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To: Bonus Eligible Associates
From: Bill Rice
Date: May 23, 2000
Subject: Fiscal Year 2001 Bonus Plan
Executive Summary
I am pleased to announce the Airgas Fiscal Year 2001 Bonus Plan. The
plan is similar to the Fiscal Year 2000 plan, but with some
modifications.
The changes to the plan have resulted in a plan that better aligns the
bonus program with our strategic plans and the emphasis placed on the
need to grow sales in general and sales of Radnor brand products in
particular.
After reviewing the plan, please sign the last page, the "Associate
Acknowledgment," and return it to your Human Resources Department.
This acknowledgment is required for your participation in the plan.
What's Different
1. What We Are Eliminating:
O Cap on bonus plan payouts - this now means that your bonus plan
payout is only limited by your achievements and that of your
company and Airgas as a whole.
O Requirement that FY '01 EPS exceed that of FY '00 before a payout
can be made.
O The 120% achievement cap placed on debt repayment.
2. What We Are Changing:
O Increasing the emphasis placed on achieving your company's
business plan financial goals and reducing the emphasis placed on
Airgas consolidated results.
O Airgas Consolidated Financial Factor is being changed to one
measurement, Earnings Per Share (EPS). This is being done to simplify
the bonus plan and to focus on one critical measurement.
O How debt repayment achievement is calculated.
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O Weightings for Company Financial Factors. They will now be
EBITDA - 55% (PBT had been 60%), Debt Repayment - 25% (had been 30%)
and Sales Growth - 20% (Gross Profit Dollar Growth had been 10%).
O The "One Airgas" factors to those that are critical to our
success in FY '01. These factors will now be incorporated into
Accountabilities and will no longer be a separate portion of the Plan.
Therefore, the weightings for the Accountabilities portion of the Plan
have increased.
O The bonus payout schedule. It only applies to region company
performance. Additionally, we have changed the schedule to smooth out
the curve. The minimum payout will now be at 70% achievement rather
than 71%.
O Participation criteria. You must be an active associate at time
of payment to be eligible for a bonus. For this past year, the
participation criteria was to be an active associate as of the end of
the fiscal year.
O Sales associates who participate in the Management Bonus Plan
will no longer participate in this Plan. They will have a separate
plan that places more emphasis on sales growth.
See the applicable section of the Bonus Plan for details about these changes.
The Plan
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How much can I earn? How does the plan actually work?
Based on your position, a bonus eligible associate has the opportunity
to earn a percentage of his or her annual base salary (called your
"targeted bonus opportunity"). This bonus is based upon the extent to
which you, your company and Airgas achieve certain results by the end
of the fiscal year. Depending on the combined performance of these
three, your bonus can be more or less than your targeted bonus
opportunity. Any bonus earned is paid annually and is paid no later
than 75 days following the end of the fiscal year.
Financial calculations are done using year-end data and taking into
account acquisitions, divestitures and other unusual non-recurring
events that occur during the fiscal year.
The following sections explain the three bonus categories (Airgas
Consolidated Financials, Company Financials and Accountabilities). See
Exhibit I for additional administration information about the plan.
If you have questions after reading about the plan, please talk to
your Manager.
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Airgas Consolidated Financials
Overall Weighting - 30% of Your Bonus Opportunity
The weighting of this portion of the Plan has been reduced from 40% in
FY '00 to 30% in FY '01. This was done to better reward you in those
areas where your efforts have the biggest direct impact, your company.
We changed this factor to one measurement, Earnings Per Share (EPS).
This was done so that all our efforts are focused on the measurement
that has the greatest impact on our stock price. Additionally, it
simplifies this portion of the plan since we now have only one
measurement whereas in the past we had three.
The factor measured under this portion of the plan and its weightings
is:
Factor Weighting
------ ---------
EPS 100%
How do I calculate my bonus under this portion of the plan?
Achievement of this portion of the plan will be based on EPS (after
bonus accruals). The following chart shows the percentage of your
bonus you earn based on different EPS amounts achieved.
