CAPELLA EDUCATION COMPANY
ANNUAL INCENTIVE PLAN
MANAGEMENT EMPLOYEES -- 2005
UPDATED APRIL, 2005
To recognize and reward eligible management employees for the achievement of
company financial goals.
o The plan is based upon company performance components, revenue and
profit as compared to plan, for eligible participants as follows:
- 70% of the incentive opportunity is based on 2005 total company
performance, measured by achievement of revenue and profit to
- 30% of the incentive opportunity is based on achievement of the
total company revenue and profit achievement in Q3 and Q4,
cumulatively, compared to the Q3/Q4 plan.
o You have the opportunity to earn from 0% -- 170% of your target
incentive amount. The financial performance and payout matrices will be
reviewed periodically as to progress during the year.
o Your incentive earnings will be paid within two and a half months after
the end of the plan year based on year-end company financial
achievement (plan funding).
NOTE: The remaining pages and exhibits provide further explanation regarding
plan design, payout criteria, and administration.
SEE EXHIBIT 1 FOR SPECIFIC INFORMATION, INCLUDING DEFINITIONS, TERMS AND
CONDITIONS, AND PAYOUT CRITERIA.
Select management-level employees who meet the Eligibility Criteria (see
Definition of Eligibility Criteria) are eligible for plan participation.
Criteria the plan administrator will consider when selecting eligible employees
for participation include scope and level of responsibility, organizational
impact, internal equity and external competitiveness.
Incentive awards for employees who work less than full-time will be prorated
The Compensation Committee of the Board of Directors of the Company will
administer the plan. The Committee may delegate to the Chief Executive Officer
and the Vice President of Human Resources the authority to determine incentive
awards under the plan for eligible employees who are not executive officers of
the Company. Awards granted pursuant to such delegated authority shall be made
consistent with the criteria established by the Committee and shall be subject
to any other restrictions placed on the delegation by the Committee. Any
incentive award under the plan to the Company's Chief Executive Officer will be
approved and administered by the Executive Committee of the Board of Directors.
To the full extent permitted by law, (i) no member of the Committee or other
plan adminstrator shall be liable for any action or determination taken or made
in good faith with respect to the plan or any award made under the plan, and
(ii) the members of the Committee and the other plan administrators shall be
entitled to indemnification by the Company with regard to such actions.
SIZE OF AWARD OPPORTUNITY
Incentive potential for plan participants is expressed as a percentage of base
compensation as of December 31st of the plan year (see Definition section for
Base Compensation). At target level performance, the size of the incentive award
opportunity is based upon your position as determined by the plan administrator.
PAYOUT CRITERIA -- COMPANY FINANCIAL RESULTS
TOTAL YEAR REVENUE AND PROFIT
o 70% of your targeted incentive potential is based on total year,
year-end company financial results, combining revenue and profit
against the plan.
o At the beginning of the year, an annual financial target will be
established at the Company level, approved by the Board of Directors.
The Chief Executive Officer or designate will communicate this
financial target to you. Incentive potential will be based on the
level of Company financial performance within a specified range.
o All participants, unless otherwise communicated to you, will have a
financial target that reflects overall Company financial results.
o If the Company exceeds the target financial level on the full year
performance, you will be eligible to receive a greater than target
level incentive award for this portion of the plan.
o This portion of the plan pays out for a range of financial performance
with an upward potential of 140% OF your target incentive award
opportunity. The total plan pays out for financial results in a range
of 0% to 170% (Please see the financial matrices for the specific
Q3 AND Q4 REVENUE AND PROFIT
o 30% of your targeted incentive potential is based on Q3 and Q4
cumulative results for revenue and profit. 0-30% is the incentive
potential for this factor. The maximum target level for this component
of the plan is 30%.
QUALIFICATION OF AWARD PAYMENT
The plan administrator reserves the right to withhold incentive payment in the
event an individual fails to perform his or her day-to-day job in a satisfactory
manner after the Company has provided reasonable notice of such failure.
CAPELLA EDUCATION COMPANY
MANAGEMENT INCENTIVE PLAN
I. DEFINITIONS OF TERMS
The following terms as used in the plan have meaning as described
COMPANY -- Capella Education Company
BASE COMPENSATION -- total base salary wages for the plan year. (Note:
excludes any incentive compensation payment(s), lump sump merit
increases and taxable fringes). Base salary wages will be reduced for
any leave of absence, paid or unpaid, beyond 90 days.
ELIGIBILITY CRITERIA -- Individuals need to be regular status, work a
minimum of half time to be eligible for plan participation (average of
40 hours per pay period), and be considered a management level employee
(functional leader or above). Incentive awards for employees who work
less than full-time will be prorated according to his/her total annual
base salary wages.
FINANCIAL OBJECTIVE -- the level of company performance against any
financial measure approved by the Committee to define operating
performance. The Committee may amend the goals to reflect material
adjustment in or changes to the Company's policies; to reflect
material company changes such as mergers or acquisitions; and to
reflect such other events having a material impact on goals.
PLAN YEAR -- the fiscal year of the Company.
PAYOUT -- the actual amount to be paid to a participant based upon
achievement of Company financial objectives.
II. PLAN ADMINISTRATION
NEW HIRES -- new hires must start by October 1st to qualify. For
individuals hired by October 1st of the plan year, eligibility begins
on the first date of employment. Individual incentive awards will be
prorated from the date of hire based on an individual's year-to-date
total annual wages.
PROMOTIONS -- individuals must be promoted into an eligible management
level position by October 1st to be eligible for participation in that
plan year. Note: if an individual is promoted October 1st or after of
the plan year it will be at the
Committee's discretion to determine the percentage of incentive payout
that an employee will receive at year-end.
TERMINATION OF EMPLOYMENT -- in the event any eligible participant
ceases to be an employee during any year in which he/she is
participating in the plan, he/she will not be eligible to receive any
incentive compensation for such year unless otherwise provided for in
the Executive Severance Plan. Individuals need to be employed at the
time of award payment to be eligible for any incentive payments unless
otherwise provided for in the Executive Severance Plan. Incentive
awards to individuals who are subject to the Executive Severance Plan
will be determined in accordance with the plan, as adjusted in
accordance with the Executive Severance Plan, and all payouts will be
made in accordance with the Executive Severance Plan. Employees who
become disabled or retire during the year will be eligible to receive a
prorated portion of the incentive payment, if earned.
RIGHT TO CONTINUE EMPLOYMENT -- nothing contained in the plan shall be
construed to confer upon any employee the right to continue in the
employment of, or the Company's right to terminate his/her employment
at any time.
TAX WITHHOLDING - The Company shall have the right to withhold from
cash payments under the plan to a participant or other person an amount
sufficient to cover any required withholding taxes.
UNFUNDED PLAN - The plan shall be unfunded and the Company shall not be
required to segregate any assets that may at any time be represented by
awards under the plan.
PLAN AMENDMENT, MODIFICATION, OR TERMINATION - from time to time the
Committee may amend the plan as it believes appropriate and/or may
terminate the plan, provided that no such amendment or termination will
affect the right of any participant to receive incentive compensation
in accordance with the terms of the plan for the portion of any year up
to the date of the amendment or termination. Typically, any such
modification would be made on an annual basis.
GOVERNING LAW - To the extent that federal laws do not otherwise
control, the plan and all determinations made and actions taken
pursuant to the plan shall be governed by the laws of Minnesota