EXHIBIT 10.17
FISCAL YEAR 2005
EXECUTIVE BONUS
PLAN
Airgas, Inc.
April 2004
PURPOSE OF THIS DOCUMENT
The purpose of this document is to allow bonus eligible employees at Airgas,
Inc. to understand the mechanics, measures, and other design features of the
Fiscal Year 2005 Executive Bonus Plan, and serve as a guide in the
implementation and administration of the plan. Included are payout schedules,
specific definitions and terminology, and basic plan governance.
AIRGAS, INC. FISCAL YEAR 2005 EXECUTIVE BONUS PLAN
PURPOSE OF THE PLAN
The purpose of the Airgas, Inc. Fiscal Year 2005 Executive Bonus Plan (the
"Plan") is to align Management's efforts with the strategic goals of the Company
through competitive annual incentive opportunities. This plan will be effective
from April 1, 2004 to March 31, 2005 (the "Plan Year").
ELIGIBILITY
Participation in the Plan is determined by the functional executive (e.g., CFO,
CIO, Senior Vice President).
TARGET AWARDS
Participants in the Executive Bonus Plan will be eligible for an annual cash
incentive award (the "Award") based on the achievement of predetermined goals.
An annual incentive or bonus target is generally determined based on the
participant's position in the organization, and can vary according to the
judgement of management.
PERFORMANCE MEASUREMENT
Final Award payments are determined by adjusting the target award upward or
downward based on achievement relative to a variety of performance measures,
including: Corporate/Consolidated financial performance, individual
accountabilities, Operating Company and Area performance. Depending upon an
individual's position and responsibilities, these various performance measures,
assessed based on different weightings, will determine the Award. Performance
measures and weighting have been established for three categories of
participants: Corporate, Operating Company Management and Area Managers. Details
are provided below.
CORPORATE/CONSOLIDATED PERFORMANCE
Assessment of Corporate/Consolidated performance is based on achievement
relative to consolidated:
- EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION
(EBITDA);
- SALES; and
- RETURN ON CAPITAL (ROC).
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is
defined as revenue minus expenses (excluding interest, taxes, depreciation and
amortization).
Return on Capital (ROC) is defined as:
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ROC = EBITDA - (80% x Depreciation Expense) - Unleveraged Cash Taxes
--------------------------------------------------------------
Average Capital Outstanding During the Year
Performance against these measures will be determined based on achievement
relative to predetermined targets for the Plan Year, as set forth and approved
by the Governance and Compensation Committee of the Airgas, Inc. Board of
Directors.
INDIVIDUAL ACCOUNTABILITIES
Individual performance is measured based on achievement relative to at least one
"line-of-sight" goal in the Plan Year. Prior to each Plan Year, each participant
will meet with his/her manager to develop individual performance goals that are
quantifiable (where possible) and are aligned to the Company's goals and key
financial performance metrics. In addition, these goals should represent
"stretch" targets that are attainable, yet challenging.
OPERATING COMPANY METRICS
Assessment of operating company performance is based on achievement relative to
financial performance goals set for the operating company in which the
individual works. For the upcoming Plan Year, financial performance at the
operating company level will be based on three measures:
- - EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION (EBITDA);
- - SALES; and
- - RETURN ON AVERAGE CAPITAL EMPLOYED (RACE).
RACE is defined as EBITDA / Average Capital outstanding for the year. It
represents a return on investment measure that includes factors under operating
management control.
Performance against these measures will be determined based on achievement
relative to predetermined targets for the Plan Year, as set forth and approved
by the Governance and Compensation Committee.
AREA PERFORMANCE METRICS
The term "Area" can be defined as either a specific geographic area (group of
branches or sales territory) or functional area. For the upcoming Plan Year,
financial performance at the Area level will be based on two measures:
- - EARNING BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION (EBITDA);
and
- - SALES.
It is recognized that EBITDA may not be an appropriate measure for Area
performance in all cases. Where necessary, operating company management may use
a measure that is closely aligned with EBITDA.
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Performance against these measures will be determined based on achievement
relative to predetermined targets for the Plan Year, as set forth and approved
by the Governance and Compensation Committee.
