SAFETY-KLEEN CORP. 1997 MANAGEMENT INCENTIVE PLAN
The Directors of Safety-Kleen Corp. have heretofore decided to compensate
their officers and key management personnel under a compensation plan that
will include base salary plus incentive bonus. The purpose of the
incentive plan is to supplement by incentive bonuses the remuneration for
officers and key management personnel which is competitive externally,
equitable internally, and properly rewarding for performance in the
responsibility assigned. On the recommendation of the Compensation
Committee, the following Management Incentive Plan is hereby established
for officers and key management personnel of the Company.
I. CALCULATION OF MANAGEMENT INCENTIVE FUND
Each year the Board of Directors will establish an EVA Target for the year
and create an incentive fund, consisting of both a formula and
discretionary fund, based on the improvement in EVA relative to the target
as Follows:
A. Expected EVA improvement is the dollar amount by which EVA must
increase in any plan year relative to the actual EVA achieved in the
prior plan year, in order for target bonuses to be funded
Expected EVA improvement is an estimate of investor's expectations
for Safety-Kleen operating performance. This estimate is derived
based on the relationship between Safety-Kleen's market
capitalization, its Capital, and its current EVA as of a certain
date.
B. EVA INTERVAL
The EVA Interval represents the amount of deviation from Expected
EVA Improvement that doubles (positive deviation) or eliminates
(negative deviation) target bonuses.
The EVA Interval reflects the inherent volatility of a business to
ensure that short-term cyclical business changes do not result in
extreme positive or negative bonus declarations. The effect of a
volatility based interval is that: (1) zero bonuses are declared for
performance at about the 15th percentile of potential outcomes; and
(2) Two times target bonuses are declared for performance at about
the 85th percentile of potential outcomes.
The EVA Interval for Safety-Kleen is initially based on the
volatility of Safety-Kleen stock and the relationship of stock price
to EVA improvement. The EVA Interval in future plan years will
change in proportion to the aggregate target bonus pool. This
maintains a consistent share of incremental EVA improvement between
management and the shareholders.
C. CALCULATION OF THE DISCRETIONARY ELEMENT OF THE PLAN
In addition to the fund created by the above calculations, an
additional fund consisting of an amount not exceeding 50% of the
formula amount will be available for discretionary incentive
allocations.
II. ALLOCATION OF FUNDS
A. DETERMINATION OF PLAN PARTICIPANTS
Determination of who will participate in the Plan will be determined
by the Compensation Committee (Committee). The Chief Executive
Officer/Chairman of the Board (Chairman) and the President/COO
(President) in consultation with other corporate officers, will make
recommendations to the Committee. Eligibility will be in accordance
with job responsibility and salary grade. The list of job
classifications to be included in the Plan will be submitted at the
beginning of each calendar year for the approval of the Committee.
B. DETERMINATION OF INDIVIDUAL FUND SHARES
The percentage share formula incentive fund for each officer
participant will be recommended by the President and the Chairman
and submitted to the Compensation Committee for its approval at the
beginning of each calendar year. Non-officer participant percent
shares will be developed by the President and the Chairman in
consultation with other officers.
C. PAYMENT OF ANNUAL INCENTIVE
The individual share calculations for the formula incentive
resulting from the above calculation, together with the recommended
discretionary share, which can range from 0% to 50% of the formula
amount, shall be submitted to the Compensation Committee for its
final approval during the first quarter of the year following the
fiscal year involved.
The President and the Chairman will recommend the discretionary
amount for each officer based on his analysis of each individual's
performance during the year. A non-officer participant's
discretionary share will be recommended by the participant's
immediate supervisor for approval by the President and the Chairman.
D. BONUS BANK
Declared bonuses for participants will be paid from a Bonus Bank. A
participant's declared bonus in a given year will be deposited into
the Bonus Bank (and thereby added to any existing Bonus Bank
balance). (Exhibit 1)
Bonuses will be paid from the Bonus Bank as follows:
1. 100% of available Bonus Bank balance will be paid up to
the participant's target award;
2. an additional 1/3 of any excess positive Bonus Bank balance
will also be paid in the given year;
3. the remaining 2/3 of any excess positive Bonus Bank balance
will remain in the Bonus Bank, to be paid out in future years
based on future EVA performance of the participant's EVA
business unit.
III. INCENTIVE PLAN PARTICIPATION AND COMMUNICATIONS
The President and the Chairman shall notify the Compensation Committee of
the Board regarding officers and the key management position that will be
included in the Plan for the current year. Such a list should be
determined as early as possible in any fiscal year and no later than the
end of the first quarter of each fiscal year. Early identification of
participants is desirable to provide maximum opportunity for communicating
throughout the year regarding company performance and each individual
participant's related bonus opportunity, thereby maximizing the
effectiveness of the Incentive Plan.
IV. GENERAL PROVISIONS
A. PLAN ELIGIBILITY
To be eligible to participate under the plan, an officer or employee
must be actively employed with the company on the last working day
of the year for which the year's compensation is payable; provided,
that in the event a participant's employment is terminated prior to
year-end by reason of death occurring after June 1, his share of the
formula incentive fund will be adjusted on the basis of his
full-year share, prorated for the period of his actual employment.
B. LESS THAN FULL-YEAR'S EMPLOYMENT
In the event a participant's employment commences after January 1st
and before October 1st, adjustment of his share of the formula
incentive fund will be on the basis of his full share, prorated for
the period of the participant's actual employment. Participants
hired after October 1st will not receive an award for the current
year.
C. TRANSFERS
A plan participant who is transferred from one EVA business unit to
another EVA business unit during a plan year will receive bonus
declarations and payments according to the following rules:
1. The award declared for the year of the transfer will be
determined according to the full year EVA results of both EVA
business units in which the participant worked during the plan
year, and pro rated based on the number of months of service
in each EVA business unit.
