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EXHIBIT 10(D)
THE PROGRESSIVE CORPORATION
1995 EXECUTIVE BONUS PLAN
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 interests of shareholders. The annual bonus component
is performance-based and focuses on current results.
2. The 1995 Executive Bonus Plan (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. The following executive officers have initially been selected for
participation in the Plan: Charles B. Chokel, Peter B. Lewis, Bruce W.
Marlow, Michael C. Murr, David M. Schneider and Tiona M. Thompson (the
"participants").
4. Subject to the following sentence, the amount of the annual bonus
earned by any participant under the Plan ("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 may not exceed $2,000,000.00.
5. The salary rate of each Plan participant for any Plan year shall be as
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 for work or services performed
by the participant as an officer or employee of Progressive and the
earnings replacement component of any worker's compensation award, but
shall not include any (a) short-term or long-term disability payments,
(b) lump sum merit adjustments or (c) discretionary bonus payments made
to the participant.
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6. The Target Percentages for the participants in the Plan are as follows:
Participant Position Target Percentage
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Charles B. Chokel Chief Financial Officer 80%
Peter B. Lewis Chief Executive Officer 100%
Bruce W. Marlow Chief Operating Officer 100%
Michael C. Murr Chief Investment Officer 167%
David M. Schneider Chief Legal Officer 60%
Tiona M. Thompson Chief Human Resources Officer 60%
Target Percentages may be changed from year to year by the Committee.
7. The Performance Factor
A. General
The Performance Factor shall be determined by the performance
results achieved with respect to one or more of the following
components: Core Business Gainsharing, Return on Average
Equity ("ROE") and Investment Performance, as described below
(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.
The combination of Bonus Components designated for each of the
participants, and the relative weighting of those Components,
are as follows:
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Core Business ROE Investment
Participant Gainsharing Component Performance
Component Component
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Chokel 70% 30% 0%
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Lewis 50% 30% 20%
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Marlow 80% 20% 0%
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Murr 0% 50% 50%
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Schneider 70% 30% 0%
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Thompson 80% 20% 0%
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The relative weighting of the Bonus Components may vary among
Plan participants and may be changed from year to year by the
Committee.
Actual performance results achieved for any Plan year, as used
to calculate the performance score achieved for each of the
applicable Bonus Components, shall be as certified by the
Committee prior to payment of the Annual Bonus.
For purposes of computing the amount of the Annual Bonus, the
performance score achieved for each of the designated Bonus
Components will be multiplied by the applicable weighting
factor to produce a Weighted Component Score. The sum of the
Weighted Component Scores equals the Performance Factor. The
Performance Factor can vary from 0 to 2.0, based on actual
performance versus the pre-established objectives.
B. Core Business Gainsharing Component
The Core Business Gainsharing Component consists of the
following factors:
(i) Profitability and Growth Factor
The Profitability and Growth Factor measures overall
operating performance of Progressive's core personal
and commercial automobile insurance business ("Core
Business") for the Plan year in respect of which an
Annual Bonus is to be paid. For purposes of computing
a score for this Factor, results will be measured by
the Gainsharing Matrix, as established by the
Committee for the Plan year, which assigns a
performance score to various combinations of
profitability and growth outcomes. For this Factor,
profitability is measured by the GAAP combined ratio
and growth is measured by year-to-year change in
market share. Change in market share is measured in
terms of net written premium, based on industry data
(which may be estimated), as reported by A.M. Best
Company, Inc. in Best Week, or any successor
publication, upon conclusion of the Plan year for
which the Annual Bonus is to be paid. The
Profitability and Growth Factor is weighted 70% in
computing the Core Business Gainsharing Score.
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(ii) Cost Structure Improvement Factor
The Cost Structure Improvement Factor measures success in
achieving cost structure improvement for the Core
Business. 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 in the
Core Business for the Plan year (collectively, "Actual
Expense Ratio") against the defined expense objectives
for that year, as established by the Committee ("Target
Expense Ratio"). For 1995 and thereafter unless and until
otherwise directed by the Committee, the Target Expense
Ratio shall be 33, based on a target LAE Ratio of 10 and
a target Underwriting Expense Ratio of 23. The Cost
Structure Improvement Factor is weighted 30% in computing
the Core Business Gainsharing Score.
