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 2023, the committee held 10 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 2023, 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 2023 Annual Meeting of Shareholders.
In supervising the work of PwC on the 2023 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 2023 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, 2023. 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, 2023, for filing with the SEC.
After reviewing the performance of PwC in planning and conducting the 2023 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 2024. Shareholders are being given the opportunity to vote on the ratification of this selection at the 2024 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 BleserOTHER BOARD OF DIRECTORS INFORMATION
Stuart B. Burgdoerfer
Pamela J. CraigBOARD OF DIRECTORS INDEPENDENCE Charles A. DavisDETERMINATIONS
Roger N. FarahWe 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. 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 2023 or are expected in 2024 between Progressive and companies with which the individual is affiliated. Specifically, the Board considered ordinary course transactions involving reinsurance, 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 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 substantial business experience and acumen, executive management experience, and additional experiences as a member of a number of public company boards. Ms. Fitt’s deep understanding of our businesses and culture 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. Susan Patricia Griffith
Jeffrey D. Kelly
Patrick H. Nettles, Ph.D.
Barbara R. Snyder
Kahina Van Dyke
Information regarding the nominees can be found below under "Director Nominee Information."
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, which includes climate change and our reinsurance programs. 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: | | | | | | | Insurance | Risks associated with assuming, or indemnifying for, the losses or liabilities incurred by policyholders | | Operating | | | | Risks stemming from external or internal events or circumstances that directly or indirectly may affect our insurance operations | The BoardMarket | Risks that may cause changes in the value of Directors recommendsassets held in our investment portfolios | | Liquidity | Risk that you vote FORour financial condition will be adversely affected by the electioninability to meet our short-term cash, collateral, or other financial obligations | | Credit and Other Financial | Risks that the other party to a transaction will fail to perform according to the terms of each nominee.a contract, or that we will be unable to satisfy our obligations when due or obtain capital when necessary |
Voting Requirements
Proxies cannot be voted at
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 Annual Meeting for a greater number of persons than the 11 nominees named in this Proxy Statement. A nominee for director in an uncontested election will be elected as a director only if he or she receives a majorityquality 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,models we use and the nominees receiving the highest number of votes will be elected (a “plurality voting standard”). processes we have in place to identify and quantify current and emerging risks.
Management Risk Committee The election of directors at this year’s Annual Meeting is an uncontested election, so each nominee must receive a majoritypurpose of the votes castMRC is to be elected. Abstentionscoordinate our ERM program. Our ERM program is intended to maintain an effective process to identify, evaluate, mitigate, and unvoted shares (including broker non-votes) will not be considered as votes cast. If an incumbent director is not elected by a majorityreport critical risk exposure information, including any significant gaps in our ability to manage risk, to executive management and the Audit Committee of the votes cast in an uncontested election,Board of Directors at least annually. The MRC is comprised of senior members of management representing a variety of business units and functions and may also include other senior leaders with functional expertise. The MRC supports the director is not automatically removed fromorganization with clearly defined accountabilities and a culture that supports risk-based decision making.
| | | | Spotlight on Climate Change Risk Management | | As a property-casualty insurance company that operates our businesses throughout the United States, our success depends on our ability to underwrite and price risk accurately, which is subject to a number of risks, including those related to changes in the frequency, severity, duration, geographic location, and scope of severe weather events, which may be becoming more severe and less predictable as a result of climate change. | | Our Nominating and Governance Committee oversees ESG matters, including climate change, on behalf of the Board. Additionally, the Audit Committee oversees our ERM program and, as part of that oversight, is kept apprised of certain operational risks such as climate change and our reinsurance programs. Our MRC coordinates our ERM program. In the MRC’s annual risk assessment process, we attempt to evaluate the longer-term effects of climate change and attempt to evaluate the impact on capital, pricing, our customers, and investments. | | Spotlight on Cybersecurity Risk Management | | 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. Our Chief Security Officer (CSO) is ultimately responsible for cybersecurity at Progressive, with management oversight of the prevention, detection, mitigation, and remediation of cybersecurity incidents. The CSO reports directly to the Chief Financial Officer and provides regular cybersecurity updates to our CEO, other members of the executive team, and the Technology Committee. Our CSO is also a member of our MRC, which leads our ERM program, which results in cybersecurity risks remaining a focus of our overall risk management process. |
