The Progressive Corporation 8-K

TABLE OF CONTENTS


Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
Item 9.01 Financial Statements and Exhibits
SIGNATURES
EXHIBIT INDEX
EX-10A
EX-10B

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

(e) The following matters relating to the compensation of named executive officers for 2006 and 2007, and related compensation plans, were decided by either the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of The Progressive Corporation (the “Company”), or by the full Board, at their respective meetings on February 2 and 3, 2007.

Certification of Bonus Payments for 2006 to Named Executive Officers. The 2006 bonuses for the named executive officers listed below under The Progressive Corporation 2004 Executive Bonus Plan (“2004 Executive Bonus Plan”) were tied to the growth and profitability of the “Core Business”, which was defined for 2006 to include the Drive (Agency), Direct and Commercial Auto businesses, weighted according to the net earned premiums for each business during the year. The Committee certified the 2006 performance results for the Drive, Direct and Commercial Auto businesses, and thus for the Core Business as a whole. As a result of these certifications and the bonus calculations required by the 2004 Executive Bonus Plan, cash bonuses for 2006 will be paid as follows:


		2006 Bonus
Name*	Title	Payment**
Glenn M. Renwick	President and Chief Executive Officer	$	1,327,500
W. Thomas Forrester	Vice President and Chief Financial Officer	$	590,003
Brian J. Passell	Claims Group President	$	498,777


*		Alan Bauer and Robert Williams, who were named executive officers in our 2006 Proxy Statement, separated from the Company during 2006 and did not earn a bonus.

**		For a discussion of the Company’s 2004 Executive Bonus Plan, see the Company’s Proxy Statement dated March 11, 2004, Item 3, at pp. 30-36. For a description of the performance criteria used to determine the bonuses for 2006, see the Company’s Current Report on Form 8-K filed on February 9, 2006.

2007 Executive Bonus Plan. The Committee approved The Progressive Corporation 2007 Executive Bonus Plan (the “2007 Executive Bonus Plan”), a copy of which is attached hereto as Exhibit 10(A). The 2007 Executive Bonus Plan remains subject to approval by shareholders at the Company’s Annual Meeting of Shareholders in April 2007. The 2007 Executive Bonus Plan is substantially similar to the 2004 Executive Bonus Plan, with the following significant changes:

	•		The 2007 plan includes an expanded list of performance criteria that may be used by the Committee to define objective bonus standards for each year; and

	•		The 2007 plan includes a “recoupment” provision, which provides a right of the Company to require the return of cash bonuses (or portions of bonuses) if they were paid based on incorrect financial or operating results that are later restated.

The 2007 Executive Bonus Plan will be submitted to shareholders for approval at our Annual Meeting of Shareholders in April 2007. Accordingly, our 2007 Proxy Statement will include a more detailed summary of this plan.

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2007 Salary and Variable Compensation Targets for Named Executive Officers. The Committee determined that the salary and variable compensation targets for 2007 for the Company’s named executive officers, as set forth in our 2006 Proxy Statement, will be as follows:


			2007 Potential Cash									2007 Restricted
			Bonus Range**									Stock Grant
	2007		(% of Salary)									Target***
Name*	Salary		Minimum			Target			Maximum			(% of Salary)
Glenn M. Renwick	$	750,000		0	%		150	%		300	%		1000	%
Brian J. Passell	$	440,000		0	%		100	%		200	%		200	%


*		Mr. Forrester, as previously announced, is scheduled to retire from the position of CFO in the first quarter of 2007, and the Committee made no new decisions concerning his compensation. Accordingly, his salary will be unchanged (at his 2006 annual rate of $500,000) while he remains as CFO, he will not participate in the 2007 Executive Bonus Plan, and no future equity awards will be made to him.

**		See below for the performance criteria and other procedures that will be used to determine the actual cash bonuses in 2007.

***		The figure shown for each executive, when multiplied by his salary, represents the aggregate dollar value on the date of grant of restricted shares that will be awarded to the listed named executive officers under The Progressive Corporation 2003 Incentive Plan (as amended, see below). The awards are expected to be divided equally between time-based awards and performance-based awards of restricted stock.

