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EXHIBIT 10.5
P.A.M. TRANSPORTATION SERVICES, INC.
INCENTIVE COMPENSATION PLAN
THIS IS THE INCENTIVE COMPENSATION PLAN of P.A.M. Transportation
Services, Inc., a Delaware corporation (the "Company"), under which bonuses may
be granted to certain employees of the Company and its subsidiaries subject to
the limitations, provisions and requirements hereinafter stated. The Plan is
as follows:
1. PURPOSES. The purposes of the P.A.M. Transportation Services, Inc.
Incentive Compensation Plan (the "Plan") are as follows:
(a) To encourage each participant in the Plan to make exceptional
contributions to further the growth, success and profits of the Company.
(b) To foster teamwork and personal involvement in the Company's
success.
(c) To provide the Company with an objective method of recognizing
and rewarding certain employees who have been or will be given substantial
responsibility for the direction and management of the Company.
2. ADMINISTRATION OF PLAN. This Plan shall be administered by the
Compensation and Stock Option Committee of the Company's Board of Directors
(the "Committee"). This Committee shall interpret the Plan in a manner
consistent with its purposes; and, subject to the terms of the Plan, will have
discretion to determine who shall participate in the Plan and the amounts of
any incentive compensation to be awarded pursuant to the Plan. All actions and
determinations of the Committee taken in connection with the Plan, including
the awarding of any incentive compensation, shall be final and conclusive. The
Committee may adopt rules from time to time for carrying out the Plan.
3. ELIGIBLE EMPLOYEES. Upon the adoption of the Plan and at or near
the start of each succeeding calendar year, all full-time employees of the
Company and its subsidiaries, excluding those employees who are eligible to
participate in any other cash bonus plan of the Company or any subsidiary,
shall be eligible to participate in the Plan during such calendar year.
Additionally, the Committee may, in its discretion, allow a recently promoted
or hired officer or employee to participate in the Plan commencing with the
date of his promotion or his employment, as the case may be.
In order to be considered an "Eligible Employee" for purposes of the
Plan and except as provided in Section 4(d), each participant must be employed
without interruption during the applicable calendar year from January 1 through
December 31 and furthermore must be employed at the time that the bonus is
actually paid pursuant to Section 4(c). In the event that the participant's
employment is terminated, by reason of (i) discharge with or without cause or
(ii) voluntary termination by the participant, at any time during the calendar
year, such terminated participant shall not be entitled to any bonus for such
calendar year.
There shall be two classes of Eligible Employees as follows:
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(a) Class I shall include the chief executive officer, the chief
operating officer and the chief financial officer, respectively, of the
Company, and such additional officers and other key employees of the Company or
its subsidiaries as may be selected by the Committee or by the Board of
Directors to be eligible for participation in the Plan under the Class I
category at the beginning of any applicable calendar year.
(b) Class II shall include all Eligible Employees under the Plan
other than those employees included in Class I.
4. MECHANICS OF THE PLAN. The Plan will award participants for
above-average performance, measured by the Company's operating ratio, subject
to the following rules:
(a) Annual Plan. This Plan is an "annual plan" and incentive
awards shall be based on audited results of operations for each respective
fiscal year ending December 31.
(b) Incentive Awards. The Board of Directors or Committee shall
establish the targeted operating ratios and corresponding bonus percentages for
each calendar year at or near the completion of the audit of the Company's
financial statements for the previous calendar year; provided, however, that
the targeted operating ratios and bonus percentages for the 1994 calendar year
shall be established by the Board of Directors upon the adoption of this Plan.
Upon adoption by the Board of Directors or Committee, the targeted operating
ratio and bonus percentages for the current calendar year shall be set forth on
a schedule and attached hereto as an exhibit. Under the Plan, each participant
may be awarded a bonus equal to the percentage of his annual base compensation
which corresponds to the Company's operating ratio for that calendar year. For
example, assume a participant has annual base compensation of $50,000 and the
Committee established the following targeted operating ratios and corresponding
bonus percentages for that calendar year:
Operating Ratios Bonus Percentage
---------------- ----------------
85.1% and over 0%
84.1% to 85.0% 5%
83.1% to 84.0% 10%
82.1% to 83.0% 20%
81.1% to 82.0% 25%
80.1% to 81.0% 30%
80.0% or less 40%
If the operating ratio of the Company for the calendar year was 85.5%, the
participant would not be entitled to a bonus. If the operating ratio of the
Company for the calendar year was 80.5%, the participant would be entitled to a
bonus equal to $50,000 x 30% or $15,000.
(c) Payment of Awards. Any bonus awarded hereunder shall be paid
by the Company upon the determination of the operating ratio for such calendar
year by the Company's independent accountants; provided, however, the bonuses
shall be paid no later than ninety (90) days after the end of each calendar
year.
(d) Death or Disability. Notwithstanding anything contained
herein to the contrary, if a participant's employment ceases on account of
death or total disability, as defined in Section 105(d)(4) of the Internal
Revenue Code, such participant shall be entitled to receive a pro-rata portion
of any bonus he otherwise would be awarded. In either event, the participant
shall be entitled to an amount equal to a
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normal bonus award under Section 4(b) multiplied by a fraction the numerator of
which shall be the number of days in the year during which the participant was
participating in the Plan and the denominator of which shall be 365 days. For
example, a participant with annual base compensation of $50,000 dies on July 1
of a calendar year. The Company has an operating ratio of 80.5% for that
calendar year which otherwise would entitle the participant to a bonus of 30%
of his annual base compensation or $15,000. Such participant would be entitled
to a bonus equal to $15,000 x 182/365 or $7,479. All bonus amounts payable to
a deceased or disabled participant shall be paid to such participant or his
personal representative, as the case may be.
