EXECUTIVE ANNUAL COMPENSATION PLAN OF
CARPENTER TECHNOLOGY CORPORATION
EFFECTIVE JULY 1, 1989
Restated July 1, 1997
I. Statement and Purpose of Plan
The Executive Annual Compensation Plan provides short-term
additional compensation for selected executives based on Company
profitability and individual performance. The Plan is separate
from the Profit Sharing Plan of Carpenter Technology Corporation
which was effective July 1, 1987. The combination of Base Pay
and Executive Annual Compensation is intended to provide
competitive cash compensation to Participants.
II. Definitions
A. Base Pay
--------
A Participant's Base Pay is the salary paid during the
Plan Year before salary reduction for flexible benefits or
savings. Covered hours paid include: hours worked, paid time
off for vacation, holidays, sickness, military leave,
miscellaneous paid absences (moving day, family sickness, poll
watching), jury duty and funeral leave, and sick leave covered by
salary continuance.
Excluded from Base Pay is pay for: Sickness and
Accident, Long-Term Disability Insurance, Workers' Compensation,
Moving Allowance, Mortgage Interest Differential Allowance,
imputed income, severance pay, profit sharing payments, Employee
Stock Ownership Plan contributions, and any other cash payments
made not otherwise expressly included.
B. Company
-------
Carpenter Technology Corporation or any successor by
merger, purchase or otherwise.
C. Employee
--------
A person employed by the Company who receives
compensation from the Company other than a pension, severance
pay, retainer, fee under contract, workers' compensation,
unemployment compensation or similar payments.
D. Executive Annual Compensation
-----------------------------
The dollar payment to Participants under the Plan.
E. Net Income
----------
Net Income shall mean the amount shown under that
caption in the Company's audited Statement of Income for the Plan
Year.
F. Participant
-----------
Any Employee who on or after July 1, 1989 is in a
salaried exempt position classified in salary grade 19 or above
unless expressly excluded in writing by the Chief Executive
Officer. All Participants in the Plan are eligible for 100%
participation from the first day worked in an eligible position.
G. Performance Objective -
---------------------
A Performance Objective, as listed in Appendix "A", is
an objective standard used to determine a Participant's Executive
Annual Compensation as a result of Company financial performance
that has been established by the Human Resources Committee, or
any successor committee performing similar duties (the
"Committee"), and approved by the Company's Board of Directors.
H. Plan
----
The Executive Annual Compensation Plan of Carpenter
Technology Corporation, as defined in this document and as the
same may be amended or restated from time-to-time.
I. Plan Year
---------
The Company's fiscal year.
J. Salary Grade Target Percentages
-------------------------------
The percentages (as set forth below) of Base Pay paid
to a Participant, depending on salary grade, for Company
financial and personal performance, respectively, upon 100%
attainment of the Target Percent Performance Objective:
Target Target
Salary Financial Personal Combined
Grade Percentage Percentage Percentages
----- ---------- ---------- -----------
33 48% 12% 60%
32 44% 11% 55%
31 44% 11% 55%
-------------------------------------------------------
30 44% 11% 55%
29 44% 11% 55%
28 44% 11% 55%
-------------------------------------------------------
27 36% 9% 45%
26 36% 9% 45%
25 36% 9% 45%
-------------------------------------------------------
24 32% 8% 40%
Target Target
Salary Financial Personal Combined
Grade Percentage Percentage Percentages
----- ---------- ---------- -----------
23 32% 8% 40%
-------------------------------------------------------
22 28% 7% 35%
21 28% 7% 35%
20 24% 6% 30%
-------------------------------------------------------
19 20% 5% 25%
K. Termination of Employment
-------------------------
A Participant's separation from employment with the
Company, whether voluntary or involuntary.
III. Administration, Operation, and Executive
Annual Compensation Payments
Executive Annual Compensation shall be comprised of Company
Financial and Personal Performance Payments calculated on Base
Pay times the percentages determined as follows:
A. Company Financial Percentage
----------------------------
Performance Objectives are developed for each Plan Year
by the Committee. The Company Financial payout is a range based
on the individual Participant's Performance Objective and is
calculated and paid in the following manner:
1. Threshold payout at 80% attainment of the
Participant's Performance Objective generates 50%
of the financial Salary Grade Target Percentage.
2. Target payout at 100% attainment of the
Participant's Performance Objective generates 100%
of the financial Salary Grade Target Percentage.
3. Maximum payout at 120% attainment of the
Participant's Performance Objective generates 200%
of the financial Salary Grade Target Percentage.