2007 Bonus Criteria. For 2007 cash bonuses, the Committee decided to use the 2007 Executive Bonus Plan, although this determination is subject to the approval of that plan by shareholders. The Committee defined the “Core Business” for 2007 to include the Drive, Direct, Commercial Auto and Special Lines businesses, and determined that each of the named executive officers listed above would earn 100% of their 2007 bonus as a result of the performance of the Core Business.

The performance of each of the Drive, Direct, Commercial Auto and Special Lines businesses will be determined by comparing actual profitability and growth results for 2007 against performance standards approved by the Committee, using the following criteria:

	•		Profitability will be measured using the combined ratio for the business unit (or a defined portion of the business unit), determined in accordance with generally accepted accounting principles.

	•		Growth will be measured using standards for each business unit (or a defined portion of a business unit) based on policies in force (or “PIFs”, the number of policies that are in effect at any given time).

Pursuant to the 2007 Executive Bonus Plan, a performance score for each business will be determined for 2007 based on actual results for the year, using the performance criteria set forth above and objective standards approved by the Committee for each business unit. The performance scores for each of the business units will then be combined, with each business unit’s results being

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weighted according to its net premiums earned as compared with the net premiums earned for the entire Core Business. The result of this calculation will be a performance factor from between 0.0 and 2.0, resulting in a cash bonus within the range set forth in the table above. A performance factor of 1.0 will result in the “target” value set forth in the table.

As mentioned above, additional details about the 2007 Executive Bonus Plan, and the performance criteria and related procedures that have been adopted by the Committee for 2007, will be included in the Company’s 2007 Proxy Statement.

Amendment to Equity Plan. The Board of Directors approved the First Amendment (the “First Amendment”) to The Progressive Corporation 2003 Incentive Plan (“2003 Incentive Plan”), which is the plan under which the Company currently makes restricted stock awards to named executive officers, other executive officers and other senior level employees of the Company. The First Amendment, which is attached hereto as Exhibit 10(B), includes several modifications to the original plan, as follows:

	•		Expanding the list of “performance goals” which can be utilized by the Committee under the plan to define the vesting criteria for performance-based restricted stock awards. This change is subject to shareholder approval, and additional details will accordingly be presented in the Company’s 2007 Proxy Statement for our Annual Meeting in April. These changes will become effective immediately upon approval by shareholders. The remaining provisions discussed below will not require shareholder approval and will go into effect at the time described.

	•		Beginning with awards made in March 2007, holders of restricted stock will not receive dividend payments at the time those payments are made to other shareholders. Instead, the dividend payments will be retained by the Company and will be paid to the holder (with interest) only if the restricted shares vest. If the restricted shares are forfeited for any reason, the deferred dividends (and interest) relating to those shares will likewise be forfeited.

	•		For all awards from March 2008 and thereafter, a “qualified retirement” will be defined to occur when the employee is 55 years or older and has 15 years of service with the Company or more. If an employee retires under a “qualifying retirement” under our plans, he or she is entitled to retain a specified portion of unvested restricted stock awards that have been previously granted. The rule governing awards made prior to March 2008 will continue to be 55 years of age, and the total of age plus years of service must equal 70 or more.

	•		The definition of “Potential Change in Control” has been modified to delete a section that would permit automatic vesting of restricted stock awards, and cash payouts of equal value, in the event that shareholders approve an agreement for a transaction that, if consummated, would constitute a “Change in Control”, as defined in the plan, but without regard to whether or not the transaction is ultimately consummated. This revision will become effective for awards made in or after March 2007.

	•		A “recoupment” section has been added to the plan, which provides a right of the Company to compel the return of performance-based restricted stock awards, or their dollar equivalent, if those awards vested on the basis of incorrect financial or operating results that are later restated. This provision also applies to awards made in or after March 2007.

Item 9.01 Financial Statements and Exhibits.