MEETINGS OF THE BOARD OF DIRECTORS AND ATTENDANCE During 2023, the Board but underheld five meetings, pursuant to Ohio corporation law. All directors attended at least 75% of their scheduled Board and committee meetings during their committee tenure in 2023. Pursuant to our Corporate Governance Guidelines, he or she isdirectors are expected to tenderattend our Annual Meeting of Shareholders whenever possible. Normally, a resignation frommeeting of the Board within 10 days afteris scheduled on the certificationdate of the shareholder vote. If that resignation is not made contingent onAnnual Meeting. Our 2023 Annual Meeting was attended by all of 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 Board will review the resignation under procedures set forth incurrent 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 2023, under the lead of the Chairperson, the non-management directors met in executive session five times, and announceeach 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 and Talent 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: | | | | | | | | | | | | | | | | | | | | | | Name | Audit | Compensation and Talent | Investment
and Capital | Nominating and
Governance | Technology | Executive | | Danelle M. Barrett | | | | | ü | | | Philip Bleser | ü* | | | ü | | | | Stuart B. Burgdoerfer | C* | | | | ü | | | Pamela J. Craig | | ü | | | C | | | Charles A. Davis | | | C | | | | | Roger N. Farah | | C | | ü | | ü | | Lawton W. Fitt | | | ü | C | | ü | | Susan Patricia Griffith | | | | | | C | | Devin C. Johnson | | | | | ü | | | Jeffrey D. Kelly | ü* | | | | | | | Barbara R. Snyder | | ü | | | | | | Kahina Van Dyke | | | ü | | ü | |
üMember of the committee C Chair of the committee * Audit Committee Financial Expert
Audit Committee Members | | | | | | | | | | | | | | | | | | | | | Stuart B. Burgdoerfer | Philip Bleser | Jeffrey D. Kelly | | | | Chair | | | | |
| | | | | | | | | | | | | | | | | Meetings Held in 2023 | | | Primary Responsibilities | | 10 | | | •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 2024,” and “Other Independent Public Accounting Firm Information” for additional related information. | | | | | Independence | | | | The Board has determined that all members are independent (including the additional requirements for audit committee members). | | | | | | | Financial Literacy/Audit Committee Financial Expert | | | | 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. | | | | | | | | | | | |
Compensation and Talent Committee Members | | | | | | | | | | | | | | | | | | | | | Roger N. Farah | Pamela J. Craig | Barbara R. Snyder | | | | Chair | | | | |
| | | | | | | | | | | | | | | | | Meetings Held in 2023 | | | Primary Responsibilities | | 7 | | | •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. •Administering our Dodd-Frank Clawback Policy and, separately from such policy, overseeing any additional compensation recoupment, recovery, or similar provisions in our compensation and benefit plans. •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. | | | | | Resolutions Adopted by Written Action | | | | 2 | | | | | | | Independence | | | | The Board has determined that all members are independent (including the additional requirements for compensation committee members). | | | | | | | | | | | | | | | | | | | | | |
Investment and Capital Committee Members | | | | | | | | | | | | | | | | | | | | | Charles A. Davis | Lawton W. Fitt | Kahina Van Dyke | | | | Chair | | | | |
| | | | | | | | | | | | | | | | | Meetings Held in 2023 | | | Primary Responsibilities | | 5 | | | •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.
| | | | | Independence | | | | The Board has determined that all members are independent. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nominating and Governance Committee Members | | | | | | | | | | | | | | | | | | | | | Lawton W. Fitt | Philip Bleser | Roger N. Farah | | | | Chair | | | | |
| | | | | | | | | | | | | | | | | Meetings Held in 2023 | | | Primary Responsibilities | | 5 | | | •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, 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 2023, 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.”
| | | | | Independence | | | | The Board has determined that all members are independent. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Technology Committee Members | | | | | | | | | | | | | | | | | | | | | Pamela J. Craig | Danelle M. Barrett | Stuart B. Burgdoerfer | Devin C. Johnson | Kahina Van Dyke | | Chair | | | | |
| | | | | | | | | | | | | | | | | Meetings Held in 2023 | | | Primary Responsibilities | | 5 | | | •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.
| | | | | Independence | | | | The Board has determined that all members are independent. | | | | | | | | | | | | | | | | | | | | | | | |
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 determination whethercommittees and the power to accept or rejectadopt amendments to our Code of Regulations. During 2023, the resignation within 120 daysExecutive Committee adopted resolutions bywrittenactionpursuanttoOhiocorporationlawon four 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 certificationdirectors that will improve the effectiveness of the shareholder vote. If aBoard and the committees, and enable each director is not elected by a majorityto contribute actively to the work of the votes cast, but failsBoard. The committee reports these results to tender histhe 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 her resignation duringa combination of evaluative approaches, including written surveys, individual interviews, group discussions in executive session, and/or engagement of a third-party facilitator. From time to time, the 10-day period after certification, his or her termcommittee may engage 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 engaged an independent third party in 2021 and plans to continue to evaluate the use of office will expire automatically uponan independent third party for the expirationevaluations every few years as part of the 10-day period.its multi-year approach.
