Exhibit No. 10(B)
THE PROGRESSIVE CORPORATION
2005 INFORMATION TECHNOLOGY INCENTIVE PLAN
1. The Progressive Corporation and its subsidiaries ("Progressive" or the
"Company") have adopted The Progressive Corporation 2005 Information Technology
Incentive Plan (the "Plan") as part of their overall compensation program for
employees assigned to the Company's Information Technology Organization ("IT
Organization").
2. There is a strong correlation between computer systems availability and
the economic performance of the Company. All 3 sales channels, customer service
and claims handling are dependent on electronic systems. When systems are down,
Progressive incurs lost productivity costs and, in some cases, may forfeit
revenue opportunities. The Plan is designed to incent employees within the IT
Organization to find creative ways to eliminate scheduled and unscheduled system
downtime, and shift the risk associated with technology changes away from times
when downtime is most costly to the business.
3. A significant aspect of the Plan is that it encourages continuous
improvement. Each year, the complexity of the Progressive computing environment
increases, as we introduce new applications and increasingly target systems to
the end consumer. The target payout for the Plan will be set at the amount of
"up time points" earned the previous year (adjusted proportionately for any
change in the duration of the current Plan year). In order to receive a payout
above the target, the performance achieved needs to exceed the previous year's
performance level (as so adjusted) in a more complex environment. Plan years
will coincide with Progressive's fiscal years.
4. All regular employees of Progressive (including managers) who are assigned
primarily to the IT Organization are eligible to be selected for participation
in the Plan. The Chief Executive Officer, after consulting with the Chief Human
Resource Officer, (collectively, the "Designated Officers") shall have the
authority to select Plan participants for any given Plan year.
5. Annual payments under the Plan will be determined by application of the
following formula:
Annual IT Incentive Payment = Paid Earnings x Target Percentage x IT
Performance Factor.
The Annual IT Incentive Payment payable to any participant with respect to
any given Plan year will not exceed $75,000.00.
6. Paid Earnings for any Plan year means and includes the following items:
(a) regular, used Earned Time Benefit, sick, holiday, funeral and overtime pay
paid to a participant during the Plan year for work or services performed as an
officer or employee of Progressive during the Plan year, 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
awards, payments from the merit cash pool, any bonus or incentive compensation
awards or any unused Earned Time Benefit.
1
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 that Plan year (determined 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.
7. Target Percentages vary by position and shall be determined on an annual
basis by the Designated Officers.
8. In the discretion of the Designated Officers, participants in this Plan
may also participate in The Progressive Corporation 2005 Gainsharing Plan, or
any successors thereto.
9. The IT Performance Factor
The IT Performance Factor is based on application availability and
accuracy measured on a point system, and may vary from 0 to 2.0. Points are
awarded for every day that production systems, both mainframe and client/server,
are outage free. If there is an outage in any production system, all of the
points relating to that application are lost for that day. Measured
applications, measured hours, outage definitions, point values and
administrative guidelines will be defined on an annual basis by or under the
direction of the Designated Officers. A Performance Matrix approved by the
Designated Officers will assign a Performance Score to various point levels that
may be achieved.
For 2005, and for each Plan year thereafter until otherwise determined by
the Designated Officers, the applicable Plan rules shall be as set forth in
Schedule I attached hereto.
The best possible score in any given week is 10 points per application (or
a total of 200 points). Attached hereto as Schedule II is the 2005 Performance
Matrix with the breakdown of scores and related outcomes. For 2005, a target of
1.00 will be achieved by earning between 10,024 and 10,027 points out of a
possible 10,400 points. The Designated Officers will establish the applicable
performance targets, the performance scores that will be awarded for various
point levels achieved and the maximum potential points that may be earned and
the resulting performance score for subsequent Plan years.
10. If, for any Plan year, an employee has been selected to participate in
both the Plan and another incentive plan offered by the Company, then with
respect to such employee, the Annual IT Incentive Payment formula set forth in
Paragraph 5 hereof will be appropriately adjusted by applying a weighting factor
to reflect the proportion of the employee's total annual incentive opportunity
that is being provided by the Plan. The Designated Officers shall have full
authority to determine the incentive plan or plans in which any employee shall
participate during any plan year and, if an employee is selected to participate
in more than one plan, the weighting factor that will apply to each such plan.