See exhibit index on page 6.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: February 8, 2007


		THE PROGRESSIVE CORPORATION

		By:		/s/ Jeffrey W. Basch
		Name:		Jeffrey W. Basch
		Title: Vice President and
				Chief Accounting Officer

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EXHIBIT INDEX


Exhibit No.
Under Reg.	Form 8-K
S-K Item 601	Exhibit No.	Description

(10)	10(A)	The Progressive Corporation 2007 Executive Bonus Plan

(10)	10(B)	First Amendment to The Progressive Corporation 2003 Incentive Plan

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EX-10.A 2 l24544aexv10wa.htm EX-10A EX-10A

Exhibit 10(A)

THE PROGRESSIVE CORPORATION
2007 EXECUTIVE BONUS PLAN

1.		The Plan. The Progressive Corporation and its subsidiaries (“Progressive”) have designed an executive compensation program consisting of three components: salary, annual bonus and equity-based incentives. 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.

		This 2007 Executive Bonus Plan (the “Plan”) provides, in whole or in part, the annual bonus component of Progressive’s executive compensation program for Plan participants.

2.		Administration. The Plan shall be administered by or under the direction of the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of The Progressive Corporation. The Committee will have the authority to adopt, amend, revise 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 hereunder. 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”).

3.		Participants; Plan Years. Executive officers of Progressive may be selected by the Committee to participate in the Plan for one or more Plan years. Plan participants may also be eligible to participate in other Progressive bonus or Gainsharing plans, as determined by the Committee. Plan years shall coincide with Progressive’s fiscal years.

4.		Formula; Maximum Bonus. 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 $5,000,000.

5.		Paid Salary. 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, “Paid Salary” shall include regular, used Earned

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		Time Benefit, sick, holiday and funeral pay, and retroactive payments of any of the foregoing items, 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 exclude all other types of compensation, including, without limitation: any short-term or long-term disability payments, discretionary or other bonus or incentive payments, any dividend payments, unused Earned Time Benefit, and the earnings replacement component of any workers’ compensation award.

6.		Target Percentages. The Target Percentages for the participants in the Plan shall be determined by the Committee, but will not exceed 200% for any participant. Target Percentages may vary among Plan participants and may be changed from year to year by the Committee.

7.		The Performance Factor

	A.		General

			The Performance Factor shall consist of one or more of the following components: a Core Business Component, one or more Business Unit Components, an Investment Component or a Net Promoter Score Component (the “Bonus Components” or “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.

			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 Performance Factor for any Plan year, a performance score will be calculated for each of the designated Bonus Components, based on the performance of the business(es), product(s) or function(s) being measured by that Component, as described below. The performance score will equal 1.0 if specified performance objectives are achieved, and can vary from 0 to 2.0, based on actual performance versus the pre-established objectives. The performance score achieved for each of the designated Bonus Components will then be multiplied by the applicable weighting factor to produce a weighted performance score for that Component. The sum of the weighted performance scores for the applicable Bonus Components will equal the Performance Factor, which can likewise vary from 0 to 2.0. The Performance Factor cannot exceed 2.0, regardless of results.

			Actual performance results achieved for any Plan year, which will be 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.

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	B.		Core Business Component

			The Core Business Component measures the overall operating performance of Progressive’s Core Business for the Plan year for which an Annual Bonus payment is to be made. The Core Business will consist of the Drive (Agency) business unit, the Direct business unit, the Commercial Auto business unit, the Special Lines business unit and/or such other business unit(s) (as described below), if any, as shall be designated and defined by the Committee for the Plan year (the “Core Business Units”). The performance score for this Component is based on the operating performance results for the Core Business Units for the Plan year in question.

			In the discretion of the Committee, the performance score for the Core Business may be determined either by the performance of the Core Business considered as a whole or by the weighted performance results of the individual Core Business Units.

