This excerpt taken from the AKS 8-K filed Jan 23, 2007.
Change in MIP Performance Factor Metric for Quality
On January 18, 2007, the Board of Directors (the Board) of AK Steel Holding Corporation (the Company), upon the recommendation of its Compensation Committee, approved the payment of performance awards pursuant to the Companys Management Incentive Plan (MIP) for the 2006 performance period under the MIP. This included MIP incentive payments to the Companys five Named Executive Officers (NEOs) Messrs. Wainscott, Ferrara, Gant, Horn and Kaloski. There are three performance factors which are the basis for a performance award under the MIP safety, quality and financial. With respect to the safety and financial performance factors, the payments approved by the Board were in accordance with the original goals established by the Compensation Committee for the 2006 performance period. The MIP provides, however, that the Compensation Committee has the right to establish such other parameters and procedures for determining performance awards as it deems appropriate with respect to any performance period. With respect to the quality performance factor for the 2006 performance period, the payments were in accordance with new parameters established by the Compensation Committee to reflect extraordinary circumstances and performance by the Company during 2006. More specifically, the Board approved, upon the recommendation of its Compensation Committee, the payment of performance awards at the target level for the quality component of the MIP to certain of the MIP participants, including the five NEOs, based exclusively upon the Companys outstanding performance with respect to customer claims. As a result of this change in the quality parameter, the NEOs will receive an increase in the amount of their respective MIP incentive awards as follows: Mr. Wainscott: $120,000, Mr. Ferrara: $26,000, Mr. Gant: $22,000, Mr. Horn: $34,333, Mr. Kaloski: $29,000.
In making the decision to establish new parameters for the quality performance factor of the MIP, the Board recognized that in 2006 the Company had its best ever performance with respect to customer claims and achieved its target at all of its plants with respect to that component of the MIP quality performance factor despite the fact that the Company has been operating its largest plant at Middletown, Ohio with temporary replacement workers and salaried employees since the start of a lockout at that plant on March 1, 2006. The Board noted that, ultimately, the most critical component of the Companys quality performance is the extent to which it delivers high quality, defect-free steel to its customers and that the Companys quality performance in that regard in 2006 is best reflected by its record-low incidence of customer claims. The other components of the quality performance factor as to which the Board originally had established goals were internal quality factors referred to as rejects and retreats. The Companys performance with respect to those internal factors was directly impacted at several of its plants by the labor dispute at Middletown Works and the need to train the temporary replacement workers there, particularly in the early portion of the lockout before the replacement workers gained experience. In deciding to focus solely on the external quality factor of customer claims for the quality performance factor of the 2006 MIP awards, the Board noted that it wanted to reward the Companys MIP-participating employees for their extraordinary and successful efforts to ensure that the issues which had negatively impacted the internal quality factors were not permitted to adversely affect the quality of the steel delivered to the Companys customers in 2006.
A copy of the MIP, pursuant to which the performance awards were made, was filed as Exhibit 10.3 to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2003 and is incorporated herein by reference.