Exhibit 10.3
DynCorp Executive Incentive Plan
Amended and Restated as of DynCorp Fiscal Year 1999
I. PURPOSE
The purpose of the Executive Incentive Plan (the Plan) is to reward and
motivate executives who have significant impact on the Company
strategy, performance and profitability for the achievement of
pre-established, measurable objectives which directly impact the
financial performance of the DynCorp and increase shareholder value.
II. GENERAL DESCRIPTION
At the beginning of the Plan Year, DynCorp and organizational financial
objectives, individual objectives and target incentive award levels
will be established and confirmed in writing for each Plan participant.
At the conclusion of the Plan Year, the achievement of the specified
financial objectives and individual objectives will be scored and
weighted for each participant according to established formulae to
determine the actual incentive amount to be awarded.
III. ELIGIBILITY
All executives in Salary Bands 1 through 3 who have been in their
positions a minimum of six months during the Plan Year are participants
in the Plan. Inclusion of individuals with less than six months must be
approved as an exception to the Plan.
With the exception of disability, retirement or death, participants
must be employed (on the active payroll) on the date an award is paid
in order to receive an incentive award. However, at its sole
discretion, the Compensation Committee may approve an award to a former
employee, or to the former employee's estate, in such amount as is
deemed appropriate.
Participation in the Plan precludes eligibility for participation in
any other annual cash incentive plan(s) provided by the Company.
IV. RESPONSIBILITIES
A. The Senior Vice President, Human Resources and Administration,
is responsible for administering the Plan.
B. As appropriate, Band 2 executives are responsible for
confirming Plan participants, recommending individual target
award levels, SBA and SBU financial performance objectives,
and individual performance objectives, submitting financial
results at the end of the Plan Year for SBA, SBU, and other
financial metrics approved at the beginning of the Plan Year,
and evaluating participant individual performance.
C. The DynCorp Chief Financial Officer (CFO) is responsible for
reviewing SBA and SBU financial performance objectives
recommended by the Presidents and informing the CEO of his
concurrence with the recommended measurements or proposing
alternative financial measurements more applicable to specific
SBA's or SBU's and for concurring with the calculations of
actual financial performance used to determine actual award
amounts.
D. The Chief Executive Officer (CEO) is responsible for
reviewing, modifying and subsequently recommending individual
target award levels and financial and individual participant
objectives, DynCorp financial objectives, deviations from the
Plan and actual incentive payments.
E. The Compensation Committee of the Board of Directors (the
Committee) is responsible for amending the Plan, approving
individual target award levels, financial objectives, DynCorp
financial objectives, deviations from the Plan and actual
incentive payments.
V. DEFINITIONS
A. Award Pool
The dollar amount available for payment of Executive Incentive
awards.
B. Base Salary
The base annual salary rate of a participant as of April 1 of
the Plan Year or, if later, the time the individual is
approved as a participant for a given year, exclusive of
overtime, per diem, bonuses or any other premiums, special
payments or allowances.
C. Days Sales Outstanding (DSO)
Days Sales Outstanding as defined in DynCorp Finance Policy
Statement PS505, as in effect at the beginning of the fiscal
year during which performance is measured for Plan purposes.
D. EBIDTA
Earnings of DynCorp before deductions for interest, taxes,
depreciation, amortization, discontinued operations and
merger/acquisition costs, as recorded on the books and records
of the Corporation.
E. Earnings per Share (EPS)
Diluted Earnings Per Share, per GAAP, assuming the treasury
stock method, calculated by dividing the income available to
common shareholders for the fiscal year by the fully diluted
shares outstanding at the end of the fiscal year.
F. Operating Profit
Earnings of the applicable organizational unit (i.e. SBA, SBU,
Business, division, subsidiary, or group, etc.) after ESOP and
after all accruals, but before the Corporate G&A Expense,
Interest and Dividend Income, Interest Expense, Net Asset
Allocation and Taxes on Income.
G. Plan Year
The fiscal year of DynCorp.
H. Revenue
Revenue as recorded in accordance with DynCorp Finance Policy
Statement PS510, as in effect at the beginning of the fiscal
year during which performance is measured for Plan purposes
and as reported in the Company's consolidating financial
statements after audit adjustments, if any.
I. Return on Net Assets (RONA)
Return on Net Assets as defined in accordance with DynCorp
Finance Policy Statement PS505, as in effect at the beginning
of the fiscal year during which performance is measured for
Plan purposes.
J. Strategic Business Area (SBA)
A group of DynCorp organizational units responsible to a
presiding officer who reports directly to the CEO of DynCorp
or a DynCorp Senior Vice President.
K. Strategic Business Unit (SBU)
One or more DynCorp organizational units (excluding joint
ventures) responsible to an officer or manager who reports
directly to the presiding officer of an SBA.
