1
Exhibit 10.36
[ALLEGHENY TECHNOLOGIES LOGO]
THE ANNUAL INCENTIVE PLAN
FOR YEAR 2001
2
CONTENTS PAGE
- -------- ----
At a Glance 1
What is the Annual Incentive Plan? 1
Who is Eligible for This Plan? 1
How Does the Annual Incentive Plan Work? 1
Calculation of the Annual Incentive Plan Award 2
Target Bonus Percentage 2
Performance Goals and the Target Bonus Percentage 2
Financial Performance Goals 3
Safety Improvement Performance Goals 4
Other Individual Performance Goals 4
How the AIP Incentive Award is Calculated When All Goals Are Achieved 5
How the AIP Incentive Award is Calculated for Other Achievement Levels 6
o Maximums and Minimums 6
o Formulas for Weighting Performance 7
Putting it Together - Two Examples 8
Additional Guidelines for the Annual Incentive Plan 12
Discretionary Adjustments 12
Some Special Circumstances 12
Making Payments 13
Administration Details 13
3
AT A GLANCE
WHAT IS THE ANNUAL INCENTIVE PLAN?
The Annual Incentive Plan (the "AIP" or the "Plan") provides key managers of
Allegheny Technologies Incorporated ("Allegheny Technologies" or the "Company")
and its operating companies with the opportunity to earn an incentive award when
certain pre-established goals are met at the corporate and operating company
levels and at the individual level.
WHO IS ELIGIBLE FOR THIS PLAN?
Generally, key managers who have a significant impact on the company's
operations will be eligible to participate in the Plan. Individuals eligible for
participation are determined annually, based on recommendations of the operating
company presidents, if applicable, and the Company's chief executive officer,
with the approval of the Personnel and Compensation Committee of the Company's
Board of Directors (the "Committee").
HOW DOES THE ANNUAL INCENTIVE PLAN WORK?
Under the Plan, key managers may earn an incentive award based on a percentage
of their base salary, depending on the extent to which pre-established
corporate, operating company and individual performance goals have been
achieved.
o For purposes of the Plan, base salary is generally the manager's annual
base salary rate as of the end of the year, excluding any commission or
other incentive pay. For some special circumstances affecting the amount of
base salary used in the Plan, see page 12.
o A target bonus percentage is used in calculating the incentive award. It is
explained on the next page. Each participating manager will have a target
bonus percentage.
o The target bonus percentage will be adjusted (upward or downward) based on
the extent to which various performance goals are achieved.
Under the Plan, 80% of the target bonus percentage will be adjusted based on
corporate and operating company financial performance, 10% of the target bonus
percentage will be adjusted based on safety improvement, and 10% of the target
bonus percentage will be adjusted based on other individual performance.
Incentive award payments will generally be distributed in cash after the
year-end audit is complete.
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CALCULATION OF THE ANNUAL INCENTIVE PLAN AWARD
TARGET BONUS PERCENTAGE
The Plan establishes an incentive opportunity for each Plan participant,
calculated as a percentage of the manager's base salary. Each participant will
be provided with an initial percentage, referred to as a "target bonus
percentage."
Generally, the target bonus percentage is the percentage of base salary that can
be earned as an award under the Plan if 100% of the various performance goals
are achieved. For 2001, if 100% of the performance goals are achieved, 100% of
the target bonus percentage can be earned.
If there is a change in the key manager's job position during the year that
changes the manager's target bonus percentage, the target bonus percentage used
in the award calculation will be determined as follows:
o If the individual has at least six months of service in the new position,
the newly adjusted target bonus percentage will be used in calculating
the individual's award for the full year.
o If the individual has less than six months of service in the new position,
the individual's award for the year will be calculated on a pro-rata basis
using the two different target bonus percentages weighted by length of
service in each position during the year.
Target bonus percentages, performance goals and performance achievements will be
communicated to each eligible participant. The Committee may change the goals
and objectives for the Plan at any time.
PERFORMANCE GOALS AND THE TARGET BONUS PERCENTAGE
An AIP award is based on the extent to which specified, preestablished
performance objectives are achieved. For 2001, AIP awards will be based on the
extent to which:
o Allegheny Technologies and its operating companies achieve specified levels
of Operating Profit and Managed Working Capital - the financial goals,
o Allegheny Technologies and its operating companies achieve specified levels
of improvements in safety performance - the safety goals, and
o The participant achieves his or her own other individual performance
objectives.
At the end of the year, the Company will measure actual performance against each
of the preestablished objectives.
