EXHIBIT 10.28
[ALLEGHENY TECHNOLOGIES LOGO]
THE ANNUAL INCENTIVE PLAN
FOR YEAR 2002
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
Individual Performance Goals 3
How the AIP Incentive Award is Calculated When All Goals Are Achieved 4
How the AIP Incentive Award is Calculated for Other Achievement Levels 5
Maximums and Minimums 5
Formulas for Weighting Performance 5
Putting it Together - Two Examples 6
Additional Guidelines for the Annual Incentive Plan 9
Discretionary Adjustments 9
Some Special Circumstances 9
Making Payments 10
Administration Details 10
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.
- - 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 9.
- - 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.
- - 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 or operating company financial performance, and 20% of the target
bonus percentage will be adjusted based on individual performance.
Incentive award payments will generally be distributed in cash after the
year-end audit is complete.
Page 1
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 2002, 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:
- - 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.
- - 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 2002, AIP awards will be based on the
extent to which:
- - Allegheny Technologies and its operating companies achieve specified levels
of Operating Profit; Inventory Reductions, measured as improvement in
inventory turns; and Cost Reductions, collectively the financial goals, and
- - The participant achieves his or her own individual performance objectives.
At the end of the year, the Company will measure actual performance against each
of the preestablished objectives.
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, Inventory Reductions, and Cost Reductions for 2002 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 6.
Page 2
For the remaining 20% of the target bonus percentage, the Company will review
individual performance against pre-established objectives. The formulas for
weighting individual performance achievements are the same as for weighting
financial achievements and are described on pages 5 to 6.
The weighted percentages attributable to each performance goal as noted above,
then will be added together, and that sum will be multiplied by: (i) the
individual's target bonus percentage, times (ii) the individual's annual base
salary, to produce the amount of the incentive award for 2002. Note that
potential adjustments are described on page 9.
FINANCIAL PERFORMANCE GOALS
The financial performance goals for 2002 consist of three measures: Operating
Profit ("OP"), Inventory Reductions, measured as improvement in inventory turns
("IR"), and Cost Reductions ("CR"), which together comprise 80% of the target
bonus percentage.
For operating company managers, note that 100% of the financial performance
goals' overall 80% weight will be based on the performance of the participant's
operating company. For corporate staff managers, 100% of the financial
performance goals' overall 80% weight will be based upon total ATI performance.
More specifically, the financial performance measures comprising 80% of the
target bonus percentage will be as follows:
- OP achievements 25%
- IR achievements 30%
- CR achievements 25%
---
80%
Each year, financial performance goals will be set at the operating company and
corporate level based on the applicable business plan, or other specific goals
as determined by the Committee. 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.
INDIVIDUAL PERFORMANCE GOALS
20% of the target bonus percentage is based on the extent to which
pre-established individual performance goals are achieved. Each year, managers
will establish individual performance goals with their immediate supervisors.
The achievement of Individual Performance goals will be weighted under the same
formulas as the financial performance goals.
Page 3
HOW THE AIP INCENTIVE AWARD IS CALCULATED WHEN ALL GOALS ARE ACHIEVED
For the Year 2002, if 100% of the financial performance goals are achieved, then
80% of the target bonus percentage will be credited to the participant:
Goal % of Goal Formula Earned % of
Goals Target Achieved% Weighting Target*
----- ------ -------- --------- ------
FINANCIAL
Operating Profit ("OP") 25% 100% 100% 25%
Inventory Reductions ("IR") 30% 100% 100% 30%
Cost Reductions ("CR") 25% 100% 100% 25%
--- ---
Financial Total 80% 80%
*Earned % of Target = Goal % of Target X Formula Weighting
Then, if 100% of the individual performance goals are achieved, an additional
20% of the target bonus percentage will be credited to the participant:
Goal % of Goal Formula Earned % of
Goals Target Achieved % Weighting Target*
----- ------ -------- --------- -------
INDIVIDUAL GOALS 20% 100% 100% 20%
*Earned % of Target = Goal % of Target X Formula Weighting
The sum of weighting the financial performance and individual performance
produces the earned percentages of target as follows:
Financial Performance Goals 80%
Individual Performance Goals 20%
---
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 a 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.
Page 4
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
- - Generally, the maximum percentage used in adjusting or weighting performance
achievement is 120%, and the overall maximum incentive award that an
individual can earn under the weighting formula is 200% of his or her target
bonus percentage.
- - Where 75% of a financial or individual performance goal is achieved, only
25% of that goal's share will be allocated to his or her target bonus
percentage.
- - Where less than 75% of a financial or individual performance goal is
achieved, no amount of that goal will be allocated to his or her target
bonus percentage.