In early 2022, 2023, and 2024, the evaluation process used a written survey addressing a wide range of topics including: 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 he or she desires that the voting for election of directors be cumulative,•Board overall effectiveness
•Board composition •Committee structure and if an announcement of the giving of such notice is made at theeffectiveness •Board meeting by the Chairman or Secretary or by or on behalf of the shareholder giving such notice, each shareholder will have the right to cumulate his or her 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 he or she holds, or distribute such number of votes among the nominees, as the shareholder sees fit. If the enclosed proxy is executedcontent and returned, or you submit your proxy by telephone or over the Internet,structure •Board and voting for the election of directors is cumulative, the persons named as your proxies on the proxy card will have the authority to cumulate votes and to vote the shares represented by your proxy, and by other proxies held by them, so as to elect as many of the 11 nominees named above as possible. Selection of Nominees for Directorcommittee information needs
The Nominating and Governance Committee evaluatesreported these results to the full Board for discussion, and used 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 •David M. Stringer, 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 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 2023, 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 our former director Jan E. Tighe, served as members of the Board’s Compensation Committee during 2023, which was renamed to the Compensation and Talent Committee in 2024. 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 annual compensation 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 individually when considering whether hefor director who is eighty years of age or she should be nominatedolder at the time of such nomination, nor will the Board appoint such an individual to servea vacant seat on the Board. The Committee looks for candidates who have demonstrated the ability to satisfy the fundamental criteria set forthBoard has not waived this requirement in the Committee’s charter - integrity, judgment, commitment, preparation, participation, and contribution - and who possess the general qualities required to serve successfully as a director, including intelligence, thoughtfulness, and diligence. The Committee reviews the extent of the candidate’s demonstrated excellence and success in his or her chosen career and the specific skills the candidate would be expected to add to the Board.last three years. The Committee also considers the Board’s needs, the qualifications of other available candidates, and how the addition of the candidate to the Board would enhance the Board’s overall diversity and capabilities. The Board's policy is to include individuals with a wide variety of talents, skills, experiences, and perspectives, in addition to considering demographic criteria such as gender, race, sexual orientation, ethnicity, and age, 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. 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, experience, 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 characteristics, skills, or a combination thereof.
The nominees include a mixture of long-tenured and newer directors with strong operating experience in a wide variety of industries, such as financial services, social media, telecommunications, retail, consulting, and higher education, and with substantial experience working in a variety of functions, including consumer marketing, technology, investments, capital management, finance, accounting and control, and risk analysis. The nominees also have a wealth of experience serving on an array of public, private, and non-profit boards.
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 he or she should serve on the Board of Directors. Unless otherwise indicated, each nominee has held the principal occupation indicated for more than the last five years. The term of each current director expires on the date of our Annual Meeting on May 11, 2018.
| | | | | | Name (Age) | Principal Occupation, Last Five YearsREPORT OF THE AUDIT COMMITTEE
Business Experience,The following Report of the Audit Committee does not constitute soliciting material and Qualifications
| Other Directorshipsshould 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.
(Last Five Years)
| Philip Bleser (63)
Director since: 2017
| Retired; ChairmanThe Audit Committee of Global Corporate Banking, JPMorgan Chase & Co.,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 New York (financial services) from April 2016 through June 2016; HeadStock Exchange and the Securities and Exchange Commission (SEC). In addition, the Board has determined that each of Global Corporate Banking, North America, JPMorgan Chase & Co., prior to April 2015
Prior to retiring in 2016,Mr. Burgdoerfer, Mr. Bleser, served on the executive leadership team at JPMorgan Chase (JPM), a preeminent commercial bank and financial services company, where he led the firm’s 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. His roles positioned him to understand the challenges and opportunities faced by JPM’s largest corporate clients and to evaluate the strategic decisions made by those businesses. Mr. Bleser also serves 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 compensation committees, as well as deepening his understanding of a consumer-facing retail business.
| Current Francesca's Holding Corp.
Former None
| | Stuart B. Burgdoerfer (55)
Director since: 2009 | Executive Vice President and Chief Financial Officer, L Brands, Inc., Columbus, Ohio (retailing)
Mr. Burgdoerfer has been selected to serve as a director of the company because he has substantial experience working in leadership roles as a financial professional, including his current role as the Chief Financial Officer of L Brands, Inc. and, before that, as Senior Vice President of Finance of The Home Depot, Inc. Mr. Burgdoerfer enhances the Board’s financial expertise andKelly is a valuable member of our Audit Committee as an Audit Committee Financial Expert.
| Current NoneExpert, as that term is defined by the SEC.
