PROGRESSIVE CORP/OH/0000080661DEF
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
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Filed by the Registrant
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material under §240.14a-12 |
THE PROGRESSIVE CORPORATION
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(Name of Registrant as Specified In Its Charter) |
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment of Filing Fee (Check all boxes that apply):
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No fee required |
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Fee paid previously with preliminary materials |
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Fee computed on table in exhibit required by Item 25(b) per
Exchange Act Rules 14a-6(i)(1) and 0-11 |
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Progressive Corporation (NYSE:PGR) will hold its Annual Meeting
of Shareholders on Friday, May 12, 2023, at 10:00 a.m.,
eastern time. The meeting will be held by online audio webcast
only. There will be no physical location for the meeting. You will
be able to attend the Annual Meeting, vote, and submit your
questions during the meeting via live audio-only webcast by
visiting
virtualshareholdermeeting.com/PGR2023.
To participate in the Annual Meeting, you must have your 16-digit
control number that is shown on your proxy card. You will not be
able to attend the Annual Meeting in person.
At the Annual Meeting, shareholders will be asked to:
1.Elect
as directors the 12 nominees identified in the attached Proxy
Statement, each to serve for a term of one year;
2.Cast
an advisory vote to approve our executive compensation
program;
3.Cast
an advisory vote on the frequency of the advisory vote to approve
our executive compensation program;
4.Ratify
the appointment of PricewaterhouseCoopers LLP as our independent
registered public accounting firm for 2023; and
5.Transact
such other business as may properly come before the
meeting.
The foregoing items of business are described more fully in the
Proxy Statement accompanying this Notice. Only shareholders of
record of The Progressive Corporation at the close of business on
March 17, 2023, are entitled to receive notice of and to vote
at the meeting or any adjournment or postponement of the
meeting.
Your vote is important. Whether or not you plan to participate in
the meeting via the live audio-only webcast, please vote by
Internet or telephone (following the instructions on the enclosed
proxy card), or by completing and returning the proxy card in the
enclosed postage-paid envelope. If you later choose to revoke your
proxy or change your vote, you may do so by following the
procedures described in the “Questions and Answers about the Annual
Meeting and Voting” section in the attached Proxy
Statement.
By Order of the Board of Directors,
Daniel P. Mascaro,
Secretary
March 27, 2023
The Proxy Statement and the 2022 Annual Report to
Shareholders
are also available at progressiveproxy.com
A MESSAGE FROM THE BOARD OF DIRECTORS
March 27, 2023
Coming into 2022, many of us were cautiously optimistic that the
year would bring initial steps toward a more normal operating
environment for Progressive and the world at large, although we did
not necessarily anticipate a quick turnaround given the depth of
the turbulence that we had seen over the prior couple of years.
Well, it’s a good thing that Progressive people enjoy a good
challenge, because 2022 ended up being full of them! Whether it was
the business impacts of inflation and investment volatility,
rapidly changing driving behavior as pandemic restrictions
continued to ease, or the largest catastrophe in company history
(Hurricane Ian), the company and its employees once again
demonstrated their talent for proactive and forward-thinking
problem solving. Despite these challenges, the team achieved
impressive results and positioned the company for future
success.
It is the Board’s job both to oversee the “here and now” and to
focus on longer-term opportunities and challenges, and our work in
2023 reflects those dual responsibilities. We were actively
involved in advising and supporting management, monitoring results,
overseeing risks and controls, and staying close to developments in
the business by receiving regular reports about a wide variety of
operating metrics as well as hearing “deep dive” presentations at
Board meetings. Tricia and her senior team provided frequent
updates between meetings.
At the same time, our annual program of work ensured that we spent
ample time on three critical areas of long-term Board oversight:
strategy, the evolving risk environment, and the bench of
leadership talent for the future.
As always, this space does not permit a detailed recitation of the
Board’s activities, but we want to highlight a few
areas.
•Our
annual multi-day, deep dive on the company’s strategy took place
early in the year, just as some of the economic disruptions were
coming into focus. It provided not only an excellent opportunity to
evaluate and provide feedback on management’s current and
longer-term plans, but also to probe and question those plans
against the dynamic environment unfolding around us. The immersion
in strategy and detailed presentations from each member of senior
management provided a valuable foundation to on-going discussions
and decisions throughout the year.
•One
of the major responsibilities of the Board is the oversight of risk
and risk management activities. Progressive has a very
well-developed risk management process and risk framework that is
used to identify and monitor the risks in the business, articulate
risk appetites and track risk mitigation activities. It is a living
document under constant review and amendment as conditions change.
At the Board, oversight of the risk management process itself is
the responsibility of the Audit Committee. Oversight of major
categories of operating risks has been assigned to the Board
committees best suited to address them. For example, consideration
of financial statement and internal control risks rests with the
Audit Committee. Cybersecurity risks are overseen by the Technology
Committee. The Investment and Capital Committee has active
oversight of investment risk. Each committee reports on its
activities to the full board on a regular basis. In addition, at
least once a year, the Board receives a comprehensive presentation
on risk management activities and their evolution from the prior
year.
•While
we have written at length in the past about the company’s operating
activities, we do not often write about our oversight of investment
activities, but they are a critical aspect of Progressive’s
strength and competitive position. The Progressive Capital
Management group manages a pool of capital in excess of $50 billion
that meets regulatory obligations, provides additional capital to
mitigate risk in the business and, equally importantly, provides a
platform that enables Progressive to grow its businesses.
Investment markets in 2022 were exceptionally challenging as the
outlook for interest rates changed, inflation expectations gyrated,
and the likelihood of recession remained a subject of debate.
Through the Investment and Capital Committee, the Board oversees
the asset allocation, risk positioning and results of the
investment portfolio and provides advice and support to the
investment team. In addition, the full board hears detailed
presentations directly from the investment team about market
conditions, investment strategy, talent development, investment
results and other topics in an annual visit to the capital
management team’s offices.
•The
final – and perhaps most important – area of Board focus is talent
development and succession planning throughout the organization. We
often discuss this topic in detail with senior executives and
receive an annual presentation from Tricia and the team that
reviews talent acquisition, training, retention and development in
detail. We also seek to see future leaders for ourselves, so we
encourage regular opportunities for high performers to present
directly to the Board and its committees. These sessions typically
involve a subject matter expert presenting in their area of
expertise, which not only enhances our understanding of the many
complex topics faced by the company, but just as importantly, gives
us the chance to assess these senior leaders’ knowledge and skills
and, more broadly, their potential to become future leaders. From
this perspective, we are continually impressed with the quality and
diversity of the management “bench” available and rigorous approach
to leadership development that Progressive demonstrates. We believe
it to be a huge competitive advantage.
We are pleased to have the many challenges of 2022 behind us and
enter the new year hopeful, once again, for improvements that will
benefit Progressive, the broader economic environment, and the
world at large. We do so, however, with open eyes that the ongoing
challenges, and unexpected obstacles, will undoubtedly require
further active and nimble responses by Progressive. We embrace this
uncertainty and look forward to continuing to work hard for the
company’s shareholders and other stakeholders.
We would like to thank Progressive’s employees for their hard work
and customer focus during these trying times. We would also like to
thank shareholders for your continuing ownership interest in The
Progressive Corporation.
On behalf of the Board of Directors,
/s/ Lawton W. Fitt
Lawton W. Fitt
Chairperson of the Board
THE PROGRESSIVE CORPORATION
PROXY STATEMENT
TABLE OF CONTENTS
THE PROGRESSIVE CORPORATION
PROXY STATEMENT
GENERAL INFORMATION REGARDING PROXY MATERIALS AND
THE ANNUAL MEETING OF SHAREHOLDERS
The Board of Directors (Board) of The Progressive Corporation
(NYSE:PGR) (Progressive or Company) provides this Proxy Statement
to you to solicit your proxy to act upon the matters outlined in
the accompanying Notice of Annual Meeting of Shareholders, each
described in more detail in this document.
The Annual Meeting will take place on Friday, May 12, 2023, at
10:00 a.m., eastern time, via a live audio-only webcast that is
available at
virtualshareholdermeeting.com/PGR2023.
There will be no physical meeting location and the meeting will
only be conducted via the live audio-only webcast to allow for
greater participation by all of our shareholders, regardless of
their geographic location. Your proxy also may be voted at any
adjournment or postponement of the meeting.
The proxy card, this Proxy Statement, and Progressive’s 2022 Annual
Report to Shareholders will be mailed to shareholders beginning on
or about March 27, 2023.
All proxies that are properly completed and submitted over the
Internet or by telephone, and all properly
executed written proxies, will be voted at the meeting in
accordance with the directions given by the shareholder, unless the
shareholder properly revokes their proxy before voting occurs at
the meeting. If a shareholder executes and delivers their proxy
card without directions on how to vote their shares, then the
shares represented by the proxy card will be voted as recommended
by the Board.
Only shareholders of record of The Progressive Corporation's common
shares, $1.00 par value, at the close of business on March 17,
2023, the record date, are entitled to receive notice of and to
vote at the meeting or any adjournment or postponement of the
meeting. Each shareholder on the record date is entitled to one
vote for each of our common shares held by the shareholder. On the
record date, we had 585,366,448 common shares
outstanding.
For additional information regarding the proxy materials and the
Annual Meeting, see “Questions and Answers About the Annual Meeting
and Voting” in this Proxy Statement.
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WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE BOARD OF
DIRECTORS STRONGLY ENCOURAGES YOU TO VOTE YOUR SHARES BY PROXY
PRIOR TO THE MEETING. YOUR VOTE IS IMPORTANT. PLEASE FOLLOW THE
VOTING INSTRUCTIONS CAREFULLY TO MAKE SURE THAT YOUR SHARES ARE
VOTED APPROPRIATELY. |
PROXY STATEMENT SUMMARY
This summary highlights certain information contained in this Proxy
Statement. It also highlights our approach to sustainability,
environmental (including climate change), social, and governance
(ESG) initiatives, summarizes our human capital management efforts,
provides a brief description of our 2022 business performance, and
summarizes stakeholder engagement efforts. It does not contain all
of the information you should consider when voting your
shares.
Please read the entire Proxy Statement and Annual Report to
Shareholders carefully before voting.
For additional information about how to vote your shares, including
voting options and standards, see “Questions and Answers about the
Annual Meeting and Voting” in this Proxy Statement.
VOTING MATTERS AND BOARD RECOMMENDATION
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Item Number |
Voting Matter |
Board Recommendation |
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1 |
Elect as directors the 12 nominees identified in this Proxy
Statement, each to serve for a term of one year
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FOR each
nominee |
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2 |
Cast an advisory vote to approve our executive compensation
program |
FOR |
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3 |
Cast an advisory vote on the frequency of the advisory vote on our
executive compensation program |
ONE YEAR |
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4 |
Ratify the appointment of PricewaterhouseCoopers LLP as our
independent registered public accounting firm for 2023
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FOR |
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NOMINEES FOR DIRECTOR
The Board has nominated 12 directors, 11 of whom are current
directors and one of whom is a new nominee, with a broad and
complementary set of skills, experiences, backgrounds, and
perspectives.
Diversity
Skills and Experiences
CORPORATE GOVERNANCE HIGHLIGHTS
Corporate Governance Practices
We are committed to meeting high standards of ethical behavior,
corporate governance, and business conduct. Some of our corporate
governance practices include:
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Effective Structure and Composition |
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Additional Practices and Policies |
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Shareholder Rights |
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Independent, experienced Chairperson |
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Robust director stock ownership guidelines |
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Single class voting |
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Independent committee leadership and strong independent committee
membership |
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Established Board and committee risk oversight
practices |
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Annual election of all directors |
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A diverse and highly qualified Board |
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Board technology/cybersecurity expertise and oversight |
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Majority voting in uncontested director elections |
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Five new directors and one new nominee in the last six years, four
of which are women and two are ethnically diverse |
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Environmental (including climate change), social, and governance
(ESG) oversight and reporting |
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Proxy access available |
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Mandatory director retirement policy (no exemptions or waivers
within the past three years) |
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Diversity, equity, and inclusion (DEI) oversight and
reporting |
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No poison pill |
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Independent directors meet regularly without management |
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Ongoing director education |
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Restrictions limiting the number of public company boards on which
a director may serve |
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Annual Board and committee evaluation process |
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Board Risk Oversight
The Board is ultimately responsible for overseeing our risk profile
and risk management processes. To facilitate these
responsibilities, the Board assigns certain risk oversight
responsibilities to each of its main committees through each
committee’s charter. The committees continue to undertake the
increasingly detailed oversight work for which they are
responsible, to interact with and oversee management, and to report
back significant matters to the full Board. A more detailed
discussion of this oversight function is contained in the “Board
Risk Oversight” section of this Proxy Statement.
ESG HIGHLIGHTS
Sustainability and ESG initiatives have been an integral part of
the company’s business. Our Core Values (Integrity, Golden Rule,
Excellence, Objectives, and Profit), first introduced in 1987, are
a cornerstone of our business and, as such, the tenets of
sustainability have evolved naturally as we work to not only grow
our business, but also to support our customers, community, and
employees.
The Board’s Approach
The Board and its committees oversee the assessment and management
of various sustainability and ESG matters. In their oversight role,
our directors ask questions, probe our thinking, provide strategic
input, and give guidance informed by their diverse skills and
experiences. The following chart highlights some of our Board’s
involvement with these matters.
Our Sustainability Efforts
At Progressive, we aim to take a forward-looking approach to
everything we do, from the products we offer to the way we interact
with the world around us. We work to drive sustainable change for
our shareholders, employees, agents, communities, and the millions
of customers who trust us to protect what is important to them. As
our efforts evolve with the world around us, we expect to adapt our
sustainability reporting.
Our most recent Corporate Sustainability Report was prepared with
guidance from the Nominating and Governance Committee, our
executive leadership, and various subject matter experts. The
report was informed by elements from various reporting
frameworks, namely the Sustainability Accounting Standards Board
(SASB) and the Task Force on Climate-Related Financial Disclosure
(TCFD), and includes indices to each of these reporting frameworks.
The report provides information regarding our philosophy and
practices on a number of topics, including:
To review our most recent Corporate Sustainability Report, please
visit our sustainability site at
investors.progressive.com/sustainability-reports.
The report and any other information on the sustainability site are
not incorporated by reference in, and do not form part of, this
Proxy Statement or any other SEC filing.
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Spotlight on Environmental Stewardship |
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We continue to make increasing efforts to reduce carbon emissions
and operate efficiently in all aspects of our business. We report
our environmental efforts to inform our stakeholders of the efforts
we are making, the initiatives and steps taken, and the forward
movement on our commitments. We continue to advance our
environmental stewardship efforts by seeking investments in green
energy usage for our facilities, exploring opportunities to shift
toward a lower-emissions vehicle fleet, and reducing paper
correspondence with our customers. We believe that if we can yield
positive environmental results from our business operations, we can
create a sustainable business in line with our Core
Values.
As we look forward to the future, we are excited to continue to be
responsible environmental stewards. Recently we announced a
goal of carbon neutrality by the end of 2025 for Scopes 1 and
2,
which will help set the path to net-zero in the following decade.
To enhance our accountability, we engaged an independent third
party to provide limited assurance on our Scope 1 and Scope 2
location-based greenhouse gas emissions reporting.
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HUMAN CAPITAL MANAGEMENT
We believe that our people and our culture remain our most
significant competitive advantage, and that having the right people
working together in the right way is critical to driving our
results, building our enduring business, and creating long-term
shareholder value. Our culture is deeply rooted in our Core Values
and is the foundation for our human capital management strategies
to attract, retain, and motivate highly qualified
employees.
Our People
We believe that our culture and continued success has enabled us to
attract, engage, and retain highly talented people in diverse
markets and from a broad range of backgrounds and
experiences.
Attract and Hire
We employ extensive recruiting practices with a goal of developing
qualified and deep candidate pools and attracting candidates from
both established and new sources. We believe that our recruitment
efforts generally have enabled us to present diverse and
high-potential pools of job candidates to our hiring managers. In
turn, we train our hiring managers about identifying and avoiding
unconscious biases they may have during the interview and selection
process and the importance of employing individuals with different
kinds of experiences and backgrounds. We believe these strategies
collectively enhance our applicant pools and contribute to our
continued success.
Engage and Retain
We understand that engaged employees are more productive, provide
better service to our customers and are more likely to stay with
Progressive. Each year, we survey our people to measure their
engagement. We use the results, along with other information, to
evaluate our human capital strategies and the health of our
culture.
Employee retention is an important part of our strategy. Promoting
from within is also a key part of our strategy. Many of our
leaders, including most current executive team members, joined
Progressive in a more junior position and advanced to significant
leadership positions within the organization.
Demographic Data
We publish employee and manager demographic information on our
website and update this data on an annual basis. We also disclose
our consolidated EEO-1 data online.
As of December 31, 2022, we had about 55,100 employees, of which
59% were women and 39% were people of color. We also had over 1,000
senior leaders, of which 39% were women and 17% were people of
color.
Supporting our People and Culture
We strive to support our employees by providing challenging work
experiences, career opportunities, and a culture of learning. We
are focused on coaching and development, which we believe promotes
greater engagement in our business and improved individual
performance.
Training and Development
We actively foster a learning culture and offer several leadership
development programs, including our Multicultural Leadership
Development Program. Moreover, our personal development strategy,
“Own It,” encourages employees to take control of their career
through team-building exercises, coaching techniques, and
communication strategies. Available to new and tenured employees,
our learning solutions are tailored to both individual contributors
and leaders and cover a broad swath of skills and
competencies.
ERGs
Over a decade ago, our first employee resource groups (ERGs) were
created to help build communities for our employees with common
backgrounds, life experiences, interests, and professional goals.
In the time since their inception, our nine ERGs have grown in both
influence and size with 43% of Progressive people belonging to at
least one of the following ERGs as of December 31,
2022:
•Asian
American Network
•Disabilities
Awareness Network
•LGBTQ+
Network
•Military
Network
•Network
of Empowering Women
•Parent
Connection
•Progressive
African American Network
•Progressive
Latin American Networking Association
•Young
Professionals Network
Compensation and Benefits
As part of employee compensation, nearly all Progressive people
participate in our annual cash incentive program named Gainshare,
which measures the growth and profitability of our insurance
businesses. We believe Gainshare contributes to the cooperative and
collaborative way we work together and, in part, defines our
culture. We also monitor overall pay equity among employees with
similar performance, experience, and job responsibilities, and
publish the results annually on our DEI website. Additionally, our
employee benefits are intended to be competitive and to support the
needs of our people and their families. We invest in physical,
emotional, and financial health of Progressive people by providing
a broad range of benefits.
Diversity, Equity, and Inclusion
We believe that in order to be consumers’, agents’, and business
owners’ number one destination for insurance and other financial
needs, we need to anticipate and understand the needs of our
customers. Therefore, we seek to be diverse in our employee
demographics, experiences, and perspectives.
Our commitment to diversity starts at the top with our highly
skilled and diverse Board, as discussed above. We are one of the
few public companies with a female CEO, as well as a female
independent Board Chairperson. Our DEI efforts are overseen by our
Compensation Committee on behalf of the entire Board, and those
efforts are implemented at all levels of the
organization.
Our efforts focus on four primary objectives, which have been in
place for several years:
•To
maintain a fair and inclusive work environment
•To
reflect the customers we serve
•For
our leaders to reflect the people they lead
•To
contribute to our communities
In line with this focus, in 2020 we introduced an ambitious goal to
double the representation of people of color in senior leadership
from 10% to 20% by the end of 2025. During 2022, we increased this
senior leadership representation from 16% to 17%, more than halfway
to our goal.
We support DEI awareness among our employees in several ways. This
includes hosting an annual weeklong event focused on diversity and
inclusion, where employees have the opportunity to attend webinars
and panel discussions, take part in group activities, listen to
podcasts featuring Progressive employees, and more. We also have
DEI leadership job objectives for our executive team and managers
aimed at fostering a diverse and inclusive workplace.
Moreover, we support efforts to contribute to our communities,
through our Keys to Progress®
programs (which include providing vehicles to veterans and
furnishing homes for individuals emerging from homelessness), our
various education and engagement efforts, and our financial
contributions to various community organizations.
For over 20 years, we have also contributed to The Progressive
Insurance Foundation, which provided matching funds to eligible
501(c)(3) charitable organizations to which employees contributed.
To more broadly represent our employees and their communities, in
2020, The Progressive Insurance Foundation began funding national
charitable organizations identified by our Employee Resource Groups
and, beginning mid-2022, through the Name Your Cause program each
employee can recommend that the Foundation give a minimum of $100
to a
charity of their choice, without requiring an out-of-pocket
donation from the employee. This is the Foundation’s way of
supporting more causes and reaching more communities across the
country where Progressive’s people, and its customers, live and
work.
We know we still have much more work to do, but we are committed to
these efforts. To learn more visit our DEI site at
progressive.com/about/diversity-and-inclusion.
The information on the DEI site is not incorporated by reference
in, and does not form part of, this Proxy Statement or any other
SEC filing.
See “Compensation Discussion and Analysis – The Role of Diversity,
Equity, and Inclusion” for more information.
2022 BUSINESS PERFORMANCE HIGHLIGHTS
As a property-casualty insurance company, we have earnings streams
from both underwriting activity and investment activity. During
2022, we wrote $4.7 billion more in net premiums, compared to 2021,
and added 0.9 million policies in force to end the year at $51.1
billion in net premiums written and 27.4 million policies in force.
Despite the business challenges during 2021 that continued into
2022, we recognized an underwriting profit margin of 4.2%, or $2.1
billion of pretax underwriting profit. While our underwriting
margin decreased 0.5 points in 2022, primarily driven by higher
catastrophe losses and higher loss severity, partially offset by
significant rate increases and lower frequency, it exceeded our
companywide profitability target of 4% for 2022.
Changes in the value of our equity securities, which represented
7.5% of the fair value of our investment portfolio at December 31,
2022, are reflected in net income. Consistent with market trends
and decreases in market valuations of our equity security
portfolio, in 2022, net income included total net realized losses
on securities of $1.9 billion and our fully taxable equivalent
total return was (7.8)%.
During 2022, we returned aggregate dividends of $0.40 per common
share to our shareholders, representing our $0.10 per common share
quarterly dividends, and repurchased 0.9 million of our common
shares at an average cost of $115.44 per common share. The Board
decided not to declare an annual-variable dividend for 2022 after
assessing our capital position, existing capital resources, and
expected future capital needs, including the then current market
conditions that could present opportunities for further growth in
2023. We ended 2022 with $22.3 billion of total capital and a
debt-to-total capital ratio of 28.7%.
