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BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
EXHIBIT NO. 10.3 (b)
ECONOMIC VALUE ADDED INCENTIVE COMPENSATION PLAN,
AS AMENDED AND RESTATED EFFECTIVE APRIL 18, 1995.
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BRIGGS & STRATTON CORPORATION
ECONOMIC VALUE ADDED INCENTIVE COMPENSATION PLAN
As adopted by the Board of Directors on November 12, 1990,
and amended and restated by resolution of the Board of Directors
effective as of April 18, 1995.
I. Plan Objectives
A. To promote the maximization of shareholder value over the long term
by providing incentive compensation to key employees of Briggs &
Stratton Corporation (the "Company") in a form which is designed to
financially reward participants for an increase in the value of the
Company to its shareholders.
B. To provide competitive levels of compensation to enable the Company to
attract and retain employees who are able to exert a significant
impact on the value of the Company to its shareholders.
C. To encourage teamwork and cooperation in the achievement of Company
goals.
D. To recognize differences in the performance of individual participants.
II. Plan Administration
The Nominating and Salaried Personnel Committee of the Board of
Directors (the "Committee") shall be responsible for the design,
administration, and interpretation of the Plan.
III.Definitions
A. "Accrued Bonus" means the bonus, which may be negative or positive,
which is calculated in the manner set forth in Section V. A.
B. "Actual EVA" means the EVA as calculated for the relevant Plan Year.
C. "Base Salary" means the amount of a Participant's base compensation
earned during the Plan Year without adjustment for bonuses, salary
deferrals, value of benefits, imputed income, special payments, amounts
contributed to a savings plan or similar items.
D. "Capital" means the Company's weighted average monthly operating
capital for the Plan Year, calculated as follows:
Current Assets
- Nonoperating Investments
+ Bad Debt Reserve
+ LIFO Reserve
- Future Income Tax Benefits
- Current Noninterest-Bearing Liabilities
+ Warranty Reserve
+ Environmental Reserve
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- Property, Plant, Equipment, Net
- Construction in Progress
+ Other Assets (not including prepaid Pension Costs)
(+/-)Unusual Capital Items
E. "Capital Charge" means the deemed opportunity cost of employing Capital
in the Company's businesses, determined as follows:
Capital Charge = Capital x Cost of Capital
F. "Cost of Capital" means the weighted average of the cost of equity and
the after tax cost of debt for the relevant Plan Year. The Cost of
Capital will be determined (to the nearest tenth of a percent) by the
Committee prior to each Plan Year, consistent with the following
methodology:
a) Cost of Equity = Risk Free Rate + (Business Risk Index x Average
Equity Risk Premium)
b) Debt Cost of Capital = Debt Yield x (1 - Tax Rate)
c) The weighted average of the Cost of Equity and the Debt Cost of
Capital is determined by reference to the actual debt-to-capital
ratio
where the Risk Free Rate is the average daily closing yield rate on 30
year U.S. Treasury Bonds for the month of March immediately preceding
the relevant Plan Year, the Business Risk Index is determined by
reference to the Beta shown in the most recently available Value Line
report on the Company, the Average Equity Risk Premium is 6%, the Debt
Yield is the weighted average yield of all borrowing included in the
Company's permanent capital, and the tax rate is the combination of the
relevant federal and state income tax rates.
G. "Divisional EVA Performance Factor" means an Individual
Performance Factor calculated in the same manner as the Company
Performance Factor as set forth in Section VI. A., except that EVA,
Actual EVA, Target EVA, EVA Leverage Factor, NOPAT, Capital, Capital
Charge, Cost of Capital and other relevant terms shall be defined by
reference to the particular division, not by reference to the entire
Company.
H. "Economic Value Added" or "EVA" means the NOPAT that remains after
subtracting the Capital Charge, expressed as follows:
NOPAT
Less: Capital Charge
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Equals: EVA
EVA may be positive or negative.
I. "EVA Leverage Factor" means the expected deviation in EVA from the
average EVA, generally reflected as a percentage of capital
employed. For purposes of this Plan, the Company's EVA Leverage Factor
is determined to be $27 million.