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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Expense targets and the relative weighting of the above
Factors may be changed from year to year by the Committee.
C. Return on Average Equity Component
This Component is based on Progressive's Return on Average
Equity ("ROE") for the Plan year. The ROE will be calculated
for each month of the Plan year and such monthly results will
be averaged to determine the ROE for the Plan year. For
purposes of this Plan, ROE shall be calculated as follows:
ROE = net income - Preferred Share dividends
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average common shareholders' equity
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In determining the ROE Performance Score, actual performance will be compared
to a scale which excludes the effect of inflation, in accordance with the
following scoring table:
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ROE (excluding ROE Performance
effect of inflation, as Score
reflected in the CPI)
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11% or lower 0.0
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12% 0.3
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13% 0.5
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14% 0.7
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15% 1.0
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16% 1.1
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17% 1.2
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18% 1.3
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19% 1.4
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20% 1.5
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21% 1.6
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22% 1.7
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23% 1.8
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24% 1.9
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25% or higher 2.0
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To achieve a given ROE Performance Score for any Plan year, Progressive's ROE
for that year must equal or exceed the required ROE level set forth in the
above scoring table, without rounding, and ROE Performance Scores will not be
derived from or subject to an interpolative or similar process.
For purposes of this Plan, CPI shall mean the Consumer Price Index for all
Urban Consumers (CPI-U) for the U.S. City Average for All Items (1982-1984
equals 100) or such other index as the Committee shall designate prior to the
applicable Plan year.
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D. Investment Performance Component
The Investment Performance Component compares investment performance
against targets ("Benchmarks") established for the individual segments
of Progressive's investment portfolio. Investments are marked to market
in order to calculate total return, which is then compared against the
designated Benchmarks to produce a Performance Score for each segment of
the portfolio. The Performance Scores for the several segments are
weighted, based on the actual amounts invested in each segment (valued
monthly), and the weighted Performance Scores for the several segments
are then combined to produce the Investment Performance Score.
Investment expense is not included in determining investment performance
vs. benchmark.
The Portfolio Segments and Benchmark measures are as follows:
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Portfolio Segment Investment Benchmark
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Equities S&P 500 including dividends
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High Yield Investments 70% of the average of Merrill Lynch
High Yield Index and Merrill Lynch
Bankruptcy Index
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Short Term Fixed Income 3 Year Treasury Securities + 75 basis
points, tax equivalent basis
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The scoring table for comparing Investment Performance against the
designated Benchmarks is as follows:
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Investment Investment
Performance Performance
Versus Score
Benchmark
(weighted)
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below 90% 0.00
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90 - 94.99% 0.75
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95 - 99.99% 0.90
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100% and above 1.00
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To achieve a given Investment Performance Score for any Plan year,
Investment Performance results must equal or exceed the required
performance level indicated in the above scoring table, without
rounding, and Investment Performance Scores will not be derived from or
subject to an interpolative or similar process.
8. The Annual Bonus for any Plan year shall be paid to participants in two
installments. The first installment, in an amount equal to 90% of the
Annual Bonus, determined in accordance with the formula set forth in
Paragraph 4 above, will be paid as soon as practicable after the
Committee has certified performance results for the Plan year, but no
later than March 31 of the immediately following year. The second
installment, in an amount equal to 10% of the Annual Bonus, will be
paid to participants on the September 30 immediately following the end
of the Plan year for which such Annual Bonus is to be paid. The
provisions of this Paragraph shall be subject to Paragraph 9 hereof.
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 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 any installment of the 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 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.
11. 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 thereunder. 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.
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The Plan shall 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 shall 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.
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 shall 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 shall 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 their job
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 1994 Executive Bonus 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.
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18. This Plan is adopted and, subject to the provisions of Paragraph 12
hereof, is to be effective, as of January 1, 1995. Subject to the
provisions of Paragraph 12, this Plan shall be effective for 1995 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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