	1.		Performance Score Determined by Weighted Operating Results of Core Business Units

			Each Plan year, one or more separate performance matrices for each Core Business Unit will be established by or under the direction of the Committee. Each such performance matrix will assign a performance score to various combinations of profitability and growth outcomes for the applicable Core Business Unit (or an applicable portion of a Core Business Unit), based on the following performance criteria, as determined by the Committee:

•

profitability will be measured by one of the following, as designated by the Committee:

	§		combined ratio

	§		weighted combined ratio

	§		variation in combined ratio from a targeted combined ratio

	§		cohort combined ratio (the expected lifetime combined ratio for a group of policies commencing during a specified time period)

	§		return on equity, or

	§		return on revenue, and

•

growth will be measured by changes from year to year or during a Plan year in one of the following, as designated by the Committee:

	§		policies in force

	§		vehicles insured

	§		net earned premiums

	§		earned premium per policy or per vehicle

	§		earned car years, or

	§		net written premiums.

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			The Committee may select different performance criteria for the various Core Business Units in a single Plan year, and the performance criteria may be changed from year to year by the Committee.

			Profitability and growth will be separately determined for each of the Core Business Units (or the applicable portion of a Core Business Unit), using the performance criteria designated by the Committee for the Plan year, and will then be matched using the applicable performance matrix, to determine a performance score for each Core Business Unit (or the applicable portion of a Core Business Unit). Where more than one performance matrix is used for a particular business unit, the performance scores from each portion of such business unit, as determined by the separate performance matrix, will then be combined based on a weighting factor approved by the Committee to determine the performance score for the entire business unit.

			The resulting performance scores for each Core Business Unit will then be multiplied by a weighting factor (based on the percentage of the total net earned premiums of the Core Business generated by such Core Business Unit during the Plan year or such other factor(s) as shall be approved by the Committee), the weighted performance scores will be combined and the sum of the weighted performance scores will be the performance score for the Core Business Component.

	2.		Performance Score Determined by Core Business as a Whole (Single Matrix)

			In the discretion of the Committee, the performance score for the overall Core Business for a Plan year may be measured using a single performance matrix, established by or under the direction of the Committee. The performance matrix will assign a performance score to various combinations of profitability and growth outcomes for the Core Business as a whole, based on the performance criteria described above, as selected by the Committee. Profitability and growth for the Core Business Units will be calculated on an aggregate basis for the applicable Plan year, and will then be matched using the performance matrix to determine a performance score for the Core Business for such Plan year.

	C.		Business Unit Component

			The Business Unit Component measures the performance of one or more designated business units (as described below) in terms of any one or more of the following criteria selected by the Committee:

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•

profitability will be measured by one of the following, as designated by the Committee:

	§		combined ratio

	§		weighted combined ratio

	§		variation in combined ratio from a targeted combined ratio

	§		cohort combined ratio ( the expected lifetime combined ratio for a group of policies commencing during a specified time period)

	§		return on equity, or

	§		return on revenue; and

•

growth will be measured by changes from year to year or during a Plan year in one of the following, as designated by the Committee:

	§		policies in force

	§		vehicles insured

	§		net earned premiums

	§		earned premium per policy or per vehicle

	§		earned car years, or

	§		net written premiums.

			A business unit may consist of a distribution channel, business group, product, class or type of business (e.g., designated types of policies written in a distribution channel or by a business group), function, process or other business category, such as new or renewal business.

			The Committee may designate one or more Business Unit Components for an individual Plan participant for any Plan year and, for each such Component, will determine the applicable criteria by which performance of the unit (or an applicable portion of the business unit) will be measured, the goals to be achieved and the performance scores that will result from various levels of performance, and the relative weighting thereof. The applicable performance criteria, related goals and resulting performance scores may be set forth in one or more performance matrices, or other format approved by the Committee, for such business unit. Business Unit Components, performance criteria, goals, resulting performance scores and relative weightings may vary among participants and may be changed from year to year by the Committee.

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	D.		Investment Component

			The Investment Component compares the investment performance of one or more segments of Progressive’s investment portfolio (each, a “Portfolio”) against the performance of selected groups of comparable investment funds, investment managers, indexes or other benchmarks (“Investment Benchmarks”) over such period or periods as shall be determined by the Committee. Such Investment Benchmarks may be risk-adjusted in accordance with such formula or other method as may be approved by the Committee. Investment results are marked to market and adjusted to include the benefit of any state premium tax abatements attributable to the Portfolio, in order to calculate total return, which is then compared against the designated Investment Benchmarks to produce a performance score, pursuant to a formula or other criteria determined by the Committee, for each Portfolio.