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J. "NOPAT" means cash adjusted net operating profits after taxes for the
Plan Year, calculated as follows:
Net Sales
- Cost of Goods Sold
(+ -) Change in LIFO Reserve
- Engineering/Selling & Admin.
- Normal Pension Costs
(+ -) Change in Bad Debt Reserve
(+ -) Change in the Prepaid Pension Asset or
Liability
(+ -) Change in Warranty Reserve
(+ -) Change in Environmental Reserve
(+ -) Other Income & Expense on Non-Operating
Investments
(+ -) Other Unusual Income or Expense Items
(+ -) Amortization of Unusual Income or Expense Items
- Cash Taxes on the Above (+/- change in deferred
tax liability)
K. "Plan Year" means the one year period coincident with the Company's
fiscal year.
L. "Senior Executives" means those Participants designated as Senior
Executives by the Committee with respect to any Plan Year.
M. "Target EVA" means the target level of EVA for the Plan Year, determined
as follows:
a) For Plan Year ending July 3, 1994 The Actual EVA for 1993 plus
Expected Improvement.
b) For subsequent Plan Years:
Prior Year Prior Year
Current Plan Target EVA + Actual EVA Expected
Year Target EVA = ------------------------ + Improvement
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Expected Improvement will be $4 million. The Expected Improvement
shall not be added to the current Plan Year Target EVA to the extent
it would make such Target EVA exceed $25 million.
IV. Eligibility
A. Eligible Positions. In general, all Company Officers, Division
General Managers, and members of the corporate operations group, and
certain direct reports of such individuals may be eligible for
participation in the Plan. However, actual participation will depend
upon the contribution and impact each eligible employee may have on the
Company's value to its shareholders, as determined by the Chairman and
CEO and President and COO of the Company, and approved by the
Committee.
B. Nomination and Approval. Each Plan Year, the Chairman and CEO and the
President and COO of the Company will nominate eligible employees to
participate in the Plan for the next Plan Year. The Committee will have
the final authority to select Plan participants (the "Participants")
among the eligible employees nominated by the Chairman and CEO and
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the President and COO of the Company. Continued participation in the
Plan is contingent on approval of the Committee. Selection
normally will take place, and will be communicated to each Participant,
prior to the beginning of the pertinent Plan Year.
V. Individual Participation Levels
A. Calculation of Accrued Bonus. Each Participant's Accrued Bonus will be
determined as a function of the Participant's Base Salary, the
Participant's Target Incentive Award (provided in paragraph V.B.,
below), Company Performance Factor (provided in Section VI.A.) and
the Individual Performance Factor (provided in Section VI.B.) for the
Plan Year. Each Participant's Accrued Bonus will be calculated as
follows:
Target Company Target Individual
Participant's X Incentive X Performance Participant's X Incentive X Performance
Base Salary Award Factor + Base Salary Award Factor
- ----------------------------------------------------- ----------------------------------------------
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B. Target Incentive Awards. The Target Incentive Awards will be determined
according to the following schedule:
Target Incentive Award
Executive Position (% of Base Salary)
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Chairman and CEO 80%
President and COO 60%
Executive Vice President 50%
Secretary-Treasurer 50%
Corporate Line Executive (Officer) 35%
Division General Manager 35%
Corporate Staff Executive (Officer) 35%
All Others 20%
VI. Performance Factors
A. Company Performance Factor Calculation. For any Plan Year, the Company
Performance Factor will be calculated as follows:
Company Performance Factor = 1.00 + Actual EVA - Target EVA
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EVA Leverage Factor
B. Individual Performance Factor Calculation. Determination of the
Individual Performance Factor will be the responsibility of the
individual to whom the participant reports. This determination will
be subject to approval by the Committee and should be in conformance
with the process set forth below:
(1) Quantifiable Supporting Performance Factors. The Individual
Performance Factor of the Accrued Bonus calculation will be based on
the accomplishment of individual, financial and/or other goals
("Supporting Performance Factors"). Whenever possible, individual
performance will be evaluated according to quantifiable benchmarks
of success. These Supporting Performance Factors will represent an
achievement percentage continuum that ranges from 50% to 150% of the
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individual target award opportunity, and will be enumerated from .5
to 1.5 based on such continuum. Provided, however, that if the
quantifiable Supporting Performance Factor is based on divisional
EVA and is calculated in the same manner as the Company Performance
Factor as set forth in Section VI.A. with respect to such division
(such Supporting Performance Factor referred to herein as a
Divisional EVA Performance Factor), then the Supporting Performance
Factor may be unlimited, if so approved by the Committee. A
quantifiable Supporting Performance Factor may also be unlimited
if the quantifiable Supporting Performance Factor as approved by the
Committee for such individual is the same as the Company Performance
Factor determined in accordance with Section VI.A.