EPS % Payout
less than $0.53 0%
$0.53 - $0.54 10%
$0.55 - $0.56 15%
$0.57 - $0.58 25%
$0.59 50%
$0.60 100%
$0.61 105%
$0.62 110%
$0.63 120%
$0.64 130%
$0.65 140%
$0.66 150%
For each penny of EPS above $0.66, the bonus payout will increase 10%.
Assume the associate has a targeted bonus opportunity of $5,000 and
EPS at the end of the fiscal year is $0.60, then
$0.60 EPS = 100% Achievement Percentage
30% x $5,000 x 100% = $1,500 (Bonus payment for this factor)
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Company Financials
Overall Weighting - 30% of Your Bonus Opportunity
The weighting under this portion of the Plan have increased from 25%
in FY '00 to 30% in FY '01. This was done to better reward you where
your efforts have the greatest impact. The factors measured under
this portion of the plan and their weightings are:
Factor Weighting
------ ---------
Earnings Before Interest , 55%
Taxes, Depreciation and
Amortization (EBITDA)
Debt Repayment 25%
Sales Growth 20%
How do I calculate my bonus under this portion of the plan?
Your company's actual EBITDA is taken as a percentage of planned
EBITDA as stated in your company's Fiscal Year 2001 Business Plan.
This percentage is then multiplied by its weighting of 55%.
For debt repayment, actual debt repayment is taken as a percentage of
planned debt repayment until achievement reaches 100%. For
incremental achievement over 100%, achievement will be measured by the
difference between actual and planned debt repayment divided by
beginning debt plus total shareholder's equity ("equity"). This
achievement percentage is then multiplied by its weighting of 25%.
For sales growth, we will be looking at the improvement in sales from
Fiscal Year 2000 to Fiscal Year 2001 as compared to Plan. This
achievement is then multiplied by its weighting of 20%.
All calculations are done using a same-store sales basis.
The following shows how the calculations are done:
For EBITDA, assume:
Actual FY '01 EBITDA = $2.1 million
Planned FY '01 EBITDA = $2 million
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Actual EBITDA 2.1
--------------------- = ------------- = 105% achievement
Planned EBITDA 2
105% achievement x 55% weighting = 58%
For Debt Repayment:
If achievement is less than 100% of plan, assume:
Actual FY '01 Debt Repayment = $7 million
Planned FY '01 Debt Repayment = $8 million
Actual Debt Repayment 7
------------------------ = ------------ = 88% achievement
Planned Debt Repayment 8
88% achievement x 25% weighting = 22%
Alternatively, if achievement is greater than 100% of plan, assume:
Actual FY '01 Debt Repayment = $10 million
Planned FY '01 Debt Repayment = $8 million
Beginning Debt + Equity = $200 million
Actual - Planned Debt Repayment 10 - 8
1 + -------------------------------- = 1 + ------ = 101% achievement
Beginning Debt + Equity 200
101% achievement x 25% weighting = 25%
For sales growth, assume:
Actual FY '00 Sales = 80 million
Actual FY '01 Sales = $84.3 million
Planned FY '01 Sales = $84 million
Actual Sales Growth (84.3 - 80)
--------------------- = ------------- = 108% achievement
Planned Sales Growth (84 - 80)
108% achievement x 20% weighting = 22%
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After doing the calculations, the result from each of the factors is
added together. This sum (Achievement Percentage) is then compared
against the Bonus Potential as shown on Exhibit II. The Bonus
Potential (from Exhibit II) that corresponds to the Achievement
Percentage is multiplied by 30% (weighting for this category) of your
targeted bonus opportunity to determine the bonus to be paid.
Continuing with our above example (using the above-plan debt repayment
example), assume the associate has a targeted bonus opportunity of
$5,000:
58% + 25% + 22% = 105% Achievement Percentage
112.5% = Bonus Potential as shown on Exhibit II
30% x $5,000 x 112.5% = $1,688 (Bonus payment for this factor)
Accountabilities
Overall Weighting - 40% of Your Bonus Opportunity
The weighting for this portion of the Plan has increased from 25% in
FY '00 to 40% in FY `01 since the "One Airgas" portion of the plan
(introduced in FY '00) has been merged into this section.
