Exhibit No. 10(F)
THE PROGRESSIVE CORPORATION
2004 GAINSHARING PLAN
1. The Progressive Corporation and its subsidiaries (collectively
"Progressive" or the "Company") have adopted The Progressive
Corporation 2004 Gainsharing Plan (the "Plan") as part of their overall
compensation program. The Plan is performance-based and is administered
under the direction of the Compensation Committee of the Board of
Directors of The Progressive Corporation (the "Committee").
2. Plan participants for each Plan year shall be selected by the Committee
from those officers and regular employees of Progressive who are
assigned primarily to the Core Business (as defined below), another
operating business unit or a corporate support function. The
gainsharing opportunity, if any, for those executive officers who
participate in The Progressive Corporation 2004 Executive Bonus Plan
("Executive Plan") will be provided by and be a component of that plan,
although participants in the Executive Plan may also participate in
this Plan if and to the extent determined by the Committee. Plan years
will coincide with Progressive's fiscal years.
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, used Earned Time
Benefit, sick, holiday, funeral and overtime pay, and (b) 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,
any lump sum merit award, payments from the merit cash pool or any
other bonus or incentive compensation awards and unused Earned Time
Benefit.
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Notwithstanding the foregoing, if the sum of the regular, used Earned
Time Benefit, sick, holiday and funeral pay received by a participant
for a Plan year exceeds his/her salary range maximum for the Plan year
(determined on an individual pay period basis as of the end of the 24th
pay period), 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 for that Plan year: (a) overtime pay, and (b)
retroactive payments of regular, used Earned Time Benefit, sick,
holiday, overtime and funeral pay relating to that Plan year.
5. Target Percentages vary by position. Target Percentages for Plan
participants typically are as follows:
POSITION TARGET %
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Senior Executives, Executive Level Managers and Business Leaders 60-135%
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Directors of Large Functional Areas 45-60%
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Senior Managers 35-45%
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Middle Managers 15-35%
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Senior Professionals and Entry Level Managers 9-15%
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Administrative Support and Entry Level Professionals 0-8%
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Target Percentages will be established within the above ranges by, and
may be changed with the approval of the following officers of The
Progressive Corporation (collectively, the "Designated Executives"):
(a) the Chief Executive Officer, and (b) either the Chief Human
Resource Officer or the Chief Financial Officer. Target Percentages
also may be changed from year to year by the Designated Executives.
6. The Performance Factor
A. General
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The Performance Factor shall consist of one or more
Profitability and Growth Components, as described below
("Performance Components"). The Performance Components may 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 the overall
operating performance of Progressive's Core Business
(including the Agency Business Segment, the Direct Business
Segment and the Commercial Auto Business Segment, but
excluding Midland Financial Group, Inc.), or a designated
Business Segment or Sub-Unit thereof, 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 one
or more Performance Matrices, as established by or under the
direction of the Committee for the Plan year, which assign a
Performance Score to various combinations of profitability and
growth outcomes. Except as provided below, under the
Performance Matrices, profitability is measured by the GAAP
Combined Ratio and growth is based on the year-to-year change
in Net Earned Premiums.
For 2004, and for each Plan year thereafter until otherwise
determined by the Committee, separate Performance Scores will
be determined, and separate Gainsharing Matrices will be used,
for the Agency Business Segment, the Direct Business Segment
and the Commercial Auto Business Segment. For purposes hereof,
the Agency Business Segment includes Agency Auto (including
Strategic Alliances Agency Auto) and Agency Special Lines. The
Direct Business Segment includes Auto Pro (including Strategic
Alliances Direct Auto), Internet and Direct Special Lines. For
purposes of this Plan, the Midland Financial Group, Inc.'s
results are excluded from the Agency, Direct and Commercial
Auto Business Segments and, thus, from Core Business results.
Net operating gains/losses from other Core products, if any,
will be apportioned among the Agency, Direct and Commercial
Auto Business Segments in accordance with the respective
amount(s) of Net Earned Premiums generated by such products in
each such Business Segment and the apportioned gains/losses
will be included in the calculation of the Combined Ratio.
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The GAAP Combined Ratio will be separately determined for each
of the Agency Business Segment, the Direct Business Segment
and the Commercial Auto Business Segment, and for any
designated Sub-Unit thereof (e.g., in the Agency Business
Segment, performance may also be separately measured for each
geographic region). The GAAP Combined Ratio of each such
Business Segment or Sub-Unit will then be matched with growth
in Net Earned Premiums for such Business Segment or Sub-Unit,
using the applicable Gainsharing Matrix, to determine a
Performance Score ("Standard Performance Computation").