Former None
| | Pamela J. Craig (61)
Director since: Not Applicable | Retired; Chief Financial Officer, Accenture PLC, Dublin, Ireland (global management consulting) prior to 2013
Ms. CraigThe Audit Committee is the former Chief Financial Officerresponsible, on behalf of the global consultingBoard, 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 2023, the committee held 10 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 Accenture PLC. Ms. Craig workedand for reviewing that firm’s independence. For 2023, 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 Accenture for 34 years in a varietythe company’s 2023 Annual Meeting of consultingShareholders.
In supervising the work of PwC on the 2023 audit, the committee received the written disclosures and executive roles, where she developed extensive finance, management, operationalletter from PwC concerning its independence as required by the applicable requirements of the Public Company Accounting Oversight Board (PCAOB), and technology expertise, as well as leadership experiencethe 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 contextpreceding five years; the publicly available parts of a large, growth-oriented organization.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 2023 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, 2023. 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, her servicethe committee has discussed with PwC its judgment as a director of other significant public companies, and as a member of their audit, compensation, and governance committees, provide her with valuable experience in addressingto the many risks and governance issues facing public companies.
| Current Merck & Co., Inc.
Akamai Technologies, Inc.
Former Walmart Inc. VMware, Inc.
| | | | |
| | | | Name (Age) | Principal Occupation, Last Five Years
Business Experience, and Qualifications | Other Directorships
(Last Five Years) | Charles A. Davis (69)
Director since: 1996
| 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 at Goldman Sachs Group, investment management experience at MMC Capital, Inc., service as Chief Executive Officer of Stone Point Capital LLC, and his position as a memberquality, not just the acceptability, of the Advisory Committee of Deutsche Bank (Americas). The Board values Mr. Davis’s extensive knowledge of Progressive’s business and history, which he has gained through his service as a director of the company since 1996. He also has substantial experience servingcompany’s accounting policies.
Based on the boardsreviews 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, 2023, for filing with the SEC.
After reviewing the performance of PwC in planning and conducting the 2023 audit, and considering PwC's independence, quality of services and communications, and sufficiency of resources, among other publicmatters, the committee has selected and private companies. | Current AXIS Capital Holdings Limited The Hershey Company
Former None
| | Roger N. Farah (65)
Director since: 2008
| Retired; Executive Director, Tory Burch LLC, New York, New York (retailing) from March 2017 through December 2017; Co-Chief Executive Officer, Tory Burch LLC, from September 2014 through February 2017; Executive Vice Chairman, Ralph Lauren Corporation, New York, New York (lifestyle products) from November 2013 to May 2014; President and Chief Operating Officer, Ralph Lauren Corporation prior to November 2013
Mr. Farah was chosenretained PwC to serve as the independent registered public accounting firm for Progressive and its subsidiaries for 2024. Shareholders are being given the opportunity to vote on the ratification of this selection at the 2024 Annual Meeting of Shareholders.
The committee operates under a director principally due to his experience serving in executive officer positions at Tory Burch LLC and Ralph Lauren Corporation and his director position at Ralph Lauren Corporation.written charter, the terms of which are reviewed annually by the committee. The extensive management and operational experience Mr. Farah has attained enables him to add significant value tocurrent charter, as approved by the Board, particularly in the area of brand development and management. He brings a unique retail perspective to the Board as a result of his experience working in an executive management role in a consumer-focused industry that is different than the property and casualty insurance industry. | Current Aetna, Inc. Metro Bank PLC Tiffany & Co.
Former Ralph Lauren Corporation
| | Lawton W. Fitt (64)
Director since: 2009
| Lead Independent Director, The Progressive Corporation, Mayfield Village, Ohio since May 2016; Retired Partner, Goldman Sachs Group, New York, New York (financial services)
Ms. Fitt 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’s service as a director at various other for-profit and non-profit organizations also factored into the decision to select her to serveposted on the Board of Directors.
| Current Ciena Corporation The Carlyle Group
Micro Focus International PLC
Former ARM Holdings plc Thomson Reuters Corporation
| | | | |
company’s website at progressive.com/governance. | | | | Name (Age) | Principal Occupation, Last Five Years
Business Experience, and Qualifications | Other Directorships
(Last Five Years) | Susan Patricia Griffith (53)
Director since: 2016 | President and Chief Executive Officer, The Progressive Corporation, Mayfield Village, Ohio since July 2016; Vice President from May 2015 through June 2016; Personal Lines Chief Operating Officer from April 2015 through June 2016; President of Customer Operations from April 2014 to March 2015; Claims Group President prior to April 2014
Mrs. Griffith has been with the company since 1988 and has held a series of executive leadership positions, including Chief Human Resource Officer, Claims Group President (in charge of the entire Claims organization), President of Customer Operations (overseeing the company's 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. During 2016, she was elected as Chief Executive Officer and a Director. Mrs. Griffith’s intimate knowledge of the company and her leadership experience give her a deep understanding of the Company’s culture, operations, challenges, and opportunities. | Current FedEx Corporation
Former The Children's Place, Inc.