(e) Recently Promoted or Hired Employees. In the event the
Committee allows a recently promoted or hired employee to participate in the
Plan, such participant shall be entitled to receive a pro-rata portion of any
bonus he otherwise would be awarded. Such pro-rata bonus shall be the amount
equal to a normal bonus award under Section 4(b) multiplied by a fraction the
numerator of which shall be the number of days in the year during which the
participant was participating in the Plan and the denominator of which shall be
365 days. For example, a participant commences participation in the Plan on
July 1 of a calendar year at annual base compensation of $60,000. The Company
has an operating ratio of 80.0% for that calendar year which otherwise would
entitle the participant to a bonus of 40% of his annual base compensation or
$24,000. Such participant would be entitled to a bonus equal to $24,000 x
183/365 or $12,033.
(f) Applicable Base Annual Compensation. For purposes of
calculating all bonus awards hereunder, whenever the term "annual base
compensation" of a participant is referred to in this Plan it shall mean the
following:
i) With respect to any eligible employee who is compensated
on the basis of a fixed salary, annual base compensation shall be the amount of
such base salary determined at December 31 of each calendar year.
ii) With respect to any eligible employee who is compensated
on the basis of hourly wages, the annual base compensation shall be equal to
the base wage of such eligible employee at December 31 of each calendar year
and then annualized.
(g) Operating Ratio. The "operating ratio" for any calendar year
means operating expenses as a percentage of operating revenues. For purposes
of this Plan, operating revenues shall not include interest income, other non-
operating income or extraordinary items, and operating expenses shall not
include any incentive compensation awarded hereunder, interest expense or
income taxes but shall include loss (gain) on sale of equipment. For purposes
of this Plan, the operating ratio shall be determined to the nearest
one-hundredth of one percent (.01%).
5. NOTICES. The Board of Directors or the Committee shall notify all
employees selected to participate in the Plan as soon as practicable after such
determination has been made. The participants shall be notified of the
targeted operating ratios and corresponding bonus percentages for each calendar
year, and any subsequent modifications thereto, as soon as practicable after
such determinations have been made by the Committee.
6. OTHER BENEFITS. This Plan is intended to provide a method of
rewarding employees for exceptional contributions made by such employees and
any awards hereunder are intended to be in addition to any other benefits which
the Company provides to the participants. The Board of Directors or the
Committee may, but is not obligated to, award one or more of the participants
additional bonuses
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in such amounts and at such times as the Board of Directors or the Committee,
in its sole discretion, shall determine.
7. AMENDMENTS TO PLAN. The Board of Directors or the Committee may
from time to time make such amendments to the Plan as the Board or the
Committee, in its sole discretion, shall deem desirable, including modifying
the targeted operating ratios and the corresponding bonus percentages
established pursuant to Section 4(b) at any time during a calendar year.
8. TERMINATION OF THE PLAN. The Board of Directors may at any time
terminate the Plan. In the event the Plan is terminated, the Company shall not
have any obligation to the participants under the Plan unless the Board of
Directors states that the Company has assumed an obligation. For example,
assume the Plan is terminated on December 15 of a calendar year. No
participant shall have a right to receive, and the Company shall not have any
obligation to pay, any bonus amount under the Plan for that calendar year
unless the Board of Directors expressly states the Company shall pay such bonus
amount.
9. NONASSIGNABILITY. No participant shall have the right to assign or
transfer any of his benefits or expected benefits under the Plan except by will
or by the laws of descent and distribution.
This Plan has been adopted and approved at a special meeting of the
Board of Directors of the Company on the 28th day of February, 1996, and shall
be effective for calendar years 1996 and 1997, unless otherwise amended by the
Board of Directors.
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EXHIBIT A
P.A.M. TRANSPORTATION SERVICES, INC.
INCENTIVE COMPENSATION PLAN
TARGETED OPERATING RATIOS AND
CORRESPONDING BONUS PERCENTAGES
FOR 1996 AND 1997 CALENDAR YEARS
CLASS I ELIGIBLE EMPLOYEES
Operating Ratio Bonus Percentage
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90.0% and Above 0%
89.0% to 89.9% 10%
88.0% to 88.9% 15%
87.0% to 87.9% 20%
86.0% to 86.9% 25%
85.0% to 85.9% 30%
84.0% to 84.9% 35%
83.0% to 83.9% 40%
82.0% to 82.9% 45%
81.0% and Below 50%
CLASS II ELIGIBLE EMPLOYEES
Operating Ratio Bonus Percentage
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90.0% and Above 0.0%
89.0% to 89.9% 5.0%
88.0% to 88.9% 7.5%
87.0% to 87.9% 10.0%
86.0% to 86.9% 12.5%
85.0% to 85.9% 15.0%
84.0% to 84.9% 17.5%
83.0% to 83.9% 20.0%
82.0% to 82.9% 22.5%
81.0% to 81.9% 25.0%
80.0% to 80.9% 27.5%
Under 80% 40.0%
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