11. Subject to Paragraph 12 below, no later than December 31 of each Plan
year, each participant will receive an initial payment in respect of his or her
Annual IT Incentive 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 24 pay periods of the Plan year and forecasted
performance results for the remainder of the Plan year. No later than February
15 of the following year, each participant shall receive the balance of his or
her Annual IT Incentive Payment, if any, for such Plan year, based on his or her
Paid Earnings and performance data for the entire Plan year.
2
12. Unless otherwise determined by the Committee (as defined below), and
except as expressly provided herein, in order to be entitled to receive an
Annual IT Incentive Payment for any Plan year, the participant must be assigned
to the IT Organization and be an active employee of the Company on November 30
of that Plan year ("Qualification Date"). Individuals who are hired on or after
December 1 of any Plan year are not entitled to receive an Annual IT Incentive
Payment for that Plan year.
Any participant who is on a leave of absence covered by the Family and
Medical Leave Act of 1993, personal leave of absence approved by 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 IT Incentive
Payment for that Plan year, calculated as provided in Paragraphs 5 and 11 above
and based on the amount of Paid Earnings received by such participant for the
Plan year.
Annual IT Incentive Payments will be net of any legally required
deductions for federal, state and local taxes and other items.
13. The right to any Annual IT Incentive 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.
14. The Plan shall be administered by or under the direction of the
Compensation Committee of the Board of Directors of The Progressive Corporation
("Committee"). The Committee shall have the authority to adopt, alter, modify,
amend 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 participants in the Plan, interpret the provisions of the Plan,
waive any of the requirements specified herein and make determinations hereunder
and to establish, change or modify performance targets and measures) may be
exercised by the Designated Officers. In the event of a dispute or conflict, the
determination of the Committee will govern.
15. 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.
16. The Plan will be unfunded and all payments due under the Plan shall be
made from Progressive's general assets.
17. 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 employees or change any of their job titles, duties or compensation.
18. Progressive shall have the unrestricted right to set off against or recover
out of any Annual IT Incentive Payment or other sums owed to any participant
under the Plan any amounts owed by such participant to Progressive.
3
19. This Plan supersedes any and all prior plans, agreements, understandings
and arrangements regarding bonuses or other cash incentive compensation payable
to participants by or due from Progressive and relating to the availability of
computer systems. Without limiting the generality of the foregoing, this Plan
supersedes and replaces The Progressive Corporation 2004 Information Technology
Incentive Plan (the "Prior Plan"), which is and shall be deemed to be terminated
as of January 1, 2005 (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.
20. This Plan is adopted, and is to be effective, as of January 2, 2005, which
is the commencement of Progressive's 2005 fiscal year. This Plan shall be
effective for the 2005 Plan year (which coincides with Progressive's 2005 fiscal
year) and for each Plan year thereafter unless and until terminated by the
Committee.
21. This Plan shall be interpreted and construed in accordance with the laws
of the State of Ohio.
4
SCHEDULE I
INFORMATION TECHNOLOGY INCENTIVE PLAN
2005 RULES
1. SYSTEM MEASUREMENTS
The intent of this program is to ensure that incidents that have major business
impact are counted as an outage. An outage is defined as an event (excluding a
telecommunication failure) that prevents 100 or more customers from using an
application for more than 15 minutes. We define a customer as an agent,
policyholder, claimant, quote requester, body shop personnel or internal user.
The measured hours are 24 hours a day, Monday through Saturday. All day Sunday
is measured with the exception of our weekly system maintenance window which is
from 3:30am until 8:00am EST and, also, one (1) Sunday a quarter from Midnight
to 8:00am EST.
Individual application service level agreements (SLAs) will take precedent over
these time frames. See chart below:
5
SYSTEM ADDITIONAL OUTAGE CLARIFICATIONS
- -------------------------------- --------------------------------------------
Cash Disbursements (CDS) An outage is defined for
Monday through Friday as any time the system
is not available by 7 am. An exception would
be any requested Saturday or Sunday access
requested by the system owner 24 hours in
advance.
Claims CARS
Claims Decision Point
Claims PACMan PACMan is scheduled for maintenance from
Midnight to 8:00am every Sunday.
In addition, they are scheduled for an "as
needed" maintenance window on the second
Thursday of the month from 3:30am until
6:00am. An outage for start of day, for the
Thursday maintenance window, would be any
time PACMan is not available by 6:00am.
