1
Exhibit (10)(H)
THE PROGRESSIVE CORPORATION
2000 GAINSHARING PLAN
---------------------
1. The Progressive Corporation and its subsidiaries ("Progressive" or the
"Company") have adopted The Progressive Corporation 2000 Gainsharing
Plan (the "Plan") as part of their overall compensation program. The
objective of the compensation program is to pay competitive base
salaries and for gainsharing to bring total cash compensation to the
top of the market when Core Business (as defined below) and assigned
Business Unit performance meets expectations. Participants will have
the opportunity to earn cash compensation in excess of the top of the
market when Core Business and assigned Business Unit performance
exceeds expectations.
2. Plan participants for each Plan year shall be selected by the Executive
Compensation Committee (the "Committee") of the Board of Directors of
The Progressive Corporation from those officers and regular employees
of Progressive who are assigned primarily to the Core Business, other
operating business or a corporate support function as of December 1 (or
such other date as may be determined by the Chief Human Resource
Officer) of that Plan year. The gainsharing opportunity, if any, for
those executive officers who participate in The Progressive Corporation
1999 Executive Bonus Plan will be provided by and be a component of
that plan. The Plan shall be administered by or under the direction of
the Committee.
3. Annual Gainsharing Payments under the Plan will be determined by
application of the following formula:
Annual Gainsharing Payment = Paid Earnings x Target Percentage x
Performance Factor
4. Paid Earnings for any Plan year means the following items paid to a
participant during the Plan year: (a) regular, vacation, sick, holiday,
funeral and overtime pay, (b) lump sum merit adjustments based on
performance and (c) retroactive payments of any of the foregoing items
relating to the same Plan year.
For purposes of the Plan, Paid Earnings shall not include any
short-term or long-term disability payments made to the participant,
the earnings replacement component of any worker's compensation award
or any other bonus or incentive compensation awards.
Notwithstanding the foregoing, if the sum of the regular, vacation,
sick, holiday and funeral pay received by a participant during a Plan
year exceeds his/her salary range maximum for that Plan year, then
his/her Paid Earnings for that Plan year shall equal his/her salary
range maximum, plus any of the following items received by such
participant during that Plan year: (a) overtime pay, (b) retroactive
payments of regular, vacation, sick, holiday, overtime and funeral pay
and (c) lump sum merit adjustments.
1
2
5. Target Percentages vary by position. Target Percentages for Plan
participants typically are as follows:
============================================================================================
POSITION TARGET %
- --------------------------------------------------------------------------------------------
Senior Executives, General Managers and Senior Process Leaders/Managers 40 - 135%
- --------------------------------------------------------------------------------------------
Top Functional/Line Managers 30 - 45%
- --------------------------------------------------------------------------------------------
Senior Functional/Line Managers 25%
- --------------------------------------------------------------------------------------------
Middle Functional/Line Managers 15 - 20%
- --------------------------------------------------------------------------------------------
Senior Professionals and Managers 12 - 15%
- --------------------------------------------------------------------------------------------
Professionals and Supervisors 8%
============================================================================================
Target Percentages will be established within the above ranges by, and
may be changed with the approval of (a) the Chairman and CEO or CEO -
Insurance Operations, (b) Chief Human Resource Officer and (c) the
Chief Financial Officer (collectively, the "Designated Executives").
Target Percentages also may be changed from year to year by the
Designated Executives.
6. THE PERFORMANCE FACTOR
----------------------
A. GENERAL
-------
The Performance Factor shall consist of one or more
Profitability and Growth Components, as described below (the
"Performance Component"). The Performance Components will be
weighted to reflect the nature of the individual participant's
assigned responsibilities. The weighting factors may differ
among participants and will be determined, and may be changed
from year to year, by or under the direction of the Committee.
B. PROFITABILITY AND GROWTH COMPONENTS
-----------------------------------
The Profitability and Growth Components measure overall
operating performance of Progressive's Personal Lines segment
(excluding Midland Financial Group, Inc.) and commercial
vehicle insurance business unit (collectively, the "Core
Business"), as a whole, or the participant's assigned Business
Unit, for the Plan year for which an Annual Gainsharing
Payment is to be made. For purposes of computing a Performance
Score for these Components, operating performance results are
measured by a Gainsharing Matrix, as established by or under
the direction of the Committee for the Plan year, which
assigns a Profitability and Growth Performance Score to
various combinations of profitability (as measured by the
Gainsharing Combined Ratio) and growth (based on year-to-year
change in Net Written Premium) outcomes.
2
3
The Gainsharing Combined Ratio is determined for the Core
Business, or assigned Business Unit, using the GAAP combined
ratio as a measure of profitability. The Gainsharing Combined
Ratio is then matched with growth in Net Written Premium using
the Gainsharing Matrix to determine a Profitability and Growth
Performance Score.
