Our stockholders may nominate candidates for election as directors at any annual meeting of our stockholders if the stockholder gives timely notice in writing of any such nomination in accordanceprovided they comply with the advance notice procedures set forth inprovisions of our by-laws. We describe those procedures under “Stockholder Proposals” in this proxy statement. Our nominating committee may also consider candidates for election as directors proposed by our management.management proposes. We havedo not utilized third-partyuse executive search firms to identify candidates for election as directors.director candidates.
With the exception of applicable regulations of the SEC, the listing application standards of the NASDAQ Global Select Market, or NASDAQ, and the Holding Companies Act, our nominating committee does not have any specific, minimum qualifications for the nomination of candidates for election to our board of directors, and ourdirector candidates. Our nominating committee may take into account such factors as it deems appropriate. Our nominating committee reviews the specific attributes of candidates for election to our board of directorsappropriate, and also considersinclude the judgment, skill, diversity and business experience of the candidate, the interplay of the candidate’scandidate���s experience with the experience of the other members of our board of directors and the extent to which the candidate would contribute to the overall effectiveness and experience of our board of directors.
utility and Conestoga Title Insurance Company. Mr. Kraft is also registered as an insurance agent with the Commonwealth of Pennsylvania. Mr. Kraft has been a director of Donegal Mutual since 2003.
Mr. Lyons was President and Chief Operating Officerhas been president of Keefe Managers,Ventures, LLC, a manager of private investment funds from February 1999 to June 2007 whensince 2002. Mr. Lyons retired.was also president and portfolio manager for investment funds affiliated with Keefe Managers, Inc. from 1999 until 2007. Mr. Lyons has significant experience in the turnaround of troubled financial institutions, serving as president and chief executive officer ofGateway-American Bank, Ft. Lauderdale, Florida; Regent National Bank, Philadelphia, Pennsylvania; Monarch Savings Bank, Clark, New Jersey and Jupiter-Tequesta National Bank, Tequesta, Florida, for the period from 1990 to 1998. Mr. Lyons was vice chairman of the investment firm Advest, Inc., Hartford, Connecticut, subsequent to that firm’s purchase of his bank consulting practice in 1989. Mr. Lyons began his banking career as an examiner for the Federal Deposit Insurance Corporation in 1961. Mr. Lyons currently manages a private investmentequity fund under the name ofcalled Keefe Ventures LLC.Fund, LP which invests in community banking organizations.
Mr. Mahan has been a Managing Directormanaging director in the Investment Banking Division of Stifel Nicolaus & Company, Incorporated, or Stifel Nicolaus, and, previously, Legg Mason Wood Walker, Incorporated, prior to the acquisition of the Legg Mason Capital Markets Division by Stifel Nicolaus on December 1, 2005. Mr. Mahan specializes in corporate finance for banks and insurance companies, and his expertise benefits our analysis of acquisition opportunities. Mr. Mahan joined Legg Mason in 1996 and served as a principal from 2001 to 2004.
Mr. Moore served as a consultant from May 2008 to November 2008 to a medical malpractice insurance company. Mr. Moore is currently self-employed.a principal at Huguenot Capital. Prior thereto, Mr. Moore was Presidentpresident and Chief Executive Officerchief executive officer of Luminent Mortgage Capital, Inc., or Luminent, from May 2007 to May 2008 and was Presidentpresident and Chief Operating Officerchief operating officer of Luminent from March 2005 to May 2007. From 2000 to 2005, Mr. Moore was Executive Vice President,executive vice president, Capital Markets, of Radian Guaranty, Inc. For five years prior to joining Luminent Mortgage Capital, Inc. in March 2005, Mr. Moore was the executive vice president of capital markets for Radian Guaranty Inc. Prior to his service at Radian, Mr. Moore held several senior level positions in the mortgage industry, including First Union National Bank from 1997 to 2000, Nationsbanc Capital Markets from 1994 to 1997, Citicorp Securities from 1989 to 1994 and First Boston from 1984 to 1989.
Mr. Nikolaus has been Presidentpresident and Chief Executive Officerchief executive officer of Donegal Mutual since 1981 and a director of Donegal Mutual since 1972. He has been our Presidentpresident and Chief Executive Officerchief executive officer since 1986. Mr. Nikolaus also serves as the Chairmanchairman and Chief Executive Officerchief executive officer of Province Bank and as Chairmanchairman or Presidentpresident of each of our insurance subsidiaries. Prior to the formation of Province Bank, Mr. Nikolaus served as a director of several regional banks. Mr. Nikolaus has also served as chairman of the Insurance Federation of Pennsylvania. Mr. Nikolaus has been a partner in the law firm of Nikolaus & Hohenadel since 1972. Mr. Nikolaus also currently serves as an executive officer and director of several Lancaster County-based water utilities.
Mr. Sherbahn, haswho was a certified financial planner for many years, owned and operated Sherbahn Associates, Inc., a life insurance and financial planning firm, from 1974 to 2007 and has been a licensed insurance agent since 1974.1956. Mr. Sherbahn has been a director of Donegal Mutual since 1967.for 43 years. Mr. Sherbahn played a principal role in Donegal Mutual’s decision to form us.
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Mr. Wampler is a certified public accountant and isserved as a retired principal of the accounting firm of Brown Schultz Sheridan & Fritz, a position held from October 1, 1998 to June 30,until his retirement in 2005. For 28 years prior thereto, he was a partner in the accounting firm of KPMG LLP.LLP where his practice focused on property and casualty insurance companies. Mr. Wampler is also a member of the subscribers advisory committee of the third largest medical professional liability insurer in Pennsylvania. We believe his background brings expertise to our board of directors in understanding statutory accounting principles as well as generally accepted accounting principles and in analyzing and maintaining internal controls over financial reporting.
Of our nine11 directors, fivesix (Messrs. Bolinger, Garcia, Lyons, Mahan, Moore and Wampler) are independent.independent and have no affiliation with Donegal Mutual. Five of our 11 directors (Mrs. Gilmartin and Messrs. Glatfelter, Kraft, Nikolaus and Sherbahn) are affiliated with Donegal Mutual, our majority stockholder, with whom we have a variety of inter-company agreements providing for, among other things, the pooling of underwriting
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results, reinsurance and expense-sharing. See “Stock Ownership — Our Relationship with Donegal Mutual.” We believe our board membership appropriately represents our public stockholders, who collectively own about 33.7% of the voting power of our common stock, and Donegal Mutual, which owns 66.3% of the voting power of our common stock.
Corporate Governance
Because Donegal Mutual owns more than 50% of ourthe combined voting power of our Class A common stock and our Class B common stock, applicable NASDAQ regulations treatclassify us as a “controlled company.” Therefore,Because we are not required toa controlled company, we are exempt from a number of NASDAQ corporate governance requirements. However, because we believe those principles represent sound corporate governance principles, we voluntarily comply with the following NASDAQ requirements:requirements that:
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| • | the members of the nominating committee of our board of directors must be independent; |
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| • | the members of the compensation committee of our board of directors must be independent; and |
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| • | a majority of the members of our board of directors must consist of persons who are independent; |
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| • | our compensation and nominating committees must consist solely of independent directors; |
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| • | the compensation of our executive officers must be determined by a majority of our independent directors or a compensation committee comprised solely of independent directors; and |
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| • | director nominees that are selected or recommended for selection by our board of directors, must be recommended by either a majority of our independent directors or a nominating committee comprised solely of independent directors.independent. |
However, as a voluntary commitment to sound corporate governance principles, our board of directors and the committees of our board of directors satisfy all of the above NASDAQ criteria.
Our Board of Directors and Its CommitteesCommittee Structure
Our board of directors met nineeight times in 2008.2009. Our board of directors has an executive committee, an audit committee, a nominating committee, a compensation committee and, together with Donegal Mutual, a coordinating committee. Philip H. Glatfelter, II is the chairman of our board of directors.
Executive Committee
Our executive committee met 12seven times in 2008. Messrs. Nikolaus, Sherbahn and Glatfelter are the2009. The members of our executive committee.committee are Philip H. Glatfelter, II, Donald H. Nikolaus and R. Richard Sherbahn. Our executive committee has the authority to take all action that can be taken by our full board of directors can take, consistent with Delaware law,the DGCL, between meetings of our board of directors.
Audit Committee
Our audit committee which consistsmet 11 times in 2009. The members of Messrs.our audit committee are Robert S. Bolinger, John J. Lyons and Richard D. Wampler, met 10 times in 2008.II. Each member of our audit committee satisfies the independence requirements of the SEC. ConsistentSEC and is in compliance with applicable provisions of the Holding Companies Act and the Sarbanes-Oxley Act of 2002, our2002.
