Exhibit 10(2)
Group
Management Incentive Plan (MIP)
Effective January, 1994
I. PURPOSE
The purpose of the Management Incentive Plan (MIP) is to motivate and
reward key managers for their achievement of preestablished, measurable
objectives that contribute to the success of their organizational unit.
II. GENERAL DESCRIPTION
At the beginning of the plan year, unit financial and key operational
objectives, individual performance objectives and target incentive
awards will be established and confirmed in writing for each Plan
participant.
At the conclusion of the plan year, the achievement of the specified
individual objectives will be scored and weighted for each participant
and together with the achievement level of the organizational unit will
be used to determine the actual amount of the incentive award.
III. RESPONSIBILITIES
A. The Corporate Vice President Human Resources and Administration is
responsible for administering the Plan.
B. Division and Corporate Executives are responsible for nominating
participants to be included in the plan, recommending appropriate
objectives for participants, evaluating participant performance
and recommending individual incentive award amounts.
C. The Group President is responsible for recommending the amount to
be budgeted cross the group for the Plan target pool, establishing
the organizational unit operating objectives, approving managers
selected for participation, apportioning the group target pool to
the organizational units, recommending actual award pools and
approving individual incentive awards.
D. The CEO is responsible for approving the Plan target pool and
actual award pools for each group and organizational unit, and
approving any exceptions to the Plan.
E. The Compensation Committee Board of Directors (the Committee) is
responsible for amending the Plan, and approving the Plan target
pool and the actual award pool for the company.
IV. DEFINITIONS
A. Adjusted Operating Profit (AOP)
Operating profit plus incentive plan accruals less a Net Asset
Adjustment.
B. Average Net Assets
The average of the net assets assigned to the organizational unit
at the beginning of the Plan Year and at the end of each month
during the year through November. The net asset base will be the
total assets assigned to said operation reduced by any non-
interest bearing liabilities attributable to the unit, and
exclusive of intercompany accounts, marketable securities and
other non-operating accounts assigned to the Company.
C. Base Salary
The basic annual salary rate of a participant as of January 1 of
the Plan year or, if later the time he or she is approved as a
potential participant for a given year, exclusive of overtime, per
diem, bonuses, or any other premiums, special payments, or
allowances.
D. EBITDA
Earnings of DynCorp before deductions for interest, taxes,
depreciation, discontinued operations, and merger/acquisition
costs, as recorded on the books and records of the Corporation.
E. Key Manager
Those employees holding management positions who are designated as
eligible under the provisions of the MIP.
F. Net Asset Adjustment
The average net assets times a Net Asset Adjustment. The
percentage adjustment shall be at least equal to the weighted
average of the company's projected cost of debt capital for the
Plan Year. Only under extraordinary circumstances will this
percentage be set at less than 12%.
G. Operating Profit
Earnings of the applicable organizational unit (i.e., branch,
division, subsidiary, group, etc.,) after ESOP and after all
accruals, but before the Company's G&A Expense, Interest and
Dividend Income, Interest Expense, Net Asset Allocation and taxes
on income.
H. Plan Year
The period commencing January 1 and ending December 31 of the year
for which performance is being measured.
I. Target Award
The dollar amount that a Participant is eligible to receive if the
combined performance of the participant and the organizational
unit is at an achievement level of 100% of the established
performance objectives.
V. ELIGIBILITY
Eligibility for participation in the Plan will be limited to key
managers in the operating groups and Corporate Headquarters who have
significant impact on the overall performance and profitability of their
organizational unit who are not participants in the Executive Incentive
Plan.
All participants in the Plan must be approved in advance by the Group
President.
A minimum of six months in an eligible position is required for
participation in the Plan. Awards to individuals with less than one
year's participation will be pro-rated based on the time in the eligible
position.
With the exception of retirement or death, participants must be actively
employed on the date the awards are paid in order to receive a
management incentive award. At its sole discretion, DynCorp may make an
award to a former employee, or to the former employee's estate, in such
amount as the Company may deem appropriate.