Following are a few key performance metrics for 2022:
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Net premiums written growth |
10 |
% |
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Policies in force growth |
3 |
% |
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Combined ratio |
95.8 |
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Underwriting profit margin |
4.2 |
% |
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Returns on average common shareholders’ equity: |
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Net income |
4.4 |
% |
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Comprehensive income (loss) |
(13.5) |
% |
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Net income |
$0.7 billion |
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Net income per common share |
$1.18 |
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Declared common shareholder dividends |
$0.2 billion |
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Repurchased common shares |
$0.1 billion |
We encourage you to review our Annual Report to Shareholders for
additional information on our 2022 performance and our financial
results.
EXECUTIVE COMPENSATION HIGHLIGHTS
We believe that our executive compensation program, including the
closely aligned companywide annual cash incentive program we call
Gainshare, has been a critical component of our strong operating
results and, in turn, shareholder returns in recent years. We
believe this program’s structure supports a strong
pay-for-performance linkage. Our Gainshare program has paid out an
average of 164% of target over the last five-year period and, for
2022, paid out at 86% of target, which reflected the challenging
year in terms of both profitability and growth. Regarding our
performance-based equity awards, we have grown faster than the
market for the business lines we measure, resulting in the vesting
of these awards above targets in each of the past five
years.
Our executive compensation program is overseen by the Compensation
Committee of the Board. Compensation Committee decisions are made
after considering third-party compensation data for comparable
companies, internal analyses, and recommendations presented by
management. The executive compensation decisions for executive
officers generally represent the culmination of extensive analysis
and discussion, which typically take place over the course of
multiple committee meetings and in meetings between the committee
and management, including our CEO, our Chief Human Resources
Officer, members of our compensation and law departments, and
sometimes compensation consultants.
Our executive compensation program has a number of important
structural features and guiding policies, including following these
executive compensation practices:
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What We DO Have
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Independent Compensation Committee that establishes compensation
for executive officers |
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Heavy weighting of at-risk “pay for performance”
compensation |
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Typically below market base salary with opportunity to exceed
median with strong performance |
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Stock ownership guidelines |
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Clawback/forfeiture provisions (including restatements and
reputational harm) |
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DEI-related goal embedded into each executive officer’s job
objectives, which factors into setting overall annual target
compensation |
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What We DON’T Have
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Employment agreements |
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Guaranteed salary increases or bonuses |
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Hedging/pledging of our stock |
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“Timing” of equity awards |
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Single-trigger change in control benefits |
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Pension plan or supplemental retirement benefits provided to
executives |
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STAKEHOLDER ENGAGEMENT
We seek to provide transparency into our business, our performance,
our strategic priorities, our governance practices, and how our
Core Values guide our decisions and support our culture. We share
information with our stakeholders in a variety of ways, including
monthly earnings releases, quarterly earnings calls, annual
shareholder meetings, quarterly letters from our CEO, and annual
letters from our Chairperson of the Board.
We recognize the value in maintaining open lines of communication
with our stakeholders and engage with our stakeholders throughout
the year to:
•provide
visibility and transparency into our business, our performance, and
our corporate governance, ESG, and compensation
practices;
•discuss
with our investors the issues that are important to them, hear
their expectations for us, and share our views; and
•assess
emerging issues that may affect our business, inform our decision
making, and enhance our corporate disclosures.
ITEM 1: ELECTION OF DIRECTORS
Our Code of Regulations establishes the number of directors at no
fewer than five and no more than 13. The number of directors has
been fixed at 12, and there are currently 12 directors on the
Board. As stated in our Corporate Governance Guidelines, the Board
may change the size of the Board from time to time depending on its
needs and the availability of qualified candidates. In this
proposal, we are asking shareholders to elect as directors the 12
nominees named below.
Each director elected will serve a one-year term and until their
successor is duly elected. If, by reason of death or other
unexpected occurrence, any one or more of the nominees named below
is not available for election, the proxies will be voted for
substitute nominee(s), if any, as the Board may
propose.
NOMINEES FOR DIRECTOR
Based upon a recommendation from the Board’s Nominating and
Governance Committee, the Board has nominated the following persons
for election to the Board of whom 11 are current directors and one
is a new nominee:
•Danelle
M. Barrett
•Philip
Bleser
•Stuart
B. Burgdoerfer
•Pamela
J. Craig
•Charles
A. Davis
•Roger
N. Farah
•Lawton
W. Fitt
•Susan
Patricia Griffith
•Devin
C. Johnson
•Jeffrey
D. Kelly
•Barbara
R. Snyder
•Kahina
Van Dyke
Information regarding the nominees can be found below under “–
Director Nominee Highlights” and “ – Director Nominee
Information.”
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The Board of Directors recommends that you vote FOR the election of
each nominee. |
DIRECTOR NOMINEE SELECTION PROCESS
The Board is responsible for recommending director candidates for
election by the shareholders and for electing directors to fill
vacancies or newly created directorships. The Board has delegated
the screening and evaluation process for director candidates to the
Nominating and Governance Committee, which identifies, evaluates,
and recruits highly qualified director candidates and recommends
them to the Board.
Qualifications, Experiences, and Skills
The Nominating and Governance Committee evaluates each director
candidate individually when considering whether the candidate
should be nominated to serve on the Board. The committee will give
due consideration to factors deemed relevant by the committee or
the Board, including whether the candidate possesses the general
qualities required to serve successfully as a director, including:
intelligence, thoughtfulness, diligence, judgement, character, and
commitment.
The committee reviews the candidate’s relevant experiences, the
extent of their demonstrated excellence and success in their chosen
career and the specific attributes, skills, talents, or knowledge
the candidate would be expected to add to the Board.
In addition to the qualifications that each director nominee must
have, the Board believes that one or more of its Board members
should possess the following experiences and expertise because of
their particular relevance to the company’s business, strategy and
structure. These experiences and expertise were considered by the
committee in connection with this year’s director nomination
process:
•Accounting
& Finance
•Corporate
Governance
•Highly
Regulated Businesses
•Insurance/Financial
Services
•Investment
& Capital Management
•Leadership
•Retail/Marketing
•Risk
Management
•Technology/Cybersecurity
The committee also considers the company’s and the Board’s needs,
the qualifications of other available candidates, and how the
addition of the candidate to, or the continued service on, the
Board would enhance the Board’s overall diversity and
capabilities.
Diversity
The Board’s policy is to include individuals with a wide variety of
tenure, talents, skills, experiences, and perspectives, in addition
to considering demographic criteria such as race, ethnicity, sexual
orientation, gender, nationality, age, and disability, whenever
possible. The directors believe that such diversity provides the
Board with broader perspectives, a wide array of thoughts and
ideas, and insight into the views and priorities of our diverse
investor, customer, agent, and employee bases.
The committee’s work in recruiting new members will continue to
reflect their commitment to achieve such diversity. To evaluate the
impact of the addition of a
candidate on the diversity of the Board, the committee considers
how distinct the candidate’s background, experiences, skills, and
personal characteristics are from those of the incumbent directors
and whether the candidate would bring a unique perspective to the
Board. The committee assesses the effectiveness of its practices
for consideration of diversity in nominating director candidates by
periodically analyzing the diversity of the Board as a whole and,
based on that analysis, determining whether it may be desirable to
add to the Board a director with a certain type of background,
talent, experience, personal characteristic, skill, or a
combination thereof.
Other Public Company Board Commitments
The Board expects that each director will devote sufficient time
and effort as necessary to serve as a director and as a member of
the Board’s committee(s) to which the director may be
assigned.
Therefore, in accordance with our Corporate Governance
Guidelines:
•directors
that are actively involved in an executive capacity with the
company or another publicly held company can sit on no more than
two public companies' boards in addition to the company (excluding
subsidiaries or companies in which the director’s employer holds an
investment); and
•directors
that are not actively involved in management of the company or
another company (including a non-executive board chairperson) can
sit on no more than four public companies' boards in addition to
the company.
Director commitment levels are reviewed at least annually to
confirm that each director has sufficient time to perform their
duties.
DIRECTOR NOMINEE HIGHLIGHTS
Director Nominee Diversity
We are one of a few companies in the Fortune 500 with a female CEO,
as well as a female independent Board chairperson. The nominees
include a diverse mix of directors.
Director Nominee Experiences, Qualifications, Attributes, and
Skills
The Board believes that it is desirable that the following
experiences, qualifications, attributes, and skills be possessed by
one or more of its Board members because of their particular
relevance to the company’s business and structure, and these were
all considered by the Nominating and Governance Committee in
connection with this year’s director nomination
process:
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Accounting & Finance |
Corporate Governance |
Highly Regulated Businesses |
Insurance/ Financial Services |
Investment & Capital Management |
Leadership |
Retail/Marketing |
Risk Management |
Technology/Cybersecurity |
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Danelle M. Barrett |
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Stuart B. Burgdoerfer |
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Barbara R. Snyder |
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DIRECTOR NOMINEE INFORMATION
The following information is provided for each nominee and includes
descriptions of each nominee’s specific experience, qualifications,
attributes, and skills that led the Nominating and Governance
Committee and the Board to conclude that the nominee should serve
on the Board. Unless otherwise indicated, each nominee has held the
principal occupation indicated for more than five years. Current
directorships and former directorships (held during the last five
years) at other public companies are also shown. The term of each
current director expires at the Annual Meeting.
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Name (Age) |
Principal Occupation, Business Experience, and Qualifications |
Other Directorships |
Danelle M. Barrett (55)
Director
since: Not Applicable |
U.S. Navy, Rear Admiral, Retired; Cybersecurity Division Director
and Deputy Chief Information Officer
(military)
Danelle
M. Barrett has been nominated to serve as one of our directors.
Prior to retiring, Rear Admiral Barrett served in Navy leadership
positions for 30 years. She most recently served as the Navy
Cybersecurity Division Director and Deputy Chief Information
Officer on the Chief of Naval Operations staff from 2017 to 2019,
where she led the U.S. Navy’s strategic development and execution
of digital and cybersecurity efforts including key enterprise
information technology modernization improvements to enhance
warfighting and business operations. Rear Admiral Barrett also held
several prior leadership positions including Director of Current
Operations at the U.S. Cyber Command and the Chief of Staff at the
Navy Information Forces Command. She received her commission as an
officer from the U.S. Naval Reserve Officer Training Corps. In
addition to holding a M.A. in National Security Strategic Studies
from the U.S. Naval War College, she also holds a M.S. in
Information Management and two additional M.A.s in Management and
Human Resource Development. In addition to her current and past
service as a director of two public companies, including serving as
a member of their compensation and governance committees, Rear
Admiral Barrett brings to the Board extensive leadership and
operational experiences in complex cybersecurity matters, digital
modernization and innovation, information technology systems,
technology risk management, and strategic assessment, planning, and
implementation. |
Current
ShoulderUp Technology Acquisition Corp
Former
KVH Industries, Inc.
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Key Skills:
Corporate Governance 
Highly Regulated Businesses 
Leadership
Risk Management
 Technology/Cybersecurity
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Name (Age) |
Principal Occupation, Business Experience, and Qualifications |
Other Directorships |
Philip Bleser (68)
Director since: 2017 |
Retired; Chairman of Global Corporate Banking, JPMorgan Chase &
Co., New York, New York (financial services)
Prior
to retiring in 2016, Mr. Bleser served on the executive leadership
team at JPMorgan Chase, a preeminent commercial bank and financial
services company, where he led the firm’s global corporate banking
efforts. In these roles, Mr. Bleser’s responsibilities included,
among others, strategic direction and execution, risk management,
and operations of a global, technology- and customer-driven
corporate banking operation. Mr. Bleser also previously served on
the board of a specialty retail company, enhancing his experience
in the areas of public company governance and the operations of its
audit and governance committees, as well as deepening his
understanding of a consumer-facing retail business. Mr. Bleser also
has earned a climate leadership certificate, enhancing the Board’s
oversight of climate risks and sustainable growth strategies. His
financial and operational roles also position him well to be a
valuable member of our Audit Committee as an Audit Committee
Financial Expert. |
Current
None
Former
Francesca’s Holding Corp.
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Key Skills:
 Accounting
& Finance
Corporate Governance
Highly Regulated Businesses 
Insurance/Financial Services
Investment & Capital Management
Leadership
 Retail/Marketing
Risk Management
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Stuart B. Burgdoerfer (60)
Director
since: 2009 |
Retired; Executive Vice President and Chief Financial Officer, L
Brands, Inc., Columbus, Ohio (retailing) from April 2007 to August
2021; Interim Chief Executive Officer of VS NewCo (retailing) from
May 2020 to February 2021
Mr.
Burgdoerfer’s experience includes work as a CPA at Deloitte, as a
management consultant and in financial leadership roles at
PepsiCo/YUM Brands subsidiary Pizza Hut, and as Senior Vice
President of Finance at The Home Depot. He was the Executive Vice
President and Chief Financial Officer of L Brands from April 2007
through August 2021, and served from May 2020 through February 2021
as Interim Chief Executive Officer of L Brand’s subsidiary
Victoria's Secret (VS NewCo), expanding his executive and
leadership responsibilities at this global retail company. Mr.
Burgdoerfer’s experience also includes service as a member of the
Board of Trustees at Spelman College. Mr. Burgdoerfer’s substantial
experience in leadership roles as a financial professional and
senior executive also enhances the Board’s financial expertise and
adds great value to the Audit Committee as the Committee Chair and
an Audit Committee Financial Expert. |
Current
None
Former
None
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Key Skills:
Accounting
& Finance
Corporate Governance
Investment
& Capital Management
Leadership
Retail/Marketing
Risk Management
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Name (Age) |
Principal Occupation, Business Experience, and Qualifications |
Other Directorships |
Pamela J. Craig (66)
Director since: 2018 |
Retired; Chief Financial Officer, Accenture PLC, Dublin, Ireland
(global management consulting)
Ms.
Craig is the former Chief Financial Officer of the global
professional services firm, Accenture PLC. Ms. Craig worked at
Accenture for 34 years in a variety of consulting and executive
roles, where she developed extensive finance, capital management,
operational, enterprise risk management, and technology expertise,
as well as leadership experience in the context of a large,
growth-oriented organization. In addition, her current and past
service as a director of Progressive and other public companies,
including companies in the retail, technology services and
security, and manufacturing industries, and as a member of other
audit, compensation, governance, and corporate responsibility and
sustainability committees, provide her with valuable experience in
addressing the many risks and governance issues facing public
companies. Additionally, as a member of our Compensation Committee,
Ms. Craig has developed a strong understanding of our culture and
DEI efforts. |
Current
Merck & Co., Inc.
3M Company
Corning Incorporated
Former
Akamai Technologies, Inc.
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Key Skills:
Accounting & Finance
Corporate Governance
Investment & Capital Management
Leadership
Risk Management
Technology/Cybersecurity
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Charles A. Davis (74)
Director since: 1996
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Chief Executive Officer, Stone Point Capital LLC, Greenwich,
Connecticut (private equity investing)
Mr.
Davis has broad financial, investment, and capital management
expertise developed through his work as a partner at Goldman Sachs
Group, investment management experience at MMC Capital, Inc., and
as Chief Executive Officer of Stone Point Capital LLC. Mr. Davis
has extensive knowledge of Progressive’s business and history,
which he has gained through his service as a director of the
company since 1996. He has substantial corporate governance and
risk expertise from his decades of investment banking and private
equity experience, as well as his service on the boards of other
public and private companies, including in the reinsurance
industry.
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Current
AXIS Capital Holdings Limited
Former
The Hershey Company
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Key Skills:
Accounting
& Finance
Corporate Governance
Highly Regulated Businesses
Insurance/Financial Services
Investment & Capital Management
Leadership
Risk Management
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Principal Occupation, Business Experience, and Qualifications |
Other Directorships |
Roger N. Farah (70)
Director since: 2008 |
Retired; Executive Director, Tory Burch LLC, New York, New York
(retailing)
Mr.
Farah previously served in executive officer positions at Ralph
Lauren Corporation and Tory Burch LLC and as a director at other
public companies, primarily in the retail and health insurance
industries. The extensive management and operational experience Mr.
Farah has in over 40 years in the retail industry enables him to
provide insights, particularly in the area of customer trends,
product development, brand management, and risk analysis, from a
consumer-focused industry that is different than the property and
casualty insurance industry. Due to his current and past service as
a director of other public companies, he also has significant
experience addressing the risks and corporate governance issues
facing public companies, including serving as a member of their
compensation, governance, and corporate social responsibility
committees. Additionally, as a member of our Compensation
Committee, Mr. Farah has developed a strong understanding of our
culture and DEI efforts. |
Current
CVS Health Corporation
Former
Aetna, Inc.
Metro Bank PLC Tiffany & Co.
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Key Skills:
Accounting & Finance
Corporate Governance
Leadership
Retail/Marketing
Risk Management
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Lawton W. Fitt (69)
Director
since: 2009 |
Chairperson of the Board, The Progressive Corporation, Mayfield
Village, Ohio since May 2018; Lead Independent Director,
Progressive, prior to May 2018; Retired Partner, Goldman Sachs
Group, New York, New York (financial services)
Ms.
Fitt brings a strong financial and corporate governance background
to her service as Chairperson of our Board. She has substantial
experience in the areas of investment banking and risk analysis,
including insight into the operation of capital markets, as a
result of her work as a partner at Goldman Sachs Group. In
addition, she attained executive management experience through her
work as the Secretary of the Royal Academy of Arts in London. Ms.
Fitt also has significant experience as a director at various other
public, for-profit and non-profit organizations, including service
on the audit, compensation and governance committees of public
companies. |
Current
Ciena Corporation
The Carlyle Group Inc.
Former
Micro Focus International plc
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Key Skills:
Accounting
& Finance
Corporate Governance
Highly Regulated Businesses
Insurance/Financial Services
Investment & Capital Management
Leadership
Risk Management
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Name (Age) |
Principal Occupation, Business Experience, and Qualifications |
Other Directorships |
Susan Patricia Griffith (58)
Director since: 2016 |
President and Chief Executive Officer, The Progressive Corporation,
Mayfield Village, Ohio
Mrs.
Griffith has been with the company since 1988 and has held a series
of executive leadership positions, including Chief Executive
Officer (since 2016), Chief Human Resource Officer, Claims Group
President (in charge of the entire Claims organization), President
of Customer Operations (overseeing the contact center (sales and
delivery), customer experience, systems experience, and workforce
management groups), and Personal Lines Chief Operating Officer,
where she oversaw the Personal Lines, Claims, and Customer
Relationship Management groups. Mrs. Griffith’s intimate knowledge
of the company and her leadership experience gives her a deep
understanding of our culture, DEI efforts, operations, challenges,
and opportunities.
|
Current
FedEx Corporation
Former
None
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Key Skills:
Corporate Governance
Highly Regulated Businesses
Insurance/Financial
Services
Leadership
Retail/Marketing
Risk Management
|
Devin C. Johnson (49)
Director since: 2020 |
President, The SpringHill Company (global consumer and
entertainment) since March 2022; Chief Operating Officer, The
SpringHill Company from April 2020 to March 2022; President and
Chief Operating Officer, UNINTERRUPTED, LLC (entertainment and
media) prior to April 2020
Mr.
Johnson brings a strong history of executive management and
operational experience in digital and social media, brand creation
and marketing, and content production, developed through his
experience at The SpringHill Company and through prior executive
roles at Tribune Media and NBCUniversal. Mr. Johnson has extensive
leadership experience in marketing, understanding and applying
consumer insights, media and content delivery in the consumer
products arena, and start-up and business development. Through his
roles as the President and Chief Operating Officer of The
SpringHill Company and previously as the President of
UNINTERRUPTED, LLC, he has gained expertise in creating culturally
inspired brands, entertainment, and products. |
Current
None
Former
None
|
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Key Skills:
Accounting & Finance
Leadership
Retail/Marketing
Technology/Cybersecurity
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| Name (Age) |
Principal Occupation, Business Experience, and Qualifications |
Other Directorships |
Jeffrey D. Kelly (69)
Director since: 2012
Prior service: 2000-2009 |
Retired; Chief Operating Officer and Chief Financial Officer,
RenaissanceRe Holdings Ltd., Pembroke, Bermuda (reinsurance
services)
Mr.
Kelly brings a strong history of executive management, investment
management, capital markets, and operational experience in the
financial services industry. Among other responsibilities, he has
served as the principal financial officer at a major commercial
bank and a large publicly traded reinsurer. Mr. Kelly’s experience
on the Board also gives him insight into our insurance and
investment operations. Due to his past roles at RenaissanceRe, Mr.
Kelly also provides a different perspective about the insurance
industry and understanding of reinsurance markets. Mr. Kelly’s
financial expertise is also utilized in his role as an Audit
Committee Financial Expert on our Audit Committee.
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Current
None
Former
None
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Key Skills:
Accounting & Finance
Corporate Governance
Highly Regulated Businesses
Insurance/Financial Services
Investment & Capital Management
Leadership
Risk Management
|
Barbara R. Snyder (67)
Director since: 2014 |
President, The Association of American Universities (higher
education) since October 2020; President, Case Western Reserve
University, Cleveland, Ohio, prior to October
2020
Ms.
Snyder has extensive leadership experience as the President of The
Association of American Universities (AAU), an organization
composed of the country’s leading research universities helping
shape higher education policy. This extensive expertise was also
previously gained as the President of Case Western Reserve
University (Case) and in leadership positions she held at other
non-profit and university organizations. Ms. Snyder has for many
years been a member of the board of directors of a large publicly
traded financial services company, where she serves on the
compensation and governance committees. Additionally, as a member
of our Compensation Committee, Ms. Snyder has developed a strong
understanding of our culture and DEI efforts. At Case, she led a
revitalization of the school while overseeing enhancements of
academic excellence, faculty collaboration, strategic planning,
fundraising efforts, cybersecurity initiatives, and the
qualifications and diversity of Case’s student body. Her executive
role at a leading university, and now the broader outlook that
comes with the presidency of AAU, brings a unique perspective to
our Board.
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Current
KeyCorp
Former
None
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Key Skills:
Highly Regulated Businesses
Insurance/Financial
Services
Leadership
Retail/Marketing
Risk Management
Technology/Cybersecurity
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Name (Age) |
Principal Occupation, Business Experience, and Qualifications |
Other Directorships |
Kahina Van Dyke (51)
Director since: 2018 |
Global Head, Digital Channels and Client Data Analytics, Standard
Chartered PLC, London, England (international banking) since
February 2020; Senior Vice President of Business and Corporate
Development, Ripple Labs, Inc., San Francisco, California (global
digital payments network) from July 2018 through December 2019;
Global Director of Financial Services & Payment Partnerships,
Facebook, Inc., Menlo Park, California (online social media) prior
to May 2018.
