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Compensation Award: Definition, Terms, Example

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What is a Compensation Award?

A compensation award is a certain sum of money that is awarded to a plaintiff by a judge or by agreement with another party in a court case. This type of award is common in cases such as auto insurance or class-action lawsuits against companies. The agreement contains details about who each party is and what the claims made against them are. It also includes details about how much the compensation award is and when it should be distributed.

The purpose of the compensation award is to formally document the amount of money awarded to a party in court.

Common Sections in Compensation Awards

Below is a list of common sections included in Compensation Awards. These sections are linked to the below sample agreement for you to explore.

Compensation Award Sample

Exhibit 10.1

A. O. SMITH CORPORATION

INCENTIVE COMPENSATION AWARD AGREEMENT

FOR             

THIS AGREEMENT, made and entered into this      day of             ,          by and between A. O. Smith Corporation (hereinafter called the “Company”) and                      (hereinafter called “Executive”);

W I T N E S S E T H :

WHEREAS, the Board of Directors of the Company has adopted the A. O. Smith Combined Incentive Compensation Plan, as amended and restated             ,         , (hereinafter called the “Plan”) which is administered by the Personnel and Compensation Committee of the Board of Directors (hereinafter called the “Committee”);

WHEREAS, the Executive, upon the terms and conditions herein set forth, will be a participant for the fiscal year of the Company commencing             ,         , (hereinafter called the “Plan Year”) under the Plan, the terms and conditions of which Plan are incorporated herein by reference; and

WHEREAS, this Agreement constitutes a separate contract such as is provided for in the Plan.

NOW, THEREFORE, in consideration of the payments herein provided, and of the covenants and agreements herein set forth, the parties hereby mutually covenant and agree as follows:

 

I.

Employment. Executive agrees to remain in the employ of the Company for the entire Plan Year, but it is understood that the Executive’s employment may be terminated at any time by the Company.

 

II.

Awards. The Company, subject to the limitations of the Plan, shall provide the Executive the following Awards subject to the conditions set forth in the Plan.

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  A.

Restricted Stock Units (Phantom Stock)

 

  (i)

The Executive is hereby awarded              Restricted Stock Units which shall vest based on the financial performance of the Company. The Restricted Stock Units shall vest on             ,          if the average of the Company’s annual return on equity (“ROE”) for calendar years          through          (“Performance Period”) is equal to          percent (    %) or more. ROE for each calendar year in the Performance Period

 

-1-


 

shall be calculated by dividing the Company’s net earnings for the calendar year by the average monthly stockholder equity during such year. If the average of the Company’s ROE for the Performance Period is less than          percent (    %), then all Restricted Stock Units shall be forfeited.

 

  (ii)

The calculation of ROE shall be adjusted by the Committee to account for non-reoccurring factors, extraordinary gains or losses; changes in accounting rules; acquisitions and divestures of more than $            ; stock issuances; stock dividends; or stock buybacks in excess of          Shares per calendar year.

 

  (iii)

If the Restricted Stock Units vest on             ,         , the Executive will receive          Shares of Company stock as soon as practicable after the vesting date. The Executive will be subject to any tax withholding requirement at the time the Shares are issued.

 

  (iv)

The Executive will be credited with dividends on Restricted Stock Units equivalent to the amount declared on actual shares of Company stock. This credit arises with respect to cash dividends with a record date on or after the date this Award is effective and on or before the vesting date. These dividend equivalents will be credited on January 31st following each calendar year to the Executive’s Deferred Compensation Account in the Non-Qualified Deferred Compensation Plan. If the Executive’s Deferred Compensation Account in the Non-Qualified Deferred Compensation Plan has been paid in full prior to the time such credit would otherwise be made, then he shall receive a cash payment for the dividend equivalents on January 31st following each calendar year for which they are credited.

 

  (v)

If the Executive ceases to be an employee of the Company and its Affiliates prior to             ,          by reason of death, Disability, or Retirement, the Executive shall be entitled to receive Shares if the Restricted Stock Units vest on             ,         . If the Executive’s employment with the Company and its Affiliates is terminated prior to             ,          due to a “Qualifying Termination” as that term is defined in the A. O. Smith Corporation Senior Leadership Severance Plan, the Restricted Stock Units shall vest in accordance with the provisions of that plan. If the Executive’s employment terminates for any other reason prior to             ,          then this Award shall terminate immediately on the date of the Executive’s employment termination, and the Restricted Stock Units and any credited cash dividend equivalent payments not yet paid shall be forfeited.