Participation in the plan terminates on the date the employee terminates
employment with the Company, whether voluntary or involuntary.
VI. TARGET POOL FUNDING
At the beginning of the plan year a management incentive target pool
will be established for each organizational unit. Several factors are
considered in determining the size of each target pool. These include:
the number of key managers to be incentivized; the target award level
assigned to each manager; and the AOP objective of the unit. The target
pool when established should be equal to the sum of the target awards
for all participants plus the portion earmarked for key contributor
awards.
A key contributor pool may be established as part of the total target
award pool to recognize the performance of other managers and employees
who are not specifically designated as participants with a target
preestablished at the beginning of the year. Key contributors are those
select employees who stand out as having made a significant contribution
to the overall performance of the unit during the plan year.
As a general rule, the sum of the individual target pools for all
incentive plans within a given group will not exceed ten percent of the
group AOP objective. The Group President will determine the amount to
be apportioned to each of the unit MIP target pools. At year end the
actual award pool will be adjusted upward or downward proportionate to
the achievement level of the unit against budgeted AOP and other key
operational objectives.
VII. TARGET AWARDS
At the beginning of the plan year, a target award, expressed in the form
of a dollar amount, is established for each participant based on the
employee's position level and degree of impact on the overall results of
the organizational unit. Target awards will typically range from 5% to
25% of the participant's base salary. Target awards at or above 30% of
base salary require CEO approval.
VIII. ESTABLISHMENT OF ORGANIZATIONAL UNIT OBJECTIVES
At the beginning of the plan year an AOP objective will be set for each
organizational unit along with key operational performance objectives.
The AOP objective, for purposes of the plan, should be set at an
achievement probability of approximately 80%. At this level an above
average performance from the management team will be required in order
to achieve the objective.
The operational performance objectives should address the 4 to 6 key
areas of performance that are critically important to the continued
success of the organizational unit. The objectives must be quantitative
in nature to permit an accurate and objective measurement of the degree
to which they were achieved. Categories to consider for operational
objectives include, but are not limited to, the following: quality and
process improvement; overhead efficiency; direct labor utilization;
business expansion; award fee evaluations; and safety performance.
A weighting factor is placed on both the AOP objective and the
operational objectives. The weightings should help focus management on
the areas of performance that most need to be emphasized during the plan
year. The AOP objective will typically be weighted at 60% or higher.
However, in some organizational units the financial performance may not
be subject to much risk, nor can it be greatly influenced by management.
In this case, a higher weighting may be placed on the operational
objectives.
IX. ESTABLISHMENT AND MEASUREMENT OF INDIVIDUAL PERFORMANCE
OBJECTIVES
At the beginning of each plan year, specific individual performance
objectives will be established and confirmed in writing for each
participant. At year end, the individual's performance will be measured
in relation to these preestablished objectives to produce an individual
performance achievement level.
Individual performance objectives should be established according to the
following guidelines:
1. Each MIP participant will have 6-8 written objectives that have
been jointly agreed to by the participant and his or her
supervisor.
2. Performance objectives should be aligned with group objectives
established and communicated by the President of the Group as well
as objectives established for the participant's immediate
organization. Objectives covering each of the following areas
will typically be included in the objectives established by each
line executive:
* Financial and operational performance
* Human resources management
* Quality and process improvement
* Business development
* 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.
5. Objectives will have performance criteria thoroughly established
in advance to enable individuals to monitor their own performance
in relation to their objectives, and to provide an objective
measurement at year-end.
At the conclusion of the plan year, the participant's achievements in
relation to each objective will be evaluated, and scored on a scale of
0% to 130%, with a rating of 100% indicating that the individual fully
met the objective. The scores are then totaled to yield an overall
individual performance percentage.
X. AWARD POOL DETERMINATION
The actual award pool that is authorized for distribution to
participants within an organizational unit is determined by measuring
the achievement level of the preestablished AOP and key operational
objectives.