Claims Web Tracker
Claims Workbench (CWB) /
ClaimStation
Commercial Auto (PRAT/WFC)
DirectPro An outage is defined as an event (excluding
call routing licensing issues) preventing
quoting and/or selling. An exception would
be one (1) Sunday a month (Sunday before
Month End) from 3:30am until 5:30am EST.
We recognize that, at times, an individual
state or states may not be available for
quoting or selling. There is not a clear cut
method to measure the business impact.
In these cases, the business will be
consulted to determine the impact.
FAO An outage is defined as an event (excluding
call routing licensing issues) preventing
quoting and/or selling. An exception would
be one (1) Sunday a month (Sunday before
Month End) from 3:30am until 5:30am EST.
Internet Special Lines An outage is defined as an event (excluding
call routing licensing issues) preventing
quoting and/or selling. An exception would
be one (1) Sunday a month (Sunday before
Month End) from 3:30am until 5:30am EST.
Internet Auto An outage is defined as an event (excluding
call routing licensing issues) preventing
quoting and/or selling. An exception would
be one (1) Sunday a month (Sunday before
Month End) from 3:30am until 5:30am EST.
Internet Comparison An outage is defined as an event preventing
quoting of both the Comparison and
Progressive rates and/or the selling of the
Progressive rate, once the quote has entered
the Internet Comparison application. This
excludes intentional DNQ (Do Not Quote)
situations for competitors driven by
competitor eligibility rules and call
routing licensing issues. An exception would
be one (1) Sunday a month (Sunday before
Month End) from 3:30am until 5:30am EST, and
quarterly scheduled extended Maintenance
times.
Personal Progressive
Ownership Work Bench (OWB)
POLARIS Billing System / ProBill An outage for the start of day is defined as
any time the POLARIS transactions are not
available by 6:00am Monday through Friday.
On Saturday, Agent Bank (S6) and Common EFT
(S7) perform weekly file maintenance. An
outage on Saturday will be defined as any
time either of these 2 transactions are not
available by 8:00am.
Policy Services Work Flow (POWR) An outage is defined as any time their
scanning system is totally unavailable (both
locations down) for more than 30 minutes
excluding their daily batch window between
midnight and 4:00am EST.
ProRater Uploads
6
PROTEUS (Atlantic, Gulf, An outage for start of day is defined as
Midwest, Pacific) anytime the 30 minute back-up occurs after
6:00am, or causes the application to be
unavailable over 30 minutes.
Server Based Rating (SBR) An outage is defined as an event (excluding
call routing licensing issues) preventing
quoting and/or selling. An exception would
be one (1) Sunday a month (Sunday before
Month End) from 3:30am until 5:30am EST.
Call Flow A call routing outage is defined as anytime
100 unique customers calls are not
successfully completed to Progressive (i.e.,
fast busy, non-working number recording)
within a 15 minute period due to a
Progressive error.
2. CUSTOMER RETENTION
An outage impacting 100 or more customers is defined as:
E-mails are sent multiple times to the same person
EFT (electronic fund transfers) incorrectly occur multiple times
Bills are sent to the wrong person
Billing is incorrect by more than $ 1.00
Documents are retransmitted (post office, fax or email) for any of the
conditions below:
A. Print was incorrect
B. Forms were missing
C. Forms were sent in error
Policyholder personal information is compromised by sharing or sending
forms to the wrong person or agent.
3. AVAILABILITY OF AN APPLICATION
There can be times when an application is available but a particular transaction
could be out of service or malfunctioning. For our measurement purposes, this
would typically be counted as an outage.
We recognize there could be an occasion where the unavailable transaction
represents insignificant lost functionality and may effect less than 100
customers. These transactions being unavailable would not be counted as an
outage.
4. VENDOR SERVICE OUTAGES
Vendors are a critical component to our service delivery. We deal with 2 types
of vendors, Transaction Service Vendors (Equifax, Choicepoint, Discover, State
MVR Centers, etc.) and Infrastructure Vendors (IBM, MCI, Microsoft, Oracle,
etc.). It is the responsibility of the appropriate I/T group to manage and
evaluate the quality of service received from these vendors.
For purposes of this program, service disruptions caused by a Transaction
Service Vendor site not being available that is entirely a vendor issue will not
be counted as an outage. However, we have several arrangements for conversion to
an alternate vendor or alternate vendor site during an outage. If we are unable
to execute the conversion because of a Progressive related issue, this would be
counted as an outage.
