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 and customer and shareholder value by
rewarding Eligible Employees for their contributions to the Companys overall success. An Eligible
Employees contribution is determined by two factors: (1) the impact of that employees role on
business results and (2) that employees achievement of individual performance objectives during
the employees active service with the Company. The actual award received by an Eligible Employee
will reflect (1) an employees job scope, complexity, and responsibilities, and that employees
contribution and achievement, during the Plan Period2 and (2) the Companys performance
as indicated by the Nortel Performance Factor (the Nortel Performance Factor).
Generally, regular full-time and regular part-time3 Company employees are eligible
to participate in the Plan (Eligible Employees), subject to the following:
||Eligible employees who participate in other incentive plans for a full
calendar month or the greater portion of a 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
||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;
||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).
||Each calendar year consists of one Plan Period from
January 1 through December 31. The Plan Period(s) for each calendar year may
be changed by the CHRC (as defined in Section 2) and Board of Directors (as
defined in Section 2) at any time.
||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
||Individuals determined by the Company to be students, co-op students,
interns, temporary4, or non-payroll workers are ineligible for the Plan;
||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;
||Subject to applicable law, to be eligible for either a full or pro-rated
award for any given Plan Period: (a) an employee must have been actively employed in a
role that is eligible under the Plan or other incentive plan (Incentive Eligible
Role) for at least three full calendar months in that Plan Period 5and (b)
the employee must have been an employee in an Incentive Eligible Role on or before
October 1 of that Plan Period6. For purposes of this document, an
employee will be considered to be actively employed for any calendar month in which
the employee actually works for at least one day or as otherwise required under
applicable contract or law. Notwithstanding the foregoing and subject to applicable
law, employees whose employment terminates before December 31 of a Plan Period are not
eligible to receive a Plan award for that Plan Period.
||Pro-rated awards may be made to employees who transfer into or out of
positions covered by other incentive plans, move from or to a job that is ineligible
for the Plan or who are on a Company approved leave of absence or on notice of
termination of employment for part of the Plan Period, provided that the employee
meets the other Plan requirements set out above. However, subject to applicable law,
an employee is not eligible for a Plan payout for any calendar month in which the
employee is not actively employed in a position eligible under the Plan. If an
employee meets the above Plan requirements, but is actively employed in a position
that is eligible under the Plan for less than the full Plan Period, the employees
Annual Incentive Plan award will be based on the number of months the
employee is actively employed in a Plan eligible position divided by the number of months in the
Plan Period, with the following exception. For purposes of determining the amount of a
pro-rata Annual Incentive Plan award, an
||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.
||The required period of active employment may be
changed by the CHRC and Board of Directors at any time.
||The dates on which an employee must be employed in an
Incentive Eligible Role may be changed by the CHRC and Board of Directors at
||employee will not be considered to be actively
employed in a Plan eligible position in a calendar month in which (a) the employee
participates in another incentive plan for that full calendar month or (b) the employee
participates in another incentive plan for the greater portion of the month, each as
determined by the Company.
||Employees who meet all of the Plan eligibility requirements, but whose
employment with the Company terminates between the end of the Plan Period and the
related payment date for the award, other than for reasons determined by the Company
to be related to inappropriate actions, misconduct, dismissal for cause (where
applicable) or unsatisfactory performance, will be eligible for an award for the
applicable Plan Period.
||Notwithstanding the foregoing, any payments made after termination of employment to a
specified employee shall 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.).
||An employees Management Team7 has the right, in consultation with
the relevant Human Resources Business prime, to make limited exceptions to the
actively employed requirements set out in Section 2(5) and (6) above where required
by law or where the Management Team determines that circumstances clearly warrant an
exception. Exceptional circumstances might include approved leaves where warranted by
applicable law (e.g. maternity, paternity, parental, military, family, or medical),
disability, outsourcing, divestiture, or death. In such situations, if the employee
has, while actively employed in a Plan eligible position, substantially achieved
his/her individual objectives, the employees Management Team may grant partial
awards. If awards are paid in these circumstances, the awards will be pro-rated to
reflect the number of months the employee was actively employed in a Plan eligible
position, as defined in Section 2(5) above, and will be commensurate with the
employees contribution and achievement. Notwithstanding anything in the foregoing
to the contrary, nothing in the Plan shall preclude the Company
||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.
||paying an employee an award under the Plan for more than the number of months the
employee was actively employed in a Plan eligible position pursuant to that individual
employees employment termination agreement, which the Senior Vice-President, HR has
||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.