Your manager will meet with you to develop a list of measurable
objectives that you and he or she agree are important to your personal
development needs and/or support our goal of becoming "One Airgas."
You must have the following two "One Airgas" Accountabilities included
in this portion of the plan:
O Radnor brand product sales must be at least 10% of your company's
total hardgood sales for fourth quarter FY `01.
O All required vendor code and part number standardization must be
completed and approved within the time frames specified for your
company.
When discussing your accountabilities with your manager, you and your
manager will agree upon a weighting for each accountability. No
accountability can be given a weighting of less than 20%. Therefore,
the maximum number of Accountabilities you can have is five. The
total of the weightings must equal 100%. All accountabilities should
be clearly measurable and should represent "stretch" goals that are
attainable yet challenging.
Included as Exhibit III [not filed] is an Accountabilities template.
The template includes the worksheet used to document your
Accountabilities.
How do I calculate my bonus under this portion of the plan?
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Radnor brand product sales must account for at least 10% of your
company's total hardgoods sales in the fourth quarter of FY '01. If
sales are at least 10%, then 100% achievement for this factor will be
met. (This is an all-or-nothing component; there will be no payout
under this factor if Radnor brand product sales do not reach the 10%
threshold.)
Vendor code and part number standardization achievement will also be
an all or nothing measurement. There will be no payout unless all
required vendor code and part number standardization is fully
completed and done on time.
For any other Accountabilities you may have under this portion of the
plan, your manager will determine the degree to which you accomplished
each of your accountabilities based on the measurement criteria
established with you at the beginning of the fiscal year.
The extent to which you achieved/completed your first Accountability
is then multiplied by its weighting. This is repeated for the
remaining Accountabilities. The product (results) from each
Accountability is added together. This sum is then multiplied by 40%
of the associate's target bonus opportunity to determine the bonus
earned under this portion of the plan.
The maximum achievement percentage for your Accountabilities,
individually or as group, is 100%.
For example, assume an associate has been assigned the following
Accountabilities:
Accountability I: All vendor codes and hardgood part numbers must be
standardized in CU and approved by December 30, 2000.
Weighting: 40%
Accountability II: Radnor brand products must be at least 10% of the
company's hardgood sales for fourth quarter FY '01.
Weighting: 40%
Accountability III: Will prominently display and sell spools of Radnor
brand solid wire as the store brand. This will be evidenced by Radnor
brands solid wire sales accounting for at least 10% of total solid
wire sales by March 30, 2001.
Weighting: 20%
At the end of the year, assume the company and associate have
achieved:
Accountability I = 100% x 40% (weighting) = 40%
Accountability II = 100% x 40% (weighting) = 40%
Accountability III = 80% x 20% (weighting) = 16%
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40% + 40% + 16% = 96%
Assume that the associate has a target bonus opportunity of $5,000:
40% x $5,000 x 96% = $1,920 (Bonus payment for this factor)
What happens if the "One Airgas" factors do not apply to my position?
Your manager will then replace one or both of these factors (depending
on which factors do not apply to you) and replace them with objective,
measurable Accountabilities that apply to everyone in your department.
How It All Works
If you have any questions about the Plan, please talk to your Manager.
He or she will be happy to answer your questions.
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EXHIBIT I
Administration
O An associate must be hired by December 31 of the current fiscal
year (i.e., December 31, 2000) to be eligible to participate in this
plan for the current fiscal year. A new hire's bonus opportunity will
be pro-rated to reflect the number of months he or she was an
associate of Airgas during the current fiscal year.
O An associate must be an active employee at time of payment to be
eligible for a bonus. This payment will be made no later than 75 days
following the end of the fiscal year.
O If an associate transfers from one Airgas company to another, his
or her bonus calculation is based on the pro-rated time spent with
each company. All calculations are done using year-end financial
data. Accountabilities must be established by each company and
performance measured against each group of accountabilities
separately.
O If an associate is promoted during the fiscal year, new
Accountabilities must be established to reflect the new position.
