EXHIBIT 10.12
CISCO SYSTEMS, INC.
SENIOR MANAGEMENT INCENTIVE PLAN -
EXECUTIVE VICE PRESIDENT, VICE PRESIDENT & DIRECTOR
FY 1999
I. INTRODUCTION
A. THE OBJECTIVE OF THE SENIOR MANAGEMENT INCENTIVE PLAN is to financially
reward Executive Vice Presidents, Senior Vice Presidents, Vice
Presidents, Directors and employees in Grades 13 and 14 for their
contributions to the success and profitability of Cisco Systems, Inc.
B. PARTICIPANTS: This plan applies solely to Vice Presidents and Directors
of Cisco Systems or participating Cisco subsidiaries in the following
positions:
POSITION
Executive Vice President
Senior Vice President
Vice President
Director (excluding Sales Positions)
Employees in Grades 13 and 14
Any exceptions to the above will need to be approved in writing by the
President. The participant must be employed in a bonus eligible position
on or before the first working day of the last fiscal quarter of Fiscal
Year 1999 and must be employed on the last working day of that year to
be eligible for an FY99 bonus. Participants may not be concurrently
enrolled in any other bonus, sales or incentive plan. Participants in
the Plan with less than one year of service will be eligible for a
prorated bonus amount. In no event will any individual accrue any right
or entitlement to a bonus under this Plan unless that individual is
employed by Cisco Systems or a participating Cisco subsidiary on the
last working day of Fiscal Year 1999.
C. EFFECTIVE DATE: The Plan is effective for the Fiscal Year 1999,
beginning July 26, 1998 through July 31, 1999.
D. CHANGES IN PLAN: The Company presently has no plan to change the Senior
Management Incentive Plan during the fiscal year. However, the Company
reserves the right to modify the Senior Management Bonus Plan in total
or in part, at any time. Any such change must be in writing and signed
by the President. The President or plan designers reserve the right to
interpret the plan document as needed.
E. ENTIRE AGREEMENT: This Plan is the entire agreement between Cisco
Systems, Inc. and the employee regarding the subject matter of this Plan
and supersedes all prior compensation or incentive plans or any written
or verbal representations regarding the subject matter of this Plan.
II. BONUS PLAN ELEMENTS
A. BASE SALARY is determined by the participant's manager, on the Focal
review date scheduled for either August 1, April 1, or October 1 of each
year. The annual base salary in effect at the end of the Fiscal Year
1999 represents the basis for the bonus calculation.
B. BONUS TARGET PERCENTAGE is a percentage level of base salary determined
by the position.
C. INDIVIDUAL PERFORMANCE MULTIPLIER is based upon the manager's evaluation
of performance and contribution for the fiscal year. This factor may
range from 0.90 - 1.30. The assigned factor may also be a zero resulting
in no bonus based on the manager's evaluation of performance and
contribution. A written performance evaluation is required in
conjunction with any assigned factor of zero.
Employees who were on a Written Warning, Performance Improvement Plan
and/or performing at a level of "Not Satisfactory" (N), at any time
during the fiscal year may receive a lower Individual Performance
Multiplier resulting in a lower bonus. The assigned multiplier may also
be a zero resulting in no bonus based on the manager's evaluation of
performance and contribution. A written performance evaluation is
required in conjunction with any assigned factor of zero.
D. COMPANY PERFORMANCE MULTIPLIER is based upon achieving an established
worldwide Revenue target and a worldwide Profit Before Interest and Tax
(PBIT) target per the current Plan. The PBIT achievement to target is
more heavily weighted relative to the worldwide Revenue target.
Typically, 80% of each objective must be achieved for any bonus to be
paid. Maximum payout under the Plan is 200% or a multiplier of two. The
applicable targets for Fiscal Year 1999 are approved by the Cisco Board
of Directors within the first 90 days of each fiscal year.
COMPANY PERFORMANCE MULTIPLIER
PBIT AS A % OF GOAL
EXAMPLE: COMPANY PERFORMANCE
Actual Revenue Performance is 100% of goal
Actual PBIT Performance is 110% of goal
COMPANY PERFORMANCE MULTIPLIER = 1.30
E. CUSTOMER SATISFACTION MULTIPLIER is based upon achievement of an overall
worldwide customer satisfaction survey score. The multiplier may range
from 0.95 - 1.20 based on the following criteria:
F. COMPANY STRATEGIC PERFORMANCE MULTIPLIER measures Cisco's annual revenue
growth compared to select competitor company annual revenue growth.
(Revenue is measured quarterly and combined to determine annual revenue
growth percentage.) The multiplier is determined based on the revenue
growth difference of Cisco and the selected competitor companies. The
multiplier may range from 0.90 to 1.30.
