Exhibit 10.2
Nortel Networks Limited Annual
Incentive Plan (AIP)
Section 1: Introduction
The Nortel Networks
Limited Annual Incentive Plan (the “Plan” or
“AIP”) is a short-term, incentive bonus plan that
provides the potential for “Eligible Employees” (as
defined below) to receive cash awards based on their contributions
to the success of the “Company”
1
, conditioned on
the Company meeting its objectives.
The Plan is intended
to drive business performance by rewarding Eligible Employees for
their contributions to the Company’s overall success. An
Eligible Employee’s contribution is determined by two
factors: (1) the impact of the employee’s role on
business results and (2) the employee’s performance
against individual objectives during the employee’s active
employment with the Company. The actual award received by an
Eligible Employee will reflect (1) the scope, complexity, and
responsibilities of the employee’s role, and the
employee’s contribution and achievement, during the Plan
Period 2 and (2) the Company’s
performance during the Plan Period as indicated by the Nortel
Performance Factor, as described below.
Section 2: Annual
Incentive Plan Eligibility
Generally, regular
full-time and regular part-time 3 Company employees are eligible
to participate in the Plan (“Eligible Employees”),
subject to the following:
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(1)
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Eligible
employees, who participate in other Company incentive plans for a
full calendar month or the greater portion of a calendar month, as
determined by the Company, are not eligible to participate in the
Plan during that calendar month. For purposes of this document,
“other incentive plans” mean sales incentive
compensation or any other incentive/bonus arrangements which the
Company determines have been offered in lieu of the
Plan.
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1
For
purposes of the Plan, the “Company” is defined as
Nortel Networks Limited and its subsidiaries and affiliates and
other entities, which it controls directly or indirectly and which
have been approved for participation in the Plan by the person
holding the most senior position responsible for human resources or
the equivalent at the Company as identified by the CHRC (the
“Senior Vice-President, HR”).
2
Each
calendar year consists of four Plan Periods, which align with the
Company’s four fiscal quarters ( i.e .,
January 1 st through March 31
st
(“Q1 Plan
Period”), April 1 st through June 30
th
(“Q2 Plan
Period”), July 1 st through
September 30 th (“Q3 Plan Period”)
and October 1 st through December 31
st
(“Q4 Plan
Period”). The Plan Period(s) may be changed by the CHRC and
Board of Directors (each as defined in Section 2) at any
time.
3
For
purposes of the Plan, regular full-time and regular part-time
Company employees are those employees who are eligible for
participation in the Company health benefit plans based on their
regularly scheduled hours.
2
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(2)
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Subject to
applicable law, employees who are covered under a collective labor
agreement are not eligible unless that collective labor agreement
provides for their participation in the Plan.
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(3)
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Individuals determined by the
Company to be students, co-op students, interns, temporary
4
, or non-payroll
workers ( i.e. , individuals who are not paid from a Company
employee payroll) are ineligible to participate in the
Plan.
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(4)
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The
Compensation and Human Resources Committee of the Boards of
Directors of Nortel Networks Corporation and Nortel Networks
Limited (“CHRC”) and the Board of Directors of Nortel
Networks Limited (the “Board of Directors”) may
determine that certain Company employees (including employees who
are not otherwise eligible for the Plan) may be eligible to receive
an award from a Discretionary Bonus Pool created pursuant to
Section 5 hereof.
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(5)
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Subject to applicable law, to
be eligible for an award for any given Plan Period an employee must
be (a) actively employed in a role that is eligible under the
Plan or other incentive plan (“Incentive Eligible
Role”) for at least forty-five (45) calendar days in
that Plan Period 5 and (b) employed by the
Company on the last day of the applicable Plan Period or, if no
longer employed as of that date, involuntarily terminated by the
Company during that Plan Period for a reason determined by the
Company to be other than for the employee’s inappropriate
actions or inactions, misconduct, breach of an agreement with the
Company or unsatisfactory performance or cause (as legally defined,
if at all, in the relevant jurisdiction) (collectively,
“Cause”). For purposes of this document, an employee
will be considered to be “actively employed” on those
days when the employee is classified as “active” on the
applicable Company payroll.
