FEDERAL SIGNAL CORPORATION
Subsidiaries, Division and Other
Designated Profit Centers
Management Incentive Bonus Plan
The incentive bonus plan has been established to provide an
incentive to key management employees of Federal Signal
Corporation and subsidiaries to attain the highest performance
possible in each year. The plan provides key executives with an
opportunity to add to their total annual compensation, if
prescribed return levels, sales growth or other important
discretionary goals are attained. The details of the plan
follow.
I. Incentive bonus calculations
A) Target bonus
A target bonus amount will be established for each plan
participant in the plan. This target bonus amount will be
based upon a specified percentage of the participant's
salary.
B) Bonus goals
The bonus goals will consist of the following:
ROI, operating margin/sales growth portion
1) A specified percentage of the participant's bonus
amount will be based on the participant's subsidiary,
division or profit center return on investment (ROI) or
operating margin/sales growth targets or a combination
thereof. For this purpose, ROI is defined as the
percent of pre-tax, pre-bonus income excluding
extraordinary items (see Section IID5) divided by the
year's monthly average of the division investment base.
The investment base is defined as the division's total
assets (excluding lease financing assets that are
managed by corporate and including goodwill) less total
liabilities excluding income tax reserves, long-term
debt and capitalized leases. Operating margins are
defined as pre-tax, pre-bonus income excluding interest
on lease financing assets (if managed by corporate),
non-operating income or expense and extraordinary items
divided by the sales of the division. Sales growth is
defined as the percent increase in sales to outside
customers over the prior year.
Discretionary portion
2) A specified percentage of the participant's bonus
amount is discretionary based on an evaluation of the
participant's performance (see IIC) including the
achievement of certain goals related to cash flow
management, sales and/or other criteria. This part of
your bonus also constitutes payment for any unused
vacation and by accepting the bonus payment you waive
any claims for payment for unused vacation.
Corporate portion
3) A specified percentage of the participant's bonus
amount will be based on corporate return on capital
(ROC).
The specified percentage for each of the bonus goals will
be established each year by the President of the
corporation and communicated to the participant in writing.
C) Performance goals
The ROI or operating margin/sales growth portion of each
participant's bonus will be subject to calculation in
accordance with the scale provided in the "Bonus Award
Schedule". The discretionary portion of the participant's
bonus will be subject to calculation based upon the
multiple (or "factor") achieved from the discretionary
performance award schedules (for example, cash flow
targets, sales targets, etc.).
II. Administration
A) Selection of participants and bonus levels
Selection of participants and bonus levels for presidents
of subsidiaries, divisions and other profit centers will be
set by the President of the corporation. Participants and
bonuses for individuals below the president level will be
set by the President in conjunction with the appropriate
subsidiary or division president. The Compensation/Stock
Option Committee of the Board of Directors will review and
give approval for recommended material changes to the plan
as submitted.
B) Determination of bonus award
Following the completion of the year-end audit, the actual
bonus for each participant will be calculated as follows:
ROI or operating income/sales growth portion
1) Calculate the ROI or operating margin/sales growth
portion according to Section IB.
2) Using the "Bonus Award Schedule" provided by the
President, find the appropriate bonus ratio (or
"factor") based on the ROI or operating margin/sales
growth.
3) Multiply the specified percentage (as communicated by
the President) of the target bonus by the bonus ratio
as determined in Section IIB2.
Discretionary portion
1) Based upon the participant's performance, the specified
percentage of the target bonus will be multiplied by
the applicable factor resulting from the participant's
achievement against discretionary bonus goals for cash
flow, sales and/or other factors.
2) Depending upon the participant's discretionary goals
and if the bonus ratio is less than 1.0, a portion of
the discretionary portion may still be paid at the
amount of the target bonus for the discretionary
portion (see Section IC).
Corporate portion
1) For those participants which have a portion of their
bonuses based upon the consolidated performance of the
company, multiply the specified percentage of the
target bonus by the bonus ratio as determined by the
corporate return on capital.
The total of the ROI or operating margin/sales growth
portion, discretionary portion and corporate portion, if
any, will be the bonus award.
C) Determination of discretionary award
Each participant will be evaluated against the following
criteria:
1) General performance of the participant's
responsibilities.
2) Meeting the participant's objectives and/or priorities.
3) Evaluation of initiative, attitude, and dedication to
the company.
4) Management development of self and subordinates.
5) Professional and personal conduct.
The President, in his sole discretion, will determine the
amount, if any, of this portion of the participant's bonus
payment.
D) Other considerations
1) Bonus awards will be paid only to participants who are
actively employed as of the bonus payment date.
2) In the event of the retirement of a participant during
the management incentive bonus plan year, the amount of
bonus award will be based on the full year results with
credit for the number of completed months worked as a
percent of the full plan year.
3) The addition of new participants, including new
employees to the plan during the year, and the bonus
levels for those individuals, must be approved, in
writing, by the President. Any changes for
participants regardless of the reason, (promotion,
change of responsibility, upgrading of salary in the
same position) must also be approved by the President.
Approval in writing in any case must be obtained prior
to communication to the individual concerned.
4) Unless otherwise approved by the President, in writing,
this incentive bonus plan will be the sole incentive
plan under which participants included in this plan may
participate.
5) Income will be inclusive of any changes in reserves,
but will exclude any capital gains or losses and other
unusual gains or losses such as proceeds of fire or
casualty insurance or changes in accounting practices.
In cases of uncertainty, the decision of the President
will be final.