Exhibit 10.2
DynCorp
Management Incentive Plan (MIP)
Revised March, 1997
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 the company and/or
organizational unit.
II. GENERAL DESCRIPTION
At the beginning of the Plan Year, company and/or 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 company and/or
organizational unit will be used to determine the actual amount of the
incentive award.
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 participants to be
included in the plan, recommending appropriate objectives for
participants, evaluating participant performance and
recommending individual incentive award amounts.
C. The SBU Executives and Corporate Staff Officers are
responsible for recommending the amount to be budgeted across
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 Chief Executive Officer (CEO) is responsible for approving
the Plan target pool and actual award pools for each sector or
Corporate financial organization, 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 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 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.
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 the
company and/or their organizational unit.
All participants in the Plan must be approved in advance by the SBU
President or Corporate Staff Officer.
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 retirement or death, participants must be
actively (on the payroll) 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 Corporate staff function and
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 EBITDA and/or AOP objective of the company or 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 Corporate staff function or a SBU or major P&L
center will not exceed twelve percent of the group AOP objective. The
CEO will approve 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 company or
operating unit against budgeted EBITDA and/or 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, will be 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% (in 5% increments) of the participant's base salary, or
target may be expressed in dollar amount ($100 increments). 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 at or above 30% of base
salary require CEO approval subject to the provisions of Section V.
VIII. ESTABLISHMENT OF COMPANY OBJECTIVES
At the beginning of the Plan Year an EBITDA objective will be
established and will account for 50% of the individual target bonus.
IX. 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 SBU or major P&L center will have a financial weighting of 60% and
individual performance will have a weighting of 40%.
The operational performance objectives should address the four to six
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.
X. 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 six to eight written objectives
that have been jointly agreed to by the participant and his or
her supervisor.
2. Performance objectives should be aligned with company and/or
SBU objectives established and communicated by the CEO 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:
o Financial and operational performance
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.
6. Up to 1/2 of the individual performance assessment
may be discretionary.
At the conclusion of the Plan Year, the participant's achievements in
relation to each objective will be evaluated, 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.
XI. 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 EBITDA and/or AOP and key
operational objectives.
The EBITDA and/or AOP achievement level is calculated by dividing the
actual EBITDA and/or AOP, by the EBITDA and/or 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.
The size of the actual award pool at Corporate will be based solely on
the EBITDA achievement level of the company overall.
A threshold achievement level of 75% of the target AOP or EBITDA
objective is required in order for formula awards to be made within a
unit or a company level. The CEO approval may on a discretionary basis
authorize the payment of awards where unusual or extraordinary
circumstances contributed to the below threshold performance. The award
for any participant may range from 0 to 150% of the established target
amount.
The CEO 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 SBU through the
formula calculation without CEO approval.
XII. 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
Company or Organizational Unit Award percentage. This step spreads the
performance results 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. 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 prorata 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.
The following table summarizes the weighting of each of the three
performance measurement components:
TABLE 1
Weighting of Performance Measurement Components
PERFORMANCE MEASUREMENT &
ORGANIZATIONAL WEIGHTING
Company Organizational
Financial Unit's Financial Individual
MIP PARTICIPANT Performance Performance Performance
Corporate Staff
Executives 50% 50%
SBU & Major
P&L Executives 60% 40%
XIII. ADMINISTRATION
Individual awards will be consolidated 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 early to mid 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 terminate at any time and
for any reason the employment of any employee who is a participant in
the plan.
XIV. SAMPLE AWARD CALCULATION
The example on the attached pages illustrates how the Plan formula is
applied to calculate the incentive award for a operational or staff
participant.
ASSUMPTIONS:
o Target Pool $250,000
o Manager's Target Award $ 8,000
o Manager's Individual Performance Factor 103%
o EBITDA and/or AOP Objective $5.0M
o EBITDA and/or AOP Weighting 60%
o Key Operational Objectives Weighting 40%
o Actual EBITDA and/or AOP $4.8M
o Actual Key Operational Objectives 84%
Composite Average
DETERMINATION OF AWARD POOL:
Actual EBITDA divided EBITDA and/or EBITDA and/or AOP
and/or AOP by AOP Objective = Achievement Level
$4.8M divided $5.0M = 96%
by
EBITDA and/or EBITDA and/or
AOP Achieve Level x Weighting = AOP Percentage
96% x 60% = 57.6%
Key Operational
Objectives Composite Key Operational
Average x Weighting = Objectives Percentage
84% x 40% = 33.6%
EBITDA and/or Key Operating Organizational Unit
AOP Percentage + Obj. Percentage = Award Percentage
57.6% + 33.6% = 91.2%
Organizational Unit
Target Pool x Award Percentage = Actual 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