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EXHIBIT NO. 10(D)
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THE PROGRESSIVE CORPORATION 1997
EXECUTIVE BONUS PLAN
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Exhibit 10(D)
THE PROGRESSIVE CORPORATION
1997 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 of this program is
performance-based and focuses on current results.
2. The 1997 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 been selected for participation in
the Plan: Charles B. Chokel and Peter B. Lewis (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
shall not exceed $2,500,000.00.
5. The salary rate of each Plan participant for any Plan year shall be
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 during the Plan year for work or services
performed by the participant as an officer or employee of Progressive, but
shall not include any (a) short-term or long-term disability payments, (b)
lump sum merit adjustments, (c) discretionary or other bonus or incentive
payments or (d) the earnings replacement component of any worker's
compensation award.
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 125%
Peter B. Lewis Chief Executive Officer 135%
Target Percentages may be changed from year to year by the Committee.
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7. The Performance Factor
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A. General
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The Performance Factor shall be determined by the performance results
achieved with respect to one or more of the following components: Core
Business Gainsharing 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 INVESTMENT
GAINSHARING PERFORMANCE
PARTICIPANT COMPONENT COMPONENT
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Chokel 70% 30%
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Lewis 80% 20%
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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, must be certified by the Committee prior to payment
of the Annual Bonus.
For purposes of computing the amount of the Annual Bonus for any Plan
year, the performance score achieved for each of the designated Bonus
Components will be multiplied by the applicable weighting factor to
produce a Weighted Performance Score. The sum of the Weighted
Performance Scores will equal 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
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The Core Business Gainsharing Component measures overall operating
performance of Progressive's core personal and commercial automobile
insurance business ("Core Business") for the Plan year. For purposes
of computing a Performance 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 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 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 policy life target combined ratio of 96.
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 by the Core Business 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
Performance Score for the Core Business Gainsharing Component.
C. Investment Performance Component
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The Investment Performance Component compares the investment
performance of the individual segments of Progressive's investment
portfolio ("Portfolio Segments") against the performance of selected
groups of comparable investment funds ("Investment Benchmarks") over
such period or periods as shall be determined by the Committee.
Investment results are marked to market in order to calculate total
return, which is then compared against the designated Investment
Benchmarks to produce a Performance Score for each Portfolio Segment.
The Portfolio Segments and Investment Benchmarks are as follows:
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PORTFOLIO SEGMENT INVESTMENT BENCHMARK
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Equities (internally managed) Rogers Casey Large Cap Value Funds
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Equities (externally managed)
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Short Term Fixed Income 70% Rogers Casey Intermediate
Fixed Income Funds
30% Rogers Casey Limited Duration
Fixed Income Funds
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Investment Benchmarks, and the funds which comprise the
Investment Benchmarks, may be changed from year to year by the
Committee. Funds which announce or initiate a fundamental change
in investment strategy during the course of a Plan year may be
deleted from the Investment Benchmark.
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At the conclusion of a Plan year, the investment funds which
comprise an Investment Benchmark are ranked according to their
respective performances for the Plan year. The investment
performance achieved by each Portfolio Segment for the Plan year
is then compared against the performance of the several
investment funds which comprise the applicable Investment
Benchmark to determine the decile in which such Portfolio
Segment's performance falls ("Decile Ranking"). The Performance
Score for each Portfolio Segment is determined by its Decile
Ranking for the Plan year, as follows:
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DECILE PERFORMANCE
RANKING SCORE
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1st 2.00
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2nd 1.78
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3rd 1.56
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4th 1.33
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5th 1.11
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6th .89
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7th .67
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8th .44
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9th .22
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10th 0
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The Performance Scores for the several Portfolio Segments are
weighted, based on the average amounts invested in each such
Segment during the Plan year, and the weighted Performance
Scores for the Portfolio Segments are then combined to produce
the Investment Performance Score. Investment expense is not
included in determining investment performance vs. benchmark.
8. The Annual Bonus for any Plan year will be paid to participants
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 provisions of this
Paragraph shall be subject to Paragraph 9 hereof.
Any Plan participant who is 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 an 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 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.
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11. The Plan will be administered by or under the direction of the
Committee. The Committee will have the authority to adopt, alter and
repeal such rules, guidelines, procedures and practices governing the
Plan as it, from time to time, in its sole discretion deems advisable.
The Committee will 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 will be final and binding on Progressive, all Plan
participants and all other parties. No such interpretation or
determination may be relied on as a precedent for any similar action
or decision.
The Plan will 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 will 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 and no Annual Bonus will be
paid hereunder unless the Plan has been so approved.
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 will 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 will 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 any
of their job titles, 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 1995 Executive Bonus 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.
18. This Plan is adopted and, subject to the provisions of Paragraph 12
hereof, is to be effective, as of January 1, 1997. Subject to the
provisions of Paragraph 12, this Plan shall be effective for 1997 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.