Final Approved by HR Board Committee
November 30, 1999
EXHIBIT 10.a
MANAGEMENT VARIABLE COMPENSATION (MVC) PLAN
FISCAL 2000
1. PURPOSE OF PLAN
To focus efforts on achievement of near term financial objectives which
are critical to the success of the Company; to reward accomplishment at
a level above competition when performance is above that of comparable
companies; to more closely couple total compensation (salary plus
variable) to the financial results of the enterprise.
The Plan's payout is primarily related to achievement of annual
Corporate and Division/Niche profit, resource utilization, and growth
objectives.
2. PLAN CONSTRUCTION
The attached chart provides an overview of the plan (See attachment A).
Details follow regarding each of the components of the plan.
3. ELIGIBILITY AND PARTICIPATION
* Corporate officers
* Unit vice presidents
* Market and functional unit managers
* Managers, technical supervisors and key marketing or technical
employees who meet certain minimum responsibilities for
profitability, financial/human resource acquisition and
allocation, balance sheet control, and/or market/technical
direction - positions defined as beginning at SAM 15 and TE 5, or
equivalent and above.
* This plan does not apply to the employees of the Aeromet
Corporation.
An employee must be in such a position by the November Board of
Directors meeting in order to be eligible for the fiscal year plan
beginning the preceding 1 October, unless otherwise authorized by the
CEO.
An officer may recommend that an employee, who is otherwise eligible,
not participate but such a recommendation must be authorized by the
CEO.
Participants are eligible for payout in proportion to the percentage of
the fiscal year the participant is responsible for the qualifying
position, unless otherwise authorized by the CEO.
Employees who transfer to a different officer's unit during the year
are paid according to the proportion of the year spent under each plan.
Employees who work less than full time during a year (e.g., due to a
personal leave, but not due to illness) would earn a proportionately
reduced payout.
Unless authorized by the CEO, no payout will be made to employees who
work less than 1,000 hours in the fiscal year.
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The participant must be on MTS' payroll at the end of the fiscal year
to qualify for a payout. Employees resigning or terminated before the
end, regardless of cause, are not eligible unless otherwise authorized
by the CEO
No employment contract is implied by participation in this Plan.
4. ESTABLISHMENT OF OBJECTIVES
a. The Board of Directors sets the Corporate Earnings per Share
(EPS), Corporate Return on Average Net Assets (ROANA), and the
corporate Working Capital Rate to Revenue objectives at their
November meeting.
b. ROANA, Revenue, and Working Capital Rate to Revenue objectives
for Division heads will be approved by the Human Resource
Committee of the Board of Directors at the November meeting.
All other objectives must be finalized by December 15.
Other objectives for participants below the direct reports to
the CEO require one over one approval levels to:
* Integrate objectives into Company operating plan
* Guard against conflicting objectives
* Help to assure consistency in degree of difficulty
The CEO has the final approval over all participants other
than himself.
5. CRITERIA FOR OBJECTIVES
5.a CORPORATE LONG RANGE PLANNING
The Corporate Profit and Growth Objectives are set by the Board based
on the current 3- year Long Range Plan (LRP) for the period FY1999
through 2001. Growth rates are set against 1998 actual results as the
baseline. These are:
EPS: 20% compounded annual growth
ROANA: 21% average across the three years of the plan
REVENUE: 15% compounded annual growth
For annual MVC purposes, EPS and revenue objectives are adjusted
annually as recommended by the CEO and approved by the Board of
Directors. All objectives include all transactions, acquisitions,
write-offs, sales of assets, etc. unless specifically excluded by the
Board in writing.
5.b CORPORATE '00 MVC
FUNDAMENTAL PHILOSOPHY IS THAT ACHIEVING THE FY00 PLAN WILL RESULT IN
100% MVC PAYOUT.
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For FY00 this translates to MVC corporate level objectives of:
EPS: $0.95
ROANA: 16.2%
REVENUE: $391.1M
WORKING CAP
RATE TO REV: 41%
(Mpls-based ops)
5.c MVC IMPLEMENTATION
EPS:
EPS Payout
--- ------
$0.90 0%
$0.95 100%
$1.05 200%
ROANA:
ROANA Payout
----- ------
0.8x Base 0%
Base = 16.2% 100%
1.2x Base 200%
1.4x Base 300%
WCRR (Mpls-based operations):
WCRR Payout
---- ------
42% 0%
41% 100%
39% 200%
5.d UNIT
Unit financial goals (ROANA & Working Capital Rate to Revenue) are
expressed as Corp/Division/Niche goals. Such goals are set as part of
an integrated plan for the overall corporation.