B. Personal Performance Payment Percentage
---------------------------------------
In the event of a Company Financial Payment, an
additional Personal Performance Payment may be made. A
Participant's Personal Performance payment is determined by the
individual's performance as measured against predetermined
standards of performance. The expected payment for achieving
these standards of performance is the Target Personal Percentage.
However, a significant deviation in performance against these
standards, as determined by the Chief Executive Officer, may
result in a payment that can range from 0 to 50% of the EACP
Financial Percentage. The Chief Executive Officers' achievement
of standards is determined by the Board of Directors.
C. Ad Hoc Performance Percentage
-----------------------------
Notwithstanding the foregoing section to the contrary,
a Personal Performance Payment may be granted by the CEO under
this Plan if the Plan's financial threshold is not achieved. The
Ad Hoc Performance Percentage shall be determined by the CEO, but
in no event shall be greater than the Target Personal Percentage
for the Participant's salary grade. Such awards are subject to
Board approval prior to payment.
IV. Frequency of Calculation
Executive Annual Compensation will be calculated at the end
of each Plan Year.
V. Method of Payment
Executive Annual Compensation will be paid as soon as
possible following the reporting of Plan Year earnings.
VI. New Participants
New Participants in the Plan subsequent to the beginning of
a Plan Year will have their initial Executive Annual Compensation
calculated on their Base Pay paid during the period of the Plan
Year in which such Employee was a Participant.
VII. Participation Change
Participants, whose salary grade change results in a change
in the Salary Grade Target Percentage during the Plan Year, will
have their Executive Annual Compensation calculated as the sum of
the results of multiplying the applicable partial Base Pay by the
Salary Grade Target Percentage for each portion of the Plan Year
the Participant was in a different salary grade. The individual
performance targets will be separately established for each
salary grade change and added thereto.
VIII. Termination of Participation in the Plan
Executive Annual Compensation for Participants after
Termination of Employment or termination of eligibility for the
Plan, will be based on their Base Pay paid as a Participant
during the Plan Year.
IX. Vesting
Except for payments made by mistake and as otherwise
provided in the Plan, all Executive Annual Compensation due
pursuant to this Plan shall at all times be 100% vested in the
Participant and nonforfeitable.
X. Other Benefit Calculations
Specific employee benefit plans will include these payments
to the extent permitted by the provisions of such employee
benefit plan.
XI. Plan Amendment and Termination
Unless prohibited by law or contract, the Company may amend,
terminate or partially terminate the Plan at any time provided,
however, that no amendment, partial termination or termination
shall prevent the Participant from receiving Executive Annual
Compensation as calculated under the terms of this Plan for any
partial or full Plan Year participation prior to such amendment,
partial termination or termination. Notwithstanding the
foregoing to the contrary, extraordinary or unusual items may be
given special consideration by the Board of Directors who may
amend calculation of the Annual Executive Compensation
accordingly.
XII. No Guaranty of Employment
The adoption and maintenance of the Plan shall not be deemed
to be a contract of employment between the Company and any
Employee. Nothing herein contained shall be deemed to give any
Employee the right to be retained in the employ of the Company or
to interfere with the right of the Company to discharge any
Employee, at any time, nor shall it be deemed to give the Company
the right to require any Employee to remain in its employ, nor
shall it interfere with the Employee's right to terminate
employment at any time.
XIII. Administration
The general administration of the Plan and the
responsibility for carrying out the provisions thereof with
regard to all Participants shall be placed in the Company. Any
expenses incurred in administering the Plan shall be paid by the
Company. Interpretation of any disputed provisions of this Plan
shall be by the non-management members of the Board of Directors
and such interpretations shall be final.
APPENDIX "A"
-----------
The following Performance Objectives have been approved by the
Committee:
1. Earnings Before Interest and Income Taxes (EBIT) - The entry
------------------------------------------------
labeled "Income Before Interest and Taxes" as calculated and
reported by the Company's Financial Department on the
Company's monthly internal financial statements related to
the Plan Year used for determination of Base Pay.
2. Return on Assets - Return on Assets shall be computed by
----------------
dividing EBIT by the sum of the Plan Year averages for total
inventories (before LIFO), accounts receivable and fixed
assets.
3. Return on Equity - Return on Equity shall be computed by
----------------
dividing Net Income by the average shareholders' equity for
the Plan Year. Average shareholders' equity shall be
computed by adding the amount of consolidated shareholders'
equity at the end of the previous Plan Year and at the end
of each month during the Plan Year and dividing that sum by
13.