Bonus and Incentive Plan for Executive Officers and Senior Management - Washington Mutual Inc.
WASHINGTON MUTUAL
BONUS AND INCENTIVE PLAN
FOR EXECUTIVE OFFICERS AND SENIOR MANAGEMENT
As Amended and Restated Effective January 1, 1999
The Directors' Compensation and Stock Option Committee (the
"Compensation Committee") of Washington Mutual, Inc. ("Washington Mutual")
hereby adopts this bonus and incentive plan, effective for bonus periods
beginning on or after January 1, 1999, subject to shareholder approval as
described in Section 3.
1. PURPOSE. The purpose of this plan is to provide
performance-based incentive compensation in the form of cash bonuses to
executive officers and senior management of Washington Mutual and its
affiliates. This plan is intended to qualify as performance-based compensation
under Section 162(m) of the Internal Revenue Code ("Section 162(m)").
2. ADMINISTRATION. This plan has been established by, and shall be
administered by, the Compensation Committee. The Compensation Committee is
composed solely of 2 or more outside directors as defined in Section 162(m) and,
therefore, qualifies as an independent compensation committee under Section
162(m).
3. SHAREHOLDER APPROVAL. This plan shall be effective if, and only
if, Washington Mutual's shareholders, by a majority of the votes cast, approve
the material terms of the performance goals in this plan, specifically, the
employees eligible to receive bonuses under this plan; the business criteria on
which the performance goals may be based; and the maximum amount of compensation
that may be paid to any employee under this plan in any year. No bonuses will be
paid under this plan until after this approval is obtained. To the extent
necessary for this plan to qualify as performance-based compensation under
Section 162(m) or its successor under then applicable law, these material terms
of the performance goals shall be disclosed to and reapproved by the
shareholders no later than the first shareholder meeting that occurs in the
fifth year following the year in which shareholders previously approved the
performance goals.
4. PARTICIPANTS. For each bonus measurement period (which may but
need not be a calendar year), the Compensation Committee will choose, in its
sole discretion, those eligible employees who will participate in this bonus
plan during that measurement period and will be eligible to receive a bonus
under this plan for that measurement period.
(a) ELIGIBLE EMPLOYEES. All members of senior management of
Washington Mutual and its affiliates are eligible to participate in this plan.
For purposes of this bonus plan, senior management is defined as any officer
with the rank of Senior Vice President or above of Washington Mutual, Inc., of
any affiliate and of any established division within an affiliate.
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(b) EMPLOYMENT CRITERIA. In general, to participate in this
plan an eligible employee must be continuously employed by Washington Mutual or
an affiliate for the entire measurement period. The foregoing notwithstanding:
(i) if an otherwise eligible employee joins Washington Mutual or an affiliate
during the measurement period, the Compensation Committee may, in its
discretion, add the employee to this plan for the partial measurement period,
and (ii) if the employment of an otherwise eligible employee ends before the end
of the measurement period because of death, disability, voluntary termination of
employment upon or after attaining age 62, or termination of employment upon or
after a Change in Control (as that term is defined in the employee's Employment
Agreement), the employee shall be paid a pro-rata portion of the bonus, if any,
that otherwise would have been payable under this plan. If a participant is on
unpaid leave status for any portion of the measurement period, the Compensation
Committee, in its discretion, may reduce the participant's bonus on a pro-rata
basis.
All determinations related to eligibility or the pro-ration of any bonus
shall be made by the Compensation Committee pursuant to the above terms, and
those determinations shall be final and binding on all employees.
5. BUSINESS CRITERIA ON WHICH PERFORMANCE GOALS SHALL BE BASED. The
payment of bonuses under this plan shall be based on Washington Mutual's
attainment of performance goals based on one or more of the following business
criteria:
Return on average common equity.
Return on average equity.
Efficiency ratio (other expense as a percentage of other income plus net
interest income), either before or after amortization of intangible
assets (goodwill).
Net operating expense (other income less other expense), either before
or after amortization of intangible assets (goodwill).
Earnings per diluted share of common stock.
Operating earnings (earnings before transaction-related expense) per
diluted share of common stock, either before or after amortization of
intangible assets (goodwill).
Return on average assets.
Ratio of nonperforming assets to total assets.
These business criteria shall be construed consistent with the use of the same
terms in Washington Mutual's published financial statements. All business
criteria other than earnings per diluted share of common stock shall exclude
transaction-related expense unless otherwise determined by the Compensation
Committee in selecting the business
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criteria for a particular bonus measurement period pursuant to Section 6 below.
In selecting any business criteria other than earnings per diluted share of
common stock, the Compensation Committee may elect, pursuant to Section 6 below,
to exclude amortization of intangible assets (goodwill), or to exclude
depreciation and amortization.