			The applicable Portfolio or Portfolios will be identified, and the related Investment Benchmarks will be determined, by the Committee and may be changed from year to year by the Committee.

			In the event that any participant’s Annual Bonus is to be determined by the performance of two or more Portfolios, the performance scores for each of the Portfolios will be weighted, based on the average amounts invested from time to time in each of such Portfolios during the Plan year or other applicable period, and the weighted performance scores for the applicable Portfolios will be then combined to produce the performance score for the Investment Component. Investment expense is not included in determining such performance score.

	E.		Net Promoter Score Component

			The Net Promoter Score (NPS) Component measures NPS (a survey-based measure of customer satisfaction and loyalty) for the Core Business as a whole or for a business unit (or portion thereof) against objectives, as determined by the Committee. The Committee may determine the applicable criteria by which NPS performance will be measured, the goals to be achieved, the methods to determine NPS performance, the performance scores that will result from various levels of performance and the relative weighting among the NPS results achieved by different business units, if appropriate. NPS performance criteria and goals, and relative weightings, may vary among participants and may be changed from year to year by the Committee.

Timing of Payment; Deferral. 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 his or her Annual Bonus otherwise payable under this Plan, subject to and in accordance with the terms of the Deferral Plan.

9.		Qualification Date; Leave of Absence; Tax Withholding. 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 November 30^th of the Plan year (“Qualification Date”).

		Any participant who is on a leave of absence covered by the Family and Medical Leave Act of 1993, personal leave of absence with the approval of Progressive, military leave or short or long-term disability on the Qualification Date with respect to any Plan year will be entitled to receive an Annual Bonus payment for such Plan year, calculated as provided in Paragraphs 4 through 7 above and based on the amount of Paid Earnings received by such participant during the Plan year.

		Annual Bonus payments made to participants will be net of any legally required deductions for federal, state and local taxes and other items.

10.		Non-Assignability. The right to any of the Annual Bonuses hereunder may not be sold, 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.		Termination and Amendment. 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 The Progressive Corporation’s shareholders in accordance with the requirements of Section 162(m).

12.		Unfunded Obligations. The Plan will be unfunded and all payments due under the Plan will be made from Progressive’s general assets.

13.		No Employment Rights. 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, positions, duties or compensation.

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14.

Recoupment.

	A.		Progressive shall have the right to recoup any Annual Bonus paid to a participant hereunder (or an appropriate portion thereof, as hereinafter provided) with respect to any Plan year, if: (i) the Annual Bonus payment was predicated upon the achievement during such Plan year of certain financial or operating results (which includes, for purposes hereof, all of the performance criteria that are available to the Committee under Paragraph 7 above); (ii) such financial or operating results were incorrect and were subsequently the subject of a restatement by Progressive within three (3) years after the date on which such Annual Bonus was paid to the participant; and (iii) a lower payment would have been made to the participant if the restated financial or operating results had been known at the time the payment was made. Such recoupment right shall be available to Progressive whether or not the participant in question was at fault or responsible in any way in causing such restatement. In such circumstances, Progressive will have the right to recover from each participant for such Plan year, and each such participant will refund to Progressive, the amount by which the Annual Bonus paid to such participant for the Plan year in question exceeded the lower payment that would have been made based on the restated results, without interest; provided, however, that Progressive will not seek to recover such amounts unless the amount due would exceed the lesser of five percent (5%) of the Annual Bonus previously paid or twenty-thousand dollars ($20,000). Such recovery, at the Committee’s discretion, may be made by lump sum payment, installment payments, credits against future bonus payments, or other appropriate mechanism.