C. COMPONENT WEIGHTING
-------------------
Performance Components for the Core Business and assigned
Business Unit are weighted as determined by or under the
direction of the Committee. For participants in the Core
Business, the typical weighting will be as follows:
- -----------------------------------------------------------------------
PERFORMANCE COMPONENT WEIGHTING
- -----------------------------------------------------------------------
Core Business Profitability and Growth
Results 75%
- -----------------------------------------------------------------------
Business Unit Profitability and Growth
Results 25%
- -----------------------------------------------------------------------
Total 100%
- -----------------------------------------------------------------------
There will typically be no Business Unit Profitability and
Growth Component for participants assigned to a corporate
support function (such as Finance, Human Resource and Law) and
others who are not assigned primarily to a Business Unit.
Individualized programs may be developed if and to the extent
deemed appropriate by the Designated Executives.
The Performance Score for each Performance Component is
multiplied by the assigned weighting factor to produce a
Weighted Performance Score. The sum of the Weighted
Performance Scores equals the Performance Factor. The final
Performance Factor can vary from 0 to 2.0, based on actual
performance versus the pre-established objectives.
7. Subject to Paragraph 8 below, no later than December 31 of each Plan
year, each participant will receive an initial payment in respect of
his or her Annual Gainsharing Payment for that Plan year equal to 75%
of an amount calculated on the basis of Paid Earnings for the first 11
months of the Plan year, one month of estimated earnings, performance
data through the first 11 months of the Plan year (estimated, if
necessary) and one month of forecasted operating results. No later than
February 15 of the following year, each participant shall receive the
balance of his or her Annual Gainsharing Payment, if any, for such Plan
year, based on his or her Paid Earnings and performance data for the
entire Plan year.
Any Plan participant who is then eligible to participate in The
Progressive Corporation Executive Deferred Compensation Plan ("Deferral
Plan") may elect to defer all or a portion of the Annual Gainsharing
Payment otherwise payable to him/her under this Plan, subject to and in
accordance with the terms of the Deferral Plan.
3
4
8. Unless otherwise determined by the Committee or as provided at
Paragraph 10 hereof, in order to be entitled to receive any portion of
an Annual Gainsharing Payment for any Plan year, the participant must
be employed by Progressive on the payment date for that portion of the
Annual Gainsharing Payment. Annual Gainsharing Payments will be net of
any legally required deductions for federal, state and local taxes and
other items.
9. The right to any Annual Gainsharing Payment hereunder may not be
transferred, assigned or encumbered by any participant. Nothing herein
shall prevent any participant's interest hereunder from being subject
to involuntary attachment, levy or other legal process.
10. The Plan shall be administered by or under the direction of the
Committee. The Committee shall have the authority to adopt, alter and
repeal such rules, guidelines, procedures and practices governing the
Plan as it shall, from time to time, in its sole discretion, deem
advisable.
The Committee shall have full authority to determine the manner in
which the Plan will operate, to interpret the provisions of the Plan
and to make all determinations hereunder. All such interpretations and
determinations shall be final and binding on Progressive, all Plan
participants and all other parties. No such interpretation or
determination shall be relied on as a precedent for any similar action
or decision.
Unless otherwise determined by the Committee, all of the authority of
the Committee hereunder (including, without limitation, the authority
to administer the Plan, select the persons entitled to participate
herein, interpret the provisions thereof, waive any of the requirements
specified herein and make determinations hereunder and to select,
establish, change or modify Performance Components and their respective
weighting factors, performance targets and Target Percentages) may be
exercised by the Designated Executives. In the event of a dispute or
conflict, the determination of the Committee will govern.
11. The Plan may be terminated, amended or revised, in whole or in part, at
any time and from time to time by the Committee, in its sole
discretion.
12. The Plan will be unfunded and all payments due under the Plan shall be
made from Progressive's general assets.
13. Nothing in the Plan shall be construed as conferring upon any person
the right to remain a participant in the Plan or to remain employed by
Progressive, nor shall the Plan limit Progressive's right to discipline
or discharge any of its officers or employees or change any of their
job titles, duties or compensation.
14. Progressive shall have the unrestricted right to set off against or
recover out of any Annual Gainsharing Payment or other sums owed to any
participant under the Plan any amounts owed by such participant to
Progressive.
4
5
15. This Plan supersedes all prior plans, agreements, understandings and
arrangements regarding bonuses or other cash incentive compensation
payable to participants by or due from Progressive. Without limiting
the generality of the foregoing, this Plan supersedes and replaces The
Progressive Corporation 1999 Gainsharing Plan, as heretofore in effect
(the "Prior Plan"), which is and shall be deemed to be terminated as of
December 31, 1999 (the "Termination Date"); provided, that any bonuses
or other sums earned and payable under the Prior Plan with respect to
any Plan year ended on or prior to the Termination Date shall be
unaffected by such termination and shall be paid to the appropriate
participants when and as provided thereunder.
16. This Plan is adopted, and is to be effective, as of January 1, 2000.
This Plan shall be effective for 2000 and for each calendar year
thereafter unless and until terminated by the Committee.
17. This Plan shall be interpreted and construed in accordance with the
laws of the State of Ohio.
5