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As a first step in the calculation, the Company will determine the extent to
which pre-established financial performance goals, specifically levels of
Operating Profit and Managed Working Capital for 2001, have been achieved. The
results achieved will be weighted under a formula, which in turn will impact 80%
of the target bonus percentage. The formulas for weighting financial
achievements are described on pages 5 to 7.
For the remaining 20% of the target bonus percentage, the Company will review
actual safety improvements and other individual performance against
pre-established objectives:
o Since 10% of the target bonus percentage is based on safety improvements,
the participant can earn up to 10% (or more) of the target bonus percentage
based on the extent to which safety objectives are achieved. The formulas
for weighting safety achievements are the same as for weighting financial
achievements and are described on pages 5 to 7.
o Since 10% of the target bonus percentage is based on other individual
performance, the participant can earn up to 10% (or more) of the target
bonus percentage based on the extent to which other individual performance
objectives are achieved. The formulas for weighting other individual
performance achievements are the same as for weighting financial
achievements and are described on pages 5 to 7.
The weighted percentages attributable to each performance goal as noted above,
then will be added together, and that sum will be multiplied by: (1) the
individual's target bonus percentage, times (2) the individual's annual base
salary, to produce the amount of the incentive award for 2001. Note that
potential adjustments are described on page 12.
FINANCIAL PERFORMANCE GOALS
The financial performance goals for 2001 consist of two measures: Operating
Profit ("OP"), and Managed Working Capital ("MWC"), which together comprise 80%
of the target bonus percentage.
For operating company managers, note that 60% of the financial performance
goals' overall 80% weight will be based on the performance of the participant's
operating company, and 20% of the financial performance goals' overall 80%
weight will be based on corporate level performance. For corporate staff
employees, financial performance will be measured completely at the corporate
level.
More specifically, the financial performance measures comprising 80% of the
target bonus percentage will be as follows:
o For managers at the operating companies:
-- OP achievements at the participant's operating company: 45%
-- MWC achievements at the participant's operating company: 15%
-- OP achievements at Allegheny Technologies: 12%
-- MWC achievements at Allegheny Technologies: 8%
---
80%
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o For corporate staff employees:
-- OP achievements at the corporate level: 60%
-- MWC achievements at the corporate level: 20%
---
80%
Each year, financial performance goals will be set at the corporate and
operating company level based on the applicable business plan. With the
concurrence of the Company's chief executive officer and the Committee,
financial performance goals may be further weighted within a particular
operating company in accordance with its separate business units ("SBU's") for
key managers of those SBU's.
SAFETY IMPROVEMENT PERFORMANCE GOALS
10% of the target bonus percentage is based on the extent to which
pre-established levels of safety improvement are achieved. The Plan will
principally rely upon the percentage improvement in two metrics to measure
safety improvement: OSHA Total Recordable Incident Rate and the Lost Workday
Case Rate. Each safety metric will comprise 5% of the target bonus percentage.
Each of the safety achievement metrics - the OSHA Total Recordable Incident Rate
and the Lost Workday Case Rate - will be independently weighted for 2001 under
the same formulas as the financial performance goals.
Consistent with the overall business plan of Allegheny Technologies, the
pre-established safety goal under the Plan for 2001 is a 50% improvement vs.
1999.
Safety goals for individuals at specific sites can be adjusted to the needs of
their particular location as long as the collective goal for each operating
company is a 50% improvement in these safety metrics vs. 1999.
For corporate staff employees, the AIP award percentage for safety improvement
is based on achieving a 50% safety improvement on the weighted average of all
ATI operating companies vs. 1999.
OTHER INDIVIDUAL PERFORMANCE GOALS
10% of the target bonus percentage is based on the extent to which
pre-established individual performance goals are achieved. Each year, managers
will establish other individual performance goals with their immediate
supervisors.
The achievement of Other Individual Performance goals will be weighted under the
same formulas as the financial performance goals.
