FORM 8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
February 18, 2009
Allegheny Technologies Incorporated
(Exact name of registrant as specified in its charter)
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| Delaware
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1-12001
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25-1792394 |
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(State or other jurisdiction
of incorporation)
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(Commission
File Number)
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(IRS Employer
Identification No.) |
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| 1000 Six PPG Place, Pittsburgh, Pennsylvania
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15222-5479 |
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| (Address of principal executive offices)
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(Zip Code) |
Registrant’s telephone number, including area code (412) 394-2800
N/A
(Former name or former address, if changed since last report).
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements with Certain Officers.
(e) 2009 Compensation and Awards.
A. Base Salaries for 2009
On February 18, 2009, the Personnel and Compensation Committee (the “Committee”) of the Board
of Directors of Allegheny Technologies Incorporated (the “Company”) approved the annual base
salaries of the Company’s named individuals after a review of performance and competitive market
data. The Company decided to freeze executive salaries for 2009; therefore, there were no base
salary increases for the named individuals.
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| NAME AND POSITION |
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BASE SALARY |
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L. Patrick Hassey |
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$ |
910,000 |
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Chairman, President
and Chief Executive Officer |
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Richard J. Harshman |
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$ |
428,000 |
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Executive Vice President, Finance
and Chief Financial Officer |
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Jon D. Walton |
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$ |
428,000 |
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Executive Vice President, Human
Resources, Chief Legal and
Compliance Officer, General Counsel
and Corporate Secretary |
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Terry L. Dunlap |
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$ |
400,000 |
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Group President, ATI Flat-Rolled Products and
Business Unit President ATI Allegheny Ludlum |
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B. Annual Incentive Plan for 2009
The Committee set performance goals and opportunities for the 2009 fiscal year under the
Annual Incentive Plan (“AIP”) at its meeting on February 18, 2009. For Messrs. Hassey, Harshman
and Walton, attainment of performance goals for determining individual AIP bonuses will be based
entirely on the degree to which the Company as a whole attains predetermined levels of the
following performance measures with the relative weighting as shown below:
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Relative |
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| Predetermined Levels of: |
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Weight |
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Operating earnings |
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40 |
% |
Operating cash flow |
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30 |
% |
Manufacturing Improvements |
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10 |
% |
• Inventory Turns (5%) |
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• Yield Improvements (5%) |
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Safety and Environmental Compliance |
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10 |
% |
• Lost time incidents (5%) |
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• Recordable Incidents (5%) |
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Customer Responsiveness |
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10 |
% |
• Delivery performance (5%) |
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• Quality/Complaints (5%) |
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For Mr. Dunlap, attainment of the performance goals for determining his AIP bonus will be based 35%
on the degree to which the Company as a whole attains the foregoing predetermined performance
levels with relative weighting, and 65% on the degree to which ATI Allegheny Ludlum attains the
foregoing predetermined performance levels and same relative weighting.
The individual AIP opportunities are granted at “Threshold,” “Target” and “Maximum” levels,
which are predetermined levels of achievement of the performance goals and are expressed as a
percentage of base salary. The Committee widened the performance ranges for threshold and maximum
performance for the 2009 AIP. The Committee also determined that the AIP for 2009 provides appropriate stretch at threshold,
target and maximum performance levels. For Mr. Hassey, the respective percentages of his base
salary that may be paid to him under AIP for 2009 based on the relative levels of achievement are
87.5% at Threshold, 175% at Target and 350% at Maximum. For each of Messrs. Harshman and Walton,
the Committee determined that the percentages of base salary to be paid under AIP for 2009 at
Threshold would be 50%, at Target would be 100% and at Maximum would be 200%. For Mr. Dunlap, the
Committee determined that the percentages of base salary to be paid under AIP for 2009 at Threshold
would be 40%, at Target would be 80% and at Maximum would be 160%.
Under the AIP, the Committee retains negative discretion to reduce actual amounts payable to
each individual by up to 20% if the individual does not achieve goals determined appropriate by the
Committee. The Committee also has the discretion to pay additional amounts as annual bonus if it
determines that such additional amounts are warranted under the circumstances, including achieving
financial performance in excess of the Maximum performance goals set for the year. No
discretionary additional amount would be performance-based compensation for purposes of Section
162(m) of the Internal Revenue Code of 1986, as amended.
No AIP will be paid to the named individuals if operating earnings are below the predetermined
minimum. In addition, a prerequisite to any award under AIP, as well as under the long term plans
discussed below, is compliance with the Company’s Corporate Guidelines for Business Conduct and
Ethics.
