DynCorp
Executive Incentive Plan (EIP)
Revised March, 1997
I. PURPOSE
The purpose of the Executive Incentive Plan (the Plan) is to motivate and reward
key 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 is responsible for administering
the Plan.
B. Strategic Business Unit (SBU) 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 Chief Executive Officer (CEO) is responsible for approving 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 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 capital for the Plan Year. Only under extraordinary circumstances will this
percentage be set at less than 12%. The projected cost of capital for each year
will be as established in that year's business plan.
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 strategic business units or major P&L Centers
who have significant impact on company strategy, performance and profitability
and who hold selected positions as senior line executives at the SBU or major
P&L Center level, or as a major staff functional head at the Corporate, SBU
level, or major project site. 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. Participation for
individuals with less than six months must be approved by the CEO as an
exception to the plan.
With the exception of disability, retirement or death, participants must be
actively (on the payroll) 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% (in 5% increments)
of the participant's base salary. For employees who are not employed for the
entire plan year due to death, disability, retirement or being a new hire the
Target Award will be prorated based upon the number of months employed by the
Company as a percentage of the full Plan Year. Target awards that deviate from
the standard for a given position require CEO approval, subject to the
provisions of Section V.
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 60% for Corporate Staff participants and 20% for all other
participants. B. The Financial Performance of the Organizational Unit: The
financial performance of the appropriate SBU 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., SBU or major P&L Center) will have a weighting of 40% for Plan
participants at that organization level.
C. The Individual Performance of the Participant: The individual performance of
the Plan participant against pre-established 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
Individual Performance factor will have a weighting of 40% of which up to 1/2
(20%) may be discretionary and the balance must be applied against
pre-established objectives.
The following table summarizes the weighting of each of three performance
measurement components:
TABLE 1
Weighting of Performance Measurement Components
Company Organizational
Financial Unit's Financial Individual
EIP PARTICIPANT Performance Performance Performance
Corporate Staff
Executives 60% 40%
SBU & Major
P&L Executives 20% 40% 40%
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 SBU 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. 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: 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. 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 least 50% of the Individual
Performance factor must be tied to specific objectives which are documented
and agreed upon.
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 SBU or major P&L
Center level is as follows:
Actual Award Amount =
[(Company Financial Performance Factor x .20) +
(Organizational Unit Financial Performance Factor x .40) +
(Individual Performance Factor x .40)]
x Target Award Amount
The award for any participant may range from 0 to 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 CEOand 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 strategic business unit and
Corporate staff function level and submitted to the Corporate Vice
President Human Resources by the end of January for company level
consolidation and approval by the COO and the Committee. Documentation of
objectives, accomplishments and individual evaluations will be required to
be submitted along with the individual award recommendations. Effective
with the Plan Year beginning 1996 and thereafter, payments will be made in
the form of 80% cash and 20% DynCorp Common Stock; payments will be made 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 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 Strategic Business Unit 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:
Company Financial Performance Individual Performance
(80% x .60) (90% x .40) =
48% + 36.0% = 84.0%
Actual Award Amount (.84 x $32,400) = $ 27,216
B. Sample Award Calculation: Strategic Business Unit or major P&L center
manager.
ASSUMPTIONS:
Base Salary $ 108,000
Target Award Percentage 30%
Target Award $ 32,400
Company Financial Performance 80%
Operational Unit Financial Performance 105%
(AOP Act. $10.5M / AOP Obj. $10.0M)
Individual Performance Factor 75%
AWARD CALCULATION:
Company Financial Organizational Unit Individual
Performance Financial Performance Performance
(80% x 20%) + (105% x 40%) + (75% x 40%) =
16% + 42% + 30% = 88%
Actual Award Amount (88% x $32,400) = $ 28,512