EX-10.CC 3 l35588aexv10wcc.txt EX-10 (CC) EXHIBIT 10 (CC) EATON CORPORATION 2008 ANNUAL REPORT ON FORM 10-K ITEM 15 (B) EATON CORPORATION SUPPLEMENTAL EXECUTIVE STRATEGIC INCENTIVE PLAN (Effective as of June 25, 2008) EATON CORPORATION SUPPLEMENTAL EXECUTIVE STRATEGIC INCENTIVE PLAN 1. PURPOSE The purpose of the Supplemental Executive Strategic Incentive Plan (the "Plan") is to promote the growth and profitability of Eaton Corporation (the "Company") through the granting of incentives intended to motivate executives of the Company to achieve demanding long-term corporate objectives and to attract and retain executives of outstanding ability. 2. ADMINISTRATION With respect to Plan participants who are senior officers of the Company (that is, those officers with at least 2,448 Hay Points), the Plan shall be administered by the Compensation and Organization Committee (the "C&O Committee") of the Board of Directors of the Company (the "Board"), except as otherwise expressly provided herein. With respect to Plan participants other than senior officers of the Company, the Plan shall be administered by the Management Committee of the Company (consisting of the Chairman and Chief Executive Officer, Chief Human Resources Officer and such other officers as may be appointed to the Management Committee from time to time), except as otherwise expressly provided herein. As used herein, the term "Committee" means either the C&O Committee or the Management Committee, depending upon the type of participant involved. Except as otherwise expressly provided herein, with respect to those participants for which it has administrative responsibility, the C&O Committee and the Management Committee shall each have complete authority to: (i) interpret all provisions of the Plan consistent with law; (ii) designate the executives to participate under the Plan; (iii) determine the incentive targets and performance objectives applicable to participants; (iv) adopt, amend and rescind general and special rules and regulations for the Plan's administration; and (v) make all other determinations necessary or advisable for the administration of the Plan. 3. ELIGIBILITY Any executive of the Company designated by the Committee in its sole discretion shall be eligible to participate in the Plan. 4. INCENTIVE TARGETS (A) Establishment of Incentive Amounts and Conversion to Phantom Common Share Units Individual Incentive Amounts for each participant with respect to each Plan Award Period (as defined below) shall be determined by the Committee. Incentive targets will be expressed in the form of Phantom Common Share Units which will be determined by the Committee by: (a) first establishing the Individual Incentive Amount in cash for each participant with respect to each Award Period and (b) then dividing such Individual Incentive Amount by the average of the mean prices for the Company's common shares 2 for the first twenty (20) trading days of each Award Period. In all cases, the resulting Phantom Common Share Units shall be rounded up to the nearest 50 whole units. For purposes of the Plan, "mean price" shall be the mean of the highest and lowest selling prices for Company common shares quoted on the New York Stock Exchange on the relevant trading day. Notwithstanding the foregoing provisions of this Section 4(A), the Committee may, in its sole discretion, use a different method for establishing incentive targets for participants under the Plan. (B) Award Periods Each Award Period shall be the four-calendar year period commencing as of the first day of the calendar year in which the performance objectives are established for the Award Period as described in Section 4(C). A new Award Period shall commence as of the first day of each calendar year, unless otherwise specified by the Committee. (C) Establishment of Company Performance Objectives As soon as practicable at the beginning of each Award Period, threshold, target, and maximum Company performance objectives for such Award Period shall be established by the Committee. Unless otherwise determined by the Committee in its sole discretion, performance objectives will be established using a CFROGC/EPS Growth Performance Matrix which shall use the Company's average cash flow return on gross capital ("CFROGC") for such period along one axis and the Company's cumulative earnings per share ("EPS") for such period along the second axis. Notwithstanding the foregoing, after a Change in Control (as hereinafter defined), neither the Committee nor the Board shall have the authority to modify performance objectives in any manner which could prove detrimental to the interests of the Plan's participants. (D) Determination of Payments For each Award Period, payments ranging from 50% to 200% of the Phantom Common Share Units credited under Section 4(A) will be determined by the Committee for the attainment of performance objectives between either threshold and target or target and maximum. Final Individual Phantom Common Share Unit Awards shall be determined by the Committee as promptly as practicable after the completion of the Award Period by: (a) determining the CFROGC/EPS Growth Matrix Performance Percentage applicable for the Award Period (equal to (i) 50% upon attainment of the threshold performance objective; (ii) 100% upon attainment of the target performance objective; and (iii) 200% upon attainment of the maximum performance; or the applicable percentage for performance between threshold and target or target and maximum); and (b) multiplying such percentage by the number of Performance Share Units credited to the participant. The Final Individual Phantom Common Share Unit Award shall be converted to cash at a market value of Company common shares as determined by the Committee based on the average of the mean prices for the Company's common shares for the final twenty (20) trading days of the Award Period), and distributed to the participate within ninety (90) days, unless the participant has made an irrevocable election to defer all or part of the 3 amount of his or her award pursuant to any long term incentive compensation deferral plan adopted by the Committee or the Company. 