For purposes of this program, service disruptions caused by an Infrastructure
Vendor will be counted as an outage.
5. SLOW RESPONSE TIME
Occasionally, an application is available, but the response time is poor. Slow
response time will not be counted as an outage.
7
6. SCHEDULED MAINTENANCE
Occasionally, system or facility work needs to be performed that cannot be
completed during our normal maintenance hours (see rule #1 for maintenance
hours). In spite of this downtime being scheduled in advance with our customers,
it will be counted as an outage.
7. IT PERFORMANCE AND RETENTION POINT VALUES
IT Performance
Any day without an outage will be awarded points. Point values are weighted to
correspond with the value to the business based upon the volume of transactions.
The maximum number of points earned per week is 10 points per application
defined in Rule #1. The point value by workday is as follows:
DAY POINTS
- --------------------------- ------
Monday 2.0
Tuesday 2.0
Wednesday, Thursday, Friday 1.5
Saturday 1.0
Sunday 0.5
Point values will not be adjusted for holidays. In other words, if a holiday is
celebrated on a Monday, it will be given a value of 2 points.
IT Customer Retention
Outages that negatively affect customers will be assessed a loss of 1.0 point
per incident defined in Rule #2.
8. COMMUNICATIONS OF STATUS
On a daily basis, we will communicate any outage in the Morning Status Report
issued Monday through Friday by ETG. The outage will be highlighted in red.
Each Monday, ETG will distribute to all IT staff, the "Weekly IT Performance
Report", indicating the previous week's results as well as the annualized point
factor. In addition, a monthly report with year-to-date information will be
distributed to all IT staff by the first Friday of the fiscal month.
9. APPEAL PROCESS
Anyone within the organization has the right to appeal an outage. All appeals
should be made by email to Ed Locker. Ed will ensure the appeal is presented in
the Post Mortem review of the incident. If the outage was misrepresented, a
reversal will be carried in the Weekly IT Performance Report and all associated
status reports.
If the outage requires a judgment call, it will be reviewed by Jerry Winchell,
Tom Cunningham, Scott McPherson and Molly Gessler who will act as the Ruling
Committee. All judgments made by the Ruling Committee are final.
10. EARNED POINTS CHART FOR 2005
The attached 2005 Earned Points Chart correlates annual points earned to the IT
Performance Factor.
8
SCHEDULE II
INFORMATION TECHNOLOGY INCENTIVE PLAN
2005 EARNED POINTS CHART
ANNUAL POINTS EARNED
- --------------------------
MINIMUM MAXIMUM IT PERFORMANCE FACTOR
- ------- ------- ---------------------
0 9,505 0.00
9,506 9,506 0.01
9,507 9,512 0.02
9,513 9,518 0.03
9,519 9,524 0.04
9,525 9,530 0.05
9,531 9,536 0.06
9,537 9,542 0.07
9,543 9,548 0.08
9,549 9,554 0.09
9,555 9,557 0.10
9,558 9,558 0.11
9,559 9,564 0.12
9,565 9,570 0.13
9,571 9,576 0.14
9,577 9,582 0.15
9,583 9,588 0.16
9,589 9,594 0.17
9,595 9,600 0.18
9,601 9,606 0.19
9,607 9,609 0.20
9,610 9,610 0.21
9,611 9,616 0.22
9,617 9,622 0.23
9,623 9,628 0.24
9,629 9,634 0.25
9,635 9,640 0.26
9,641 9,646 0.27