WEIGHTING OF PERFORMANCE GOALS
CORPORATE EMPLOYEES
For corporate employees, Award payments will be awarded based on the relative
achievement of these goals carrying the following weights:
CONSOLIDATED AIRGAS
- ---------------------------------------
EBITDA SALES ROC INDIVIDUAL PERFORMANCE
- ------ ----- --- ----------------------
50% 15% 15% 20%
OPERATING COMPANY MANAGEMENT
For operating company management, Award payments will be awarded based on the
relative achievement of these goals carrying the following weights:
CONSOLIDATED PERFORMANCE OPERATING COMPANY PERFORMANCE
- ------------------------ ---------------------------------------------
EBITDA EBITDA SALES RACE INDIVIDUAL PERFORMANCE
- ------------------------ ------ ----- ---- ----------------------
10% 50% 15% 15% 10%
AREA MANAGERS
For Area managers within the operating companies, Award payments will be awarded
based on the relative achievement of these goals carrying the following weights:
AREA PERFORMANCE OPERATING COMPANY PERFORMANCE INDIVIDUAL PERFORMANCE
- -------------------- ----------------------------- ----------------------
SALES EBITDA SALES EBITDA METRIC 1 METRIC 2
- ----- ------ ----- ------ -------- --------
20% 40% 10% 20% 5% 5%
DETERMINING INCENTIVE PAYOUTS
Achievement relative to these specific goals determines the extent to which a
participant receives an Award. For quantitative goals, such as
corporate/consolidated, operating company and Area financial measures,
performance is assessed relative to threshold, target, and maximum levels. The
Governance and Compensation Committee has approved tables that identify
corresponding incentive
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payout levels related to threshold, target, and maximum performance levels for
quantitative goals (see graphs below).
For individual accountabilities a maximum achievement percentage for any single
goal or group of goals is 100%, and anything short of full achievement of such
goals will be given an achievement percentage between 0% and 100%. Prior to the
Plan Year, or shortly thereafter, the participant and his or her manager will
agree on the performance framework.
PAY FOR PERFORMANCE RELATIONSHIP
The following graphs indicate the relationship between the achievement of a
particular financial goal and the payout for that goal associated with that
level of achievement. The weighting of these financial goals in determining an
overall incentive payout, depends on the participant's position and level of
responsibility.
[PERFORMANCE RELATIONSHIP GRAPH]
ROC
- ----------------------
ACHIEVEMENT PAYOUT %
- ----------- --------
-0.8% 50%
-0.7% 50%
-0.6% 70%
-0.5% 70%
-0.4% 90%
-0.3% 90%
-0.2% 100%
-0.1% 100%
0.0% 100%
0.1% 100%
0.2% 100%
0.3% 110%
0.4% 110%
0.5% 120%
0.6% 120%
0.7% 130%
0.8% 130%
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[PERFORMANCE RELATIONSHIP GRAPH]
RACE
- ----------------------
ACHIEVEMENT PAYOUT %
- ----------- --------
90% 20%
91% 30%
92% 40%
93% 50%
94% 60%
95% 70%
96% 80%
97% 90%
98% 100%
99% 100%
100% 100%
101% 100%
102% 100%
103% 110%
104% 120%
105% 130%
106% 140%
107% 150%
[PERFORMANCE RELATIONSHIP GRAPH]
SALES
- ----------------------
ACHIEVEMENT PAYOUT %
- ----------- --------
94% 10%
95% 20%
96% 30%
97% 40%
98% 60%
99% 80%
100% 100%
101% 110%
102% 120%
103% 130%
104% 140%
105% 150%
[PERFORMANCE RELATIONSHIP GRAPH]
EBITDA
- ----------------------
ACHIEVEMENT PAYOUT %
- ----------- --------
87% 20%
88% 25%
89% 30%
90% 35%
91% 40%
92% 45%
93% 50%
94% 55%
95% 60%
96% 70%
97% 80%
98% 90%
99% 100%
100% 100%
101% 100%
102% 110%
103% 120%
104% 130%
105% 140%
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EXAMPLES
1. Corporate
This employee earns $50,000 and has a target percentage of 10% of her base
