This excerpt taken from the AKS DEF 14A filed Apr 22, 2005.
Long-Term Incentive Awards
The fundamental purposes of the Companys Long-Term Performance Plan are to associate the interests of management more closely with those of the Companys shareholders, to assist the Company in recruiting, retaining and motivating a highly talented group of individuals who will successfully manage the Company in a way which benefits all of its stakeholders, to link a portion of managements compensation to the performance of the Company, and to increase the focus of management on the Companys long-term performance by establishing performance goals that support long-term strategies. Through 2004, those performance goals were based upon relative performance by the Company to a peer group of other steel producers. For 2004, that peer group consisted of United States Steel Corporation, Nucor Corporation, Ispat Inland, Inc. and International Steel Group, Inc.
More specifically, performance under the LTPP has been measured through 2004 on the basis of the Companys relative EBITDA per tonthat is, its earnings before interest expense, provision for income taxes, depreciation and amortization (excluding special and unusual items) per ton of steel shipped compared to the EBITDA per ton of its peer group. For purposes of the LTPP, this performance has been assessed both annually and cumulatively over a performance period of three years, with a new performance period commencing annually. Up to 50% of an executive officers LTPP award may be made in the form of a grant of shares of restricted stock, which vests with respect to 20% of the shares on each of the first through fifth anniversaries of the award date. Payouts for 2002 through 2004 are shown in the Summary Compensation Table on page 9.
In 2005 the Compensation Committee of the Board of Directors reviewed the Companys existing LTPP with its independent executive compensation consultant to evaluate the extent to which the LTPP was achieving its purposes. Based upon that review, the Compensation Committee concluded that it would enhance the probability of achieving those purposes if the LTPP were amended and restated to replace the current relative EBITDA per ton performance metric with an absolute cumulative EBITDA performance metric. More specifically, the Committee determined to modify the existing LTPP to (i) change the basic metric from EBITDA per ton to cumulative EBITDA, (ii) eliminate the relative nature of the metric (i.e. the comparison to a peer group) and have it be based instead solely on the performance of the Company, and (iii) go to a single award for a three-year performance period rather than divide the award between a one-year and a three-year performance period. Under the proposed new LTPP, the Committee would establish cumulative EBITDA threshold, target and maximum payout goals at the start of each three-year performance period. The threshold must be met before any payout would be made. There would be a linear progression of the payout for achievement of a cumulative EBITDA between the threshold, target and maximum payout goals. Additionally, all payouts, if any are earned, would be in cash. Because (1) the payout under the proposed new LTPP would be predicated solely on a three-year performance period (as opposed to a one-year and a three-year period under the existing LTPP), and (2) there is no longer an adequate peer group due to consolidation in the industry to properly and fairly apply the performance metric of the existing LTPP, the Committee established transitional one and two-year goals to be used in the first and second year of the new LTPP. Thereafter, payouts would only be made based upon three-year performance periods. These changes were recommended by the Compensation Committee to, and approved by, the Board on March 17, 2005, subject to approval by the shareholders at the Companys 2005 annual meeting. See Approval of the Amendment and Restatement of the Companys Long-Term Performance Plan beginning on page 31.
Under either the existing LTPP or the proposed amended and restated LTPP, the payout to each participating executive is determined by multiplying the executives base salary for the performance period (annualized, based upon his or her monthly rate of base salary during the last month of the performance period) against a target percentage in order to arrive at a performance award target amount (Target Amount). Each participating executive is assigned a target percentage by the Compensation Committee. Those percentages currently range from 50% to 100% for the Named Executives. For each performance period, the Committee also establishes a threshold performance goal, a target performance goal and a maximum performance goal. If the threshold goal is not achieved for a particular performance period, no award is made under the LTPP for that
period. If the threshold goal is achieved, then each participating member will receive an LTPP award equal to one half of his or her Target Amount. If the target goal is achieved, then each participating member will receive an LTPP award equal to his or her Target Amount. If the maximum goal is achieved, then each participating member will receive an LTPP award equal to twice his or her Target Amount.
No payment is made to an LTPP participant who has voluntarily resigned or been discharged for cause prior to the scheduled date of payout. Upon retirement or certain other qualifying termination events, a participant is entitled under the LTPP to an amount equal to twice the amount paid or to be paid to the participant on the LTPP award date occurring during the year of his or her retirement or termination, less the amount of any LTPP award already actually made during that year. This payout is in lieu of any amounts to which the participant otherwise might have been entitled with respect to performance periods that commenced prior to, but expire after, the participants retirement or other qualifying termination event.