation)
	President & COO / Chief Officers /
General Counsel
	 	 	15% – 30	%
	 
	 	 	 	 
	Executive VP
	 	 	10% – 25	%
	 
	 	 	 	 
	Senior VP / Vice President
	 	 	5% – 15	%
	 
	 	 	 	 
	Other Participants
	 	 	5% – 10	%

The award opportunity is the amount of targeted award for a targeted level of performance.
Actual awards may vary based on level of performance and achievements.

LTIP PHASE-IN

The LTIP will be phased-in during fiscal years 1999 and 2000. The following additional
performance cycles will be established during the phase-in period:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Length of	 	Maximum	 	 
	Performance Cycle	 	Performance Cycle	 	Target Opportunity	 	Award Payment
	FY 1999 Phase-in
	 	one year	 	 	10	%	 	1st quarter FY 2000
	FY 2000 Phase-in
	 	one year	 	 	15	%	 	1st quarter FY 2001

During the phase-in period, goals and award opportunity targets will be established for each
participant for each performance cycle by the Board of Directors. At the end of each
performance cycle the Board of Directors will approve awards based on the achievement of
goals.

2

 

AWARD DETERMINATION

Final awards are based on achieved level of performance compared to established goals
throughout the performance cycle and the award opportunity target. Actual awards are based on
participants’ base compensation at the end of the performance
cycle.

AWARD ELIGIBILITY

A participant must be a full-time employee at the end of the performance cycle in order to be
eligible to receive an award.

An employee who has been a participant for the entire performance cycle (three fiscal years) will
be eligible to receive a full award.

An employee designated as a participant at a time other than the beginning of a performance cycle
will be eligible to receive a prorated award based on the number of months he/she has been a
participant in the performance cycle (which started at the beginning of the fiscal year in
which they became a participant).

Participants will receive a prorated award for each performance cycle (in which they are a
participant) if employment is terminated due to death, disability, or normal retirement.

AWARD PAYMENTS

Awards are paid in a lump sum during the first quarter of the next fiscal year following each
performance cycle.

In the event of termination due to death, disability, or normal retirement, the award will be
valued and paid within 90 days of termination. The award will be prorated to reflect actual
participation.

DEFERRED OPTION

Participants may elect to defer all or a portion of their Executive Long-Term Incentive Plan
award to MISRIP in accord with the following conditions:

	 	•	 	Deferral election must be made prior to the beginning of the performance cycle.
	 
	 	•	 	The election must be made in 25% increments of the actual
award and is irrevocable.

	PLAN ADMINISTRATION
	 
	The Board of Directors have final approval of all Plan participants, performance goals and
measures, award opportunity targets, and award payments.
	 
	The Executive Compensation Review Committee will review and recommend participants and
award opportunity targets.
	 
	The Plan will be administered by the Senior Vice President, Human Resources.
	 
	The Senior Vice President, Human Resources will be responsible for:

	 	•	 	Establishing the process for goal setting, performance measurement, reporting
progress toward goals, performance achievement, and award determination.
	 
	 	•	 	Developing and implementing a transition plan.

3

 

	 	•	 	Developing additional procedures as necessary to implement the Executive
Long-Term Incentive Plan.

Corporate Human Resources will develop and interpret rules for the administration of the Plan.

TERMINATION OR AMENDMENT OF THE PLAN

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

DEFINITION OF TERMS

	 	 	 
	Award Opportunity Target

	 	Award opportunity expressed as a percent of the
participant’s base compensation at the beginning of a
performance cycle.
	 
	 	 
	Base Compensation

	 	Salary plus Deferred Compensation (i.e. annual
MISRIP excluding any contributions received as part of a
deferred option and /or Long-term Deferred, if
applicable).
	 
	 	 
	Deferred Compensation

	 	Compensation that is deferred and paid at a future date.
	 
	 	 
	Especially Critical

	 	A position designated by the Board of Directors as one
which has the ability to significantly impact the financial,
and/or operational objectives critical to TVA’s overall
success.
	 
	 	 
	Executives

	 	Officers or other high level Managers and
Specialists responsible for establishing business vision,
strategic direction and policy, or whose decisions have major
impact on TVA or operations of business units. Incumbents
report to the Board of Directors, head of an organization (CAO,
COO, CFO, GC) or head of a major organizational unit (CNO,
TPS, CS&M, etc). Positions of like size in the relevant
labor market are generally titled President, Chief Officer,
Vice President, Senior Executive (or similar titles), or
receive total compensation at a level that makes participation
in the Executive Compensation Plan appropriate, Employees in
the “Officer / Executive” pay band are executives. Designation
of Executives is approved by the Board of Directors.
	 
	 	 
	Executive Compensation
Review Committee

	 	A Committee established by the
Board of Directors of TVA to provide additional oversight of executive compensation.
	 
	 	 
	Normal Retirement

	 	Retirement at age 62 or older.
	 
	 	 
	Participant

	 	Employee designated by the Board of Directors to be
eligible to receive an award under the Executive
Long-Term Incentive Plan.
	 
	 	 
	Performance Cycle

	 	In accordance with the ELTIP, a three-year period of
time during which performance is measured for the purpose
of awarding incentives.
	 
	 	 
	Performance Goal(s)

	 	The long-term strategic goal(s) against which
performance will be measured.

4

 

	 	 	 
	Performance Measures

	 	The specific business indicator where
performance will be measured against
the performance goal(s).
	 
	 	 
	Prorated Award

	 	Method used to determine the award amount for
an employee not eligible to receive a
full award. For purposes of the ELTIP,
pro-ration is based on the number of months an executive has participated in a
given performance cycle divided by 36.
Any partial month is considered a full month.
	 
	 	 
	Total Annual Compensation

	 	Term used by TVA that includes Base
Compensation plus Annual incentive.
	 
	 	 
	Total Direct Compensation

	 	Term used by TVA that includes Base
Compensation plus Annual Incentive plus
Long-Term Incentive.
	 
	 	 
	Variable Annual Compensation

	 	Compensation that varies from year to year
(or performance cycle to performance
cycle) based on level of
achievement (performance).

5

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