Our audit committee has responsibilityis responsible for:
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| • | selecting our independent registered public accounting firm; |
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| • | reviewing the scope and results of our audit by our independent registered public accounting firm;firm’s audit of our financial statements; |
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| • | reviewing all of our periodic filings with the SEC and press releases; |
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| • | reviewing related party transactions;transactions other than those transactions subject to review by our coordinating committee; and |
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| • | reviewing the adequacy of our accounting, financial, internal and operating controls. |
Our audit committee operates pursuant tohas a written charter, thewhich we describe under “Report of Our Audit Committee.” The full text of whichour audit committee’s charter may be viewed on our website athttp://www.donegalgroup.com. Our audit committee reviews its charter annually.
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Nominating Committee
Our nominating committee themet twice in 2009. The members of which are Messrs. Sherbahn and Glatfelter, met once in 2008.
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DIRECTOR — STOCKHOLDER COMMUNICATIONS
Our stockholders mayStockholders who wish to communicate with our board of directors through our corporate secretary. Stockholders who wish to communicateor with anyone or more individual members of our directorsboard may do so by sending their communication in writing addressed to a particular director or directors, or in the alternative, to “Non-Management Directors” as a group,group. Please send your communication to the attention of our corporate secretary, Sheri O. Smith, at our principal executive offices at 1195 River Road, Marietta, Pennsylvania 17547. We17547 or bye-mail tosherismith@donegalgroup.com. Our corporate secretary will promptly forward all such communications that our corporate secretary receives to the addressee or addressees set forth in the communication.
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We encourage our directors to attend our annual meetings of stockholders because we believe director attendance at our annual meetings provides our stockholders with an opportunity to communicate with the members of our board of directors.stockholders. All of our directors attended our annual meeting of stockholders in 2008.2009.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Introduction
Our compensation committee oversees our compensation and benefit plans and policies andpolicies. Its oversight of our compensation levels, includingprocess includes reviewing and approvingrecommending for approval by our board of directors equity awards to our executive officers and reviews and recommends annually for approval by our board of directors all compensation decisions relating to our executive officers.
Our compensation committee determined that the primary objectives of our compensation programs for our executive officers are to:
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| • | attractAttract and retain talented and dedicated executive officers who contribute to our growth, development and profitability and to encourage their retention;retention. |
We believe we achieved this objective because three of our five named executive officers have worked with us since our formation in 1986, and our other two named executive officers have worked for us for 23 and 17 years, respectively.
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| • | motivateMotivate our executive officers to achieve our strategic business objectives and to reward them when they achieve those objectives; andobjectives. |
We believe we achieved this objective through our compound annual growth rate, which was 4.8% for the five years ended December 31, 2009, and through our compound rate of growth in our book value, which was 8.5% for the five years ended December 31, 2009.
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| • | provideProvide long-term compensation to our executive officers that rewards them for sustained financial and operating performance and leadership excellence. |
We believe we achieved this objective based on our combined ratio, which has outperformed the combined ratio of the property and casualty industry as a whole for the five years ended December 31, 2009 based on data prepared by A.M. Best Company. Our results demonstrate that our compensation systems do not reward the undue taking of risk.
To achieve these objectives, we compensate our executive officers through a combination of base salary, annual cash bonuses that are principally based on our underwriting income and long-term equity compensation.
Our compensation committee’s charter reflects these responsibilities, and our compensation committee reviews its charter annually.
Our Compensation Philosophy and ObjectivesRisk Considerations
The most significant componentRisk Management Considerations
Our compensation committee believes that our underwriting profitability-based bonus plan and our performance-based equity ownership programs create incentives that are designed to result in long-term
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stockholder value. We have designed the following elements of our compensation programs to promote the creation of long-term value and that we therefore believe discourages behavior that could lead to excessive risk:
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| • | The financial metrics we use to determine the bonuses of our executive officers are metrics our compensation committee believe promote long-term stockholder value. These measures include underwriting profitability, return on equity and growth in net written premium. Our compensation committee sets limits on these bonus payments that encourage success without encouraging excessive risk-taking that seeks short-term results. |
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| • | The stock options we grant vest in three equal annual installments and remain exercisable for up to five years from the date of grant, which our compensation committee believes encourages our executive officers to attain sustained long-term performance; |
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| • | If we become obligated to restate our financial results because one of our executive officers has violated the financial reporting requirements under the federal securities laws, applicable law permits us to recover incentive compensation from that executive officer, including profits the executive officer received from the sale of our securities. If such an event were to arise, our board of directors would exercise its business judgment to determine the action it believes appropriate at that time. Such action could include recovery or cancellation of any incentive payment made to an executive officer on the basis of meeting or exceeding performance targets if our board of directors determines that such recovery or cancellation is appropriate due to intentional misconduct by that executive officer that resulted in the achievement of performance targets that would not have been achieved absent such misconduct. |
Evaluation of Executive Performance in 2009 and Executive Compensation
Our compensation committee does not restrict its evaluation of the compensation policy our compensation committee administers is that a substantial portion of the aggregate annual compensationperformance of our named executive officers should be based onto predetermined formulas or a limited set of criteria. Our compensation committee considered our progress during 2009 in achieving the annualshort-term and long-term objectives described below:
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| • | Our continued achievement of underwriting results superior to the underwriting results of other property and casualty insurance companies on a long-term basis. |
We believe we achieved this objective in 2009 because, in spite of increased severe weather events, our statutory combined ratio for 2009 was 101.1%, compared to approximately 100.6% for the property and casualty industry combined ratio for 2009 as projected by A.M. Best Company. We believe our underwriting results and premiumwere reasonable in light of a challenging underwriting environment.
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| • | Our achievement of a compound rate of revenue growth in excess of 4.0% over a five-year period. |
We believe we achieved this objective for the five years ended December 31, 2009 because our compound rate of revenue growth for that period was 4.8%.
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| • | Our status in being named as one of Ward’s top 50 performing insurance companies over a five-year period. |
We believe we achieved this goal in 2009 because we received this award for the fifth straight year.
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| • | Our continued geographic expansion. |
One measure of our achievement of this objective in 2009 was Donegal Mutual’s completion of a 100% quota-share reinsurance of the property and casualty insurance subsidiariesbusiness of Southern Mutual Insurance Company in Georgia and South Carolina, which benefits us as a result of Atlantic States’ participation in the pooling agreement with Donegal Mutual.
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| • | Our development of automated underwriting and policy issuance software that enables us to compete with national carriers. |
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During 2009, we continued to expand the use of thisstate-of-the-art system to all of our return on equity.subsidiaries. We also received the 2009 Interface Partner Award from Applied Systems, an insurance technology company, in recognition of our achievements in agency-carrier communications.
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| • | Our achievement of book value growth over a five-year period. |
We believe we achieved this objective for the five years ended December 31, 2009 because our compound rate of book value growth for that period was 8.5%.
On an overall basis, our compensation committee believes that we made progress in achieving the targets established for these objectives at the start of 2009. Our performance and book value growth in 2009 were the basis of the decisions made by our compensation committee at its meetings in December 2009 and February 2010 with respect to adjustments to base salary and the allocation of our annual cash bonuses among our officers, including our named executive officers.
The specific compensation decisions made for each of our named executive officers in 2009 appropriately reflect our financial and operational performance in 2009. Our compensation committee also evaluates the achievement by our named executive officers of our other corporate objectives, and the contribution of each of our named executive officerofficers to those achievements.
achievements in each such officer’s primary area of responsibility. We rely onuse our discretionary judgmentdiscretion in making compensation decisions after reviewing our performance and the objective performance of our named executives based on financial and operational objectives. We do not retain the servicescompensation consultants. We do not have any form of a compensation consultant. Noneemployment, severance orchange-of-control agreements with any of our named executive officers has an employment, severance or change-of-control agreement.officers.
Our Cash Incentive Plan
For a number of years, we have maintainedhad a cash incentive compensation programplan for our officers, including our named executive officers. Under this program,officers, that is tied to a formula-based percentageformula that is based on the annual underwriting income and other financial metrics of the underwriting profit of our insurance subsidiariesDonegal Insurance Group. The formula operates as follows:
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| • | We first determine the base underwriting income of the Donegal Insurance Group for the year; |
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| • | We then adjust the base underwriting income by adding back our accrual for bonuses to our officers, and make a formula-based adjustment to limit the impact of any catastrophe losses and guaranty fund assessments on our base underwriting income; |
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| • | We then adjust the amount so determined as the plan specifies based on variable percentages of the growth in net written premium of Donegal Insurance Group for the year; |
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| • | We then multiply the amount so determined by a percentage that is based on our return on equity for the year; and |
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| • | We then multiply the amount so determined by a predetermined factor, and the resulting amount constitutes the executive incentive compensation pool for the applicable year, which is allocated by the compensation committee to our officers, including our named executive officers. |
If the Donegal Insurance Group’s surplus for the year is available for allocation for bonuses for our officers, including our namedbelow an amount the Plan specifies, we reduce the executive officers. The factors affecting the allocation include the underwriting profit and premium growth of our insurance subsidiaries and our return on equity. Ourincentive compensation committee does not assign specific weights to these factors. For the five years ended December 31, 2008, the incentive bonus pool we have paid to our officers, including our named executive officers, has averaged 64% of the maximum amount that the plan permits us to allocate.by 50%.
