[ ] Schedule ABC 16b Annual Incentive Compensation Plan
Exhibit 10.2
[ ] Schedule
ABC 16b Annual Incentive Compensation Plan
Pursuant to the Executive Officer Annual Incentive Compensation Plan (the “Governing Plan”), the Compensation Committee of the Arkansas Best Corporation Board of Directors (the “Compensation Committee”) has adopted the following Individual Award Opportunities, Performance Measures, and Participants for Arkansas Best Corporation and its subsidiaries for the [ ] — ABC 16b Annual Incentive Compensation Plan (the “[ ] Plan”). The Compensation Committee has determined that the [ ] Plan incentive will include the following components:
| [ ] Operating Income Improvement over Operating Income Baseline for [ ] (“Operating Income Component”) | 50% weighting |
| ROCE Component | 50% weighting |
The weighting of the components is determined by the Compensation Committee for each Measurement Period.
I. Defined Terms
A. Base Salary for Executive Officers. Base Salary for Executive Officers (Executive Officer for this purpose is defined as an employee who, as of the last day of the applicable Plan Year, is covered by the compensation limitations of Code Section 162(m) or the regulations issued thereunder) is defined as an Executive Officer’s total base salary paid, while an eligible Participant in the [ ] Plan, for the designated Measurement Period, but in no event shall the Base Salary for an Executive Officer exceed the monthly base salary for the Executive Officer as most recently approved by the Compensation Committee as of the end of the day on which the Plan is approved for the Measurement Period or, if later, the day on which the Participant becomes an Executive Officer with a salary approved by the Compensation Committee, multiplied by twelve, multiplied by 150%. Base Salary is not reduced by any voluntary salary reductions or any salary reduction contributions made to any salary reduction plan, defined contribution plan or other deferred compensation plans of the Company, but does not include any payments under the Plan, any stock option or other type of equity plan, or any other bonuses, incentive pay or special awards.
B. Base Salary. Base Salary for Participants other than Executive Officers is defined as a Participant’s total base salary paid, while an eligible Participant in the [ ] Plan, for the designated Measurement Period. Base Salary is not reduced by any voluntary salary reductions or any salary reduction contribution made to any salary reduction plan, defined contribution plan or other deferred compensation plans of the Company, but does not include any payments under the Governing Plan, any stock option, restricted stock or other type of equity plan, or any other bonuses, incentive pay or special awards.
C. Measurement Period. The Measurement Period is 1/1/[ ] to 12/31/[ ].
D. Retirement. Retirement shall mean Participant’s retirement from active employment at or after age 65 or retirement from the Company or Subsidiary at or after age 55, so long as the Participant has, as of the date of such retirement, at least 10 years of service with the Company or any Subsidiary. Officers and/or Executive Officers must be a Participant in the Plan during the Plan Year for not less than ninety (90) days prior to his or her Retirement to be eligible for an incentive under the [ ] Plan.
II. Participants
Eligible Participants in the [ ] Plan are listed in Appendix C and certain employees or positions may be specifically included or excluded by the Compensation Committee.
If you are promoted to an eligible position after November 30, [ ], you will not be eligible to participate in the [ ] Plan.
If an Eligible Participant in the [ ] Plan also participates in the Arkansas Best Corporation [ ] Change in Control Plan, the terms of the Arkansas Best Corporation [ ] Change in Control Plan shall govern.
III. Corporate Performance Metrics
Operating Income Component: The Individual Award Opportunities provided by the Operating Income Component are based on (a) achieving certain levels of Operating Income in [ ] that exceed the Operating Income Baseline for [ ] and (b) Your Target Payout Factor Earned. The formula below illustrates how your incentive is computed:
Your Incentive Payment= [Performance Factor Earned x Your Target Payout Factor x Your Base Salary x the Operating Income Component Weighting]
A. Performance Factor Earned. Performance Factor Earned is shown in Appendix A and depends on the Operating Income improvement achieved.
B. Target Payout Factor. Your Target Payout Factor is a percentage of your Base Salary. The Target Payout Factors are listed in Appendix C.
ROCE Component: The Individual Award Opportunities provided by the ROCE Component are based on (a) achieving certain levels of performance for ABC’s Consolidated Return on Capital Employed (“ROCE”) and (b) your Target Payout Factor. The formula below illustrates how your incentive is computed:
Your Incentive Payment = [Performance Factor Earned x Your Target Payout Factor x Your Base Salary x the ROCE Component Weighting]
A. Performance Factor Earned. Performance Factor Earned is shown in Appendix B and depends on the ROCE achieved by ABC for the year.
B. Target Payout Factor. Your Target Payout Factor is a percentage of your Base Salary. The Target Payout Factors are listed in Appendix C.
If the performance result falls between two rows on Appendix A or Appendix B, interpolation is used to determine the factor used in the computation of the incentive.
The Compensation Committee has established maximum incentive amounts based on a maximum Performance Factor Earned of 200% of your Target Payout Factor for the Operating Income Component and the 300% of your Target Payout Factor for the ROCE Component subject to the applicable weighting for each component as provided in Appendix A and Appendix B.