C. Long-Term Incentive Programs with Performance Measurement Periods Beginning in 2009
At its February 18, 2009 meeting, the Committee awarded shares of Company common stock under
the Performance/Restricted Stock Program (“PRSP”) subject to the restrictions and performance
features described below. Also, the Committee established a performance measurement period under
the Company’s Total Shareholder Return Incentive Compensation Program (“TSRP”) measuring total
shareholder return for the period January 1, 2009 through and including December 31, 2011 and
determined award opportunity levels for that period. In addition, the Committee established a
performance measurement period for the period January 1, 2009 through December 31, 2011 under the
Company’s Key Executive Performance Plan (“KEPP”) and set performance goals and award opportunities
under the KEPP. The Company does not grant stock options as part of the long-term incentive
program.
(1) PRSP
The Committee determined that shares of Company common stock granted under the PRSP in 2009
provides appropriate balance between pay for performance and executive retention and would be
subject to the following restrictions and performance features.
One half of the number of shares granted to an individual would be subject to
performance-based restrictions and would vest, if at all, if the Company’s net income determined in
accordance with generally accepted accounting principles exceeded an aggregate of $300 million for
the period January 1, 2009 through and including December 31, 2011 and the participant was then an
employee of the Company (except for retirement, death or disability). If that level of aggregate
net income is not exceeded for the three-year period ending December 31, 2011, or if the
participant is no longer an employee of the Company for any reason other than retirement, death or
disability before December 31, 2011, the shares of stock subject to performance-based restrictions
would be forfeited.
The other one half of the number of shares granted to an individual would vest on the earlier
of (i) December 31, 2011, if the net income threshold described above for performance-based
restricted shares is met for the three-year period ending December 31, 2011, or (ii) February 18,
2014, if the participant is then an employee of the Company (except for retirement, death or
disability).
Cash dividends declared on the Company’s common stock will be paid in cash to holders of
performance/restricted stock. The aggregate number of shares of performance/restricted stock
granted to an individual is determined by dividing a predetermined percentage of the individual’s
base salary by the average of the high and low trading prices of a share of Company common stock on
the date of grant. The following table shows the respective percentage of base salary used to
determine the number of shares of performance/restricted stock for the named individuals:
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| Name |
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Percentage |
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Mr. Hassey |
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200 |
% |
Mr. Harshman |
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125 |
% |
Mr. Walton |
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125 |
% |
Mr. Dunlap |
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100 |
% |
(2) TSRP
The Company’s TSRP measures the Company’s relative total shareholder return (generally, the
change in the trading price of a share of common stock of the Company plus dividends paid) (“TSR”)
for the performance measurement period against the total shareholder return of a group of publicly
traded companies deemed comparable by the Committee for the same performance measurement period. A
target number of shares, determined by dividing a predetermined percentage of an individual’s base
salary by the average of the closing price of a share of the Company’s common stock for the thirty
business days preceding January 1, 2009, will be delivered in 2012 to TSRP participants if the
Company’s relative TSR is at the 50th percentile. One half of the target number of
shares will be delivered if the level of the Company’s TSR performance is at the 25th
percentile, twice the target number if the level of the Company’s TSR performance is at the
75th percentile and three times the target number if the level of the Company’s TSR
performance is at the 90th percentile or higher; interpolation is made on a straight
line basis. The following table shows the percentage of base salary used to determine the target
number of shares for the TSRP award for the 2009 – 2011 performance measurement period for the
named individuals:
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Percentage |
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Mr. Hassey |
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200 |
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Mr. Harshman |
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125 |
% |
Mr. Walton |
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125 |
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Mr. Dunlap |
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100 |
% |
(3) KEPP
The Company’s KEPP is a performance-based long-term cash incentive plan in which seven key
individuals, including the four named individuals, participate and will receive cash payments if,
but only if, a predetermined level of aggregate income before taxes is attained or exceeded for the
applicable performance measurement period.
Operationally, the KEPP program is divided into two levels. Level One requires payment of cash
bonuses if a designated level of aggregate income before taxes is reached. Level Two is a separate
bonus pool formed if pre-set strategic goals are achieved that permits participants to earn awards
even if the pre-set financial goals under Level One are not achieved. The purpose of Level Two is
to direct the management team to perform specific actions that, if achieved, the Company expects
will result in outstanding earnings over a three-year period. At the February 18, 2009 meeting,
the Committee specified and weighted 14 specific key strategic objectives under Level Two which are
unique to the business and plans of the Company and which the Committee believes are essential to
position the Company for sustained financial performance not only for the 2009 – 2011 performance
measurement period but also for years thereafter.