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The Compensation of Our Officers
Our officers all of whom are also officers of Donegal Mutual, receive the following compensation:
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| • | Base Salary. We establish the base salaries of our officers, including our named executive officers, based on the scope of their responsibilities and the recommendation of our chief executive officer to our compensation committee for other than his own compensation. Our compensation committee reviews the base salaries of our named executive officers annually, including our chief executive officer, and recommends adjustments to base salaries annually after taking into account individual |
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| | responsibilities, performance, length of service, current salary, experience and compensation history as well as our results of operations. |
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| • | Annual Cash Bonus. Our officers, including our named executive officers, receive annual cash bonuses based primarily on the underwriting results withof the allocations of these results determined by various factors, including premium growth, underwriting profitability and return on equity among other factors.Donegal Insurance Group. We determine the maximum aggregate amount available annually for our officers by formula.formula as described above. Our compensation committee then recommends to our board of directors the percentage of the maximum amount we should allocate among our officers, including our named executive officers, on a discretionary basis. Our chief executive officer submits recommendedrecommends the allocation of any earned bonuses for our officers, including our named executive officers other than himself, to our compensation committee. Our compensation committee reviews our chief executive officer’s compensation recommendations and then recommends the annual bonuses for all of our executive officers, including our chief executive officer, to our board of directors. We pay the cash bonuses recommended by our compensation committee and approved by our board of directors in a single payment. |
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| • | Long-Term Equity Incentives. We believe that we can maximize our long-term performance best if we tie the compensationvalue of the long-term benefits our officers is significantly tiedexecutives receive to our long-term performance. We design our long-term equity compensation plans to provide all members of our management, including our named executive officers, with equity incentives to foster the alignment of their interests with the interests of our stockholders. |
The primary form of equity compensation that we have historically awarded to our officers, including our named executive officers, is stock options. Our compensation committee receives preliminary recommendations for periodic stock option grants from our chief executive officer for our officers other than himself. Our compensation committee then reviews his recommendations and recommends stock option grants for all of our officers, including our chief executive officer, to our board of directors for approval.
Our stock option plans authorize us to grant options to purchase shares of our Class A common stock to our employees, officers and directors. We have consistently followed the practice of granting
In accordance with NASDAQ rules, we do not grant stock options to purchasethat have exercise prices below the fair market value of our Class A common stock at anon the date of grant.
We do not reduce the exercise price that is in excessof stock options because of the closingsubsequent decline of the price of our Class A common stock on NASDAQ onbelow the dateexercise price, except in connection with adjustments to reflect recapitalizations, stock or extraordinary dividends, stock splits, mergers, spin-offs and similar events permitted by the applicable stock option plan unless we grant the stock options.first obtain stockholder approval.
The Operation of Our Compensation Process
Our compensation committee recommends all compensation and equity awards to our executive officers for final discretionary action by our board of directors. Our compensation committee, in recommending the annual compensation of our officers, including our named executive officers, subject to the ultimate approval of our board of directors, reviews the performance and compensation of our officers. In assessing the performance of our named executive officers in light of the objectives our board of directors establishes, our compensation committee reviews specific achievements associated with attainment of the objectives, the degree of difficulty of the objectives and the extent to which significant unforeseen obstacles or favorable circumstances affected their performance.
Our compensation committee recommends to our board of directors the base salaries, annual aggregate bonus pool amount and individual allocations and stock option grants to the members of our management. As
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part of its oversight of the compensation of our named executive officers, our compensation committee recommended the following compensation adjustments for 20082009 for our named executive officers:
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| • | increases in base salaries of our named executive officers in 2008for 2009 that averaged 2.0%1.7%, which our compensation committee considered an adjustment consistent with publishedreasonable based on publicly available information about annual base salary increases in the propertyfrom companies we consider to be our informal peer group (EMC Insurance Group, Harleysville Group Inc., Mercer Insurance Group, State Auto Financial Corporation and casualty insurance industry in the United States in 2008 and prevailing adverse economic conditions;Selective Insurance Group); and |
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| • | due to the decrease in our underwriting profitability in 2008,2009 compared to historical amounts, the individual allocations from our incentive bonus pool to our named executives decreased. The decreases were based on factors including a rate of net written premium growth of less than 5.0%, and reductions in underwriting profitability and return on equity.equity compared to historical averages. Our compensation committee regarded the individual allocations to our executive officers as appropriate recognition of the underwriting profitability,results, our return on equity and our growth of our insurance subsidiaries in 2008.2009. |
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Tax Matters
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally does not allow us a deductionto deduct for federal income tax purposes to the extent thatannual compensation we pay annual compensation to any of our executive officers named in the Summary Compensation Table in this proxy statementbelow that is in excess of $1 million. However,million, unless such compensation paid to such an executive officer that is paid pursuant to a performance-based plan is generally not subject to the Section 162(m) limitation.
Although our compensation committee is aware of the Section 162(m) limitation, our compensation committee believes that it is equally important to maintain flexibility and the competitive effectiveness of the compensation of our named executive officers. Our compensation committee may, therefore, from time to time, authorize compensation that is not deductible for federal income tax purposes if our compensation committee believes it is in our best interests and the best interests of our stockholders to do so.
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Summary Compensation Table
The following table shows the compensation we paid during 2006, 2007, 2008 and 20082009 for services rendered in all capacities to our chief executive officer, our chief financial officer and our three other most highly compensated executive officers. We refer to these persons, who are named in the table below, as our named executive officers. We do not have employment agreements with any of our named executive officers, nor do we provide any of them with restricted stock awards, with the exception of two of our executive officers who receive an annual restricted stock award of 311 shares as part of their compensation as members of our board of directors and the Donegal Mutual board of directors, non-equity incentive plan compensation, deferred compensation or pension benefits.
Based on the compensation paid to our named executive officers in 2008,2009, their salaries accounted for 48%76.0% of their total compensation in 20082009 and their performance-based bonuses accounted for 22%16.3% of their total compensation in 2008.2009.
