ANNUAL INCENTIVE PLAN
                     Approved by Shareholders April 24, 2002
                           Amended as of May 13, 2002
                           Amended as of July 23, 2002
                         ARTICLE I - GENERAL PROVISIONS
1.1   Purpose
     The purpose of the Federated  Investors,  Inc.  Annual  Incentive Plan (the
"Plan") is to advance the success of  Federated  Investors,  Inc. and to thereby
increase  shareholder value by promoting the attainment of significant  business
objectives  by the  Company and basing a portion of the annual  compensation  of
selected officers on the attainment of such objectives. The Plan is designed to:
(i) further  align the  interests  of  Participants  with the  interests  of the
Company's shareholders,  (ii) reward Participants for creating shareholder value
as measured by objectively  determinable  performance goals, and (iii) assist in
the  attraction  and  retention of employees  vital to the  Company's  long-term
1.2   Definitions
      For the purpose of the Plan, the following terms shall have the
meanings indicated:
(a)   "Board" means the Board of Directors of the Company.
(b)   "Code" means the Internal Revenue Code of 1986, as amended, including
      any successor law thereto.
(c)   "Company," means Federated Investors, Inc. and, solely for purposes of
      determining (i) eligibility for participation in the Plan, (ii)
      employment, and (iii) the calculation of any performance goal, shall
      include any corporation, partnership, or other organization of which
      controls, directly or indirectly, not less than 50 percent of the total
      combined voting power of all classes of stock or other equity interests
      or which is otherwise consolidated into the Company's audited financial
      statements.  For purposes of this Plan, the term "Company" shall also
      include any successor to Federated Investors, Inc.
(d)   "Committee" means the Compensation Committee of the Board (or any
      successor committee of the Board performing a similar function or the
      whole Board if the Board performs such functions) or, with respect to
      any particular function under the Plan identified by the Committee or
      the Board, any subcommittee of the whole Committee established by the
      whole Committee or the Board in order to comply with the definition of
      outside director under Section 162(m) of the Code.
(e)   "Common Stock" means the Company's Class B Common Stock, no par value
      per share.
(f)   "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(g)   "Fair Market Value" means, on any date, the closing sale price of one
      share of Common Stock, as reported on the New York Stock Exchange or
      any national securities exchange on which the Common Stock is then
      listed or on the NASDAQ Stock Market's National Market ("NNM") if the
      Common Stock is then quoted thereon, as published in the Wall Street
      Journal or another newspaper of general circulation, as of such date
      or, if there were no sales reported as of such date, as of the last
      date preceding such date as of which a sale was reported.  In the event
      that the Common Stock is not listed for trading on a national
      securities exchange or authorized for quotation on NNM, Fair Market
      Value shall be the closing bid price as reported by the NASDAQ Stock
      Market or The NASDAQ SmallCap Market (if applicable), or if no such
      prices shall have been so reported for such date, on the next preceding
      date for which such prices were so reported. In the event that the
      Common Stock is not listed on the New York Stock Exchange, a national
      securities exchange or NNM, and is not listed for quotation on The
      NASDAQ Stock Market or The NASDAQ SmallCap Market, Fair Market Value
      shall be determined in good faith by the Committee in its sole
      discretion, and for this purpose the Committee shall be entitled to
      rely on the opinion of a qualified appraisal firm with respect to such
      Fair Market Value, but the Committee shall in no event be obligated to
      obtain such an opinion in order to determine Fair Market Value.
(h)   "Participant" means any person who has satisfied the eligibility
      requirements set forth in Section 1.4 and to whom an award has been
      made under the Plan.
(i)   "Operating Profits" means for the applicable Performance Period, the
      Company's total revenues less distributions to minority interests and
      less total expenses (excluding amortization of intangible assets,
      impairment losses and debt expenses, including, without limitation,
      interest and loan fees) as reflected in the Company's audited or
      unaudited financial statements as filed with the Securities and
      Exchange Commission.
(j)   "Performance Measures" means the criteria upon which awards will be
      based and, unless otherwise determined by the Committee, shall be any
      one or more of the following measures:  (i) revenues; (ii) operating
      income; (iii) net income; (iv) earnings per share; (v) operating
      expenses; (vi) assets under management; (vii) product sales or market
      share; (viii) the performance of the Common Stock; (ix) the investment
      performance of Company products; (x) Operating Profits; (xi)
      identification of business opportunities and (xii) project completion.
(k)   "Performance Period" means, in relation to any award, the calendar
      year, or any other period, for which performance is being calculated,
      with each such period constituting a separate Performance Period.
(l)   "Performance Threshold" means, in relation to any Performance Period,
      the minimum level of performance that must be achieved with respect to
      a Performance Measure in order for an award to become payable pursuant
      to this Plan.