(2) Non-Quantifiable Supporting Performance Factors. When performance
cannot be measured according to a quantifiable monitoring system, an
assessment of the Participant's overall performance may be made
based on a non-quantifiable Supporting Performance Factor (or
Factors). The person to whom the Participant reports will evaluate
the Participant's performance, and this evaluation will determine
the Participant's Supporting Performance Factor (or Factors)
according to the following schedule:
Individual Supporting
Performance Rating Performance Factor
------------------ ------------------
Outstanding 1.3-1.5
Excellent 1.1-1.3
Good .9-1.1
Satisfactory .5-.9
Unsatisfactory 0
(3) Aggregate Individual Performance Factor. The Individual
Performance Factor to be used in the calculation of the Accrued Bonus
shall be equal to the sum of the quantifiable and/or
non-quantifiable Supporting Performance Factor(s), divided by the
number of Supporting Performance Factors. To illustrate, assume a
Participant with two Supporting Performance Factors:
Quantifiable Non-Quantifiable
Supporting + Supporting
Individual Performance Performance
Performance = Factor A Factor B
Factor --------------------------------------------------------
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Notwithstanding the foregoing and subject to the approval of the
Committee, the individual to whom the Participant reports shall
have the authority to weight the Supporting Performance Factors,
according to relative importance. The weighting of each Supporting
Performance Factor shall be expressed as a percentage, and the sum of
the percentages applied to all of the Supporting Performance Factors
shall be 100%. The Individual Performance Factor, if weighted factors
are used, will then be equal to the weighted average of such
Supporting Performance Factors.
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VII. Change in Status During the Plan Year
A. New Hire, Transfer, Promotion, Demotion
A newly hired employee or an employee transferred, promoted, or
demoted during the Plan Year to a position qualifying for
participation (or leaving the participating class) may accrue
(subject to discretion of the Committee) a pro rata Accrued Bonus
based on the percentage of the Plan Year (actual weeks/full year
times a full year award amount for that position) the employee is in
each participating position.
B. Discharge
An employee discharged during the Plan Year shall not be eligible for
an Accrued Bonus, even though his or her service arrangement or
contract extends past year-end, unless the Committee determines
that the conditions of the termination indicate that a prorated
Accrued Bonus is appropriate. The Committee shall have full and final
authority in making such a determination.
C. Resignation
An employee who resigns during the Plan Year to accept employment
elsewhere (including self-employment) will not be eligible for an
Accrued Bonus.
D. Death, Disability, Retirement
If a Participant's employment is terminated during a Plan Year by
reason of death, disability, or normal or early retirement under
the Company's retirement plan, a tentative Accrued Bonus will be
calculated as if the Participant had remained employed as of the end
of the Plan Year. The final Accrued Bonus will be calculated by
multiplying the tentative Accrued Bonus by a proration factor. The
proration factor will be equal to the number of full weeks of
employment during the Plan Year divided by fifty-two.
Each employee may name any beneficiary or beneficiaries (who may be
named contingently or successively) to whom any benefit under this
Plan is to be paid in case of the employee's death.
Each such designation shall revoke all prior designations by the
employee, shall be in the form prescribed by the Committee, and
shall be effective only when filed by the employee in writing with
the Committee during his or her lifetime.
In the absence of any such designation, benefits remaining unpaid at
the employee's death shall be paid to the employee's estate.
