We provide base salaries to compensate our executive officers for services performed during the fiscal year. This provides a level of financial certainty and stability in an industry with historic volatility and cyclicality. The base salaries are designed to reflect the experience, education, responsibilities and contribution of the individual executive officers. This compensation component is initially established for each executive through individual negotiation, and is reflected in his or her employment agreement or offer letter, as applicable. Thereafter, salaries are reviewed annually for merit increases based on a number of factors, both quantitative (including detailed organizational and competitive analysis performed by an independent consultant engaged by the compensation committee) and qualitative (including the compensation committee’s perception of the executive’s experience, performance and contribution to our business objectives and corporate values). The base salaries are generally targeted to the 50th percentile for salaries as compared to our peers (all of whom are listed below).
No increases were made to any NEO salary for 2017, except for Ms. Hargis in connection with her promotion to Senior Vice President, General Counsel & Secretary. Effective December 4, 2017, Ms. Hargis' base salary was increased from $275,000 to $300,000.
2017 Base Salaries
J. Marshall Dodson
Katherine I. Hargis (1)
Scott P. Miller
(1) Amount for Ms. Hargis reflects her salary increase from $275,000 to $300,000, effective December 4, 2017, in connection with her promotion to Senior Vice President, General Counsel & Secretary.
Cash Bonus Incentive Plan
The cash bonus incentive plan is designed to pay for performance and align the interests of our executives with stockholder interests. The cash bonus incentive plan provides variable cash compensation earned only when established performance goals are achieved. It is designed to reward the plan participants, including the NEOs, who have achieved certain corporate and executive performance objectives and have contributed to the achievement of certain objectives of Key.
In January of 2017, the compensation committee approved a performance-based cash bonus plan for 2017, the 2017 Annual Incentive Plan (the “2017 AIP”), pursuant to which eligible employees, including each of the NEOs, were eligible to receive cash bonuses based on the achievement of certain performance metrics, and subject to their continued employment with the Company through payout of the 2017 AIP in 2018. The 2017 AIP is a sub-plan under the Key Energy Services, Inc. 2016 Equity and Cash Incentive Plan (the “2016 ECIP”). Individual target bonuses under the 2017 AIP were based on a percentage of each eligible employee’s base salary. Performance metrics under the 2017 AIP consisted of (i) adjusted earnings before interest expense, taxes, depreciation and amortization (“Adjusted EBITDA,” weighted 80%), (ii) safety performance (weighted 10%) and (iii) free cash flow (weighted 10%), as described in more detail below.
Adjusted EBITDA (weighted 80%). The financial target was based on Adjusted EBITDA which is defined as total revenue, less operating expenses (excluding depreciation and amortization), adjusted for non-recurring and non-cash charges as disclosed in public reporting documents. Earnout of the Adjusted EBITDA portion of the cash bonus could range between 0% and 126% of the applicable target.
Safety (weighted 10%). Positive safety results are critical in this industry to ensure the safety of our people. This goal represents the improvement required in the safety performance index made up of 4 leading and lagging indicators including (i) the Occupational Safety and Health Administration, or OSHA, total recordable incident rate (“TRIR”) of .88, (ii) Behavioral Based Safety Observations (“BBS”) equal to 2 per week per supervisor, Total Incident Reporting/Recordable Incidents greater than 15:1 and (iv) quality incident reporting greater than 2/200,000 man hours worked. Achievement of 4 out of the 4 metrics results in 100% attainment of the 10% target, achievement of 3 out of the 4 metrics results in attainment of 50% of the 10% target, and achievement of 1 or 2 out of the 4 metrics results in attainment of 0% of the 10% target. OSHA total recordable incident rates are