SHERWIN-WILLIAMS MANAGEMENT COMPENSATION PROGRAM
The purpose of the Sherwin-Williams Management Compensation Program is to
establish and maintain a performance and achievement oriented management
environment throughout the Company that results in improved profits and/or
creativity. The primary emphasis is to develop Sherwin-Williams as a superior
company that can achieve and sustain above average earnings growth and a company
dedicated to excellence in management, products, services and product
With this in mind, the Program is designed so that participating managers will
earn higher than average total compensation for doing an above average job and
have the opportunity to accumulate a significant estate if the Company's
long-range earnings goals are achieved.
Sherwin-Williams' base salary structure is so designed that a participant may
receive a level of salary compensation which approximates the average of that
paid an equivalent position in the same or similar industries, as reported by
several outside executive compensation services. Those who participate in the
Incentive Plan may be awarded additional compensation in the form of cash and
deferred compensation for performance results that meet or exceed specified
pre-determined goals. Total compensation, therefore, may exceed that of
comparable executive positions in the outside marketplace.
I. BASE SALARY
Sherwin-Williams' overall salary structure is reviewed annually to insure
that it remains competitive. Positions are classified within the salary
structure on the basis of assigned responsibilities.
The mid-point salary of a grade assigned to a position is the salary level
which approximates the average salary paid an equivalent position in the
same or similar industries. Data are obtained from the latest survey
information available from various executive compensation data sources.
Where salary information is not available for a particular position, the
salary grade assigned is consistent with other positions having similar
responsibilities in the Company and in similar industries.
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Individual salaries are reviewed at least annually, but it must be
understood that salaries may not increase each year. Decisions relating to
salary increases are based on guidelines provided by management.
II. S-W MANAGEMENT INCENTIVE PLAN
The second element of the compensation program is the Sherwin-Williams
Management Incentive Plan ("Plan"). This incentive Plan is designed to
permit the total compensation of a key manager to reflect:
A. The performance of a particular unit (profit center or department),
B. The results of individual efforts as related to established goals.
Goals must require well above average performance and results should
be difficult to attain and have a significant impact on the
improvement of the organizational unit and/or the Company.
ELIGIBILITY TO PARTICIPATE IN SWMIP
Eligibility to participate in the Plan is limited to Corporate, Group and
Division key managers who are responsible for profit decisions and major policy
direction. To remain a participant, one must remain an active employee in a
participating job through the end of the Plan year (December 31). Individuals
employed in a participating job by October 1 of the Plan year may become
eligible to participate in that Plan year upon approval of the Chief Executive
Officer and/or the Compensation Committee of the Board of Directors.
Division participants are selected and recommended by the Division President,
Group President and Chief Operating Officer on an individual basis after careful
consideration and evaluation and must be approved by the Chief Executive
Officer. The potential of the position to contribute to the achievement of
overall Company goals is the major criterion for being approved as a Plan
Participation at the Corporate level is limited to Officers and Major Department
Certain limits are placed on the number of managers from any one Division that
may be included in the Plan as shown below. The numbers shown in parentheses
represent additional participants who may be included in the Plan if warranted
by the responsibilities of the position.
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Division Sales Number Eligible Rec. Positions
-------------- --------------- --------------
<S> <C> <C>
Below $25MM 1 + (1) General Manager
$25MM to $50MM 3 + (1) General Manager
$50MM to $150MM 4 + (2) General Manager
$150MM to $300MM 5 + (2) ) General Manager
) Marketing Manager
) Mfg. Manager
$300MM to $600MM 6 + (3) ) Tech. Director
) Product Manager
) Human Res. Dir.
) Merch. Manager
$600MM & over 7 + (4) ) Region Director
The Plan is designed to provide an award for improvement over prior year
results. To be eligible for any award under the Plan, a participant, Division or
Department must attain at least 75% of the improvement portion of the major
profit or program goal.
Prior Year Actual PBT: $13.0MM
Plan Year PBT: $14.0MM
Planned Improvement: $ 1.0MM
The threshold for earning an award is an improvement of $0.750MM
(75% of $1MM) or an actual PBT for the Plan Year of 13.75MM.
WHERE AN APPROVED PROFIT GOAL SHOWS NO IMPROVEMENT, OR IS CONSIDERED TO SHOW
INSUFFICIENT IMPROVEMENT, THE PARTICIPANT, DIVISION OR DEPARTMENT MUST ATTAIN
THE GOAL TO EARN ANY AWARD. THE ACHIEVEMENT OF THIS GOAL MAY RESULT IN AN
INCENTIVE AWARD AT THE MINIMUM PAYOUT LEVEL FOR THE APPROPRIATE INCENTIVE GROUP
(AS HEREAFTER DESCRIBED), PROVIDED THAT THE COMPANY ACHIEVES ITS OVERALL GOALS.
GENERALLY, NO ADDITIONAL INCENTIVE WILL BE AWARDED UNLESS THE RESULTS EXCEED THE
PRIOR YEAR'S ACTUAL RESULTS.
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As an example:
Prior Year Actual PBT: $13.0MM
Plan Year Goal PBT: $12.7MM
Incentive payouts may be as follows, assuming the Company achieves
its overall goals:
Plan Year Actual PBT Incentive Award
< $12.7MM 0
$12.7MM Minimum Payout Per Incentive Group
> $13.0MM Management Discretion
Participants are assigned to an Incentive Group (Exhibit A) which determines the
potential percentage of base salary that may be awarded. Assignment to an
Incentive Group is made by the Chief Executive Officer. Individual awards are
based on the overall percentage of goal achievement as described in the
Performance Results Evaluation section which follows and as approved by the
Chief Executive Officer and/or the Compensation Committee of the Board of
PERFORMANCE RESULTS EVALUATION
Assuming the overall Company earnings performance is at least 75% of the planned
improvement goal, individual performance is evaluated at the end of the year in
terms of achievement of goals set by the participant and approved by management
at the beginning of the year. If the Company does not meet the minimum earnings
improvement, funds may not be available for awards, although special awards may
be made under exceptional circumstances.