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Name and Principal Position | | Year | | Salary($) | | Bonus($) | | ($) | | ($)(1) | | ($)(2) | | ($) | | | Year | | Salary($) | | Bonus($)(1) | | ($) | | ($)(2) | | ($)(3) | | ($) |
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Donald H. Nikolaus, | | | 2008 | | | | 555,000 | | | | 360,000 | | | | 5,340 | | | | 360,500 | | | | 49,139 | | | | 1,329,979 | | | | 2009 | | | | 555,000 | | | | 150,000 | | | | 5,215 | | | | — | | | | 48,384 | | | | 758,599 | |
President and Chief | | | 2007 | | | | 555,000 | | | | 840,000 | | | | 6,092 | | | | — | | | | 52,038 | | | | 1,453,130 | | | | 2008 | | | | 555,000 | | | | 360,000 | | | | 5,340 | | | | 360,500 | | | | 49,139 | | | | 1,329,979 | |
Executive Officer | | | 2006 | | | | 535,000 | | | | 970,000 | | | | 5,415 | | | | 293,155 | | | | 46,668 | | | | 1,850,238 | | | | 2007 | | | | 555,000 | | | | 840,000 | | | | 6,092 | | | | — | | | | 52,038 | | | | 1,453,130 | |
Cyril J. Greenya, | | | 2008 | | | | 180,000 | | | | 58,000 | | | | 5,340 | | | | 82,400 | | | | 42,538 | | | | 368,278 | | | | 2009 | | | | 185,000 | | | | 34,000 | | | | 5,215 | | | | — | | | | 42,658 | | | | 266,873 | |
Senior Vice President and | | | 2007 | | | | 174,000 | | | | 125,000 | | | | 6,092 | | | | — | | | | 42,603 | | | | 347,695 | | | | 2008 | | | | 180,000 | | | | 58,000 | | | | 5,340 | | | | 82,400 | | | | 42,538 | | | | 368,278 | |
Chief Underwriting Officer | | | 2006 | | | | 162,000 | | | | 138,000 | | | | — | | | | 43,007 | | | | 16,860 | | | | 359,867 | | | | 2007 | | | | 174,000 | | | | 125,000 | | | | 6,092 | | | | — | | | | 42,603 | | | | 347,695 | |
Jeffrey D. Miller, | | | 2008 | | | | 187,000 | | | | 62,000 | | | | — | | | | 92,700 | | | | 10,932 | | | | 352,632 | | | | 2009 | | | | 197,000 | | | | 38,000 | | | | — | | | | — | | | | 11,723 | | | | 246,723 | |
Senior Vice President and | | | 2007 | | | | 177,000 | | | | 132,000 | | | | — | | | | — | | | | 10,098 | | | | 319,098 | | | | 2008 | | | | 187,000 | | | | 62,000 | | | | — | | | | 92,700 | | | | 10,932 | | | | 352,632 | |
Chief Financial Officer | | | 2006 | | | | 162,000 | | | | 145,000 | | | | — | | | | 43,007 | | | | 9,244 | | | | 359,251 | | | | 2007 | | | | 177,000 | | | | 132,000 | | | | — | | | | — | | | | 10,098 | | | | 319,098 | |
Robert G. Shenk, | | | 2008 | | | | 229,000 | | | | 58,000 | | | | — | | | | 82,400 | | | | 12,887 | | | | 382,287 | | | | 2009 | | | | 232,000 | | | | 34,000 | | | | — | | | | — | | | | 13,265 | | | | 279,265 | |
Senior Vice President, | | | 2007 | | | | 223,000 | | | | 125,000 | | | | — | | | | — | | | | 11,866 | | | | 359,866 | | | | 2008 | | | | 229,000 | | | | 58,000 | | | | — | | | | 82,400 | | | | 12,887 | | | | 382,287 | |
Claims | | | 2006 | | | | 214,000 | | | | 138,000 | | | | — | | | | 50,255 | | | | 11,427 | | | | 413,682 | | | | 2007 | | | | 223,000 | | | | 125,000 | | | | — | | | | — | | | | 11,866 | | | | 359,866 | |
Daniel J. Wagner, | | | 2008 | | | | 180,000 | | | | 58,000 | | | | — | | | | 82,400 | | | | 11,147 | | | | 331,547 | | | | 2009 | | | | 185,000 | | | | 34,000 | | | | — | | | | — | | | | 11,642 | | | | 230,642 | |
Senior Vice President | | | 2007 | | | | 174,000 | | | | 125,000 | | | | — | | | | — | | | | 10,126 | | | | 309,126 | | | | 2008 | | | | 180,000 | | | | 58,000 | | | | — | | | | 82,400 | | | | 11,147 | | | | 331,547 | |
and Treasurer | | | 2006 | | | | 162,000 | | | | 138,000 | | | | — | | | | 43,007 | | | | 9,244 | | | | 352,251 | | | | 2007 | | | | 174,000 | | | | 125,000 | | | | — | | | | — | | | | 10,126 | | | | 309,126 | |
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(1) | | Our executive officers participate in a cash incentive bonus plan. We refer you to “Executive Compensation — Our Cash Incentive Plan.” |
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(2) | | Option awards are shown at an estimated grant date fair value, which we obtained by using an option pricing model. Further, the options are subject to a vesting schedule, and the estimated value obtained from the option pricing model does not represent actual value based upon trading prices of our Class A common stock at the grant date. See Note 14 to our consolidated financial statements included in our 20082009 annual |
23
| | |
| | report to stockholders for information on the accounting treatment and calculation of the grant date fair value of these stock options. |
|
(2)(3) | | In the case of Mr. Nikolaus, the total shown includes directors and committee meeting fees of $32,750$31,750 and a matching 401(k) plan contribution of $11,207$11,452 paid during 2008.2009. In the case of Messrs. Shenk, Miller and Wagner, the total shown includes a matching 401(k) plan contribution of $10,653, $10,513$11,000, $11,059 and $10,544,$11,021, respectively, paid during 2008.2009. In the case of Mr. Greenya, the total shown includes directors fees of $30,500$30,000 and a matching 401(k) plan contribution of $9,885$11,021 paid during 2008.2009. |
Our President and Chief Executive Officer
Base Salary. Mr. Nikolaus received a base salary of $555,000 in 2009, 2008 and 2007. We did not increase the base salary of Mr. Nikolaus for these years at his request and also because Mr. Nikolaus prefers that a substantial portion of his compensation be performance-based.
Annual Cash Bonus. Mr. Nikolaus received a bonus of $150,000 in respect of 2009 and a bonus of $360,000 in respect of 2008, which represent allocations from our formula-based bonus plan tied to our underwriting profitability and a subjective analysis of the performance of Mr. Nikolaus in 2008 and 2009. The principal subjective factors in determining the allocations to Mr. Nikolaus were the leadership he provides us, his achievement of our objectives in 2008 and 2009 and our overall financial, strategic and operational performance in 2008 and 2009. Mr. Nikolaus received a 35% and 39% allocation from the bonus pool in 2009 and 2008, respectively.
Our Senior Vice President and Chief Underwriting Officer
Base Salary. Mr. Greenya received a base salary of $185,000 in 2009 compared to a base salary of $180,000 in 2008. This 2.8% increase reflected acost-of-living adjustment.
Annual Cash Bonus. Mr. Greenya received a bonus of $34,000 in respect of 2009 and a bonus of $58,000 in respect of 2008. This 41% decrease in his 2009 bonus was principally the result of our reduced underwriting profitability. The bonus reflected Mr. Greenya’s effective oversight of our underwriting operations and compliance function and his participation in negotiating cost-effective renewals of our reinsurance.
Our Senior Vice President and Chief Financial Officer
Base Salary. Mr. Miller received a base salary of $197,000 in 2009 compared to a base salary of $187,000 in 2008. The 5.3% increase reflected Mr. Miller’s successful performance of his responsibilities as our chief financial offer and acost-of-living adjustment. The principal reason for the increase was Mr. Miller’s meeting of objective and subjective performance criteria we established.
Annual Cash Bonus. Mr. Miller received a bonus of $38,000 in respect of 2009 and a bonus of $62,000 in respect of 2008. This 39% decrease in his 2009 bonus was principally the result of our reduced underwriting profitability. The bonus reflected Mr. Miller’s effective oversight of our financial reporting and our systems of internal control.
Our Senior Vice President of Claims
Base Salary. Mr. Shenk received a base salary of $232,000 in 2009 compared to $229,000 in 2008. The 1.3% increase represented acost-of-living adjustment.
Annual Cash Bonus. Mr. Shenk received a bonus of $34,000 in respect of 2009 and a bonus of $58,000 in respect of 2008. This 41% decrease in his 2009 bonus was principally the result of our reduced underwriting profitability. The bonus reflected Mr. Shenk’s effective leadership of our claims function and the quality and promptness of our claims service.
1824
Our Senior Vice President and Treasurer
Base Salary. Mr. Wagner received a base salary of $185,000 in 2009 compared to a base salary of $180,000 in 2008. This 2.8% increase reflected acost-of-living adjustment.
Annual Cash Bonus. Mr. Wagner received a bonus of $34,000 in respect of 2009 and a bonus of $58,000 in respect of 2008. This 41% decrease in his 2009 bonus was principally the result of our reduced underwriting profitability. The bonus reflected Mr. Wagner’s effective supervision of our billing, cash management and treasury functions.
Grants of Plan-Based Awards
Our compensation committee recommended to our board of directors, and our board of directors approved, the followingWe did not grant any stock option grantsoptions to our named executive officers during 2008:2009.