	B.		Notwithstanding the foregoing subsection A., if any participant engaged in fraud or other misconduct (as determined by the Committee or the Board, in their respective sole discretion) resulting, in whole or in part, in a restatement of the financial or operating results used hereunder to determine the Annual Bonuses for a specific Plan year, Progressive will further have the right to recover from such participant, and the participant will refund to Progressive upon demand, an amount equal to the entire Annual Bonus paid to such participant for such Plan year plus interest at the rate of eight percent (8%) per annum or, if lower, the highest rate permitted by law, calculated from the date that such bonus was paid to the participant. Progressive shall further have the right to recover from such participant Progressive’s costs and expenses incurred in connection with recovering such Annual Bonus from the participant, including, without limitation, reasonable attorneys fees. There shall be no time limit on the Company’s right to recover such amounts under this subsection B., except as otherwise provided by applicable law.

	C.		The rights contained in this Section shall be in addition to, and shall not limit, any other rights or remedies that the Company may have under any applicable law or regulation.

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15.

Right to Set Off. 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, including, without limitation, any amounts owed by such participant under Section 14 above.

16.

Shareholder Approval. The Plan is subject to approval by the holders of The Progressive Corporation’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. If shareholders do not approve the Plan at the Annual Meeting of Shareholders in April 2007, this Plan shall automatically terminate and be of no further force or effect.

17.

Prior Plans. If this Plan is approved by shareholders as provided in Paragraph 16 above, this Plan shall supersede and replace The Progressive Corporation 2004 Executive Bonus Plan, as heretofore in effect (the “Prior Plan”), which is and shall be deemed to be terminated as of December 29, 2006 (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 thereunder.

18.

Effective Date. This Plan is adopted and, subject to the provisions of Paragraph 16 hereof, is to be effective, as of December 30, 2006, which is the commencement of Progressive’s 2007 fiscal year. Subject to the provisions of Paragraph 16, this Plan shall be effective for the 2007 Plan year (which coincides with Progressive’s 2007 fiscal year) and for each Plan year thereafter unless and until terminated by the Committee.

18.

Ohio Law. This Plan shall be interpreted and construed in accordance with the laws of the State of Ohio.

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EX-10.B 3 l24544aexv10wb.htm EX-10B EX-10B

Exhibit 10(B)

FIRST AMENDMENT

THE PROGRESSIVE CORPORATION
2003 INCENTIVE PLAN

WHEREAS, The Progressive Corporation 2003 Incentive Plan (the “Plan”) is currently in effect; and

WHEREAS, it is deemed desirable to amend the Plan;

NOW, THEREFORE, the Plan is hereby amended in the respects, and as of the effective dates, hereinafter set forth:

A. Amendment Subject to Shareholder Approval

1. Subject to subparagraph A.2. below, the definition of the term “Performance Goals”, as set forth in Section 1(c) of the Plan, is hereby amended and restated in its entirety to provide as follows:

““Performance Goals” means the performance goals established by the Committee with respect to any Award, which shall be based on one or more of the following measures:

•

Profitability, which will be measured by one of the following, as designated by the Committee:

	§		combined ratio

	§		weighted combined ratio

	§		variation in combined ratio from a targeted combined ratio

	§		cohort combined ratio (the expected lifetime combined ratio for a group of policies commencing during a specified time period)

	§		return on equity, or

	§		return on revenue; and

•

Growth, which will be measured by changes from year to year or during a Plan year in one of the following, as designated by the Committee:

	§		policies in force

	§		vehicles insured

	§		net earned premiums

	§		earned premium per policy or per vehicle

	§		earned car years, or

	§		net written premiums.

Performance goals may be measured on a company-wide, subsidiary or business unit basis, or any combination thereof. Performance goals may reflect absolute entity performance or a relative comparison of entity performance to the performance of a peer group of entities or other external measure.”

2. The amendment included in Paragraph A.1. above is subject to approval by the holders of The Progressive Corporation’s Common Shares, $1.00 par value (“shareholders”) in accordance with the requirements of Section 162(m) of the Code. If shareholders do not approve such amendment at the

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Annual Meeting of Shareholders in April 2007, Paragraph A.1 only of this First Amendment shall automatically terminate and be of no further force or effect.

