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Exhibit 10.2
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AMCAST INDUSTRIAL CORPORATION
ANNUAL INCENTIVE PLAN
ADMINISTRATIVE MANUAL
CONFIDENTIAL
08/04/82
Revised: 06/09/86
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PURPOSE OF MANUAL
This manual sets forth policy guidelines and administrative procedures with
respect to the Amcast Industrial Corporation Annual Incentive Plan (AIP). It
will serve as a guide for those administering the plan to ensure that actions
taken are consistent over time and in line with the plan's terms and objectives.
This manual is not intended to be a communication device for participants. and
is not a legal plan text. As a result, it is not intended for general
distribution.
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I. OBJECTIVES OF THE PLAN
The objective of the Annual Incentive Plan is to motivate the key
contributors to annual profitability toward the attainment of specific
financial and operating objectives. In addition, senior management
believes that the plan will serve to make the compensation of
participants competitive with opportunities in other companies.
II. DURATION OF THE PLAN
The AIP was established by the Board of Directors and became effective
on September 1, 1982. The plan, subject to the following provisions and
such other terms and conditions as the Compensation Committee of the
Board of Directors may prescribe, will continue in effect until
terminated by the board.
III. ADMINISTRATION OF THE PLAN
A. Board of Directors
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The Board of Directors has the final authority to administer the
plan. The duties of the board include:
- Approving Compensation Committee proceedings regarding changes
to the plan, participation, awards, and administration of the
plan; and
- Amending, suspending, or terminating the plan.
B. Compensation Committee of the Board of Directors
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The Compensation Committee administers the plan. As delegated by the
Board of Directors, the committee:
- Approves financial objectives upon which awards under the plan
are earned,
- Reviews eligibility criteria for participation in the plan,
- Approves participants in the plan*,
- Approves target incentive awards*,
- Determines the effect of changes in accounting principles or
practices and of acquisitions or divestitures on the calculation
of awards under the plan,
- Reviews final award computations and authorizes final award
amounts*, and
- Constructs rules and other procedures for use in carrying out
provisions of the plan in the best interest of Amcast Industrial
Corporation and its shareholders.
*As pertains to Group A participants (i.e., staff officers,
group executives, unit managers, and group sales managers).
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C. Chief Executive Officer
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The responsibilities of the CEO include recommending to the
Compensation Committee:
- Return on capital employed (ROCE) financial objectives for each
operating unit under which awards will be earned under the plan,
- Participants (Group A)*,
- Target incentive awards (Group A)*. and
- Final award calculations (Group A)*.
The CEO has the authority to approve the following for all other
participants in the plan.
- Participants (Group B)*,
- Target incentive awards (Group B)*,
- Personal performance objectives (Group A and B)*, and
- Final award calculations (Group B)*,
*The CEO will present to the Compensation Committee an annual
summary of incentive payments made under the plan. This will include
both Group A and B participants.
Group A - staff officers, group executives, unit managers, group
sales managers.
Group B - subordinates to Group A participants, i.e., unit staff and
selected corporate staff.
D. Group Executives
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The group executives have the responsibility for recommending to the
CEO the following under the plan:
- ROCE financial objectives for their respective operating units,
- Group and unit participants in the plan,
- Target incentive awards, and
- Personal performance objectives.
These individuals will also distribute awards under the plan, if
any, and communicate regarding the plan with participants from their
respective groups and units.
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E. Vice President, Finance
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The vice president of finance coordinates and documents accounting
activities under the plan. As such, he is responsible for:
- Recording financial objectives under the plan,
- Maintaining records on the extent of achievements of financial
objectives under the plan,
- Assisting in calculating awards under the plan,
- Arranging for the proper allocation of costs under the plan and
assuring adequate and timely expense accruals, and
- Recommending interpretations of accounting terms under the plan.
IV. PARTICIPATION
A. Definition of Eligibility
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Participation in the plan is limited to officers of the corporation,
principal managers of groups and units, and to other individuals
who, by virtue of their positions, can substantially affect the
annual performance of the organization to which they are assigned.
Sales personnel are excluded, except for designated managers, and
will be covered under a separate plan.
B. Selection of Participants
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Participants in the plan will be selected prior to the beginning of
the fiscal year, based on the recommendation of the chief executive
officer.
C. Eligibility for Award
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An individual who is selected as meeting the definition of
eligibility, and who joins Amcast during the fiscal year or is
promoted to a participating position during the fiscal year, may
become eligible to participate immediately. Such individuals will be
considered for awards from the plan in proportion to the part of the
fiscal year in which they are a participant.
When a change of target incentive award levels is made under the
plan during the fiscal year because of promotion or other
justifiable reasons, the participant will be eligible to receive an
award proportionate to the time he was at each award level.
