EXHIBIT 10.9
APPENDIX A
2001 ANNUAL INCENTIVE PLAN
OF
ERIE INDEMNITY COMPANY
1. PURPOSE. The purpose of the Annual Incentive Plan (the "Plan") of Erie
Indemnity Company (the "Company") is to promote the best interests of the Erie
Insurance Exchange while enhancing shareholder value of the Company and to
promote the attainment of significant business objectives by the Company, its
subsidiaries and affiliates by basing a portion of selected employees'
compensation on the performance of such employee and the Company (as defined
below).
2. DEFINITIONS.
a. "AWARD AGREEMENT" means the agreement entered into between the Company
and a Participant, setting forth the terms and conditions applicable to an award
granted to the Participant under this Plan.
b. "BASE SALARY" shall mean the annual base salary for a Participant at
December 31, 2001.
c. "COMBINED RATIO" means the sum of the loss ratio (including loss
adjustment expenses), expense ratio and policyholder dividend ratio, as
determined in accordance with statutory accounting principles and reported to
A.M. Best Company for the combined property casualty operations of the Erie
Insurance Exchange and affiliated property casualty companies (collectively
"Erie"). For Erie, the Combined Ratio shall be adjusted to exclude the net
revenues from the management operations of Erie Indemnity Company in the
calculation of the underwriting expense ratio.
d. "COMPANY" means Erie Indemnity Company and any corporation, partnership
or other organization of which the Company owns or controls, directly or
indirectly, not less than 50% of the total combined voting power of all classes
of stock or other equity interests. For purposes of this Plan, the term
"Company" shall include any successors thereto.
e. "COMMITTEE" means the Executive Compensation Committee of the Board of
Directors of the Company, or its functional successor, unless some other Board
committee has been designated by the Board of Directors to administer the Plan.
f. "PARTICIPANT" means any individual who has met the eligibility
requirements set forth in Section 5 hereof and to whom a grant has been made and
is outstanding under the Plan.
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g. "PEER GROUP" means a group of companies selected by the Committee on an
industry and line of business basis.
h. "PERFORMANCE MEASURES" means the criteria upon which awards for 2001
will be based and, unless otherwise determined by the Committee shall be: (i) a
combination of the difference between ERIE's average Combined Ratio for 1999,
2000 and 2001 and the Combined Ratio of the Peer Group for 1999, 2000 and 2001
and the difference between ERIE's growth in net written premiums in 2001 as
compared to growth in net written premiums of the Peer Group in 2001 ("Financial
Performance Measure"); and (ii) the Participant's individual performance
assessment under the Company's existing performance assessment system
("Individual Performance Measure"). The Financial Performance Measure and the
Individual Performance Measure are collectively referred to as (the "Performance
Measures").
i. "TARGET AWARD" means:
the specific percentage of a Participant's base salary as determined
by the Committee.
3. ADMINISTRATION. The Plan shall be administered by the Committee.
The Committee's determinations under the Plan need not be uniform and may
be made by it selectively among persons who receive, or are eligible to receive,
awards under the Plan, whether or not such persons are similarly situated.
Whenever the Plan refers to a determination being made by the Committee, it
shall be deemed to mean a determination by the Committee in its sole discretion.
Subject to the provisions of the Plan, the Committee shall be authorized
to interpret the Plan, to make, amend and rescind such rules as it deems
necessary for the proper administration of the Plan, to make all other
determinations necessary or advisable for the administration of the Plan and to
correct any defect or supply any omission or reconcile any inconsistency in the
Plan in the manner and to the extent the Committee deems desirable to carry the
Plan into effect. Any action taken or determination made by the Committee shall
be conclusive on all parties.
4. WEIGHTING OF PERFORMANCE MEASURES. The Target Award shall be weighted in a
manner so that 75% of the Target Award shall be based upon the Financial
Performance Measure and 25% of the Target Award shall be based upon the
Individual Performance Measure. Satisfaction of either of the Performance
Measures shall entitle a Participant to payment with respect to that portion of
the award notwithstanding the fact that the other Performance Measure is not
satisfied.
5. ELIGIBLE PERSONS. Any key employee of the Company who the Committee
determines, in its sole discretion, has a significant effect on the operations
of the Company shall be eligible to participate in the Plan. Any Participant in
this Plan shall be deemed ineligible to participate in the Erie Insurance Group
Employee Profit Sharing Bonus Plan. No employee shall have a right (a) to be
selected under the Plan, or (b) having once been selected, to (i) be selected
again or (ii) continue as an employee.
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6. DETERMINATION OF AWARDS. The Committee shall determine the actual award to
each Participant for the year, based upon the following formula:
Participant Award = (.75 of Target Award x Financial Performance Percentage
Earned) + (.25 of Target Award x Individual Performance Percentage Earned).