E. Leave of Absence
An employee whose status as an active employee is changed during a
Plan Year as a result of a leave of absence may, at the discretion of
the Committee, be eligible for a pro rata Accrued Bonus determined
in the same way as in paragraph D. of this Section.
VIII. Bonus Paid and Bonus Bank
All or a portion of the Accrued Bonus will be either paid to the
Participant or credited to or charged against the Bonus Bank as
provided in this Article.
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A. Participants Who Are Not Senior Executives. All positive Accrued
Bonuses of Participants who are not Senior Executives for the Plan
Year shall be paid in cash, less amounts required by law to be
withheld for income and employment tax purposes, on or before the end
of the second month following the end of the Plan Year in which the
Accrued Bonus was earned. Participants who are not Senior Executives
shall not be charged or otherwise assessed for negative Accrued
Bonuses nor shall such Participants have any portion of their Accrued
Bonuses banked.
B. Participants Who Are Senior Executives. The Total Bonus Payout to
Participants who are Senior Executives for the Plan Year shall be
as follows:
Accrued Bonus
Less: Extraordinary Bonus Accrual
Plus: Bank Payout
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Equals: Total Bonus Payout
The Total Bonus Payout for each Plan Year, less amounts
required by law to be withheld for income tax and employment tax
purposes, shall be paid on or before the end of the second month
following the end of the Plan Year in which it was earned.
C. Establishment of a Bonus Bank. To encourage a long term
commitment to the enhancement of shareholder value by Senior
Executives, "Extraordinary Bonus Accruals" shall be credited to an
"at risk" deferred account ("Bonus Bank") for each such Participant,
and all negative Accrued Bonuses shall be charged against the Bonus
Bank, as determined in accordance with the following:
1. "Bonus Bank" means, with respect to each Senior Executive, a
bookkeeping record of an account to which Extraordinary Bonus
Accruals are credited, and negative Accrued Bonuses debited as the
case may be, for each Plan Year, and from which bonus payments to
such Senior Executive are debited.
2. "Bank Balance" means, with respect to each Senior Executive,
a bookkeeping record of the net balance of the amounts credited to
and debited against such Senior Executive's Bonus Bank. The Bank
Balance shall initially be equal to zero.
3. "Extraordinary Bonus Accrual" shall mean the amount of the
Accrued Bonus for any year that exceeds 1.25 times the portion of
the Senior Executive's Base Salary which is represented by the
Target Incentive Award in the event that the beginning Bank Balance
is positive or zero, and .75 times the portion of the Senior
Executive's Base Salary which is represented by the Target Incentive
Award in the event that the beginning Bank Balance is negative.
4. Annual Allocation. Each Senior Executive's Extraordinary
Bonus Accrual or negative Accrued Bonus is credited or debited to
the Bonus Bank maintained for that Senior Executive. Such Annual
Allocation will occur as soon as possible after the conclusion of
each Plan Year. Although a Bonus Bank may, as a result of negative
Accrual Bonuses have a deficit, no Senior Executive shall be
required, at any time, to reimburse his/her Bonus Bank.
5. "Available Balance" means the Bank Balance at the point in
time immediately after the Annual Allocation has been made.
6. "Payout Percentage" means the percentage of the Available
Balance that may be paid out in cash to the Participant. The Payout
Percentage will equal 33%.
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7. "Bank Payout" means the amount of the Available Balance that
may be paid out in cash to the Senior Executive for each Plan Year.
The Bank Payout is calculated as follows:
Bank Payout = Available Balance x Payout Percentage
The Bank Payout is subtracted from the Bank Balance.
