Exhibit 10(K)
Amended September 1999
Confidential
Old Republic National Title Group
Incentive Compensation Plan
I. Plan Objectives
A. Pay participants cash awards for continuous improvement of the
Company's overall performance.
B. Provide a competitive tool to use in recruiting and retaining skilled
managers, key operating employees and key Corporate staff
professionals.
C. Motivate managers and key employees in all operating locations to work
together as a team to: improve productivity, control expenses and
consistently increase profitability.
D. Provide recognition and reward to individuals who have demonstrated
outstanding performance.
II. Plan Participants
A. Operations: Division Presidents, Region/Area managers, profit center
managers and those key employees identified by their managers each
year and approved by the Chief Executive Officer.
B. Corporate Staff: President and Chief Executive Officer, Corporate
Department Managers, key Corporate employees as designated by the
Chief Executive Officer and other key Corporate employees as annually
identified by their managers and approved by the Chief Executive
Officer.
Note: Employees covered under other ancillary commission or incentive
plans are not eligible to participate in this Plan.
III. Award Explanation
A. Total Incentive Pool
1. The Total Incentive Pool is the combined Company incentive amount
including the Operations Incentive Pool and the Discretionary
Incentive Pool awards. The Total Incentive Pool available for
annual distribution to participants will be computed as a
percentage of the Company's overall improvement in operating
income or loss compared to the base year, plus the base year
allocation, subject to the Company attaining certain Return on
Equity targets. Operating income or loss is defined as income or
loss before investment income, real estate income and capital
gains.
2. The 1991 operating loss and the 1991 incentive award level,
adjusted for subsequent acquisitions, dispositions and
reorganizations, will be the base year loss and the base year
allocation, respectively.
3. The percentages of profit improvement used to determine the Total
Incentive Pool are as follows:
* 5% of the improvement over the base year until break-even is
achieved.
* After break-even is achieved, then the percentage of profit
improvement is as follows:
For Total Company
-----------------
Operating Income From
---------------------
7.50%. . . . . . $0 to $1,250,000
8.75%. . . . . . $1,250,000 to $2,500,000
10.00%. . . . . . $2,500,000 to $3,750,000
12.50%. . . . . . $3,750,000 to $5,000,000
15.00%. . . . . . over $5,000,000 with no cap
on the total pool
* Profit reductions below the base year loss will
reduce the base year allocation by 10% of the
decrease.
4. The Total Incentive Pool, as calculated above, will be reduced,
or eliminated, if the Return on Equity for the Old Republic
National Title Group is less than the Return on Equity Target set
for incentive programs by Old Republic International. This
adjustment to the Total Incentive Pool shall be determined as
follows:
* If Return on Equity is less than 100% of the Return on
Equity Target but greater than zero, then the Total
Incentive Pool will equal the percentage of the target times
the amount calculated in paragraphs 1-3 above. For example,
if Return on Equity is 75% of the Return on Equity Target,
then the Total Incentive Pool will equal 75% of the total
from paragraphs 1-3.
* If Return on Equity is less than or equal to zero, then the
Total Incentive Pool for the year will be zero, regardless
of the amount calculated in paragraphs 1-3 above.
* If Return on Equity is greater than or equal to the Return
on Equity Target, then the Total Incentive Pool will not be
adjusted and will equal the amount calculated in paragraphs
1-3.
Return on Equity is defined as Net Income, after taxes but
excluding Capital Gains and Extraordinary Items, divided by Total
Shareholders' Equity from the previous year end. The Return on
Equity Target shall be calculated each year as two times the mean
of the five year average post tax yield on ten year and thirty
year U.S. Treasury Securities for the immediately preceding five
year period.
5. The aggregate of the Operations Incentive Pools (See Section III.
B.) can exceed the Total Incentive Pool. However, in the event
that the incentive amounts earned and distributed to operations
in any year exceed the Total Incentive Pool, then a portion of
that shortfall will reduce amounts available for distribution in
future years. Any unpaid balance carried forward from prior years
shall be reduced first, with any remaining reduction carried
forward as a charge against the subsequent years' total available
incentive pool.
The portion of any shortfall that will be treated as a reduction
of future distributions is based on the Return on Equity achieved
in relation to the Return on Equity Target as follows:
* If Return on Equity is less than 100% of the Return on
Equity Target but greater than zero, then the portion of the
shortfall that shall reduce future distributions is equal to
100% minus the ratio of our actual Return on Equity to the
Return on Equity Target. For example, if our Return on
Equity is 8% and the target return on equity is 10%, then
the ratio is 80%, and then 20% (100% - 80%) of the shortfall
will reduce amounts available for distribution in future
years.