COMPANY STRATEGIC PERFORMANCE MULTIPLIER
EXAMPLE: Cisco Annual Revenue Growth is 30%
Select Competitor Company Revenue Growth is 20%
30% - 20% = 10% or 10 points
Multiplier = 1.1
G. PRORATION MULTIPLIER accounts for the number of calendar days or hours
within the day during the fiscal year that the employee was in the
bonus-eligible position. For example, the Proration Multiplier for an
employee who has been on the Plan the entire year will be "1.00". For an
employee who has been on the plan for 6 months, this factor will be
"0.50". Employees in the following situations will have a proration
factor of less than "1.00":
o Participants in the Plan who transferred to a new position not
governed by any incentive plan.
o Employees who transferred from one bonus-eligible position to
another bonus-eligible position. Employees in this situation will
have their bonus prorated based on length of time in each position.
o Employees who have been on the Plan less than 12 months (such as a
new hire).
o Employees who have been on a leave of absence of any length during
the fiscal year.
o Employees who have been on the Plan, terminated their employment,
and returned to a bonus-eligible position all in the same fiscal
year.
o Employees working less than a 40-hour week will receive bonuses
prorated according to the following schedule:
20 - 39 hours/week: prorated according to the average number of
hours worked
<20 hours/week: not bonus eligible
Any modification to the above schedule must be approved by the
next-level Manager and Compensation in advance of the year-end close
date.
H. BONUS FORMULA AND CALCULATION EXAMPLE: Assume a base salary of $185,000
at the 40% level, individual performance multiplier of 1.10, company
performance multiplier of 1.30, a customer satisfaction multiplier of
1.05, a company strategic performance multiplier of 1.10 and a proration
multiplier of 1.00.
SAMPLE CALCULATION:
In this example, the total bonus equals 66.1% of base salary.
I. MIDYEAR BONUS PAYMENTS: If the Company Performance Multiplier is at a
minimum of 1.00 (midyear revenue and PBIT), a partial payment will be
distributed to eligible employees midway through the fiscal year. This
advance will be 50% of the bonus target by level net of any advances,
draws, or prorations and appropriate state and federal withholdings. The
bonuses will be paid to employees who have met job expectations and were
hired on or before the first day of the second quarter of Fiscal Year
1999 and are active on the day of distribution. For example, a Director
would receive an advance equal to 20% of base salary. In no event,
however, will any right or entitlement to such a partial payment accrue
to any eligible participant unless that individual is employed by Cisco
Systems or a participating Cisco subsidiary on the distribution date.
If the Company Performance Multiplier is not at a minimum of 1.00
(mid-year revenue and PBIT), a partial payment may be distributed to
employees midway through the fiscal year. This payment will be 25% of
the bonus target by level. For example, a Director would receive an
advance equal to 10% of base salary. If the company performance fails to
achieve minimum revenue and PBIT targets resulting in no year-end
payout, an additional 25% of the bonus target may be paid.
J. Employees who are on a Written Warning, Performance Improvement Plan
and/or are performing at a level of "Not Satisfactory" (N) at the end of
the second quarter are not eligible to receive a partial payout midway
through the fiscal year. Employees who have entered into a Mutual
Separation Agreement may not be eligible to receive a midyear bonus
payment or year-end bonus based on manager discretion. An employee may
not be eligible to receive a midyear payout based on manager discretion
and subject to Human Resources concurrence.
III. PROCEDURES AND PRACTICES
A. PROCEDURE:
1. A copy of the Plan will be made available to each participant.
2. All bonus payments will be made net of applicable withholding taxes.
B. BUSINESS CONDUCT: It is the established policy of Cisco Systems, Inc. to
conduct business with the highest standards of business ethics. Cisco
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. Gifts, favors and entertainment are allowed such that they
are consistent with our business practice, do not violate any applicable
laws, are of limited value ($50.00 or less) and would not embarrass
Cisco if publicly disclosed.
C. TRANSFERS AND TERMINATIONS: Employees who are participants in the Senior
Management Incentive 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 as defined by the Plan. Any exceptions to the
Plan must be designated in writing and approved by the President.
A participant must be employed as of the last working day of the fiscal
year to be eligible for the bonus and must be employed on the
distribution date in order to be eligible to receive a partial midyear
payment under paragraph II-I. If an employee terminates prior to the
applicable date, the employee will not be eligible for such bonus or
partial payment.
D. EMPLOYMENT AT WILL: The employment of all Plan participants at Cisco
Systems, Inc. or the participating Cisco subsidiaries is for an
indefinite period of time and is terminable at any time by either party,
with or without cause being shown 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. or a
participating Cisco subsidiary and any Plan participant.
E. PARTICIPATING CISCO SUBSIDIARY: For the 1999 Fiscal Year, the following
Cisco subsidiaries will be participating subsidiaries in the plan:
Cisco Technology, Inc.
Cisco Systems Sales and Services, Inc.
Cisco Systems Finance, Inc.