Ms. Van Dyke is the Global Head, Digital Channels and Client Data
Analytics at Standard Chartered’s Corporate Commercial and
Institutional Banking Division where she is focused on developing a
digital banking platform for global trade, commerce, and financial
services. In previous roles at Ripple and Facebook, she was
responsible for strategic partnerships and investments across the
global financial and technology industries and working with
external companies to develop and grow financial products and
services. Prior to these roles, Ms. Van Dyke held senior
international executive positions for more than 15 years in the
global financial services industry. She is also the Founder and
Chair of the Global Women Executive Leadership Council, a group
that promotes leadership and peer mentoring for women in more than
70 countries. She brings to our Board extensive senior management
experience in international consumer and corporate banking combined
with leadership at a major technology company, and she is a global
female leader in emerging digital banking models and financial
technology.
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Current
None
Former
None
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Key Skills:
Insurance/Financial
Services
Investment & Capital Management
Leadership
Retail/Marketing
Technology/Cybersecurity
|
DIRECTOR WHOSE TERM WILL NOT CONTINUE AFTER THE ANNUAL
MEETING
Jan E. Tighe decided to not stand for re-election of the Board.
Vice Admiral Tighe has served on the Board since 2019. Her term
will end on the date of the Annual Meeting of
Shareholders.
VOTE REQUIRED FOR ELECTION
Proxies cannot be voted at the Annual Meeting for a greater number
of persons than the 12 nominees named in this Proxy
Statement.
A nominee for director in an uncontested election will be elected
as a director only if the nominee receives a majority of the votes
cast, which is sometimes referred to as a majority voting standard.
If the election for directors is contested (that is, there are more
nominees than the number of director positions up for election),
the majority voting standard does not apply, and the nominees
receiving the highest number of votes will be elected (a plurality
voting standard). The election of directors at this year’s Annual
Meeting is an uncontested election, so each nominee must receive a
majority of the votes cast to be elected. Abstentions and unvoted
shares
(including broker non-votes) will not be considered as votes
cast.
If an incumbent director is not elected by a majority of the votes
cast in an uncontested election, the director is not automatically
removed from the Board, but under our Corporate Governance
Guidelines, they are expected to tender a resignation from the
Board within 10 days after the certification of the shareholder
vote. If that resignation is not made contingent on the Board’s
determination to accept or reject such resignation, the resignation
will be effective immediately. If the resignation is contingent on
Board action, the Nominating and Governance Committee will review
the resignation and make a recommendation to the Board, and the
Board will announce its determination about whether to accept or
reject the resignation within 120 days from the
certification of the shareholder vote. If a director is not elected
by a majority of the votes cast, but fails to tender their
resignation during the 10-day period after certification, their
term of office will expire automatically upon the expiration of the
10-day period. There have been no exceptions or waivers to this
policy in the last three years.
If written notice is given by any shareholder to the President, a
Vice President, or the Secretary not less than 48 hours before the
time fixed for holding the Annual Meeting that the shareholder
desires the voting for election of directors be cumulative, and if
an announcement of the giving of such notice is made at the meeting
by the Chairperson or Secretary or by or on behalf of the
shareholder giving such notice, each shareholder will have the
right to
cumulate their voting power in the election of directors. Under
cumulative voting, each shareholder may give one nominee a number
of votes equal to the number of directors to be elected, multiplied
by the number of shares the shareholder holds, or distribute such
number of votes among the nominees, as the shareholder sees fit. If
the enclosed proxy is executed and returned, or the shareholder
submits their proxy by telephone or over the Internet, and voting
for the election of directors is cumulative, the persons named as
their proxies on the proxy card will have the authority to cumulate
votes and to vote the shares represented by their proxy, and by
other proxies held by them, so as to elect as many of the 12
nominees named above as possible.
OTHER BOARD OF DIRECTORS INFORMATION
BOARD OF DIRECTORS INDEPENDENCE
DETERMINATIONS
We are required to have a majority of independent directors under
New York Stock Exchange (NYSE) listing standards. The NYSE’s
listing standards prescribe specific independence tests and require
the Board to make affirmative independence determinations regarding
each of our directors. Accordingly, the Board has considered the
independence of our current Board members and the new nominee. In
conducting this review, the Board took into account each
individual’s current employment situation (if any) and other
relationships that could impact the independence determination
under NYSE listing standards, including certain transactions that
took place in 2022 or are expected in 2023 between Progressive and
companies with which the individual is affiliated. Specifically,
the Board considered ordinary course transactions involving
reinsurance, cyber liability and director’s and officer’s
insurance, claims resolution and administration, agency commissions
and administration, employee benefits and administration, data and
software services, and background checks for potential employees,
among others. Based on this review, the Board determined that each
of our current directors and the new nominee are independent under
the NYSE listing standards, other than Mrs. Griffith, who is an
executive officer of the company.
BOARD LEADERSHIP STRUCTURE
Lawton W. Fitt has been Chairperson of the Board since May 2018.
Ms. Fitt is independent from management under NYSE listing
standards, and she has a strong business background, executive
management experience, and additional experience as a member of a
number of public company boards. Ms. Fitt’s knowledge of our
businesses acquired as a Board and committee member, her
demonstrated willingness to challenge management and the status
quo, and her effective working relationship with Mrs. Griffith also
contributed to the Board’s decision to elect Ms. Fitt as
Chairperson of the Board.
BOARD RISK OVERSIGHT
The Board is ultimately responsible for overseeing our risk profile
and risk management processes. To facilitate these
responsibilities, the Board assigns certain risk oversight to each
of its main committees through each committee’s charter. Annually,
each committee reviews and reassesses the adequacy of its charter,
and the Nominating and Governance Committee oversees the allocation
of risk among the committees and makes appropriate recommendations
to the Board. Each committee regularly reports to the full Board on
the risks that it oversees.
The assignment of the Board’s risk oversight function as described
above enables the Board to function more effectively because the
whole Board is required to focus only on those risk issues deemed
most critical by the applicable committee. Further, the committees
provide a deeper focus on overseeing management with respect to the
full range of risks we confront. The Board’s Chairperson, Ms. Fitt,
consults with the committee Chairs, as necessary, to ensure that
significant risk issues are brought to the attention of the full
Board. Otherwise, the Board’s administration of its risk oversight
function has not affected the Board’s leadership structure. Please
see “– Board Committees” for additional information on each
committee, including their responsibilities.
RISK GOVERNANCE
The company has a well-established risk governance process. The
Board oversees and our executive leadership maintains the risk
governance process with a view towards continuous improvement to
identify, monitor, and manage current and emerging
risks.
ERM Program
The Audit Committee oversees our ERM program. These
responsibilities include the review of the guidelines, policies,
and procedures that govern how we assess and manage our exposure to
risk, and meeting periodically with management. This includes
meeting with leaders and other representatives of the risk
management department, compliance and ethics group, law department,
internal audit, physical and information security group, external
auditors, and other business units, as necessary, to review our
major operational, financial, reputational, and other risk
exposures, as well as the steps management has taken to identify,
monitor, assess, and mitigate such exposures.
We believe that our ERM program supports Board oversight of the
most significant risks facing the company and was established to
ensure a companywide holistic approach to evaluating risk over five
distinct but overlapping risk categories:
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Insurance |
Risks associated with assuming, or indemnifying for, the losses or
liabilities incurred by policyholders |
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Operating |
Risks stemming from external or internal events or circumstances
that directly or indirectly may affect our insurance
operations |
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Market |
Risks that may cause changes in the value of assets held in our
investment portfolios |
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Liquidity |
Risk that our financial condition will be adversely affected by the
inability to meet our short-term cash, collateral, or other
financial obligations |
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Credit and Other Financial |
Risks that the other party to a transaction will fail to perform
according to the terms of a contract, or that we will be unable to
satisfy our obligations when due or obtain capital when
necessary |
Using this risk framework, we have defined our risk tolerances,
identified roles and responsibilities for managing risk, and
implemented a risk review and reporting structure. We assess how
these risks may affect our financial condition, cash flows, and
results of operations, as well as our ability to achieve our
business objectives.
Although our ERM program is mature and effective, we continuously
work to improve the quality of the models we use and the processes
we have in place to identify and quantify current and emerging
risks.
Management Risk Committee
Our MRC, which comprises members of management representing a
cross-section of business units and functions, regularly performs
an enterprise risk assessment and, with input from executive
management, identifies the most critical risks facing the company.
The MRC then formulates recommendations for managing those risks,
which it presents to the Audit Committee for review. The Audit
Committee oversees our ERM program and MRC risk assessment and the
full Board receives an update at least annually.
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Spotlight on: |
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Climate Change Risk Management |
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We manage climate risks through our ERM program. Our MRC is charged
with understanding our climate-related risks, among other things.
In the MRC’s annual risk assessment process, we evaluate the
longer-term effects of climate change and attempt to evaluate the
impact on capital, pricing, our customers, and investments. Our
Nominating and Governance Committee oversees climate change risk on
behalf of the Board. |
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Cybersecurity Risk Management |
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Our overall efforts to safeguard the systems and confidential
information critical to our operations include preventative and
detective internal processes, technological defenses, and other
controls designed to provide multiple layers of security
protection. This integrated approach to protect data and systems is
also built into the company’s project management, development, and
operations. Our Technology Committee oversees cybersecurity risk on
behalf of the Board. |
MEETINGS OF THE BOARD OF DIRECTORS AND ATTENDANCE
During 2022, the Board held five meetings and adopted resolutions
by written action one time, pursuant to Ohio corporation
law.
All directors attended at least 75% of their scheduled Board and
committee meetings during their committee tenure in 2022. Pursuant
to our Corporate Governance Guidelines, directors are expected to
attend our Annual Meeting of Shareholders whenever possible.
Normally, a meeting of the Board is scheduled on the date of the
Annual Meeting. Our 2022 Annual Meeting was attended by all of the
then-current directors.
A copy of our Corporate Governance Guidelines can be found on our
website at
progressive.com/governance.
MEETINGS OF THE NON-MANAGEMENT AND INDEPENDENT
DIRECTORS
Our non-management directors meet in executive session periodically
throughout the year, typically at the conclusion of regularly
scheduled Board meetings. In the event that the Chairperson is not
available to lead the meetings of non-management directors, the
presiding director would be chosen by the non-management directors
in attendance. In 2022, under the lead of the Chairperson, the
non-management directors met in executive session five times, and
each meeting of the non-management directors also was a meeting of
the independent directors.
BOARD COMMITTEES
The Board has named an Audit Committee, a Compensation Committee,
an Investment and Capital Committee, a Nominating and Governance
Committee, a Technology Committee, and an Executive Committee, as
described below. The written charter for each of the committees
(other than the Executive Committee, which does not have a charter)
can be found on our website at
progressive.com/governance.
The following table summarizes the Board's current committee
assignments:
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Name |
Audit |
Compensation |
Investment
and Capital |
Nominating and
Governance |
Technology |
Executive |
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Philip Bleser |
ü*
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ü |
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Stuart B. Burgdoerfer |
C*
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ü |
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Pamela J. Craig |
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ü |
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C |
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Charles A. Davis |
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C |
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Roger N. Farah |
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C |
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ü |
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ü |
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Lawton W. Fitt |
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ü |
C |
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ü |
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Susan Patricia Griffith |
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C |
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Devin C. Johnson |
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ü |
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Jeffrey D. Kelly |
ü*
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Barbara R. Snyder |
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ü |
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Jan E. Tighe |
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ü |
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ü |
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Kahina Van Dyke |
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ü |
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ü |
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üMember
of the committee
C Chair of the committee
* Audit Committee Financial Expert
Audit Committee
Members
Stuart B. Burgdoerfer, Chair
Philip Bleser
Jeffrey D. Kelly
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Meetings Held in 2022 |
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Primary Responsibilities |
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9 |
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•Ensuring
that the organizational structure, policies, controls, and systems
are in place to monitor and accurately report
performance.
•Monitoring
the integrity of our financial statements, our financial reporting
processes, internal control over financial reporting, and the
public release of financial information.
•Overseeing
our compliance and ethics and risk management
programs.
•Confirming
the independence of, and the selection, appointment, compensation,
retention, and oversight of the work of, our independent registered
public accounting firms.
•Providing
an independent channel to receive appropriate communications from
employees, shareholders, auditors, legal counsel, bankers,
consultants, and other interested parties.
Please see “Item 1: Election of Directors – Director Nominee
Information” for disclosure of each member’s relevant experience
qualifying such member as an Audit Committee Financial Expert. See
also the “Report of the Audit Committee,” “Item 4: Proposal To
Ratify The Appointment Of PricewaterhouseCoopers LLP As Our
Independent Registered Public Accounting Firm For 2023,” and “Other
Independent Public Accounting Firm Information” for additional
related information.
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Resolutions Adopted by Written Action |
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The committee adopted resolutions by written action pursuant to
Ohio corporation law on one occasion. |
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Independence |
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The Board has determined that all members are independent
(including the additional requirements for audit committee
members). |
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Financial Literacy/Audit Committee Financial Expert |
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The Board has determined that all members are financially literate
and are each an Audit Committee Financial Expert, as that term is
defined in the applicable SEC rules. |
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Compensation Committee
Members
Roger N. Farah, Chair
Pamela J. Craig
Barbara R. Snyder
Jan E. Tighe
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Meetings Held in 2022 |
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Primary Responsibilities |
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6 |
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•Making
final determinations regarding executive compensation, including
salary, equity-based awards, and annual cash incentive targets, and
related performance goals, formulae, and procedures.
•Approving
(or in certain circumstances, recommending to the full Board for
approval) the terms of the various compensation and benefit plans
in which executive officers and other employees may
participate.
•Reporting
to the full Board on executive compensation, DEI, and several
aspects of our human capital management efforts.
The committee’s determinations regarding incentive compensation for
executive officers (for example, performance criteria and standards
relating to Gainshare, our annual cash incentive program) generally
also apply to incentive plans covering most other employees. Under
this program, executives and non-executives alike are motivated to
achieve the same performance objectives. The committee has
delegated to management the authority to implement such plans, and
make other compensation-related decisions (such as salary and
equity-based awards), for employees other than executive
officers.
Please see “Compensation Discussion and Analysis” and “Compensation
Committee Report” for additional related information.
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Resolutions Adopted by Written Action |
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The committee adopted resolutions by written action pursuant to
Ohio corporation law on three occasions. |
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Independence |
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The Board has determined that all members are independent
(including the additional requirements for compensation committee
members). |
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Investment and Capital Committee
Members
Charles A. Davis, Chair
Lawton W. Fitt
Kahina Van Dyke
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Meetings Held in 2022 |
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Primary Responsibilities |
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5 |
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•Monitoring
whether the company has adopted and adheres to rational and prudent
investment and capital management policies.
•Monitoring
whether management’s investment and capital management actions are
consistent with our investment policy, financial objectives, and
business goals.
•Monitoring
our compliance with legal and regulatory requirements and internal
guidelines pertaining to investment and capital
management.
•Monitoring
the competence and performance of the company’s internal and
external money managers.
•Monitoring
the compensation of external money managers.
•Monitoring
the company’s Strategy Group and proposed strategic investments,
including mergers and acquisitions.
The committee does not make operating decisions about money manager
selection or compensation, asset allocation, market timing, sector
rotation, or security selection, which are the responsibilities of
management. The full Board must approve significant changes to the
company’s capital structure, dividend policy, or portfolio asset
allocation, as well as significant strategic
investments.
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Independence |
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The Board has determined that all members are
independent. |
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Nominating and Governance Committee
Members
Lawton W. Fitt, Chair
Philip Bleser
Roger N. Farah
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Meetings Held in 2022 |
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Primary Responsibilities |
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5 |
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•Considering
the qualifications of individuals who are proposed as possible
nominees for election to the Board and making recommendations to
the Board with respect to such potential candidates.
•Overseeing
the process for evaluating director, committee, and board
performance.
•Monitoring
corporate governance matters affecting the Board and the
company.
•Regularly
reviewing our Corporate Governance Guidelines to ensure that they
continue to correspond to and support the Board’s governance
philosophy and considers and, where appropriate, recommending to
the Board for approval, changes to the Corporate Governance
Guidelines based on suggestions from its members, other Board
members, or management.
•Overseeing
environmental, including climate change, and social factors and
initiatives impacting us.
At each of its meetings during 2022, the committee received updates
from the company’s management concerning ESG matters.
The committee welcomes input from shareholders regarding potential
director nominees. Shareholders can recommend a candidate for
consideration by the committee by following the procedures
described under “Other Matters – Procedures for Recommendations and
Nominations of Directors and Shareholder Proposals.”
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Independence |
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The Board has determined that all members are
independent. |
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Technology Committee
Members
Pamela J. Craig, Chair
Stuart B. Burgdoerfer
Devin C. Johnson
Jan E. Tighe
Kahina Van Dyke
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Meetings Held in 2022 |
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Primary Responsibilities |
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5 |
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•Overseeing
the use of technology in executing our business strategies,
including:
◦Technology
strategies (including digital strategies) and technology
investments,
◦Cybersecurity
programs, and
◦Operational
performance, technology-related business continuity, and disaster
recovery efforts.
•Monitoring
related industry trends.
At each meeting, the committee received updates from the company’s
Chief Information Officer and Chief Security Officer, among other
members of management, on technology investments, IT programs and
operations, and the company’s information security programs,
matters, and efforts.
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Independence |
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The Board has determined that all members are
independent. |
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Executive Committee
The Board has an Executive Committee made up of Susan Patricia
Griffith (Chair), Roger N. Farah, and Lawton W. Fitt. This
committee exercises all powers of the Board between Board meetings,
except the power to fill vacancies on the Board or its committees
and the power to adopt amendments to our Code of Regulations.
During 2022, the Executive Committee adopted resolutions by
written
action
pursuant
to
Ohio
corporation
law
on seven occasions.
BOARD EVALUATION PROCESS
Our Board recognizes that a constructive evaluation process
enhances our Board’s effectiveness and supports good corporate
governance. Every year, the Nominating and Governance Committee
oversees a self-evaluation process of our Board’s overall
performance, and of each of our Board’s committees, which is
designed to elicit feedback from the directors that will improve
the effectiveness of the Board and the committees, and enable each
director to contribute actively to the work of the Board. The
committee reports these results to the full Board for discussion,
and feedback is shared with directors.
In assessing their performance, the Board and its committees take a
multi-year perspective to identify and evaluate trends. Each year,
the committee re-examines the evaluation process to ensure that the
process allows directors the opportunity to provide actionable
feedback. Accordingly, the process varies year to year and involves
one or a combination of evaluative approaches, including written
surveys, individual interviews, group discussions in executive
session, and/or engagement of a third-party
facilitator.
In 2021, the committee engaged an independent third party to
conduct the annual evaluations to gain an
additional perspective and encourage even more candid participation
and feedback. The Nominating and Governance Committee plans to
continue to evaluate the use of an independent third party for the
evaluations every few years as part of its multi-year
approach.
In early 2022 and 2023, the process utilized a written survey
addressing a wide range of topics including:
•Board
overall effectiveness
•Board
composition
•Committee
structure and effectiveness
•Board
meeting content and structure
•Board
and committee information needs
The Nominating and Governance Committee reported these results to
the full Board for discussion, and utilized the information
obtained to enhance Board and committee performance and
processes.
COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Shareholders or other interested parties may send written
communications to the entire Board or to the non-management
directors. Such communications must be clearly addressed to the
Board or the non-management directors and sent to either of the
following:
•Lawton
W. Fitt, Chairperson of the Board
The Progressive Corporation
email: chair@progressive.com
•Daniel
P. Mascaro, Secretary
The Progressive Corporation
6300 Wilson Mills Road
Mayfield Village, OH 44143
or email:
secretary@progressive.com
The recipient will promptly forward appropriate communications to
the full Board or to the non-management directors, as specified by
the sending party.
TRANSACTIONS WITH RELATED PERSONS
From time to time, we may enter into transactions with a director
or executive officer, certain of their relatives, or an entity in
which one or more of our directors or executive officers, or a
relative of such person, is an owner, director, or executive
officer. With limited exceptions relating to transactions made in
the ordinary course of business and certain low dollar
transactions, such transactions must be disclosed to and approved
by our Board under our Code of Business Conduct and Ethics. This
policy is carried out by the Secretary of the company as
transactions with such persons or entities, or proposals for such
transactions, are identified by management or disclosed by members
of the Board. The Board reviews these transactions as they are
identified and, for ongoing transactions, on an annual basis
thereafter.
During 2022, no transactions with related persons exceeding
$120,000 in value were identified and reportable under SEC rules.
For purposes of these disclosures, we exclude purchases of
Progressive insurance policies, payments of claims required by our
insurance policies, and other ordinary course transactions that
were determined not to confer a material interest in our director,
executive officer, or other related person.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
Mr. Farah (Chair), Ms. Craig, Ms. Snyder, and Ms. Tighe served as
members of the Board’s Compensation Committee during 2022. There
were no Compensation Committee interlocks.
EQUITY OWNERSHIP GUIDELINES FOR DIRECTORS
Within five years after being elected to the Board, each director
must acquire common shares having a value equal to at least three
times the director’s compensation (based on primary committee
assignment) for the most recently completed term, and then maintain
such level of holdings throughout their tenure as a director. See
“Director Compensation – Narrative Disclosure to Director
Compensation Table” for additional information.
MANDATORY DIRECTOR RETIREMENT
Although the Board does not believe that term limits are
appropriate, the Board does support a mandatory retirement age for
directors. Accordingly, our Corporate Governance Guidelines provide
that the Board will not nominate for election by shareholders a
candidate for director who is eighty years of age or older at the
time of such nomination, nor will the Board appoint such an
individual to a vacant seat on the Board. The Board has not waived
this requirement in the last three years.
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REPORT OF THE AUDIT COMMITTEE
The following Report of the Audit Committee does not constitute
soliciting material and should not be deemed filed or incorporated
by reference into any other Progressive filing under the Securities
Act of 1933 or the Securities Exchange Act of 1934, except to the
extent Progressive specifically incorporates this Report by
reference therein.
The Audit Committee of the Board of Directors consists of the three
directors named below, each of whom the Board has determined meets
the applicable independence and experience requirements of the New
York Stock Exchange and the Securities and Exchange Commission
(SEC). In addition, the Board has determined that each of Mr.