For 2004 and for each Plan year thereafter until otherwise
determined by the Committee, a portion of the Annual
Gainsharing Payment earned by members of the Direct Business
Leadership Group (as defined below) will be determined by
measuring operating results achieved by the Direct Business
Segment in terms of certain modified profitability and growth
criteria (as described below) and by comparing the results
against pre-established targets that are set forth in a
performance matrix approved by the Committee ("Modified
Performance Computation"). The Modified Performance
Computation will apply only to members of the Direct Business
Leadership Group and only as and to the extent set forth
below.
The Direct Business Leadership Group includes the Direct
Business Leader, the IT Director for the Direct Business
Segment and all other employees assigned primarily to the
Direct Business Segment who are eligible to participate in the
Company's equity incentive plans.
For purposes of the Modified Performance Computation:
(a) profitability is measured by the variance between (i) the
GAAP Combined Ratio for premium earned during the Plan
year with respect to new private passenger auto policies
written by the Direct Business Segment, and (ii) a target
Combined Ratio, which is adjusted quarterly to reflect the
then current pricing targets established and business mix
(i.e. the percentage of new business earned in each risk
tier) for that product; and
(b) growth is measured by the year-to-year change in Lifetime
Earned Premium (as defined below) for private passenger
auto business written by the Direct Business Segment.
Lifetime Earned Premium is the amount of earned premium
that the
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Company expects to generate over time with respect to
policies written during a given Plan year or the previous
calendar year, as applicable (including any subsequent
renewals thereof), which is determined by a combination of
historical experience and statistical analysis.
C. Component Weighting
For most participants, the Performance Factor will be
determined solely by the performance results for the Core
Business, consisting of the Agency, Direct and Commercial Auto
Business Segments. The Performance Score for each such
Business Segment will be separately determined, as described
above, by application of the Standard Performance Computation
and the appropriate Gainsharing Matrix. The resulting
Performance Scores for each of the Agency, Direct and
Commercial Auto Business Segments will then be multiplied by a
weighting factor (based on the percentage of Net Earned
Premiums generated by each such Business Segment during the
Plan year), the weighted Performance Scores will be combined
and the sum of the weighted Performance Scores will be the
Performance Score for the Core Business.
As noted above, for most participants, the Performance Factor
will be the Performance Score for the Core Business. For
certain employees designated by or under the direction of the
Committee, however, the Performance Factor will be based on
the Performance Scores for both the Core Business, as a whole,
and their assigned Business Segment. Generally, for these
employees, the Performance Factor will be based 50% on the
Core Business Performance Score and 50% on their assigned
Business Segment's Performance Score. However, for those
employees assigned principally to the Agency Business Segment
who are designated by or under the direction of the Committee,
the Performance Factor will be based 50% on the Core Business
Performance Score, 25% on the Agency Business Segment
Performance Score and 25% on the Performance Score for his or
her assigned Sub-Unit of the Agency Business Segment. With
respect to each of the IT Business Leaders selected by the
Designated Executives, the Performance Factor will be based on
both the Core Business Performance Score and the Business
Segment Performance Score of his or her assigned Business
Segment, in such ratio or otherwise weighted as shall be
determined by or under the direction of the Committee.
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Except as otherwise determined by the Committee, for members
of the Direct Business Leadership Group, the Performance
Factor will be based 50% on the Core Business Performance
Score, 25% on the Direct Business Performance Score (Standard
Performance Computation) and 25% on the Direct Business
Performance Score (Modified Performance Computation).
The Performance Score for each Performance Component will be
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. The
Performance Factor cannot exceed 2.0, regardless of results.
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 24
pay periods of the Plan year, estimated earnings for the remainder of
the Plan year, performance data through the first 11 months of the Plan
year (estimated, if necessary) and forecasted operating results for the
remainder of the Plan year. No later than February 15 of the following
year, each participant will 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.
8. Unless otherwise determined by the Committee, and except as expressly
provided herein, in order to be entitled to receive an Annual
Gainsharing Payment for any Plan year, the participant must be assigned
to the Core Business or a participating business unit or support
function, and be an active employee of the Company, on November 30 of
the Plan year ("Qualification Date"). Individuals who are hired on or
after December 1 of any Plan year are not entitled to an Annual
Gainsharing Payment for that Plan year.
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Any participant who is on a leave of absence covered by the Family and
Medical Leave Act of 1993, personal leave of absence with the approval
of the Company, military leave or short or long-term disability on the
Qualification Date with respect to any Plan year will be entitled to
receive an Annual Gainsharing Payment for such Plan year, calculated as
provided in Paragraphs 3 through 6 above and based on the amount of
Paid Earnings received by such participant during the Plan year.
Annual Gainsharing 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 sold,
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, amend,
revise 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.
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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.
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 2003 Gainsharing Plan (the "Prior Plan"), which
is and shall be deemed to be terminated as of December 27, 2003 (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 December 28, 2003,
which is the commencement of Progressive's 2004 Plan year. This Plan
shall be effective for the 2004 Plan year (which coincides with
Progressive's 2004 fiscal year) and for each Plan 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.
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