exv10w1



 





Exhibit 10.1




Schnitzer Steel Industries, Inc.




ANNUAL INCENTIVE COMPENSATION PLAN




Effective Date: September 1, 2006



The following are the terms of the Schnitzer Steel Industries, Inc. (the “Company,” “Schnitzer
Steel” or “SSI”) Annual Incentive Compensation Plan (the “Plan”) for certain employees of the
Company and its subsidiaries and affiliates. References to the “Company,” “Schnitzer Steel” or
“SSI” shall be deemed to refer instead to a subsidiary or affiliate as the context requires for a
particular employee, employed by such subsidiary or affiliate.





	 	1.	 	Purpose of the Plan






In order to align employee incentives with shareholder interests, incentive
compensation will reward the achievement of performance goals established under the
Plan.





	 	2.	 	Eligibility






Participation of the Company’s employees in the Plan will be determined by the Company
in its sole discretion, and employment by the Company does not automatically entitle
an employee to participate. Eligibility for the Plan is limited to regular, full time
and part time employees (as determined by the Human Resources Policy #250 Employee
Definition) and its subsidiaries and affiliates who have worked for the Company for a
minimum of 90 consecutive days, exclusive of the employees subject to a collective
bargaining agreement unless such agreement expressly provides otherwise (collectively,
the “Employees” or “Participants”). Newly hired regular, full time or part time
Employees who meet the criteria for participation are eligible to earn their first
bonus based under the Plan from their date of hire through the end of the applicable
fiscal year, provided they meet the minimum duration of employment as stated in this
Section 2.




	 	3.	 	Target Bonus






The Company will assign to each Participant a target bonus expressed as a
percentage of the Participant’s earnings in the fiscal year as calculated by the
Company. For this purpose, earnings include the items listed in Exhibit A. The
target bonus percentage varies by level of responsibility within the Company. The
Human Resources Department maintains the list of Participants and their target bonus
percentages. Target bonus percentages for executive officers of the Company will be
established by the Compensation Committee of the Company’s Board of Directors (the
“Compensation Committee”). The target bonus for each Participant is determined by
multiplying the employee’s earnings during the fiscal year by the target bonus
percentage.




	 	4.	 	Performance Targets






Payouts under the Plan will be based on the level of achievement of performance goals
established by the Compensation Committee. The Compensation Committee shall specify
the performance goals, levels of payouts and weight assigned to each performance
measure. For fiscal 2007, payouts under the Plan will be based on achievement of
performance goals relating to divisional economic profit (“Economic Profit,” as
defined in Section 4(a)), Company earnings per share growth (“EPS Growth,” as defined
in Section 4(b)) and individual performance. The Compensation Committee can specify
different payout levels based on the achievement of performance measures at various
levels, such as threshold performance, target performance and stretch performance.
Payouts for performance below a threshold level and additional payouts for performance
above a stretch level are at the discretion of the Compensation Committee considering
all relevant factors. Unless



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otherwise determined by the Compensation Committee, each performance goal operates
independently, and payout is determined solely on that performance goal. A
Participant’s target bonus based on a particular performance measure is the target
bonus multiplied by the percentage weight assigned by the Compensation Committee to
that performance measure.




For fiscal year 2007, for Participants in each of the operating divisions (Auto Parts
Business, Metals Recycling Business, and Steel Manufacturing Business), the payout
formula will be weighted 70% on achieving divisional Economic Profit goals, 15% on
achieving EPS Growth goals, and 15% on achieving individual goals. The Plan
Administrator will designate the division for each Employee. For Participants in the
Shared Services Division, the Economic Profit payout will be calculated using the
weighted average of the payout multiples based on actual Economic Profit of the
operating divisions. In the event that any operating division records an Economic
Profit that is zero or negative, the percentage weighting for that division will be
based on that division’s target Economic Profit as a percentage of the sum of the
three divisions’ Economic Profit targets. The percentage weighting for any division
with positive Economic Profit will be calculated by dividing such actual Economic
Profit by the sum of the actual Economic Profit for all divisions in which such
amounts are positive, and multiplying that amount by the number equal to 100% less the
percentage weighting for each division with a zero or negative Economic Profit.




