APPLIED DIGITAL ACCESS CONFIDENTIAL
MANAGEMENT TEAM INCENTIVE COMPENSATION PLAN
rev 3: February 13, 1997
PURPOSE: The Management Team Incentive Compensation Plan identifies a portion
of the total compensation of each participant as "at risk" compensation. Total
compensation includes both base salary and "at risk" compensation.
REVIEW AND APPROVAL: This plan has been approved by the CEO and the
Compensation Committee of the Board of Directors.
PHILOSOPHY: People in the company should be compensated in proportion to:
- their personal contribution and success,
- the contribution and success of their department,
- the contribution and success of their business unit, and
- the success of the entire company.
The amount of "at risk" compensation should be proportional to management level
in the company.
The proportion of the "at risk" compensation element that is dependent on
company performance should be proportional to management level in the company.
Measurements must be simple and quantitative against agreed upon objectives.
Company and business unit objectives are set at the beginning of the fiscal year
and remain unchanged for the entire year.
Department objectives should be reviewed quarterly and modified to reflect
changing business conditions.
PARTICIPANTS in the Plan are designated by the CEO and approved by the
Compensation Committee, and include the President/CEO, Officers, Business
Unit General Managers, Vice Presidents, Directors, Managers, and Supervisors.
People who become participants during the year shall have the amount they may
earn under the plan prorated according to their time in the plan.
AMOUNT OF COMPENSATION AT RISK: The percentage of base salary that comprises
"at risk" compensation is:
CEO 50%
CONFIDENTIAL MIC 1
Officers - BUGM 40%
Officers - Dept Head 40%
VP (non officer) 35%
Directors 30%
Managers 25%
Supervisors 20%
Base salary is the participant's salary at the start of the fiscal year.
SETTING OBJECTIVES - Objectives fall into four categories: department, business
unit, company, and individual/discretionary. Objectives will be set at the
beginning of each fiscal year in discussions between the participant and manager
based on company objectives set in company planning sessions. Additional
objectives may be added during the year. All objectives will be approved by the
CEO and may be reviewed by the Compensation Committee.
Future department objectives and performance against previously set objectives
will be reviewed each quarter.
WEIGHTING OBJECTIVES - The weighting of each category of objective is:
% of base % of incentive compensation based on:
at risk company business unit department individual
CEO 50% 100% -- -- --
Officers - BUGM 40% 40% 30% -- 30%
Officers - Dept Head 40% 30% 20% 20% 30%
VP (non officer) 35% 30% 20% 20% 30%
Directors 30% 20% 30% 20% 30%
Managers 25% 20% 20% 30% 30%
Supervisors 20% 20% 20% 30% 30%
Within categories, each objective shall be weighted to reflect importance to
company success. Quality shall be emphasized in weighting objectives.
EVALUATING PERFORMANCE AGAINST OBJECTIVES: Accomplishments against objectives
will be determined in a quarterly review. A quantitative determination of
accomplishment against each objective will be made and a percent score assigned
to each objective. Each score will be multiplied by its weighting factor. The
sum of the weighted scores in the 'company', 'business unit', and 'department'
categories multiplied by the participant's base salary shall determine the
amount earned in each category.
CONFIDENTIAL MIC 2
The amount earned in the 'individual/discretionary' category shall be determined
by the individual's immediate supervisor as part of the individual's performance
appraisal.
The sum of the company, business unit, department, and individual/discretionary
categories shall be the total entitlement.
PAYMENTS: A determination of the amount of "at risk" compensation earned
will be made at the end of each quarter. These determinations will be
approved by the CEO and the Compensation Committee. A payment equal to 1/2
of the earned amount in the 'company', 'business unit', and 'department'
categories will be made to each participant after release of earnings for the
quarter. The remainder of the 'company', 'business unit', and 'department'
payments and all of the discretionary payment will be held until the close of
the year when yearly results are available. The amount payable at the end of
the year will be determined by total year results.
PARTICIPANTS MUST BE EMPLOYED BY THE COMPANY ON THE DAY OF ANY PAYMENT IN ORDER
TO BE ELIGIBLE FOR THAT PAYMENT.
COMPANY AND BUSINESS UNIT OBJECTIVES: Company and business unit objectives
shall be established each year. Additional objectives may be added during the
year. Company and business unit objectives shall not change during the year.
Quantitative objectives may include: Revenue, Bookings, Gross Margin,
Operating Income, and Earnings per Share (EPS).
Strategic objectives may include: Product introduction schedules, and account
capture.
DEPARTMENT OBJECTIVES: Department objectives shall be established each year,
and modified each quarter to reflect changed business conditions. Department
objectives shall include quality of the products (output) of each department.
In addition, the following objectives shall be included:
Engineering: Product development schedules
Quality of developed products
Operations: Gross Margin
Inventory turns
Product ship schedules
Product quality
Finance: Quality of financial reports/analyses
Control of assets
CONFIDENTIAL MIC 3
Marketing: Bookings - established and new products
Product introduction schedules
Customer and product support
Sales: In accordance with the Sales Compensation Plan
FINANCIAL OBJECTIVES: Accomplishments against company and business unit
financial objectives may be determined by the company's unaudited financial
results as approved by the Board of Directors at its January meeting.
Adjustments, if any, may be made after completion of the annual audit.
Revenue and bookings elements will be scored linearly from zero at 80% of plan
to a maximum of 150 at 110% of plan. The operating income element will be
scored linearly from zero at 95% of plan OI percentage to 100 at 100% of plan OI
percentage, then linearly to a score of 150 at 105% of plan OI percentage.
Elements shall be evenly weighted in determining the company score.
STRATEGIC OBJECTIVES: Strategic objectives may be established that include
quantitative and qualitative measurements. The achievement criteria in each
case shall be established as quantitatively as possible.
SCORING OF ACHIEVEMENT AGAINST DEPARTMENT OBJECTIVES:
SCHEDULE OBJECTIVES: Achievement against schedule shall be measured according
to the following formula:
score = [ 1 - (2 x time late)/schedule time]
ex: if the task measured was 5 weeks late on a schedule that originally was 20
weeks long, the score would be:
score = [ 1 - ( 2 x 5 weeks)/20 weeks] = 50%
It is possible to score higher than 100% if the task is completed ahead of
schedule.
OTHER OBJECTIVES: Measurements of accomplishments against objectives will be
set by each department head with the approval of the CEO. These measures will
link measurable performance with a numeric score. Examples of these
measurements include:
Quality: percent of modules returned within 120 days
number of problems discovered after shipment or
installation
Response time: average time to respond to customer requests
CONFIDENTIAL MIC 4
Delivery schedules: actual delivery time versus customer requested delivery
time.
Asset control: book to physical inventory variances, numbers of items in
error and dollars difference.
Other measures shall be developed as appropriate and as agreed to by the
business unit GM, department head and the CEO.
CONTINUOUS IMPROVEMENT: The objective for each measured element of
performance shall be raised from time to time to improve performance in each
area.
CONFIDENTIAL MIC 5