The Charles Schwab Corporation
Long Term Incentive Plan
Section 1. PURPOSE
The Charles Schwab Corporation Long Term Incentive Plan (the "Plan") is intended
to provide financial incentives to selected management employees to contribute
to the long-term success of The Charles Schwab Corporation and its affiliated
companies (collectively the "Company").
Section 2. DEFINITIONS
As used in this Plan, the following capitalized terms shall have the meanings
set forth below:
a) "Administrative Committee" means the committee of the Plan, which shall
consist of the individuals occupying the following three offices of the
Chief Executive Officer or President and Co- Chief Executive Officer
Chief Financial Officer
Chief Administrative Officer
b) "Award" means the cash amount payable to a Participant pursuant to the
provisions of this Plan.
c) "Board" means the Board of Directors of The Charles Schwab Corporation.
d) "Change in Control" means the occurrence of any of the following events
after the effective date of the Plan:
(1) A change in control required to be reported pursuant to Item 6(e)
of Schedule 14A of Regulation 14A under the Exchange Act;
(2) A change in the composition of the Board, as a result of which
fewer than two-thirds of the incumbent directors are directors who
either (i) had been directors of the Company 24 months prior to such
change or (ii) were elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the directors who
had been directors of the Company 24 months prior to such change and
who were still in office at the time of the election or nomination;
(3) Any "person" (as such term is used in sections 13(d) and 14(d) of
the Exchange Act) becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 20 percent or
more of the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing under special
circumstances) having the right to vote at elections of directors (the
"Base Capital Stock"); provided, however, that any change in the
relative beneficial ownership of securities of any person resulting
solely from a reduction in the aggregate number of outstanding shares
of Base Capital Stock, and any decrease thereafter in such person's
ownership of securities, shall be disregarded until such person
increases in any manner, directly or indirectly, such person's
beneficial ownership of any securities of the Company.
e) "Committee" means the Compensation Committee of the Board of Directors of
The Charles Schwab Corporation.
f) "Determination Date" means the date on which the Participants, Performance
Goals and Target Awards are determined for any Performance Period.
g) "Disability" means the inability to engage in any substantial gainful
activity considering the Participant's age, education and work experience
by reason of any medically determined physical or mental impairment that
has continued without interruption for a period of at least six months and
that can be expected to be of long, continued and indefinite duration. All
determinations as to whether a Participant has incurred a Disability shall
be made by the Employee Benefits Administration Committee of the Company,
the findings of which shall be final, binding and conclusive.
h) "Named Executive Officer" means a Participant who, as of the date of
payment of an Award is one of a group of "covered employees," as defined in
the Regulations promulgated under Section 162(m) of the Internal Revenue
Code of 1986, or any successor statute.
i) "Participant" means an eligible employee of the Company who has been
designated as a Participant in accordance with section 3 hereof.
j) "Performance Goal" shall mean a measure of corporate performance (such as
cumulative earnings per share), that shall be selected by the Committee to
be used as the basis for determining the amounts payable pursuant to the
Plan for a Performance Period. Performance goals shall be selected from
among the following: revenue growth, net revenue growth, operating revenue
growth, consolidated pretax profit margin, consolidated pretax operating
margin, consolidated after-tax profit margin, consolidated after-tax
operating profit margin, customer net new asset growth, stockholder return,
return on assets, earnings per share, return on equity, and return on
k) "Performance Period" means a period of four fiscal years of the Company, or
such other period as may be specified by the Committee, which has been
designated by the Committee as a period for which Awards may be paid
pursuant to the Plan. The Committee may authorize more than one Performance
Period to be in effect at any one time.
l) "Retirement" shall mean any termination of employment of a Participant for
any reason other than death at any time after the Participant has attained
Retirement Age. For this purpose, Retirement Age shall mean age fifty (50),
but only if, at the time of such termination, the Participant has been
credited with at least seven (7) Years of Service under the SchwabPlan
Retirement Savings and Investment Plan.
m) "Target Award" has the meaning assigned thereto in Section 5 (a) hereof.
Section 3. ELIGIBILITY
a) Participation in the Plan is limited to officers (and officer equivalents)
of the Company, as may be selected for participation in the Plan by the
Committee as of each Determination Date.
b) Participants generally shall be selected at the beginning of the
Performance Period. After the Performance Period has commenced, the
Committee shall have the authority to designate additional Eligible
Participants under this Plan, and the amount of the Award payable to such
individuals who become Participants after the Determination Date for that
Performance Period shall be pro-rated to reflect the portion of the
Performance Period during which such Eligible Participant was a Participant
in the Plan.
Section 4. PLAN TERM
The Plan shall become effective as of January 1, 2003, and shall continue in
effect until terminated by the Committee.
Section 5. PERFORMANCE CRITERIA AND TARGET AWARDS
a) Performance Period and Target Awards. The length of each Performance Period
shall be the four year period commencing as of any Determination Date, or
such other period as may be specified by the Committee. On the
Determination Date for a Performance Period, the Committee shall determine
for each Participant an amount, which may be expressed in Plan Units, that
shall be payable to the Participant as an Award for that Performance Period
if the Performance Goal for that Performance Period is achieved (the
"Target Award"). The Committee shall have the authority to delegate to the
Company's executive management the authority to issue Target Awards to
Participants, other than executive officers.
b) Performance Goals. As of the Determination Date for a Performance Period,
the Committee shall establish a Performance Goal for the Performance
Period. The Committee may specify that the Performance Goal may include a
threshold level of performance below which no Award shall be payable,
levels of performance at which specified percentages or multiples of the
Target Award shall be payable, and a maximum level of performance above
which no additional Award shall be paid; provided that in calculating the
value of an Award, the maximum multiple shall be 400% of the Target Award.