salary or $5,000. At the end of the Plan year, this example assumes the
following performance results:
- EBITDA was 101% of Plan target, which means a payout of 100%;
- Sales were 101% of Plan target, which means a payout of 110%;
- ROC was at 0.1% above target, leading to a payout of 100%;
- This employee met 80% of individual goals
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PERFORMANCE MULTIPLIED PERFORMANCE MEASURE MULTIPLIED PAYOUT
MEASURE TARGET BONUS BY WEIGHTING EQUALS TARGET BY % EQUALS PAYOUT
----------- ------------ ---------- ----------- ------ ------- ---------- ------ ------ ------
EBITDA $ 5,000 X 50% = $ 2,500 X 100% = $2,500
SALES $ 5,000 X 15% = $ 750 X 110% = $ 825
ROC $ 5,000 X 15% = $ 750 X 100% = $ 750
Individual Performance $ 5,000 X 20% = $ 1,000 X 80% = $ 800
--- ------- ------
TOTALS 100% $ 5,000 $4,875
--- ------- ------
2. Operating Company Management
This employee earns $50,000 and has a target percentage of 10% of her base
salary or $5,000. At the end of the Plan year, this example assumes the
following performance results:
- Corporate/Consolidated EBITDA was 101% of Plan target, which means a
payout of 100%;
- EBITDA at the operating company was 100% of target, leading to a
payout of 100%;
- Sales at Operating company were 101% of target, leading to a payout
of 110%;
- RACE at Operating company was 101% of target, leading to a payout of
100%;
- Employee met 80% of individual performance goals.
PERFORMANCE TARGET MULTIPLIED PERFORMANCE MEASURE MULTIPLIED PAYOUT
MEASURE BONUS BY WEIGHTING EQUALS TARGET BY % EQUALS PAYOUT
- ----------------------------- ------- ---------- ----------- ------ ------- ---------- ------ ------ ------
Corporate/Consolidated
- EBITDA $5,000 X 10% = $ 500 X 100% = $ 500
Operating Company Performance
- EBITDA $5,000 X 50% = $2,500 X 100% = $2,500
- Sales $5,000 X 15% = $ 750 X 110% = $ 825
- RACE $5,000 X 15% = $ 750 X 100% = $ 750
Individual Performance $5,000 X 10% = $ 500 X 80% = $ 400
--- ------ ------
TOTALS 100% $5,000 $4,975
--- ------ ------
3. Area Managers - Operating Company
This employee earns $50,000 and has a target percentage of 10% of her base
salary or $5,000. At the end of the Plan year, this example assumes the
following performance results:
- EBITDA at the Area level was 100% of target, leading to a payout of
100%;
- Sales at the Area level was 101% of target, leading to a payout of
110%;
- EBITDA at the Operating company was 101% of target, leading to a
payout of 100%;
- Sales at the Operating company were 102% of target, yielding a 120%
payout;
- This employee on individual performance met 60% of Metric 1 and 80%
of Metric 2.
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To calculate her actual bonus, we multiply each measure target dollar amount by
actual performance results:
PERFORMANCE BONUS MULTIPLIED PERFORMANCE MEASURE MULTIPLIED PAYOUT
MEASURE TARGET BY WEIGHTING EQUALS TARGET BY % EQUALS PAYOUT
- ----------------------------- ------- ---------- ----------- ------ ------- ---------- ------ ------ ------
Area Performance
- EBITDA $ 5,000 X 40% = $ 2,000 X 100% = $2,000
- Sales $ 5,000 X 20% = $ 1,000 X 110% = $1,100
Operating Company Performance
- EBITDA $ 5,000 X 20% = $ 1,000 X 100% = $1,000
- Sales $ 5,000 X 10% = $ 500 X 120% = $ 600
Individual Performance
Metric 1 $ 5,000 X 5% $ 250 X 60% $ 150
Metric 2 $ 5,000 X 5% = $ 250 X 80% = $ 200
--- ------- ------
TOTALS 100% $ 5,000 $5,050
--- ------- ------
FUNDING
The Plan will be self-funding, as corporate profitability targets will be
established net of target Award payments under the Plan. Therefore, achievement
of corporate profitability targets will ensure that the Plan has funded itself.