(m)   "Plan Pool" means, in relation to each calendar year, the amount, if
      any, that is available for distribution pursuant to the Plan with
      respect to such year which amount shall be a percentage of Operating
      Profits that shall not exceed 7.5% of the Operating Profits for such
(n)   "Target Award" means that percentage of the Plan Pool which the
      Committee sets as the maximum amount to be awarded to a Participant
      under the Plan for such Performance Period.
1.3   Administration
     The Plan shall be  administered  by the Committee.  Subject to the terms of
the Plan, the Committee  shall,  among other things,  determine  eligibility for
participation  in the Plan, make awards under the Plan,  establish the terms and
conditions of such awards (including the Performance  Measure(s) to be utilized)
and determine  whether the Performance  Measures and Performance  Thresholds for
any award has been  achieved.  A majority of the  Committee  shall  constitute a
quorum,  and the acts of a majority  of the  members  present at any  meeting at
which a quorum is  present,  or acts  approved  in writing by a majority  of the
Committee, shall be deemed the acts of the Committee.  Subject to the provisions
of the Plan and to  directions  by the Board,  the  Committee is  authorized  to
interpret the Plan, to adopt administrative rules,  regulations,  and guidelines
for the Plan, and to impose such terms,  conditions,  and restrictions on awards
as it deems appropriate. The Committee may, with respect to Participants who are
not  subject  to  Section  162(m) of the Code,  delegate  such of its powers and
authority under the Plan to the Company's Chairman, President or Chief Executive
Officer as it deems appropriate. In the event of such delegation, all references
to the Committee in this Plan shall be deemed  references to such officers as it
relates to those aspects of the Plan that have been delegated.
1.4   Eligibility and Participation
     Participation  in the Plan shall be limited  to  officers,  who may also be
members of the Board who are  determined  by the  Committee  to be eligible  for
participation in the Plan and unless otherwise determined by the Committee,  the
Chairman of the Board,  the Chief  Executive  Officer and any executive who is a
member  of the  Board  or is  designated  as a  member  of the  Chief  Executive
Officer's senior staff shall be eligible to participate in the Plan.
                           ARTICLE II - AWARD TERMS
2.1   Granting of Awards
     The  Committee  may,  in its  discretion,  from time to time make awards to
persons eligible for participation in the Plan pursuant to which the Participant
will earn  compensation  in the event that the Company  achieves the Performance
Thresholds established by the Committee.
2.2   Establishment of Performance Thresholds
     Each award shall be  conditioned  upon the Company's  achievement of one or
more  Performance   Thresholds  with  respect  to  the  Performance   Measure(s)
established  by the Committee no later than ninety (90) days after the beginning
of the applicable Performance Period,  provided that for a Performance Period of
less than one year, the  Performance  Measure must be  established  prior to the
lapse of 25% of the Performance  Period. The Committee,  in its discretion,  may
establish  Performance  Thresholds  for the  Company  as a whole or for only the
business  unit of the Company in which a given  Participant  is  involved,  or a
combination  thereof.  In addition to establishing a minimum  performance  level
below  which  no  compensation  shall  be  payable  pursuant  to an  award,  the
Committee,  in its discretion,  may create a performance schedule under which an
amount  less  than  the  Target  Award  may be paid  so long as the  Performance
Threshold has been exceeded. The Committee may adjust the Performance Thresholds
and  measurements to reflect  significant  unforeseen  events and other factors;
provided,  however,  that the  Committee may not make any such  adjustment  with
respect to any award to an individual  who is then a "covered  employee" as such
term is defined in Regulation 1.162-27(c)(2) promulgated under Section 162(m) of
the Code, or any successor  provision  ("Section  162(m)"),  if such  adjustment
would cause compensation pursuant to such award to cease to be performance-based
compensation under Section 162(m).
2.3   Other Award Terms
     The Committee may, in its sole  discretion,  establish  certain  additional
performance  based conditions that must be satisfied by the Company,  a business
unit or the  Participant  as a  condition  precedent  to the payment of all or a
portion of any  awards.  Such  conditions  precedent  may  include,  among other
things,  the receipt by a Participant of a specified annual  performance  rating
and the achievement of specified performance goals by the Company, business unit
or Participant.  Furthermore,  the Committee may, in its discretion,  reduce the
amount of any award to a  Participant  if it  concludes  that such  reduction is
appropriate based upon (i) evaluations of such Participant's  performance,  (ii)
comparisons with compensation  received by executive officers of other companies
in the Company's  industry (iii) the Company's  financial results and conditions
and (iv) such other  business  factors  deemed  relevant  by the  Committee.  In
addition,  the  Committee  may  establish  a  minimum  Bonus  Pool  that must be
available as a condition  precedent to any distribution  pursuant to Section 2.5
2.4   Certification of Achievement of Bonus Pool Performance Thresholds
     The  Committee  shall,  prior to any  payment  under the Plan,  certify  in
writing the extent, if any, that the Performance  Threshold(s) has been achieved
and the amount,  if any, of the Bonus Pool. For purposes of this provision,  and
for so long as the Code permits,  the approved minutes of the Committee  meeting
in which the certification is made shall be treated as written certification.