During 2008, Grantswe granted non-qualified options to purchase shares of Plan-Based Awards
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | All Other
| | | | | | | | | | |
| | | | | | | | Stock Option
| | | | | | | | | | |
| | | | | | | | Awards:
| | | Exercise
| | | | | | Grant Date
| |
| | | | | | | | Number of
| | | or Base
| | | Closing
| | | Fair Value
| |
| | | | | | | | Securities
| | | Price of
| | | Price on
| | | of Stock
| |
| | | | | | | | Underlying
| | | Option
| | | Grant
| | | and Option
| |
| | Grant
| | | Approval
| | | Options
| | | Awards
| | | Date
| | | Awards
| |
Name | | Date | | | Date | | | (#) | | | ($/Sh) | | | ($/Sh) | | | ($)(1) | |
|
Donald H. Nikolaus(2) | | | 7/17/2008 | | | | 7/17/2008 | | | | 175,000 | | | | 17.50 | | | | 17.10 | | | | 360,500 | |
Cyril J. Greenya(3) | | | 7/17/2008 | | | | 7/17/2008 | | | | 40,000 | | | | 17.50 | | | | 17.10 | | | | 82,400 | |
Jeffrey D. Miller(4) | | | 7/17/2008 | | | | 7/17/2008 | | | | 45,000 | | | | 17.50 | | | | 17.10 | | | | 92,700 | |
Robert G. Shenk(5) | | | 7/17/2008 | | | | 7/17/2008 | | | | 40,000 | | | | 17.50 | | | | 17.10 | | | | 82,400 | |
Daniel J. Wagner(6) | | | 7/17/2008 | | | | 7/17/2008 | | | | 40,000 | | | | 17.50 | | | | 17.10 | | | | 82,400 | |
our Class A common stock at an exercise price of $17.50 per share, which options vest in three equal installments on March 1, 2009, March 1, 2010 and March 1, 2011, respectively, as follows:
| | |
(1) | | Based on the Black-Scholes options pricing model, we used the following assumptions in calculating the grant date present value: |
| | |
| • | Stock volatility — 20.6%.Number of Shares
|
Name | | Subject to Option |
|
Donald H. Nikolaus | • | Stock dividend yield — 2.46%. |
175,000 | |
Cyril J. Greenya | • | Length of option term — 3 years. |
40,000 | |
Jeffrey D. Miller | • | Annualized risk-free interest rate — 2.3%. |
| 45,000 | |
(2) | | During 2008, we granted Mr. Nikolaus a non-qualified option to purchase 175,000 shares of our Class A common stock at an exercise price of $17.50 per share. These options vest in three equal installments on March 1, 2009, March 1, 2010 and March 1, 2011, respectively. |
|
(3)Robert G. Shenk | | During 2008, we granted Mr. Greenya a non-qualified option to purchase | 40,000 shares of our Class A common stock at an exercise price of $17.50 per share. These options vest in three equal installments on March 1, 2009, March 1, 2010 and March 1, 2011, respectively. |
|
(4)Daniel J. Wagner | | During 2008, we granted Mr. Miller a non-qualified option to purchase 45,000 shares of our Class A common stock at an exercise price of $17.50 per share. These options vest in three equal installments on March 1, 2009, March 1, 2010 and March 1, 2011, respectively. |
40,000 | |
(5) | | During 2008, we granted Mr. Shenk a non-qualified option to purchase 40,000 shares of our Class A common stock at an exercise price of $17.50 per share. These options vest in three equal installments on March 1, 2009, March 1, 2010 and March 1, 2011, respectively. |
|
(6) | | During 2008, we granted Mr. Wagner a non-qualified option to purchase 40,000 shares of our Class A common stock at an exercise price of $17.50 per share. These options vest in three equal installments on March 1, 2009, March 1, 2010 and March 1, 2011, respectively. |
Stock Incentive Plans
We have an equity incentive plan for employees and an equity incentive plan for our directors. Under these plans, our board of directors, upon the recommendation of our compensation committee, may grant options to purchase our Class A common stock and, in the case of our directors, restricted stock awards as well as stock options. Grants under the plans can take the form of incentive stock options, non-qualified stock options, stock appreciation rights, stock units and other stock-based awards. With the exception of an annual fixed restricted stock award to our directors, all of our incentive compensation grants have been stock options.
19
The purpose of the plans is to provide long-term incentive awards to our employees and directors as a means to attract, motivate, retain and reward talented persons.
As of December 31, 2008,2009, we had reserved 2,275,0002,338,500 shares of our Class A common stock for grants under our equity incentive plan for employees and 288,835284,170 shares of our Class A common stock for grants under our equity incentive plan for directors. If shares covered by an option cease to be issuable for any reason, we may again grant options to purchase those shares.
Our board of directors may adjust the number and kind of shares available for grants and options under our plans and the exercise price of outstanding options in the event of a merger, consolidation, reorganization, stock split, stock dividend or other event affecting the number of outstanding shares of our common stock. Unless otherwise provided in individual option agreements, unvested options do not automatically accelerate in the event of a business combination or in the event of the sale of all or substantially all of our assets.
Our board of directors, upon the recommendation of our compensation committee, has:
| | |
| • | the authority to determine the persons eligible to be granted options, the number of shares subject to each option, the exercise price of each option, the vesting schedule, the circumstances in which the vesting of options is accelerated and any extension of the period for exercise; and |
|
| • | full discretionary authority to determine any matter relating to options granted under our plans. |
Our board of directors has the authority to suspend, amend or terminate our plans, except as would adversely affect the rights of persons holding outstanding awards without the consent of such persons.
25
Outstanding Equity Awards at Fiscal Year End
The following table summarizes the outstanding equity awards held by our named executive officers and our directors at December 31, 2008:2009:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards | | Option Awards | | Stock Awards |
| | Number of Securities
| | | | | | Number of
| | Market Value
| | Number of Securities
| | | | | | Number of
| | Market Value
|
| | Underlying
| | | | | | Shares or
| | of Shares or
| | Underlying
| | | | | | Shares or
| | of Shares or
|
| | Unexercised Options | | Option
| | | | Units of Stock
| | Units of Stock
| | Unexercised Options | | Option
| | Option
| | Units of Stock
| | Units of Stock
|
| | (#)
| | (#)
| | Exercise
| | Option
| | That Have Not
| | That Have Not
| | (#)
| | (#)
| | Exercise
| | Expiration
| | That Have Not
| | That Have Not
|
Name | | Exercisable | | Unexercisable | | Price ($) | | Expiration Date | | Vested (#) | | Vested ($) | | Exercisable | | Unexercisable | | Price ($) | | Date | | Vested (#) | | Vested ($) |
|
Donald H. Nikolaus | | | 233,333 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | 311 | | | | 5,215 | | | | 233,333 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | 311 | | | | 4,833 | |
| | | 116,667 | | | | 58,333 | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | | 175,000 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | |
| | | — | | | | 175,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | | 58,333 | | | | 116,667 | | | | 17.50 | | | | 7/17/2013 | | | | | | | |
Cyril J. Greenya | | | 33,333 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | 311 | | | | 5,215 | | | | 33,333 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | 311 | | | | 4,833 | |
| | | 20,000 | | | | 10,000 | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | | 30,000 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | |
| | | — | | | | 40,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | | 13,333 | | | | 26,667 | | | | 17.50 | | | | 7/17/2013 | | | | | | | |
Jeffrey D. Miller | | | 33,333 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | — | | | | — | | | | 33,333 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | — | | | | — | |
| | | 20,000 | | | | 10,000 | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | | 30,000 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | |
| | | — | | | | 45,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | | 15,000 | | | | 30,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | |
Robert G. Shenk | | | 33,333 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | — | | | | — | | | | 40,000 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | — | | | | — | |
| | | 20,000 | | | | 10,000 | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | | 30,000 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | |
| | | — | | | | 40,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | | 13,333 | | | | 26,667 | | | | 17.50 | | | | 7/17/2013 | | | | | | | |
Daniel J. Wagner | | | 33,333 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | — | | | | — | | | | 33,333 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | — | | | | — | |
| | | 20,000 | | | | 10,000 | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | | 30,000 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | |
| | | — | | | | 40,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | | 13,333 | | | | 26,667 | | | | 17.50 | | | | 7/17/2013 | | | | | | | |
2026
The following table summarizes the outstanding equity awards held by our directors as of December 31, 2009:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards |
| | Number of Securities
| | | | | | Number of
| | Market Value
|
| | Underlying
| | | | | | Shares or
| | of Shares or
|
| | Unexercised Options | | Option
| | | | Units of Stock
| | Units of Stock
|
| | (#)
| | (#)
| | Exercise
| | Option
| | That Have Not
| | That Have Not
|
Name | | Exercisable | | Unexercisable | | Price ($) | | Expiration Date | | Vested (#) | | Vested ($) |
|
Robert S. Bolinger | | | 10,000 | | | | — | | | $ | 15.75 | | | | 7/21/2010 | | | | 311 | | | | 4,833 | |
| | | 7,500 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | |
| | | 2,500 | | | | 5,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
Patricia A. Gilmartin | | | 7,500 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | 311 | | | | 4,833 | |
| | | 2,500 | | | | 5,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
Philip H. Glatfelter, II | | | 10,000 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | 311 | | | | 4,833 | |
| | | 7,500 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | |
| | | 2,500 | | | | 5,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
Kevin M. Kraft, Sr. | | | 10,000 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | 311 | | | | 4,833 | |
| | | 7,500 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | |
| | | 2,500 | | | | 5,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
John J. Lyons | | | 10,000 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | 311 | | | | 4,833 | |
| | | 7,500 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | |
| | | 2,500 | | | | 5,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
Jon M. Mahan | | | 7,500 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | 311 | | | | 4,833 | |
| | | 2,500 | | | | 5,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
S. Trezevant Moore, Jr. | | | 2,500 | | | | 5,000 | | | | 17.50 | | | | 7/17/2013 | | | | 311 | | | | 4,833 | |
R. Richard Sherbahn | | | 10,000 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | 311 | | | | 4,833 | |
| | | 7,500 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | |
| | | 2,500 | | | | 5,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
Richard D. Wampler, II | | | 10,000 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | 311 | | | | 4,833 | |
| | | 7,500 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | |
| | | 2,500 | | | | 5,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
Option Exercises and Stock Vested
The following table summarizes stock options exercised by our named executive officers and, in the case of our named executive officers who are also directors, restricted stock awards vested, during 2008:2009:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Exercises and Stock Vested | | | Option Exercises and Stock Vested |
| | Option Awards | | Stock Awards | | | Option Awards | | Stock Awards |
| | Number of Shares
| | Value Realized
| | Number of Shares
| | Value Realized
| | | Number of Shares
| | Value Realized
| | Number of Shares
| | Value Realized
|
Name | | Acquired on Exercise (#) | | on Exercise ($)(1) | | Acquired on Vesting (#) | | on Vesting ($)(1) | | | Acquired on Exercise (#) | | on Exercise ($)(1) | | Acquired on Vesting (#) | | on Vesting ($)(1) |
|
Donald H. Nikolaus | | | 116,667 | | | | 1,220,504 | | | | 311 | | | | 5,215 | | | | — | | | | — | | | | 311 | | | | 4,833 | |
Cyril J. Greenya | | | — | | | | — | | | | 311 | | | | 5,215 | | | | — | | | | — | | | | 311 | | | | 4,833 | |
Jeffrey D. Miller | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Robert G. Shenk | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Daniel J. Wagner | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | |
(1) | | Value realized is based upon the closing price of our common stock on NASDAQ on the date of exercise or vesting minus the exercise price of the option awards. |
Pension Benefits
None of our named executive officers participated in or had an account balance in qualified or non-qualified defined benefit plans that we sponsored in 2006, 2007, 2008 or 2008,2009, and none is contemplated for 2009.2010.
