incentive with share price growth and shareholder returns. EVA
is computed by subtracting a charge for the use of
invested capital from net operating profit after-tax as illustrated below:
Capital Charge (the Amount of
Net Operating Profits After Taxes
Capital Invested by Ball
EVA
=
minus
(``NOPAT'')
multiplied by Ball's After-Tax
Hurdle Rate)
Generating profits in excess of both operating and capital costs (debt and equity) creates EVA . If EVA
improves,
value has been created.
Performance Measures--Targets are established annually for each operating unit and for the Corporation as a
whole based on prior performance. The Plan design motivates continuous improvement in order to achieve payouts at
or above target over time.
The Corporation's and/or operating unit's EVA
financial performance determines the amount, if any, of awards
earned under the Annual Incentive Compensation Plan. Such awards are based on actual EVA
performance relative to
the established EVA
target. For any one year, the EVA target is equal to the sum of the prior year's target EVA and
one-half the amount of the prior year's EVA
gain or shortfall relative to the prior year's EVA target and may be
calculated as follows:
Current Year's
Prior Year's
Prior Year's
Prior Year's
=
plus
1/2
minus
EVA
Target
EVA
Target
Actual EVA
EVA
Target
Improvement in EVA
occurs when the amount of net operating profit after-tax less a charge for capital employed
in the business increases over time. It establishes a direct link between annual incentive compensation and continuous
improvement of return on invested capital relative to a 9% after-tax ``hurdle rate.'' The Corporation has established 9%
as the ``hurdle rate'' when evaluating capital expenditures and strategic initiatives in most regions in which we do
business. This ``hurdle rate'' is above the Corporation's true cost of capital.
For a given year, a payout at 100% of target annual incentive compensation is achieved when actual EVA
is equal
to the EVA
target. Actual annual incentive payments each year can range from 0-200% of the targeted incentive
opportunity based on corporate performance and/or the performance of the operating unit over which the executive has
responsibility. For the Corporation's consolidated plan, a payout of 0% is realized when actual EVA
is $104 million less
than targeted EVA . A payout of 200% or greater may be achieved if actual EVA
is $52 million or higher than target
EVA . However any amounts over 200% of target are banked and remain at risk until paid over time in one-third
increments whenever actual performance under the Annual Incentive Plan results in a payout of less than 200% of
target. When the bank balance falls below $7,500 it is paid in full. All payments from the bank balance are made at the
same time annual incentive payments are made. In 2011, Ball's actual EVA
performance exceeded our EVA target by
$46 million and resulted in a payout of 188% of target, as shown below:
EVA
Objectives for Fiscal 2011
Target
200% Payout
Actual
$96.3 million
$148.3 million
$142.3 million
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