FORMULAS FOR WEIGHTING PERFORMANCE
The following formulas will be used to weight financial or 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%
Page 5
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%
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 goal achievements
- 120% of planned Operating Profit, or OP, goals at the operating company
- 90% of planned Inventory Reductions, or IR, goals at the operating company
- 100% of planned Cost Reductions, or CR goals at the operating company
Individual Performance goal achievements
- 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 B above would be used for weighting OP at the operating company, because
more than 100% of that goal was achieved. Formula A on page 5 would be used for
weighting the other financial metrics, because 100% or less of those goals were
achieved. Under the formulas, the 80% share of the target bonus percentage is
adjusted to 96.00% as follows:
Page 6
Goal % of Goal Formula Earned % of
Goals Target Achieved % Weighting Target*
----- ------ ---------- --------- ------
OP - Operating Company 25% 120% 200% (B) 50.00%
IR - Operating Co. 30% 90% 70% (A) 21.00%
CR - Operating Co 25% 100% 100% (A) 25.00%
--- ------
Goals Total 80% 96.00%
*Earned % of Target = Goal % of Target X Formula Weighting
The next step in this example is to calculate the impact of the actual
individual performance on 20% of the target bonus percentage. Formula A on page
5 would be used for individual performance, because less than 100% of those
goals were achieved. Following the formula, the 20% individual performance share
of the target bonus percentage is adjusted to 14%:
Goal % of Goal Formula Earned % of
Goals Target Achieved % Weighting Target*
----- ------ ---------- --------- ------
Individual Performance 20% 90% 70% (A) 14%
*Earned % of Target = Goal % of Target X Formula Weighting
The sum of the financial performance and individual performance is:
Financial Performance Goals 96.00%
Individual Performance Goals 14.00%
------
Total Earned Percentage of Target 110.00%
The target bonus percentage of 20% is multiplied by 110.00% to produce an
adjusted bonus percentage equal to 22.00% of base salary:
Earned Percentage of Target 110.00%
X Target Bonus Percent 20%
---
Equals Percentage of Salary for 22.00%
Incentive Award
With this first example, the incentive award would be calculated as 22.00% of
the manager's base salary of $80,000, or $17,600.
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
- 90% of planned Operating Profit, or OP, goals at the operating company
- 100% of planned Inventory Reductions, or IR, goals at the operating company
- 95% of planned Cost Reductions, or CR goals at the operating company
Page 7
Individual Performance goals
- 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 5 would be used for weighting all of the financial goals,
because 100% or less of those goals were achieved. Under the formula, the 80%
share of the target bonus percentage is adjusted to 68.75% as follows:
Goal % of Goal Formula Earned % of
Goals Target Achieved % Weighting Target*
----- ------ ---------- --------- ------
OP - Operating Company 25% 90% 70% (A) 17.50%
IR - Operating Co. 30% 100% 100% (A) 30.00%
CR - Operating Co 25% 95% 85% (A) 21.25%
--- ------
Goals Total 80% 68.75%
*Earned % of Target = Goal % of Target X Formula Weighting
The next step in this example is to calculate the impact of the actual
individual performance on 20% of the target bonus percentage. Formula B on page
6 would be used for individual performance, because over 100% of those goals
were achieved. Following the formula, the 20% individual performance share of
the target bonus percentage is adjusted 25.00%:
Goal % of Goal Formula Earned % of
Goals Target Achieved % Weighting Target*
----- ------ ---------- --------- -------
Individual Performance 20% 105% 125% (B) 25.00%
*Earned % of Target = Goal % of Target X Formula Weighting
The sum of the financial performance and individual performance is:
Financial Performance Goals 68.75%
Individual Performance Goals 25.00%
------
Total Earned Percentage of Target 93.75%
The target bonus percentage of 20% is multiplied by 93.75% to produce an
adjusted bonus percentage equal to 18.75% of base salary:
Earned Percentage of Target 93.75%
X Target Bonus Percent 20%
---
Equals Percentage of Salary for 18.75%
Incentive Award
With this second example, the incentive award would be calculated as 18.75% of
the manager's base salary of $80,000, or $15,000.
Page 8
ADDITIONAL GUIDELINES FOR THE ANNUAL INCENTIVE PLAN
In any year, no annual incentive will be paid if the overall weighted
achievement of all goals for an individual is less than 75%.
The total of the incentive awards in any given year cannot exceed the greater
of: (i) 5% of the Operating Profit of Allegheny Technologies or the operating
company, as the case may be, or (ii) 5% of the operating cash flow of Allegheny
Technologies or the operating company. If, in any year, awards exceed the
greater of: (i) 5% of the Operating Profit, or (ii) 5% of the operating cash
flow, 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:
- - 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.
- - 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.
- - 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.
- - 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.
- - 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: (i) the product of the number of months
prior to the adjustment times the rate of monthly base salary immediately
prior to the adjustment, and (ii) 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.
Page 9
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:
- - Interpret the Plan;
- - Designate eligible participants and categories of eligible participants;
- - Set the terms and conditions of incentive awards; and
- - 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.
Page 10