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EXHIBIT 10(B)
THE PROGRESSIVE CORPORATION
1995 GAINSHARING PLAN
1. The Progressive Corporation and its subsidiaries ("Progressive" or the
"Company") have adopted The Progressive Corporation 1995 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 and Division performance meets
expectations. Participants will have the opportunity to earn cash
compensation in excess of the top of the market when Core Business and
Division 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 or a
corporate support function as of December 1 of that Plan year. The
gainsharing opportunity, if any, for those executive officers who
participate in The Progressive Corporation 1995 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 or
the earnings replacement component of any worker's compensation award.
5. Target Percentages vary by position. Target Percentages for Plan
participants typically are as follows:
POSITION TARGET %
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Division Presidents, Product Leaders and Corporate
Support Team Members 60%
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Community Managers 50%
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Senior Product Managers (PM's) and Senior Division
Claims Managers 35%
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Division DRG Members, Function Heads and PM's 25%
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POSITION TARGET %
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Regional Claims Managers, Finance Managers, and
Group Managers 13%
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Senior Professionals and Managers 10%
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Professionals and Supervisors (e.g. CSR's, Claims Reps,
etc.) 8%
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Target Percentages may be changed with the approval of the Chief
Operating Officer, Chief Human Resources Officer and the relevant
process leader or product leader. Target Percentages also may be
changed from year to year.
6. The Performance Factor
A. General
The Performance Factor shall consist of a Profitability and
Growth Component and a Cost Structure Improvement Component,
as described below (the "Performance Components"). 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 may be
changed from year to year by or under the direction of the
Committee.
B. Profitability and Growth Component
The Profitability and Growth Component measures overall
operating performance of Progressive's core personal and
commercial automobile insurance business ("Core Business"), as
a whole, and the assigned Division or Product (if applicable),
for the Plan year in respect of which an annual Gainsharing
Payment is to be made. For purposes of computing a score for
this Component, operating performance results are measured by
the Gainsharing Matrix, as established by or under the
direction of the Committee for the Plan year, which assigns a
Profitability and Growth Score to various combinations of
profitability (as measured by the GAAP combined ratio) and
growth (based on year-to-year change in market share)
outcomes. Market share is determined in terms of direct
written premium. For the Core Business as a whole, the market
means all personal auto premium and all commercial auto
premium in the United States, plus personal auto premium in
Ontario, Canada. For Personal Lines Divisions, the market
means personal auto premium in active states. All market
information shall be as published by A.M. Best Company, Inc.,
or other sources selected by the Committee.
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C. Cost Structure Improvement Component
The Cost Structure Improvement Component measures success in
achieving cost structure improvement for the Core Business,
as a whole, and for the assigned Division, if any. 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 Division and/or for
the Core Business as a whole, and may be changed from year to
year. For 1995, and for each Plan year thereafter until
otherwise determined by the Committee, the Target Expense
Ratio for the Core Business, as a whole, shall be 33,
including a target LAE Ratio of 10 and a target Underwriting
Expense Ratio of 23.
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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D. Component Weighting
Performance Components are weighted by Core Business and
Division or Product, as applicable. The weighting factors may
differ among participants and may be changed from year to
year. For participants in the Core Business, the typical
weighting shall be as follows:
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Weighting
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Performance Profitability Cost
Factor and Growth Structure Total
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Core Business Results 35% 15% 50%
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Division Results 35% 15% 50%
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Total 70% 30% 100%
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There will typically be no Division Component for participants
assigned to a corporate support function (such as Finance,
Human Resources, Law and Information Services) and others who
are not assigned primarily to a Division. Individualized
programs may be developed if and to the extent
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deemed appropriate by the Company's Chief Executive Officer
("CEO") or Chief Operating Officer ("COO").
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 pre-established objectives. In some cases,
the performance score for a Performance Component may be above
2.0 or below 0. The individual scores (positive and negative,
above 2.0 and below 0) are not adjusted, but go directly into
the calculation of the Performance Factor, which is capped at
0 and 2.0.
7.A. Subject to Paragraph 8 below, no later than December 31 of each Plan
year, each participant with a Target Percentage of 8% or 10% will
receive an initial payment in respect of his or her Gainsharing Payment
for such Plan year equal to 80% of an amount calculated on the basis of
Paid Earnings for the first 11 months of the Plan year, performance
data through such 11 month period (estimated, if necessary) and one
month of forecasted operating results. No later than February 15 of the
following year, each such participant shall receive the balance of his
or her Gainsharing Payment, if any, for such Plan year, based on his or
her Paid Earnings for the entire Plan year and performance data for the
Plan year, including the Company's best estimate of Core Business
market share growth.
B. Subject to Paragraph 8 below, no later than February 15 of the year
immediately following the Plan year for which a Gainsharing Payment is
to be made, each participant with a Target Percentage of 13% or greater
will receive a payment in respect of his or her Gainsharing Payment for
such Plan year in an amount equal to 90% of his or her estimated
Gainsharing Payment for such year ("Estimated Payment"), calculated on
the basis of Paid Earnings for the entire Plan year and actual
performance data for such Plan year, including the Company's best
estimate of Core Business market share growth for the Plan year. The
balance of the Gainsharing Payment for such Plan year, if any, will be
made to each such participant no later than the following September 30
or, if later, within thirty (30) days following the Company's receipt
of all market share information necessary to compute final Gainsharing
Payment amounts for such Plan year. Each participant who is employed by
the Company as of the date of the final Gainsharing Payment
determination and who has a Target Percentage of 13% or greater is
required to return to the Company no later than thirty (30) days
following receipt of written notice from the Company the amount, if
any, by which the Estimated Payment made to such participant for such
Plan year exceeds the actual Gainsharing Payment to which such
participant is entitled. If any such participant fails to return such
excess payment when and as required, the Company shall have the right
to setoff such obligation against any other sum then or thereafter owed
by the Company to such participant, whether under this Plan or
otherwise.
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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 such portion of the
annual Gainsharing Payment. 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 shall 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.
All of the authority of the Committee hereunder (including, without
limitation, the authority to administer the Plan, select the persons to
participate herein, interpret the provisions thereof, waive any of the
requirements specified herein and make determinations hereunder and to
establish, change or modify Performance Components and their respective
weighting factors, performance targets and Target Percentages) may be
exercised by the CEO or the COO.
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 their job
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 by or due from Progressive. Without limiting the generality of
the foregoing, this
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Plan supersedes and replaces The Progressive Corporation 1994
Gainsharing Plan, as heretofore in effect (the "Prior Plan"), which is
and shall be deemed to be terminated as of December 31, 1994 (the
"Termination Date"); provided, that any bonuses or other sums earned
under the Prior Plan 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, 1995.
This Plan shall be effective for 1995 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.
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