Executive Incentive Plan

 

EXHIBIT 10.1

Executive Incentive Plan

The Executive Incentive Plan is aimed at recognizing and rewarding the executive leaders whomost directly and significantly contribute to the success of the Company.

Valeant’s Executive Incentive Plan is built upon the financial and strategic plan of the Company:

•   It is designed to recognize and reward contributions to Valeant’s success.
 
•   It provides executives with a powerful incentive to achieve financial and strategic goals.
 
•   It directly ties pay to performance, based on clearly defined objectives whichare approved by the Compensation Committee in advance of the performance year.

Each bonus award depends on the executive’s base salary and grade level, on how well the Companyand the executive’s division succeed in meeting their financial goals, and how well the executiveindividually performs on his or her strategic initiatives.

Eligibility for the Plan

Eligibility for the Executive Incentive Plan is limited to the most senior executives that arein a position to most significantly influence the Company’s performance. As presently constituted,the plan applies to the ten most senior executives.

An Executive must be hired before October 1 of the plan year to be eligible for the current year’saward and must be an employee on the day the award is paid. The Executive must also have a minimumof “meets expectations” on his or her annual performance appraisal.

Generally, participation in the Executive Incentive Plan precludes participation in any otherincentive plan, sales compensation plan, or special retention program.

Plan Overview

The Compensation Committee has defined Valeant’s performance goals for this year based onthose business strategies and operating plans that drive shareholder value:

For Example:

•   EBITDA,
 
•   Revenue growth,
 
•   Earnings Per Share
 
•   Strategic initiatives (measured using quantitative or keymilestones).

To be eligible for an award from the Executive Incentive Plan, an Executive must meet specificgoals in these areas. In addition, each Executive’s performance will be weighted

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differently in different areas, depending on his or her position in the Company and his or herability to influence and affect particular financial interests. For example, top executives aremeasured on EPS to most closely align their interests with those of the shareholders.

Performance Measures and Weightings

Each Executive’s award will be based on the following two measures:

•   Financial Performance
 
•   Strategic Initiatives (SIs)

Financial Performance — The financial goals of the CEO will be approved by the CompensationCommittee. The financial goals of the remainder of the Executives will be recommended by the CEOand approved by the Compensation Committee. Financial goals may include revenue, EBITDA, operatingexpenses, and EPS. The Executive’s position within the Company will determine the weight given tofinancial and strategic goals. Generally, those Executives most directly linked to profit and lossline responsibility have the greatest weight put on financial goals.

If a financial goal is changed during the course of the fiscal year, and that change is approved,the Executive Incentive Commitment Summary must be updated and approved.

Strategic Initiatives – Strategic initiatives are project based goals; there may be up to fivestrategic objectives included in an Executive’s Incentive Commitment Summary, each of which may beweighted differently, according to the judgment of the Compensation Committee and the CEO.Specific weighting for each SI should equal the total of the weighting for the SI portion of theaward opportunity.

If business events occur which will result in the need to change a Strategic Initiative or replaceit for another one, the required Executive Incentive Commitment Summary must also then be updated.Any change must be in writing and approved by the Compensation Committee as to the CEO and approvedby the CEO and by the Compensation Committee as to the remaining Executives.

Discretionary Adjustment – On an exception basis, once the formula award has been calculated, theCompensation Committee, upon recommendation of the CEO, may increase (or decrease) an Executive’saward up to 15% either way to recognize special circumstances (the Compensation Committee maysimilarly adjust the award for the CEO). This adjustment is not made in all instances, must besupportable, and is entirely at the discretion of the Company for special or exceptionalcircumstances.

How Awards are Determined

To receive an award, an Executive must achieve at least:

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•   90% of the financial goal, and/or
 
•   80% of the Executive’s strategic initiatives.

An Executive is eligible to receive a payout for Strategic Initiatives even if the applicableFinancial Goals for such Executive have not been met; provided, however, the Company may cancel theExecutive Incentive Program, and not pay any incentive payment to any Executive if it cancels theExecutive Incentive Program for all, but not less than all, participants based upon significantlydistressed financial performance of the Company.

Because the Executive Incentive Program is meant to reward top performers, the Executive must beperforming at an acceptable level. For example, an Executive in the Executive Incentive Programwho receives a Below Expectations on his/her Performance Appraisal will not be eligible toreceive an incentive payout.

Incentive payments will not be made to participants of a division, unit or function that fails tomeet Sarbanes Oxley Section 404 standards.

Awards will range from 0 to 200% of the Executive’s target opportunity, as shown:

         
Financial Performance / Award Payout Scale
Performance Level   Percent of Target Opportunity Earned
Below 90% of goal
    0  
90% of goal (threshold)
    10 %
95% of goal
    55 %
100% of goal (target)
    100 %
110% of goal (maximum)
    200 %
         
Strategic Initiatives / Award Payout Scale
Performance Level   Percent of Target Opportunity Earned
Below 80% of goal
    0  
80% of goal (threshold)
    50 %
100% of goal (target)
    100 %
120% of goal (maximum)
    200 %

Awards to the CEO are determined by the Board of Directors, upon recommendation of the CompensationCommittee. Awards for the remaining executives are determined by the Compensation Committee uponrecommendation of the CEO.

Payout of Awards

Payments are made in cash (paycheck), in local currency, not before the release of year-endresults. An Executive’s award is subject to applicable withholdings.

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Changes in An Executive’s Employment Status

If an Executive Leaves the Company – If an Executive leaves Valeant during the year,eligibility for the Executive’s award will depend on the reason the Executive is leaving:

Death, Disability, or Retirement – The Executive’s award will be pro-rated based on the number offull months the Executive has been employed during the year. The pro-rated award will be paid atthe time Incentive Plan payments are made to all participants.

Other Reasons – If the Manager resigns or is terminated before the awards are paid, the Managerforfeits his or her award.

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