The levels of aggregate income before taxes specified by the Committee for the 2009 – 2011
performance measurement period under KEPP are amounts of earnings that the Committee believes
represent a platform for growth. KEPP for the 2009 – 2011 performance measurement
period is denominated in ten different levels of aggregate income before taxes starting at a
minimum amount of $375 million in aggregate income before taxes and increasing in increments of
$115 million for each of the successive nine gradients, up to a maximum of $1.41 billion in
aggregate income before taxes.
At the lowest gradient, $375 million in aggregate income before taxes for the 2009 – 2011
performance measurement period, the Level One and Level Two bonus pools are each approximately
0.84% of the target amount of aggregate income before taxes. Level One bonus pools under KEPP
increase on a graduated scale as aggregate income before taxes increases through the specified
gradients and reach a maximum of 2.23% of the aggregate income before taxes at the highest of the
ten gradients. Level Two bonus pools, subject to the Committee’s negative discretion, increase at
the same graduated scale used for Level One for the first five gradients of aggregate income before
taxes, and thereafter the Level Two bonus pool decreases on a graduated scale as aggregate income
before taxes increases through the gradients, so that no bonus pool under Level Two is available at
the highest gradient of aggregate income before taxes. No additional KEPP payment is made in
respect of aggregate income before taxes in excess of $1.41 billion for the 2009 – 2011 KEPP
performance measurement period.
Under the banking feature of KEPP, if the actual achievement for any one year in a particular
KEPP performance measurement period equals or exceeds a pro rata target gradient, KEPP participants
earn one third of the KEPP payment for that gradient and that amount is paid after the end of the
KEPP performance measurement period. Banked amounts for prior periods that have been earned but
not yet paid are reported in the proxy statement compensation tables in the years earned.
At the February 18, 2009 meeting, the Committee also determined the amounts of cash bonuses
that would be paid under Level One at each gradient of aggregate income before taxes and the amount
subject to the Committee’s negative discretion at each gradient of aggregate income before taxes
under Level Two. The following table shows the approximate average percentage of the bonus pools
payable to the named individuals under the KEPP for the 2009 – 2011 performance measurement
period:
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Percentage |
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Mr. Hassey |
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28.8 |
% |
Mr. Harshman |
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13.6 |
% |
Mr. Walton |
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13.6 |
% |
Mr. Dunlap |
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12.7 |
% |
D. Target Setting Considerations under Incentive Plans
The Committee set target levels for performance measures for the 2009 AIP and the for the
three-year measurement period (2009-2011) under the PRSP and the KEPP in light of the challenging
business conditions that prevailed through 2008 and into the first quarter of 2009. The Committee
acknowledged general economic forecasts that challenging conditions were likely to continue at
least through 2009. AIP target performance was set to match the Company’s current internal
forecasts.
The Committee elected to maintain the relative weight of the incentive programs as compared to
total target compensation as in past years. The Committee was advised that base salary levels at
the Company continued to be at less than 50th percentile of the group of public
companies used by the Committee to benchmark compensation and that, given the Committee’s choice to
keep base salary at 2008 levels, the base salary levels at the Company may decrease in percentile
terms as against the comparable group. ATI’s total compensation package for the named individuals
is highly leveraged with the majority of the compensation comprised of variable compensation
elements. Base salary as a percentage of total compensation if actual performance is at target is
13% for Mr. Hassey; 18% for each Mr. Harshman and Mr. Walton and 21% for Mr. Dunlap.
The Committee chose to maintain the relatively higher weight placed on performance in the
Company’s programs. Under this design, the named individuals are expected to earn total
compensation under these programs at the 50th percentile if actual performance is at
target for each program. If target is not reached by actual performance, the relative compensation
of the named individuals will be less than median. If actual performance exceeds target, the
relative compensation of the named individuals will exceed the median of the comparable group to
the extent that, if the maximum level of performance under the KEPP is achieved, total compensation
for the three-year period (assuming a constant stock price at the award value) could reach or
exceed the 90th percentile.
The Committee believes that these opportunity levels are justified not only by the relative
weighting of incentive to guaranteed performance but also by the aggressive target performance
levels set by the Committee. The Committee believes that the target requirements are significant
challenges to management. If achieved, the rewards to management will be relatively high as
compared to the peer group, but the Company will have been positioned for continued profitable
growth with enhanced titanium sponge, titanium melt, nickel-based superalloy melt, and finishing
capabilities and improvements in its other businesses. The Committee’s advisors informed the
Committee that the performance requirements set by the Committee are at growth levels that exceed
the average of the growth levels of other members of the peer group.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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ALLEGHENY TECHNOLOGIES INCORPORATED |
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By:
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/s/ Jon D. Walton |
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Jon D. Walton
Executive Vice President, Human Resources,
Chief Legal and Compliance Officer |
Dated: February 24, 2009