27
Non-Qualified Deferred CompensationOur President and Chief Executive Officer
Base Salary. Mr. Nikolaus received a base salary of $555,000 in 2009, 2008 and 2007. We did not increase the base salary of Mr. Nikolaus for these years at his request and also because Mr. Nikolaus prefers that a substantial portion of his compensation be performance-based.
Annual Cash Bonus. Mr. Nikolaus received a bonus of $150,000 in respect of 2009 and a bonus of $360,000 in respect of 2008, which represent allocations from our formula-based bonus plan tied to our underwriting profitability and a subjective analysis of the performance of Mr. Nikolaus in 2008 and 2009. The principal subjective factors in determining the allocations to Mr. Nikolaus were the leadership he provides us, his achievement of our objectives in 2008 and 2009 and our overall financial, strategic and operational performance in 2008 and 2009. Mr. Nikolaus received a 35% and 39% allocation from the bonus pool in 2009 and 2008, respectively.
Our Senior Vice President and Chief Underwriting Officer
Base Salary. Mr. Greenya received a base salary of $185,000 in 2009 compared to a base salary of $180,000 in 2008. This 2.8% increase reflected acost-of-living adjustment.
Annual Cash Bonus. Mr. Greenya received a bonus of $34,000 in respect of 2009 and a bonus of $58,000 in respect of 2008. This 41% decrease in his 2009 bonus was principally the result of our reduced underwriting profitability. The bonus reflected Mr. Greenya’s effective oversight of our underwriting operations and compliance function and his participation in negotiating cost-effective renewals of our reinsurance.
Our Senior Vice President and Chief Financial Officer
Base Salary. Mr. Miller received a base salary of $197,000 in 2009 compared to a base salary of $187,000 in 2008. The 5.3% increase reflected Mr. Miller’s successful performance of his responsibilities as our chief financial offer and acost-of-living adjustment. The principal reason for the increase was Mr. Miller’s meeting of objective and subjective performance criteria we established.
Annual Cash Bonus. Mr. Miller received a bonus of $38,000 in respect of 2009 and a bonus of $62,000 in respect of 2008. This 39% decrease in his 2009 bonus was principally the result of our reduced underwriting profitability. The bonus reflected Mr. Miller’s effective oversight of our financial reporting and our systems of internal control.
Our Senior Vice President of Claims
Base Salary. Mr. Shenk received a base salary of $232,000 in 2009 compared to $229,000 in 2008. The 1.3% increase represented acost-of-living adjustment.
Annual Cash Bonus. Mr. Shenk received a bonus of $34,000 in respect of 2009 and a bonus of $58,000 in respect of 2008. This 41% decrease in his 2009 bonus was principally the result of our reduced underwriting profitability. The bonus reflected Mr. Shenk’s effective leadership of our claims function and the quality and promptness of our claims service.
24
Our Senior Vice President and Treasurer
Base Salary. Mr. Wagner received a base salary of $185,000 in 2009 compared to a base salary of $180,000 in 2008. This 2.8% increase reflected acost-of-living adjustment.
Annual Cash Bonus. Mr. Wagner received a bonus of $34,000 in respect of 2009 and a bonus of $58,000 in respect of 2008. This 41% decrease in his 2009 bonus was principally the result of our reduced underwriting profitability. The bonus reflected Mr. Wagner’s effective supervision of our billing, cash management and treasury functions.
Grants of Plan-Based Awards
We did not grant any stock options to our named executive officers during 2009.
During 2008, we granted non-qualified options to purchase shares of our Class A common stock at an exercise price of $17.50 per share, which options vest in three equal installments on March 1, 2009, March 1, 2010 and March 1, 2011, respectively, as follows:
| | | | |
| | Number of Shares
|
Name | | Subject to Option |
|
Donald H. Nikolaus | | | 175,000 | |
Cyril J. Greenya | | | 40,000 | |
Jeffrey D. Miller | | | 45,000 | |
Robert G. Shenk | | | 40,000 | |
Daniel J. Wagner | | | 40,000 | |
Stock Incentive Plans
We have an equity incentive plan for employees and an equity incentive plan for our directors. Under these plans, our board of directors, upon the recommendation of our compensation committee, may grant options to purchase our Class A common stock and, in the case of our directors, restricted stock awards as well as stock options. Grants under the plans can take the form of incentive stock options, non-qualified stock options, stock appreciation rights, stock units and other stock-based awards. With the exception of an annual fixed restricted stock award to our directors, all of our incentive compensation grants have been stock options. The purpose of the plans is to provide long-term incentive awards to our employees and directors as a means to attract, motivate, retain and reward talented persons.
As of December 31, 2009, we had reserved 2,338,500 shares of our Class A common stock for grants under our equity incentive plan for employees and 284,170 shares of our Class A common stock for grants under our equity incentive plan for directors. If shares covered by an option cease to be issuable for any reason, we may again grant options to purchase those shares.
Our board of directors may adjust the number and kind of shares available for grants and options under our plans and the exercise price of outstanding options in the event of a merger, consolidation, reorganization, stock split, stock dividend or other event affecting the number of outstanding shares of our common stock. Unless otherwise provided in individual option agreements, unvested options do not automatically accelerate in the event of a business combination or in the event of the sale of all or substantially all of our assets.
Our board of directors, upon the recommendation of our compensation committee, has:
| | |
| • | the authority to determine the persons eligible to be granted options, the number of shares subject to each option, the exercise price of each option, the vesting schedule, the circumstances in which the vesting of options is accelerated and any extension of the period for exercise; and |
|
| • | full discretionary authority to determine any matter relating to options granted under our plans. |
Our board of directors has the authority to suspend, amend or terminate our plans, except as would adversely affect the rights of persons holding outstanding awards without the consent of such persons.
