ADC Telecommunications, Inc. Management Incentive Plan for Fiscal Year 2002
ADC Telecommunications, Inc. established this Management Incentive Plan for the 2002 fiscal year to reward eligible executives and certain managers with financial incentives based on company and individual performance. The plan runs from November 1, 2001, to October 31, 2002, and covers regular employees in qualifying positions, excluding temporary staff and contractors. Incentive payments are determined by business performance metrics, individual performance ratings, and base salary, and are paid after the fiscal year ends. Employees must meet specific employment criteria to qualify for payment, and awards are subject to board approval and company performance thresholds.
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Exhibit 10-d
ADC The Broadband Company™
Management Incentive Plan Document
Fiscal Year 2002
MANAGEMENT INCENTIVE PLAN DOCUMENT
Fiscal Year 2002
Plan Name and Effective Date
The name of this Plan is the ADC Telecommunications, Inc. Management Incentive Plan. The plan is effective from November 1, 2001 through October 31, 2002.
Purpose
The purpose of the Plan is to provide, with full regard to the protection of shareholder's investments, a direct financial incentive for eligible managers and individual contributors to make a significant contribution to ADC's established goals.
Eligibility
Eligibility for Fiscal Year 2002 is limited to full or part-time regular executives, certain management and higher-level individual contributor positions. Temporary employees and independent contractors are not eligible for participation in this plan. In order to be eligible, an employee cannot participate in any other ADC incentive plan other than the stock option program and must be employed in an eligible position on or before October 1, 2002.
Timing of Payment
Payments that become due under this Plan are made as soon as administratively feasible following the close of ADC's fiscal year. In the past, this payment date has generally occurred in late December. All payments are subject to appropriate withholdings.
Plan Goals
The Plan reinforces the key goals that support ADC's long-term strategic plans. These goals differ across business groups.
Although EVA Improvement has been and continues to be a key measure of ADC success, it will not be directly measured in this year's Plan. Rather, the Plan will focus on the key EVA Improvement drivers of revenue, expense as a percent of revenue and balance sheet measures.
The balance sheet goal is a measurement of how well ADC manages cash flow and may be in the form of free cash flow, inventory turns or days sales outstanding depending upon business unit.
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Following is a description of each plan component:
| Plan Goal | Definition | |
|---|---|---|
Revenue | The value ADC can recognize for goods shipped or services provided to our customers, net of returns received and in accordance with U.S. accounting principles (GAAP). | |
Expense as a Percent of Revenue | Operating and fixed cost of sales expenses expressed as a percent of revenue: Pro-Forma Operating Expense + Fixed Cost of Sales Expenses Revenue | |
Free Cash Flow | Total cash provided by our operating activities less property and equipment purchases: (Total Cash Provided by Operating Activities) — (Property and Equipment Purchases) | |
Inventory Turns | Measures how fast we move inventory through our factories and distribution centers. Payment will be based on a rolling three-month average as of October 2002. The following calculation will be used: [Three-month sum of Direct Cost of Sales/# of working days in those months] * # of working days in fiscal year (Mo. 1 Ending Direct Inventory + Mo. 2 + Mo. 3)/3 | |
Days Sales Outstanding (DSO) | Measures how quickly we collect money owed to ADC for the products and services we sell. Payment will be based on the internal DSO calculation as of October 31, 2002: Average Gross Accounts Receivable Average Daily Net Sales over the previous 13-week period |
Individual Performance
In addition to the business performance goals, an individual performance factor will be applied to the calculation of incentive payments for 2002. The individual multiplier will be based on the performance ratings as defined in the new ADCperform performance management system and will be applied at the time of payment as follows:
| Rating | Individual Performance Adjustment | |
|---|---|---|
1 (Top 5-10%) | Business Performance × 1.5 | |
2 (Middle 80-90%) | Business Performance × 1.0 | |
3 (Bottom 5-10%) | Business Performance × 0.5 |
Minimum Performance Payment Requirement
To ensure protection of shareholder interest, a minimum level of operating income must be achieved before an incentive payment can be generated.
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Calculation of Payment
Prior to making any payment under this Plan, the Board of Directors must agree that the claimed performance levels have been achieved. The size of an incentive award will be based on four factors:
- 1.
- Target Incentive Opportunity —expressed as a percentage of an individual's FY 2002 eligible base salary earnings.
- 2.
- FY2002 Eligible Base Salary Earnings . This is the amount actually paid to the participant during the fiscal year in Base Salary. Base Salary for purposes of this Plan includes paid time off (such as vacation, sick pay or PTO), and excludes any salary continuation pay paid through ADC payroll and any disability insurance paid by an insurer.
- 3.
- Business Performance against the established goals.
- 4.
- Individual Performance Multiplier .
The range of potential awards can be from zero to three times the target award. At target business and Level 2 individual performance, the award would be 100% of the stated target percent of Base Salary Earnings.