| | Jeffrey D. Kelly (64)
Director since: 2012
Prior service: 2000-2009
| Retired; Chief Operating Officer and Chief Financial Officer, RenaissanceRe Holdings Ltd., Pembroke, Bermuda (reinsurance services) from December 2014 to September 2016; Chief Financial Officer, RenaissanceRe Holdings Ltd. prior to December 2014
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 reinsurer. Mr. Kelly's experience on the Board (including his prior tenure) gives him valuable insight into our insurance and investment operations. Due to his roles at RenaissanceRe, Mr. Kelly also provides a different perspective about the insurance industry.
| Current None
Former None
| | Patrick H. Nettles, Ph.D. (74)
Director since: 2004 | Executive Chairman of the Board, Ciena Corporation, Linthicum, Maryland (telecommunications)
Dr. Nettles’s extensive technical experience, including his experience working as an engineer, engineering manager, and his position as Chairman of the Board of Ciena Corporation, are chief among the reasons he was selected to serve on the Board of Directors. His experience and education, which includes a Ph.D. in physics, along with his significant operational experience as the Chief Executive Officer of Ciena, give him a unique perspective that enables him to make significant and distinct contributions to our Board. In addition, his past experience as a chief financial officer enables him to add great value to the Audit Committee as the Committee Chairman and an Audit Committee Financial Expert. Dr. Nettles’s service as a director at other public companies also factored into the decision to select him to serve on our Board of Directors. | Current Axcelis Technologies, Inc. Ciena Corporation
Former None
| | | | |
| | | | Name (Age) | Principal Occupation, Last Five Years
Business Experience, and Qualifications | Other Directorships
(Last Five Years) | Barbara R. Snyder (62)
Director since: 2014 | President, Case Western Reserve University, Cleveland, Ohio (higher education)
Ms. Snyder has extensive leadership experience as the President of Case Western Reserve University, in addition to leadership positions she has held at non-profit and university organizations and as a member of another public company board. Since being named President of Case in 2007, she has led a revitalization of the school, instituting a strategic planning process and eliminating a multi-million dollar deficit that she inherited, while overseeing enhancements of academic excellence, faculty collaboration, fundraising efforts, and the qualifications and diversity of Case’s student body. Her executive role at a leading university with strong research capabilities in science, engineering and technology, among other fields, along with her understanding of younger consumers and their technology habits, brings a unique perspective to our Board. | Current KeyCorp
Former None
| | Kahina Van Dyke (46)
Director since: Not Applicable | Global Director of Financial Services & Payment Partnerships, Facebook, Inc., Menlo Park, California (online social media) since October 2017; Global Director of Payment Partnerships & Commerce, Facebook, Inc. from January 2016 through September 2017; Group Head and Senior Vice President Global Initiatives, Mastercard International (financial services) prior to January 2016
Stuart B. Burgdoerfer, Chair
Ms. Van Dyke is the Global Director of Financial Services & Payment Partnerships at Facebook, where she works with external companies to develop and grow the social platform’s financial products and services. She joined Facebook in January 2016 as the Global Director of Payment Partnerships & Commerce. Previously, Ms. Van Dyke held international leadership positions at multi-national financial firms, Mastercard and Citigroup. She brings to our Board an understanding of traditional financial services companies combined with leadership experience at a major technology company and expertise in emerging areas such as electronic payment systems and other fintech advances. 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.
| Current None
Former None
| |
Directors Whose Term will not Continue after the Annual Meeting
Glenn M. Renwick's current term as a director will expire at our Annual Meeting in 2018 and he has decided to retire from the Board. Mr. Renwick has served as Chairman of the Board since November 2013 and has been a member of the Board for over 18 years. Mr. Renwick served as Chief Executive Officer of insurance operations in 2000 and as the Chief Executive Officer of the company from 2001 through June 2016. He also served in a variety of operating roles during his tenure at Progressive, including product manager, the head of the company's marketing organization, and business technology leader. This experience enabled him to provide unparalleled insight on the company’s operations and the property and casualty insurance industry.
Bradley T. Sheares, Ph.D., has also decided to retire from the Board when his current term expires at our Annual Meeting in 2018. Dr. Sheares has served on the Board since 2003 and has brought valuable experience that he gained through his leadership experience as Chief Executive Officer at Reliant Pharmaceuticals, Inc. and as the President of U.S. Human Health Division of Merck & Co. The Board also benefited from the technical perspective Dr. Sheares brought, due in part to his having earned a Ph.D. in biochemistry and his background in the sciences.
