This excerpt taken from the GTSI DEF 14A filed Mar 27, 2009.
Short-Term Variable Cash Incentive Awards
The Compensation Committee believes that the primary portion of the annual cash compensation of each named executive officer should be in the form of short-term variable cash incentive pay. The pay philosophy is to target annual compensation with reference to the 50th percentile of the Compensation Peer Group, with the opportunity to earn annual incentives in excess of that level based on achieving performance superior to the objectives the Compensation Committee has determined to reward. Annual cash incentives are paid to reward achievement of critical short-term operating, financial and strategic goals that are expected to contribute to shareholder value creation over time.
The annual short-term incentive awards for named executive officers for fiscal 2008 were determined under GTSIs Executive Incentive Plan (EIP) and are intended to comply with the exception for performance-based compensation under Internal Revenue Code Section 162(m). Under the EIP, cash incentive awards are based on GTSIs achievement of established financial performance goals (earnings before tax EBT). EBT is used as a performance measure because we believe that it currently represents the best measurement of our operating earnings. The annual short-term incentive is intended to be paid or not paid primarily based on actions and decisions taken for that fiscal year which directly affect earnings. Taxes are excluded because tax payments are not related to annual decisions on business operations. The Compensation Committee established the financial performance goals so that they are consistent with the goals in GTSIs fiscal 2008 business plan established by the Board.
The actual formula applied to each eligible executive officer is based on the executives overall market compensation analysis and is tied to overall Company performance, a result that is not within the individual executives control. Individual bonuses are calculated as a percentage of base salary and range from 30% to 70% in the case of officers generally, other than the Chief Executive Officer. Under his 2006 Employment Agreement, as approved by the Board, in 2008 Mr. James Leto was entitled to a short-term incentive opportunity of $500,000 at 100% payout and $1,000,000 at 200%, payable periodically in accordance with the Companys then senior bonus plan. The maximum payout on the incentive plan is 350% following the guidelines outlined below.
The Short-Term Incentive Plan is an annual program set up to reward executives for attaining significant stretch profitability goals throughout the calendar year. Bonus payments are payable in the ratio of the percentage of the goal achieved upon attainment of EBT (adjusted, if necessary, for Board-approved one-time charges). The program is measured in four quarterly segments and weighted in the following manner: 1/4th (Q1), 1/4th (Q2), 1/4th (Q3), 1/4th (Q4). The Short-Term Incentive Plan has a minimum threshold (50% performance against the quarterly EBT goal), that needs to be met for a payout to be awarded and has a maximum payout of 350% of the Executives eligible incentive. For goals attained between 125% and 225%, 25% of the amount earned over 100% attainment is deferred to year end. For goals attained between 225.1% and 250%, 40% of the amount earned over 100% attainment is deferred to year-end measurement. For goals attained between 250.1% and 350% the award is given in restricted stock assuming the annual goal is achieved. At the end of the year the Company will release any and all deferred variable incentive (cash and restricted stock) if the Company is successful in attaining its annual performance goal of at least the 125% level. Any restricted stock awarded is given with a market price set at the first Board meeting after the start of the next year (i.e., January 30, 2009). The EIP does include a favorable look-back provision throughout the year and at year end.