Burgdoerfer, Mr. Bleser, and Mr. Kelly is an Audit Committee
Financial Expert, as that term is defined by the SEC.
The Audit Committee is responsible, on behalf of the Board, for
ensuring that the organizational structure, policies, controls, and
systems are in place to monitor and accurately report the company’s
performance. The committee monitors the integrity of the company’s
financial statements, its financial reporting processes, its system
of internal control over financial reporting, and the public
release of financial information. In addition, the committee
oversees the company’s compliance and ethics and enterprise risk
management programs. During 2022, the committee held 9 meetings to
review these matters and conduct other business.
The committee also is directly responsible for the appointment,
compensation, retention, and oversight of the company’s independent
registered public accounting firm and for reviewing that firm’s
independence. For 2022, the committee appointed
PricewaterhouseCoopers LLP (PwC) as the company’s independent
registered public accounting firm. The committee’s appointment of
PwC was ratified by shareholders at the company’s 2022 Annual
Meeting of Shareholders.
In supervising the work of PwC on the 2022 audit, the committee
received the written disclosures and letter from PwC concerning its
independence as required by the applicable requirements of the
Public Company Accounting Oversight Board (PCAOB), and the
committee has discussed with PwC its independence. In addition, the
committee reviewed, and discussed with PwC, among other matters:
PwC’s report on its internal quality control procedures, including
issues raised by governmental investigations of PwC in the
preceding five years; the publicly available parts of the PCAOB’s
report on its most recent inspection of PwC; regulatory
developments during the year that impacted PwC’s audit work for the
company or its communications with the committee; and the other
matters that PwC is required to communicate to the committee under
the applicable requirements of the PCAOB.
The committee’s role relating to the financial statements is one of
oversight. The company’s management has the primary responsibility
for the financial statements and the reporting process, including
the system of internal control over financial reporting. Management
reports to the committee on financial, accounting, and operational
developments that may impact the financial statements, and on
issues relating to the company’s internal controls, among other
matters. The committee also oversees the work of PwC and the
company’s internal audit staff. During the 2022 audit, the
committee discussed with PwC and the internal auditors the overall
scope and plans for their respective audits. The committee then met
with PwC and the internal auditors at various times throughout the
year, with and without management present, to discuss the results
of their examinations, evaluations of the company’s internal
controls, the overall quality of the company’s financial reporting,
and the critical accounting matters addressed during PwC's
audit.
Notwithstanding the committee’s oversight efforts, and the work
performed by the company’s internal audit staff, PwC alone is
responsible for expressing its opinion on the conformity of the
company’s consolidated year-end financial statements with
accounting principles generally accepted in the United States of
America and its assessment of the effectiveness of the company’s
internal control over financial reporting.
In fulfilling its oversight responsibilities, the committee
reviewed and discussed with management the company’s audited
consolidated financial statements for the year ended December 31,
2022. These discussions included assessments of the quality, not
just the acceptability, of the accounting policies used by the
company, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements. In addition,
the committee has discussed with PwC its judgment as to the
quality, not just the acceptability, of the company’s accounting
policies.
Based on the reviews and discussions referred to above, the
committee recommended to the Board of Directors that the audited
consolidated financial statements be included in The Progressive
Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2022, for filing with the SEC.
After reviewing the performance of PwC in planning and conducting
the 2022 audit, and considering PwC's independence, quality of
services and communications, and sufficiency of resources, among
other matters, the committee has selected and retained PwC to serve
as the independent registered public accounting firm for
Progressive and its subsidiaries for 2023. Shareholders are being
given the opportunity to vote on the ratification of this selection
at the 2023 Annual Meeting of Shareholders.
The committee operates under a written charter, the terms of which
are reviewed annually by the committee. The current charter, as
approved by the Board, is posted on the company’s website at
progressive.com/governance.
AUDIT COMMITTEE
Stuart B. Burgdoerfer,
Chair
Philip Bleser
Jeffrey D. Kelly
|
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following information is set forth with respect to persons
known to management to be the beneficial owners of more than 5% of
Progressive’s common shares, $1.00 par value, as of
December 31, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
Name and Address of
Beneficial Owner |
Amount and
Nature of
Beneficial
Ownership1
|
|
Percent
of Class |
|
The Vanguard Group Inc.
100 Vanguard Blvd.
Malvern, PA 19355
|
50,562,142
2
|
|
8.6 |
% |
|
BlackRock, Inc. and subsidiaries
55 East 52nd Street
New York, NY 10055
|
43,452,644
3
|
|
7.4 |
% |
1The
information contained in this table, including related footnotes,
is derived from the Schedule 13G/A filings made by the identified
beneficial owners as of December 31, 2022.
2The
Vanguard Group Inc. has sole investment power over 48,116,052
shares, shared investment power over 2,446,090 shares, shared
voting power over 866,195 shares, and does not have sole voting
power over any shares.
3BlackRock,
Inc. and its subsidiaries have sole investment power over
43,452,644 shares, sole voting power over 38,749,215 shares, and
does not have shared investment or voting power over any
shares.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following information summarizes the beneficial ownership of
Progressive’s common shares as of January 31, 2023, by each current
director of Progressive, each nominee for director, and each of the
named executive officers (as identified in “Executive
Compensation
– Summary Compensation Table”) and all current directors and
executive officers as a group. In addition, to provide a more
complete picture of the economic interests of certain individuals
in Progressive common shares, the final two columns include certain
units held in our benefit and equity incentive plans that are equal
in value to a share of our stock, but do not technically qualify as
“beneficially owned” under the applicable regulations, also as of
January 31, 2023.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
Total Common Shares Beneficially
Owned1
|
Percent of
Class2
|
Units Equivalent to Common
Shares3
|
Total Interest in Common Shares
and Unit Equivalents |
|
|
|
|
Karen B. Bailo |
35,550 |
|
* |
14,159 |
|
49,709 |
|
|
|
|
|
Danelle M. Barrett |
— |
|
* |
— |
|
— |
|
|
|
|
|
Philip Bleser |
22,044 |
|
* |
1,524 |
|
23,568 |
|
|
|
|
|
Stuart B. Burgdoerfer |
26,426 |
|
* |
— |
|
26,426 |
|
|
|
|
|
Patrick K. Callahan |
15,186 |
|
* |
110,701 |
|
125,887 |
|
|
|
|
|
Pamela J. Craig |
10,729 |
|
* |
216 |
|
10,945 |
|
|
|
|
|
Charles A. Davis |
343,415 |
|
* |
12,704 |
|
356,119 |
|
|
|
|
|
Roger N. Farah |
113,487 |
|
* |
30,783 |
|
144,270 |
|
|
|
|
|
Lawton W. Fitt |
111,692 |
|
* |
22,753 |
|
134,445 |
|
|
|
|
|
Susan Patricia Griffith |
549,063 |
|
* |
95,718 |
|
644,781 |
|
|
|
|
|
Devin C. Johnson |
6,427 |
|
* |
— |
|
6,427 |
|
|
|
|
|
Jeffrey D. Kelly |
50,415 |
|
* |
— |
|
50,415 |
|
|
|
|
|
John Murphy |
43,945 |
|
* |
17,549 |
|
61,494 |
|
|
|
|
|
John P. Sauerland |
420,679 |
|
* |
22,085 |
|
442,764 |
|
|
|
|
|
Barbara R. Snyder |
34,371 |
|
* |
14,235 |
|
48,606 |
|
|
|
|
|
Jan E. Tighe |
3,473 |
|
* |
5,634 |
|
9,107 |
|
|
|
|
|
Kahina Van Dyke |
11,966 |
|
* |
— |
|
11,966 |
|
|
|
|
|
All 24 Current Executive Officers and Directors as a
Group |
1,980,055 |
* |
450,802 |
2,430,857 |
|
|
|
*Less
than 1% of Progressive’s outstanding common shares.
1
Total Common Shares Beneficially Owned is comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
Common Shares Subject to Restricted Stock Awardsa
|
Beneficially Owned Common Share Equivalent Unitsb
|
Other Common Shares Beneficially Ownedc
|
|
Karen B. Bailo |
— |
|
— |
|
35,550 |
|
|
Danelle M. Barrett |
— |
|
— |
|
— |
|
|
Philip Bleser |
2,962 |
|
19,082 |
|
— |
|
|
Stuart B. Burgdoerfer |
1,914 |
|
— |
|
24,512 |
|
|
Patrick K. Callahan |
— |
|
— |
|
15,186 |
|
|
Pamela J. Craig |
1,859 |
|
4,509 |
|
4,361 |
|
|
Charles A. Davis |
2,962 |
|
10,768 |
|
329,685 |
|
|
Roger N. Farah |
3,098 |
|
102,850 |
|
7,539 |
|
|
Lawton W. Fitt |
4,739 |
|
97,564 |
|
9,389 |
|
|
Susan Patricia Griffith |
— |
|
— |
|
549,063 |
|
|
Devin C. Johnson |
2,734 |
|
— |
|
3,693 |
|
|
Jeffrey D. Kelly |
1,695 |
|
— |
|
48,720 |
|
|
John Murphy |
— |
|
— |
|
43,945 |
|
|
John P. Sauerland |
— |
|
— |
|
420,679 |
|
|
Barbara R. Snyder |
2,734 |
|
9,907 |
|
21,730 |
|
|
Jan E. Tighe |
2,871 |
|
602 |
|
— |
|
|
Kahina Van Dyke |
2,871 |
|
— |
|
9,095 |
|
|
All 24 Current Executive Officers and Directors as a
Group |
30,439 |
|
245,282 |
|
1,704,334 |
|
a
Represents common shares held pursuant to unvested restricted stock
awards issued under the Amended and Restated 2017 Directors Equity
Incentive Plan. The beneficial owner has sole voting power and no
investment power with respect to these shares during the
restriction period.
b
This number represents units (excluding dividend equivalents) that
have been credited to the director’s account under The Progressive
Corporation Directors Restricted Stock Deferral Plan, as amended
and restated (the Directors Restricted Stock Deferral Plan), under
which each director has the right to defer restricted stock awards,
to the extent that distributions from the Directors Restricted
Stock Deferral Plan will be made in Progressive common shares upon
the termination of a director’s service as a director. As to the
number of shares that will be so distributed, the director has the
right to acquire those shares within 60 days, and those shares are
deemed “beneficially owned.” See “Director Compensation – Narrative
Disclosure to Director Compensation Table” for a description of the
Directors Restricted Stock Deferral Plan.
c
Includes common shares held directly by the individual, holdings in
our 401(k) plan, and shares held by, or for the benefit of, family
members. For Mrs. Griffith, the amount includes a total of 82,811
common shares held in trust for the benefit of her spouse and
19,108 common shares held by her spouse. For Mr. Sauerland, this
amount includes 64,074 shares beneficially owned by his family
members and related entities, of which he may be deemed a
beneficial owner by virtue of voting, investment and dispositive
power over such shares but in which he has no pecuniary interest.
Mr. Sauerland disclaims beneficial interest over such shares. For
Mr. Burgdoerfer, this amount includes 11 common shares held by his
spouse.
2
Percentage based solely on “Total Common Shares Beneficially
Owned.”
3
The units disclosed are in addition to “Total Common Shares
Beneficially Owned” and have been credited to the applicable
director's or executive officer’s account under one or more of our
deferred compensation plans as dividend equivalent units, or, as it
relates to our executive officers, under our 2015 Equity Incentive
Plan. In each case, the holder has neither voting nor investment
power. Each unit is equal in value to one Progressive common share.
For the applicable executive officers, amounts in this column: (a)
include outstanding time-based restricted stock unit awards, some
of which, for certain executives officers, could vest upon
retirement assuming that the executive officer has satisfied the
Rule of 70 requirements, but for which distribution to the
executive officer is delayed under Section 409A of the Internal
Revenue Code, and (b) exclude outstanding performance-based
restricted stock unit awards, due to the variable nature of such
awards. See “Executive Compensation – Outstanding Equity Awards at
Fiscal Year-End” and “Executive Compensation – Potential Payments
Upon Termination or Change in Control” for additional information
on these awards.
COMPENSATION DISCUSSION AND ANALYSIS
OVERVIEW
Our vision is to become consumers’, agents’, and business owners'
number one destination for insurance and other financial needs. For
many years, our goal has been to grow as fast as we can at a 96 or
better combined ratio while continuing to deliver high-quality
customer service. The combined ratio represents the profitability
of our insurance operations. We believe that focusing on this
profitable growth goal has and will continue to increase
shareholder value over the long term.
We structure our executive compensation programs to support this
goal, providing a strong alignment between pay and performance. We
generally provide target compensation to our executives below the
market median, with performance-based compensation providing upside
potential when we perform well against pre-established and
objective measures that we believe correlate to shareholder value.
In addition, we provide a high percentage of total compensation to
executives in the form of equity awards, and we believe these
awards support a strong pay-for-performance linkage and further
align the interests of our executives with those of our
shareholders.
We believe that our compensation programs have contributed to our
exceptional and profitable growth in recent years. For example,
over the past three years we have profitably grown our net premiums
earned (the source of nearly all of our non-investment revenue) by
$13.0 billion, or 36%. During 2022, net premiums written grew by
10% and net premiums earned grew by 11%, at a profitable 95.8
combined ratio. We believe this performance exceeds the
underwriting performance of our industry peers.
We continue to demonstrate strong pay-for-performance alignment in
our equity and cash incentive awards. During the past five
years:
•we
grew faster than the markets for the insurance business lines we
measure, resulting in the related vesting of the performance-based
restricted stock unit awards above target,
•our
Gainshare program paid out an average of 164% of target based on
the growth in average policies in force and profitability of our
insurance businesses (for 2022, it paid out at 86% of target),
and
•we
achieved above-market longer-term fixed-income portfolio
performance, resulting in the vesting of the performance-based
restricted stock unit awards that reflect our investment results
above target.
In addition, our cumulative total shareholder return over the past
five years exceeded that of the S&P 500 by 3.0 times (x), as
disclosed in our performance graph in our 2022 Annual Report to
Shareholders. Our cumulative total shareholder return over the past
three years also exceeded that of our chosen industry peer group by
2.0x, as disclosed in "Pay Versus Performance."
See “Proxy Statement Summary” for more information regarding our
annual financial results for 2022 and "Pay Versus Performance" for
an additional discussion related to our pay-for-performance
alignment.
COMPENSATION HIGHLIGHTS FOR 2022
Consistent with prior years, the total target compensation in 2022
for our Chief Executive Officer (CEO) and the other named executive
officers or NEOs (identified in “2022 Other NEOs Compensation”
below) were heavily weighted toward at-risk, including
performance-based, compensation.
2022 CEO Compensation
At-risk annual cash incentive and equity awards remained unchanged
and represented 96% of maximum potential compensation and 93% of
target compensation.
Salary remained unchanged and well below the market
median.
Annual Cash Incentive (Gainshare) could range from zero
to 5.0x salary, with a 2.5x target.
Annual Equity awards:
•Time-based:
3.0x salary
•Performance-based
at target:
•Insurance
operations: 6.0x salary, and
•Investment
results: 1.0x
salary.
CEO’s equity ownership (as of January 31, 2023): Our CEO directly
owned shares valued at 64x salary, well in excess of the 6x
required by our Corporate Governance Guidelines (which excludes all
unvested equity awards).
2022 Other NEOs Compensation
At-risk annual cash incentive and equity awards averaged 90% of
maximum potential compensation and 82% of target
compensation.
Each NEO received a salary increase.
Annual cash incentives vary by executive and could range between
zero and 3.0x salary; targets range between 1.0x and 1.5x
salary.
Annual Equity awards:
•Time-based:
1.0x salary, and
•Performance-based
at target: 2.18x salary, on
average.
Equity ownership requirements (as of January 31, 2023): Each of the
NEOs was in compliance with the expectation in our Corporate
Governance Guidelines that they hold equity (including unvested
time-based equity awards) valued at a minimum of 3x
salary.
For 2022, the other NEOs included John P. Sauerland, our Vice
President and Chief Financial Officer, Patrick K. Callahan, our
Personal Lines President, John Murphy, our Claims President, and
Karen B. Bailo, our Commercial Lines President.
2022 Say-on-Pay Vote
At our 2022 Annual Meeting of Shareholders, shareholders cast
advisory votes on our executive compensation program, sometimes
referred to as the “say-on-pay” vote. In that vote, shareholders
approved our executive compensation program, with 94% of the votes
cast in support. During 2022, the Compensation Committee of the
Board of Directors reviewed these results with management. Due to
the strong level of shareholder support and the
absence
of specific concerns expressed by shareholders, the committee
determined that no specific actions with respect to 2023
compensation should be taken as a result of the say-on-pay
vote.
OUR EXECUTIVE COMPENSATION PROGRAM
Our executive compensation program is designed and implemented
under the direction and guidance of the Compensation Committee.
Broadly stated, we seek to maintain a consistent executive
compensation program with the following objectives:
•attract
and retain outstanding executives with the leadership skills and
expertise necessary to drive results, build an enduring business,
and create long-term shareholder value;
•motivate
executives to achieve our long-term strategic goals while meeting
challenging short-term business objectives;
•reward
performance and differentiate compensation based on the achievement
of challenging goals; and
•align
the interests of our executives with those of
shareholders.
Progressive’s executive compensation program is designed to serve
the shareholders’ interests by strongly tying our executives’
compensation to the achievement of important operating goals and
the value of our common shares. As a result, while we seek to offer
competitive salaries to our executives, the more significant
aspects of our executive compensation program are annual cash
incentive opportunities and equity awards. In the spirit of
aligning compensation across the company, nearly every employee
participates in our Gainshare program and employees at senior
levels are eligible to receive equity awards.
As a general matter, executive salaries are intended to be somewhat
lower than median amounts paid to executives who have similar
responsibilities at comparable companies, while our annual
incentive and performance-based equity programs provide the
potential to earn above market median total compensation when the
company achieves challenging goals designed into these
plans.
While we consider market data when making decisions on executive
compensation, variations occur for a number of reasons, including
the unique nature of a specific executive’s responsibilities,
individual performance, the tenure and experience of an executive,
the executive’s future potential, and our business
needs.
THE ROLE OF DIVERSITY, EQUITY, AND INCLUSION
We believe that our people and our culture remain our most
significant competitive advantage and that having the right people
working together in the right way is critical to driving our
results, building an enduring business, and creating long-term
shareholder value.
In our view, supporting diversity, equity, and inclusion (DEI) in
the workplace is a top priority, and critical to achieving our
goals of attracting, retaining, and motivating our highly qualified
employees to build upon our enduring business and create long-term
shareholder value.
For several years, the job objectives for our executive officers,
including our NEOs, have included an objective related to
supporting our commitment to advancing DEI, demonstrating our
intentional focus on DEI efforts, and appreciating the critical
role DEI plays in our success.
In addition to the assessment of market data, in establishing 2022
target total compensation for our NEOs, the Compensation Committee
broadly considered the investments and actions taken during 2021
under our executive team’s leadership to further support our DEI
efforts, including:
•Establishing
a DEI leadership job objective for our managers focused on
inclusion, building intercultural competencies and leading diverse
teams, among other things.
•Supporting
awareness efforts (e.g., facilitating DEI discussions and
participating in related training and development).
•Launching
two career development boot camps (IT Programmer and Analyst) to
accelerate career opportunities for all.
•Investing
in two leadership development programs to accelerate our employees’
progress.
•Serving
as sponsors for many of our nine Employee Resource Groups
(ERGs).
•Supporting
efforts to contribute to our communities through our Keys to
Progress®
program (which includes providing vehicles to veterans and
furnishing homes to individuals emerging from homelessness), our
various education and engagement efforts, and our financial
contributions to various community organizations.
The momentum and focus on DEI continued throughout 2022. We
continued to strive for diversity in our teams, equity in our
practices, and inclusion in our culture. Accordingly, the
Compensation Committee made a similar assessment with respect to
establishing 2023 target total compensation for the NEOs and
broadly considered the several DEI investments and actions taken
during 2022 under our executive team’s leadership,
including:
•Guiding
companywide strategy and efforts that strengthened the company’s
commitment to ensuring a healthy culture where all our talented
people can thrive.
•Meaningfully
supporting our DEI awareness efforts and serving as sponsors for
many of our nine ERGs.
•Creating
several leadership development offerings at the business function
level.
•Expanding
our Multicultural Leadership Development program to include two
programs for high performing, motivated individual contributors who
aspire to take on roles in leadership.
•Launching
forums to support new senior leaders.
•Supporting
efforts in our hybrid work environment aimed at ensuring a culture
of belonging where all of our people are welcomed, valued and
respected.
•Striving
to create products, services and communications that are relevant
and desirable in our multicultural marketplace and enhancing and
expanding our customer-focused multilingual
experiences.
•Including
minority-, women-, and military-veteran-owned underwriting firms in
our 2022 $1.5 billion public debt offering.
•Supporting
efforts to contribute to our communities through our Keys to
Progress®
program.
•Supporting
a change in The Progressive Insurance Foundation’s traditional
matching gift program to a new equitable giving program called
“Name Your Cause” intended to broaden employee
participation.
•Serving
as the stewards of our Core Values and culture, which contributed
to the company receiving several recognitions for 2022, including:
Fortune 100 Best Companies to Work For, Forbes Best Employers for
Diversity, Gallup Exceptional Workplace Award and NACD Diversity,
Equity and Inclusion Award.
ELEMENTS OF COMPENSATION – 2022 DECISIONS AND AWARDS
The following chart provides general information about the elements
of compensation for our executive compensation
program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Element |
Why We Use This Element |
|
Fixed
|
Annual
|
Salary |
Attracts and retains executive talent and rewards individual
performance
|
|
Variable
|
Gainshare cash incentive |
Motivates nearly all employees, including our executives, to
achieve challenging and objective operating goals in our insurance
businesses
Measures the annual growth in policies in force and profitability
in our insurance businesses
Generally, provides executives with the potential (when combined
with other compensation elements) to earn compensation above the
market median
|
|
Progressive Capital Management cash incentive |
Motivates our investment professionals, including our Chief
Investment Officer (CIO), to balance short- and long-term
performance of our fixed-income portfolio with our investment goal
of protecting our balance sheet (no current NEO participates in
this plan)
Measures the performance of our fixed-income portfolio over a
one-year and a three-year period against the performance results of
a benchmark group
Provides the CIO with the potential (when combined with other
compensation elements) to earn compensation above the market
median
|
|
Long-Term
|
Performance-Based Restricted Stock Units
Growth in Market Share*
|
Motivates executives to focus on longer-term operating performance
of our insurance businesses
Rewards our profitable growth in market share of our insurance
businesses over a three-year period
Aligns the interests of executives with those of shareholders by
tying the value of compensation to the market value of our common
shares
Generally, provides executives with the potential (when combined
with other compensation elements) to earn compensation above the
market median
|
|
Performance-Based Restricted Stock Units
Investment Results*
|
Motivates our CEO, CFO, and CIO to achieve longer-term fixed-income
portfolio investment performance
Measures the performance of our fixed-income portfolio over a
three-year period against the performance results of a benchmark
group
Aligns the interests of these executives with those of shareholders
by tying the value of compensation to the market value of our
common shares
Provides these executives with the potential (when combined with
other compensation elements) to earn compensation above the market
median
|
|
Time-Based Restricted Stock Units |
Further aligns the interests of executives with those of
shareholders by tying the value of compensation to the market value
of our common shares
|
*The pay-for-performance alignment of these elements of
compensation are described in more detail in "Pay Versus
Performance."
