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EXHIBIT 10.63
ALLIED GROUP
SHORT TERM MANAGEMENT
INCENTIVE PLAN
1. PURPOSE
This ALLIED Group Short Term Management Incentive Plan (the "Plan") is
effective January 1, 1998.
The purpose of this Plan is to encourage outstanding performance by
certain key employees of ALLIED Group, Inc. ("AGI") in the attainment of annual
financial and operating goals of AGI, ALLIED Mutual Insurance Company, and all
of their subsidiaries except for ALLIED Life Financial Corporation and its
subsidiaries (collectively, the "ALLIED Group").
2. DEFINITIONS
The capitalized terms used throughout the Plan have the following
meaning:
(a) "AGA" means ALLIED General Agency Company.
(b) "AGIMC" means ALLIED Group Insurance Marketing Company.
(c) "AGIS" means ALLIED Group Information Systems, Inc.
(d) "AGMC" means ALLIED Group Mortgage Company.
(e) "ALLIED Group Net Income" means net income after income taxes
(including net realized investment gains/losses) for the
consolidated group of companies comprising the ALLIED Group
(excluding crop-hail business) computed in conformity with
generally accepted accounting principles ("GAAP").
(f) "Base Award" is defined in Paragraph 5(c).
(g) "Base Salary" is the annualized weekly base pay of the Participant
in effect as of the last day in the position for which the bonus
is being calculated, which in no event shall be later than
December 31 of the Plan year.
(h) "Committee" shall mean the Compensation Committee of the Board of
Directors of AGI in consultation with the Joint Compensation
Committee of the Board of AGI and ALLIED Mutual Insurance Company.
(i) "Consolidated TFG" shall mean TFG and AGIS.
(j) "Discretionary Award" is defined in Paragraph 5(d).
(k) "Discretionary Tier Award" is defined in Paragraph 5(j).
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(l) "DPW" is direct premiums written, net of return premiums, as
reported in the 1998 Planning Package for a particular regional
office or company. For ALLIED Group, it includes all
property-casualty companies but excludes (i) Western Heritage
Insurance Company, (ii) crop-hail business, and (iii) flood
program. For AGIMC, DPW shall exclude any premiums generated from
business that is purchased by AGIMC from another entity, unless
the Committee determines otherwise.
(m) "Eligible Award Percentage" is defined in Paragraph 5(b).
(n) "Eligible Individual Award" is defined in Paragraph 5(c).
(o) "Eligible Tier Award" is defined in Paragraph 5(h).
(p) "Goal" is the expected level of performance used to establish
targeted awards as approved by the Committee.
(q) "Growth" is defined in Paragraph 4.
(r) "Maximum" is the level of performance at which the maximum
eligible award could be made.
(s) "Midwest Printing" is Midwest Printing Services, Ltd.
(t) "Operating Profit" is calculated on a GAAP basis, includes net
realized investment gains/losses, and is after income taxes.
(u) "Participant" is a key employee of AGI recommended by the
President of AGI and approved by the Committee to participate in
this Plan.
(v) "Persistency" for AGIMC is the year-end persistency percentage as
shown on the ALLIED Group AGIMC Production Report B, which shall
include any business that is purchased by AGIMC from another
entity.
(w) "Profit" is defined in Paragraph 4.
(x) "Regional Office Operating Profit" is the Regional Office
Operating Statement GAAP net income.
(y) "TFG" means The Freedom Group, Inc.
(z) "Threshold" is the minimum level of performance that will warrant
an award.
(aa) Total Award" is defined in Paragraph 5(e).
(bb) "WHIC" means Western Heritage Insurance Company.
3. PARTICIPATION AND TIERS
Participation in the Plan is tiered by responsibility level and the
short-term impact of the management position.