Approved Unit levels for FY00 are:
Type
----
CORP Corporate
DIV AESD/Entertainment
DIV Automation
DIV DSPT
DIV MTD/Aero
DIV NVD
DIV Sensors
DIV Service
DIV Vehicles Dynamics
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5.d UNIT(CONT.)
Additional NICHES as approved by CEO
Other "Non-Financial" objectives are locally established, must be
stated in measurable terms and must not be activities (i.e. number of
sales calls or technical society presentations).
6. COMPETITIVE PAYOUT POTENTIAL
The competitive payout potential, expressed as a % of the midpoint of
the salary structure, is shown below:
<TABLE>
<CAPTION>
POSITION COMPETITIVE PAYOUT POTENTIAL %
-------- ------------------------------
<S> <C> <C>
CEO E5 70%
Exec VP, MT&S E4 50%
Vice President E3 25-50, depending on revenue level (profit potential)
Vice President E2 25-50, depending on revenue level (profit potential)
Vice President (Unit) E1 15-45, depending on revenue level (profit potential)
Mkt Div P&L Mgrs SAM 17-21 15-35, depending on revenue level (profit potential)
All Other Mgmt SAM 18-21 10-25, depending on profit impact
SAM 15-17 6-20, depending on profit impact
T/E 5/5S - 9/9S 6-15, depending on profit impact
</TABLE>
7. OVERRANGING/MAXIMUM POTENTIAL PAYOUT
The objectives are set at challenging but realistic levels that are
used in the overall process of planning and resource allocation. This
is not meant to be a limit to our aspirations, and performance above of
those objectives should be rewarded as it is to the benefit of all
stakeholders in the enterprise. Payout above the competitive payout
potential is termed overranging.
Two MVC mixes are possible for participants based on position and
salary level. Exceptions must be approved by the CEO.
FOR THE MTS EXECUTIVE MANAGEMENT TEAM
Corporate Earnings per share (EPS) at 30% with 200%
overranging.
Corporate or Division ROANA at 50% with 300% overranging.
Mpls-based Operations Working Capital Rate to Revenue or
Approved Revenue for the Business Unit at 20% with 200%
overranging.
Base payout potential: 30 + 50 + 20 = 100
Max payout potential: (30x2) + (50x3) + (20x2) = 250
FOR ALL OTHER POSITIONS
Corporate earnings per share (EPS) at 20% with 200%
overranging.
Corporate, Division, or Niche(as applicable) ROANA at 50% with
300% overranging.
Corporate, Division, or Niche Working Capital Rate to Revenue
at 20% with 200% overranging.
Other objectives at 10% with no overranging.
Base payout potential: 20 + 50 + 20 + 10 = 100
Max payout potential: (20x2) + (50x3) + (20x2) + (10x1) = 240
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8. RELATIONSHIP TO OTHER COMPENSATION PLANS
8.a "NON MANAGEMENT" VARIABLE COMPENSATION PLAN (VC)
Certain units may have a variable compensation plan for employees who
are not eligible for the MVC, sales commissions, or other variable
compensation plans. Payout in these VC Plans is linked directly to
payout on the unit's MVC profit objectives. These non-management plans
are subject to the approval of the unit vice president, corporate Human
Resources manager and CEO.
The following is an outline summary to which these VC plans must
adhere. They are included in this MVC Plan for reference only.
8.a(1) VC Competitive payout potential is 3% of the midpoint of the salary
range in which the employee is placed at the beginning of the fiscal
year.
8.a(2) VC payout will normally be based on the combination of the results of
the Corporation's earnings per share (EPS) and employee's unit vice
president's (in some cases the unit manager's) ROANA objective(s) for
the year. If the unit's vice president (manager)has more than one such
objective, the payout will be based on the weighted average of the
officer's objectives.
8.a(3) The entire 3% VC payout potential is eligible for overranging for
participating employees.
8.a(4) Eligibility and participation rules for VC will be the same as those
for MVC, where appropriate.
8.b RETIREMENT PLAN
The calculations for the Management Variable Compensation Plan (and VC)
are made after deductions for retirement plans.
Payout to a U.S. based participant in the Management Variable
Compensation Plan (and VC) is included in the calculation of the
Company's contribution to that employee's retirement plan.
9. PAYOUT
Payouts under this Plan along with VC are considered costs for the
calculation of actual performance against objectives.
Payouts are audited by the manager of internal audit and approved by
the CFO. Payouts for the Executive Management Team must be approved by
the CEO.
Payout will be made in cash within 90 days of the end of the fiscal
year, expected to be on or before December 31, 2000.
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