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EXHIBIT NO. 10(B)
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THE PROGRESSIVE CORPORATION 1997
GAINSHARING PLAN
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Exhibit 10(B)
THE PROGRESSIVE CORPORATION
1997 GAINSHARING PLAN
1. The Progressive Corporation and its subsidiaries ("Progressive" or the
"Company") have adopted The Progressive Corporation 1997 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 assigned Business Unit or Product performance meets
expectations. Participants will have the opportunity to earn cash
compensation in excess of the top of the market when Core Business and
assigned Business Unit or Product 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 1997 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, the earnings
replacement component of any worker's compensation award or any other bonus
or incentive compensation awards.
Notwithstanding the foregoing, if the sum of the regular, vacation, sick,
holiday and funeral pay received by a participant during a Plan year
exceeds his/her salary range maximum for that Plan year, 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 during that Plan
year: (a) overtime pay, (b) retroactive payments of regular, vacation,
sick, holiday, overtime and funeral pay and (c) lump sum merit adjustments.
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5. Target Percentages vary by position. Target Percentages for Plan
participants typically are as follows:
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POSITION TARGET %
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Policy Team Members, General Managers and Senior 50% - 100%
Process Team Members
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Senior Product Managers (PM's), Senior Claims
Managers and Senior Corporate Function Heads 35%
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Senior Regional Claims Managers, Function Heads and 25%
PM's
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Regional Claims Managers, Finance Managers and
Group Managers 15%
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Senior Professionals and Managers 12%
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Professionals and Supervisors (e.g. CSR's, Claims Reps,
etc.) 8%
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Target Percentages will be established within the above ranges by, and may
be changed with the approval of, the Chief Executive Officer ("CEO"), Chief
Financial Officer ("CFO") or Chief Human Resources Officer ("CHRO") and, if
applicable, the appropriate process leader. Target Percentages also may be
changed from year to year by such individuals.
6. The Performance Factor
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A. General
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The Performance Factor shall consist of one or more Profitability and
Growth Components, as described below. The Profitability and Growth
Components will 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 CEO, CFO or CHRO.
B. Profitability and Growth Components
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The Profitability and Growth Components measure overall operating
performance of Progressive's core personal and commercial automobile
insurance business ("Core Business"), as a whole, and the
participant's assigned Business Unit or Product (as applicable), 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 the 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.
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The Gainsharing Combined Ratio is determined for the Core Business and
each Business Unit or Product (as applicable) as follows:
1. Each year, target combined ratios are established by or under the
direction of the Committee by Product, Distribution Channel and
New/Renewal business ("Designated Segments"), determined to yield
an average target policy life combined ratio of 96. Special Lines
and CV target combined ratios remain at 96 regardless of
Distribution Channel and whether New or Renewal business.
2. A weighted target combined ratio is calculated based on the
various target combined ratios, weighted based on the Net Earned
Premium generated by each Designated Segment for the Plan year.
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
Profitability and Growth Performance Score.
C. Component Weighting
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Profitability and Growth Components for the Core Business and assigned
Business Unit or Product, as applicable, are weighted as provided
above. For participants in the Core Business, the typical weighting
will be as follows:
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Profitability and Growth Component Weighting
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Core Business 75%
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Business Unit or Product 25%
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Total 100%
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There will typically be no Business Unit or Product Profitability and
Growth 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 Business Unit
or Product. Individualized programs may be developed if and to the
extent deemed appropriate by the CEO, CFO or CHRO.
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The Performance Score for each Profitability and Growth 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 the pre-established
objectives. In some cases, the Profitability and Growth Performance
Score for the Core Business or a particular Business Unit or Product
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. 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 such Plan year equal to 75% of an amount
calculated on the basis of Paid Earnings for the first 25 pay periods of
the Plan year, one pay period of estimated earnings, performance data
through the first 11 months of the Plan year (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 Annual 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.
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 under this Plan, subject to and in accordance with the terms of the
Deferral Plan.
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 that portion of the Annual Gainsharing
Payment. Annual 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 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.
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.
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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 establish, change or modify
Performance Components and their respective weighting factors, performance
targets and Target Percentages) may be exercised by the CEO, CFO or the
CHRO.
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 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
by or due from Progressive, other than The Progressive Corporation 1996
Process Management Bonus Plan and any successor plans thereto. Without
limiting the generality of the foregoing, this Plan supersedes and replaces
The Progressive Corporation 1995 Gainsharing Plan, as heretofore in effect
(the "Prior Plan"), which is and shall be deemed to be terminated as of
December 31, 1996 (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, 1997. This
Plan shall be effective for 1997 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.