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HOW THE AIP INCENTIVE AWARD IS CALCULATED WHEN ALL GOALS ARE ACHIEVED
For the Year 2001, if 100% of the financial performance goals are achieved, then
80% of the target bonus percentage will be credited to the participant:
Goal % Goal Formula Earned % of
Goals of Target Achieved % Weighting Target *
----- --------- ---------- --------- --------
FINANCIAL
OP - Operating Company 45% 100% 100% 45%
MWC - Operating Co. 15% 100% 100% 15%
OP - Corporate 12% 100% 100% 12%
MWC - Corporate 8% 100% 100% 8%
--- ---
Financial Total 80% 80%
*Earned % of Target = Goal % of Target X Formula Weighting
Next, if 100% of the safety improvement goals are achieved, then an additional
10% of the target bonus percentage will be credited to the participant:
Goal % Goal Formula Earned % of
Goals of Target Achieved % Weighting Target *
----- --------- ---------- --------- --------
SAFETY
Total Recordable Incident Rate 5% 100% 100% 5%
Lost Workday Case Rate 5% 100% 100% 5%
--- ---
Safety Total 10% 10%
Finally, if 100% of the individual performance goals are achieved, then an
additional 10% of the target bonus percentage will be credited to the
participant:
Goal % Goal Formula Earned % of
Goals of Target Achieved % Weighting Target *
----- --------- ---------- --------- --------
INDIVIDUAL GOALS 10% 100% 100% 10%
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The sum of weighting the financial performance, safety performance, and
individual performance produces the earned percentages of target as follows:
Financial Performance Goals 80%
Safety Improvement Goals 10%
Individual Performance Goals 10%
---
Total Earned Percentage of Target 100%
In this example, assume that the operating company manager's target bonus
percentage is 20%.
The target bonus percentage of 20% is then multiplied by 100% to produce an
adjusted bonus percentage equal to 20% of base salary:
Earned Percentage of Target 100%
X Target Bonus Percent 20%
---
Equals Percentage of Salary for 20%
Incentive Award
The sections below discuss the impact of achieving more or less than 100% of
various goals, and they also discuss the impact of other potential adjustments.
HOW THE AIP INCENTIVE AWARD IS CALCULATED FOR OTHER ACHIEVEMENT LEVELS
The following section describes maximum and minimum achievement levels, and the
formulas used to weight achievements at all levels.
Maximums and Minimums
o Generally, the maximum percentage used in adjusting or weighting
performance achievement is 200%, and the overall maximum incentive award
that an individual can earn under the weighting formula is 200% of his or
her target bonus percentage.
o Where 75% of a financial, safety or other individual performance goal is
achieved, only 25% of that goal's share will be allocated to his or her
target bonus percentage.
o Where less than 75% of a financial, safety or other individual performance
goal is achieved, no amount of that goal will be allocated to his or her
target bonus percentage.
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Formulas for Weighting Performance
The following formulas will be used to weight financial, safety, or other
individual performance under the Plan:
Formula A:
If 75% to and including 100% of a goal is achieved, the Percent Allocated
for that goal equals the Percentage of Goal Achieved (i.e. Actual
Performance divided by Planned Performance) minus 75% (which is the
threshold level of performance) times 3, plus 25%.
Formula A examples:
1. Assumption: Percentage of Goal Achieved = 90%
Weighted Percent for that Goal = [(90% - 75%) x 3] + 25%
= [15% x 3] + 25%
= 45% + 25%
Percent Allocated for Goal = 70%
2. Assumption: Percentage of Goal Achieved = 85%
Weighted Percent for that Goal = [(85% - 75%) x 3] + 25%
= [10% x 3] + 25%
= 30% + 25%
Percent Allocated for Goal = 55%
Formula B:
If over 100% of goal is achieved, the Percent Allocated for that goal
equals the Percentage of Goal Achieved (i.e. Actual Performance divided by
Planned Performance) minus 100% times 5, plus 100%. In all cases, the
maximum Percent Earned of 200% results when 120% or more of that goal is
achieved.
Formula B examples:
1. Assumption: Percentage of Goal Achieved = 130%
Weighted Percent for that Goal = [(130% - 100%) x 5] + 100%
= [30% x 5] + 100%
= 150% + 100%
Percent Allocated for Goal = 250%
However, the maximum target bonus is capped at 200%.
2. Assumption: Percentage of Goal Achieved = 105%
Weighted Percent for that Goal = [(105% - 100%) x 5] + 100%
= [5% x 5] + 100%
= 25% + 100%
Percent Allocated for Goal = 125%
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PUTTING IT TOGETHER
Here are two examples of how an incentive award might be determined under the
Plan.
Example One:
Assume that the operating company manager's annual salary is $80,000 and that
the manager's target bonus percentage is 20% of base salary. Also, assume actual
performance is:
Financial goals
o 100% of planned Operating Profit, or OP, goals at the operating
company
o 105% of planned Managed Working Capital, or MWC, goals at the
operating company
o 105% of planned Operating Profit, or OP, goals at the corporate level
o 130% of planned Managed Working Capital, or MWC, goals at the
corporate level
Safety goals
o 90% of Recordable Incident Rate (improvement of 45% in metric since
1999)
o 100% of Lost Workday Case Rate (improvement of 50% in metric since
1999)
Other Individual Performance goals
o 90% of planned Individual Performance goals are met
The first step in this example is to calculate the impact of the actual
financial performance on 80% of the target bonus percentage.