Salaries
For 2022, annual salaries for our NEOs were as
follows:
|
|
|
|
|
|
|
|
|
|
Name |
2022
Salary1
|
Change From
Prior Salary |
|
Susan Patricia Griffith |
$950,000 |
— |
% |
|
John P. Sauerland |
675,000 |
3.8 |
|
|
Patrick K. Callahan |
625,000 |
4.2 |
|
|
John Murphy |
550,000 |
10.0 |
|
|
Karen B. Bailo |
550,000 |
37.5 |
|
1Amounts
may differ from the salary amounts shown in “Executive Compensation
– Summary Compensation Table” as salary changes are typically
implemented in January or February of each year.
After a review of market conditions and performance, annual salary
increases were generally provided where necessary to improve the
competitive nature of our total compensation. The Compensation
Committee adjusted the annual salaries for Mr. Murphy in light of
his new role as our Claims President (he previously was our
Customer Relationship Management President) and Ms. Bailo after
considering her performance following her first year in this
position. Mrs. Griffith requested that her target compensation,
including her salary, remain the same as 2021 and the Compensation
Committee honored her request. After taking into account the
increases, the 2022 salaries for each applicable NEO remained below
the median for executives at comparable companies, with the
exception of Mr. Murphy (whose salary was slightly above the
median), based on the data reviewed by the Compensation Committee
in late 2021.
Annual Cash Incentive Payments (Gainshare)
Gainshare is designed to reward performance relative to our
long-standing companywide goal to grow as fast as we can at a 96 or
better combined ratio while continuing to deliver high-quality
customer service. We reinforce this goal through regular employee
communications that also include the importance of following our
Core Values in pursuit of that goal.
Our Gainshare program has been around for three decades and has
been the primary vehicle to motivate and reward our employees to
achieve our goal. While most companies of our size utilize some
form of bonus program, nearly all of our employees participate in
Gainshare, and we win or lose together based on our collective
performance. We believe that Gainshare is a differentiator and
contributes to the “all for one and one for all” attitude that in
part defines our culture.
The Gainshare plan is currently comprised of five matrices that
objectively measure our various products and channels. We use a
different matrix for each line of business to reflect the different
growth
and profitability expectations given the wide variance in our
market share across business lines and channels.
Gainshare payments for NEOs are determined using the same
performance criteria we use for the Gainshare payments for all of
our employees, resulting in a consistent set of goals across our
employee population. Gainshare payments are determined using the
following formula:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid
Salary |
X
|
Target
Percentage |
X
|
Gainshare (i.e.,
Performance)
Factor |
=
|
Annual
Incentive Payment |
Each executive’s salary and target percentage are established by
the Compensation Committee each year during the first calendar
quarter. When the executive’s paid salary is multiplied by the
assigned target percentage, the product is referred to as the
participant’s “target annual incentive payment” for the year. The
Gainshare Factor can range from zero to 2.0 each year, and annual
cash incentive payments, therefore, can vary between 0x and 2x the
target annual incentive payment amount, depending on our actual
performance results for the year.
Throughout the 30-year history of our companywide Gainshare program
(including 2022), the final Gainshare Factor has ranged from zero
to 2.0 and over the past 5 years of profitable growth has averaged
1.64. These results confirm management’s view that our Gainshare
program has operated to provide annual cash incentive payments to
our employees, including our executive officers, commensurate with
our level of achievement.
The Compensation Committee set the following Gainshare target
percentages for 2022:
|
|
|
|
|
|
|
Name |
2022 Target
(Multiple of Salary)
|
|
Susan Patricia Griffith |
2.50 |
x |
|
John P. Sauerland |
1.50 |
|
|
Patrick K. Callahan |
1.50 |
|
|
John Murphy |
1.00 |
|
|
Karen B. Bailo |
1.00 |
|
For each NEO, the target percentage values remained unchanged from
2021.
The Gainshare payout was determined based on the performance of our
Agency auto, Direct auto, and special lines business units
(collectively, Personal Lines), Commercial Lines, and Property, in
each case subject to limited exclusions. The business lines
excluded from profitability results (i.e., our umbrella, renters,
flood, business owners policy, and the
business of Protective Insurance Corporation and subsidiaries
acquired in 2021) represented less than 2% of our companywide net
premiums earned. For 2022, the transportation network company (TNC)
business was included in the Commercial Lines' profitability
results for the first time, but remained excluded from the average
policies in force calculations. The Gainshare Factor for 2022 was
0.86 out of a possible 2.0 and all Gainshare payments for the NEOs
are reported in the “Executive Compensation – Summary Compensation
Table” as “Non-Equity Incentive Plan Compensation.”
Focusing on performance at the business level was consistent with
management’s approach to evaluating our operations. We used the
average number of “policies in force” to measure growth for each of
those businesses because it represents the average of all policies
under which coverage was in effect as of the end of the periods
specified. The combined ratio represents the profitability of our
insurance operations.
Our 2022 Gainshare plan evaluated the growth and profitability of
each of our core lines of business separately and determined a
score between zero and 2.0 for each business. The individual scores
were calculated based on a matrix that was approved by the
Compensation Committee at the beginning of the year that
contemplated several profit and growth scenarios. Each matrix was
built by anchoring the 1.0 score at the established profitability
target for the line of business, along with an aggressive growth
goal when compared to historical industry growth rates. Each
possible combination of growth and profitability would produce a
score, and a score at or near 1.0 could be earned with a variety of
other growth and profitability combinations; that is, if growth was
below expectations, a 1.0 could still be achieved if profitability
increased and, likewise, a moderate decrease in profitability could
be offset by higher growth to generate a score around 1.0. To
evaluate the difficulty of the matrices, we compared historical
industry performance for several of our largest lines of business
to our Gainshare matrices and determined that the growth and
profitability required to earn a 1.0 in our Gainshare plan
generally required us to perform considerably better than our
competitors.
The nature of the Gainshare program and the measures that we use
were relatively unchanged over the past several years. Although we
review the interplay of profitability and growth levels for each
business unit matrix annually, any changes are more in the nature
of refinements based on market trends and internal expectations.
Because the goals are relatively consistent over time and represent
management’s expectations and goals on a business
unit level, we believe that our competitors could glean valuable
information about our current operations, strategies, and operating
goals if we were to disclose the performance goals in greater
detail, even for the previous fiscal year. We therefore believe
that the specific goals for our current and prior fiscal years
constitute competitive information, which, if disclosed, would harm
our competitive position and that our current level of disclosure
regarding performance goals and actual performance levels is in the
best interests of our shareholders.
The following table presents the overall 2022 growth and
profitability data for the individual core business units that
contributed to the 0.86 Gainshare Factor:
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Unit |
Combined
Ratio1
|
Increase in
Policies in
Force (%)2
|
|
|
Agency auto |
95.9 |
|
(3) |
% |
|
|
Direct auto |
96.2 |
|
3 |
|
|
|
Special lines |
— |
|
6 |
|
|
|
Commercial Lines |
91.1 |
|
11 |
|
|
|
Property |
110.5 |
|
3 |
|
|
1Consistent
with the presentation of the combined ratio of our Personal Lines
segment in our public reports, the combined ratio results for our
special lines business are not presented separately and, instead,
are included in either the Agency or Direct results, depending on
whether the underlying policy was written through agents/brokers or
directly by us.
2Based
on average policies in force outstanding during the year and, for
Agency and Direct, represents auto policies in force
only.
Using the actual performance results for the year and the Gainshare
matrices discussed above, we determined the performance score for
each core business unit, weighted those scores based on each
business unit’s relative contribution to overall net premiums
earned, and then added the weighted scores to determine the
Gainshare Factor, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Unit |
Business
Unit
Performance
Score |
Weighting
Factor
(%) |
Weighted
Performance
Score |
|
Agency auto |
0.26 |
|
33.8 |
% |
0.09 |
|
|
Direct auto |
0.94 |
|
39.4 |
|
0.37 |
|
|
Special lines |
1.70 |
|
4.9 |
|
0.08 |
|
|
Commercial Lines |
1.79 |
|
17.6 |
|
0.32 |
|
|
Property |
0.00 |
|
4.3 |
|
0.00 |
|
|
Gainshare Factor |
|
0.86 |
|
For 2022, the Gainshare Factor we earned was below our target
factor of a 1.0, reflecting the challenging year in terms of both
profitability and growth. As previously stated, our financial
objective is to grow profitably and, in times when we are
challenged to achieve both, to prioritize profitability over
growth.
While our companywide combined ratio was 95.8, which is better than
our target combined ratio of a 96.0, our policies in force growth
was negatively impacted by our focus on achieving our profitability
target, especially in our personal auto products.
During 2022, we raised our personal auto rates in aggregate 13% on
a countrywide basis, following an 8% aggregate countrywide rate
increase in 2021. We also closely monitored our media spend
throughout the year and reduced the amount of advertising we
delivered when we were not meeting our profitability goals. These
rate and non-rate actions reduced the growth that we generated,
especially during the first half of 2022. Our growth started to
accelerate during the second half of the year as our competitors
began to raise rates, but still fell short of our auto policies in
force growth contemplated in our Gainshare matrices to achieve a
score of 1.0. Our Agency auto business was impacted to a greater
extent than our Direct auto business given the decrease in policies
in force over the prior year, which in part reflected the nature of
the distribution channel and the ability for independent agents to
not offer our rates when our competitors' rates were lower on a
comparison basis.
As depicted in the previous table, Commercial Lines and special
lines achieved business unit scores above the 1.0 target, at 1.79
and 1.70, respectively. These results reflect the strong
profitability and policies in force growth in the products used to
calculate each business unit’s Gainshare performance score.
Property produced a factor of zero given both its underwriting loss
for 2022, which was driven by catastrophe losses, and lower
policies in force growth than anticipated in the Gainshare
matrix.
Under the Gainshare calculations, average policies in force for the
included products grew by about 2%. Along with this unit growth,
during 2022, companywide net premiums written grew 10% and net
premiums earned grew 11%, at a 95.8 combined ratio.
We believe that the resulting 0.86 Gainshare Factor was an
appropriate and reasonable outcome based on the overall
profitability and growth achieved in 2022. Although we expected
2022 to be a challenging year given the rising loss cost trends
that we were experiencing in light of the inflationary environment
and other factors, we continued to calibrate our Gainshare matrices
to focus on achieving profitable growth. The fact that the 2022
Gainshare Factor was lower than the factors for the past 5 years,
and the lowest since 2009, further demonstrates our strong
pay-for-performance alignment in our Gainshare
program.
Equity Awards
Our executive compensation program also provides longer-term
incentives through grants of equity-based awards, currently in the
form of restricted stock units. Under a restricted stock unit
grant, the executive receives an award of a specified number of
units; upon vesting of the award, the executive is entitled to
receive one Progressive common share for each unit that is vesting.
Annual awards of restricted stock units are made to the NEOs in the
form of time-based awards and performance-based
awards.
Since 2021, our agreements include a non-compete provision and
contain different provisions for death, disability and retirement
than prior awards (see “Executive Compensation – Narrative
Disclosure to Summary Compensation Table and Grants of Plan-Based
Awards Table”).
Annual Time-Based Awards
In 2022, time-based restricted stock unit awards were granted to
the NEOs and 1,052 other senior level employees, comprising
approximately 2% of our entire employee population. These awards
will vest in three equal annual installments, in January of
2025, 2026, and 2027, subject to accelerated vesting and forfeiture
provisions in the 2015 Equity Incentive Plan (2015 Plan) and the
grant agreement.
Annual Performance-Based Awards – Performance versus Market
Insurance Results
In addition, each of the NEOs and 57 other senior managers were
granted performance-based restricted stock unit awards that measure
the growth of our insurance businesses, and compare that growth to
the growth of the market as a whole, over a three-year performance
period, and also include a profitability requirement of a combined
ratio of 96 or better over the most recent 12-month period when the
vesting is determined.
These awards require our business lines to outgrow the market by a
specified percentage for that business line to contribute the
actual number of units eligible to vest. Specifically, the awards
measure the growth of three business lines (private passenger auto,
commercial auto, and homeowners multiple-peril) from 2022 through
2024 and compare that growth to the growth rate of each of these
markets as a whole (excluding our results) over that same period.
We measure against these business lines since they represent market
categories that align with financial reporting to insurance
regulatory authorities and are publicly available and compiled
routinely by third parties.
Each business unit will receive a score, which will then be
weighted based on the business lines’ relative contribution to net
premiums earned. These scores will then be combined to produce a
final
performance factor. In each case, we will use A.M. Best data to
make these calculations. The final performance factor will be used
as a “multiplier” to
increase or decrease the number of units (compared to target) that
can vest. Although these awards are designed to reward growth, they
do not reward
growth at all cost, and also include a restriction on vesting based
on the profitability requirement previously described.
The performance score for each business unit will be determined as
follows:
|
|
|
|
|
|
|
|
|
|
Performance vs. Business Line Market1
|
|
Determination of the Performance Score for the Business
Line |
|
If our growth for the business line exceeds the market growth rate
by the maximum measure for that business line or more |
|
Score will be 2.5x; this is the maximum possible score |
|
If our growth rate for the business line exceeds the market growth
rate by more than the target measure for that business line but
less than the maximum measure for that business line |
|
Score will be between 1.0x and 2.5x, in proportion to the extent to
which each business line’s growth rate exceeds the market’s growth
rate above the target rate |
|
If our growth rate for the business line exceeds the market growth
rate by less than the target measure for that business
line |
|
Score will be up to 1.0x of the target in proportion to the extent
to which each business line’s growth rate exceeds the market’s
growth rate |
|
If the business line’s growth rate is equal to or less than the
market growth rate |
|
The score for the business line will be 0 |
1
Growth is measured by premium growth, which is calculated as the
percentage change in annual direct earned premium (defined as the
sum of net earned premium and earned premiums ceded under
reinsurance).
For 2022, the target growth rate measure and maximum growth rate
measure for each business line is as follows:
|
|
|
|
|
|
|
|
|
|
Business Line |
Target Growth Rate Measure |
Maximum Growth Rate Measure |
|
Private passenger auto |
Two percentage points |
Three and a half percentage points |
|
Commercial auto |
Two percentage points |
Three and a half percentage points |
|
Homeowners multiple-peril |
Three and a half percentage points |
Five percentage points |
For the 2022 awards, the performance factor is expected to be
determined in July 2025. If the performance factor is zero, the
awards will not vest and will be forfeited. If the performance
factor is greater than zero, the performance factor is determined
and the awards are eligible to vest, if and when the 12-month
profitability requirement is satisfied. For the 2022 awards, if the
profitability requirement is not satisfied by January 31, 2027, the
awards will not vest and will expire.
We believe that this approach, with a potential upside for
outperformance as compared with the private passenger auto,
commercial auto, and homeowners insurance markets, provides
appropriate focus on our full competitor set in the insurance
market, consistent with our profitable growth goals. In addition,
the profitability requirement imposes an additional challenge to
our growth in market share, given the fact that some of our
competitors do not consistently show a profit in their insurance
operations and rely instead on their investment activity to fund
insurance liabilities.
Annual Performance-Based Equity Awards – Investment Results
In March 2022, the committee also awarded performance-based
restricted stock units to Mrs. Griffith, Mr. Sauerland, and our
CIO, with a performance goal relating to investment performance.
These awards did not increase the aggregate size of the equity
awards to the CEO or CFO, but represented a portion of the total
performance-based awards that otherwise would have been granted to
them.
These awards measure the performance of our fixed-income portfolio
for the three-year period of 2022 through 2024, on the basis of the
fully taxable equivalent total return (FTE). The FTE is calculated
by dividing the recurring investment income (which includes 50% of
the benefit of state premium tax abatements associated with certain
municipal securities held in our portfolio, and the total net
realized (and changes in total unrealized) gains or losses on the
applicable securities), by the average outstanding fixed income
investments for the period. Those results are then compared to the
performance results achieved by a benchmark group of comparable
firms meeting a series of objective criteria for the same time
periods. The fixed-income portfolio was chosen for these equity
awards because
it represents a substantial portion of our investment portfolio
(over 94% at year-end) and our CIO and other investment
professionals actively manage this fixed-income portfolio and do
not manage our equity investments.
Each eligible NEO received a target number of restricted stock
units and the number of units that will ultimately vest can vary
between zero and 2.0 times target. At the end of the performance
period, using performance data supplied by an independent third
party, the performance factor will be determined based on our
percentile ranking in the benchmark group as follows:
|
|
|
|
|
|
|
|
|
|
Score=0 Rank at or below the percentile |
Score=1.0 Rank equal to the percentile |
Score=2.0 Rank at or above the percentile |
|
25th
|
50th
|
75th
|
The percentile ranking will be interpolated based on the
positioning of our actual return compared to the other firms
included in the peer set (e.g., a ranking at the
40th
percentile will receive a score between zero and 1.0).
These performance-based awards are intended to align the
compensation of these executives with their responsibilities in
connection with the longer-term performance of our fixed-income
portfolio. The use of the 25th
percentile as the minimum performance level, and of the
75th
percentile as the maximum performance level, reflects the
Compensation Committee’s decision that our investment constraints
and guidelines differ from other firms included in the comparison.
The committee felt that requiring “average” performance prior to
vesting and/or rewarding performance above the
75th
percentile might create an incentive to increase investment risks
to a level that would exceed the company’s overall risk tolerance,
and that below target payouts for performance between the
25th
and 50th
percentiles would be, on balance, fair compensation for the results
achieved.
2022 Annual Equity Awards
For 2022, the aggregate dollar value (fair value on the date of
grant) of annual equity awards made to the NEOs was approximately
$5.3 million in time-based awards and $11.9 million in
performance-based awards (at target value).
Those awards were determined based on the following target
levels:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based
Award Value
(Multiple of Salary) |
|
Performance-Based
Award Target
Value
(Multiple of Salary)1
|
|
Name |
2022
|
2021
|
|
2022
|
|
2021
|
|
|
Susan Patricia Griffith |
3.00 |
x |
3.00 |
x |
|
7.00 |
x |
2
|
7.00 |
x |
2
|
|
John P. Sauerland |
1.00 |
|
1.00 |
|
|
2.75 |
|
2
|
2.75 |
|
2
|
|
Patrick K. Callahan |
1.00 |
|
1.00 |
|
|
2.75 |
|
|
2.50 |
|
|
|
John Murphy |
1.00 |
|
1.00 |
|
|
1.50 |
|
|
1.25 |
|
|
|
Karen B. Bailo |
1.00 |
|
1.00 |
|
|
1.50 |
|
|
1.25 |
|
|
1Pursuant
to performance-based awards, between zero-2.5x (zero-2.0x for
investment-based awards) of the number of units awarded can vest.
See discussions above.
2For
the following executives, investment-based awards represented the
indicated percentage of each executive's total performance-based
award for the year: Mrs. Griffith, 14%; and Mr. Sauerland,
16%.
Clawback Provisions
Our cash and equity incentive plans each include one or more
provisions that permit recoupment of performance-based compensation
when specified events occur or an executive officer engages in
specified conduct. If our operating or financial results used to
calculate a payment or vesting factor are restated within three
years of the payment or vesting, and the payment or amount of
common shares delivered at vesting was inflated as a result of the
incorrect results, we can recoup from the NEO the inflated portion
of the payment or common shares delivered (or equivalent value). In
addition, if an executive officer engaged in fraud or other
misconduct that led to a restatement of operating or financial
results, we can recoup from them the entire payment or value of
common shares delivered at vesting, plus interest and collection
costs, even if the restatement occurred more than three years after
the payment or vesting event.
Our equity awards also address conduct that results in reputational
harm. Under the 2015 Plan, if an executive officer engages in a
“disqualifying activity,” they forfeit all outstanding equity
awards (time-based and performance-based) held at the time the
activity began. If an equity award vests after the conduct began
but before we become aware of it, we can recoup the vested award.
Among conduct that constitutes a “disqualifying activity” is
conduct that is materially detrimental to our reputation or that is
a material violation of our Code of Conduct.
Additional Comments Regarding 2022 Compensation
Decisions
Consistent with our compensation philosophy and history with
respect to executive compensation, the committee granted a large
proportion of each NEO’s compensation in the form of
performance-based compensation, including equity compensation. In
this way, overall compensation for these individuals is
competitive, while providing the opportunity to earn above average
compensation if and when justified by the company’s performance and
our stock price and aligning the interests of these individuals
with those of shareholders. It should be noted, however, that the
ultimate value of these awards remains dependent on our achievement
of applicable performance goals and the value of our common shares
at the time of vesting of restricted stock unit awards. Thus, for
each NEO, a substantial portion of the compensation used to
establish the NEO’s potential percentile position compared to
market, and the value of those awards, will remain at risk for
years before it is earned, and some of the restricted stock unit
awards in fact may never vest. See "Pay Versus Performance" for
additional information regarding the change in fair value of these
awards until they vest.
Chief Executive Officer
Mrs. Griffith requested that her target compensation for 2022
remain the same since 2020, and the Compensation Committee honored
her request. As has been the case in prior years, Mrs. Griffith’s
salary amount remained well below the 50th
percentile of approximately $1.44 million for CEO salaries
reflected in the market data reviewed by the committee and
Mrs. Griffith’s annual cash incentive (Gainshare) target has
remained the same since 2019. In 2022, the Compensation Committee
again granted a large portion of Mrs. Griffith’s potential
compensation in the form of equity-based awards. The committee
determined that these equity awards would continue to keep Mrs.
Griffith’s overall compensation at a competitive level while
maintaining a very high portion of her potential compensation at
risk and dependent on our performance and our stock price. In this
way, the company was able to present appropriate incentives to
drive our performance and maximize the extent to which Mrs.