Section 3: Award Elements
An Eligible Employees cash award for a Plan Period under the Plan will be based on the
100%8 of Annual Base Salary x (# Months actively employed in a Plan eligible
position / # Months in Plan Period) [Pro-Ration Factor"] x Award % x Nortel
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
relocation benefits. The Annual Base Salary for these purposes will be measured for all Eligible
Employees at a uniform time on or after October 1st of the applicable Plan Period to be
determined in the sole discretion of the Senior Vice-President, HR.
Award % is the percentage of Annual Base Salary that is used to compute the Plan award for
each Eligible Employee. For Job Complexity Indicator (JCI) 1-6, the Award % ranges from 0% to
40% of Annual Base Salary. For JCI 55, the Award % ranges from 0% to 400% of Annual Base Salary.
The JCI level for these purposes will be measured concurrently with Annual Base Salary as described
above. For each JCI, the Senior Vice-President, HR may set a suggested narrower award range,
intended to reflect a market trend to give certain Eligible Employees with higher levels of
responsibility a higher incentive potential as a percentage of Annual Base Salary. Within the
ranges approved by the CHRC and the Board of Directors, an Eligible Employees Management Team will
determine the recommended Award % for that employee for each Plan Period based on the employees
job scope, complexity and responsibilities and the employees contributions and achievements during
the Plan Period. Without limiting the generality of the foregoing, the Award % for a JCI 55
Eligible Employee is determined by multiplying the individual performance factor finally approved
for such Eligible Employee for the Plan Year under the Companys annual performance appraisal
process (Individual Performance Factor) by the target percentage established under the Plan for
such Eligible Employee and in effect as of December 31 of the Plan Year, unless modified by the
CHRC and Board of Directors in their sole discretion (AIP Target Percentage). An Eligible
Employees recommended Award % is subject to review,
||The percentage of Annual Base Salary that is applied to
the formula may be changed by the CHRC and Board of Directors at any time.
modification and approval by the Senior Management Team, the CHRC and the Board of Directors as
provided in Section 4.9
The total Plan award for all Eligible Employees for a Plan Period (reflecting the Nortel
Performance Factor) is recommended by the Senior Management Team for approval by the CHRC and the
Board of Directors after the end of the Plan Period. The CHRC and Board of Directors will
determine, in their sole discretion, whether all or any part of such recommended total Plan award
will be paid and the amount of any total Plan award in respect of such Plan Period.
Nortel Performance Factor is calculated based on the achievement by the Company of key
corporate objectives for the Plan Period. The objectives are approved by the CHRC and the Board of
Directors for each Plan Period. The Nortel Performance Factor may be based on one or more
performance metrics, each with specific targets. The performance metrics may have equal or
different weightings. Performance metrics are the general corporate goals for the Plan Period, such
as profitability, market momentum, or customer loyalty. Targets shall be based on objective and/or
subjective criteria established to measure, directly or indirectly, the performance metrics.
Weightings shall be the relative weight or percentage accorded in the Nortel Performance Factor for
achieving each specific target. After approval by the CHRC and the Board of Directors, the
Companys objectives for the Plan Period will be communicated to Eligible Employees. The Nortel
Performance Factor is deemed to be 1.0 (achievement) throughout the Plan Period and is then
adjusted by the CHRC and the Board of Directors based on their determination of corporate
performance. The President and Chief Executive Officer may, in his sole discretion, recommend to
the CHRC and the Board of Directors that the Nortel Performance Factor be adjusted with respect to
certain business units, JCI levels or any other groups of employees and the CHRC and the Board can
approve such adjustment to the Nortel Performance Factor, in their sole discretion, based on
additional factors that the President/CEO and the CHRC and Board determine in their sole discretion
are relevant to the award including without limitation, collective relative contribution to
achievement of the key Company objectives during the Plan Period.
