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Exhibit 10(H)
THE PROGRESSIVE CORPORATION
1999 EXECUTIVE BONUS PLAN
(AS AMENDED ON FEBRUARY 14, 2001)
1. The Progressive Corporation and its subsidiaries ("Progressive") have
designed an executive compensation program consisting of three
components: salary, annual bonus and equity-based incentives in the
form of non-qualified stock options. These components have been
structured to reflect the market for executive compensation and to
promote both the achievement of corporate goals and performance that is
in the long-term interest of shareholders. The annual bonus component
of this program is performance-based and focuses on current results.
2. The 1999 Executive Bonus Plan, as amended (the "Plan") provides the
annual bonus component of Progressive's executive compensation program
for Plan participants. The Plan shall be administered by or under the
direction of the Executive Compensation Committee (the "Committee") of
the Board of Directors. Executive officers of Progressive may be
selected by the Committee to participate in the Plan for one or more
Plan years. Plan years shall coincide with Progressive's fiscal years.
3. Subject to the following sentence, the amount of the annual bonus
earned by any participant under the Plan for any Plan year ("Annual
Bonus") will be determined by application of the following formula:
Annual Bonus = Paid Salary x Target Percentage x Performance Factor
The Annual Bonus payable to any participant with respect to any Plan
year shall not exceed $3,000,000.00.
4. The salary rate of each Plan participant for any Plan year shall be
established by the Committee no later than ninety (90) days after
commencement of such Plan year. For purposes of the Plan, "salary" and
"Paid Salary" shall include regular, vacation, sick, holiday and
funeral pay received by the participant during the Plan year for work
or services performed by the participant as an officer or employee of
Progressive, but shall not include any (a) short-term or long-term
disability payments, (b) lump sum merit adjustments, (c) discretionary
or other bonus or incentive payments or (d) the earnings replacement
component of any worker's compensation award.
5. The Target Percentages for the participants in the Plan shall be
determined by the Committee, but will not exceed 150% for any
participant. Target Percentages may vary among Plan participants and
may be changed from year to year by the Committee.
6. The Performance Factor
A. General
The Performance Factor shall consist of one or more of the
following components: a Core Business Profitability and Growth
Component, a Business Segment Performance Component, a Cost
Structure Improvement Component and an Investment Performance
Component (the "Bonus Components"). An appropriate combination
of Bonus Components will be designated for each participant,
and the designated Bonus
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Components will be weighted, based on such participant's
assigned responsibilities, as determined by the Committee.
The relative weighting of the Bonus Components may vary among
Plan participants and may be changed from year to year by the
Committee.
For purposes of computing the amount of the Annual Bonus for
any Plan year, the performance score achieved for each of the
designated Bonus Components will be multiplied by the
applicable weighting factor to produce a Weighted Performance
Score. The sum of the Weighted Performance Scores will equal
the Performance Factor. The Performance Factor will equal 1.0
if specified performance goals are met, and can vary from 0 to
2.0, based on actual performance versus the pre-established
objectives.
Actual performance results achieved for any Plan year, as used
to calculate the performance score achieved for each of the
applicable Bonus Components, must be certified by the
Committee prior to payment of the Annual Bonus.
B. Core Business Profitability and Growth Component
The Core Business Profitability and Growth Component measures
overalloperating performance of Progressive's Personal Lines
segment excluding Midland Financial Group, Inc.) and
commercial vehicle insurance business unit (collectively, the
"Core Business") for the Plan year for which an Annual Bonus
payment is to be made. For purposes of computing a Performance
Score for this Component, 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.
The Gainsharing Combined Ratio is determined for the Core
Business as follows:
1. Each year, a target combined ratio is established by
or under the direction of the Committee for all
products within the Core Business, determined to
yield an average policy life target combined ratio of
96.
2. A weighted target combined ratio is calculated based
on the various target combined ratios for the
constituent product categories, which are weighted on
the basis of the Net Earned Premium generated by each
such product category for the Plan year.
3. The actual GAAP combined ratio achieved for the Plan
year is subtracted from the weighted target combined
ratio to determine the extent to which performance is
over or under target. This result, whether positive
or negative, is subtracted from the average policy
life combined ratio target of 96 to determine the
Gainsharing Combined Ratio.
The Gainsharing Combined Ratio is then matched with growth in
Net Written Premium using the Gainsharing Matrix to determine
a Core Business Profitability and Growth Performance Score.
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C. Business Segment Performance Component
The Business Segment Performance Component measures the
performance of a designated Business Segment (as defined
below) in terms of any one or more of the following criteria
selected by the Committee: profitability (measured by the
combined ratio, weighted combined ratio, return on equity or
return on revenue), growth (measured by net written premium,
earned premium or revenues) or operating effectiveness
(measured by systems availability or timeliness of response).
A Business Segment may consist of a distribution channel,
business unit, product, function, process or other business
category, such as new or renewal business. The Committee may
designate one or more Business Segment Performance Components
for an individual Plan participant for any Plan year and, for
each such Component, will determine the applicable criteria
upon which performance will be measured, the goals to be
achieved and the performance scores that will result from
various levels of performance. The applicable criteria,
related goals and resulting performance scores may be set
forth in a Business Segment Performance Matrix or other format
approved by the Committee. Business Segment Performance
Components, performance criteria, goals and resulting
performance scores may vary among participants and may be
changed from year to year by the Committee.