O If an associate is moved from a bonus eligible position to a non-
bonus eligible position (or vice versa), the bonus calculation is pro-
rated to represent the time worked by the associate as a bonus
eligible employee. All calculations are done using year-end financial
data.
O Bonus calculations are based on an associate's annual salary as
of the last day of the fiscal year. However, if the associate is
promoted (or demoted and the associate has had a reduction in salary)
during the fiscal year, the calculation is done to reflect the pro-
rated time spent in each position. All calculations are done using
year-end financial data.
O If an associate is on a leave of absence at the end of the fiscal
year, he or she will be eligible for a bonus provided that he or she
returns to work as an active employee for at least one month within 13
weeks of the end of the fiscal year. Any bonus paid will be pro-
rated based upon the length of time an associate was an active
employee during the fiscal year. The calculation will be made using
year-end financial data. The bonus payment will be made in the next
regularly scheduled payroll cycle at the end of the associate's first
month of employment following his or her leave of absence.
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O If an associate is on a leave of absence during the fiscal year
and returns to active status during the year, he or she will be
eligible for a bonus. Any bonus paid will be pro-rated based upon the
length of time an associate was an active employee during the fiscal
year. The calculation will be made using year-end financial data.
O Accountabilities (individually or as a group) cannot have an
achievement greater than 100%.
O Those eligible for participation are listed below. However, for
those below the level of Company President (or the equivalent), actual
participation is determined by the associate's Company President; the
Vice President, Gas Operations; the Vice President, Hardgoods; or the
Vice President, Marketing, as applicable. (Sales management
associates are not eligible to participate in this Plan. They are
eligible to participate in the Sales Management Bonus Plan.)
O Company Presidents and their direct reports,
O Those designated by their Company President for participation,
O The Vice President, Gas Operations and his or her direct
reports,
O The direct reports of those reporting to Vice President, Gas
Operations,
O President, Eastern and Western Divisions,
O Eastern and Western Division staff,
O Vice President, Marketing and his or her direct reports and
O Those designated by the Vice President, Gas Operations; and
Vice President, Marketing.
O Participants may be given the opportunity to elect to receive
their bonus in stock, in lieu of cash. (If this option is made
available at a later date, participants will receive additional
information.)
O Nothing in this bonus plan changes an associate's at-will
employment status.
O The Company reserves the right to modify or terminate this bonus
plan or any of its components at its discretion.
O The Nominating and Compensation Committee, or its designate, is
responsible for the administration of this plan.
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EXHIBIT II
Bonus Payout Schedule
This chart is used for the Company Financials portion of the bonus
plan. The bonus potential is multiplied by the weighting for each
factor. Note: For each 1% achievement over 120%, the payout will be
an additional 2.5%.
Achievement Bonus
Percentage Potential
70% 20%
71% 22%
72% 24%
73% 26%
74% 28%
75% 30%
76% 32%
77% 34%
78% 36%
79% 38%
80% 40%
81% 42%
82% 44%
83% 46%
84% 48%
85% 50%
86% 54%
87% 58%
88% 62%
89% 66%
90% 70%
91% 74%
92% 78%
93% 82%
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Achievement Bonus
Percentage Potential
94% 86%
95% 90%
96% 92%
97% 94%
98% 96%
99% 98%
100% 100%
101% 102.5%
102% 105%
103% 107.5%
104% 110%
105% 112.5%
106% 117%
107% 119.5%
108% 121%
109% 123.5%
110% 126%
111% 128.5%
112% 131%
113% 133.5%
114% 136%
115% 138.5%
116% 141%
117% 143.5%
118% 147%
119% 148.5%
120% 150%
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Exhibit III - Accountabilities template [not filed]
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ASSOCIATE ACKNOWLEDGMENT
I acknowledge that I have received a copy of the Fiscal Year 2001
Bonus Plan. I further acknowledge that I understand that any Fiscal
Year 2001 bonus I may be eligible for will be determined by the provisions
of this bonus plan.
______________________ _______________
Associate Printed Name Date
______________________ _______________
Associate Signature Airgas Company