When a participant changes organizational units during the fiscal
year, awards from the plan will be proportioned to the time spent in
each organization.
If, during the fiscal year, a participant dies, retires, or is
transferred to a position which does not qualify for inclusion in
the AIP, the participant or his designated beneficiary will be
eligible to receive an award proportionate to the time he was a
participant.
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If a participant should leave the corporation during the fiscal year
for reasons other than retirement, he will not be eligible to
receive an award unless otherwise determined by the Compensation
Committee of the board.
V. AWARD PERIOD
Awards from the AIP will based on the achievements of participants
during the period of September 1 through August 31 (the plan year). A
new plan year will begin each September 1.
VI. TARGET INCENTIVE AWARDS
Each participant will have a target incentive award between 15 percent
and 50 percent of the annual base salary in effect at the beginning of
the plan year. The amount of the target will be commensurate with the
responsibility of the position and the relative ability to influence
profitability. The total of target awards, in dollars, will equal the
target incentive fund. A participant's target incentive award will
remain fixed throughout the plan year unless the participant is promoted
or transferred to a position which warrants a higher or lower target
incentive award. The maximum award under the plan will not exceed 60
percent of the annual base salary of a participant. Normal salary
increases during the plan year will not be recognized for incentive
purposes.
UNASSIGNED SUPPLEMENTAL FUND. In addition to the target incentive funds,
an amount not to exceed $50,000 shall be available for incentive
compensation which may be used, at the discretion of the Compensation
Committee, to supplement the formula funds in the event special
circumstances warrant awards for special situations outside the defined
participants.
VII. TARGET INCENTIVE AWARD ALLOCATION
Incentive awards will be determined through the assessment of corporate,
group or unit, and individual participant's performance as follows:
% of Award Based on Results of
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Participant Corporate Group Unit Individual
----------- --------- ----- ---- ----------
Corporate Staff 70-100 0 0 0-30
Group VP's 25- 50 45- 75 0 0-30
Group Staff 0 70-100 0 0-30
Unit Managers 25- 50 0 45- 75 0-30
Unit Staff 0 0 70-100 0-30
The components of the incentive award are separate and distinct. By
achieving the maximum ROCE objective for the corporate, group, or unit
component, it is possible to earn up to 150 percent of the target
incentive award. Only 100 percent of the target award is possible in the
personal performance category.
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For participants, the following award combinations can occur under the
AIP:
Incentive Award Paid for Performance of
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Potential Group
Award AIC or
Combination Overall Unit Individual
----------- ------- ---- ----------
1 yes yes yes
2 yes yes no
3 yes no yes
4 yes no no
5 no yes yes
6 no yes no
7 no no yes
8 no no no
A participant may receive an award based on group or unit or personal
performance in a year that Amcast's overall financial performance does
not generate a corporate incentive award. The group or unit and personal
performance components likewise are not linked. If group or unit
performance is below threshold*, an award based on achievement of
personal objectives could be paid. Amcast must, however, generate an
after-tax profit for corporate officers to be eligible to receive any
award (corporate, group, unit, or personal performance) from the plan.
*Threshold is the minimum acceptable ROCE necessary to generate an
incentive award based upon corporate, group, or unit financial results
(refer to VIII and IX).
VIII. CORPORATE COMPONENT
Threshold, objective, and maximum return on capital employed objectives
are set annually for the overall Amcast organization. ROCE is defined as
earnings before taxes and interest on long-term debt as a percent of the
average of twelve months actual shareholders' equity plus long-term
debt. Certain material nonoperating income and expense items may be
excluded from the calculations at the discretion of the Compensation
Committee.
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A percentage of the target incentive award allocated to the corporate
component is earned at threshold, objective, and maximum ROCE.
- For example, consider the following performance schedule:
ROCE Target Incentive
Objective Earned
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Threshold A% 50%
Objective B% 100%
Maximum C% 150%
- The target incentive award earned between threshold and objective,
and objective and maximum will be prorated.
The following formula is utilized in determining awards based upon
corporate ROCE results.
Corporate Target Corporate
Target X Incentive = Earned
Award Earned Award
Allocated Percent
IX. GROUP OR UNIT COMPONENT
A percentage of the group or unit target incentive award is earned at
threshold, objective, and maximum ROCE performance. (See VIII for ROCE
definition.)
- For example, consider the following ROCE performance schedule:
Group or
Unit
ROCE Target Incentive
Objective Earned
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Threshold D% 50%
Objective E% 100%
Maximum F% 150%
Note: Group and unit thresholds, objectives, and maximums will be linked
with the financial objectives for the overall Amcast organization.