D. Cost Structure Improvement Component
The Cost Structure Improvement Component measures success in
achieving cost structure improvement for the Core Business, as
a whole, or for an assigned Business Segment, if applicable.
Results are reflected in a Cost Structure Improvement Score.
For purposes of computing the Cost Structure Improvement
Score, cost structure improvement is measured by comparing the
sum of the GAAP Underwriting Expense Ratio ("Underwriting
Expense Ratio") and Loss Adjustment Expense Ratio ("LAE
Ratio") achieved for the Plan year (collectively, "Actual
Expense Ratio") against defined expense objectives for that
year, as established by or under the direction of the
Committee ("Target Expense Ratio"). The Target Expense Ratio,
including its individual components, may vary by Business
Segment and/or for the Core Business as a whole, and may be
changed from year to year by or under the direction of the
Committee.
The Cost Structure Improvement Score will be computed in
accordance with the following formula:
Cost Structure Improvement Score = 1 + [Target Expense Ratio-Actual Expense Ratio]
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E. Investment Performance Component
The Investment Performance Component compares the investment
performance of individual segments of Progressive's investment
portfolio ("Portfolio Segments") against the performance of
selected groups of comparable investment funds, indexes or
other benchmarks ("Investment Benchmarks") over such period or
periods as shall be determined by the Committee. Such
Investment Benchmarks may be risk-adjusted in accordance with
such formula or other method as may be determined by the
Committee. Investment results are marked to market in order to
calculate total return, which is then compared against the
designated Investment Benchmarks to produce a Performance
Score for each Portfolio Segment.
The applicable Portfolio Segments will be identified, and the
related Investment Benchmarks will be determined, by the
Committee and may be changed from year to year by the
Committee.
In the event that any participant's Annual Bonus is to be
determined by the performance of two or more Portfolio
Segments, the Performance Scores for each of the Portfolio
Segments will be weighted, based on the average amounts
invested from time to time in each of such Portfolio Segments
during the Plan year, and the weighted Performance Scores for
the applicable Portfolio Segments will be then combined to
produce the Investment Performance Score. Investment expense
is not included in determining investment performance vs.
benchmark.
8. The Annual Bonus for any Plan year will be paid to participants as soon
as practicable after the Committee has certified performance results
for the Plan year, but no later than March 15 of the immediately
following year. The provisions of this Paragraph shall be subject to
Paragraph 9 hereof.
Any Plan participant who is eligible to participate in The Progressive
Corporation Executive Deferred Compensation Plan ("Deferral Plan") may
elect to defer all or a portion of the Annual Bonus otherwise payable
under this Plan, subject to and in accordance with the terms of the
Deferral Plan.
9. Unless otherwise determined by the Committee, in order to be entitled
to receive an Annual Bonus for any Plan year, the participant must be
employed by Progressive on the date designated for payment thereof.
Annual Bonus payments made to participants will be net of any legally
required deductions for federal, state and local taxes and other items.
10. The right to any of the Annual Bonuses 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.
11. The Plan will be administered by or under the direction of the
Committee. The Committee will have the authority to adopt, alter and
repeal such rules, guidelines, procedures and practices governing the
Plan as it, from time to time, in its sole discretion deems advisable.
The Committee will 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 thereunder. All such interpretations and
determinations will be final and binding on Progressive, all Plan
participants
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and all other parties. No such interpretation or determination may be
relied on as a precedent for any similar action or decision.
The Plan will be administered by the Committee in accordance with the
requirements of Section 162(m) of the Internal Revenue Code, as
amended, and the rules and regulations promulgated thereunder (the
"Code").
12. The Plan will be subject to approval by the holders of Progressive's
Common Shares, $1.00 par value ("shareholders") in accordance with the
requirements of Section 162(m) of the Code and no Annual Bonus will be
paid hereunder unless the Plan has been so approved.
13. 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; provided that the Committee may not increase the amount of
compensation payable hereunder to any participant above the amount that
would otherwise be payable upon attainment of the applicable
performance goals, or accelerate the payment of any portion of the
Annual Bonus due to any participant under the Plan without
discounting the amount of such payment in accordance with Section
162(m) of the Code, and further provided that any amendment or revision
of the Plan required to be approved by shareholders pursuant to Section
162(m) of the Code will not be effective until approved by
Progressive's shareholders in accordance with the requirements of
Section 162(m).
14. The Plan will be unfunded and all payments due under the Plan will
be made from Progressive's general assets.
15. 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.
16. Progressive shall have the unrestricted right to set off against or
recover out of any bonuses or other sums owed to any participant under
the Plan any amounts owed by such participant to Progressive.
17. This Plan supersedes all prior plans, agreements, understandings and
arrangements regarding bonuses or other cash incentive compensation
payable or due to any participant from Progressive. Without limiting
the generality of the foregoing, this Plan supersedes and replaces The
Progressive Corporation 1997 Executive Bonus Plan, as heretofore in
effect (the "Prior Plan"), which is and shall be deemed to be
terminated as of December 31, 1998 (the "Termination Date"); provided,
that any bonuses or other sums earned under the Prior Plan with respect
to any period 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.
18. This Plan is adopted and, subject to the provisions of Paragraph 12
hereof, is to be effective, as of January 1, 1999. Subject to the
provisions of Paragraph 12, this Plan shall be effective for 1999 and
for each year thereafter unless and until terminated by the Committee.
19. This Plan shall be interpreted and construed in accordance with the
laws of the State of Ohio.