AK Steel Holding (AKS)

2005 Compensation Process and Overall Program

As it has done historically, in 2005 the Committee engaged an independent consultant for executive compensation matters and directed the consultant to develop competitive compensation data that would reflect current conditions at the Company and in the industry, and conform to the Committee’s above-stated philosophy and policies with respect to executive compensation. The Committee considered and relied upon the consultant’s report and information in establishing base salary and determining awards of restricted stock, performance shares and stock options to individual Executive Officers for 2005. The Committee further considered the Company’s performance, the individual contribution of particular members of management to that performance, the need to retain and motivate the Company’s management team in the context of the continued difficult financial conditions and strong industry competition facing the Company, and the other factors. Based upon these considerations, and the report and competitive data supplied by the independent consultant retained by the Committee to review the Company’s executive compensation program, the Committee believes that the compensation packages provided by the Company to its executive officers, taken as a whole, are reasonable, competitive and appropriate.

2004 Compensation Process and Overall Program

In 2004, consistent with past practices, the Committee engaged an independent consultant for executive compensation matters and directed the consultant to develop compensation recommendations that would reflect current conditions at the Company and in the industry, and conform to the Committee’s philosophy and policies

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with respect to executive compensation. The Committee considered and relied upon the consultant’s report and recommendations in establishing base salary and determining awards of restricted stock and options to individual executive officers for 2004. The Committee also considered the Company’s performance, the individual contribution of particular members of management to that performance, the need to retain and motivate the Company’s management team in light of the extremely difficult financial conditions facing the Company at the time, and the other factors identified in this report. Based upon these considerations, and the report and recommendation of the independent consultant retained by the Committee to review the Company’s executive compensation program, the Committee believes that the compensation packages provided by the Company to its executive officers, taken as a whole, are reasonable and fair, and are consistent with the executive compensation packages provided by comparable publicly-owned companies to executives of similar rank and function.

In 2004, the Committee also undertook an evaluation of the then-existing form of the executive officer severance agreement to determine whether its terms were still appropriate in the context of current Company and industry conditions. Based upon the Committee’s review, it determined that the existing agreement should be separated into two different agreements, one to address severance in the event of termination after a change in control and another to address severance in the event of termination outside of a change in control circumstance. The Committee then engaged an independent executive compensation consultant to assist in determining what would be an appropriate and fair level of severance benefits under each form of agreement. In determining to reduce the benefits payable upon severance of employment under both forms of agreement, in particular in the context of severance outside of a change-in-control circumstance, the Committee considered and relied upon the consultant’s report and recommendations, current conditions at the Company and in the industry, and its evaluation of current executive compensation practices in this country generally. The Committee further modified both forms of agreement to strengthen the ability of the Company to terminate an executive officer’s employment for cause without payment of any severance benefits.

On January 20, 2005, the Compensation Committee recommended to the Board, and the Board approved, the grant of special awards to executive officers and selected key managers of the Company relating solely to the performance of the Company in 2004. Each award consisted of a grant of shares of restricted stock pursuant to the Company’s SIP. The stock will vest ratably on each of the first three anniversaries of the grant date and was valued initially at $13.70, an amount equal to the average of the highest and lowest sales prices of the Company’s common stock on the New York Stock Exchange on the grant date. In making these special restricted stock grants, the Board stated that the purpose was to reward the members of management who most contributed to the success of the Company in 2004. In that regard, the Board noted that the Company’s financial performance and condition had improved dramatically in 2004 from where it was in September of 2003 when the Board acted to replace both the Chief Executive Officer and the President of the Company with Mr. Wainscott. The Board observed that, under the leadership of Mr. Wainscott and his management team, the Company had significantly increased its shipments and gross revenues, substantially reduced its controllable costs, significantly increased its liquidity and reduced its outstanding debt, and returned to profitability. Further, in 2004 the Company not only continued to honor its commitments to its retirees, but also made a $150 million contribution to its pension fund more than a year in advance of its due date. It was the view of the Board that all of the Company’s stakeholders have benefited from this extraordinary performance, including the Company’s stockholders, who experienced a more than 460% increase in the market price of the Company’s common stock from September 18, 2003 to December 31, 2004.