Exhibit 10.3
ALLEGHENY ENERGY, INC.
2002 ANNUAL INCENTIVE PLAN
I. PURPOSE OF THE INCENTIVE PLAN
To attract and retain first quality managers in a competitive job
market and to reward for attaining and exceeding specified annual
corporate , business or service corporation group/function, and
individual performance goals.
II. ELIGIBILITY
A prerequisite for participation in the Plan shall be an understanding
of, and commitment to Allegheny Energy's:
. Management Plan and Policies
. Mission, Vision, Values, and Strategies
Eligibility will be determined by the Management Review and Director
Affairs Committee upon the recommendation of the CEO from among
executives whose responsibilities can affect the performance of their
units, and through unit performance, the performance of Allegheny
Energy.
III. AWARDS
Awards will reflect the importance of the participants to the
organizational units and functions for which they are responsible.
Awards will be paid for the achievement of specific measurable goals
set for the individual and the organizational units/functions for
which he or she is responsible.
The Plan's goals will be:
. Determined and communicated annually
. A reasonable number for each participant
The goals which the Board will set with the help of the Management
Review and Director Affairs Committee will be consistent with
Allegheny Energy's Mission, Vision, Values, and Strategies and will
include such things as:
. Financial performance (return on equity, earnings, dividends)
. Customer satisfaction (cost, quality, and reliability of service)
2
III. AWARDS (continued)
. Cost and environmental consciousness (productivity, efficiency,
availability and utilization of equipment) and conservation of
resources
. Safety
. Leadership development
IV. OVERALL LIMITATIONS ON AWARDS
The Board of Directors shall not authorize any incentive payment if,
in the Board's opinion, Allegheny's performance is less than
satisfactory from the perspective of its stockholders.
V. PERFORMANCE MEASURES
Each year measures to evaluate participants' performance will be
determined. They may vary among participants according to whether
their principal responsibilities are to:
. Allegheny as a whole
. A Business or Division within a Business
. A Service Corporation Group or Function
Each category of performance measure will carry appropriate weightings
as shown on the 2002 Participant Performance Schedule. Examples of
possible measures include:
For Allegheny as a whole:
. Quantity and quality of annual earnings; return on equity;
financial ratings; capital structure; dividend payout ratios; and
total shareholder return
. Development of appropriate management succession, personnel
relations and development, and programs to assure fair and
non-discriminatory treatment of all employees
3
V. PERFORMANCE MEASURES (continued)
. Productivity, cost control, efficient use of equipment, natural
resources, and other environmental considerations
. Quality and reliability of customer service
. Safety
. Attainment of reasonable rates and maintenance of competitive
position
For Businesses, Divisions within Businesses, and Service Corporation
Groups/Functions:
. Profitability
. Safety
. Productivity and efficiency, revenues, and administrative,
operating, and maintenance expenditures
. Per employee, customer, and kwh
. Measured against previous year and peer companies
. Customer satisfaction (quality of service); outage rates, speedy
restoration of service, customer complaints, employee courtesy,
conservation, and demand-side management programs
. Cost of service; rate per kwh measured against past period,
economic indices, and peer companies
. Community relations and relations with state and local
governments and their agencies
. Completion of construction projects on time and within budget
. Adequacy of management development programs and programs to
assure fair and non-discriminatory treatment of all employees
. Adequacy of planning and accuracy of forecasts
. Completion of assignments and projects on time and within budget
4
V. PERFORMANCE MEASURES (continued)
. Availability, efficiency, and reliability of generating units and
transmission systems
. Cost consciousness (avoidance of excessive staffing and waste of
work space and receptivity to cost saving techniques)
. Minimizing adverse effects in the environment
. User satisfaction
. Adherence to Procurement Policy and success in buying (including
minority vendor participation) material, equipment, and supplies
at the best possible price
For Individual Performance:
. Leadership
. Results Orientation
. Strategic Thinking
. Communication
. Teamwork
. Judgment
. Community or Industry Involvement
VI. CALCULATION OF AWARDS
Target Incentive Awards and Total Estimated Cost
. No awards will be paid for any year unless the Board of Directors
finds that overall Corporate performance is satisfactory from the
perspective of stockholders.
. Incentive awards will be based on Corporate, Business or Service
Corporation Group/Function , and Individual Performance
Performance Schedules
. The Performance Schedule describes ratings and weightings for
each performance measure at all levels of performance
. As soon as practicable each year, Participant Performance
Schedules for that year will be issued
5
VI. CALCULATION OF AWARDS (continued)
Performance Ratings
. Target performance represents the full and complete attainment of
expectations in the performance area; it is rated 1.0
. Performance that is acceptable but does not fully meet
expectations can earn a rating but, of course, less than 1.0
. Exceeding expectations can result in a performance rating as high
as 2.00 for all participants
. Unacceptable individual performance will result in no award
regardless of Corporate or Business/Service Corporation (Group or
Function) Performance
Weightings
. Weightings will be established each year for Corporate, Business,
and Service Corporation Group/Function and Individual performance
measures
Calculation of Award
. A participant's award, if any, will be determined by multiplying
the participant's assigned Target Incentive Award by his/her
rounded total performance rating. Target Incentive Award is:
. calculated as Target Percentage x (2002 Annual Base Pay as
of 12/31/2002 + Lump Sums given through the 2002 Salary
Administration Program), or
. a fixed dollar amount for certain participants.
The Management Review and Director Affairs Committee or the Board of
Directors, at its discretion, may supplement or decrease any
participant's calculated award to reflect extraordinary circumstances.
The maximum funds available for 2002 awards will be an amount equal to
1.5% of 2002 budgeted net income plus or minus 5% of any amount over
or under 2002 budgeted net income for the System. In the event the
maximum would otherwise be exceeded, all awards will be decreased pro
rata.
6
VII. FORM AND TIMING OF PAYOUT
Calculation of awards will be made as soon as practicable after the
close of books for the year measured, but no award will be paid until
it has been approved by the Management Review and Director Affairs
Committee or the Board of Directors, as appropriate.
Payment will be in current cash unless the Management Review and
Director Affairs Committee or the Board at its discretion provides for
deferral. The Management Review and Director Affairs Committee or the
Board may also, at its discretion, make payment of awards in the form
of stock in lieu of current cash.
VIII. TERMINATION AND TRANSFER PROVISIONS
Termination Provisions
. Awards may at the discretion of the Management Review and
Director Affairs Committee or the Board be calculated on the
basis of a full year's performance and prorated to the number of
whole months actually served, except in the case of voluntary
termination (other than retirement after the second quarter of
the year) or termination by the Company (with or without cause),
in which case no award is made for year of termination
Designation of "Organizational Unit" in cases of transfer
. Weighting will be based on the number of months participant was
in each organizational unit
IX. PLAN ADMINISTRATION
Administration of the Plan is the responsibility of the Management
Review and Director Affairs Committee of the Board of Directors.
. The Committee is responsible for review and administration of all
Corporate wide goals and has final approval over these and other
matters involving the Plan, including eligibility.