EXECUTIVE BONUS PLAN PAYMENT
At the end of the Plan Year, after all financial results have been finalized,
including approval of corporate/consolidated, operating company and Area
performance measures by the Governance and Compensation Committee, actual
individual Award payment will be determined. The Award will be paid in cash no
later than 75 days following the end of the fiscal year.
ADMINISTRATION OF THE PLAN
The Management Committee of Airgas, Inc. shall have full power to administer and
interpret the Plan and, in its sole discretion, may establish or amend rules of
general application for the administration of the plan. The Management Committee
may amend or terminate the Plan at any time (except as to performance and
operating goals under the Plan that must be approved by the Governance and
Compensation Committee of the Airgas, Inc. board of directors).
PARTIAL YEAR ELIGIBILITY
Employees who are eligible for the Plan for a portion of the year will receive a
prorated Award based on the base salary earned while they are eligible for the
Plan.
- - New hires
-- New employees who are bonus eligible will immediately be eligible
for the Plan.
-- Base salary will be accumulated from the date of hire to the end of
the Plan Year, unless eligibility ceases prior to that date.
Transfers -- For employees who transfer from one job or employee
status to another, eligibility will depend on their award
eligibility before and after transferring.
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-- If an employee transfers from a position that is not bonus eligible
to a position that is eligible for an Award under the Plan, the
annual incentive award will be prorated based on the time in the
bonus eligible position. All calculations are done using year-end
financial data.
-- If an employee transfers from a position that is eligible for an
Award under the Plan to a position that is not bonus eligible, the
annual incentive award will be prorated based on the length of time
in the bonus eligible position. All calculations are done using
year-end financial data.
-- If an employee transfers from one position that is eligible for an
Award under the plan to another position that is eligible for an
award under the plan, participation in the Plan will continue
uninterrupted. However, if the transfer involves a move that will
change the weightings used to determine an individual's annual
incentive award, the bonus calculation will be based on the
pro-rated time spent in each position. All calculations will be done
using year-end data. Accountabilities must be established and
assessed for each position separately.
- - Promotions
-- If an employee is promoted during the fiscal year, new
accountabilities must be established to reflect the new position.
- - Terminations
-- Employees who are not employed by Airgas, Inc. on the date the
annual incentive award is paid will receive no payment, unless it is
contractually stated in a separation agreement and except for the
following circumstances:
- Employees who retire or die during the plan year will be
eligible for a prorated annual incentive award. The annual
incentive award will be calculated from the date when they
become eligible, normally the beginning of the Plan Year to
the date of retirement or death.
- - Leave of absence
-- If an employee is on a leave of absence at the end of the fiscal
year, he or she will be eligible for an Award provided that he or
she returns to work as an active employee. Any Award paid will be
prorated based upon the length of time the employee was actively
working during the fiscal year. The calculation will be made using
year-end financial data. The Award payment will be made in the next
regularly scheduled payroll cycle at the end of the associate's
first month of employment following his or her return from leave of
absence.
-- If an employee is on a leave of absence during the fiscal year, and
returns during the year, he or she will be eligible for an Award.
Any Award paid will be prorated based upon the length of time an
associate was actively working during the fiscal year. The
calculation will be made using year-end financial data.
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TAX CONSIDERATIONS AND WITHHOLDING
Participants will be required to report taxable income in the year the award is
received. The company will withhold taxes in the appropriate amount on all
payouts.
BANKRUPTCY
In the event Airgas, Inc. declares bankruptcy, the Management Committee, at its
discretion, may immediately discontinue the Plan. In the event that the Plan is
discontinued, all participants will forfeit the right to any payments under the
Plan.
FUTURE EMPLOYMENT
Payment of an annual incentive Award under this plan does not imply contractual
agreement to extend or continue employment of an employee beyond receipt of the
annual incentive Award.
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