MTS Systems Corporation Exhibit 10.a to Form 10-K





 


MTS Systems Corporation

Management Variable Compensation (MVC) Plan 



















(Revised October, 2003) 






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Table of Contents  





	Section
			Page
	
	1.	 	General Purpose of the Plan	 	3	 
	
2.	 	Definitions	 	3	 
	
3.	 	Eligibility and Participation	 	3	 
	
4.	 	Plan Goals	 	4	 
	
5.	 	Payout Opportunity	 	4	 
	
6.	 	Determining the Payout	 	4	 
	
7.	 	Relationship to Other Compensation Plans	 	5	 







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Section 1.     General Purpose of the Plan  



The name of this plan is the MTS
Systems Management Variable Compensation Plan (the “Plan”). The purpose of the
Plan is to focus efforts on achievement of near term financial objectives which are
critical to the success of MTS Systems Corporation; to reward accomplishments when
performance meets or exceeds established targets or business plan objectives; and to more
closely tie total compensation (salary plus variable) to the financial results and
performance of the company. No employment contract is implied by participation in the
Plan. 




Section 2.     Definitions  



Definitions as used in the Plan are: 



	  	a.  	  	“CEO” means
the Chief Executive Officer duly elected by the Board.  






	  	b.  	  	“Company” means
MTS Systems Corporation, a corporation organized under the laws of the State of Minnesota
(or any successor corporation).  






	  	c.  	  	“Employee” means
an employee of the Company, whether or not an officer or member of the Board, but
excluding any temporary employee and any person serving the Company only in the capacity
of a member of the Board.  






	  	d.  	  	“Participant” means
an Employee who is eligible to participate in the Plan.  






	  	e.  	  	“Plan” means
the MTS Systems Corporation Management Variable Compensation Plan.  






	  	f.  	  	“Plan
Year” means the applicable fiscal year of the Company.  






Section 3.     Eligibility and Participation  




Employees eligible to participate in
the Plan will include: 



	  	•  	  	Executives 






	  	•  	  	Managers
& technical supervisors 






	  	•  	  	Key marketing or
technical employees who meet certain minimum responsibilities for profitability,
financial/human resource acquisition and allocation, balance sheet control,
and/or market/technical direction. 







Employees eligible for
other variable compensation (i.e. commissions) are not eligible to participate
in the Plan. 



Participants must also work
at least 1,000 hours in the Plan Year and be employed at the end of the Plan
Year to be eligible for a payout. Employees resigning or terminating before the
end of the Plan Year, regardless of cause, are not eligible for a payout.
Participants who work less than full time during the Plan Year (g., due to a
personal leave, but not due to illness) would earn a proportionately reduced
payout. 



The CEO must approve any
waivers to the eligibility and participation rules listed above. 





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Section 4.     Plan Goals  



Achieving financial results
is one of the main objectives of the Plan. For the Executive Management Team,
all goals are financial. For all other participants, the goals are a combination
of plan financial and operating goals. The financial goals for the Plan Year
include: 




• Earnings Per Share (EPS)

• Earnings Before Interest and Taxes (EBIT)

• Working Capital Rate to Revenue (WCRR)

• Revenue  




The operating goals reflect group
accountability and are related to the operating unit where the employee has a direct
impact. 




The goals are established based on
the following list of approved business unit levels: 




	  	
AeroMet

Corporate

Friction Stir Welding

Sensors Software & Consulting

Test 






The goals for participants
below the direct reports to the CEO require one- over-one approval to:





	  	
• Integrate goals into the Company operating plan

• Guard against conflicting goals

• Help to assure consistency in degree of difficulty 






The CEO has the final approval for
plan goals over all participants other than himself. 



Section 5.     Payout Opportunity  




The MVC target payment is expressed
as a percentage of salary level midpoint and is assigned at the beginning of the Plan
Year. Incentive payments vary above and below the target percent based on the financial
results in comparison to the established goals. 