2.5   Distribution of Awards
     Awards  under the Plan shall be paid in cash as soon as  practicable  after
financial  statements  for the  Performance  Period have been  prepared  and the
Committee has certified (i) the amount,  if any, of the Bonus Pool and (ii) that
the Performance  Threshold(s) has been achieved.  Notwithstanding the foregoing,
the Committee may, in it sole  discretion:  (i) elect to pay all or a portion of
the award in four equal quarterly installments during the calendar year that the
lump sum payment would have been paid; or (ii) permit a Participant  to elect to
receive all or a portion of the total  award value in the form of  non-qualified
stock options to purchase  Common Stock,  in lieu of receiving cash. Any options
granted as  payment  of an award  shall be  granted  pursuant  to the  Federated
Investors,  Inc. Stock Incentive Plan or any successor thereto and shall have an
exercise price equal to the Fair Market Value of the Common Stock on the date of
grant.  The number of stock  options to be granted  shall be  determined  by the
Committee and shall be based upon the value of the options as  determined  under
the Black-Scholes  option-pricing  model or such other option valuation model or
calculation  that the  Committee,  in its sole  discretion,  shall  determine is
2.6   Termination of Employment
     Unless  otherwise  determined  by the  Committee,  a  Participant  must  be
actively  employed  by the  Company on the date his or her award (or any portion
thereof) is to be paid ("the  Payment  Date") in order to be entitled to payment
of any award (or portion thereof).
2.7   Maximum Amount Available for Awards
     The maximum  amount  payable  pursuant to the Plan to the  Company's  Chief
Executive Officer for any Performance  Period shall be 24% of the Plan Pool. The
maximum amount payable  pursuant to the Plan to any other  Participant  shall be
19% of the Plan Pool.
                        ARTICLE III - OTHER PROVISIONS
3.1   Withholding Taxes
     Whenever  payments under the Plan are to be made, the Company will withhold
therefrom  an  amount   sufficient  to  satisfy  any   applicable   governmental
withholding tax requirements related thereto.
3.2   Adjustments
     Awards may be adjusted by the  Committee in the manner and to the extent it
determines  to  be  appropriate  to  reflect  stock  dividends,   stock  splits,
recapitalizations,   reorganizations,  mergers,  consolidations,   combinations,
exchanges,   reclassifications  or  other  relevant  changes  in  capitalization
occurring after the date of the award; provided, however, that the Committee may
not make any such  adjustment  with respect to any award to an individual who is
then a "covered  employee" as such term is defined in Regulation  1.162-27(c)(2)
promulgated  under  Section  162(m)  of the  Code,  or any  successor  provision
("Section 162(m)"), if such adjustment would cause compensation pursuant to such
award to cease to be performance-based compensation under Section 162(m).
3.3   No Right to Employment
     Nothing  contained  in the  Plan or in any  Award  shall  confer  upon  any
Participant  any right with respect to continued  employment with the Company or
its subsidiaries,  nor interfere in any way with the right of the Company or its
subsidiaries  to at any time reassign the Participant to a different job, change
the  compensation of the Participant or terminate the  Participant's  employment
for any reason.
3.4   Nontransferability
     A  Participant's  rights  under the Plan,  including  the right to  amounts
payable may not be assigned,  pledged,  or otherwise  transferred except, in the
event of a Participant's death, to the Participant's  designated beneficiary or,
in the  absence of such a  designation,  by will or by the laws of  descent  and
3.5   Unfunded Plan
     Unless  otherwise  determined by the Committee,  the Plan shall be unfunded
and shall not create (or be construed to create) a trust or separate funds. With
respect to any payment not yet made to a Participant,  nothing  contained herein
shall give any  Participant  any rights that are greater than those of a general
creditor of the Company.
3.6   Foreign Jurisdictions
     The Committee  shall have the authority to adopt,  amend, or terminate such
arrangements,  not  inconsistent  with the  intent of the  Plan,  as it may deem
necessary or desirable to make  available  tax or other  benefits of the laws of
foreign countries in order to promote achievement of the purposes of the Plan.
3.7   Other Compensation Plans
     Nothing  contained  in this Plan shall  prevent the Company  from  adopting
other or additional compensation arrangements for employees of the Company.
     The Board of Directors may modify, amend, or terminate the Plan at any time
except  that,  no  modification,  amendment,  or  termination  of the Plan shall
adversely  affect the rights of a Participant  under an award previously made to
such Participant without the consent of such Participant.
                           ARTICLE V - EFFECTIVE DATE
     The Plan shall become effective  immediately upon the approval and adoption
thereof by Board,  but is subject to the further  approval  and  adoption by the
holders of the Class A Common Stock of the Company.