EXHIBIT 10
January 1, 2001 (revised December 19, 2001)
THE TIMKEN COMPANY
MANAGEMENT PERFORMANCE PLAN
Purpose
The purpose of The Timken Company (the "Company") Management Performance
Plan (the "Plan") is to promote the profitable growth of the Company by:
- Providing rewards for achieving increasing levels of return on
capital.
- Recognizing corporate, business unit and individual performance
achievement.
- Attracting, motivating and retaining superior executive talent.
Administration
It is the responsibility of senior management of the Company to execute
the provisions of the Plan. Based on senior management recommendations,
the Compensation Committee (the "Committee") approves financial goals,
participation, target bonus awards, actual bonus awards, timing of payment
and other actions necessary to the administration of the Plan.
Participation
The participant group includes Company executive officers and other key
employees of the Company and its subsidiaries in positions assigned to
Grades 7 or higher (i.e., 750 or more points) based on the Company's job
evaluation process.
Bonus Opportunity
Each position is assigned a target bonus expressed as a percentage of
annual base salary. The targets are based on market data for companies
that are similar for compensation purposes, including companies of similar
size and similar industries. The targets are reviewed annually by
management, and the Committee will approve all target bonuses for
officers.
The full target bonus opportunity represents an appropriate bonus award
if performance standards are met for Corporate, Business Unit and
Individual results.
Bonus funds for the three components-Corporate, Business Unit and
Individual - will be developed independently based on performance
achievement versus the goal(s) for each component. The actual value of
each component can range from 0% to 200% of target based on performance.
1
For most participants, the total bonus will be the sum of the amounts for
Corporate, Business Unit and Individual performance. In general, the more
senior participants will have greater weight placed on corporate results,
while other participants will have a greater weight placed on business
unit and individual performance results.
The allocations to corporate, business unit and individual performance
will be reviewed annually and changes to the allocations will be
determined by senior management.
Performance Measures
Corporate/Business Unit Components
The primary Corporate and Business Unit performance measure is Return on
Invested Capital, one measure of which is Earnings Before Interest and
Taxes (EBIT) divided by Beginning Invested Capital (BIC).
At the beginning of each year, the Committee will specify the EBIT/BIC
and other financial or non-financial performance measures to be used to
evaluate Corporate and Business Unit performance for the coming year.
Potential performance measures include, but are not limited to:
- Cash flow (including free cash flow)
- Continuous improvement
- Cost of capital
- Customer satisfaction
- Debt reduction
- Earnings growth (including earnings per share and earnings before
interest and taxes)
- Financial performance exceeding that of peer/competitor companies
- Improvement of shareholder return
- Inventory management
- Net income
- Productivity improvement
- Profit after taxes
- Quality
- Recruitment and development of excellent associates with emphasis
on diversity
- Reduction of fixed costs
- Return on assets
- Return on equity
- Return on invested capital (EBIT/BIC)
- Sales from new products
- Sales growth
- Successful start-up of new facility
- Successful acquisition/divestiture
2
For the Corporate, Business Unit and Individual components of the Plan,
the size of the award will be determined by the degree to which targets
are achieved for each measure within that component. Awards for
performance that falls between threshold, target and maximum will be
interpolated.
Individual Component
Individual performance goals will be established for each participant
consistent with the Company's performance management process. The
participant's supervisor will assess the participant's performance against
these goals and make a determination of the amount of bonus to be earned
for the individual component of the Plan. While the value of the
individual component can range from 0% to 200% of target for a specific
individual, the sum of individual award components for all participants
must not exceed 100% of target.
Award Determination
A participant's bonus award will be determined by adding the value of each
of the applicable components (corporate, business unit, individual) once
performance is considered. The sum of all participant bonus
determinations will equal the Total Fund.
Minimum Performance Requirement
For a payment to be earned for any portion of this Plan, the Company must
report a predetermined net profit for the Plan year after taking into
account all Plan payments for that year. Once the predetermined profit
level is achieved, the Plan will function as outlined. If the
predetermined profit level is not achieved, no awards will be paid under
the Corporate, Business Unit or Individual component of the Plan.
Bonus Payments
At the end of the year, senior management will determine whether Corporate
performance has exceeded the minimum performance requirement for paying
bonuses. Senior management will recommend to the Committee the Total Fund
based on its assessment of performance achievement at Corporate, Business
Unit and individual levels. The Committee may make further adjustments to
such management recommendations based on its assessment of financial and
non-financial performance.
Awards under the Plan will be paid in cash and/or stock.
One hundred percent of awards under the Plan will be included in pension
earnings and earnings for the purpose of calculating 401(k) plan benefits.
Awards will not be included for purposes of any other employee benefits
plans, except long term disability.
mpplan01revised12-19-2001 .doc
3