Progressive thanks both Mr. Renwick and Dr. Sheares for their dedicated service and the many contributions made during their respective tenure on the Board.
OTHER BOARD OF DIRECTORS INFORMATION Board of Directors Independence DeterminationsBOARD OF DIRECTORS INDEPENDENCE
DETERMINATIONS
We are required to have a majority of independent directors under NYSE Listing Standards.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 our two new nominees, Ms. Craig and Ms. Van Dyke.members. In conducting this review, the Board took into account each director's and each nominee’sindividual’s current employment situation (if any) and other relationships that could impact the independence determination under NYSE rules,listing standards, including certain transactions that took place in 20172023 or are expected in 20182024 between Progressive and companies with which the director or nomineeindividual is affiliated. Specifically, the Board considered ordinary course transactions between Progressiveinvolving reinsurance, director’s and a company reinsuring a discontinued line of business, a company providingofficer’s insurance, claims resolution and administration, agency commissions and administration, employee healthbenefits and welfare plansadministration, data and related services, a company providing online advertising and relatedsoftware services, and companies providing other products or services to our insurance operations.background checks for potential employees, among others. Based on this review, the Board determined that each of our current directors and the two new nominees isare independent under the NYSE listing standards, other than Mrs. Griffith, who is an executive officer of the company, and Mr. Renwick, who was an executive of the company until July 1, 2017.company. Leadership StructureBOARD LEADERSHIP STRUCTURE
Mr. Renwick currently serves as the company’s Chairman of the Board. The Board first appointed Mr. Renwick to the position of Chairman in November 2013. Mr. Renwick's appointmentLawton W. Fitt has been reviewed by the Board annually.
The Board unanimously determined that Mr. Renwick was the best person to serve as our Chairman, due to his strong leadership of the company while serving as CEO, his in-depth understanding of the company’s operations and the competitive environment, and his vision for the company’s future. Mr. Renwick worked for the company from 1986 until July 2017 in a variety of leadership roles, culminating in service as President and CEO from 2001 until 2016 when he retired as President and CEO but continued serving as our Executive Chairman of the Board. During his tenure as CEO, Mr. Renwick displayed respect for the oversight and advisory rolesChairperson of the Board and he fostered a strong working relationship with the Board, which continued in his role as Chairman. His operational history and leadership of the company provide him with a unique perspective to continue to lead the Board.
With the appointment of Mrs. Griffith as President and CEO of the company in July 2016, the Board further determined that Mr. Renwick’s continued service as Chairman would enhance management continuity for the company and provide a valuable resource for Mrs. Griffith as she transitioned into her current role. As a result, the Board also concluded that splitting the roles of Chairman and CEO was the best leadership structure for the Board at that time. Mr. Renwick served as Executive Chairman until July 2017, when he retired from his status as an employee of the company. He continues to serve as Chairman in a non-management capacity.
Given that Mr. Renwick is not an independent director under applicable NYSE rules, the Board was also mindful of the need to continue the strong voice of independent directors that has historically existed on our Board. Accordingly, the Board created the role of Lead Independent Director and has maintained that position during Mr. Renwick’s tenure as Chairman. Ms. Fitt has been elected as Lead Independent Director by the independent directors since May 2016.
Pursuant to our Corporate Governance Guidelines, the Lead Independent Director works collaboratively with the Chairman and management on Board governance, process, and communication matters. The Lead Independent Director’s responsibilities specifically include:
presiding at all meetings of the Board at which the Chairman is not present or from which the Chairman is excused;
having the authority to call meetings of the Board or of the independent directors;
presiding at all meetings and executive sessions of the independent or non-management directors;
serving as the principal liaison to facilitate communications between the Chairman and the independent directors on Board-related issues, without inhibiting direct communications between the Chairman and other directors;
working with the Chairman to establish Board meeting schedules to ensure that there is sufficient time to discuss all agenda items;
consulting with the Chairman on the matters to be included on the Board’s meeting agendas and approving those agendas;
approving the type of information to be provided to directors for Board meetings, and advising the Chairman and management of any director concerns regarding the information provided; and
being available to serve as a liaison to shareholders, in consultation with the Nominating and Governance Committee, as further described in our Corporate Governance Guidelines.
In addition, the Lead Independent Director consults periodically with the Chairs of the various Board Committees to keep apprised of critical issues facing the company as they develop, and carries out other appropriate duties as may be requested by the independent directors, the Board, or any of the Board Committees. The Lead Independent Director is elected annually by, and serves at the discretion of, the independent directors. Our Corporate Governance Guidelines also provide that the Lead Independent Director will typically be a member of the Board’s Nominating and Governance Committee.