 

  (vi)

In the event of a “Change in Control” of the Company, as defined in the A. O. Smith Corporation Senior Leadership Severance Plan, the Restricted Stock Units shall be treated in accordance with the provisions of that plan.

 

-2-


  (vii)

Executive shall not be deemed for any purposes to be a stockholder of the Company with respect to any of the Shares underlying the Restricted Stock Units except to the extent that such Shares have been issued in settlement of the Restricted Stock Units and stock certificates issued therefor.

 

  B.

Stock Option

 

  (i)

The Company grants the Executive a Non-Qualified Stock Option to purchase from the Company an aggregate amount of          Shares of the common stock of the Company, authorized and unissued or, at the discretion of the Company, treasury stock if available.

 

  (ii)

The price to be paid for the Shares upon exercise of this option shall be $             per Share which is equal to the average of the high and low sales price of the Shares on the New York Stock Exchange on the grant date of             ,          (or on the immediately preceding trading day, if the grant date was not a trading day).

 

  (iii)

This option is exercisable as follows:

 

  a)

         Shares become exercisable on             ,         .

 

  b)

         Shares become exercisable on             ,         .

 

  c)

         Shares become exercisable on             ,         .

 

  (iv)

The right to exercise the option expires on             ,         . This option may terminate prior to that date, however, as described in subsection (viii) below.

 

  (v)

Except as provided below, this option may only be exercised by the Executive while in the employ of the Company or its Affiliates.

 

  (vi)

This option may be exercised by the Executive through notice to the Company or its authorized administrator specifying the number of Shares in respect to which this option is being exercised, accompanied by payment for such Shares or through a cashless exercise as may be authorized by the Company.

 

  (vii)

This option may be exercised only by the Executive during the life of the Executive.

 

-3-


  (viii)

This option shall be subject to the following events and shall be disposed of, or acted upon, in the manner set forth below:

 

  a)

If the Executive ceases to be an employee of the Company and its Affiliates by reason of Disability or Retirement, then this option shall terminate at the earlier of five (5) years from the date of termination of employment or             ,         .

 

  b)

If the Executive ceases to be an employee of the Company and its Affiliates by reason of death then this option shall terminate at the earlier of one (1) year from the date of death or             ,         .

 

  c)

If the Executive ceases to be an employee of the Company and its Affiliates as a result of a “Qualifying Termination”, as that term is defined in the A. O. Smith Corporation Senior Leadership Severance Plan, then this option shall be treated in accordance with the terms of that plan.

 

  d)

If the Executive ceases to be an employee of the Company and its Affiliates due to a voluntary resignation that is not a Qualifying Termination as defined in the A. O. Smith Corporation Senior Leadership Severance Plan, then this option shall terminate ninety (90) days from the date of the Executive’s termination due to such voluntary resignation. Notwithstanding the above, if there is a “no trade window” in effect on the date of the Executive’s termination, the ninety (90) day period to exercise this option shall run from the date the “no trade window” expires.

 

  e)

If the Executive’s employment is terminated by the Company or its Affiliates for “Cause”, as that term is defined in the A. O. Smith Corporation Senior Leadership Severance Plan, then this option shall terminate immediately upon such termination of employment.

 

  f)

If the Executive ceases to be an employee of the Company and its Affiliates due to an involuntary termination without “Cause” that is not a “Qualifying Termination,” as such terms are defined in the A. O. Smith Corporation Senior Leadership Severance Plan, then this option shall terminate thirty (30) days from the date of such involuntary termination. Notwithstanding the above, if there is a “no trade window” in effect on the date of the Executive’s termination, the thirty (30) day period to exercise this option shall run from the date the “no trade window” expires.

 

  g)

In the event of a “Change in Control” of the Company, as defined in the A. O. Smith Corporation Senior Leadership Severance Plan, then this option shall be treated in accordance with the provisions of that plan.