6. ESTABLISHING PERFORMANCE GOALS. The Compensation Committee shall
establish, for each bonus measurement period: (a) the length of the bonus
measurement period, (b) the specific business criterion or criteria, or
combination thereof, that will be used; (c) the specific performance targets
that will be used for the selected business criterion or criteria; (d) any
special adjustments that will be applied in calculating whether the performance
targets have been met to factor out extraordinary items, (e) the formula for
calculating bonuses in relation to the performance targets; (f) the eligible
employees who will participate in the bonus plan for that measurement period;
and (g) if applicable, the target bonus amounts for each participant for the
measurement period. The Compensation Committee shall make these determinations
in writing no later than 90 days after the start of each measurement period, on
or before 25 percent of the measurement period has elapsed, and while the
outcome is substantially uncertain. Bonus payments to any one participant in any
one calendar year under this plan shall not exceed $5,000,000.
Unless otherwise specified by the Compensation Committee in its written
determinations establishing the bonus criteria for the particular bonus
measurement period, if Washington Mutual or its affiliates consummate one or
more acquisitions during the bonus measurement period that, individually or in
the aggregate, constitute a Triggering Acquisition, the bonus measurement period
shall end early, on the last day of the calendar quarter immediately before the
consummation of the first acquisition that constitutes a Triggering Acquisition
(either individually or when aggregated with prior acquisitions during the bonus
measurement period), and pro-rated bonuses shall be paid based on the degree of
attainment of the performance goals during the shortened bonus measurement
period. For purposes of this paragraph, a Triggering Acquisition means an
acquisition (or combination of acquisitions) in which the acquired entity's
operating earnings (earnings before transaction-related expense) for the four
quarters completed immediately before consummation of the acquisition is equal
to 10% or more of the pro-forma operating earnings for the same four quarters
for the combination of Washington Mutual and its affiliates and the acquired
entity. (If either Washington Mutual and its affiliates or the entity being
acquired had consummated other acquisitions during the four quarters in
question, the calculation described in the prior sentence shall be done using
pro-forma earnings for each combined entity.)
If an employee joins Washington Mutual or an affiliate during the
measurement period and becomes an eligible employee pursuant to Paragraph 4(b),
and if the employee is a "covered employee" within the meaning of Section 162(m)
(because the employee is the chief executive officer or is among the 4 highest
compensated officers for the year other than the chief executive officer), then
to the extent necessary for this plan to qualify as performance-based
compensation under Section 162(m) or its successor under then applicable law,
all relevant elements of the performance goals established pursuant to paragraph
6 of this plan for that employee must be established on or before the date on
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which 25% of the time from the commencement of employment to the end of the
measurement period has elapsed and the outcome under the performance goals for
the measurement period must be substantially uncertain at the time those
elements are established.
7. DETERMINATION OF ATTAINMENT OF PERFORMANCE GOALS. The
Compensation Committee shall determine, pursuant to the performance goals and
other elements established pursuant to section 6 of this plan, the bonus amounts
to be paid to each employee for each measurement period. The Compensation
Committee's determinations shall be final and binding on all participants. These
determinations must be certified in writing before bonuses are paid, which
requirement may be satisfied by approved minutes of the Compensation Committee
meeting setting out the determinations made. The Compensation Committee shall
NOT have discretion to increase the amount of the bonus that would otherwise be
due upon attainment of the goals established pursuant to paragraph 6 of this
plan to any employee who is a "covered employee" within the meaning of Section
162(m) if increasing the bonus would cause the bonus or any part thereof to not
be deductible under the Internal Revenue Code.
8. AMENDMENTS. The Compensation Committee may not amend or
terminate this plan so as to increase, reduce or eliminate bonuses payable under
this plan for any given measurement period retroactively, that is, on any date
later than 90 days after the start of the measurement period. The Compensation
Committee may amend or terminate this plan at any time on a prospective basis
and/or in any fashion that does not increase, reduce or eliminate bonuses
retroactively. The foregoing notwithstanding, the Compensation Committee shall
not have the power to amend this plan in any fashion that would cause the plan
to fail to qualify as performance-based compensation with respect to any
"covered employee" as defined under Section 162(m) or its successor. Without
limiting the generality of the foregoing, to the extent it would cause this plan
to fail to qualify as performance-based compensation with respect to any
"covered employee" as defined under Section 162(m) or its successor under then
applicable law, the Compensation Committee shall not have the power to change
the material terms of the performance goals unless (i) the modified performance
goals are established by the Compensation Committee no later than 90 days after
the start of the applicable measurement period, on or before 25 percent of the
measurement period has elapsed, and while the outcome is substantially uncertain
and (ii) no bonuses are paid under the modified performance goals until after
the material terms of the modified performance goals are disclosed to and
approved by Washington Mutual's shareholders.
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9. EFFECTIVENESS; PRIOR PLANS SUPERSEDED. Upon shareholder approval
as described in Section 3, this plan shall be effective for bonus periods
beginning on or after January 1, 1999, and shall replace and supersede the Bonus
and Incentive Plan for Executive and Senior Management adopted effective January
1, 1996.
Executed effective as of January 1, 1999.
DIRECTORS' COMPENSATION & STOCK OPTION COMMITTEE
By
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John W. Ellis
Its Chairman
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