Management Bonuses and Economic Value Added

[The following is an excerpt from the Definitive Proxy Statement, SEC Form 14A, filed on March 1 8, 1997, by Armstrong World Industries Inc.]

Economic Value Added (EVA®) serves as the Company's principal financial measure and is the basis for determining awards under the Management Achievement Plan.

EV A equals the dollar amount arrived at by taking net operating profit after taxes and subtracting a charge for the use of the capital needed to generate that profit. For the corporate and business unit achievement segments, there are threshold levels of EV A performance below which no incentive awards are paid. For the corporate and major business unit segments, there are no caps or maximum award limits, so there will be incremental awards for higher levels of EV A achievement. The incentive awards for the Chairman and CEO, the Executive Vice President and the Senior Vice President, Finance, and Chief Financial Officer are based entirely on corporate EVA achievement. The incentive awards for all other executive officers are based solely on corporate and/or business unit EV A goal achievement.

The Management Achievement Plan has been structured so that the level of cash compensation (base salary plus annual bonus) will exceed the median level of cash compensation for the selected group of companies when high levels of corporate, business unit, and individual performance are achieved. Conversely, when the Company and business units fall short of established targets, the level of cash compensation will fall below the median level of cash compensation for the selected group.

Required The Management Achievement Plan is one unit in a set of incentive compensation plans used to motivate senior executives. Another important component of the incentive compensation set is a stock option plan. Evaluate the Management Achievement Plan.