For the business performance factors, this can be expressed as follows:
| Threshold | Annual Operating Plan (AOP) | Target | Maximum | |||
|---|---|---|---|---|---|---|
| 0% of Target Incentive Opportunity | 50% of Target Incentive Opportunity | 100% of Target Incentive Opportunity | 300% of Target Incentive Opportunity |
Results between threshold-target, AOP-target, and target-maximum are interpolated for each goal.
Here is an example of a hypothetical award calculation. Refer to the Goal Sheet for the performance factors and weightings that apply.
Assume a Business Unit Plan participant with the following facts:
Target Opportunity: | 15% of base salary earnings | |
Base Salary Earnings: | 60,000 | |
Performance Rating: | Level 2 | |
ADC Operating Income: | Performance above threshold |
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Metrics | Measure Weighting | Performance | Wtd. Perf. | |||||
|---|---|---|---|---|---|---|---|---|
| ADC Level Metrics | ||||||||
| ADC Revenue | 33.3 | % | 105 | % | 35.0 | % | ||
| Expense % of Revenue | 33.3 | % | 95 | % | 31.6 | % | ||
| Free Cash Flow | 33.3 | % | 115 | % | 38.3 | % | ||
| 104.9 | % | |||||||
Business Unit Level Metrics | ||||||||
| Revenue | 33.3 | % | 110 | % | 36.6 | % | ||
| Expense % of Revenue | 33.3 | % | 90 | % | 30.0 | % | ||
| Inventory Turns or DSO | 33.3 | % | 98 | % | 32.6 | % | ||
| 99.2 | % | |||||||
Overall Weighted Performance | ||||||||
| ADC Metrics | 40 | % | 104.9 | % | 42.0 | % | ||
| Business Unit Metrics | 60 | % | 99.2 | % | 59.5 | % | ||
| 101.5 | % | |||||||
Payment Calculation: 60,000 (base salary) * 15% (incentive target) * 101.5% (business performance) * 1.0 (individual performance factor)= 9,135 | ||||||||
Effect of Change in Employment Status
Termination of Employment . If employment with ADC is terminated for any reason other than death and if the Employment Termination Date occurs prior to the end of the Fiscal Year, a participant will not receive an award under the Plan. For purposes of this Plan, the "Employment Termination Date" is the date that the participant ceases to be an employee of ADC (as determined by the company). In the case of termination of employment by ADC, the Employment Termination Date shall be determined without regard to whether such termination is with or without cause or with or without reasonable notice.
Transfer, Promotion or Demotion to another position with a different ADC incentive plan, target incentive opportunity or business goals . A participant, who transfers, is promoted or demoted to another position with a different plan, target incentive opportunity or business goals will receive a prorated calculation of payment based upon the number of full months served in each position. The participant must be in the new position by the first of the month and remain in the position for a full month in order to receive credit for that month under the new plan, target or goals. Full year earnings will be prorated based on the number of full months eligible under each plan. For example, a participant transferring from Software Systems to Connectivity on June 10 would receive eight months payment under the Software Systems plan (November-June) and four months under Connectivity (July-October). In order to receive payment under the plan during the plan year, a participant must have completed one full month of service under the plan.
Death . If a participant dies during the fiscal year, a pro-rated payment will be made to the participant's estate. The payment will be based upon the time the participant served in the eligible position during the fiscal year.
Administration
A Management Incentive Plan Committee ("Committee"), appointed and authorized by the Company's Board of Directors, will administer this Plan. Subject to the complete and full discretion of the Board of Directors, the Committee is authorized to make all decisions as required in administration
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of the Plan and to exercise its discretion to define, interpret, construe, apply, approve, administer, withdraw and make any exceptions to the terms of the Plan.
Right to Modify
ADC reserves the right to modify or adjust the Plan at any time in its sole discretion. The Participant explicitly agrees with this modification right of ADC.
Governing Law
The Plan is made and shall be continued in accordance with the laws of the State of Minnesota, U.S.A.
Severability
If any provision of this Plan shall be held invalid, illegal or unenforceable by a court or tribunal of competent jurisdiction, this Plan shall be deemed severable and such invalidity, illegality or unenforceability shall not affect any other provision of this Plan which shall be enforced in accordance with the intent of this Plan.
Assignment
The Company shall have the right to assign this Plan to its successors and assigns and this Plan shall inure to the benefit of and be enforceable by said successors and assigns. Participant may not assign this Plan or any rights hereunder.
Entire Understanding
This Plan constitutes the entire understanding between the parties regarding the payment of incentive compensation under this Plan, and it supercedes any and all prior agreements or understandings, whether oral or written, express or implied, on such subject matter.
Amendment or Termination of Plan
The Plan shall not entitle Participants to any future compensation. The Plan is not an element of the employees' salary or base compensation and shall not be considered as part of such in the event of severance, redundancy, or resignation. ADC has no obligation to offer incentive plans to Participants in the future. The Participant understands and accepts that the incentive payments made under the Plan are entirely at the sole discretion of ADC. Specifically, ADC assumes no obligation to the Participant under this Plan with respect to any doctrine or principle of acquired rights or similar concept. Subject to the provisions of the Plan, ADC may amend or terminate the Plan or discontinue the payment of incentives under the Plan at any time, at its sole discretion and without advance notice.
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