IV. Payment of Award
Payment will be made as soon as practicable following the end of the Measurement Period, and in any event, no later than 2 ½ months after the end of the Measurement Period.
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V. Annual Incentive Compensation Plan
Defined terms in this [ ] ABC 16b Annual Incentive Compensation Plan Schedule shall have the same meaning as in Executive Officer Annual Incentive Compensation Plan and the Annual Incentive Compensation Plan except where the context otherwise requires.
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Schedule A
[ ] Plan — Operating Income Component
ABC 16b Annual Incentive Compensation Plan
Pursuant to the Executive Officer Annual Incentive Compensation Plan (the “Governing Plan”), the Compensation Committee of the Arkansas Best Corporation Board of Directors (“Compensation Committee”) has adopted this Operating Income Component as a component of the [ ] Plan, including the following Individual Award Opportunities and Performance Measures for Arkansas Best Corporation and its subsidiaries.
I. Performance Measure
Operating Income is defined as operating income as shown by the consolidated financial statements and consistent with the historical determination of operating income in Arkansas Best’s financial statements after taking into account the Section II Required Adjustments.
[ ] Operating Income Improvement is defined as Operating Income for [ ] in excess of the Operating Income Baseline for [ ] as determined under the terms of the Plan.
Operating Income Baseline for [ ] is equal to $[ ] ([ ] operating income of $[ ] before Required Adjustments listed below).
II. Required Adjustments
The following adjustments shall be made when calculating Operating Income:
| (i) | add back any annual or long-term incentive compensation accruals for nonunion employees of ABC and all subsidiaries when determining Operating Income; |
| (ii) | add back the direct third-party expenses associated with an acquisition by ABC or any Subsidiary; |
| (iii) | exclude the operating results (all revenue, expenses and taxes) for any business acquired between the beginning of the Measurement Period and the end of the Measurement Period; |
| (iv) | exclude expenses resulting directly from reorganization and restructuring programs for which amounts are publicly disclosed; |
| (v) | exclude increases or decreases in Operating Income resulting from any extraordinary, unusual or non-recurring item as described in the Accounting Standards Codification topic(s) that replaced or were formerly known as Accounting Principles Board Opinion No. 30, as amended or superseded; |
| (vi) | exclude increases or decreases in Operating Income resulting from any change in accounting principle as defined in the Accounting Standards Codification topic(s) that replaced or were formerly known as Financial Accounting Standards Board (“FASB”) Statement 154, as amended or superseded; |
| (vii) | exclude any loss from a discontinued operation as described in the Accounting Standards Codification topic(s) that replaced or were formerly known as FASB Statement 144, as amended or superseded; |
| (viii) | exclude goodwill impairment charges; and |
| (ix) | exclude settlement accounting charges incurred that relate to the qualified defined benefit pension plan. |
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III. Discretionary Adjustments
Prior to a Change In Control, the Compensation Committee may reduce any Participant’s Final Award if the Compensation Committee determines, in its sole discretion, that events have occurred or facts have become known which would make a reduction appropriate and equitable.
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Schedule B
[ ] Plan — ROCE Plan Component
ABC 16b Annual Incentive Compensation Plan
Pursuant to the Executive Officer Annual Incentive Compensation Plan (the “Governing Plan”), the Compensation Committee of the Arkansas Best Corporation Board of Directors (“Compensation Committee”) has adopted this ROCE Component as a component of the [ ] Plan, including the following Individual Award Opportunities and Performance Measures for Arkansas Best Corporation and its subsidiaries.
I. Performance Measure
ROCE for ABC is calculated as the following ratio:
Net Income + After-tax Effect of Interest Expense
+ After-tax Effect of Imputed Interest Expense + After-tax Effect of Amortization of intangibles and depreciation of
the June 15, 2012 cost of Intrans software related to purchase of Panther — After-tax Effect of Income from
Cash and Short-term Investments Attributable to the reduction in Average Debt
Average Equity + Average Debt + Average Imputed Debt
“Net Income” for the ROCE calculation is consolidated net income determined in accordance with Generally Accepted Accounting Principles after taking into account the Section II Required Adjustments.
“Interest Expense” for the ROCE calculation is (i) interest on all long and short-term indebtedness, including capital leases, and other interest bearing obligations, and (ii) deferred financing cost amortization and other financing costs including letters of credit fees, reduced by the amount of interest expense on debt not included in Average Debt as defined below.
“Imputed Interest Expense” consists of the interest attributable to Average Imputed Debt assuming an interest rate of 7.5%.
“Average Debt” is the average of the beginning of the year and the end of the year current and long-term debt, with beginning of the year and end of the year current and long-term debt reduced by the respective amount of the beginning of the year and end of the year total of unrestricted cash, cash equivalents and short-term investments, and limited to a reduction of debt to zero.
“Average Equity” is the average of the beginning of the Measurement Period and the end of the Measurement Period stockholder’s equity.