 

-4-


  (ix)

Executive agrees on behalf of Executive, and the heirs, legatees, and legal representatives of Executive, with respect to all Shares (or any Shares of the Company’s Common Stock issued pursuant to a stock dividend or stock split thereon or any securities issued in lieu thereof or in substitution or exchange therefor), that Executive, and the heirs, legatees, and legal representatives of Executive, will comply with such restrictions as may be necessary to satisfy the requirements of the Securities Act of 1933.

 

  (x)

Executive shall not be deemed for any purposes to be a stockholder of the Company with respect to any of the Shares underlying this option except to the extent that this option shall have been exercised with respect thereto and a stock certificate issued therefor.

 

  (xi)

The existence of this option shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock of, or affecting the common stock of, the Company or the rights thereof, or dissolution or liquidation of the Company, or any sale or transfer of all or part of its assets or business, or any other Corporate act or proceeding, whether of a similar character or otherwise.

 

  C.

Performance Award

 

  (i)

The Executive shall receive an award of              Performance Units with a value of $             per unit at the payment date. The Executive shall earn a percentage of the Performance Unit award upon achievement of a Performance Goal based on the Return on Invested Capital (“ROIC”) as a percentage of the cost of capital during the period January 1,          through December 31,         . ROIC is calculated by taking net income before after-tax cost of interest divided by total capital including all debt and stockholders’ equity. The Performance Goal is calculated as follows:

 

ROIC as % of cost of capital =   

Average ROIC during January 1,          through December 31,         

  
   Year End              Cost of Capital   

 

-5-


Performance Goal

   Percentage of
Performance Units  Earned
 

Less than     %

     0

    %

     50

    %

     100

    % or more

     200

Percentage earned will be interpolated between points on the table.

 

  (ii)

Performance awards which have been earned shall be paid in cash to the Executive no later than March 1,         . If the Executive’s base salary is paid in a currency other than U.S. Dollars, any payment earned shall be converted to the same currency as the Executive’s base salary using the exchange rate reported in the Wall Street Journal on the business day immediately prior to the date of payment.

 

  (iii)

Performance Goals shall be adjusted by the Committee to account for non-reoccurring factors, extraordinary gains or losses; changes in accounting; acquisitions and divestures of more than $            ; stock issuances; stock dividends; or stock buybacks in excess of          Shares.

 

  (iv)

If the Executive ceases to be an employee of the Company and its Affiliates prior to December 31,          by reason of death, Disability, or Retirement and has been employed by the Company or an Affiliate for at least twelve full months during the          year performance period, the Executive or his beneficiary shall be entitled to receive a pro-rata portion of the Award based on the period of his employment during the three-year performance period and based on actual performance measured at the end of the three-year performance period. Payment of the pro-rata portion will be made by no later than March 1,         . If the Executive ceases to be an employee of the Company as a result of a “Qualifying Termination”, as that term is defined in the A. O. Smith Corporation Senior Leadership Severance Plan, then this Performance Award shall be treated in accordance with the terms of that plan. If the Executive’s employment with the Company shall be terminated prior to December 31,          for any other reason, no Award shall be payable.

 

  (v)

In the event of a “Change in Control” of the Company, as defined in the A. O. Smith Corporation Senior Leadership Severance Plan, this Award shall be treated in accordance with the provisions of that plan.

 

-6-


  D.

Annual Incentive Compensation

 

  (i)

The amount of the Executive’s annual incentive compensation shall be based on the Company’s return on stockholder equity (“ROE”) during         . The Committee shall establish the target levels of ROE. Annual incentive compensation shall be paid no later than March 1,         .

 

  (ii)

The calculation of ROE shall be adjusted by the Committee to account for non-reoccurring factors, extraordinary gains or losses; changes in accounting; acquisitions and divestures of more than $            ; stock issuances; stock dividends; or stock buybacks in excess of          Shares.

 

  (iii)

If the Executive ceases to be an employee of the Company prior to December 31,          by reason of death, Disability, or Retirement, the Executive or his beneficiary shall be entitled to receive a pro-rata portion of the annual incentive compensation based on the period of time he was employed during          and based on actual performance measured at the end of the annual performance period. Payment of the pro-rata portion will be made by no later than March 1,         . If the Executive’s employment with the Company shall be terminated prior to December 31,          for any other reason, no annual incentive compensation shall be paid except as may be provided in the A. O. Smith Corporation Senior Leadership Severance Plan.