	 	(a)	 	Economic Profit. Economic Profit is defined as divisional net operating
profit after tax (NOPAT) minus the divisional capital charge. Net operating profit
after tax is defined as divisional operating income, as reported in the Company’s
financial statements, less an imputed charge for taxes based on the Company’s reported
consolidated effective tax rate. The divisional capital charge is defined as the
division’s invested capital multiplied by the weighted average cost of capital assigned
to that division by the Compensation Committee in its sole discretion. A division’s
invested capital is defined as total assets minus total liabilities plus long-term debt
and intercompany balances.







In calculating Economic Profit, the Compensation Committee shall have full authority
to take into account and make adjustments for significant non-recurring and
extraordinary items, including, but not limited to, certain expenditures, such as IT
and other infrastructure expenditures, which are incurred in order to produce benefits
in future periods. In addition, the Economic Profit goals for each division will be
adjusted at year end to reflect the actual effective tax rate recorded by the Company
in its year end financial statements.




	 	(b)	 	EPS Growth. The Company’s EPS Growth for the 2007 fiscal year shall be
equal to the EPS for fiscal 2007 minus the EPS for the fiscal 2006, with that difference
then divided by the EPS for fiscal 2006. For purposes of the Plan, the “EPS” for fiscal
2006 shall be deemed to be $3.97, reflecting the elimination of certain large
non-recurring items. “EPS” for fiscal 2007 shall mean the Company’s diluted earnings
per share for fiscal 2007, as set forth in the audited consolidated financial statements
of the Company and its subsidiaries for that fiscal year, as adjusted by the
Compensation Committee to appropriately take into account any non-recurring or
extraordinary items or transactions, including, but not limited to, certain
expenditures, such as IT and other infrastructure expenditures, and the effects of
changes in the accounting treatment of any items.







	 	(c)	 	Individual Goals. For fiscal year 2007, 15% of each Plan award shall be
based on the Participant achieving his or her individual goals. Written individual
goals (which may reflect team goals for more operationally based employees) will be
established for each Participant under procedures established by the Plan Administrator
and maintained by Human Resources.





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	 	5.	 	Determination of Achievement of Performance Targets. Following
completion of the Company’s audited financial statements, the Compensation Committee
will determine the level of achievement of Company and divisional performance goals and
the achievement of individual goals of executive officers. The achievement of
individual goals of other Participants will be determined under procedures established
by the Plan Administrator.







	 	6.	 	Payment Date. The payment of annual bonuses under the Plan will be made
in cash (net of withholding) on a date selected by the Company after the Company’s
financial statement audits are completed (each a “Payment Date”) to Participants who
remain employed by the Company on the Payment Date (other than those Participants whose
employment was terminated as a result of death, disability, retirement or involuntary
termination without cause).







	 	7.	 	Administration and Guidelines of the Plan







Administration of the Plan is at the sole discretion of the Company’s Chief Executive
Officer (the “Plan Administrator”) except with respect to the Company’s executive
officers, for whom the Plan shall be administered by the Compensation Committee, and
as otherwise provided in the Plan. The Compensation Committee shall have full
authority to interpret the Plan. Guidelines for the calculation of and adjustments to
certain items may be established at the direction of the Plan Administrator and will
be maintained by the Company’s Chief Financial Officer. The Plan may be amended in
whole or in part from time to time, or terminated in its entirety at any time, by the
Compensation Committee.




	 	8.	 	New Hires/Promotions






An individual who is hired or promoted into a position that participates in the Plan
may be eligible for a bonus award so long as he or she has been employed full or part
time for 90 consecutive days as provided in Section 2. Unless otherwise adjusted by
the Plan Administrator or, in the case of the Company’s executive officers, by the
Compensation Committee, mid-year promotions that change the Participants’ target bonus
will be weighted based on the number of days at each target bonus level.




	 	9.	 	Transfers






Unless otherwise adjusted by the Plan Administrator or, in the case of the Company’s
executive officers, by the Compensation Committee, a Participant who transfers his or
her employment from one division to another shall have his or her bonus weighted based
on the time spent in each division, and the Participant’s weighted bonus will be based
on each division’s full year performance, prorated based upon the period the
Participant was employed in each division.




