Exhibit 10.1
ADDVANTAGE TECHNOLOGIES GROUP, INC.
INCENTIVE COMPENSATION PLAN
SENIOR MANAGEMENT
SECTION I
PLAN OBJECTIVES
This incentive compensation plan has been established to accomplish several
important objectives:
* Improve company profitability and performance each year.
* Provide participants with an incentive to contribute at the highest level in
growing company profits.
* Provide significant incentive opportunities to plan participants, in line
with increased profitability.
* Enable the company to attract, motivate and retain high-caliber talent.
SECTION II
PLAN PARTICIPANTS
Participation in this incentive compensation plan will be limited to those
individuals in positions to have direct and significant influence on company
performance and profitability.
Initially, participation in this plan will be limited to the following key
personnel:
* Chairman of the Board
* President/CEO
* Vice President, Finance (CFO)
Other participants may be included in the plan, subject to approval by the
Compensation Committee of the Board of Directors.
SECTION III
BASIC PLAN PROVISIONS
1. Awards under this incentive plan will be based on actual earnings before
interest and taxes (EBIT) in relation to established performance targets.
* EBIT will include the payment of incentive awards under this plan.
2. Annually, a Target for EBIT will be established. The Target will be based
on the following basic formula:
Previous Year's Sales
x 1.125
------------------------
= Sales Threshold
x EBIT divided by Sales for Previous 3 Years*
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= EBIT Target
For example, if sales in FY-05 were $50 million and the average EBIT ROS
for the previous three years were 19.4%, then the EBIT target would be set
as follows:
$50.0 mil. x 1.125 = $56.25 mil. x 19.4%* = $10.9125 mil.
3. The primary basis for determining incentive awards will be actual EBIT in
relation to the EBIT Target. The following schedule will be used in
determining incentive awards.
% Target CEO CFO
-------- --- ---
(% Salary) (% Salary)
105% 25% 20%
110% 35% 25%
120% 50% 35%
130% 75% 50%
150% 100% 70%
4. Incentive awards for EBIT increases that fall between the intervals in the
above schedule will be determined through interpolation. For example, if
the increase in EBIT in FY-06 compared to the Target for EBIT is 25.0%, the
incentive award for the CEO would be 62.5% and the incentive award for the
CFO would be 42.5%.
5. The incentive award as a percentage of salary for the Chairman will be the
same as for the President/CEO. For example, if the company earns 120% of
previous year EBIT, then the Chairman and President/CEO will earn a 50%
incentive award, as a percentage of annual salary, and the Vice President,
Finance (CFO) will earn a 35% incentive award.
6. Example:
* FY-06 EBIT Target $10.9125 mil.
$50 mil x 1.125 x 19.4%
* FY-06 EBIT Actual $13.095 mil.
(+120% increase)
* Award for CEO 50% of Salary
* Award for CFO 35% of Salary
- -------------------------------------------------------
*Average EBIT as % sales for past three years.
SECTION IV
PAYMENT OF INCENTIVE AWARDS
Incentive awards under this plan will be paid following the close of the fiscal
year, once audited financial statements are available. Normally, incentive
awards will be paid no later than December of the following fiscal year.
The following guidelines will be observed in determining and paying incentive
awards to plan participants:
* Incentive awards will be calculated as a percentage of the actual base
salary paid to the participant during the year in which the award is
earned.
* The participant's performance must be assessed as at least "meets
expectations" or no incentive award will be earned or paid.
* The participant must be employed by the company at the time the award is
paid in order to be eligible for payment.
* The payment of incentive awards may not cause the company to earn less in
pretax net income than a 10% return on sales or reduce earnings per share
from the previous end of year eps.
* All incentive awards will be approved by the Compensation Committee of the
Board of Directors.
SECTION V
PLAN ADMINISTRATION
This incentive compensation plan will be administered by the Compensation
Committee of the Board of Directors. No member of the Compensation Committee
will be a participant in this plan.
The Compensation Committee will exercise the following responsibilities in the
administration of this plan:
* Adopting the plan and approving its provisions.
* Revising the performance targets in the plan and the associated incentive
opportunities available to participants.
* Monitoring and evaluating performance in relation to established
performance targets.
* Monitoring the plan, in relation to its objectives, and revising or
discontinuing it as appropriate.
* Approving incentive awards to participants.
This incentive plan may be modified or discontinued, at any time, without
advance notice to participants. Moreover, this incentive plan does not
represent an employment contract nor a commitment by the company to the
employment of any plan participant for a specified term.