The independent directors concluded that2018. Ms. Fitt is the best candidate to serve as the Lead Independent Director due to her performance as an independent director in representing shareholders’ interests. Ms. Fittfrom management under NYSE listing standards, and she has a strongsubstantial business background,experience and acumen, executive management experience, and additional experienceexperiences as a member of a number of public company boards. Ms. Fitt's knowledgeFitt’s deep understanding of our businesses and culture acquired as a Board and Committeecommittee member, her demonstrated willingness to challenge management and the status quo, and her effective working relationship with Mr. Renwick and Mrs. Griffith also contributed to the decision. The independent directors believe thatBoard’s decision to elect Ms. Fitt acting as the Lead Independent Director, along with the active participation of the other directors, has maintained a strong independent presence on our Board.
The Board currently expects to appoint Ms. Fitt to the position of Chairperson of the Board when Mr. Renwick retires in May 2018. She will remain the Lead Independent Director until that time.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 the bulkcertain 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 oversight responsibilitiesamong the committees and makes appropriate recommendations to the Audit Committee, which oversees our Enterprise Risk Management (ERM) program. The Audit Committee’s responsibilities with respect to risk oversight 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 – including leaders and other representatives of the risk management department, compliance and ethics group, law department, control and analysis (internal audit), physical security, cybersecurity, and information technology groups, external auditors, and other business units as necessary – to review our major operational, financial, technological, reputational, and other risk exposures, as well as the steps management has taken to identify, monitor, assess, and mitigate such exposures. Our Management Risk Committee (MRC), which comprises members of management representing a cross-section of business units and functions,Board. Each committee 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 reports to the full Board of Directors on our ERM program and MRC risk assessment. The Board also assigns some risk oversight responsibilities to the Investment and Capital Committee and the Compensation Committee. The Investment and Capital Committee oversees our investment policy, which is designed to enable us to meet our business and financial objectives with a reasonable balance among risk, return, and cost. The Investment and Capital Committee also is responsible for ensuring that we have a capital plan that takes risk factors into consideration. The Compensation Committee regularly reviews the risks of our compensation plans and programs. Both of these Committees regularly report to the full Board.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 Audit Committee orapplicable committee. Further, the other Committees. On the other hand, the Committeescommittees provide a deeper focus on overseeing management with respect to the full range of risks we confront. As mentioned above, the Lead Independent DirectorThe Board’s Chairperson, Ms. Fitt, consults with the Committeecommittee Chairs, as necessary, to ensure that significant risk issues are brought to the attention of the independent directors.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, which includes climate change and our reinsurance programs. 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: | | | | | | | Insurance | Risks associated with assuming, or indemnifying for, the losses or liabilities incurred by policyholders | | Operating | Risks stemming from external or internal events or circumstances that directly or indirectly may affect our insurance operations | | Market | Risks that may cause changes in the value of assets held in our investment portfolios | | Liquidity | Risk that our financial condition will be adversely affected by the inability to meet our short-term cash, collateral, or other financial obligations | | 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 The purpose of the MRC is to coordinate our ERM program. Our ERM program is intended to maintain an effective process to identify, evaluate, mitigate, and report critical risk exposure information, including any significant gaps in our ability to manage risk, to executive management and the Audit Committee of the Board of Directors at least annually. The MRC is comprised of senior members of management representing a variety of business units and Attendance functions and may also include other senior leaders with functional expertise. The Board of Directors held six meetings during 2017.MRC supports the organization with clearly defined accountabilities and a culture that supports risk-based decision making.
| | | | Spotlight on Climate Change Risk Management | | As a property-casualty insurance company that operates our businesses throughout the United States, our success depends on our ability to underwrite and price risk accurately, which is subject to a number of risks, including those related to changes in the frequency, severity, duration, geographic location, and scope of severe weather events, which may be becoming more severe and less predictable as a result of climate change. | | Our Nominating and Governance Committee oversees ESG matters, including climate change, on behalf of the Board. Additionally, the Audit Committee oversees our ERM program and, as part of that oversight, is kept apprised of certain operational risks such as climate change and our reinsurance programs. Our MRC coordinates our ERM program. In the MRC’s annual risk assessment process, we attempt to evaluate the longer-term effects of climate change and attempt to evaluate the impact on capital, pricing, our customers, and investments. | | Spotlight on Cybersecurity Risk Management | | 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. Our Chief Security Officer (CSO) is ultimately responsible for cybersecurity at Progressive, with management oversight of the prevention, detection, mitigation, and remediation of cybersecurity incidents. The CSO reports directly to the Chief Financial Officer and provides regular cybersecurity updates to our CEO, other members of the executive team, and the Technology Committee. Our CSO is also a member of our MRC, which leads our ERM program, which results in cybersecurity risks remaining a focus of our overall risk management process. |
All of the current directors were on
MEETINGS OF THE BOARD OF DIRECTORS AND ATTENDANCE During 2023, the Board throughout 2017 except Mr. Bleser, who was appointedheld five meetings, pursuant to the Board in August 2017.Ohio corporation law. All current directors attended at least 75% of their scheduled Board and Committeecommittee meetings during their tenure. committee tenure in 2023. 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 20172023 Annual Meeting was attended by all of the then current directors. A full copy of our Corporate Governance Guidelines can be found on our website at progressive.com/governance or may be requested in print by writing to: The Progressive Corporation, Investor Relations, 6300 Wilson Mills Road, Box W33, Mayfield Village, OH 44143 or email: investor_relations@progressive.com.. Meetings of the Non-Management and Independent DirectorsMEETINGS 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. Prior to July 2017, the Lead Independent Director presided at these meetings. Following Mr. Renwick's retirement from his executive position, in July 2017, Mr. Renwick presided at the meetings of the non-management directors. In the event that either the Lead Independent Director or the ChairmanChairperson 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 2017,2023, under the lead of the Chairperson, the non-management directors met in executive session five times. Prior to July 2017, two meetingstimes, and each meeting of the non-management directors discussed above also constituted meetingswas a meeting of the Board’s independent directors. After July 2017, the independent directors met in executive session on one more occasion, also with the Lead Independent Director presiding.