Griffith’s interests are aligned with the interests of
shareholders. The committee believed that this pay package was
consistent with the company’s compensation philosophy and presented
an appropriate pay package that is largely
performance-based.
The result of these determinations for 2022 was that, despite her
below median salary and target cash incentive, Mrs. Griffith
continues to have the potential to earn total compensation
significantly above the median if the company performs
exceptionally well over the various performance periods related to
her compensation granted in 2022. If Mrs. Griffith were to have
received a cash incentive payment based on a 1.0 Gainshare Factor
and her annual performance-based restricted stock unit awards were
to vest at their target amounts, her total annual compensation
would be just below the 25th
percentile
for CEOs.
However, her annual compensation would be above the
75th
percentile if all performance-based compensation payouts were to be
maximized.
Other Current Named Executive Officers
Market comparison information is only one of a number of factors
considered by the committee in setting compensation each year,
along with other factors such as the length of the executive’s
experience in the specific job, the nature of the job held and
related responsibilities, individual performance, expected future
contributions, the reliability of the comparison data, and our
business needs. However, we present comparison data here for the
shareholders’ information (see “– Procedures and Policies –
Compensation Comparisons” below for further information on our
market comparison process).
Assuming that cash incentives had paid out at a 1.0 performance
factor for the year and annual performance-based equity also were
to vest at the target 1.0 factor, Mr. Sauerland would receive total
compensation for 2022 between the 25th
and 50th
percentile level reflected in the market data reviewed by the
committee, Mr. Callahan and Ms. Bailo would receive total
compensation between the 50th
and 75th
percentile level, and Mr. Murphy would receive total compensation
above the 75th
percentile. In the event that all of their annual incentive based
compensation were to pay out at their maximum level, the total
compensation for Mr. Sauerland, Mr. Callahan, Ms. Bailo, and Mr.
Murphy would be above the 75th
percentile.
Changes for 2023
While the basic structure of the annual compensation for the NEOs
approved by the Compensation Committee in February 2023 was
consistent with 2022, after a review of market data, Mrs. Griffith
received a 5.3% salary increase for 2023, and the other NEOs
received salary increases between 3.7% and 9.1%.
The committee revised the allocation of Mrs. Griffith's annual
equity awards between time-based and performance-based awards as
noted below. The committee believes that this shift in allocation
of Mrs. Griffith's equity awards will provide her compensation at
an appropriate level, while adding significantly to the
performance-based nature and further aligning her interests with
those of our shareholders.
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Multiple of Salary |
|
Equity Award Allocation |
2023 |
2022 |
|
Time-based award |
1x |
3x |
|
Performance-based award (insurance business lines growth) at
target |
8x |
6x |
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Performance-based award (investment results) at target |
1x |
1x |
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Total annual equity award grant target value |
10x |
10x |
With respect to the 2023 Performance-Based Awards (Growth in Market
Share), in light of the focus on growing in states with
traditionally less catastrophe exposure and limiting growth in
coastal and hail-prone states, the homeowners multiple-peril
business line was removed from the awards.
With respect to the 2023 Gainshare Plan, the Property business was
split into two matrices for the reason described above and
Protective Insurance was included in the Commercial Lines’
profitability results for the first time, but continued to be
excluded from the growth results. Additionally, both of these
business units are subject to new profitability thresholds. If the
combined ratio of the business unit in its entirety equals or
exceeds 100, the Gainshare Factor for that business unit will be
0.
OTHER ELEMENTS OF COMPENSATION
Perquisites
We provide perquisites to our executives only when the Board or the
Compensation Committee determines that such benefits are in the
interests of Progressive and our shareholders. We own an aircraft
that is used primarily for the CEO’s and other
executive officers’ business travel. At the request of the Board,
Mrs. Griffith also uses the company aircraft for her personal
travel and that of her spouse and children when they accompany her.
Such personal use of the aircraft constitutes a perquisite and is
provided to enhance the CEO and her family’s
personal security and the confidentiality of their travel. During
2022, we incurred approximately $227,373 in incremental costs as a
result of Mrs. Griffith’s personal use of the aircraft. Such
personal trips by the CEO also result in taxable income being
imputed as required under IRS regulations, and Mrs. Griffith is
responsible for paying the taxes on such income without further
contribution or reimbursement from the company. Other executives
and guests may occasionally accompany the CEO on personal trips, at
the CEO’s discretion.
Mrs. Griffith is also provided with a company-owned vehicle
and a driver for business needs to facilitate transportation to and
among our headquarters and many other local facilities, and to
allow her to use that travel time for work purposes. To the extent
that the CEO uses the company car for personal matters, she
receives a perquisite.
See the “All Other Compensation” column of “Executive Compensation
– Summary Compensation Table” and related footnote for additional
information concerning perquisites.
Deferral Arrangements
NEOs and certain other senior level employees are given the
opportunity to defer the receipt of annual cash incentive payments
and annual equity awards under our Executive Deferred Compensation
Plan (EDCP). This deferral mechanism allows NEOs to delay receipt
of cash incentives or the vesting of equity awards that have been
earned in full and otherwise would have been received as of a
specific date. The EDCP is made available to executives in order to
keep our executive compensation program competitive and to allow
executives to manage their receipt of compensation to better fit
their life circumstances and to manage their tax obligations. We do
not contribute additional amounts to a participant’s deferral
account, either in the year of deferral or in future years. We also
do not guarantee a specific investment return to participants in
the deferral plan.
Deferred amounts are deemed to be invested in specific investments
selected by the participant, including an option to invest in
Progressive common shares. Deferrals of currently outstanding
equity awards are required to be invested in Progressive common
shares throughout the deferral period. The value of each
participant’s deferred account thus varies based on the
participant’s investment choices and market factors. Deferred
amounts are at risk and may decrease in value if Progressive common
shares or the other investments selected by the participant do not
perform well during the deferral period. Additional details
concerning this plan, including the NEOs’ respective holdings in
the plan, can be found
under “Executive Compensation – Nonqualified Deferred
Compensation.”
Retirement
We do not provide pension benefits or supplemental retirement
benefits to our NEOs. NEOs are eligible to participate in our
401(k) plan on the same terms and conditions available to all other
regular employees, subject to limitations under applicable law.
Also, upon leaving the company, the NEO may receive a payout of
unused paid time off and, where legally required, paid sick leave,
subject to limitations applicable to all employees.
We do not provide other payments or benefits to executives related
to retirement or eligibility for retirement other than with respect
to equity awards. Our NEOs, along with all other equity award
recipients, are eligible for “qualified retirement” treatment under
our 2015 Plan.
Beginning with the 2021 awards, if an NEO retires after satisfying
the Rule of 70 requirements (age 55 with at least 15 years of
service or age 60 with at least 10 years of service) and remained
employed through the end of 2022:
•100%
of their 2022 time-based award will vest
•the
NEO will retain 100% of the applicable performance-based award,
which will vest if, when and to the extent that the applicable
performance measures or any profitability requirement, are
achieved
For additional information regarding retirement benefits under
earlier equity awards, see “Executive Compensation – Potential
Payments Upon Termination or Change in Control.”
As discussed in the preceding section, an executive who elects to
participate in our deferral program may be entitled to receive
post-employment distributions from the EDCP. See “Executive
Compensation – Potential Payments Upon Termination or Change in
Control – Other Termination Provisions Under Equity
Plan.”
The qualified retirement provisions are intended to provide a
benefit for long-tenured employees. Mrs. Griffith, Mr. Sauerland,
and Ms. Bailo satisfied the Rule of 70 requirements for a qualified
retirement. See “Executive Compensation – Potential Payments Upon
Termination or Change in Control – Qualified Retirement Provisions
Under Equity Plan” for additional information.
Severance and Change-in-Control Arrangements
Severance and change-in-control arrangements are intended to
provide compensation and a fair financial transition for eligible
employees (including the NEOs) when an adverse change in their
employment
situation is required due to company needs or upon the occurrence
of certain unexpected corporate events, and to recognize past
contributions by those executives, who are typically long-tenured
employees. These arrangements allow executives to focus on the
company’s performance, and not on their personal financial
situation, in the face of uncertain or difficult times or events
beyond their control. Each of these programs is discussed in more
detail under “Executive Compensation – Potential Payments Upon
Termination or Change in Control.”
Severance
Our executive separation allowance plan (ESAP) provides executives
with well-defined financial payments if the executive’s employment
is terminated for any reason other than resignation (including
retirement), death, disability, leave of absence, or discharge for
cause, if certain conditions are satisfied. Based on tenure with
us, for each of our NEOs, the severance payment would equal three
times the executive’s salary (i.e., excluding cash incentives and
equity awards) at the time of termination, plus medical, dental,
and vision benefits for up to 18 months at regular employee costs,
and outplacement services following termination. These benefits are
payable to the NEOs upon any qualifying separation from the
company, whether in a change-in-control situation or
otherwise.
In addition, if a change in control occurs and an NEO terminates
employment within 24 months following the change in control for
“good reason,” then the NEO will be entitled to receive the same
severance benefits described above as though they had been
terminated by the company.
We believe that this level of severance payment for each of our
NEOs (a maximum of three times the NEO’s salary) is reasonable. The
severance payments do not take into account or include the value of
cash incentives or equity-based awards in determining the
executive’s severance payment, which substantially limits the
amount of the severance payment when compared with severance plans
offered by many other companies. In addition, an executive who
qualifies for a severance payment under this plan does not receive
accelerated vesting of equity awards (although those awards may
vest (or partially vest) separately under our 2015 Plan if the
executive is eligible for a qualified retirement, discussed above,
or in a change-in-control scenario, as discussed immediately
below). Finally, executives will not receive any tax “gross-up”
payment to compensate them for any taxes they may owe in connection
with a severance payment. Management and the committee accordingly
believe that the severance rights provide the NEOs with a fair, but
not excessive, financial transition when an executive is asked to
leave the company.
The dollar values of benefits that would be payable to NEOs upon a
qualifying termination under our severance plan are summarized
under “Executive Compensation – Potential Payments Upon Termination
or Change in Control.”
Change-in-Control Benefits Under Equity Plan
The provisions of the 2015 Plan are summarized below. Additional
details regarding these provisions can be found under “Executive
Compensation – Potential Payments Upon Termination or Change in
Control – Change-in-Control Provisions Under Equity
Plan.”
The 2015 Plan has a “double-trigger” change-in-control provision.
Unless the committee determines otherwise at the time of grant of
an award, no acceleration or payment will occur with respect to any
outstanding award upon a change in control if the outstanding award
is honored, assumed, or replaced with a new right that complies
with the requirements of the change-in-control provisions in the
2015 Plan, including providing substantially identical terms and
substantially equivalent economic terms. Any honored, assumed, or
replacement award will be subject to accelerated vesting after the
change in control if, within 24 months after the change in control,
the individual is terminated by the surviving entity other than for
cause (as defined in the plan) or the individual terminates
employment for good reason. If vesting is accelerated,
performance-based awards will be considered to be earned at the
higher of target (if applicable) or a multiple based on the level
of achievement through the termination date, if
determinable.
If the awards are not honored, assumed, or replaced, as described
above, they will vest immediately prior to the change in control
and each restricted stock unit award will be cancelled in exchange
for an amount equal to the fair market value of the common shares
covered by the award, with any performance-based awards deemed to
have been earned in full at the higher of target or a multiple of
target based on the level of achievement through the date of the
change in control, if determinable.
Death
Beginning with awards granted in 2021, if an NEO is employed
through the end of the calendar year in which the grant is made,
(i) the time-based award will vest 100% if the NEO dies; and (ii)
with respect to performance-based awards, if the NEO dies (x)
before the end of the performance period, then the award will vest
at 100% of target; or (y) after the end of the performance period,
then the award will remain outstanding and will vest if, when and
to the extent that the performance measures are achieved. For
additional information regarding death benefits under earlier
equity awards, see “Executive Compensation
– Potential Payments Upon Termination or Change in
Control.”
Health and Welfare Benefits
NEOs are also eligible to participate in our health and welfare
plans, including medical and dental benefits, a 401(k) savings plan
(with matching contributions by the company up to a specified
annual limit), and a limited life insurance benefit (with the
ability to purchase additional coverage without company
contribution), among other benefits. These plans are available on
the same basis to all of our regular employees who satisfy minimum
eligibility requirements.
PROCEDURES AND POLICIES
Annual Compensation Committee Decisions
The Compensation Committee makes all final determinations regarding
executive officer compensation, including salary and equity and
non-
equity incentive compensation targets and performance goals.
Committee decisions on annual executive compensation for 2022 were
made in the fourth quarter of 2021 with respect to Mr. Murphy and
Ms. Bailo, and during the first quarter of 2022 for the other NEOs,
after considering each executive’s role and responsibilities,
performance evaluations, their tenure and experience in their
current role, their future potential, our business needs,
recommendations presented by management, compensation data from
comparable companies obtained from management’s compensation
consultant and other third parties, and analyses performed by our
compensation department and/or consultants. Our CEO participates in
certain committee meetings to discuss significant compensation
issues with the committee or to provide recommendations to the
committee regarding the compensation of other executive officers.
The committee’s executive compensation decisions thus represent the
culmination of extensive analysis and discussion between the
committee and management, including our CEO, our Chief Human
Resources Officer, and members of our compensation and law
departments. The committee routinely reports to the full Board on
compensation and other human capital matters, generally after each
regularly scheduled committee meeting.
The committee delegates to management the day-to-day implementation
of compensation programs for employees who are not executive
officers, subject to the terms of plans approved by the committee
or the Board. Generally, however, we seek to offer a consistent
compensation program across our company, and as a result,
determinations made by the committee on executive compensation,
such as
performance goals under our Gainshare program, generally apply to
other employees as well.
The committee has the authority under its charter to hire its own
compensation consultants and legal advisors, at our expense. During
2022, the committee retained Semler Brossy to advise the committee
with respect to certain aspects of executive officer and director
compensation and to provide regular updates to the committee on
general market and industry trends in executive
compensation.
Compensation Comparisons
Our executive compensation program is market-based and is designed
to be competitive with other compensation opportunities available
to executives. However, compensation comparisons alone do not drive
the committee’s decisions, which result from a number of factors
described above that can be different for individual executives,
can vary from year-to-year, and include a number of qualitative and
quantitative judgments. Compensation comparisons are one factor in
this analysis.
For annual compensation decisions made in February 2022, the
following executive compensation survey data and statistical
analyses, provided by management’s compensation consultant, Pay
Governance LLC, were used for Mrs. Griffith and Mr.
Sauerland:
•Proxy
statement data for 13 publicly held insurance and financial
services companies;
•Survey
data published by Willis Towers Watson and Radford Global
Compensation Database of companies with comparable revenues greater
than $20 billion; and
•Proxy
statement data for 28 public companies within close proximity to
Progressive on the Fortune 500 list.
The first category included publicly held insurance and financial
service companies, which represent potential competitors for our
executive talent. We included companies with comparable total
revenues, rather than total assets, due to significant asset size
differences between insurance companies writing different types of
insurance products. For 2022, the companies in this category are
listed below in descending order according to total revenue for
2021.
MetLife, Inc.
Prudential Financial, Inc.
American International Group, Inc.
The Allstate Corporation
The Progressive Corporation
American Express Company
Chubb Limited
The Travelers Companies, Inc.
Capital One Financial Corporation
The Hartford Financial Services Group, Inc.
Aflac Incorporated
Lincoln National Corporation
Loews Corporation
Principal Financial Group, Inc.
The remaining two categories included a large number of companies
from many industries. Similar to the Fortune 500 approach, we
segment survey data based on company revenues and not total assets,
given significant differences in asset requirements across various
industries. Further, we do not generally recruit senior management
level talent from other insurance companies, and our executives
have employment opportunities with companies doing business in a
variety of industries. As a result, we view the broad range of
companies to be an appropriate reflection of the marketplace for
the services of our executives.
With respect to Mr. Callahan, Ms. Bailo, and Mr. Murphy, published
survey data was used because proxy statement data is not as readily
available for these positions. For Mr. Callahan, our Personal Lines
President, and Ms. Bailo, our Commercial Lines President, survey
data published by Willis Towers Watson and Radford Global
Compensation Database, which included public companies with revenue
scopes similar to these business units was used. The comparison for
Mr. Murphy, our Claims President, was obtained from survey data
published by Mercer PCICS, which included property and casualty
claims executives at other insurance companies with direct written
premium greater than $10 billion.
In evaluating the data from these groups, we do not focus on the
identity of any individual company, but are interested in the
aggregate data and the range of pay. All compensation comparisons
referred to in this report are based on the data for these
comparison groups. The comparisons were provided to the
Compensation Committee in December 2021 and supported their
discussions regarding 2022 compensation decisions for the
NEOs.
Use of “Tally Sheets”
When the Compensation Committee is considering annual compensation
decisions for the NEOs, the committee is provided with information
showing, for each NEO, the total target and maximum compensation
(salary, annual cash incentive potential, and equity-based award
values) proposed to be awarded to such executive for the upcoming
year, along with tally sheets for each NEO summarizing recent total
target and realized compensation, providing details with respect to
outstanding equity awards and share ownership. These tally sheets
are used by the committee to review each NEO’s current compensation
level and to enable meaningful comparisons to the
compensation
paid to similar executives at comparable companies. This is one way
that the committee monitors and assesses the reasonableness of its
annual compensation decisions for each NEO.
In addition, at least annually, the committee reviews summaries of
the potential payments that would be made to each NEO upon the
occurrence of various events, such as termination, retirement, or a
change in control. These tally sheets allow the committee to see
all of the potential payouts that the NEO could be eligible to
receive in addition to annual compensation awards. Such payouts may
arise from a number of sources, depending on the event triggering
the payments, including: the executive’s prior service and earnings
(such as distributions from deferral accounts); payments triggered
by an employment termination (severance); or an acceleration of a
vesting event that otherwise would not have occurred, if at all,
until a future date (for example, a “change in control”). The
committee thus is able to understand and monitor the amount of such
potential payouts in each scenario, and to distinguish the source
of individual components of such payouts.
To the extent that these payments arise from an NEO’s prior
earnings (such as distributions from deferral accounts), the
committee generally does not factor those payments into
compensation decisions, since those amounts were previously earned
in full by the executive, the value of the account has increased or
decreased over time based on their investment elections, and we
have made no subsequent contributions to increase the value of
these accounts. To the extent that these payments arise from
performance measures established in prior years, the committee
generally does not view such payments negatively either, since the
amount and timing is dependent on whether and when the company
achieves the stated performance goals and the executive’s services
that helped lead to the achievements. Potential severance payments
and acceleration events, on the other hand, are monitored by the
committee to ensure that they are reasonable and appropriate in the
applicable scenarios.
Internal Pay Equity; Wealth Accumulation
We do not use “internal pay equity” or “wealth accumulation”
analyses to limit compensation paid to the CEO or other NEOs. Such
systems typically put a ceiling on part or all of an executive’s
compensation based on considerations such as the amount of
compensation paid to another executive or employee or the value of
awards previously made to the executive in question. Management and
the committee believe that these types of limitations are not an
appropriate way to make compensation decisions for our executives
and would be contrary to the interests of the company and our
shareholders.
Instead, our focus is to make appropriate executive compensation
decisions annually, so that executives are paid at competitive
levels with a significant “at-risk,” performance-based component
that is commensurate with the executive’s
responsibilities.
No Tax “Gross-Up” Payments
We do not provide tax gross-up payments in connection with an
executive officer’s compensation, severance, change-in-control
payments, perquisites, or other benefits provided by us. Minor
exceptions to this rule may arise under terms that apply to all of
our employees; for example, any employee, including an executive
officer, who receives taxable benefits from us under our relocation
program is entitled to receive payments to defray the related tax
obligation.
Effect of Any Future Financial Restatement; Recoupment
The terms of our cash incentive programs and performance-based
equity awards allow us to recoup payments and vested awards from
our executive officers, including our NEOs, if the applicable
operating or financial results triggering such payment or the
vesting of such award are later restated, to the extent that such
incentive payments or awards would not have been paid out based on
the revised operating or financial results. For additional
information concerning these recoupment or “clawback” rights,
including limitations on those rights, see “–Elements of
Compensation – 2022 Decisions and Awards – Clawback
Provisions.”
Equity Ownership Guidelines for Executives
Within five years after becoming our CEO and at all times while
serving as CEO thereafter, the CEO must acquire and hold
Progressive common shares (or equivalent interests) with a minimum
value of six times the CEO’s salary. For the purpose of this
calculation, the CEO can count shares held in our 401(k) plan and
share equivalent units held in our executive deferred compensation
plan (EDCP), but cannot count any unvested restricted stock
units.
All of the other NEOs are expected to hold meaningful amounts of
Progressive equity at levels that their respective compensation and
financial circumstances permit. To support this goal, each of these
executive’s annual compensation is heavily weighted towards equity
compensation. As a result, within five years of becoming an
executive officer, each of these executives is expected to hold
Progressive common shares or equivalent units with minimum of three
times the NEO’s salary.
For this calculation, the NEO receives credit for shares in our
401(k) plan, share equivalent units held in our EDCP and unvested
time-based restricted stock units. The NEO cannot count any
unvested performance-based restricted stock units.
Management and the committee believe that equity holdings under
these guidelines, as well as additional, voluntary holdings by
executive officers in our equity, 401(k), and deferral plans, or in
their personal accounts, appropriately ensure that the interests of
management will be aligned with those of our shareholders. As of
January 31, 2023, Mrs. Griffith and each of the other NEOs
satisfied the applicable guideline.
Prohibitions on Derivatives and Hedging Transactions
Under our insider trading policy, our executive officers and
directors are prohibited from making any “short sales” of our
common shares and from purchasing, selling, or writing
exchange-traded or over-the-counter options (including puts and
calls) on our common shares. Our executive officers and directors
are also prohibited from entering into any transaction in
derivatives or other instruments that are based on or relate to our
common shares or any other Progressive security and from buying,
selling, or trading any financial instrument (such as a variable
forward contract, equity swap, credit default swap, collar, or
exchange fund), or initiating or participating in any other
transaction that is designed or intended to hedge against, or
profit from, a decrease in the market value of our common shares or
any other Progressive security.
Prohibition on Pledges
Our executive officers and directors are prohibited from pledging
their Progressive common shares as collateral for any loan,
including a margin loan. We are not aware of any pledge of
Progressive common shares by a director or executive
officer.