Formula A on page 7 would be used for weighting OP at the operating company
level, because 100% of that goal was achieved. Formula B on page 7 would be used
for weighting the other financial metrics, because more than 100% of those goals
were achieved. Following the formulas, the 80% share of the target bonus
percentage is adjusted to 94.75%:
Goal % Goal Formula Earned % of
Goals of Target Achieved % Weighting Target *
----- --------- ---------- --------- --------
OP - Operating Company 45% 100% 100% (A) 45.00%
MWC - Operating Co. 15% 105% 125% (B) 18.75%
OP - Corporate 12% 105% 125% (B) 15.00%
MWC - Corporate 8% 130% 200% (B) 16.00%
--- -----
Goals Total 80% 94.75%
*Earned % of Target = Goal % of Target X Formula Weighting
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The next step in this example is to calculate the impact of the actual safety
performance on 10% of the target bonus percentage.
Accordingly Formula A on page 7 would be used for weighting the safety
improvement metrics, because 100% or less of those goals were achieved.
Following the formulas, the 10% safety performance share of the target bonus
percentage is adjusted to 8.5%:
Goal % Goal Formula Earned % of
Goals of Target Achieved % Weighting Target *
----- --------- ---------- --------- --------
Recordable Incident Rate 5% 90% 70% (A) 3.5%
Lost Workday Case Rate 5% 100% 100% (B) 5.0%
----
Goals Total 10% 8.5%
The last step in this example is to calculate the impact of the actual
individual performance on 10% of the target bonus percentage. Formula A on page
7 would be used for individual performance, because less than 100% of those
goals were achieved. Following the formulas, the 10% individual performance
share of the target bonus percentage is adjusted to 7%:
Goal % Goal Formula Earned % of
Goals of Target Achieved % Weighting Target *
----- --------- ---------- --------- --------
Individual Performance 10% 90% 70% (A) 7%
The sum of the financial performance, safety performance, and individual
performance is:
Financial Performance Goals 94.75%
Safety Improvement Goals 8.50%
Individual Performance Goals 7.00%
-----
Total Earned Percentage of Target 110.25%
The target bonus percentage of 20% is multiplied by 110.25% to produce an
adjusted bonus percentage equal to 22.05% of base salary:
Earned Percentage of Target 110.25%
X Target Bonus Percent 20%
------
Equals Percentage of Salary for 22.05%
Incentive Award
With this first example, the incentive award would be calculated as 22.05% of
the manager's base salary of $80,000, or $17,640.
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Example Two:
Assume that the operating company manager's annual salary is again $80,000 and
that the manager's target bonus percentage is 20% of base salary but that actual
achievements are:
Financial goals
o 90% of planned Operating Profit, or OP, goals at the operating company
o 100% of planned Managed Working Capital, or MWC, goals at the
operating company
o 75% of planned Operating Profit, or OP, goals at the corporate level
o 105% of planned Managed Working Capital, or MWC, goals at the
corporate level
Safety goals
o 100% of Recordable Incident Rate (improvement of 50% in metric since
1999)
o 160% of Lost Workday Case Rate (improvement of 80% in metric since
1999)
Other Individual Performance goals
o 105% of planned Individual Performance goals are met
The first step in this example is to calculate the impact of the actual
financial performance on 80% of the target bonus percentage.
Formula A on page 7 would be used for weighting OP and MWC at the operating
company and OP at the corporate level, because 100% or less of those goals were
achieved. Formula B on page 7 would be used for weighting the MWC goal at the
corporate level, because over 100% of that goal was achieved. Following the
formulas, the 80% share of the target bonus percentage is adjusted to 59.50%:
Goal % Goal Formula Earned % of
Goals of Target Achieved % Weighting Target *
----- --------- ---------- --------- --------
OP - Operating Company 45% 90% 70% (A) 31.50%
MWC - Operating Co. 15% 100% 100% (A) 15.00%
OP - Corporate 12% 75% 25% (A) 3.00%
MWC - Corporate 8% 105% 125% (B) 10.00%
-- -----
Goals Total 80% 59.50%
*Earned % of Target = Goal % of Target X Formula Weighting
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The next step in this example is to calculate the impact of the actual safety
performance on 10% of the target bonus percentage.
Accordingly Formula A on page 7 would be used for weighting the Total Recordable
Incident Rate or TRIR, because 100% or less of those goals were achieved.
