Exhibit 10(3)
DynCorp
Executive Incentive Plan (EIP)
Effective January, 1994
I. PURPOSE
The purpose of the Executive Incentive Plan (the Plan) is to
motivate and reward senior executives for their achievement of
preestablished, measurable objectives that have significant and
direct impact on the overall success of the company and its
business.
II. GENERAL DESCRIPTION
At the beginning of the Plan year, company and unit financial
objectives, individual objectives, and target incentive award
level 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. RESPONSIBILITIES
A. The Corporate Vice President Human Resources and
Administration is responsible for administering the Plan.
B. Group and Division Executives and Corporate Staff Officers
are responsible for nominating Plan participants,
recommending appropriate individual performance objectives
for Plan participants from their respective organizations or
functions, evaluating participant performance and
recommending individual incentive award amounts.
C. The CEO is responsible for recommending Plan participants,
approving group financial and individual objectives,
approving individual target award levels, recommending
actual incentive payments, and recommending any deviations
from the Plan.
D. The Compensation Committee of the Board of Directors (the
Committee) is responsible for amending the Plan, approving
plan participants, establishing company financial
objectives, and approving actual incentive payments.
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 base 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. 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%.
F. 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.
G. Plan Year
The period commencing January 1 and ending December 31 of
the year for which performance is being measured.
H. Target Award
The dollar amount that a participant is eligible to receive
if the combined weighted performance against company,
organizational unit and individual objectives equals an
overall achievement level of 100%.
V. ELIGIBILITY
Eligibility for participation in the Plan will be limited to key
executives in Corporate Headquarters and in the operating groups
who have significant impact on company strategy, performance and
profitability and who hold selected positions as either a senior
line executive at the Group, Division or major P&L Center level,
or as a major staff functional head at the corporate, group or
division level.
All participants in the Plan must be approved by the Committee
upon recommendation by the CEO.
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 disability, retirement or death,
participants must be actively employed on the date the awards are
paid in order to receive an 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.
Participation in the Plan precludes eligibility for participation
in any other annual incentive plan provided by the company.
VI. FUNDING
At the beginning of each Plan year, a target pool, equal to 100%
of the target award amounts for all participants, will be
established and accrued for during the year. The target pool
represents the maximum amount that can be awarded unless overall
company EBITDA achievement exceeds the plan objective. Payment
of an amount greater than or less than the target pool will be at
the sole discretion of the Committee.
VII. TARGET AWARDS
At the beginning of each Plan year, a target award, expressed in
the form of a dollar amount, will be established for each
participant based on the percentage of base salary applicable to
the salary grade to which he or she has been assigned. Target
awards range from approximately 30% to 60% of the participant's
base salary. Target awards that deviate from the standard for a
given position require CEO approval.
VIII. PERFORMANCE MEASUREMENT COMPONENTS
In order to reinforce the need for DynCorp executives to achieve
a balanced performance against financial and non-financial
criteria, incentive awards under the EIP will be based on team
and individual achievements in the following three areas:
A. The Financial Performance of DynCorp:
DynCorp will reward participants for the results of their
team efforts, as measured by the financial performance of
the company in relation to established financial objectives.
This component seeks to reinforce the need for participants
to support achievement of the company's objectives by
sharing people, technology, information, and resources
across organizations.
The financial performance of the company will have a
weighting of 75% for Corporate Staff participants and 25%
for all other participants.
B. The Financial Performance of the Organizational Unit:
The financial performance of the appropriate Group, Division
or major P&L Center will be given the heaviest weighting in
the determination of incentive awards for participants from
those organizations in order to motivate and reward
participants for financial achievements over which they have
the most direct control and accountability.
The financial performance of the appropriate organizational
unit (i.e., Group, Division, or major P&L Center) will have
a weighting of 50% for Plan participants at that
organization level.
C. The Individual Performance of the Participant:
The individual performance of the Plan participant against
preestablished objectives is an important measurement
component that reinforces and rewards executives for their
performance and achievements in areas such as human
resources management, process/quality improvement, customer
satisfaction and business development.