2. Any positive or negative bonus bank balance will be carried
over.
D. BONUS BANK BALANCES UPON TERMINATION
In cases of termination's due to retirement at or after attainment
of age 55, death, disability, reduction in force, or the sale or
closing of a plant or EVA business unit, all positive Bonus Bank
balances attributable to a terminating participant will be paid in
full at the end of the plan year of termination.
Bonus Bank balances are forfeitable upon termination for any reason
not delineated above.
V. CHANGE OF CONTROL
A. In the event of a Change of Control, the Company shall pay or
cause to be paid to each eligible participant as of the date of
the Change of Control a bonus ("the Guaranteed Bonus") for each
performance period which ends after the Change of Control.
"Performance Period" means each period of time designated in
accordance with any bonus arrangement ("Bonus Plan") which is
based upon performance and approved by the Board or any committee
of the Board. The Guaranteed Bonus shall be at least equal to
the greatest of:
1. The On Plan Bonus, which shall mean the cash bonus which the
Participant would accrue under any Bonus Plan for the
Performance Period for which the Guaranteed Bonus is awarded
("Current Performance Period") as if the performance achieved
100% of plan established pursuant to such Bonus Plan and the
maximum level of discretionary portion is achieved;
2. The Actual Bonus, which shall mean the cash bonus which the
Participant would accrue under any Bonus Plan for the Current
Performance Period if the performance during the Current
Performance Period were measured by actual performance and the
maximum level of discretionary portion is achieved; and
3. The Historical Bonus, which shall mean the bonus that the
Participant accrued in the last Performance Period that ended
before the Change of Control.
B. "Change of Control" means the occurrence of any of the following:
1. any person (as such term is used in Rule 13(d)-5 of the
SEC under the 1934 Act) or group (as such term is defined
in Section 13(d) of the 1934 Act), other than a Subsidiary
or any employee benefit plan (or any related trust) of the
Company or a Subsidiary, becomes the beneficial owner of
twenty percent (20%) or more of the common stock of the
Company or of Voting Securities representing 20% or more of
the combined voting power of all Voting Securities of the
Company;
2. Within a period of twenty-four (24) months or less, the
individuals who, as of any date, constitute the Board (the
"Incumbent Directors") cease for any reason to constitute at
least a majority of the Board unless at the end of such
period, the majority of individuals then constituting the
Board were nominated upon recommendation of a majority of the
Incumbent Directors.
3. Approval by the stockholders of the Company of any of the
following:
a) a merger, reorganization or consolidation ("Merger")
with respect to which the individuals and entities
who were the respective beneficial owners of the
stock and Voting Securities of the Company
immediately before such Merger do no, after such
Merger, beneficially own, directly or indirectly,
more than 80 percent (80%) of, respectively, the
common stock and the combined voting power of the
Voting Securities of the corporation resulting from
such Merger in substantially the same proportion as
their ownership immediately before such Merger, or
b) the sale or other disposition of all or
substantially all of the assets of the Company.
VI. FINAL RESPONSIBILITY FOR PLAN ADMINISTRATION
A. Notwithstanding the foregoing provisions, all matters pertaining to
the administration of this Plan, including but not limited to the
determination of the Fund amount, selection of participants, amounts
of awards to be paid to individual participants, and other policy
matters, shall be within the sole discretion of the Board of
Directors.
B. Nothing in this document is to be construed as to provide for a
duplicative payment under the Change of Control Severance Agreement
for any participant covered by such an agreement.
C. This plan may be revoked, amended or revised by the Board of
Directors of the Company. In the event that the Plan is revoked,
amended or revised during the Plan year, participants will be paid a
bonus pro-rated to the date the Plan is revoked, amended or revised
based upon the Plan formula. A discretionary award will be granted
that is no less than the award granted in the previous year as
determined by the Board of Directors.
EXHIBIT 1
NOTE: THIS EXAMPLE REFLECTS THE SAFETY-KLEEN CORP.
CONSOLIDATED TARGET AND BONUS INTERVAL.
ASSUMPTIONS
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Base Salary $100,000 Plan Year EVA(R)($000s) 1,055.0
Target Award % 30% Prior Year Actual EVA(R) (6,445.0)
Target EVA Award $27,000 Expected EVA(R) Improvement 6,500.0
Beginning Bonus Bank Balance$ 5,000 EVA(R) Interval 12,500.0
CALCULATION OF BONUS DECLARATION
- ---------------------------------------------------------------------------
Plan Year EVA $1,055.0
- Prior Year Actual EVA (6,445.0)
---------
= EVA Improvement 7,500.0
- Expected EVA Improvement 6,500.0
-------
= Excess EVA Improvement 1,000.0
/ EVA Interval 12,500.0
--------
= Performance Multiple 8.0%
+ Target Multiple 100.0%
------
= Bonus Multiple 108.0%
x Target Bonus 27,000.0
--------
= Bonus Declaration 29,160.0
[CHART]
EXHIBIT 1 (CONTINUED)
CALCULATION OF BONUS PAID
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Beginning Bonus Bank Balance $5,000.0
+ Plan Year Bonus Declaration 29,160.0
--------
= Available Bonus Bank Balance 34,160.0
- Target Bonus 27,000.0
--------
= Excess Bonus Bank Balance 7,160.0
Payment up to Target Bonus 27,000.0
+ 1/3 Excess Bonus Bank Balance 2,386.7
--------
= Plan Year Payment 29,386.7
Available Bonus Bank Balance 34,160.0
- Plan Year Payment 29,386.7
--------
= Ending Bonus Bank Balance 4,773.3