Formula B will be used for weighting Lost Workday Case Rate or LWCR performance
achievements as they are greater than 100% of planned improvement.
Following the formulas, the 10% safety performance share of the target bonus
percentage is adjusted to 15%:
Goal % Goal Formula Earned % of
Goals of Target Achieved % Weighting Target *
----- --------- ---------- --------- --------
Recordable Incident Rate 5% 100% 100% (A) 5%
Lost Workday Case Rate 5% 160% 200% (B) 10%
-- ---
Goals Total 10% 15%
The last step in this example is to calculate the impact of the actual
individual performance on 10% of the target bonus percentage. Formula B on page
7 would be used for individual performance, because over 100% of those goals
were achieved.
Following the formulas, the 10% individual performance share of the target bonus
percentage is adjusted 12.5%:
Goal % Goal Formula Earned % of
Goals of Target Achieved % Weighting Target *
----- --------- ---------- --------- --------
Individual Performance 10% 105% 125% (B) 12.5%
The sum of the financial performance, safety performance, and individual
performance is:
Financial Performance Goals 59.50%
Safety Improvement Goals 15.00%
Individual Performance Goals 12.50%
------
Total Earned Percentage of Target 87.00%
The target bonus percentage of 20% is multiplied by 87.00% to produce an
adjusted bonus percentage equal to 17.40% of base salary:
Earned Percentage of Target 87.00%
X Target Bonus Percent 20%
-----
Equals Percentage of Salary for 17.40%
Incentive Award
With this first example, the incentive award would be calculated as 17.40% of
the manager's base salary of $80,000, or $13,920.
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ADDITIONAL GUIDELINES FOR THE ANNUAL INCENTIVE PLAN
In any year, a minimum Operating Profit (OP) of 75% of plan must be achieved for
annual incentives to be paid regardless of other factors.
The total of the incentive awards in any given year cannot exceed 5% of the
Operating Profit of Allegheny Technologies or the operating company, as the case
may be. If, in any year, awards exceed 5% of Operating Profit, awards of the
affected company will be reduced to eliminate the excess.
DISCRETIONARY ADJUSTMENTS
In some cases, the Plan allows for discretionary adjustments of up to +20% or
- -20% of an individual's calculated award. However, the sum of discretionary
adjustments for all eligible managers of the affected company cannot exceed +5%
of the aggregate calculated awards for that company.
SOME SPECIAL CIRCUMSTANCES
The above formulas generally determine the amount of the incentive award for the
year. Other factors that may affect the actual award follow:
o If a manager leaves the company due to retirement, death, or disability, an
award will be calculated based on the actual base salary earned during the
year in which the manager left--so long as the manager worked at least six
months of that year.
o If a manager leaves the company before the end of the plan year for any
other reason, the manager will not receive a bonus award for that year.
o If a manager voluntarily leaves the company after the end of the year but
before the award is paid, the manager would receive any bonus due unless
the employment is terminated for cause. If employment is terminated for
cause, the manager would not be entitled to receive an award under the
Plan.
o Managers who are hired mid-year may earn a pro-rated award for that year,
based on the salary earned during that year. However, managers with less
than two months service in a plan year (i.e. hired after October 31) would
not be eligible for an award for that year.
o If the manager received an adjustment in base salary due to a change in job
position (i.e. other than a merit increase), the manager's base salary for
plan purposes will be the sum of (1) the product of the number of months
prior to the adjustment times the rate of monthly base salary immediately
prior to the adjustment, and (2) the product of the number of months after
the adjustment times the rate of monthly base salary as of the end of the
Plan Year.
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MAKING PAYMENTS
All incentive award payments will generally be paid in cash, less applicable
withholding taxes, after the year-end audit is complete. This is expected to
occur by no later than March 15.
ADMINISTRATION DETAILS
This summary relates to the Annual Incentive Plan (AIP) of Allegheny
Technologies Incorporated and its subsidiaries. The Plan is administered by the
Committee, which has full authority to:
o Interpret the Plan;
o Designate eligible participants and categories of eligible participants;
o Set the terms and conditions of incentive awards; and
o Establish and modify administrative rules for the Plan.
Plan participants may obtain additional information about the plan and the
Committee from:
Senior Vice President,
General Counsel and Secretary
Allegheny Technologies Incorporated
1000 Six PPG Place
Pittsburgh PA 15222 5479
Phone: 412-394-2836 Fax: 412-394-2837
The Plan will remain in effect until terminated by the Committee. The Committee
may also amend the plan at its discretion.
The Plan is not subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA) and is not "qualified" under Section 401(a) of the
Internal Revenue Code.
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