- The following formula is utilized in determining awards based on
group or unit ROCE results:
Group/Unit Target Group/Unit
Target X Incentive = Earned
Award Earned Award
Allocated Percent
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X. PERSONAL PERFORMANCE COMPONENT
A participant's performance against a maximum of seven significant
objectives will determine the amount of the target incentive award
earned under the personal performance component.
The objectives have different degrees of importance to the individual
and organization. One hundred incentive points are allocated among the
objectives to establish each objective's importance. Performance on each
objective will be rated as either yes or no. For example:
Incentive Incentive
Points Performance Points
Objective Allocated Rating Earned
--------- --------- ------ ------
Annual operating results
A 40 yes 40
B 20 no 0
Key opportunities to be exploited or improvements to be made
C 20 yes 20
Progress to be achieved in longer-range programs
D 10 no 0
E 10 yes 10
-- --
100 70
(This individual's performance rating is 70 percent.)
The following formula determines an individual's incentive award under
the personal performance component.
Individual Individual Earned
Performance X Performance = Personal
Target Rating Performance
Award Award
For the personal performance component, the maximum award is 100 percent
of the target award.
XI. TOTAL AWARD CALCULATION
The sum of award components (corporate, group or unit, and personal
performance) is the individual's total incentive award from the plan.
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XII. INDIVIDUAL OBJECTIVE SETTING
The information generated in the business planning process can be
utilized in the personal performance component of the plan.
Generally, such objectives should be:
- Pertinent to the responsibility of the individual,
- Aimed at what the company wants accomplished, and
- Written in crisp language and quantified so it is easily determined
if the objectives were achieved.
A maximum of seven significant performance objectives is established for
each individual. Objectives should be set in one or more of three
categories:
- Annual operating results,
- Key opportunities to be exploited or improvements to be made, and
- Progress to be achieved with respect to longer-range programs.
Objectives have different degrees of importance to the individual and
Amcast. To recognize the differences in importance, incentive points are
allocated to each objective. A total of 100 incentive points is
allocated over the three objective categories. Consider the following
example:
Percentage of Incentive
Incentive Category Points Allocated
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Annual operating results 60%
Key opportunities to be exploited 20%
or improvements to be made
Progress to be achieved with 20%
respect to longer-range programs
An action plan is developed for each objective in order to provide a
check on the reasonableness of the objective and an additional basis for
evaluating performance:
- Action plans concern the acquisition, use, and disposition of
resources.
- Action plans will be integrated across functional lines, recognize
basic operating unit purposes, and outline what decisions must be
made to achieve the objective.
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Exhibit B will be used to document individual objectives. The form
includes the "record of agreement" between the levels of management on
the significant objectives. The form ensures all parties have the same
understanding of:
- What is expected
- How performance on each objective will be appraised, and
- What relative importance each objective has.
Informal interim reviews of progress toward objectives is an integral
part of the plan. On a periodic basis, management will formally review:
- The continued validity of objectives,
- Changes in action plans resulting from changes in assumptions or
uncontrollable influences, and
- Relative achievement to date and its impact on incentive accruals.
After the plan year, the CEO, group executives, and unit managers will
evaluate individual objective achievement:
- Actual results would be recorded on the objective setting record and
evaluation worksheet (Exhibit B).
- The basis for rating each objective will be agreed upon and
recorded.
Exhibit B is also utilized for reviewing individual objectives and for
final personal performance incentive award calculations.
Exhibit C is a summary sheet for communicating plan details to
participants at the beginning of the incentive plan year.
XIII. AWARD ADJUSTMENTS
The Compensation Committee and the Board of Directors, upon
recommendation of the chief executive officer, may make any adjustments
to the AIP required to ensure a successful program of management
motivation and reward that they deem to be in the best interest of the
shareholders.
XIV. PAYMENT METHODS
Awards from the AIP will be paid in cash. A participant in the AIP may
voluntarily elect to defer the receipt of cash awards under this plan by
filing an irrevocable election to do so with the corporation according
to the provisions of the Amcast Deferred Compensation Plan.
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XV. WITHHOLDING FOR INCOME TAXES
All award amounts are subject to withholding for federal income tax
purposes. Arrangements will also be made to withhold any amounts
required by state and local authorities.
XVI. MISCELLANEOUS
A. NO RIGHT TO ELIGIBILITY. Participation in the AIP in any one plan
year is not be be construed as a right to continuing eligibility.
B. NO RIGHT TO CONTINUED EMPLOYMENT. The selection of any person for
participation in the AIP shall not give a participant any right to
be retained in the employ of the corporation or any subsidiary and
the right and power to dismiss or discharge any participant is
specifically reserved by the corporation.
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