* If Return on Equity is less than or equal to zero, then the
entire shortfall shall reduce amounts available for
distribution in future years.
* If Return on Equity is greater than or equal to the Return
on Equity Target, then none of the shortfall shall reduce
amounts available for distribution in future years.
B. Operations Incentive Pool
1. Incentives will be awarded annually for designated operations at
three levels: profit center, reporting group and Division
President.
2. Profit Center - The profit center incentive pool will be equal to
a predetermined percentage of income for the profit center and
will be distributed to the profit center managers and their key
employees. The manager's share will be determined by the
Region/Area Manager (if applicable) and the Division President,
subject to approval from the Chief Executive Officer.
3. Discretionary Group Award - Every reporting group will generate
an additional award pool available for the group manager and
staff, and to supplement certain profit center awards. A
reporting group is defined as an operation or group of operations
that reports to the Division President, and the award pool will
be equal to a predetermined percentage of income for the group.
Distribution will be discretionary and be determined by the
Division President and the Chief Executive Officer.
4. Division President - The Division President incentive pool will
be equal to a predetermined percentage of income for the entire
division and will be distributed to the Division Presidents and
their staff. The Division President share will be determined by
the Chief Executive Officer.
5. Depending on overall Company results, with the approval of the
Chief Executive Officer, Division Presidents, managers and key
employees may also be eligible to receive an award from the
Discretionary Incentive Pool (See Section III.C.).
6. The award percentages, group designations and income base to be
used for each of the Operation incentive pools described above
will be determined by the Chief Executive Officer.
C. Discretionary Incentive Pool
1. The Discretionary Incentive Pool consists of the Total Incentive
Pool available for annual distribution, (See Section III. A.)
less the aggregate amounts of the incentives paid to Operations,
(See Section III. B.).
2. This Discretionary Incentive Pool amount will be designated for
distribution to Division Presidents, key Corporate employees and
other operating employees, as approved by the Chief Executive
Officer and the Compensation Committee. Any portion of this
Discretionary Incentive Pool that is not distributed will be
carried forward to subsequent years.
IV. General Rules and Conditions
A. The Plan year starts January 1 and ends December 31.
B. The maximum award to any participant cannot exceed the participant's
annual base salary unless approved by the Compensation Committee of
the Board of Directors.
C. Cash awards will be paid out no later than ten business days
subsequent to approval by the Compensation Committee of the Board of
Directors. (See IV.J.)
D. Periodically, the Compensation Committee of Old Republic International
Corporation awards blocks of stock options to various ORI profit
centers. In the event blocks of stock options are awarded to Old
Republic National Title Insurance Company in any year, the Chief
Executive Officer, with approval of the Compensation Committee, may
award stock options to key employees in lieu of cash as a portion of
their incentive compensation award earned under this Plan.
E. The Chief Executive Officer, with the approval of the Compensation
Committee, can elect to pay out up to 50% of the Discretionary
Incentive Pool earned in a year, even if a shortfall carry forward
would reduce the award below that level. The remaining shortfall will
continue to be carried forward.
F. In case of voluntary termination, death, retirement, or disability, a
participant or his estate may, upon recommendation of the Chief
Executive Officer and approval of the Compensation Committee, receive
an award prorated to the employee's term of employment. Otherwise,
participants must be employed as of December 31 of a Plan year in
order to receive an award under the Plan's payout provisions.
Participants who terminate after December 31, for reasons other than
fraud, embezzlement, or misconduct will receive their earned award at
the time other participants are paid.
G. During the Plan year, if a Plan Participant terminates and is
replaced, the replacement may be entitled to all or a prorated share
of the former participant's award, with the approval of the Chief
Executive Officer.
H. Participants who are transferred to another profit center of the
Company will receive a prorated share of an award from the profit
center in which the participant was employed.
I. The Chief Executive Officer, at his discretion, may reduce amounts for
annual distribution under circumstances that justify reduction, such
as inadequate profit margin as well as problems with: monitoring
agents, notes receivable, accounts receivable, major claims,
accounting changes, recent management changes, performance issues,
etc.
J. All incentive awards are subject to approval by the Compensation
Committee of the Board of Directors.
V. Plan Not A Contract
A. Plan Participants are employed at-will. This Plan is not an employment
contract between the Plan Participant and the Company, nor is it a
guarantee of permanent or continued employment. It can be changed at
any time, with or without notice to the participant, by approval of
the Compensation Committee and the Chief Executive Officer.