The AOP achievement level is calculated by dividing the actual AOP, by
the AOP target objective.
Each of the operational objectives are evaluated and scored and equated
to a preestablished target achievement level. The sum of the
achievement level percentages for the operational objectives is then
multiplied by a predetermined weighting factor. The AOP achievement
level percentage is likewise weighted. The two weighted scores are then
added together and the resulting Organizational Unit Award percentage is
applied to the target pool to derive the actual award pool.
A threshold achievement level of 75% of the target AOP objective is
required in order for formula awards to be made within a unit. The
Group President with CEO approval may on a discretionary basis authorize
the payment of awards where unusual or extraordinary circumstances
contributed to the below threshold performance. The maximum level of
achievement recognized for plan purposes is 150% of the target
objectives.
The size of the actual award pool at corporate will be based solely on
the EBITDA achievement level of the company overall.
The Group President reserves the right to adjust the size of the actual
award pools at the unit level to reflect extraordinary or unusual
circumstances. However, the sum total of such adjustments cannot exceed
the amount that would have otherwise been awarded within the group
through the formula calculation without CEO approval.
XI. INDIVIDUAL AWARD DETERMINATION
The determination of individual awards is carried out in three steps.
First, the target award for each individual is multiplied by the
Organizational Unit Award percentage. This step spreads the performance
results of the unit proportionately across all participants to produce
an Adjusted Target Award.
Second, the degree to which the participant achieved each of his/her
individual objectives is evaluated and scored in a range of 0 - 130%.
The achievement percentages for each objective are then totaled to
produce a composite individual performance factor. This factor is then
applied against the adjusted target award from step one to yield a
formula award.
Third, if the sum of the individual formula awards are less than or
greater than the authorized award pool, a uniform prorate adjustment is
applied against the individual formula awards. The maximum award for
any participant will be 150% of the established target amount.
Awards to key contributors are set at the discretion of the unit
managers. The key contributor pool is factored by the same
organizational unit award percentage to derive the payout pool.
XII. ADMINISTRATION
Individual awards will be consolidated and approved at the Group level
and the actual award pool recommended for allocation to participants,
will be submitted to the Corporate Vice President Human Resources by the
end of January for approval by the CEO.
Payments will be made in cash as soon as practical after the conclusion
of the plan year, typically by early March.
Any exceptions to the plan must be approved by the CEO and the Vice
President-Human Resources. Nothing in the plan or in any action taken
hereunder shall affect the Company's right to determine at any time and
for any reason the employment of any employee who is a participant in
the plan.
XIII. SAMPLE AWARD CALCULATION
The example below illustrates how the Plan formula is applied to
calculate the incentive award for a division manager.
ASSUMPTIONS:
Target Pool $250,000
Manager's Target Award $ 8,000
Manager's Individual Performance Factor 103%
AOP Objective $5.0M
AOP Weighting 60%
Key Operational Objectives Weighting 40%
Actual AOP $4.8M
Actual Key Operational Objectives 84%
Composite Average
DETERMINATION OF AWARD POOL:
Actual AOP / AOP Objective = AOP Achievement Level
$4.8M / $5.0M = 96%
AOP Achieve Level x Weighting = AOP Percentage
96% x 60% = 57.6%
Key Operational Objectives Key Operational
Composite Average x Weighting = Objectives Percentage
84% x 40% = 33.6%
Key Operating Organizational Unit
AOP Percentage + Obj. Percentage = Actual Award
57.6% + 33.6% = 91.2%
Organizational Unit Actual
Target Pool x Award Percentage = Award Pool
$250,000 x 91.2% = $228,000
DETERMINATION OF INDIVIDUAL AWARDS:
Organizational Unit
Adjusted
Target Award x Award Percentage = Target
Award
$8,000 x 91.2% = $7,296
Adjusted Individual
Target Award x Performance Factor = Formula
Award
$7,296 x 103% = $7,515
PRORATA ADJUSTMENT = 102%
FINAL AWARD = $7,666