The MVC target percentage is assigned
based on salary level, scope of responsibility, and profit impact of the position. These
target percentages are reviewed annually with market survey information and are
competitive within similar companies and industries. The MVC target percentage range by
type of position is listed below: 



	Type of Position
		MVC Target % range
	
	Executive	 	30% – 70%	 
	
Manager/Technical Supervisor/	 
	Key Technical Employee	 	6% – 25%	 





Overranging is when the payout is
greater than 100% because the actual results are above established goals. An overranging
multiplier is assigned to each financial goal. For all positions, the MTS EPS goal must be
met or exceeded before the overranging multiplier for each established goal is applied.
There is no overranging potential for operating goals. 





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	Payout Opportunity – Executive 
	

	Weight 	  	30% 	  	50% 	  	20% 	  
	

	Goal 	  	Corp EPS 	  	BU EBIT or 	  	BU WCRR or 	  
	  	  	  	  	BU Revenue 	  	BU Revenue 	  
	

	Over Range Multiplier 	  	2 	  	3 	  	2 	  
	

	Maximum Over-ranging 	  	60% 	  	150% 	  	40% 	  
	

	Total 	  	250% Maximum Over-ranging 
	

	BU: Business Unit 







	Payout Opportunity – Manager/Technical Supervisor/Key Technical Employee 
	

	Weight 	  	20% 	  	50% 	  	20% 	  	10% 	  
	

	Goal 	  	Corp EPS 	  	BU EBIT 	  	BU WCRR or
BU Revenue	  	Operating Objective 	  
	

	Over Range Multiplier 	  	2 	  	3 	  	2 	  	1 	  
	

	Maximum Over-ranging 	  	40% 	  	150% 	  	40% 	  	10% 	  
	

	Total 	  	240% Maximum Over-ranging 	  
	

	BU: Business Unit 






Section 6. Determining the Payout  



Payouts are based on four
factors: 1) the degree to which goals are met; 2) the MVC target percentage; 3)
the midpoint of the salary range as assigned at the beginning of the Plan Year;
and 4) the percentage of time worked during the Plan Year. 




Each goal is assigned a
payout range. The minimum level or hurdle represents that level of performance
below, which no award is to be paid. The stretch target and maximum stretch
target of a payout range represents performance above target and overranging may
apply at these levels. The sum of the relative weightings of the objectives must
equal 100%. 




Payouts will be made within
90 days of the end of the Plan Year, expected to be on or before December 31.




Section 7.     Relationship to Other Compensation Plans  




7.a     “Non-Management” Variable Compensation (VC) 




Employees may be eligible for a
variable compensation bonus at the end of the Plan Year if they are not eligible to
participate in another variable compensation program (i.e. Management Variable
Compensation, sales commissions); work at least a 1,000 hours during the Plan Year; and
are employed by the Company at the end of the Plan Year. 



The following is an outline summary
to which these VC plans must adhere. They are included in the MVC Plan for reference only. 




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	  	• 	  	VC
Competitive payout potential is 3% of the midpoint of the salary range in which the
employee is placed at the beginning of the fiscal year.  






	  	• 	  	VC
payout will normally be based on the combination of the results of a corporate goal and
the employee’s vice president’s goals for the year.  






	  	• 	  	The
entire 3% VC payout potential is eligible for overranging for participating employees.  






	  	• 	  	Eligibility
and participation rules for VC will be the same as those for MVC, where appropriate. 






	Payout Opportunity – Non-Management 
	

	Weight 	  	30% 	  	60% 	  	20% 	  
	

	Goal 	  	Corp EPS 	  	BU EBIT 	  	BU WCRR or 	  
	  	  	  	  	  	  	BU Revenue 	  
	

	Over Range Multiplier 	  	2 	  	3 	  	3 	  
	

	Maximum Over-ranging 	  	40% 	  	180% 	  	60% 	  
	

	Total 	  	280% Maximum Over-ranging 
	

	BU: Business Unit 






7.b     Retirement Plan 



The calculations for the Management
Variable Compensation Plan and Variable Compensation Plan are made after deductions for
retirement plans. 



Payout to a U.S. based participant in
the Management Variable Compensation Plan and Variable Compensation Plan is included in
the calculation of the Company’s contribution to that employee’s retirement
plan. 





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