The following table summarizes the weighting of each of three
performance measurement components:
TABLE 1
Weighting of Performance Measurement Components
PERFORMANCE MEASUREMENT &
ORGANIZATIONAL WEIGHTING
Company Organizational Individual
Financial Unit's Financial Performance
EIP PARTICIPANT Performance Performance
Corporate Staff
Executives 75% 25%
Group & Division &
Major P&L Executives 25% 50% 25%
IX. PERFORMANCE MEASUREMENT CRITERIA
A. Establishment and Measurement of Financial Objectives
At the beginning of each Plan year, specific financial
objectives will be established for company EBITDA and for
AOP at the group, division and major P&L Center level. At
the conclusion of the Plan year, the financial performance
of the company and of each organizational unit will be
measured in relation to the applicable preestablished
objectives. Performance will be expressed as a percentage
of the objective that was achieved.
In setting the financial objectives for purposes of the
Plan, the target for EBITDA and AOP should reflect an
achievement probability of approximately 80%. At this level
of probability an above average performance from the
management team is required in order to achieve the
objectives A threshold achievement level of 75% of the
target objective for EBITDA and AOP will be required in
order for a formula award to be made relative to each of
these factors. The maximum level of achievement recognized
for Plan purposes on each factor is 150% of the target
objective.
B. Establishment and Measurement of Individual Performance
Objectives
At the beginning of each Plan year, specific individual
performance objectives will be established and documented
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 participant will have 6-8 written objectives that
have been jointly agreed to by the participant and his
or her supervisor.
2. Objectives will evolve from, respond to, and/or reflect
the company objectives established and communicated by
the CEO. Objectives covering each of the following
areas will typically be included in the objectives
established by each line executive;
* Key operational objectives
* 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.
Objectives are to be scored in a range of 0% to 130%
depending upon the degree to which the objective was
achieved. The sum of the individual objective scores yields
an overall individual performance factor.
X. AWARD DETERMINATION
Awards will be determined by weighting the Company's financial
performance percentage, the Organizational Unit's financial
performance percentage, and the individual performance percentage
by the percentages indicated in Table 1 above, adding the
resulting percentages together and then multiplying the target
award by the composite percentage. To illustrate, the formula
for determining the incentive award for an individual participant
at the Group, Division, or major P&La Center level is as follows:
Actual Award Amount =
[(Company Financial Performance Factor x .25} +
(Organizational Unit Financial Performance Factor x .50) =
(Individual Performance Factor x .25)]
x Target Award Amount
The maximum award for any participant will be 150% of the
established target amount. Actual award amounts will be rounded
to the nearest $100.00
If the performance achievement level on either of the two
financial performance factors falls below the 75% threshold, the
participant will not generally receive an award for that
component. However, the CEO may on a discretionary basis
recommend the payment of awards where unusual or extraordinary
circumstances contributed to the below-threshold performance. If
the combined weighted achievement level for EBITDA and AOP does
not meet the stated threshold of 75%, 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. ADMINISTRATION
Bonus awards will be calculated at the Group level and submitted
to the Corporate Vice President Human Resources and
Administration by the end of January for company level
consolidation and approval by the President and CEO and the
Committee. Documentation of objectives, accomplishments and
individual evaluations will be required to be submitted along
with the individual award recommendations.
Payments will be made in cash as soon as practical after the
Compensation Committee meeting in early March following final
year end closing.
Any exceptions to the Plan must be approved by the President and
CEO.
Nothing in the plan or in any action taken hereunder shall 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.
XII. SAMPLE AWARD CALCULATIONS
The examples on the following pages illustrate how the Plan
formula will be applied to calculate the incentive award for a
Corporate Staff executive and for a Division line executive.
A. Sample Award Calculation: Corporate Staff Executive
ASSUMPTIONS:
Base Salary $108,000
Target Award Percentage 30%
Target Award $ 32,400
Company Financial Performance Factor 80%
(EBITDA Act. $36M/EBITDA Obj. $45M)
Individual Performance Factor 90%
AWARD CALCULATION:
(80% x .75) + (90% x .25) =
60% + 22.5% = 82.5%
Actual Award Amount (.825 x $32,400) =$26,730
B. Sample Award Calculation: Division General Manager
ASSUMPTIONS:
Base Salary $120,000
Target Award Percentage 40%
Target Award $ 48,000
Company Financial Performance (See Above) 80%
Division Financial Performance 105%
(AOP Act. $10.5M / AOP Obj. $10.0M)
Individual Performance Factor 75%
AWARD CALCULATION:
(80% x 25%) + (105% x 25%) + (75% x 25%) =
20% + 52.5% + 18.8% = 91.3%
Actual Award Amount (.913 x $48,000) =$ 43,824