c) Equitable Adjustment. The Committee shall have the discretion to make
equitable adjustments to Performance Goals in recognition of unusual or
non-recurring events affecting the Company, its financial statements or its
shares, in response to changes in applicable laws or regulations, or to
account for items of gain, loss or expense determined to be extraordinary
or unusual in nature or infrequent in occurrence or related to the
acquisition, disposition or discontinuance of a business or a segment of a
business, or related to a change in accounting principles, or to reflect
d) Certification and Restrictions on Amount of Awards. Following the end of
each Performance Period, the Committee shall be required to certify whether
and the extent to which the Performance Goal for the Performance Period was
satisfied before any Award is paid to any Participant.
With respect to any Performance Period, at any time before an Award for
such Performance Period is paid, the Committee may establish a ceiling on
the aggregate amount which may be paid out in Awards for such Performance
Period. In the event that such a limit is established for any Performance
Period, the Awards otherwise payable to all Participants for such
Performance Period shall be reduced pro-rata.
The amount of any Award may be pro-rated for any period of time during
which the Participant was not an active employee of the Company or any of
its Subsidiaries, including leaves of absence and other periods as may be
determined by the Company in its discretion.
e) Maximum Target Award. In no event shall the total amount of Target Awards
granted to any Participant pursuant to the Plan in any calendar year exceed
f) Delegation to Management. The Committee shall have the authority to
delegate to the executive officers of the Company the authority to issue
Target Awards to Participants, other than executive officers.
Section 6. CALCULATION OF AMOUNT OF AWARDS
The amount of Awards payable for a Performance Period will be calculated as soon
as practicable following the close of each Performance Period, in accordance
with the provisions of Section 8 of this plan.
Section 7. VESTING
Subject to the remaining provisions of the Plan, and subject to the authority of
the Committee to authorize a different vesting schedule at the time it
authorizes the granting of a Target Award, Awards shall become vested only if
the Participant remains continuously employed with the Company from the date the
Participant receives a Target Award, in accordance with on the following
Vested Percentage % of
Vesting Date Award (Cumulative)
1st Anniversary of Target Award 0%
2nd Anniversary of Target Award 25%
3rd Anniversary of Target Award 50%
4th Anniversary of Target Award 100%
Section 8. PAYMENT OF AWARDS
Awards will be paid in cash as soon as practicable after the end of a
Performance Period, but not prior to certification of the Company's results by
its independent auditors for all years of the Performance Period. Subject to the
provisions of Section 9, a Participant will be entitled to payment of an Award
only if the Participant has been continuously employed by the Company throughout
the Performance Period and is still in the employ of (and has not delivered
notice of resignation to) the Company on the date of payment of the Award). The
Company will withhold from payments all applicable taxes as may be required by
Section 9. TERMINATION OF EMPLOYMENT DURING A PERFORMANCE PERIOD
(a) Death or Disability. If a Participant's employment is terminated as a
result of death or disability at any time after the first two years of a
Performance Period (and before completion of the Performance Period), such
Participant or Participant's estate shall be entitled to receive the Award
such Participant would have been entitled to receive, pro-rated to reflect
the actual amount of time that such person was a Participant in the Plan
for such Performance Period, valued and payable as determined by the
Administrative Committee as soon as practicable following the end of the
calendar quarter that includes the date of the Participant's date of death.
(b) Retirement after first two years of a Performance Period. If a
Participant's employment is terminated on account of Retirement at any time
after the first two years of a Performance Period (and before completion of
the Performance Period), such Participant shall be entitled to receive the
entire Award such Participant would have been entitled to, based on Company
performance and payable at the time Awards are paid to all other
Participants for such Performance Period.
(c) Other Termination of Employment. If a Participant's employment is
terminated for any reason other than death, disability or Retirement at any
time after the first two years of a Performance Period (and before
completion of the Performance Period), such Participant shall be entitled
to receive the Award such Participant would have been entitled to,
multiplied by the Participant's vested percentage at the time of
termination, based on Company performance and payable at the time Awards
are paid to all other Participants for such Performance Period.
(d) Termination of Employment After the End of a Performance Period but Prior
to payment. If, after the completion of a Performance Period and before the
payment of an Award, a Participant's termination terminates by reason of
the Participant's death, Disability or Retirement, the Participant shall be
entitled to the payment of any Award for such Performance Period. Any Award
payable to a deceased Participant shall be paid to the Participant's
Section 10. AMENDMENTS, MODIFICATIONS, AND TERMINATION OF THE PLAN
The Committee may terminate, modify or amend the Plan at any time, provided that
such action shall not affect the rights of the Plan Participants to awards that
were granted prior to the date of such termination, modification or amendment.
Section 11. NO RIGHT TO CONTINUED EMPLOYMENT
The designation of an employee as a Participant for any Performance Period or
the receipt of an award by a Participant shall not give the Participant any
right to continued employment by the Company for any period of time, and the
right to dismiss any employee is specifically reserved by the Company.
Section 12. CHANGE IN CONTROL
In the event of a Change in Control, all Awards shall become fully payable as
soon as practicable following such Change in Control, and the value of all
Awards shall be determined by the Committee as soon as practicable following the
end of the calendar quarter immediately preceding the Change in Control.
Section 13. GOVERNING LAW
The Plan shall be construed and its provisions enforced and administered in
accordance with the laws of the State of California.