9,647 9,652 0.28
9,653 9,658 0.29
9,659 9,661 0.30
9,662 9,662 0.31
9,663 9,668 0.32
9,669 9,674 0.33
9,675 9,680 0.34
9,681 9,686 0.35
9,687 9,692 0.36
9
9,693 9,698 0.37
9,699 9,704 0.38
9,705 9,710 0.39
9,711 9,713 0.40
9,714 9,714 0.41
9,715 9,720 0.42
9,721 9,726 0.43
9,727 9,732 0.44
9,733 9,738 0.45
9,739 9,744 0.46
9,745 9,750 0.47
9,751 9,756 0.48
9,757 9,762 0.49
9,763 9,765 0.50
9,766 9,766 0.51
9,767 9,772 0.52
9,773 9,778 0.53
9,779 9,784 0.54
9,785 9,790 0.55
9,791 9,796 0.56
9,797 9,802 0.57
9,803 9,808 0.58
9,809 9,814 0.59
9,815 9,817 0.60
9,818 9,818 0.61
9,819 9,824 0.62
9,825 9,830 0.63
9,831 9,836 0.64
9,837 9,842 0.65
9,843 9,848 0.66
9,849 9,854 0.67
9,855 9,860 0.68
9,861 9,866 0.69
9,867 9,869 0.70
9,870 9,870 0.71
9,871 9,876 0.72
9,877 9,882 0.73
9,883 9,888 0.74
9,889 9,894 0.75
9,895 9,900 0.76
9,901 9,906 0.77
9,907 9,912 0.78
9,913 9,918 0.79
9,919 9,921 0.80
9,922 9,922 0.81
9,923 9,928 0.82
9,929 9,934 0.83
9,935 9,940 0.84
10
9,941 9,946 0.85
9,947 9,952 0.86
9,953 9,958 0.87
9,959 9,964 0.88
9,965 9,970 0.89
9,971 9,973 0.90
9,974 9,974 0.91
9,975 9,980 0.92
9,981 9,986 0.93
9,987 9,992 0.94
9,993 9,998 0.95
9,999 10,004 0.96
10,005 10,010 0.97
10,011 10,016 0.98
10,017 10,023 0.99
10,024 10,027 1.00
10,028 10,028 1.01
10,029 10,030 1.02
10,031 10,033 1.03
10,034 10,035 1.04
10,036 10,037 1.05
10,038 10,040 1.06
10,041 10,043 1.07
10,044 10,046 1.08
10,047 10,049 1.09
10,050 10,051 1.10
10,052 10,052 1.11
10,053 10,055 1.12
10,056 10,058 1.13
10,059 10,061 1.14
10,062 10,063 1.15
10,064 10,066 1.16
10,067 10,069 1.17
10,070 10,072 1.18
10,073 10,075 1.19
10,076 10,077 1.20
10,078 10,078 1.21
10,079 10,081 1.22
10,082 10,084 1.23
10,085 10,087 1.24
10,088 10,089 1.25
10,090 10,092 1.26
10,093 10,095 1.27
10,096 10,098 1.28
10,099 10,101 1.29
10,102 10,103 1.30
10,104 10,104 1.31
10,105 10,107 1.32
11
10,108 10,110 1.33
10,111 10,113 1.34
10,114 10,115 1.35
10,116 10,118 1.36
10,119 10,121 1.37
10,122 10,124 1.38
10,125 10,127 1.39
10,128 10,129 1.40
10,130 10,130 1.41
10,131 10,133 1.42
10,134 10,136 1.43
10,137 10,139 1.44
10,140 10,141 1.45
10,142 10,144 1.46
10,145 10,147 1.47
10,148 10,150 1.48
10,151 10,153 1.49
10,154 10,155 1.50
10,156 10,156 1.51
10,157 10,159 1.52
10,160 10,162 1.53
10,163 10,165 1.54
10,166 10,167 1.55
10,168 10,170 1.56
10,171 10,173 1.57
10,174 10,176 1.58
10,177 10,179 1.59
10,180 10,181 1.60
10,182 10,182 1.61
10,183 10,185 1.62
10,186 10,188 1.63
10,189 10,191 1.64
10,192 10,193 1.65
10,194 10,196 1.66
10,197 10,199 1.67
10,200 10,202 1.68
10,203 10,205 1.69
10,206 10,207 1.70
10,208 10,208 1.71
10,209 10,211 1.72
10,212 10,214 1.73
10,215 10,217 1.74
10,218 10,219 1.75
10,220 10,222 1.76
10,223 10,225 1.77
10,226 10,228 1.78
10,229 10,231 1.79
10,232 10,233 1.80
12
10,234 10,234 1.81
10,235 10,237 1.82
10,238 10,240 1.83
10,241 10,243 1.84
10,244 10,245 1.85
10,246 10,248 1.86
10,249 10,251 1.87
10,252 10,254 1.88
10,255 10,257 1.89
10,258 10,259 1.90
10,260 10,260 1.91
10,261 10,263 1.92
10,264 10,266 1.93
10,267 10,269 1.94
10,270 10,271 1.95
10,272 10,274 1.96
10,275 10,277 1.97
10,278 10,280 1.98
10,281 10,283 1.99
10,284 10,400 2.00
13