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EXHIBIT NO. 10(F)
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THE PROGRESSIVE CORPORATION
1999 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
interest of shareholders. The annual bonus component of this program is
performance-based and focuses on current results.
2. The 1999 Executive Bonus Plan (the "Plan") provides the annual bonus
component of Progressive's executive compensation program for Plan
participants. 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. Subject to the following sentence, the amount of the annual bonus
earned by any participant under the Plan for any Plan year
("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 $3,000,000.
4. 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.
5. The Target Percentages for the participants in the Plan shall be determined
by the Committee, but will not exceed 150% for any participant. Target
Percentages may vary among Plan participants and may be changed from year to
year by the Committee.
6. The Performance Factor
A. General
The Performance Factor shall consist of one or more of the following
components: a Core Business Profitability and Growth Component, a
Business Segment Performance Component, a Cost Structure Improvement
Component and an Investment Performance Component (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,
as determined by the Committee.
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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.
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 will equal 1.0 if specified
performance goals are met, and can vary from 0 to 2.0, based on actual
performance versus the pre-established objectives.
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.
B. Core Business Profitability and Growth Component
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The Core Business Profitability and Growth Component measures overall
operating performance of Progressive's Personal Lines segment (excluding
Midland Financial Group, Inc.) and the commercial vehicle business unit
(collectively, the "Core Business") for the Plan year for which an Annual
Bonus payment is to be made. For purposes of computing a Performance Score
for this Component, operating performance results are measured by a
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.
The Gainsharing Combined Ratio is determined for the Core Business
as follows:
1. Each year, a target combined ratio is established by or under the
direction of the Committee for all products within the Core Business,
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 for the constituent product categories, which are
weighted on the basis of the Net Earned Premium generated by each such
product category 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.
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The Gainsharing Combined Ratio is then matched with growth in Net Written
Premium using the Gainsharing Matrix to determine a Core Business
Profitability and Growth Performance Score.
C. Business Segment Performance Component
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The Business Segment Performance Component measures the performance of a
designated Business Segment (as defined below) in terms of any one or more
of the following criteria selected by the Committee: profitability (measured
by the combined ratio, weighted combined ratio, return on equity or return
on revenue), growth (measured by net written premium, earned premium or
revenues) or operating effectiveness (measured by systems availability or
timeliness of response). A Business Segment may consist of a distribution
channel, business unit, product, function, process or other business
category, such as new or renewal business. The Committee may designate one
or more Business Segment Performance Components for an individual Plan
participant for any Plan year and, for each such Component, will determine
the applicable criteria upon which performance will be measured, the goals
to be achieved and the performance scores that will result from various
levels of performance. The applicable criteria, related goals and resulting
performance scores may be set forth in a Business Segment Performance Matrix
or other format approved by the Committee. Business Segment Performance
Components, performance criteria, goals and resulting performance scores may
vary among participants and may be changed from year to year by the
Committee.
D. Cost Structure Improvement Component
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The Cost Structure Improvement Component measures success in achieving cost
structure improvement for the Core Business, as a whole, or for an assigned
Business Segment, if applicable. 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 Business Segment and/or for the Core Business as a
whole, and may be changed from year to year by or under the direction of the
Committee.
The Cost Structure Improvement Score will be computed in accordance with the
following formula:
Cost Structure
Improvement = 1 + [Target Expense Ratio-Actual Expense Ratio]
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Score
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E. Investment Performance Component
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 applicable Portfolio Segments will be identified, and the related
Investment Benchmarks and funds which comprise the Investment
Benchmarks will be determined, by the Committee and may be changed from
year to year by the Committee.
At the conclusion of a Plan year, the investment funds which comprise
an Investment Benchmark are ranked according to their respective levels
of performance 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
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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 15 of the immediately following year. The
provisions of this Paragraph shall be subject to Paragraph 9 hereof.
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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.
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.
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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 1997 Executive Bonus Plan, as heretofore in effect (the "Prior
Plan"), which is and shall be deemed to be terminated as of December 31,
1998 (the "Termination Date"); provided, that any bonuses or other sums
earned under the Prior Plan with respect to any period 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 the reunder.
18. This Plan is adopted and, subject to the provisions of Paragraph 12 hereof,
is to be effective, as of January 1, 1999. Subject to the provisions of
Paragraph 12, this Plan shall be effective for 1999 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.