25
Outstanding Equity Awards at Fiscal Year End
The following table summarizes the outstanding equity awards held by our named executive officers and our directors at December 31, 2009:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards |
| | Number of Securities
| | | | | | Number of
| | Market Value
|
| | Underlying
| | | | | | Shares or
| | of Shares or
|
| | Unexercised Options | | Option
| | Option
| | Units of Stock
| | Units of Stock
|
| | (#)
| | (#)
| | Exercise
| | Expiration
| | That Have Not
| | That Have Not
|
Name | | Exercisable | | Unexercisable | | Price ($) | | Date | | Vested (#) | | Vested ($) |
|
Donald H. Nikolaus | | | 233,333 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | 311 | | | | 4,833 | |
| | | 175,000 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | |
| | | 58,333 | | | | 116,667 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
Cyril J. Greenya | | | 33,333 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | 311 | | | | 4,833 | |
| | | 30,000 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | |
| | | 13,333 | | | | 26,667 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
Jeffrey D. Miller | | | 33,333 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | — | | | | — | |
| | | 30,000 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | |
| | | 15,000 | | | | 30,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
Robert G. Shenk | | | 40,000 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | — | | | | — | |
| | | 30,000 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | |
| | | 13,333 | | | | 26,667 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
Daniel J. Wagner | | | 33,333 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | — | | | | — | |
| | | 30,000 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | |
| | | 13,333 | | | | 26,667 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
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The following table summarizes the outstanding equity awards held by our directors as of December 31, 2009:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards |
| | Number of Securities
| | | | | | Number of
| | Market Value
|
| | Underlying
| | | | | | Shares or
| | of Shares or
|
| | Unexercised Options | | Option
| | | | Units of Stock
| | Units of Stock
|
| | (#)
| | (#)
| | Exercise
| | Option
| | That Have Not
| | That Have Not
|
Name | | Exercisable | | Unexercisable | | Price ($) | | Expiration Date | | Vested (#) | | Vested ($) |
|
Robert S. Bolinger | | | 10,000 | | | | — | | | $ | 15.75 | | | | 7/21/2010 | | | | 311 | | | | 4,833 | |
| | | 7,500 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | |
| | | 2,500 | | | | 5,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
Patricia A. Gilmartin | | | 7,500 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | 311 | | | | 4,833 | |
| | | 2,500 | | | | 5,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
Philip H. Glatfelter, II | | | 10,000 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | 311 | | | | 4,833 | |
| | | 7,500 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | |
| | | 2,500 | | | | 5,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
Kevin M. Kraft, Sr. | | | 10,000 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | 311 | | | | 4,833 | |
| | | 7,500 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | |
| | | 2,500 | | | | 5,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
John J. Lyons | | | 10,000 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | 311 | | | | 4,833 | |
| | | 7,500 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | |
| | | 2,500 | | | | 5,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
Jon M. Mahan | | | 7,500 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | 311 | | | | 4,833 | |
| | | 2,500 | | | | 5,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
S. Trezevant Moore, Jr. | | | 2,500 | | | | 5,000 | | | | 17.50 | | | | 7/17/2013 | | | | 311 | | | | 4,833 | |
R. Richard Sherbahn | | | 10,000 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | 311 | | | | 4,833 | |
| | | 7,500 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | |
| | | 2,500 | | | | 5,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
Richard D. Wampler, II | | | 10,000 | | | | — | | | | 15.75 | | | | 7/21/2010 | | | | 311 | | | | 4,833 | |
| | | 7,500 | | | | — | | | | 21.00 | | | | 10/19/2011 | | | | | | | | | |
| | | 2,500 | | | | 5,000 | | | | 17.50 | | | | 7/17/2013 | | | | | | | | | |
Option Exercises and Stock Vested
The following table summarizes stock options exercised by our named executive officers and, in the case of our named executive officers who are also directors, restricted stock awards vested, during 2009:
| | | | | | | | | | | | | | | | |
| | Option Exercises and Stock Vested |
| | Option Awards | | Stock Awards |
| | Number of Shares
| | Value Realized
| | Number of Shares
| | Value Realized
|
Name | | Acquired on Exercise (#) | | on Exercise ($)(1) | | Acquired on Vesting (#) | | on Vesting ($)(1) |
|
Donald H. Nikolaus | | | — | | | | — | | | | 311 | | | | 4,833 | |
Cyril J. Greenya | | | — | | | | — | | | | 311 | | | | 4,833 | |
Jeffrey D. Miller | | | — | | | | — | | | | — | | | | — | |
Robert G. Shenk | | | — | | | | — | | | | — | | | | — | |
Daniel J. Wagner | | | — | | | | — | | | | — | | | | — | |
| | |
(1) | | Value realized is based upon the closing price of our common stock on NASDAQ on the date of exercise or vesting minus the exercise price of the option awards. |
Pension Benefits
None of our named executive officers participated in or had an account balancesbalance in qualified or non-qualified deferred compensation plans or other deferred compensationdefined benefit plans that we maintainedsponsored in 2006, 2007, 2008 or 2008,2009, and none is contemplated for 2009.
Director Compensation
Our directors and the directors of Donegal Mutual received an annual retainer of $30,000 in 2008. Members of the committees of our board of directors and of the board of directors of Donegal Mutual received a fee of $250 for each committee meeting attended in 2008, with the exception of meetings of the audit committees. Members of the audit committees received a fee of $500 for each meeting attended in 2008. A person who serves on our board of directors as well as the board of directors of Donegal Mutual receives only one annual retainer. Since March 1, 2008, we have allocated 20% of that retainer to Donegal Mutual and 80% to us.
Under our equity incentive plan for directors, each of our directors and each director of Donegal Mutual who is not also one of our directors receives an annual restricted stock award of 311 shares of our Class A common stock as of the first business day of each year, provided the director served as a member of our board of directors or the board of directors of Donegal Mutual during any portion of the preceding calendar year. Each of our directors and each of the directors of Donegal Mutual is also eligible to receive non-qualified options to purchase shares of our Class A common stock in an amount determined by our board of directors from time to time. Donegal Mutual reimburses us for the options and restricted stock awards granted to those directors of Donegal Mutual who are not also members of our board of directors.2010.
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The following table sets forth a summary of the compensation we paid to our non-officer directors during 2008.
| | | | | | | | | | | | | | | | |
| | Fees Earned
| | | Stock
| | | Option
| | | | |
Name | | or Paid in Cash ($) | | | Awards ($) | | | Awards ($) | | | Total ($) | |
|
Robert S. Bolinger | | | 38,250 | | | | 5,215 | | | | 15,450 | | | | 58,915 | |
Patricia A. Gilmartin | | | 31,000 | | | | 5,215 | | | | 15,450 | | | | 51,665 | |
Philip H. Glatfelter, II | | | 78,708 | | | | 5,215 | | | | 15,450 | | | | 99,373 | |
John J. Lyons | | | 37,750 | | | | 5,215 | | | | 15,450 | | | | 58,415 | |
John M. Mahan | | | 32,000 | | | | 5,215 | | | | 15,450 | | | | 52,665 | |
S. Trezevant Moore, Jr. | | | 31,000 | | | | 5,215 | | | | 15,450 | | | | 51,665 | |
R. Richard Sherbahn | | | 34,000 | | | | 5,215 | | | | 15,450 | | | | 54,665 | |
Richard D. Wampler, II | | | 37,500 | | | | 5,215 | | | | 15,450 | | | | 58,165 | |
Related Person Transactions
We have adopted a policy formalizing the manner in which we deal with a proposed transaction between us and a related person other than Donegal Mutual because we recognize that related person transactions present a heightened risk of a conflict of interest and can create the appearance of a conflict of interest. Under our policy, all proposed related person transactions must receive the prior approval of our audit committee before we can enter into the transaction, and, if the transaction continues for more than one year, the continuation must be approved annually by our audit committee. Our transactions with Donegal Mutual require the prior approval of the coordinating committee. See “Our Relationship with Donegal Mutual — The Coordinating Committee.”
Donald H. Nikolaus, our President and a director of us and the President and a director of Donegal Mutual, is also a partner in the law firm of Nikolaus & Hohenadel. Such firm has served as general counsel to Donegal Mutual since 1970 and to us since 1986, principally in connection with the defense of claims litigation arising in Lancaster, Dauphin and York counties of Pennsylvania. We pay such firm its customary fees for such services. Those fees were $372,926 in 2007 and $369,372 in 2008.
Patricia A. Gilmartin, a director of us and a director of Donegal Mutual, is an employee of Associated Donegal Insurance Brokers, which has no affiliation with us except that Associated Donegal Insurance Brokers receives insurance commissions in the ordinary course of business from our insurance subsidiaries and Donegal Mutual in accordance with their standard commission schedules and agency contracts.
Frederick W. Dreher, a director of Donegal Mutual, is a partner in the law firm of Duane Morris LLP, which represents us and Donegal Mutual in certain legal matters. We pay such firm its customary fees for such services. Those fees were $1,013,913 in 2007 and $1,226,249 in 2008.
Four of our nine directors are affiliated with Donegal Mutual, our majority stockholder, with whom we have a variety of inter-company agreements providing for, among other things, the pooling of underwriting results, reinsurance and expense sharing. See “Stock Ownership — Our Relationship with Donegal Mutual.”
Limitation of Liability and Indemnification
Our certificate of incorporation includes a provision that limits, to the maximum extent permitted by Delaware law, the liability of our directors and officers to us and to our stockholders for money damages except for liability resulting from:
| | |
| • | actual receipt of an improper benefit or profit in money, property or services; or |
|
| • | active and deliberate dishonesty established by a final judgment as being material to the cause of action. |
This limitation does not, however, apply to violations of the federal securities laws, nor does it limit the availability of non-monetary relief in any action or proceeding.
22
Our certificate of incorporation and by-laws obligate us, to the maximum extent permitted by Delaware law, to indemnify any person who is or was a party to, or is threatened to be made a party to, any threatened or pending action, suit or proceeding by reason of the fact that such person is or was one of our directors or officers, or, while one of our directors or officers, is or was serving, at our request, as a director or officer of another entity. Insofar as indemnification for liabilities arising under the federal securities laws may be permitted to our officers and directors pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in such laws and is unenforceable.
In addition, our certificate of incorporation and by-laws permit us, at our expense, to purchase and maintain insurance to protect us and any director, officer or employee against any liability of any character asserted against or incurred by us or any such director, officer or employee, or arising out of any such person’s corporate status, whether or not we would have the power to indemnify such person against such liability under Delaware law. We also have and intend to maintain directors’ and officers’ liability insurance.
