Exhibit No. 10(H)
THE PROGRESSIVE CORPORATION
1999 EXECUTIVE BONUS PLAN
(AS AMENDED ON JANUARY 31, 2003)
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. 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 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
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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 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
overall operating 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.
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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.
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.
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The Cost Structure Improvement Score will be computed in accordance
with the following formula:
Cost Structure Improvement = 1 + [Target Expense Ratio-Actual Expense Ratio]
Score -----------------------------------------
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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;
provided, however, that if any participant who is employed by Progressive
on the last day of any Plan year shall die at any time between
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the end of such Plan year and the date designated for payment of Annual
Bonuses in respect of such year, his or her estate shall be entitled to
receive the Annual Bonus that would have been payable to such deceased
participant had he or she lived until and been employed by Progressive on
such payment date. 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 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.
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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.
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