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General Responsibility Levels
Tier I President
Vice Presidents
Subsidiary Presidents and Officers
Tier II Regional Office Managers and Subsidiary Officers
Tier III Primary Corporate Staff Vice Presidents
Tier IV Subsidiary Officers and Managers
Corporate Staff Vice Presidents and Officers
Tier V Subsidiary Managers
Tier VI Subsidiary Managers
Regional Office Managers
A participation list specifying the Participants in each tier shall be
approved by the Committee prior to each fiscal year. The Committee may amend
such list from time to time to add or delete Participants.
Each tier level of participation will have varying award opportunity at
the Threshold, Goal, and Maximum performance levels for each of the performance
indicators.
4. PERFORMANCE INDICATORS
Two performance indicators, Profit and Growth, will be used to measure
the success of ALLIED Group and the level of bonus to be paid under this Plan.
"Profit" is defined as a performance indicator and shall be defined
based on the particular area for which a Participant provides services:
Regional Offices - "Regional Office Operating Profit"
Bonds - Bond Operating Profit"
AGIMC - "Persistency"
AGI subsidiaries - "Operating Profit"
Staff areas/all other areas - "ALLIED Group Net Income"
Consolidated TFG - net income after tax including subsidiaries
TFG - net income after tax excluding subsidiaries
AGIS - net income after tax
"Growth" is defined as a performance indicator and is the increase in
revenue from the prior year stated in terms of a percentage increase or dollar
target. Generally, revenue is expressed in DPW, except as follows:
Consolidated TFG - total revenues for TFG and AGIS
TFG - total revenues for TFG
AGIS - total revenues for AGIS
Midwest Printing - percentage increase in total revenues
The Threshold for Profit must be attained before any award will be made
based on Growth. However, with respect to AGIMC, the Threshold for Growth must
be attained before any award will be made based on Profit.
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Profit is the only indicator used to measure performance for AGMC,
WHIC, and AGA, and the total bonus amount is paid based upon results of Profit.
5. AWARDS
Individual Calculations
(a) A Participant may receive an Eligible Individual Award under the
Plan. "Eligible Individual Award" is defined as the award potential for a
Participant based on Profit and Growth results. Eligible Individual Award is the
sum of (i) the Eligible Award Percentage for Profit multiplied by the Base
Salary for the Participant and (ii) the Eligible Award Percentage for Growth
multiplied by the Base Salary for the Participant. The Eligible Individual Award
is the amount used to determine the Base Award and the Discretionary Award.
(b) "Eligible Award Percentage" is defined as the percentage amount
used to determine the potential Eligible Tier Awards and Eligible Individual
Award. The amount of the Eligible Award Percentage is tied to tier and
performance level attained (Threshold, Goal, or Maximum), as set forth in
Exhibit B.
Example for Eligible Award Percentage for Profit for a Participant
Step 1: Compare actual profit results for the fiscal year to the
goals specified in Exhibit A. If the actual Profit results for the
fiscal year do not meet the Threshold, then the Eligible Award
Percentage is 0, and no further calculations are necessary.
Step 2: Determine the percent by which the profit results exceeded
the Threshold value (or the goal value as the case may be). There
is no need for a calculation if the Maximum results were achieved
or exceeded.
Step 3: Identify the Eligible Award Percentage for the Profit
indicator in the tier at the Threshold level, as shown in Exhibit
B. Multiply the Eligible Award Percentage by the percent
calculated in Step 2. This will calculate the actual Eligible
Award Percentage available based on the profit results attained.
Repeat Steps 1 through 3 using Growth to compute the Eligible
Award Percentage for Growth.
(c) Upon meeting the Threshold for Profit, a Participant will receive
a Base Award. "Base Award" is defined as the award to a Participant when a
minimum performance level is met. The Base Award is 60% of the Eligible
Individual Award.
(d) Depending on the determination of the Committee, a Participant may
or may not receive a Discretionary Award. "Discretionary Award" is defined as an
amount separate from the Base Award which is awarded to a Participant based on
the discretion of the Committee. The Discretionary Award is calculated as a
percentage of the Eligible Tier Award.