B. Amendments Not Requiring Shareholder Approval

1. For all Awards (as defined in the Plan) to be made after February 2007, Section 5(b)(8) of the Plan is hereby amended and restated in its entirety to provide as follows:

“Except as provided in this Section 5(b)(8), Section 5(b)(7) or Section 5(b)(9), the Participant shall have, with respect to the shares of Restricted Stock awarded, all of the rights of a shareholder of the Company, including the right to vote the Stock and the right to receive any dividends. However, notwithstanding the preceding provisions of this Section 5(b)(8), each Participant’s rights to receive cash dividends on shares of Restricted Stock awarded on or after March 1, 2007 (“Restricted Cash Dividends”) shall be subject to all the terms and conditions regarding vesting and forfeitability that apply to the shares of Restricted Stock to which such Restricted Cash Dividends relate, as set forth in this Plan and the applicable Award Agreement, and each Participant will be paid such Restricted Cash Dividends only if the Restricted Stock to which the Restricted Cash Dividends relate vests, and all restrictions with respect thereto lapse. In addition, the following provisions shall apply with respect to such Restricted Cash Dividends:

	(a)		All Restricted Cash Dividends shall accrue interest in accordance with Section 5(b)(8)(D) below for the period beginning on the date such Restricted Cash Dividends otherwise would have been paid, but for the provisions of this Section 5(b)(8), and ending on the payment date described below.

	(b)		All Restricted Cash Dividends, together with interest calculated in accordance with Section 5(b)(8)(D) below, shall be paid within sixty (60) days following the date the shares of Restricted Stock to which the Restricted Cash Dividends relate vests, and any restrictions with respect thereto lapse. The payment shall be made in cash and will be subject to and reduced by any taxes required to be withheld. To the extent required by Section 409A of the Code, each payment to a Participant who is a “specified employee”, as defined in Section 409A of the Code, shall be delayed for six months following the date such payment otherwise would have been made under the provisions of this Section 5(b)(8).

	(c)		All Restricted Cash Dividends and interest accrued thereon pursuant to Section 5(b)(8)(D) below, shall be recorded as a liability on the books of the Company. All payments of Restricted Cash Dividends, and interest accrued thereon pursuant to Section 5(b)(8)(D) below, shall be made from the Company’s general funds and in no event shall any Participant or other person have any proprietary rights of any nature with respect to any funds, securities or other property owned by the Company or have any claims or rights to any payment hereunder that are superior to any claims or rights of any general creditor of the Company.

	(d)		Interest shall accrue on all Restricted Cash Dividends at a rate equal to the one month U.S. Dollar LIBOR, as in effect from time to time, compounded monthly. Under no circumstances may the interest rate applied hereunder exceed a rate that is 120% of the applicable federal long-term rate (monthly) (as determined by the Internal Revenue Service pursuant to Section 1274(d) of the Code).

	(e)		If any shares of Restricted Stock are forfeited in accordance with the terms of this Plan and the related Restricted Stock Award Agreement, then any Restricted Cash Dividends relating to such shares, and interest accrued thereon, shall also be forfeited.

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		Stock dividends issued with respect to Restricted Stock shall be treated as additional shares of Restricted Stock that are subject to the same restrictions and other terms and conditions that apply to the shares with respect to which such dividends are issued.

		To the extent any provision of this Section 5(b)(8) is subject to Section 409A of the Code, the provision will be construed and interpreted to the maximum extent reasonably possible to comply with Section 409A. Notwithstanding the foregoing, dividends on shares of Restricted Stock awarded to Participants on or after March 1, 2007, shall not be subject to the vesting and forfeitability conditions that apply to the shares of Restricted Stock to which such dividends relate, and such dividends shall be paid in cash to the Participants at the time that cash dividends are paid generally to shareholders of the Company, to the extent that such dividends would otherwise be treated as deferred compensation in excess of the applicable limitation under Section 409A of the Code or other applicable federal law limitations on the amount of deferrals under non-qualified deferred compensation plans.”