Timing of Annual Equity Awards
We expect that, consistent with our actions for many years, annual
equity awards will be made in March of each year, unless a legal or
plan requirement causes us to adopt a change for a specific year.
March is considered appropriate for annual awards because it
follows shortly after annual performance evaluations and salary
adjustments for executives and other equity eligible employees,
thus providing an administratively convenient time to calculate the
awards and communicate them to the recipients. In addition, the
timing in mid-March follows the publication of our annual report
for the prior year and, typically, the publication of our financial
results for the first two months of the year, ensuring that
up-to-date public information concerning the company is available
in the marketplace at that time. Historically, interim awards
generally have been made to an executive officer at the time of
appointment to or promotion within the executive team or in a few
instances when the committee deemed a special award to be
appropriate; any such interim or special
award to an executive officer would require the approval of the
Compensation Committee.
RELATED CONSIDERATIONS
Section 162(m) of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code limits to $1
million per year (the deduction limit) the deduction allowed for
federal income tax purposes for compensation paid to “covered
employees.” That term includes the chief executive officer, the
chief financial officer, and the three other most highly
compensated executives, and any individual who meets the definition
of “covered employee” in 2018 or any later tax year.
Each of the NEOs is now a covered employee and Progressive will not
be able to deduct any compensation paid to them for any taxable
year in excess of $1 million. In 2022, compensation that did not
qualify exceeded the deduction limit by $65.7 million, including
$34.7 million related to Mrs. Griffith’s compensation.
The committee has not discontinued or changed any component of the
compensation program that has a potential negative impact under
Section 162(m), since it believes that the overall program is
appropriate and in the interests of shareholders.
Section 409A of the Internal Revenue Code
Section 409A of the Internal Revenue Code sets forth
requirements for non-qualified deferred compensation arrangements.
These requirements apply to deferrals of compensation earned or
vested after 2004. If deferrals do not comply with the
requirements, the amount deferred is immediately included in the
individual’s taxable income, and the individual is subject to an
additional 20% tax plus interest, even if the actual payment of
value to the individual might be delayed for years under the
applicable plan or award. We seek to draft our compensation plans
in a manner that provides an exemption from Section 409A or
complies with Section 409A requirements.
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COMPENSATION COMMITTEE REPORT
The following Compensation Committee Report does not constitute
soliciting material and should not be deemed filed or incorporated
by reference into any other Progressive filing under the Securities
Act of 1933 or the Securities Exchange Act of 1934, except to the
extent Progressive specifically incorporates this Report by
reference therein.
The Compensation Committee of the Board of Directors of The
Progressive Corporation has reviewed and discussed with
Progressive’s management the Compensation Discussion and Analysis
set forth above. Based on the review and discussions noted above,
the Compensation Committee recommended to the Board that the
Compensation Discussion and Analysis be included in Progressive’s
Proxy Statement for 2023, and incorporated by reference into
Progressive’s Annual Report on Form 10-K for the year ended
December 31, 2022.
COMPENSATION
COMMITTEE
Roger
N. Farah,
Chair
Pamela
J. Craig
Barbara
R. Snyder
Jan
E. Tighe
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COMPENSATION PROGRAMS AND RISK MANAGEMENT
We believe that our compensation plans and incentives are designed
so that employees are not encouraged to take inappropriate risks.
We also believe our compensation plans include appropriate risk
control mechanisms, along with the applicable profit margin,
growth, or other performance goals. The criteria used to calculate
annual cash incentive payments under our Gainshare program, as well
as the goals under most of our performance-based equity awards that
measure insurance results, reward the achievement of challenging
growth goals, but only if our profitability is within specified
levels. Under our Gainshare program, moreover, these performance
measures are applied on a companywide basis, ensuring that all of
our employees are motivated to pursue the same strategic
goals.
In addition, we have an annual cash incentive program for our
investment professionals (including our Chief Investment Officer),
who actively manage our fixed-income portfolio. The primary
constraints on the risks inherent in our fixed-income portfolio are
our internal investment guidelines relating to credit quality,
duration, issuer concentration, and other parameters, which are
approved by the Board’s Investment and Capital Committee. Within
this framework, our incentive plan compares the total return of our
fixed-income portfolio against the results achieved by comparable
firms in an investment benchmark for the current year and over the
trailing three-year period to determine an indicated performance
score. The Compensation Committee, in its discretion, can accept
the indicated performance factor, or increase or decrease it, based
on its evaluation of our fixed-income investment performance for
the year; annual incentive payments for our investment
professionals are then adjusted accordingly. We believe that this
combination of investment guidelines and one- and three-year
performance comparisons, with an overlay of Compensation Committee
discretion to monitor
performance and cash incentive results, appropriately addresses the
risks attendant to the work of our investment professionals. We
also award performance-based equity awards tied to the relative
performance of our fixed-income portfolio to our CEO, CFO, Chief
Investment Officer, and select portfolio managers. Under these
awards, our portfolio’s three-year performance is evaluated against
the total returns of comparable firms over the same periods,
similar to the annual cash incentive plan for our investment
professionals described above. Maximum payout under these awards
occurs at performance at the 75th
percentile of comparable firms to mitigate any incentive to
increase investment risks to a level that would exceed the
company’s overall risk tolerance. We believe that the focus on
the three-year results, along with the investment constraints
mentioned above and the use of the 75th
percentile as the maximum payout measure, provides appropriate
incentives for these executives without creating inappropriate
risks.
In addition, our current cash incentive programs and
performance-based equity awards allow us to recoup payments and
vested awards from executive officers, if the applicable operating
or financial results triggering payments or vesting of the award
are later restated, to the extent that such cash incentives or
awards would not have been paid out based on the revised operating
or financial results. For additional information concerning these
recoupment or “clawback” rights and the limitation thereon, see
“Compensation Discussion and Analysis – Elements of Compensation –
2022 Decisions and Awards – Clawback Provisions.”
Based on these considerations, among others, we do not believe that
our compensation policies and practices create risks that are
likely to have a material adverse effect on the
company.
EXECUTIVE COMPENSATION
The following information sets forth compensation of our named
executive officers (NEOs) for 2022: our Chief Executive Officer
(CEO); our Chief Financial Officer (CFO); and our three other most
highly compensated executive officers.
SUMMARY COMPENSATION TABLE
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Name and Principal Position |
Year |
Salary1
($)
|
|
Stock Awards2
($)
|
Non-Equity
Incentive Plan
Compensation3
($)
|
All Other
Compensation4
($)
|
Total
($) |
|
Susan Patricia Griffith |
2022 |
$ |
950,000 |
|
|
$ |
9,500,203 |
|
$ |
2,042,501 |
|
$ |
256,122 |
|
$ |
12,748,826 |
|
|
President and Chief Executive Officer |
2021 |
950,000 |
|
|
9,500,212 |
|
3,847,502 |
|
165,247 |
|
14,462,961 |
|
|
2020 |
980,770 |
|
|
9,500,037 |
|
4,707,694 |
|
32,022 |
|
15,220,523 |
|
|
John P. Sauerland |
2022 |
672,116 |
|
|
2,531,445 |
|
867,029 |
|
12,000 |
|
4,082,590 |
|
|
Vice President and Chief Financial Officer |
2021 |
650,000 |
|
|
2,437,643 |
|
1,579,500 |
|
12,000 |
|
4,679,143 |
|
|
2020 |
672,115 |
|
|
2,275,137 |
|
1,935,692 |
|
12,750 |
|
4,895,694 |
|
|
Patrick K. Callahan |
2022 |
622,115 |
|
|
2,343,838 |
|
802,529 |
|
12,500 |
|
3,780,982 |
|
|
Personal Lines President |
2021 |
594,231 |
|
|
2,100,095 |
|
1,443,981 |
|
12,000 |
|
4,150,307 |
|
|
2020 |
565,384 |
|
|
1,650,123 |
|
1,628,307 |
|
12,000 |
|
3,855,814 |
|
|
John Murphy |
2022 |
550,000 |
|
|
1,375,024 |
|
473,000 |
|
12,750 |
|
2,410,774 |
|
|
Claims President |
2021 |
496,154 |
|
|
1,125,128 |
|
803,769 |
|
12,000 |
|
2,437,051 |
|
|
2020 |
461,539 |
|
|
1,012,572 |
|
886,154 |
|
12,000 |
|
2,372,265 |
|
|
Karen B. Bailo |
2022 |
550,000 |
|
|
1,375,024 |
|
473,000 |
|
12,000 |
|
2,410,024 |
|
|
Commercial Lines President |
2021 |
400,000 |
|
|
900,157 |
|
648,000 |
|
12,000 |
|
1,960,157 |
|
|
2020 |
375,309 |
|
|
620,652 |
|
694,591 |
|
12,750 |
|
1,703,302 |
|
1
Amounts may differ from the salary amounts reported in
“Compensation Discussion and Analysis – Elements of Compensation –
2022 Decisions and Awards – Salaries” as salary changes are
typically implemented in January or February of each year. In
addition, Progressive pays employees on a bi-weekly basis, in an
amount for salaried employees equal to 1/26th of their then-current
annual salary rate. Typically, employees receive 26 paychecks in a
calendar year. Every 10 to 12 years, however, the bi-weekly payment
schedule results in an additional paycheck for each employee,
including our NEOs, as was the case in 2020. Accordingly, 2020
salary figures in the table above include an additional paycheck
for each NEO, which resulted in an increase in their respective
2020 salaries of approximately
3.8%
(or 1/26) above what would have been earned in a typical
26-paycheck year. Both 2022 and 2021 are 26-paycheck
years.
2
Represents grant date fair value of restricted stock unit awards
for each year. Grant date fair value is measured using the closing
price of our common stock on the
date of grant. With regard to performance-based awards, the grant
date fair value represents the target value; however, the ultimate
value to the NEO can be higher or lower depending on performance.
See “– Outstanding Equity Awards at Fiscal Year-End” for further
discussion. The following table represents the value of
performance-based awards at grant date assuming the maximum level
of performance were to be achieved.
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|
|
Name |
Grant
Year |
Grant Date Fair
Value (Maximum
Performance) |
|
Susan Patricia Griffith |
2022 |
$16,150,367 |
|
2021 |
16,150,288 |
|
2020 |
16,150,070 |
|
John P. Sauerland |
2022 |
4,489,006 |
|
|
2021 |
4,322,660 |
|
|
2020 |
3,997,763 |
|
Patrick K. Callahan |
2022 |
4,297,017 |
|
2021 |
3,750,203 |
|
2020 |
2,750,148 |
|
John Murphy |
2022 |
2,062,535 |
|
|
2021 |
1,562,603 |
|
|
2020 |
1,406,365 |
|
Karen B. Bailo |
2022 |
2,062,535 |
|
2021 |
1,250,263 |
|
2020 |
221,433 |
For the terms of awards granted in 2022, see “– Grants of
Plan-Based Awards” and “– Narrative Disclosure to Summary
Compensation Table and Grants of Plan-Based Awards Table” below.
Also, see “Compensation Discussion and Analysis,” as well as
Note 9 – Employee Benefit Plans
in our 2022 Annual Report to Shareholders for further discussion of
the restricted stock unit awards and our recognition of expense
relating to such awards.
3
For 2022, amounts were earned exclusively under The Progressive
Corporation 2022 Gainshare Plan (Gainshare Plan) for all NEOs.
Non-equity incentive plan compensation earned by these executives
with respect to 2022 was paid (if not deferred by the NEO) in early
2023. Amounts reported include, if applicable, compensation that
was deferred under our Executive Deferred Compensation Plan (EDCP).
Further discussion of these plans is included in “Compensation
Discussion and Analysis,” “– Narrative Disclosure to Summary
Compensation Table and Grants of Plan-Based Awards Table,” and “–
Nonqualified Deferred Compensation.”
4
All Other Compensation for 2022 is comprised of the
following:
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|
Name |
401(k) Employer
Contributionsa
|
|
Perquisitesb
|
|
Otherc
|
|
|
|
Susan Patricia Griffith |
$12,000 |
|
$244,122 |
|
$— |
|
|
|
John P. Sauerland |
12,000 |
|
— |
|
— |
|
|
|
Patrick K. Callahan |
12,000 |
|
— |
|
500 |
|
|
|
John Murphy |
12,000 |
|
— |
|
750 |
|
|
|
Karen B. Bailo |
12,000 |
|
— |
|
— |
|
|
a
Represents
employer matching contributions made during 2022 under our 401(k)
plan. Amounts contributed are based on level of employee
contribution, with a maximum annual employer contribution of
$12,000.
b
Includes
$227,373 in incremental costs for Mrs. Griffith’s personal use of
our company airplane. We calculate incremental costs to include the
cost of fuel and oil per flight; trip-related inspections, repairs,
and maintenance; crew travel expenses; on-board catering;
trip-related flight planning services; landing, parking, and hangar
fees; supplies; passenger ground transportation; and other variable
costs. Since the airplane is used primarily for business travel, we
do not include the fixed costs that do not change based on personal
usage, such as pilots’ salaries, the depreciation of the airplane,
and the cost of maintenance not related to personal trips. In
addition, the perquisite amount includes $16,749 in incremental
costs attributable to the personal use of a company-owned vehicle
by Mrs. Griffith, which is primarily used for commuting to and from
work. For more information, see “Compensation Discussion and
Analysis – Other Elements of Compensation –
Perquisites.”
c Reflects
a service anniversary award paid for each five-year anniversary of
employment with the company, under a program applicable to all
employees.
GRANTS OF PLAN-BASED AWARDS
The following table summarizes annual cash incentive awards
(non-equity incentive plan awards) that were eligible to be earned
by our NEOs with respect to 2022 and equity awards granted to our
NEOs during 2022. Each restricted stock unit is equivalent in value
to one common share.
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|
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards1
|
Estimated Future Payouts Under
Equity Incentive Plan Awards |
|
Grant Date
Fair Value
of Equity
Awards2
|
|
Name |
Grant
Date |
Threshold
($) |
Target
($) |
Maximum
($) |
Threshold
(#) |
|
Target
(#) |
|
Maximum
(#) |
|
|
Susan Patricia Griffith |
NA |
0 |
|
$2,375,001 |
$4,750,002 |
|
|
|
|
|
|
|
|
3/17/2022 |
|
|
|
|
|
26,023 |
3
|
|
|
$2,850,039 |
|
3/17/2022 |
|
|
|
0 |
|
4
|
60,721 |
4
|
147,465 |
4
|
6,650,164 |
|
John P. Sauerland |
NA |
0 |
|
1,008,173 |
2,016,346 |
|
|
|
|
|
|
|
|
|
3/17/2022 |
|
|
|
|
|
6,164 |
3
|
|
|
675,081 |
|
|
3/17/2022 |
|
|
|
0 |
|
4
|
16,950 |
4
|
40,988 |
4
|
1,856,364 |
|
Patrick K. Callahan |
NA |
0 |
|
933,173 |
1,866,346 |
|
|
|
|
|
|
|
|
3/17/2022 |
|
|
|
|
|
5,707 |
3
|
|
|
625,031 |
|
3/17/2022 |
|
|
|
0 |
|
4
|
15,694 |
4
|
39,235 |
4
|
1,718,807 |
|
John Murphy |
NA |
0 |
|
550,000 |
1,100,000 |
|
|
|
|
|
|
|
|
|
3/17/2022 |
|
|
|
|
|
5,022 |
3
|
|
|
550,009 |
|
|
3/17/2022 |
|
|
|
0 |
|
4
|
7,533 |
4
|
18,833 |
4
|
825,014 |
|
Karen B. Bailo |
NA |
0 |
|
550,000 |
1,100,000 |
|
|
|
|
|
|
|
|
3/17/2022 |
|
|
|
|
|
5,022 |
3
|
|
|
550,009 |
|
3/17/2022 |
|
|
|
0 |
|
4
|
7,533 |
4
|
18,833 |
4
|
825,014 |
NA = Not applicable
1The
amount of non-equity incentive plan compensation earned by the NEOs
under the Gainshare Plan with respect to 2022 is included in the “–
Summary Compensation Table.” Further description of both the
non-equity and equity incentive plan awards is provided in
“Compensation Discussion and Analysis” and in the
“–
Narrative Disclosure to Summary Compensation Table and Grants of
Plan-Based Awards Table” below.
2Awards
were granted under the 2015 Equity Incentive Plan (the 2015 Plan)
and are valued at the closing price of our common shares on the
applicable date of grant, which was $109.52 for March 17,
2022. The target amount of performance-based restricted stock unit
awards granted is used to determine grant date fair
value.
3Represents
the number of shares covered by time-based restricted stock unit
awards.
4Represents
the number of shares covered by performance-based restricted stock
unit awards. Except as otherwise noted in this footnote 4, these
awards measure growth of our vehicle insurance businesses and
homeowners business against each respective market’s growth and
will vest from 0-250% of the target award, only if and when
pre-established performance goals are attained.
As part of their annual awards, Mrs. Griffith received 8,675
units and Mr. Sauerland received 2,774 units in the form of
performance-based awards that measure the performance of our
fixed-income portfolio returns against a benchmark peer group.
These awards can vest from 0-200% of the target award only if and
when pre-established performance goals are attained.
NARRATIVE DISCLOSURE TO SUMMARY
COMPENSATION TABLE AND GRANTS OF
PLAN-BASED AWARDS TABLE
Salary
For 2022, salary comprised approximately 7% of total compensation
for Mrs. Griffith, 16% for both Mr. Sauerland and Mr.
Callahan, and 23% for both Mr. Murphy and Ms. Bailo. See
“Compensation Discussion and Analysis – Elements of Compensation –
2022 Decisions and Awards – Salaries” above for more
information.
Non-Equity Incentive Compensation
Non-equity incentive compensation for the NEOs with respect to 2022
was available under the 2022 Gainshare Plan. Amounts earned under
this plan are included as Non-Equity Incentive Plan Compensation in
the “– Summary Compensation Table.”
Under the Gainshare Plan, the Gainshare Factor was determined for
all NEOs after the end of the year based on our actual operating
performance for that year, when compared to objective criteria
previously established by the Compensation Committee in the first
quarter of the year. The executive’s incentive payment would equal
the target Gainshare amount if the applicable Gainshare Factor
equaled a 1.0 for the year. Each executive had to be employed on
November 30th
of 2022 to receive an incentive payment for the year. Annual
incentive payments to all NEOs were paid in February 2023, after
the appropriate approvals and certifications were received from the
Compensation Committee.
The Gainshare Factor for the core business units for 2022 was
calculated by reference to separate Gainshare matrices established
by the committee in the first quarter of the year for each business
unit. Each matrix assigned a performance score between zero and 2.0
to various combinations of growth and profitability for the
applicable business unit. In 2022, the final Gainshare Factor
determined according to these criteria was 0.86. For more
information about the target percentages for the NEOs and the
calculation of the Gainshare Factor, see “Compensation Discussion
and Analysis – Elements of Compensation – 2022 Decisions and Awards
–
Annual Cash Incentive Payments (Gainshare).”
Under the Gainshare Plan, incentive payments made to the NEOs are
subject to recoupment by Progressive if operating or financial
results that are used in the payment calculation are later
restated. See “Compensation Discussion and Analysis – Elements of
Compensation – 2022 Decisions and Awards – Clawback Provisions.”
Further, the incentive payments will be subject to recoupment to
the extent required by the rules of the SEC, NYSE, or any policy we
adopt to comply with those rules.
Equity Incentive Plan Awards
In 2022, all of the equity incentive awards were granted pursuant
to our 2015 Plan. We granted both time-based and performance-based
restricted stock unit awards to each of the NEOs.
Restricted stock units entitle the holder to receive, upon the
satisfaction of all requirements for vesting and the lapse of any
other restrictions, one Progressive common share in exchange for
each unit vesting. Units do not have voting rights, but are
entitled to dividend equivalent payments at the same rate and time
dividends are paid to holders of our common shares; those dividend
equivalent payments are reinvested into additional restricted stock
units, which will vest only if, when, and to the extent that the
underlying restricted stock unit vests.
During
March 2022,
each of the NEOs received a time-based restricted stock unit award.
These time-based awards are scheduled to vest in equal installments
in
January of 2025, 2026, and 2027,
provided that the executive remains an employee through that time.
We also granted annual performance-based restricted stock units to
these NEOs in
March 2022,
which were tied to the operating performance of our insurance
businesses. Mrs. Griffith and Mr. Sauerland also received an
additional performance-based award tied to the performance of our
fixed-income investment portfolio, as further described
below.
For the performance-based restricted stock unit awards tied to the
operating performance of our insurance businesses, the awards have
a performance goal that compares our growth to industry growth over
the performance period
(2022 through 2024)
and includes a restriction on vesting based on a profitability
requirement. For the performance-based restricted stock unit awards
tied to the performance of our fixed-income portfolio, the awards
have a performance goal that measures the return of our
fixed-income portfolio, which is actively managed by our investment
professionals, over a three-year period
(2022 through 2024),
against the returns of a set of comparable investment
firms.
All restricted stock unit awards granted during 2022 are subject to
potentially accelerated vesting pursuant to the “change in control”
provisions in the 2015 Plan. See “–
Potential Payments Upon Termination or Change in Control” below for
further discussion of these plan provisions.
The performance-based restricted stock unit awards granted in 2022,
are subject to recoupment by Progressive under certain
circumstances. See “Compensation Discussion and Analysis – Elements
of Compensation – 2022 Decisions and Awards – Clawback
Provisions.”
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table summarizes the unvested restricted equity
awards outstanding at year-end, all of which were granted under our
2015 Plan. The value of the equity awards was calculated using
$129.71 per share, the closing price of Progressive common shares
on the last business day of 2022.
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|
Stock or Unit Awards1
|
|
Name |
Number of Shares or Units of Stock That Have Not Vested
(#)2
|
|
Market Value of Shares or Units of Stock That Have Not Vested
($) |
|
Equity Incentive Plan Awards: Number of Unearned Units That Have
Not Vested (#) |
|
Equity Incentive Plan Awards: Market Value of Unearned Units That
Have Not Vested ($) |
|
Susan Patricia Griffith |
81,156 |
|
|
$ |
10,526,745 |
|
|
61,258 |
|
3
|
$ |
7,945,775 |
|
|
|
|
|
|
580,668 |
|
4
|
75,318,446 |
|
John P. Sauerland |
18,739 |
|
|
2,430,636 |
|
|
27,433 |
|
3
|
3,558,334 |
|
|
|
|
|
|
|
151,277 |
|
4
|
19,622,140 |
|
Patrick K. Callahan |
— |
|
|
— |
|
29,072 |
|
3
|
3,770,929 |
|
|
|
|
|
125,825 |
|
4
|
16,320,761 |
|
John Murphy |
— |
|
|
— |
|
24,164 |
|
3
|
3,134,312 |
|
|
|
|
|
|
59,094 |
|
4
|
7,665,083 |
|
Karen B. Bailo |
9,557 |
|
|
1,239,638 |
|
|
7,621 |
|
3
|
988,520 |
|
|
|
|
|
36,563 |
|
4
|
4,742,587 |
1Amounts
include restricted stock unit awards and related dividend
equivalents, which are rounded to a whole unit.