L. Target Award
The dollar amount that a participant is eligible to receive if
the combined weighted performance against DynCorp,
organizational unit and individual objectives equals an
overall achievement level of exactly 100%.
M. Target Percentage
The percentage of Base Salary which is payable to a
participant if combined weighted performance against DynCorp,
organizational unit and individual objectives equals an
overall achievement level of exactly 100%.
N. Threshold
The level of performance required before an award is paid. For
Plan purposes the threshold performance level is 75% of
objectives. The threshold is applied at three levels.
o If performance against any single objective is less
than 75%, then the portion of the award based on
performance against that objective is not paid.
o If combined weighted performance against the
applicable financial objective(s) is less than 75% in
the aggregate, then no award is paid.
o If combined weighted performance against both
financial and individual objectives is less than 75%
in the aggregate, then no award is paid.
VI. FUNDING
At the beginning of the Plan Year executive management establishes,
subject to approval by the Committee, the amount of the total bonus
award pool which includes the payment of Executive Incentive Plan
awards for that year. This amount represents the maximum amount that
can be paid to bonus participants unless Plan financial performance
exceeds Plan financial objectives. The definition of Plan financial
objectives is those organizational financial metrics approved by the
CEO or Compensation Committee at the beginning of the Plan Year.
The Award Pool will be accrued ratably on a monthly basis during the
Plan Year. The accrual amount will be reviewed quarterly and adjusted
as necessary to reflect the most recent projections of actual financial
performance versus budgeted performance and additions to, deletions
from or other changes in Plan participation.
VII. AWARDS
Target Awards ranging from 30% to 70% (in 5% increments) of Base Salary
will be established for each participant at the beginning of each Plan
Year. These targets will be divided into financial and individual
performance components and weighted as shown below in Table 1.
TABLE 1
Weighting of Performance Measurement Components
DynCorp SBA SBU
Financial Financial Financial Individual
Description Performance Performance Performance Performance
Corporate
Participants 80% 20%
SBA Participants 20% 60% 20%
SBU Participants 20% 60% 20%
Target award recommendations will be submitted for review and approval
in accordance with procedures established by the Senior Vice President,
Human Resources and Administration, to achieve the approvals described
in Section IV of the Plan.
At the end of the Plan Year, performance against pre-established
financial and individual objectives, as described in Section VIII, will
be calculated to develop financial and individual performance factors.
These factors will reflect the level, expressed as a percentage, of
attainment of each objective. These performance factors will be
multiplied by the appropriate weighting for each objective.
The results of these calculations then will be added to determine the
percentage of the Target Award payable to each participant. Payment of
the calculated award is subject to performance exceeding Threshold
performance as described in Section V. (Exhibit I of the Plan shows
detailed examples of award calculations.)
A bonus due to a participant hired after the beginning of the Plan Year
will be prorated based upon the number of months employed by the
Company as a percentage of the full year.
With the exception of disability, retirement or death, participants
must be employed (on the active payroll) on the date the awards are
paid in order to receive an incentive award. However, at its sole
discretion, the Compensation Committee may approve an award to a former
employee, or to the former employee's estate, in such amount as deemed
appropriate.
VIII. PERFORMANCE MEASUREMENT COMPONENTS
In order to reinforce the importance of DynCorp executives achieving a
balanced performance against financial and non-financial criteria,
incentive awards under the Plan will be based on team and individual
achievements in two or more of the following three areas:
A. The Financial Performance of DynCorp:
DynCorp's financial success is the key determinant of its
ongoing viability as an independent business entity. In
recognition of this, a portion of each Corporate and SBA level
participant's award will be based on DynCorp's performance
against its financial objective.
This objective, which will be recommended by the CEO, and
approved by the Committee at the beginning of each Plan Year,
may be comprised of one or more financial measurements. The
measurement may be changed each Plan Year to properly reflect
DynCorp's strategic objectives. Further, the financial
objective will be established at a level that will require
above average performance from the management team to achieve
it.
B. The Financial Performance of the Organizational Unit:
For non-Corporate participants, the financial performance of
the SBA or SBU in which they have the most direct control and
accountability, will be given the heaviest weighting in order
to motivate and reward participants for financial.
Financial objectives established for each SBA and SBU will be
measurable and consistent with the overall strategic goals of
the SBA. SBA and SBU financial objectives generally will be
expressed in terms of RONA, Revenue, Operating Profit and/or
DSO. Moreover, as with the DynCorp financial objective, they
will be established at a level that will require above average
performance from the management team to achieve them.
C. The Individual Performance of the Participant:
Individual performance will be measured in terms of
performance against pre-established objectives and the
participant's manager's subjective judgment of overall
individual performance. Performance against objectives must
comprise at least 50% of the individual performance factor.
Individual objectives should be established according to the
following guidelines:
1. Each participant will have 4-6 written objectives
that have been jointly agreed to by the participant
and the participant's supervisor.
