Fraser, what do you think?

You asked me to provide my opinion about the employment agreement provisions relating to target bonus amounts that are based on performance.

The bonus language contained in the majority of the agreements is as follows:

"Provided that Enron meets its earnings targets and provided that Employee is rated within the top 25% of the performance criteria under Enron's annual performance rating system or its equivalent for the calendar year in question, Employee's annual bonus amounts under the Plan for calendar years 2001, 2002, and 2003 (payable in 2002, 2003, and 2004, respectively), shall be based on an annual bonus target of $_____________."

This language does not address a person's performance as compared to one's peers, but instead looks at the number of performance criteria and requires that a person be in the top 25% of those criteria. Thus, if there are only 3 rating categories (i.e., 1,2,3, distributed as 10-80-10), the only the people in the top category would be within the top 25/33% of the rating criteria.

This result, however, would limit significantly the number of persons who are eligible to be paid the target bonus. As a result, I would suggest that the middle category be divided further into either 2 or 3 subcategories (i.e., 2A, 2B, or 2C). That way, persons who fall out in categories 1 or 2A would be eligible for the target bonus.