2Represents
time-based restricted equity awards that have been earned under the
“qualified retirement” provisions of the 2015 Equity Incentive Plan
(see "– Potential Payments Upon Termination or Change in Control –
Qualified Retirement Provisions Under Equity Plan”); such shares
will vest upon the earlier of the vesting dates defined in the
restricted equity award agreements (see table below) or the NEO’s
separation from the company.
3Represents
time-based restricted stock unit awards for each NEO. The table
below presents the applicable vesting dates for those awards
(certain events may cause earned but unvested shares to vest
earlier; see “–
Potential Payments Upon Termination or Change in Control” for
further discussion). Awards granted in 2020 and prior vest on
January 1, while subsequently granted awards, which vest in 2024,
2025, 2026, and 2027, have later vesting dates in
January.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
1/1/23 |
1/1/24 |
1/16/24 |
1/1/25 |
1/21/25 |
1/20/26 |
1/19/27 |
|
|
Susan Patricia Griffith |
46,767 |
|
22,108 |
|
10,738 |
|
15,234 |
|
19,435 |
|
19,435 |
|
8,697 |
|
|
|
John P. Sauerland |
24,104 |
|
5,066 |
|
2,449 |
|
3,475 |
|
4,509 |
|
4,509 |
|
2,060 |
|
|
|
Patrick K. Callahan |
8,141 |
|
5,487 |
|
2,261 |
|
2,940 |
|
4,168 |
|
4,168 |
|
1,907 |
|
|
|
John Murphy |
6,629 |
|
4,442 |
|
1,884 |
|
2,405 |
|
3,563 |
|
3,563 |
|
1,678 |
|
|
|
Karen B. Bailo |
3,030 |
|
2,514 |
|
1,507 |
|
2,077 |
|
3,186 |
|
3,186 |
|
1,678 |
|
|
4The
following table presents, as of December 31, 2022, the number of
unvested performance-based restricted stock units, including
reinvested dividend equivalent units, for each of the NEOs, by year
of grant. The number of units shown reflects either the target
amount of units, or the maximum number of units for each individual
award that comprises the total that can vest, depending on the
company’s expectations, as described in the applicable note
below.
|
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|
|
|
|
|
|
|
|
|
|
|
Name |
2020 |
2021 |
2022 |
|
|
Susan Patricia Griffith |
258,969 |
|
182,548 |
|
139,151 |
|
|
|
John P. Sauerland |
64,105 |
|
48,859 |
|
38,313 |
|
|
|
Patrick K. Callahan |
44,099 |
|
42,389 |
|
39,337 |
|
|
|
John Murphy |
22,551 |
|
17,662 |
|
18,881 |
|
|
|
Karen B. Bailo |
3,550 |
|
14,132 |
|
18,881 |
|
|
Following are the performance criteria that must be achieved to
enable the performance-based restricted stock unit awards to vest
for the year of grant indicated. Pursuant to applicable
regulations, expectations above the minimum threshold level, but at
or below target, are shown at target and expectations of vesting
above the target level are shown at the maximum potential
vesting.
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|
|
|
|
|
|
|
Type |
Measurement Period |
Vesting Range |
Combined Ratio |
Growth Rate Over Base |
Reported Value |
Expiration Date |
|
Performance versus Marketa
|
|
|
|
|
|
|
| 2020 |
1/1/20-12/31/22 |
0-250% |
96 |
Varies |
Max |
1/31/2025 |
|
2021 |
1/1/21-12/31/23 |
0-250% |
96 |
Varies |
Max |
1/31/2026 |
|
2022 |
1/1/22-12/31/24 |
0-250% |
96 |
Varies |
Max |
1/31/2027 |
|
Investmentb
|
|
|
|
|
|
|
|
2020c
|
1/1/20-12/31/22 |
0-200% |
NA |
NA |
Max |
3/15/2023 |
|
2021 |
1/1/21-12/31/23 |
0-200% |
NA |
NA |
Max |
3/15/2024 |
|
2022 |
1/1/22-12/31/24 |
0-200% |
NA |
NA |
Target |
3/15/2025 |
NA = Not applicable
Note: The vesting provisions for the 2022 awards are discussed in
“Compensation Discussion and Analysis – Elements of
Compensation
–
2022 Decisions and Awards – Equity Awards,” and the vesting
provisions for the 2020 and 2021 awards (other than actual vesting
dates) have the same structure.
a At
December 31, 2022, the company’s expectation for each award is
based on our performance through 2022, industry growth rates for
the applicable performance period to the extent available, and our
estimates of each for the remainder of the performance
period.
b At
December 31, 2022, the company’s expectation for each award is
based on our performance through 2022, the performance of the peer
group during the applicable performance period to the extent
available, and our estimates of each for the remainder of the
performance period.
c This
award vested at a factor
of 184%
out of a possible 200% in February 2023.
OPTION EXERCISES AND STOCK VESTED
The following table summarizes the vesting of restricted stock unit
awards during 2022. Vesting values reflect considerable stock
appreciation from the date of grant. For example, the stock price
at original grant (March 2019) of the performance-based restricted
stock units that vested on August 25, 2022, was $72.86 versus a
stock price of $125.95 at vesting. The units that vested included
dividend equivalent units valued at various other prices during the
performance period;
most of those prices were lower than the stock price at
vesting.
In addition, the maximum vesting factor was achieved under the
performance-based restricted stock unit awards that vested on
August 25, 2022.
|
|
|
|
|
|
|
|
|
|
Stock Awards |
|
Number of Shares
Acquired on
Vesting1
|
Value Realized
on Vesting |
|
Name |
(#) |
($) |
|
Susan Patricia Griffith |
272,335 |
|
$32,794,206 |
|
John P. Sauerland |
81,581 |
|
9,647,674 |
|
Patrick K. Callahan |
42,175 |
|
5,102,203 |
|
John Murphy |
26,501 |
3,160,713 |
|
Karen B. Bailo |
9,537 |
1,071,014 |
1
The following table summarizes the number of time-based and/or
performance-based restricted stock units, including dividend
equivalent units, if applicable, that vested on various dates
during the year. Our performance-based restricted stock unit awards
vested either when the Compensation Committee certified that the
performance criteria were achieved for the awards based on
investment performance (February 17, 2022) or when the
Compensation Committee certified that the company’s growth exceeded
industry growth and also satisfied the predetermined profit
requirement for awards based on market performance (August 25,
2022).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting Date |
1/3/2022 |
2/17/2022 |
5/2/2022 |
8/25/2022 |
|
|
Value at Vesting |
$ |
102.08 |
|
$ |
105.20 |
|
$ |
108.90 |
|
$ |
125.95 |
|
|
|
Type |
TB |
PB |
TB |
PB |
|
Name |
|
Performance Factor |
NA |
1.77 |
|
NA |
2.50 |
|
|
Susan Patricia Griffith |
|
|
42,010 |
|
24,272 |
|
— |
|
206,053 |
|
|
John P. Sauerland |
|
|
23,356 |
|
3,372 |
|
— |
|
54,853 |
|
|
Patrick K. Callahan |
|
|
8,785 |
|
— |
|
— |
|
33,390 |
|
|
John Murphy |
|
|
7,421 |
|
— |
|
— |
|
19,080 |
|
|
Karen B. Bailo |
|
|
3,450 |
|
— |
|
2,806 |
|
3,281 |
|
NA = Not applicable for time-based awards
TB = Time-based
PB = Performance-based
NONQUALIFIED DEFERRED COMPENSATION
The following table summarizes amounts contributed to, earned
within, and distributed from the EDCP during 2022, as well as each
NEO’s aggregate balance in the EDCP at December 31, 2022.
Participation in the EDCP is voluntary; deferral elections are made
annually for both non-equity incentive compensation and annual
restricted equity awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
Contributions in
Last Fiscal Year |
Registrant
Contributions in
Last Fiscal Year1
|
Aggregate
Earnings (Losses) in
Last Fiscal Year |
Aggregate
Withdrawals/
Distributions2
|
Aggregate
Balance at
Last Fiscal
Year End3
|
|
Name |
($) |
($) |
($) |
($) |
($) |
|
Susan Patricia Griffith |
$— |
$— |
$(244,649) |
$— |
$1,079,474 |
|
John P. Sauerland |
— |
— |
(76,188) |
157,970 |
294,718 |
|
Patrick K. Callahan |
— |
— |
2,291,495 |
— |
12,888,343 |
|
John Murphy |
— |
— |
(83,113) |
— |
409,668 |
|
Karen B. Bailo |
— |
— |
(286,673) |
— |
1,831,006 |
1Progressive
makes no supplemental contributions to the EDCP in the year of
deferral or in subsequent years.
2Represents
scheduled distributions based on the applicable executive’s
elections made in prior years.
3 Amounts
represent the accumulation of previously deferred non-equity
incentive
compensation awards or restricted equity awards, both time-based or
performance-based, together with earnings on deemed investments.
For Mr. Callahan and Mr. Murphy, the amounts recorded in our
Summary Compensation Table for previous years were $2,777,037
and
$443,077, respectively, which represents amounts deferred into the
EDCP. A portion of the amounts may have been distributed to these
executives; no other NEO had deferred amounts reported in the
"Executive Compensation – Summary Compensation Table."
The NEOs employed prior to the beginning of a calendar year can
defer all or part of the annual cash incentive payments earned
under the Gainshare Plan, as well as all of their annual restricted
equity awards (but not dividend equivalent units). Amounts equal to
the deferred incentive payments or restricted equity awards are
credited under the EDCP at the time that the incentive payment
otherwise would be paid to the participant or the restricted equity
awards otherwise would vest. The plan has 17 mutual funds, as well
as Progressive common shares, as deemed investment choices. The
participant selects the deemed investment choices for contributions
and transfers; however, fund transfers are limited and restricted
equity awards granted in or after March 2005 are automatically
deemed invested in Progressive common shares until the date of
distribution under the plan. We make no matching contributions or
additional deposits on behalf of any participant. Any earnings are
a result of an executive’s deemed investment choices.
We have established an irrevocable grantor trust to provide a
source of funds to assist us in meeting our liabilities under the
EDCP. To secure our future payment obligations to participants, we
deposit amounts equal to deferred cash incentive payments or
restricted equity awards into the trust and the trust holds
investments equivalent in kind and number to the aggregate deemed
investment elections selected
by participants. The rights of participants and their beneficiaries
under the EDCP are merely unsecured
contractual rights against us. Participants have no proprietary
rights or interests in the trust’s assets, including any securities
that are held by the trust, all
of which remain subject to the claims of our general creditors. We
do not guarantee any specific rate of return to participants who
defer amounts into the EDCP. For the year ended December 31, 2022,
returns for the EDCP’s deemed investment choices ranged from
-40.26% to
26.80%.
Distributions from the EDCP are made in accordance with an election
made by the participant prior to earning the deferred award.
Distributions are made in a lump-sum or in three, five, or ten
annual installments, beginning at the earlier of the date selected
by the participant or upon termination of employment. For deferrals
made after 2004, distributions resulting from termination of
employment begin six months after the participant leaves the
company. In addition, distributions may be triggered by certain
“change in control” events. All distributions are made in cash,
with the exception of deferred restricted equity awards granted in
or after March 2005, which are distributed in common
shares.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN
CONTROL
The following table highlights the benefits that generally may be
received by our NEOs, as well as other employees who participate in
the applicable benefit plans, when certain events occur that result
either in termination of employment or a change in control of the
company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Payments The Executive is Eligible to
Receive1:
|
|
|
Under Equity Plan |
|
|
If This Triggering Event Occurs: |
Severance
Benefits |
Change in
Control
Benefits2
|
Qualified
Retirement
Benefits |
Other
Termination
Provisions |
Payments
under
EDCP3
|
|
Involuntary termination (without cause) |
ü |
– |
– |
– |
ü |
|
Voluntary separation (including nonqualified
retirement) |
– |
– |
– |
ü |
ü |
|
Retirement – qualified (as defined in the plan)4
|
– |
– |
ü |
– |
ü |
|
Termination for cause |
– |
– |
– |
– |
ü |
|
Change in control, no loss of employment |
– |
– |
– |
– |
ü |
|
Change in control and involuntary termination (without cause) or
resignation due to a significant job change |
ü |
ü |
– |
– |
ü |
|
Death |
– |
– |
ü |
ü |
ü |
1This
table is intended as a general summary only. This table excludes
amounts attributable to any accrued but unpaid base salary, sick
leave, and/or paid time off, if applicable. An executive’s
eligibility to receive any of the benefits outlined in this table
may be subject to certain criteria, conditions, or other
requirements as set forth in the applicable plan documents or
related agreements. See below for additional
discussions.
2The
2015 Plan has a double trigger provision. See “– Change-in-Control
Provisions Under Equity Plan” for additional
information.
3An
executive will be entitled to receive payments under the EDCP only
if the executive deferred compensation under the EDCP. See “–
Nonqualified Deferred Compensation” for additional
information.
4Under
our outstanding equity awards, as discussed below, a “qualified
retirement” excludes any termination of employment for cause (as
defined in the 2015 Plan). However, for some awards the same event
can be treated as a “qualified retirement” under our 2015 Plan and
an involuntary termination without cause under our severance
plan.
The significant provisions of our executive separation allowance
(severance) plan, as well as the provisions of our 2015 Plan
involving “change in control,” “qualified retirement,” and death
benefits, are discussed in more detail below. Payments to be made
under our EDCP upon an executive’s termination of employment or a
“change in control” are discussed under “–
Nonqualified Deferred Compensation.” We do not provide other
benefits that are triggered by an NEO’s termination or retirement
or by a change in control, except for our 401(k) plan (which is
available to all employees) or those required by law (such as
postemployment medical insurance coverage under
COBRA).
Severance Plan
Our executive separation allowance plan is designed to provide
executives with well-defined financial payments if we ask the
executive to leave under certain circumstances. The plan covers our
NEOs, other executive officers, and all other equity-eligible
employees.
Among other terms and conditions, we will generally pay a
separation allowance (severance) payment to an eligible executive
if:
•the
executive’s employment terminates for reasons other than
resignation (including retirement), death, disability, leave of
absence, or discharge for cause (as defined in the plan), or the
executive resigns within a specific period of time
following any change in the executive’s job duties that is deemed
significant by Progressive; and
•the
employee signs a termination and release agreement as required by
the plan.
The amount of the severance payment will vary among employees based
on position and years of service. Based on tenure, each of our NEOs
would receive severance payments equal to three times the
executive’s annual base salary only at the time of termination.
Cash incentive payments, bonuses, equity awards, perquisites, and
other compensation are excluded from the severance calculation. In
addition, under the plan, the NEO would be entitled to continue
medical, dental, and vision benefits for a period not to exceed 18
months at our cost, except that they would be required to make
contributions to the cost of those benefits to the same extent as
the executive did prior to termination. The NEO would also be
eligible to receive outplacement services following separation with
an estimated value of $13,000.
In addition, the plan provides that eligible NEOs will have the
right to receive a severance payment in accordance with the formula
described above, if after any change in control of Progressive,
either:
•the
NEO’s employment is terminated for reasons other than resignation
(including retirement), death, disability, leave of absence, or
discharge for cause (as defined in the plan); or
•the
NEO resigns due to a job change for “good reason.”
This plan defines “change in control” and “good reason” the same as
those terms are defined in the 2015 Plan, which is described
below.
In the event of a termination of employment of any of our NEOs due
to a resignation (including retirement), death, disability, leave
of absence, or discharge for cause (as defined in the plan), no
separation allowance would be payable under the executive
separation allowance plan.
The following table summarizes for each of the NEOs the severance
payments that would have been made to the NEOs, and the estimated
value of health and welfare benefits for which the NEO would have
been eligible, if the executive had separated from Progressive at
December 31, 2022, under circumstances requiring payments under the
executive separation allowance plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
Amount of
Severance
Payment
($) |
|
Estimated Value of Health Benefits
($) |
|
Susan Patricia Griffith |
$2,850,000 |
|
$24,985 |
|
John P. Sauerland |
2,025,000 |
|
24,985 |
|
Patrick K. Callahan |
1,875,000 |
|
24,824 |
|
John Murphy |
1,650,000 |
|
24,985 |
|
Karen B. Bailo |
1,650,000 |
|
21,512 |
Change-in-Control Provisions Under Equity Plan
Benefits also may be provided under our 2015 Plan to holders of
equity awards, including our NEOs, if a change in control
occurs.
All equity awards currently outstanding were granted under the 2015
Plan.
The 2015 Plan has a “double-trigger” change-in-control provision.
Unless an award provides otherwise, the award will not accelerate
or be paid out upon a change in control if the outstanding award is
honored, assumed, or replaced with a new right that complies with
the terms of the change-in-control provisions in the 2015 Plan,
including providing substantially identical terms and substantially
equivalent economic terms. If the awards are not honored, assumed,
or replaced, as described above, they will vest immediately prior
to a change in control and each restricted stock unit award will be
cashed out, at fair market value, with any performance-based awards
deemed to have been earned at the higher of target or a multiple of
target based on the level of achievement through the date of the
change in control, if determinable. Any honored, assumed, or
replacement award will vest after a change in control if, within 24
months after the change in control, the individual is terminated by
the surviving entity other than for cause (as defined in the plan)
or the individual terminates employment for good reason.
If
vesting is accelerated, performance-based awards will be considered
to be earned at the higher of target (if applicable) or a multiple
based on the level of achievement through the termination date, if
determinable.
The definition of “change in control” in the 2015 Plan is intended
to satisfy Section 409A of the Internal Revenue Code and is defined
as specific transactions or events, generally including (i)
shareholder approval of a liquidation or dissolution, (ii)
acquisition by an individual, entity, or group of 30% or more of
the outstanding common shares or the combined voting power of the
outstanding securities entitled to vote in the election of
directors, unless specified exceptions are satisfied, (iii) a
change in the composition of the Board such that the individuals
who constituted the Board in May 2015 cease to constitute at least
a majority of the Board (with new directors nominated for election
by the Board generally treated as having been a director in May
2015), or (iv) the consummation of a reorganization, merger,
consolidation, asset sale, or similar transaction unless the
company’s shareholders retain more than 50% of the voting power of
the surviving entity, no individual, entity, or group owns 30% or
more of the outstanding common shares or the combined voting power
of the outstanding securities entitled to vote in the election of
directors of the surviving entity, and the company’s directors
prior to the transaction constitute at least a majority of the
board of directors of the surviving entity. “Good reason” involves
an adverse employment decision affecting the NEO, such as a
significant reduction in their duties or responsibilities, a
decrease in their compensation, or a change in office location that
would increase their commute by greater than 50 miles.
The following table quantifies the amount of each NEO’s
change-in-control benefits under our equity incentive plan,
assuming a change in control (within the meaning of the applicable
plan) had occurred and the vesting of all outstanding equity awards
and payments had been required under the applicable plan on
December 31, 2022:
|
|
|
|
|
|
|
|
Name |
Payments on
Unvested Restricted
Stock Unit Awards/Total1
($)
|
|
|
Susan Patricia Griffith |
$49,950,543 |
|
|
John P. Sauerland |
14,194,165 |
|
|
Patrick K. Callahan |
10,299,233 |
|
|
John Murphy |
6,200,397 |
|
|
Karen B. Bailo |
4,125,167 |
|
1 Includes
time-based and performance-based restricted stock unit awards, plus
reinvested dividend equivalents. Performance-based awards are
valued at their target amount.
Qualified Retirement Provisions Under Equity Plan
The 2015 Plan provides additional benefits in the event an NEO
satisfies the Rule of 70 requirements (age 55 with at least 15
years of service or age 60 with at least 10 years of service).
These benefits, as well as those related to death and disability,
have changed over the past few years based upon the Compensation
Committee’s review of applicable market data.
Beginning with awards granted in 2021, if an NEO remains employed
through the end of the calendar year in which the grant is made,
when the NEO retires after satisfying the Rule of 70
requirements:
•100%
of the outstanding time-based award will vest, and
•100%
of each unvested performance-based award will be retained and will
vest if, when and to the extent that the performance measures are
achieved.
With respect to awards granted in 2020, when the NEO retires after
satisfying the Rule of 70 requirements:
•50%
of each outstanding time-based award will vest, and
•the
NEO retains 50% of any outstanding performance-based award (100% if
the NEO provided 12 to 18 months advanced notice of retirement
described below), which will be retained and will vest if, when and
to the extent that the performance measures are
achieved.
With respect to unvested time-based awards granted in
2019:
•50%
of each award vested (or will vest) when the individual first
satisfies the Rule of 70 requirements,
•the
remaining half of each award will then vest only when the
time-based vesting provisions set forth in the applicable award
agreement are satisfied, and
•no
portion of the award vests upon the participant’s
retirement.
The rights conferred by these provisions, among other rights, may
be forfeited if the Compensation Committee determines that prior to
vesting the executive has engaged in any “disqualifying activity.”
See “Compensation Discussion and Analysis – Elements of
Compensation – 2022 Decisions and Awards – Clawback
Provisions.”
As of December 31, 2022, Mrs. Griffith, Mr. Sauerland, and Ms.
Bailo satisfied the Rule of 70 requirements under our 2015 Plan.
Mr. Murphy and Mr. Callahan will not be able to satisfy the
qualified retirement eligibility until 2024 and 2025, respectively.
The table below shows the value of each of the eligible executive’s
retirement benefits if they had
retired on December 31, 2022, and provided the required notice of
their intended retirement for certain awards, as described
above.
The amounts are valued using our closing stock price on December
31, 2022, and include reinvested dividend equivalent units payable
when the underlying award vests. For the performance-based equity
awards, the amounts disclosed assume that all outstanding awards
vest at the maximum factor; however, the actual value depends on
whether, and the extent to which, the company achieves the
applicable performance goals established at the time each award was
made, within the time periods permitted by the award. See the “–
Outstanding Equity Awards at Fiscal Year-End” table for more
information.
|
|
|
|
|
|
|
|
|
|
|
Value of Qualified Retirement Benefits1
(As of 12/31/2022)
|
|
|