Section 4: Annual Incentive Plan Awards
Awards for each Plan Period are calculated based on 100%10 of an Eligible Employees
Annual Base Salary, the Pro-Ration Factor, the Eligible Employees Award % (which reflects the
employees job scope, complexity and responsibilities, and that employees contribution and
achievement, during the Plan Period), and the Nortel Performance Factor (that is, the Companys
business performance for the Plan Period as determined by the CHRC and the Board of Directors).
Notwithstanding any provision in the Plan to the
||For purposes of the Plan only, the Senior Management
Team shall consist of the President and Chief Executive Officer, the Executive
Vice-President and Chief Financial Officer and the Senior Vice-President, HR of
Nortel Networks Limited.
||The percentage of Annual Base Salary that is applied
to the formula may be changed by the CHRC and Board of Directors at any time.
contrary, the maximum Plan award payable to a JCI 55 Eligible Employee is a cash amount equal to
such Eligible Employees Annual Base Salary multiplied by a percentage equal to two (2) times the
Eligible Employees AIP Target Percentage.
Any award under the Plan to an Eligible Employee is subject to the discretion of the Eligible
Employees Management Team and Senior Management Team and the CHRC and the Board of Directors.
That is, an Eligible Employees Management Team determines, in its discretion, the Award % for an
Eligible Employee subject to review, modification and approval by the Senior Management Team.
Specifically, the Senior Management Team reserves the right, in its discretion, to review and
adjust Eligible Employees Award percentages, which are assigned to those Eligible Employees by
their Management Team, to reflect its assessment of the employees contributions to the business or
the achievement of the Companys key objectives, as well as to ensure that the final payouts, if
any, are within appropriate budgetary guidelines. Finally, the CHRC and the Board of Directors
reserve the right, in their discretion, to make a final determination of the Award % of any
Eligible Employee. The CHRC and the Board of Directors determine, in their sole discretion, the
achievement of the targets for the performance metrics, the final calculation of the Nortel
Performance Factor (which may include a determination of a Nortel Performance Factor of zero, even
if certain of the performance metrics targets are achieved, and/or an adjustment to the relative
weighting of the performance metrics) and whether Plan awards will be paid in respect of a Plan
Period. During the Plan Period, the CHRC and the Board of Directors can review Company objectives,
performance measures, weightings, and targets to determine whether they remain appropriate. The
CHRC and the Board of Directors may, at their sole discretion, adjust the Company objectives,
performance measures, weightings, targets, and/or plan payouts for the Plan Period, as they deem
necessary, to reflect changes in business conditions or other circumstances.
Subject to applicable law, the Senior Vice-President, HR, may approve the reduction of Plan awards
payable to Eligible Employees for a Plan Period by the full or partial amount of other bonuses or
similar payments, including, without limitation, Company performance related payments required by
applicable law, that are payable to such employees in respect of any part of such Plan Period.
The Senior Vice-President, HR, will have sole discretion to determine those bonuses or payments
that are subject to the preceding sentence and the amount of any such reduction to the Plan award.
If the CHRC and Board of Directors approve the payment of a total Plan award for a Plan Period in
accordance with the provisions of the Plan, the payment of any Plan award approved for an Eligible
Employee under the Plan in respect of such Plan Period will occur on the first pay date applicable
to such Eligible Employee immediately following the 30th calendar day after the filing of Nortel
Corporations annual report on Form 10-K with the United States Securities and Exchange
Commission. Plan awards are considered income and are therefore subject to national,
state/provincial, and/or local taxes. All appropriate taxes and other withholdings will be
deducted from any such awards and payments as required by applicable law.