Evaluation of Executive Performance in 2008 and Executive Compensation
Our compensation committee does not restrict its evaluation of the performance of our named executive officers to predetermined formulas or a limited set of criteria. Our compensation committee considered our progress during 2008 in achieving the short-term and long-term objectives described below:
| | |
| • | our continued achievement of underwriting results superior to the underwriting results of other property and casualty insurance companies on a long-term basis; |
|
| • | our achievement of a compound rate of revenue growth in excess of 6.5% over a five-year period; |
|
| • | our status in being named as one of Ward’s top 50 performing insurance companies over a five-year period for the fourth straight year; |
|
| • | our continued geographic expansion; |
|
| • | our development of automated underwriting and policy issuance software that enables us to compete with the national carriers; |
|
| • | Donegal Mutual’s completion of the conversion of Sheboygan Mutual Insurance Company into a stock insurance company and our acquisition of that stock insurance company on December 1, 2008; |
|
| • | enhancing our personnel and their skills; and |
|
| • | our realization of operational and expense synergies on a continuing basis. |
On an overall basis, our compensation committee believes that our progress in the achievement of these objectives met or exceeded the targets established for these objectives at the start of 2008 with emphasis given to our underwriting profit of $9.7 million in 2008. This underwriting profit was the basis of the decisions made by our compensation committee at its meetings in December 2008 and February 2009 with respect to adjustments to base salary and the allocation of our annual cash bonuses for our named executive officers.
Our philosophy and that of our compensation committee is founded on performance and profitability, so that the major portion of the compensation of our named executive officers arises from annual bonuses and stock options that will have their greatest value only when our performance and profitability is at a high level. The compensation recommendations of our compensation committee to our board of directors and the compensation determinations of our board of directors as to each of our named executive officers is discussed below and were based on the policies and procedures described earlier in this proxy statement and the factors and criteria described below. The specific compensation decisions made for each of our named executive officers in 2008 reflect our strong financial and operational performance in 2008.
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Our President and Chief Executive Officer
Base Salary. Mr. Nikolaus received a base salary of $555,000 in 2009, 2008 and 2007. We did not increase the base salary of Mr. Nikolaus for these years at his request and also because Mr. Nikolaus prefers that a substantial portion of his compensation be performance-based.
Annual Cash Bonus. Mr. Nikolaus received a bonus of $150,000 in respect of 2009 and a bonus of $360,000 in respect of 2008, and a bonus of $840,000 in respect of 2007, which represent allocations from our formula-based bonus plan tied to our underwriting profitability and a subjective analysis of the performance of Mr. Nikolaus in 20072008 and 2008.2009. The principal subjective factors in determining the allocations to Mr. Nikolaus were the leadership he provides us, his achievement of our objectives in 20072008 and 20082009 and our overall financial, strategic and operational performance in 20072008 and 2008.2009. Mr. Nikolaus received a 39%35% and 40%39% allocation from the bonus pool in 2009 and 2008, respectively.
Our Senior Vice President and 2007, respectively.Chief Underwriting Officer
Base Salary. Mr. Greenya received a base salary of $185,000 in 2009 compared to a base salary of $180,000 in 2008. This 2.8% increase reflected acost-of-living adjustment.
Annual Cash Bonus. Mr. Greenya received a bonus of $34,000 in respect of 2009 and a bonus of $58,000 in respect of 2008. This 41% decrease in his 2009 bonus was principally the result of our reduced underwriting profitability. The bonus reflected Mr. Greenya’s effective oversight of our underwriting operations and compliance function and his participation in negotiating cost-effective renewals of our reinsurance.
Our Senior Vice President and Chief Financial Officer
Base Salary. Mr. Miller received a base salary of $187,000$197,000 in 20082009 compared to a base salary of $177,000$187,000 in 2007.2008. The 5.6%5.3% increase reflected Mr. Miller’s successful performance of his responsibilities as our chief financial offer and acost-of-living adjustment. The principal reason for the increase was Mr. Miller’s meeting of objective and subjective performance criteria we established plus our continuing record of strong financial performance.established.
Annual Cash Bonus. Mr. Miller received a bonus of $38,000 in respect of 2009 and a bonus of $62,000 in respect of 2008 and a bonus of $132,000 in respect of 2007.2008. This 53%39% decrease in his 20082009 bonus was principally the result of our reduced underwriting profitability. The bonus reflected Mr. Miller’s effective oversight of our financial reporting and our systems of internal control.
Our Senior Vice President of Claims
Base Salary. Mr. Shenk received a base salary of $232,000 in 2009 compared to $229,000 in 2008 compared to $223,000 in 2007.2008. The 2.7%1.3% increase represented acost-of-living adjustment.
Annual Cash Bonus. Mr. Shenk received a bonus of $58,000$34,000 in respect of 20082009 and a bonus of $125,000 in respect of 2007. This 54% decrease in his 2008 bonus was principally the result of our reduced underwriting profitability. The bonus reflected our substantially lower than industry average combined ratio and Mr. Shenk’s leadership in maintaining the quality and promptness of our claims service.
Our Senior Vice President and Chief Underwriting Officer
Base Salary. Mr. Greenya received a base salary of $180,000 in 2008 compared to a base salary of $174,000 in 2007. This 3.4% increase reflected a cost-of-living adjustment.
Annual Cash Bonus. Mr. Greenya received a bonus of $58,000 in respect of 2008 and a bonus of $125,000 in respect of 2007.2008. This 54%41% decrease in his 20082009 bonus was principally the result of our reduced underwriting profitability. The bonus reflected Mr. Greenya’sShenk’s effective oversightleadership of our underwriting operationsclaims function and his participation in negotiating cost-effective renewalsthe quality and promptness of our reinsurance.claims service.
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Our Senior Vice President and Treasurer
Base Salary. Mr. Wagner received a base salary of $180,000$185,000 in 20082009 compared to a base salary of $174,000$180,000 in 2007.2008. This 3.4%2.8% increase reflected acost-of-living adjustment.
Annual Cash Bonus. Mr. Wagner received a bonus of $34,000 in respect of 2009 and a bonus of $58,000 in respect of 2008 and a bonus of $125,000 in respect of 2007.2008. This 54%41% decrease in his 20082009 bonus was principally the result of our reduced underwriting profitability. The bonus reflected Mr. Wagner’s effective supervision of our billing, cash management and treasury functions.
Grants of Plan-Based Awards
We did not grant any stock options to our named executive officers during 2009.
During 2008, we granted non-qualified options to purchase shares of our Class A common stock at an exercise price of $17.50 per share, which options vest in three equal installments on March 1, 2009, March 1, 2010 and March 1, 2011, respectively, as follows:
| | | | |
| | Number of Shares
|
Name | | Subject to Option |
|
Donald H. Nikolaus | | | 175,000 | |
Cyril J. Greenya | | | 40,000 | |
Jeffrey D. Miller | | | 45,000 | |
Robert G. Shenk | | | 40,000 | |
Daniel J. Wagner | | | 40,000 | |
Stock Incentive Plans
We have an equity incentive plan for employees and an equity incentive plan for our directors. Under these plans, our board of directors, upon the recommendation of our compensation committee, may grant options to purchase our Class A common stock and, in the case of our directors, restricted stock awards as well as stock options. Grants under the plans can take the form of incentive stock options, non-qualified stock options, stock appreciation rights, stock units and other stock-based awards. With the exception of an annual fixed restricted stock award to our directors, all of our incentive compensation grants have been stock options. The purpose of the plans is to provide long-term incentive awards to our employees and directors as a means to attract, motivate, retain and reward talented persons.
As of December 31, 2009, we had reserved 2,338,500 shares of our Class A common stock for grants under our equity incentive plan for employees and 284,170 shares of our Class A common stock for grants under our equity incentive plan for directors. If shares covered by an option cease to be issuable for any reason, we may again grant options to purchase those shares.
Our board of directors may adjust the number and kind of shares available for grants and options under our plans and the exercise price of outstanding options in the event of a merger, consolidation, reorganization, stock split, stock dividend or other event affecting the number of outstanding shares of our common stock. Unless otherwise provided in individual option agreements, unvested options do not automatically accelerate in the event of a business combination or in the event of the sale of all or substantially all of our assets.
Our board of directors, upon the recommendation of our compensation committee, has:
| | |
| • | the authority to determine the persons eligible to be granted options, the number of shares subject to each option, the exercise price of each option, the vesting schedule, the circumstances in which the vesting of options is accelerated and any extension of the period for exercise; and |
|
| • | full discretionary authority to determine any matter relating to options granted under our plans. |
Our board of directors has the authority to suspend, amend or terminate our plans, except as would adversely affect the rights of persons holding outstanding awards without the consent of such persons.
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