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(e) A Participant's Total Award" is defined as the sum of the Base
Award and the Discretionary Award. The Discretionary Award combined with the
Base Award cannot exceed 150% of the Participant's Eligible Individual Award.
(f) In addition to the requirements in the foregoing paragraph, a
pre-Threshold requirement will be applicable to Staff employees. "Staff
employees" are defined to include those employees with overall corporate
responsibilities, each of whom shall be identified as "Staff" on the
participation list approved by the Committee. Staff employees must attain a 14%
return on average equity based on AGI financial statements before they are
eligible to meet the Threshold goal. "Return on equity" is defined as the
"Return on Average Book Value per Diluted Share" as calculated for and as
disclosed in the ALLIED Group, Inc. Annual Report to Stockholders.
(g) In the event a Participant does not meet the Threshold for Profit,
the Committee may, in unusual or extraordinary circumstances, award the
Participant a special award under the Plan. This paragraph may only be invoked
by the Committee in rare and extreme situations.
Tier Calculations
(h) "Eligible Tier Award" is defined as the award potential for a tier
based on Profit and Growth results. Eligible Tier Award is the sum of the
Eligible Individual Awards for all of the Participants in a particular tier.
Total awards made to all of the Participants in a particular tier shall not
exceed 100% of the Eligible Tier Award, but the total awards for a particular
tier may be less than the Eligible Tier Award.
(i) Notwithstanding the foregoing, if the Committee determines that a
Participant has shown extraordinary performance in a calendar year, the
Committee may exceed the Eligible Tier Award in order to increase the
Discretionary Award for the Participant showing such extraordinary performance.
(j) Discretionary Tier Award" is defined as the portion of the tier
award potential that is not guaranteed to payout but may be awarded based on
contribution and performance. This portion may equal up to 40% of the Eligible
Tier Award. A Participant may receive a portion, all, or none of the
Discretionary Tier Award.
6. PRORATED AWARDS
Employees who become eligible for participation in this Plan after the
beginning of the Plan year may receive a prorated award based on the time the
employee was a Participant and based on active time employed during the Plan
year. Prorated awards will be calculated by determining the number of calendar
days that a Participant has been eligible for a tier and dividing that number by
the calendar days in that Plan year.
7. DEATH, DISABILITY, OR RETIREMENT
In the event that a Participant dies, becomes disabled, or retires due
to age in accordance with AGI policy, a prorated award will be made based on
active time employed as a Participant during the Plan year.
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8. PLAN YEAR
The Plan year will be AGI's fiscal year.
9. TRANSFERABILITY
A Participant may not sell, pledge, donate, or otherwise assign any
interest in this Plan.
10. EMPLOYMENT
Nothing in this Plan confers upon a Participant any right to continued
employment or interferes with or limits in any way ALLIED Group's right to
terminate the employment of a Participant at any time.
11. TERMINATION OF EMPLOYMENT
If a Participant terminates employment or is terminated by ALLIED Group
for any reason other than death, disability, or retirement due to age in
accordance with AGI policy, and if such termination date is prior to the payment
date of an award under this Plan, any right to an award under this Plan is
forfeited.
12. PLAN AMENDMENT OR TERMINATION
The Committee may amend or terminate the Plan at any time. Participants
will be notified of such action as soon as it is practical to do so.
In the event of any change in the corporate structure of AGI affecting
the goals set forth in Exhibit A or the eligible award percentages set forth in
Exhibit B, and where such change in corporate structure would adversely affect a
Participant, the Committee may adjust or amend the Plan so as not to
disadvantage a Participant. In the event that a change in accounting rules or
procedures would affect the goals set forth in Exhibit A or the eligible award
percentages set forth in Exhibit B, and where such change in accounting rules or
procedures would adversely affect or create a windfall for a Participant, the
Committee may adjust or amend the Plan.