	 	10.	 	Termination of Employment






	 	(a)	 	Death or Disability






For a Participant who dies or becomes permanently disabled, as defined by the
Company’s disability policy, while in the employment of the Company, the Participant
shall be paid his or her bonus based on the Participant’s earnings for the portion of
the year the Participant was employed. For this purpose the Participant shall be
deemed to have satisfied the Participant’s individual goals. In the event of death,
the payment will be made to the Employee’s designated beneficiary or estate. Such
bonus payment shall be made on the Payment Date for the Plan year in which the death
or disability occurs.



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	 	(b)	 	Retirement






For a Participant who retires from the Company, the Participant shall be paid his or
her bonus based on the Participant’s earnings for the portion of the year the
Participant was employed. In the case of retirement on other than the last day of the
Company’s fiscal year, the Plan Administrator or, in the case of the Company’s
executive officers, the Compensation Committee shall determine the extent to which the
Participant shall be deemed to have satisfied the Participant’s individual goals. For
the purposes of this Section 10(b), a person who is at least age 55 is deemed to be
“retired” when he or she would receive retirement benefits under any of the Company’s
retirement plans. Such bonus payment shall be made on the Payment Date for the Plan
year in which retirement occurs.




	 	(c)	 	Involuntary Termination without Cause






For a Participant who is involuntarily terminated by the Company without cause (as
determined by the Plan Administrator or the Compensation Committee, as applicable),
the Participant shall be paid his or her bonus based on the Participant’s earnings for
the portion of the year the Participant was employed. For this purpose the
Participant shall be deemed to have satisfied the Participant’s individual goals.
Such bonus payment shall be made on the Payment Date for the Plan year in which the
termination occurs.




	 	(d)	 	Voluntary Resignation or Termination with Cause






Except as expressly provided in this Section 10 above, termination of employment by a
Participant or termination of a Participant’s employment by the Company with cause (as
determined by the Plan Administrator or the Compensation Committee, as applicable)
shall result in no bonus payment for the fiscal year in which such termination occurs
and, if such termination occurs before the Payment Date for the prior Plan year,
forfeiture of any bonus for such year.




	 	11.	 	Termination of EVA Bonus Plans






The Economic Value Added (“EVA”) Bonus Plans of the Company and its subsidiaries (the
“EVA Plans”) have been terminated effective as of September 1, 2006, and no bonuses
will be declared or paid under the EVA Plans for fiscal 2007 or later years. The
Compensation Committee has approved the treatment of benefits under the terminated EVA
Plans, and information regarding these matters will be communicated to participants of
the EVA Plans. Acceptance of benefits under the Plan by a Participant shall
constitute agreement to such treatment of benefits under the terminated EVA Plans.




	 	12.	 	General Provisions
	 
	 	(a)	 	Withholding of Taxes. The Company shall have the right to withhold the
amount of taxes, which it determines is required to be withheld under law with respect
to any amount payable under this Plan.

	 
	 	(b)	 	No Prior Right or Offer. Except and until expressly granted pursuant
to the Plan, nothing in this Plan shall be deemed to give any Employee any contractual
or other right to participate in the benefits of the Plan. No award to any such
Participant in any Plan period shall be deemed to create a right to receive any award
or to participate in the benefits of the Plan in any subsequent year.







	 	13.	 	Limitations
	 
	 	(a)	 	No Continued Employment. Neither the establishment of the Plan nor
the grant of an award hereunder shall be deemed to constitute an express or implied
contract of employment with any Participant for any period of time, or change an
Employee’s “at will” status, or in any way abridge





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the rights of the Company to determine the terms and conditions of employment or to
terminate the employment of any Employee with or without cause, at any time.




	 	(b)	 	Not Part of Other Benefits. The benefits provided in this Plan shall
not be deemed a part of any other benefit provided by the Company to its employees.
The Company assumes and shall have no obligation to Participants except as expressly
provided in this Plan.





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Exhibit A




Fiscal Year Earnings




Regular Pay (base salary)

Overtime (applies to non-exempt employees)

Double-time (applies to non-exempt employees)

Double-time and a half (applies to non-exempt employees)

Bereavement

Adjusted Wages

Holiday

Vacation (as applicable)

PTO (as applicable)

Sick (as applicable)

Disability Bank (“frozen” sick leave balances applicable only to those employees who were employed by the Company prior to the implementation of the PTO program)

Floating Holiday (as applicable)

Miscellaneous Fringe Benefits (pursuant to list maintained by the Company’s Human Resources Department)

Shift differential pay

Jury duty

Military leave





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