2. For all Awards to be made after February 2008, Section 5(b)(13)(D)(i) of the Plan is hereby amended and restated in its entirety to provide as follows:

“(i) Qualified Retirement – any termination of a Participant’s employment with the Company or its Subsidiaries or Affiliates for any reason (other than death, Disability or an involuntary termination for Cause) if, at or immediately prior to the date of such termination, the Participant satisfies both of the following conditions:

	(a)		the Participant is 55 year of age or older; and

	(b)		the Participant has completed at least fifteen (15) years of service as an employee of the Company or its Subsidiaries or Affiliates.”

3. For all Awards to be made after February 2007, Section 7(c) of the Plan is hereby amended and restated in its entirety to provide as follows:

“(c) Definition of Potential Change in Control. For purposes of Section 7(a), a “Potential Change in Control” means the acquisition of beneficial ownership, directly or indirectly, by any entity, person or group (other than the Company or a Subsidiary or any Company employee benefit plan (including any trustee of such plan acting as such trustee)) of securities of the Company representing five percent or more of the combined voting power of the Company’s outstanding securities and the adoption by the Board of a resolution to the effect that a Potential Change in Control of the Company has occurred for purposes of this Plan.”

4. For all Awards to be made after February 2007, a new Subsection (k) is hereby added to Section 10, as follows:

“(k) (i) If (A) Performance-Based Restricted Stock vests hereunder on the basis of the achievement of certain financial or operating results (which includes, for purposes hereof, all of the Performance Goals that are available to the Committee under this Plan), (B) those financial or operating results were incorrect and were subsequently the subject of a restatement by Progressive within three (3) years after the date of vesting, and (C) the vesting event would not have occurred if the actual financial or operating results had been known at the time, then the Company shall have the right of recoupment from any executive officer who received shares of Stock upon such vesting or who elected to defer such shares at vesting; provided, however, that the Company will not have this right of recoupment if the Committee determines that, notwithstanding such restatement, such Performance-Based Restricted Stock would have nonetheless vested thereafter based on the Company’s actual operating or financial results.. The

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Company will have this right of recoupment whether or not the executive officer in question was at fault or responsible in any way in causing such restatement In such circumstances, the Company will have the right to recover from each executive officer, and each such executive officer will refund to the Company, at the Company’s discretion, either (X) a number of Shares equal to the number of Shares of Performance-Based Restricted Stock which vested, or which such Participant elected to defer, upon the vesting thereof based on the incorrect operating or financial results, or (Y) the dollar equivalent of such number of Shares as of the date of such vesting, without interest. Such recovery, at the Committee’s discretion, may be made by lump sum payment, installment payments, credits against unvested Awards made hereunder, credits against future bonus or other incentive payments or awards, or other appropriate mechanism.

(ii) If any Participant engaged in fraud or other misconduct (as determined by the Committee or the Board, in their respective sole discretion) resulting, in whole or in part, in a restatement of the financial or operating results used to determine the vesting of Performance-Based Restricted Stock hereunder, the Company will have the right to recoup from such Participant, and the Participant will transfer or pay to the Company upon demand, in the Company’s discretion, either (A) a number of shares of Stock equal to the number of Shares of Performance-Based Restricted Stock which vested, or which such Participant elected to defer, upon the vesting thereof based on the incorrect operating or financial results, or (B) the dollar equivalent to such number of shares determined as of the date of such vesting, plus interest at the rate of eight percent (8%) per annum or, if lower, the highest rate permitted by law, calculated from such vesting date. The Company further shall have the right to terminate and cancel any and all Awards previously made to such Participant at any time hereunder that are then unvested, and to recover from such Participant the Company’s costs and expenses incurred in connection with recovering such Shares or funds from Participant and enforcing its rights under this subsection (ii), including, without limitation, reasonable attorneys fees. There shall be no time limit on the Company’s right to recover such amounts under this subsection (ii), except as otherwise provided by applicable law.

(iii) The rights contained in this subsection (k) shall be in addition to, and shall not limit, any other rights or remedies that the Company may have under this Plan or under any applicable law or regulation.

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Ohio	1-9518	34-0963169

(State or other	(Commission File	(IRS Employer
jurisdiction of incorporation)	Number)	Identification No.)

6300 Wilson Mills Road, Mayfield Village, Ohio		44143

(Address of principal executive offices)		(Zip Code)

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