5. PRORATA PAYMENTS A participant must be employed by the Company or one of its subsidiaries at the end of an Award Period in order to be entitled to a payment in respect to such Award Period; provided, however, that a payment, prorated for the participant's length of service during the Award Period, may be authorized by the Committee, in its sole discretion, in the event a participant's responsibilities change or the employment of a participant begins during the Award Period or terminates before the end of the Award Period due to death, permanent disability, normal or early retirement, closure or divestiture of a Company facility or any other reason. Notwithstanding the foregoing, upon any termination of the Plan during the term of any Award Period, award payments to all participants will be made, prorated for each participant's length of service during the Award Period prior to the date of Plan termination. 6. OTHER PROVISIONS (A) Adjustments upon Certain Changes In the event of changes to the structure or corporate organization of the Company's businesses which affect the participants and/or the performance prospects of the Company, the Committee may make appropriate adjustments to individual participant Incentive Targets or to the established performance objectives for incomplete Award Periods. Adjustments under this Section 6 shall be made by the Committee, whose determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. Notwithstanding the foregoing, after a Change in Control, neither the Committee nor the Board shall have the authority to change established Performance Objectives in any manner which could prove detrimental to the interests of the participant. (B) Change in Control Defined For purposes of the Plan, a Change in Control shall be deemed to have occurred if: (i) a tender offer shall be made and consummated for the ownership of 25% or more of the outstanding voting securities of the Company, (ii) the Company shall be merged or consolidated with another corporation and as a result of such merger or consolidation less than 55% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the former shareholders of the Company as the same shall have existed immediately prior to such merger or consolidation, (iii) the Company shall sell substantially all of its assets to another corporation which is not a wholly-owned subsidiary of the Company, (iv) a "person" within the meaning of Section 3(a)(9) or of Section 13(d)(3) of the Securities Exchange Act of 1934 (as in effect on the effective date of the Plan) 4 shall acquire 25% or more of the outstanding voting securities of the Company (whether directly, indirectly, beneficially or of record). For purposes of the Plan, ownership of voting securities shall take into account and shall include ownership as determined by applying the provisions of Rule 13d-3 under the Securities Exchange Act of 1934 (as in effect on the effective date of the Plan), or (v) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof unless the election, or nomination for election by the Company's shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. (C) Non-Transferability No right to payment under the Plan shall be subject to debts, contract liabilities, engagements or torts of the participant, nor to transfer, anticipation, alienation, sale, assignment, pledge or encumbrance by the participant except by will or the law of descent and distribution or pursuant to a qualified domestic relations order. (D) Compliance with Law and Approval of Regulatory Bodies No payment shall be made under the Plan except in compliance with all applicable federal and state laws and regulations including, without limitation, compliance with tax requirements. (E) No Right to Employment Neither the adoption of the Plan nor its operation, nor any document describing or referring to the Plan, or any part thereof, shall confer upon any participant under the Plan any right to continue in the employ of the Company or any subsidiary, or shall in any way affect the right and power of the Company or any subsidiary to terminate the employment of any participant under the Plan at any time with or without assigning a reason therefore, to the same extent as the Company might have done if the Plan had not been adopted. (F) Interpretation of the Plan Headings are given to the sections of the Plan solely as a convenience to facilitate reference; such headings, numbering and paragraphing shall not in any case be deemed in any way material or relevant to the construction of the Plan or any provisions thereof. The use of the masculine gender shall also include within its meaning the feminine. The use of the singular shall also include within its meaning the plural and vice versa. 5 (G) Amendment and Termination The Committee may at any time suspend, amend or terminate the Plan. Notwithstanding the foregoing, upon the occurrence of a Change in Control, no amendment, suspension or termination of the Plan shall, without the consent of the participant, alter or impair any rights or obligations under the Plan with respect to such participant. (H) Effective Dates of the Plan The Plan was adopted by the Board on and is effective as of June 25, 2008. 6