2. Objectives will evolve from, respond to and/or
reflect the Company objectives established and
communicated by the CEO. Objectives covering the
following areas may typically be included:
o Key operational objectives
o Human resources management
o Quality and process improvement
o Business development
o Customer satisfaction
3. Objectives will be both quantitative and qualitative
in nature and will include non-financial as well as
appropriate financial related goals.
4. Objectives will be highly measurable and within the
control of the participant.
X. AWARD DETERMINATION
Awards will be calculated by:
1) multiplying the appropriate Financial and Individual Performance
Factors by the weighting assigned to corresponding performance
components as determined in Table 1 above,
2) adding the resulting percentages together to determine a composite
percentage that represents overall achievement against expectations,
and
3) then multiplying the target award amount by the composite percentage.
The award payable for any single component for any participant may
range from 0 to 150% of the established target amount for the
component.
Actual award amounts will be rounded to the nearest $100.00.
If the performance achievement level on any of the approved financial
performance factors falls below the Threshold level, the participant
will not generally receive an award for that component. However, the
CEO may on a discretionary basis recommend the payment of an award
where unusual or extraordinary circumstances contributed to the below
Threshold performance. If the combined weighted achievement level for
all applicable financial performance measurements is less than the
Threshold level, the award for the individual performance component
shall also be at the discretion of the CEO and the Committee.
Should a participant transfer to another organization during the Plan
Year, the final award will be jointly determined and prorated for the
time spent in each organization.
All incentive awards proposed under the Plan are subject to the
approval of the CEO and the Committee, who may at their discretion
adjust the amounts to be awarded in order to reflect exceptional
performance, performance that falls below objectives or other
performance factors that affect or potentially affect the ability of
the Company or any of its units to meet its business and financial
goals.
XI. YEAR-END ADMINISTRATION
Initial actual award recommendations will be calculated at the SBA and
Corporate levels and submitted in accordance with procedures
established by the Senior Vice President, Human Resources and
Administration, for Company level consolidation and submission to the
CEO. Documentation of objectives, accomplishments and individual
evaluations will be required to be submitted along with the individual
award recommendations. Financial performance will be reviewed by the
CFO as soon as the results for the Plan Year are available. Initial
actual award recommendations will be adjusted as necessary based on
this review to reflect the actual financial performance. The adjusted
recommendations will be submitted by the CEO to the Committee for
approval.
Effective with the Plan Year beginning 1996 and thereafter, a portion
of each award payable will be paid in the form of DynCorp Common Stock.
Twenty percent of the total award will be paid in the aggregate in the
form of stock and withholding taxes and Savings and Retirement Plan
(SARP) deferrals due thereon. The remaining 80% of the award, net of
any reductions by reason of the Key Executives Share-Option
Compensation Plan, will be paid in the aggregate in cash, withholding
taxes and SARP deferrals.
Bonus award payments are made following approval by the Compensation
Committee at its annual spring meeting.
Nothing in the Plan or in any action taken hereunder shall constitute
any contract of employment or affect the Company's right to terminate
at any time and for any reason the employment of any employee who is a
participant in the Plan.
2
Exhibit I
Sample Award Calculations
The following examples illustrate how the Plan formula will be applied to
calculate the incentive award for a Corporate Staff executive and for a
Strategic Business Unit line executive.
A. Sample Award Calculation: Corporate Staff executive
Target formula: 0.80 DynCorp Financial Performance + 0.20 Individual
Performance = 1.00
ASSUMPTIONS:
Base Salary $108,000
Target Award Percentage 30%
Target Award $ 32,400
Company Financial Performance Factor 80%
(actual EPS $1.60 / EPS Objective $2.00)
Individual Performance Factor 90%
Award Calculation
Performance % of Component
Component Factor Weighting Target % Payable
Company
Financial 80% X 80% = 64% +
Performance
Individual
Performance 90% X 20% = 18% =
Percent of Total Target Award Payable = 82%
Actual Award Amount = 82% of $32,400 = $26,568 (Round to $26,600)
B. Sample Award Calculation: Strategic Business Unit Manager.
Target formula: .20 SBA RONA Performance + .30 SBU RONA Performance +
.30 SBU Revenue Performance + 0.20 Individual Performance = 1.0
ASSUMPTIONS:
Base Salary $ 108,000
Target Award Percentage 30%
Target Award $ 32,400
SBA Financial Performance Factor 80%
SBU RONA Performance Factor 100%
SBU Revenue Factor 110%
Individual Performance Factor 75%
Award Calculation
Performance % of Component
Component Factor Weighting Target % Payable
SBA Financial
Performance 80% X 20% = 16% +
SBU RONA
Performance 100% X 30% = 30% +
SBU Revenue
Performance 110% X 30% = 33% +
Individual
Performance 75% X 20% = 15% =
Percent of Total Target Award Payable = 94%
Actual Award Amount = 94% of $32,400 = $30,456 (Round to $32,500)