 

III.

Beneficiary. In accordance with the Plan, the Executive, by completing and signing a “Designation of Beneficiary” shall have the right to designate a beneficiary to receive any payment of any Award (deferred or otherwise) remaining unpaid at Executive’s death, all in the manner and to the extent set forth in this Agreement. The designation may be changed at any time by written notice delivered to the Committee or its representative. If no Designation of Beneficiary is made, any Award remaining unpaid, in whole or in part, at the time of death of the Executive, shall be paid to his legal representative. The Executive cannot otherwise transfer any Award.

 

IV.

Withholding. As to any payment of Shares or cash credited or paid pursuant to this agreement, the Committee may require that the Executive or his personal representative, as the case may be, agree to any procedure necessary to enable the Company to make adequate income tax withholdings.

 

V.

Nonassignability. Neither Executive nor any of his beneficiaries shall have any right or power to alienate, anticipate, commute, pledge, encumber or assign any right to receive any amount which hereafter may become or at any time be due hereunder, and no attempt to effect any such alienation, anticipation, commutation, pledge, encumbrance or assignment will be recognized, honored or accepted by the Company.

 

VI.

Forfeiture. So long as any portion of any Award (including amounts deferred), remains unpaid or undistributed, the Executive’s right to receive such amount shall be forfeited if

 

-7-


 

the Executive at any time during or after his employment with the Company shall do any act, or engage directly or indirectly (whether as owner, partner, officer, employee or otherwise) in the operation or management of any business which, in the judgment of the Company, is detrimental to or in competition with the Company or any of its subsidiaries or affiliates.

 

VII.

Clawback. To the extent permitted or required by governing law or regulation or applicable listing standards, the Company may under certain circumstances recoup amounts paid to the Executive under this Award Agreement. In the event of a restatement of the Company’s previously issued financial statements as a result of errors, omission, fraud, or noncompliance with any financial reporting requirement under the securities laws, the Committee shall review the facts and circumstances underlying the restatement. After this review, if it is determined that an Award amount was based on the achievement of certain financial results that were the subject of a restatement, the Committee may, in its discretion, require the Executive to reimburse the Company for all or a portion of any Award actually paid to the Executive or, if such Award has been deferred into the Non-Qualified Deferred Compensation Plan, forfeit the Award so deferred. In each such instance, the Company may forfeit (to the extent deferred) or seek to recover (to the extent paid) the amount by which the Executive’s Award amount exceeded the lower amount, if any, that would have been made based on the restated financial results. However, the Company will not seek such recovery where the payment occurred more than three years prior to the date the Company is required to prepare the applicable restatement or for a time period when the Executive was not an “executive officer.” The term “executive officer” has the meaning given that term in Rule 3b-7 under the Securities Exchange Act of 1934 determined as of the date the Company made the payment in respect of the Award. The Company will determine, in its sole discretion (but subject to the direction of the Committee), the method for obtaining reimbursement from the Executive. The Company may forfeit and/or recoup amounts paid in respect of an Award regardless of whether the Executive is still employed by the Company or an affiliate on the date forfeiture and/or reimbursement is required. Forfeiture of or recoupment of amounts paid in respect of an Award does not limit any other remedies that the Company may have.

 

VIII.

Defined Terms; Agreement. Except as otherwise specifically defined in this Award Agreement, the terms used in this Award Agreement shall have the same meaning as the terms defined in the Plan. By signing below, the Executive indicates his or her agreement to the terms of this Award Agreement and the Plan and that he or she has read this Award Agreement and the Plan.

IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officer, and the Executive has hereunto affixed his hand and seal, the day and year first above written.

 

-8-


A. O. SMITH CORPORATION
Chairman and Chief Executive Officer
By  

 

  “Executive”

 

-9-


Reference:
Security Exchange Commission - Edgar Database, EX-10.1 2 d338089dex101.htm FORM OF INCENTIVE COMPENSATION AWARD AGREEMENT, Viewed October 24, 2022, View Source on SEC.

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