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(6)
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Plan awards
will be pro-rated if paid to employees who during the relevant Plan
Period (a) transfer into or out of Plan eligible roles from or
to positions covered by other incentive plans and
(b) participate in those other incentive plans for a full
calendar month or the greater portion of a calendar month, as
determined by the Company. The full amount of the Plan awards that
would have otherwise been paid to the employees in these
circumstances will be reduced by one-third for each of those full
or partial months of participation in other incentive plans during
the Plan Period.
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(7)
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Employees who
meet all of the Plan eligibility requirements, but whose employment
with the Company terminates between the end of the Plan
Period
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4
Where
legally required, temporary full time employees on fixed term
contracts with the Company may be included as Eligible Employees
subject to the other conditions in Section 2 of the
Plan.
5
The
required period of active employment status may be changed by the
CHRC and Board of Directors at any time
3
and the payment date for the award
for that Plan Period for reasons determined by the Company to be
other than an involuntary termination for Cause, will be eligible
for an award for the applicable Plan Period. With respect to former
employees who continue to be eligible for a Plan award under
Section 2(5) (b) or this Section 2(7) of the Plan,
the Company may deny payment of that Plan award to those former
employees if they engage in conduct after their employment
termination date and prior to the award payment date that
constitutes Cause, as determined by the Company.
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Notwithstanding
the foregoing, any payment made after termination of employment to
a “specified employee” that would be considered a
“deferral of compensation” within the meaning of, and
subject to, Section 409A of the U.S. Internal Revenue Code and
regulations thereunder (“Section 409A”) will be paid on
the later of the date which is six months and one day after the
termination date and the date on which the award is otherwise
payable under Section 4 of the Plan. A “specified
employee” means any U.S. citizen or resident who is a key
employee (as defined in Section 416(i) of the U.S. Internal
Revenue Code without regard to paragraph 5 thereof) of the Company.
(This is generally limited to employees who are (i) in the top
50 officers having an annual compensation greater than US$145,000,
(ii) a 5-percent owner, or (iii) a 1-percent owner having
an annual compensation of more than US$150,000.). For this purpose,
termination of employment means “a separation from
service” as defined in Section 409A.
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(8)
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An employee’s Management
Team 6 may, in consultation with the
relevant Human Resources Business prime, make limited exceptions to
the ‘actively employed’ requirement set out in
Section 2(5) above where required by applicable law (
e.g ., as required under applicable maternity, paternity,
parental, military, family, or medical leave laws), or where the
Management Team determines that circumstances clearly warrant an
exception ( e.g. , disability, outsourcing, divestiture, or
death). In such situations, if the employee has, while actively
employed in a Plan eligible role, substantially achieved his/her
individual objectives, the employee’s Management Team may
grant partial awards. If awards are paid in these circumstances,
the awards will be pro-rated to reflect the period the employee was
actively employed in a Plan eligible role as defined in
Section 2(5) above, and will be commensurate with the
employee’s contribution and achievement. Notwithstanding
anything in the foregoing to the contrary, nothing in the Plan
shall preclude the Company paying an employee an award under the
Plan for more than the number of months the employee was actively
employed in a Plan eligible role during the relevant Plan Period
(up to a maximum of three
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6
The
"Management Team" consists of the managers with whom the employee
has a direct or indirect reporting relationship as set out in the
Organization Structure Manager ("OSM") or its equivalent as
maintained by the Company from time to time.
4
(3) months) pursuant to that
individual employee’s employment termination agreement, which
the Senior Vice-President, HR has approved.
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(9)
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Company
affiliates and joint ventures may choose to offer the Plan or a
similar plan subject to the approval of the Senior Vice-President,
HR.
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Section 3: Award
Elements
An Eligible Employee’s cash
award for a Plan Period under the Plan will be based on the
following formula:
25%
7
of Annual Base
Salary x Award % x Nortel Performance
Factor 8
Annual Base Salary
means the annualized regular
compensation paid to an Eligible Employee, excluding any other
compensation, such as, but not limited to, bonuses, commissions,
overtime, and rel