Depending on local laws and policies, Plan awards may have an impact on some benefits and may or
may not be included in the eligible earnings for purposes of capital accumulation and retirement
plans offered in the various regions by the Company. Where appropriate, deductions may be made
from Plan awards in accordance with the specific capital accumulation and retirement plan in which
the Eligible Employee participates.
If the CHRC, in its sole discretion, upon consideration of facts and circumstances determined by
the CHRC to be relevant, concludes that an Eligible Employee has committed an intentional
misconduct, as defined in the CHRC Policy Regarding Recoupment of Incentive Compensation (the
Recoupment Policy) relating to the forfeiture and/or recoupment of incentive compensation,
including Annual Incentive Plan award payments, the Eligible Employee shall forfeit any planned but
unpaid Plan award and/or reimburse the Company the amount of the Plan award received, as determined
by the CHRC.
Section 5: Discretionary Bonus Pool
During a Plan Period, the CHRC and the Board of Directors may consider the creation of a separate
Discretionary Bonus Pool under the Plan to provide discretionary, incremental bonus awards. These
awards may be made to all employees of the Company or employees of the Company who individually or
in groups made a relative contribution that significantly added to the overall success of the
Company, whether or not the employees are eligible to participate in the Plan under the criteria
set out in Section 2 of this document. The determination that a Company employee is eligible for a
Discretionary Bonus Pool award does not otherwise entitle that employee to generally participate in
the Plan. The CHRC and the Board of Directors have complete discretion to determine: the
establishment of the Discretionary Bonus Pool; the eligibility criteria for participation; any
performance metrics, weightings and targets; the achievement, if any, of the targets for the
performance metrics; and the amount of the awards, if any, paid from the Discretionary Bonus Pool.
Whether or not an Eligible Employee receives a Plan award shall have no effect on that employees
eligibility to receive a Discretionary Bonus Pool award.
Discretionary Bonus Pool awards will be considered income and therefore subject to national,
state/provincial, and/or local taxes. All appropriate taxes and other withholdings will be
deducted from the award as required by applicable law.
Depending on local laws and policies, Discretionary Bonus Pool awards may have an impact on some
benefits and may or may not be included in the eligible earnings for purposes of capital
accumulation and retirement plans offered in the various regions by the Company. Where
appropriate, deductions may be made from the Discretionary Bonus Pool awards in accordance with the
specific capital accumulation and retirement plan in which the employee participates.
Section 6: Interpretations and Amendments
This document, as amended from time to time, constitutes the Nortel Networks
Incentive Plan. In the event of any conflicts or inconsistencies between the provisions of the
Plan and any other document or communication, written or oral, concerning the Plan, the provisions
of this document, as amended from time to time, shall govern.
The Senior Vice-President, HR, subject to approval of the CHRC and the Board of Directors in
certain cases shall interpret the provisions of the Plan, which shall be final and binding on the
Company and all Plan participants. This document is also subject to interpretation to comply with
applicable laws. It is not and shall not be construed as either an employment contract or as a
contract concerning the subject matter contained herein. There is no guarantee that any award
under the Plan will actually be paid. Any award is determined at the discretion of an Eligible
Employees Management Team, the Senior Management Team and the CHRC and the Board of Directors, as
the case may be. If such awards, however, are paid, they shall be determined and paid in
accordance with the provisions herein.
The Plan can only be terminated or amended by the Board of Directors, which shall have the full
authority, at any time, to terminate the Plan or to delete, modify and/or add to any and all terms,
conditions, and provisions of the Plan.
As adopted by the Board of Directors of Nortel Networks
Limited on July 25, 2002, as amended on
January 23, 2003 with effect from January 1, 2003, as amended on July 28, 2003 with effect from
January 1, 2003, as amended on February 26, 2004 with effect from January 1, 2004, as amended on
March 9, 2006 with effect from January 1, 2006, as amended on March 15, 2007 with effect from
January 1, 2007 and as amended on February 22, 2008 with effect from January 1, 2008