The Financial Performance Percentage Earned and Individual Performance
Percentage Earned shall be determined in accordance with Appendix I and Appendix
II, respectively. For the Financial Performance Percentage Earned, the amount
shall be mathematically interpolated between cells in the matrix based upon
Erie's actual differences in Combined Ratio and Growth in New Written Premiums.
The Individual Performance Percentage Earned shall be based on the performance
assessment conducted during calendar year 2001.
The total award payable to any Participant may range from zero (0) to one
hundred and sixty (160) percent of the Participant's Target Award, depending
upon whether, or the extent to which, the Performance Measures have been
achieved. Notwithstanding anything in this Plan to the contrary, a Participant
shall not be entitled to, and no amount shall be payable to, such Participant in
the event that the Participant's Performance Points (as reflected in Appendix
II) are below 109. All such determinations regarding the achievement of
Performance Measures and the determination of actual awards will be made by the
Committee.
7. DISTRIBUTION OF AWARDS. Awards under the Plan shall be paid in cash as soon
as practicable after 2001 year-end audited financial statements for Erie have
been prepared and Peer Group data is available. Estimates of awards may be paid
earlier at the discretion of the Committee and final adjustments paid upon the
availability of audited financial statements.
8. TERMINATION OF EMPLOYMENT. A Participant must be actively employed by the
Company on the date his or her award is determined by the Committee ("the
Payment Date") in order to be entitled to payment of any award. In the event
active employment of a Participant shall be terminated before the Payment Date
for any reason other than discharge for "Cause" (as defined in such employee's
employment agreement with the Company or, if no such agreement exists, as
defined by the Committee) or voluntary resignation, such Participant may receive
such portion of his or her award as may be determined by the Committee. A
Participant discharged for Cause shall not be entitled to receive any award for
the year. A Participant who voluntarily resigns prior to the Payment Date shall
not be entitled to receive any award unless otherwise determined by the
Committee.
9. MISCELLANEOUS.
a. NONASSIGNABILITY. No award will be assignable or transferable without
the written consent of the Committee in its sole discretion, except by will or
by the laws of descent and distribution.
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b. WITHHOLDING TAXES. Whenever payments under the Plan are to be made, the
Company will withhold therefrom an amount sufficient to satisfy any applicable
governmental withholding tax requirements related thereto.
c. AMENDMENT OR TERMINATION OF THE PLAN. The Board of Directors of the
Company may at any time amend, suspend or discontinue the Plan, in whole or in
part. The Committee may at any time alter or amend any or all Award Agreements
under the Plan to the extent permitted by law.
d. OTHER PAYMENTS OR AWARDS. Nothing contained in the Plan will be deemed
in any way to limit or restrict the Company from making any award or payment to
any person under any other plan, arrangement or understanding, whether now
existing or hereafter in effect.
e. PAYMENTS TO OTHER PERSONS. If payments are legally required to be made
to any person other than the person to whom any amount is available under the
Plan, payments will be made accordingly. Any such payment will be a complete
discharge of the liability of the Company under this Plan.
f. LIMITS OF LIABILITY.
1. Any liability of the Company to any Participant with respect to
an award shall be based solely upon contractual obligations created by the Plan
and the Award Agreement.
2. Neither the Company, nor any member of its Board of Directors or
of the Committee, nor any other person participating in any determination of any
question under the Plan, or in the interpretation, administration or application
of the Plan, shall have any liability to any party for any action taken or not
taken in good faith under the Plan.
g. RIGHTS OF EMPLOYEES.
1. Status as an employee eligible to receive an award under the Plan
shall not be construed as a commitment that any award will be made under this
Plan to such employee or to other such employees generally.
2. Nothing contained in this Plan or in any Award Agreement (or in
any other documents related to this Plan or to any award or Award Agreement)
shall confer upon any employee or Participant any right to continue in the
employ or other service of the Company or constitute any contract or limit in
any way the right of the Company to change such person's compensation or other
benefits or to terminate the employment or other service of such person with or
without cause.
h. SECTION HEADINGS. The section headings contained herein are for the
purposes of convenience only, and in the event of any conflict, the text of the
Plan, rather than the section headings, will control.
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i. INVALIDITY. If any term or provision contained herein will to any
extent be invalid or unenforceable, such term or provision will be reformed so
that it is valid, and such invalidity or unenforceability will not affect any
other provision or part hereof.
j. APPLICABLE LAW. The Plan, the Award Agreements and all actions taken
hereunder or thereunder shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Pennsylvania without regard to the conflict of
law principles thereof.
k. EFFECTIVE DATE. The Plan shall be effective as of January 1, 2001.
/s/ Robert C. Wilburn
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Robert C. Wilburn, Chairman
Executive Compensation Committee
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