8. Treatment of Available Balance Upon Termination
a) Resignation or Termination With Cause. Senior
Executives leaving voluntarily to accept employment elsewhere
(including self-employment) or who are terminated with cause
will forfeit their Available Balance.
b) Retirement, Death, Disability or Termination Without
Cause. In the event of a Senior Executive's normal or early
retirement under the Company's retirement plan, death,
disability, or termination without cause, the Available
Balance, less amounts required by law to be withheld for
income tax and employment tax purposes, shall be paid to the
Senior Executive on or before the end of the second month
following the end of the Plan Year in which the termination
for one of such events occurred.
c) For purposes of this Plan "cause" shall mean:
(i) any act or acts of the Participant constituting
a felony under the laws of the United States,
any state thereof or any foreign jurisdiction;
(ii) any material breach by the Participant of any
employment agreement with the Company or the
policies of the Company or the willful and
persistent (after written notice to the
Participant) failure or refusal of the
Participant to comply with any lawful directives
of the Board;
(iii) a course of conduct amounting to gross neglect,
willful misconduct or dishonesty; or
(iv) any misappropriation of material property of
the Company by the Participant or any
misappropriation of a corporate or business
opportunity of the Company by the Participant.
IX. Administrative Provisions
A. Amendments. The Board of Directors of the Company shall have
the right to modify or amend this Plan from time to time, or suspend
it or terminate it entirely; provided that no such modification,
amendment, suspension, or termination may, without the consent of
any affected participants (or beneficiaries of such participants in
the event of death), reduce the rights of any such participants (or
beneficiaries, as applicable) to a payment or distribution already
earned under Plan terms in effect prior to such change.
B. Interpretation of Plan. Any decision of the Committee with
respect to any issues concerning individuals selected for awards,
the amount, terms, form and time of payment of awards, and
interpretation of any Plan guideline, definition, or requirement
shall be final and binding.
C. Effect of Award on Other Employee Benefits. By acceptance of a
bonus award, each recipient agrees that such award is special
additional compensation and that it will not affect any
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employee benefit, e.g., life insurance, etc., in which the
recipient participates, except as provided in paragraph D. below.
D. Retirement Programs. Awards made under this Plan shall be
included in the employee's compensation for purposes of the Company
Retirement Plans and Savings Plan.
E. Right to Continued Employment; Additional Awards. The receipt
of a bonus award shall not give the recipient any right to continued
employment, and the right and power to dismiss any employee is
specifically reserved to the Company. In addition, the receipt of a
bonus award with respect to any Plan Year shall not entitle the
recipient to an award with respect to any subsequent Plan Year.
F. Adjustments to Performance Goals. When a performance goal is
based on Economic Value Added or other quantifiable financial or
accounting measure, it may be necessary to exclude significant
nonbudgeted or noncontrollable gains or losses from actual financial
results in order to properly measure performance. The Committee will
decide those items that shall be considered in adjusting actual
results. For example, some types of items that may be considered for
exclusion are:
(1) Any gains or losses which will be treated as
extraordinary in the Company's financial statements.
(2) Profits or losses of any entities acquired by the
Company during the Plan Year, assuming they were not included
in the budget and/or the goal.
(3) Material gains or losses not in the budget and/or the
goal which are of a nonrecurring nature and are not considered
to be in the ordinary course of business. Some of these would
be as follows:
(a) Gains or losses from the sale or disposal of real
estate or property.
(b) Gains resulting from insurance recoveries when such
gains relate to claims filed in prior years.
(c) Losses resulting from natural catastrophes, when the
cause of the catastrophe is beyond the control of the
Company and did not result from any failure or negligence
on the Company's part.
G. Vesting. All amounts due but unpaid to any Participant under
this Plan shall vest, subject to the terms of this EVA Plan, upon
actual termination of employment of the Participant.
X. Miscellaneous
A. Indemnification. Each person who is or who shall have been a
member of the Committee or of the Board, or who is or shall have
been an employee of the Company, shall not be liable for, and shall
be indemnified and held harmless by the Company from any loss, cost,
liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with any claim, action, suit,
or proceeding to which he or she may be a party by reason of any
action taken or failure to act under this Plan. The foregoing right
of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the
Company's Articles of Incorporation or Bylaws, as a matter of
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law, or otherwise, or any power that the Company may have to
indemnify them or hold them harmless.
B. Expenses of the Plan. The expenses of administering this Plan
shall be borne by the Company.
C. Withholding Taxes. The Company shall have the right to deduct
from all payments under this Plan any Federal or state taxes
required by law to be withheld with respect to such payments.
D. Governing Law. This Plan shall be construed in accordance with
and governed by the laws of the State of Wisconsin.
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