The process for individual goal achievement evaluation is outlined in the
following steps. In all cases, recommended awards must be approved by the Chief
Executive Officer and/or the Compensation Committee of the Board of Directors.
PROCEDURES FOR EVALUATING GOAL ACHIEVEMENT
1. The goals are pre-determined and agreed upon by the participant and immediate
supervisor, reviewed by the Division President, Group President and/or Chief
Operating Officer or Corporate Department Head and submitted to the Chief
Executive Officer for approval. Strong emphasis is placed on improvement over
the previous fiscal year; particularly where the goals relate to profits, profit
margins and return on assets employed.
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2. At the close of each fiscal year, participants review their own performance
by recording achievements as related to pre-determined goals.
3. The supervisor then determines a performance rating percentage for each
quantitative goal by comparing the goal against supervisory appraisal of the
achievement of that goal. For all Division participants, a performance rating
percentage for each special goal and each strategic goal will be determined by
the Division President, Group President and Chief Operating Officer. For
Corporate participants, these performance rating percentages will be determined
by the Chief Executive Officer. A percentage achievement rating is scaled as
--- 125% --- Outstanding Performance ---
--- 100% --- Planned Results ---
--- 75% --- Minimum Acceptable ---
--- Performance ---
--- 0% ----------------------------------
a. A "100% Objective Achieved" rating for any particular goal indicates
that the participant met that goal right on target.
b. A rating of 125% is the maximum rating for any particular goal,
indicating outstanding achievement of that goal.
c. A rating below 75% indicates less than acceptable performance, and
since no credit is given for that particular goal, the performance
rating is 0%.
d. Because certain factors cannot be accurately measured in terms of a
percentage, a direct arithmetic relationship may not necessarily
exist between the established goal, the appraisal of results and the
performance rating percentage of that goal.
e. Incumbents in covered positions for less than the Plan year being
measured may be awarded incentive compensation on a pro-rata basis
(i.e., participant for 6 months out of 12 months would result in 50%
of the normal award.)
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4. The participant's appraisal and the supervisor's rating of each goal,
together with any additional comments by the supervisor, form the basis for
overall performance. The overall performance rating is then reviewed for
approval by subsequent levels of management. The overall evaluation may not
5. The Chief Executive Officer reviews the recommended incentive awards in terms
of individual performance, the performance of the Division or Department and the
overall performance of the Company, and, as appropriate, reviews his
recommendations with the Compensation Committee of the Board of Directors.
6. After the recommendations and approvals are final, a review session is held
with each participant, at which time the supervisor is to review the incentive
award with the participant.
7. Fair, impartial judgement is in reality the major factor in the final
determination, and not arithmetic results.
8. The incentive award is determined as follows:
a. The overall performance percentage is related to the applicable
Incentive Group to determine the incentive award percentage.
b. The participant's salary base is multiplied by the incentive award
percentage to determine the total dollar incentive award. Incentive
Plan award computations are based upon the total salary of the
individual for the previous twelve months or for the time in the
approved position if less than a full year.
For example: 100% Performance of Goals
Group II = 45%
Salary = $140,000
Incentive Award = $140,000 X 0.45 =
SPECIAL INCENTIVE AWARDS
In addition to the previously described incentive awards, the Compensation
Committee of the Board of Directors may, from time to time, declare a special
incentive award ("Special Incentive Award") with respect to a particular Plan
year. The performance objectives and any other criteria, restrictions or
procedures associated with eligibility to receive any such Special Incentive
Award shall be determined by the Compensation Committee, in its sole discretion,
and the material terms thereof shall be attached hereto and incorporated herein
as an exhibit to the Plan. All applicable information regarding eligibility for
or other aspects of any Special Incentive Awards shall also be communicated in
writing to all Plan participants on a timely basis.
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Each employee should understand that the employment relationship with
Sherwin-Williams, or any of its subsidiaries or affiliates, is an at-will
relationship and, as such, may be terminated at any time by either party.
Nothing in any application form, employee handbook, summary, booklet, policy
manual or other communication is intended to be an express or implied contract
of employment, or guarantee of employment for a specific period of time between
an employee and the Company, a subsidiary or affiliate, unless clearly so stated
and signed by both parties.
The Company has a deferred compensation plan to provide greater flexibility in
the method of payment of incentive awards. The payment of an incentive award may
be deferred, in whole or in part, under the Company's Key Management Deferred
Compensation Plan if that is an employee's election prior to the start of the
Plan year. Otherwise, payment will be made in cash.
February 2, 2005
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INCENTIVE AWARDS AS A PERCENTAGE OF BASE SALARY
OVERALL GROUP GROUP GROUP GROUP GROUP
EVAL. I II III IV V
------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
125% (Max) 60% 70% 95% 120% 140%
120% 55% 65% 88% 111% 131%
115% 50% 60% 81% 102% 122%
110% 45% 55% 74% 93% 113%
105% 40% 50% 67% 84% 104%
100% (Target) 35% 45% 60% 75% 95%
95% 32% 40% 54% 68% 84%
90% 29% 35% 48% 61% 73%
85% 26% 30% 42% 54% 62%
80% 23% 25% 36% 47% 51%
75% (Min) 20% 20% 30% 40% 40%
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