13. ADMINISTRATION
All matters pertaining to the administration of this Plan will be the
responsibility of the Committee, and any decisions of the Committee shall be
conclusive and binding. This includes all matters of interpretation, areas not
specified in the Plan, and any other issues that may affect the Plan.
14. GOVERNING LAW
The Plan will be administered, enforced, construed, and interpreted in
accordance with the laws of the State of Iowa.
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EXHIBIT A GOALS
Threshold Goal Maximum
--------- ---- -------
PROFIT
Regional Offices:
DMRO $16,000,000 $18,500,000 $21,000,000
LRO $11,500,000 $13,000,000 $14,500,000
RMRO $6,500,000 $7,500,000 $8,500,000
PCRO $17,000,000 $19,500,000 $22,000,000
CSRO $11,500,000 $13,000,000 $14,500,000
Bonds $450,000 $675,000 $800,000
Staff1 $70,000,000 $81,000,000 $92,000,000
AGMC $2,700,000 $3,100,000 $3,500,000
WHIC $6,000,000 $7,000,000 $8,000,000
ALLIED General Agency $30,000 $34,000 $50,000
TFG (2) $825,000 $900,000 $975,000
AGIS (2) $175,000 $250,000 $325,000
Consolidated TFG (2) $1,000,000 $1,150,000 $1,300,000
Midwest Printing Services $250,000 $325,000 $400,000
AGIMC 87.5% 89% 90.5%
GROWTH
Staff DPW 10% 12.5% 15%
DMRO DPW 8.0% 10.0% 12.0%
LRO DPW 8.0% 10.0% 12.0%
RMRO DPW 17.0% 21.0% 25.0%
PCRO DPW 10.0% 12.5% 15.0%
CSRO DPW 14.0% 17.0% 20.0%
Bonds DPW 12.0% 16.0% 20.0%
AGIMC DPW 18% 23% 28%
Midwest Printing Services 10% 14% 18%
TFG (2) $10,000,000 $12,000,000 $14,000,000
AGIS (2) $16,000,000 $18,000,000 $20,000,000
Consolidated TFG (2) $26,000,000 $30,000,000 $34,000,000
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(1) A pre-Threshold requirement will be applicable to Staff employees. Staff
employees must attain a 14% return on equity based on ALLIED Group, Inc.
financial statements before they are eligible to meet the Threshold goal.
(2) In the event that either TFG or AGIS receives a capital contribution in
the Plan year, the Threshold, Goal, and Maximum shall each be adjusted
upwards by the addition of the dollar amount derived from the following
formula:
Dollar Amount of x 14% x Remaining / Total Number
Capital Contribution Days in of Days in
Plan Year Plan Year
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EXHIBIT B
ELIGIBLE AWARD PERCENTAGES
Threshold Goal Maximum Weight
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Tier I: (1)
Profit 19% 38% 56% 75%
Growth 6% 12% 19% 25%
Total 25% 50% 75%
Tier II: (2)
Profit 15% 30% 45% 75%
Growth 5% 10% 15% 25%
Total 20% 40% 60%
Tier III:
Profit 13% 27% 40% 75%
Growth 5% 9% 14% 25%
Total 18% 36% 54%
Tier IV: (1,2,3)
Profit 12% 24% 36% 75%
Growth 4% 8% 12% 25%
Total 16% 32% 48%
Tier V: (4)
Profit 9% 18% 27% 75%
Growth 3% 6% 9% 25%
Total 12% 24% 36%
Tier VI: (5)
Profit 6% 12% 18% 75%
Growth 2% 4% 6% 25%
Total 8% 16% 24%
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(1) AGMC and WHIC award percentages are weighted 100% Profit.
(2) AGIMC award percentage is weighted 25% Persistency and 75% Growth.
(3) TFG, AGIS, and Consolidated TFG award percentages are weighted 50%
Profit and 50% Growth.
(4) WHIC award percentage is weighted 100% Profit.
(5) AGA award percentage is weighted 100% Profit.