“Average Imputed Debt” consists of the average of the beginning of the year and the end of the year present value of all payments determined using an interest rate of 7.5% on operating leases of revenue equipment with an initial term of more than two years.
“Amortization of intangibles and depreciation of the June 15, 2012 cost of Intrans software related to purchase of Panther” consists of the amortization and depreciation expense attributable to the June 15, 2012 allocated value of Panther intangible assets and Intrans software and includes any impairment charge related to those assets.
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“Income from Cash and Short-term Investments Attributable to the reduction in Average Debt” consists of income earned on the amount by which Average Debt is reduced at the average interest rate earned in cash and short-term investments for the measurement period.
II. Required Adjustments
The following adjustments shall be made when calculating ROCE:
| (i) | add back the after-tax incentive compensation accruals under any annual or long-term incentive compensation plan for nonunion employees of ABC and any of its Subsidiaries when determining Net Income; |
| (ii) | add back after-tax direct third party expenses associated with an acquisition by ABC or any Subsidiary; |
| (iii) | exclude the net results (all revenue, expenses and taxes) for any business acquired between the beginning of the Measurement Period and the end of the Measurement Period from the numerator of the ratio and exclude any Acquisition Debt attributable to the business acquired (either directly held by the business or incurred to acquire the business) from the denominator in the ratio calculation; |
| (iv) | exclude decreases in Net Income resulting directly from reorganization and restructuring programs for which amounts are publicly disclosed; |
| (v) | exclude increases or decreases in Net Income resulting from any extraordinary, unusual or non-recurring item as described in the Accounting Standards Codification topic(s) that replaced or were formerly known as Accounting Principles Board Opinion No. 30, as amended or superseded; |
| (vi) | exclude increases or decreases in Net Income resulting from any change in accounting principle as defined in the Accounting Standards Codification topic(s) that replaced or were formerly known as Financial Accounting Standards Board (“FASB”) Statement 154, as amended or superseded; |
| (vii) | exclude any loss from a discontinued operation as described in the Accounting Standards Codification topic(s) that replaced or were formerly known as FASB Statement 144, as amended or superseded; |
| (viii) | exclude the effect on ROCE of changes to net income, equity and debt as a result of any change in accounting principle as defined in the Accounting Standards Codification topic(s) that replaced or were formerly known as Accounting Principles Board Opinion No. 30, as amended or superseded; |
| (ix) | exclude the effect of changes in federal income tax law or regulations affecting reported results during the Measurement Period including increases or decreases in tax rates or the addition or elimination of tax credits. A change for this purpose will be as compared to the laws and regulations in effect on January 1, [ ], without consideration of any retroactive changes in tax law after January 1, [ ]; and |
| (x) | exclude goodwill impairment charges; and |
| (xi) | exclude settlement accounting charges incurred that relate to the qualified defined benefit pension plan. |
III. Discretionary Adjustments
Prior to a Change In Control, the Compensation Committee may reduce any Participant’s Final Award if the Compensation Committee determines, in its sole discretion, that events have occurred or facts have become known which would make a reduction appropriate and equitable.
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Appendix A
Operating Income Component
|
|
| [ ] Operating Income |
| Performance |
|
|
| Less than $ 20,000000 |
| 0% |
| Threshold |
| $20,000,000 |
| 25% |
|
|
| $30,000,000 |
| 50% |
|
|
| $40,000,000 |
| 75% |
| Target |
| $50,000,000 |
| 100% |
|
|
| $65,000,000 |
| 150% |
| Maximum |
| $80,000,000 |
| 200% |
|
|
| Greater than $ 80,000,000 |
| 200% |
Operating Income Component Weighting: 50%
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Appendix B
[ ] ROCE Component
|
|
| Return on Capital |
| Performance Factor |
|
|
|
|
|
|
|
|
| Less than 5% |
| 0% |
| Threshold |
| 5% |
| 50% |
|
|
| 6% |
| 60% |
|
|
| 7% |
| 70% |
|
|
| 8% |
| 80% |
|
|
| 9% |
| 90% |
| Target |
| 10% |
| 100% |
|
|
| 11% |
| 140% |
|
|
| 12% |
| 180% |
|
|
| 13% |
| 220% |
|
|
| 14% |
| 260% |
| Maximum |
| 15% |
| 300% |
|
|
| Greater than 15% |
| 300% |
ROCE Component Weighting: 50%
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Appendix C
Target Payout Factors
| Participants/Job Title |
|
|
| ABC President & CEO |
| [ ]% |
| ABF Freight President & CEO |
| [ ]% |
| ABF Logistics President |
| [ ]% |
| ABC Senior Vice President — Tax & Chief Audit Executive ABC Senior Vice President — CFO & CIO ABC Senior Vice President — Enterprise Customer Solutions |
| [ ]% |
| ABC Vice President — General Counsel & Corporate Sec. |
| [ ]% |
| ABC Vice President — Controller ABC Vice President — Economic Analysis ABC Vice President — Human Resources ABC Vice President — Real Estate |
| [ ]% |
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