BOARD COMMITTEES The Board has named an Executive Committee, an Audit Committee, a Compensation and Talent Committee, an Investment and Capital Committee, and a Nominating and Governance Committee, a Technology Committee, and an Executive Committee, as described below. The complete written charter for each of the Committeescommittees (other than the Executive Committee, which does not have a charter) can be found on our website at progressive.com/governance or may be requested in print by writing to: The Progressive Corporation, Investor Relations, 6300 Wilson Mills Road, Box W33, Mayfield Village, OH 44143 or email: investor_relations@progressive.com.. The following table summarizes the Board’sBoard's current Committeecommittee assignments: | | | | | | | | | | | | | | | | | | | | | | Name | Audit | Compensation and Talent | Investment
and Capital | Nominating and
Governance | Technology | Executive | | Danelle M. Barrett | | | | | ü | | | | | Name | Executive | Audit | CompensationPhilip Bleser | Investment
and Capitalü*
| | Nominating
and
Governance
| ü | | | Philip Bleser1
| | | ü | | | | Stuart B. Burgdoerfer | C* | | | |
ü* | | | | | Pamela J. Craig | | ü | | | C | | | Charles A. Davis | | | C | | | | üC | | Roger N. Farah | | C | | ü | | ü | | ü | | Lawton W. Fitt | | | ü | C | | C | ü | | Susan Patricia Griffith | | ü | | | | C | | Devin C. Johnson | | | | | ü | | | Jeffrey D. Kelly | | ü* | |
| | | | Patrick H. Nettles, Ph.D. | | C* | | | | Glenn M. Renwick | C | | | ü | | Bradley T. Sheares, Ph.D. | | | C | | | | Barbara R. Snyder | | ü | | ü | | | | Kahina Van Dyke | | | ü | | ü | |
1 Mr. Bleser was appointed to the Board in August 2017 and became a member of the Compensation Committee in February 2018.
üMember of the Committeecommittee C ChairpersonChair of the Committeecommittee * Audit Committee Financial Expert
Audit Committee Members | | | | | | | | | | | | | | | | | | | | | Stuart B. Burgdoerfer | Philip Bleser | Jeffrey D. Kelly | | | | Chair | | | | |
| | | | | | | | | | | | | | | | | Meetings Held in 2023 | | | Primary Responsibilities | | 10 | | | •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 2024,” and “Other Independent Public Accounting Firm Information” for additional related information. | | | | | Independence | | | | The Board has determined that all members are independent (including the additional requirements for audit committee members). | | | | | | | Financial Literacy/Audit Committee Financial Expert | | | | 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. | | | | | | | | | | | |
Compensation and Talent Committee Members | | | | | | | | | | | | | | | | | | | | | Roger N. Farah | Pamela J. Craig | Barbara R. Snyder | | | | Chair | | | | |
| | | | | | | | | | | | | | | | | Meetings Held in 2023 | | | Primary Responsibilities | | 7 | | | •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. •Administering our Dodd-Frank Clawback Policy and, separately from such policy, overseeing any additional compensation recoupment, recovery, or similar provisions in our compensation and benefit plans. •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. | | | | | Resolutions Adopted by Written Action | | | | 2 | | | | | | | Independence | | | | The Board has determined that all members are independent (including the additional requirements for compensation committee members). | | | | | | | | | | | | | | | | | | | | | |
Investment and Capital Committee Members | | | | | | | | | | | | | | | | | | | | | Charles A. Davis | Lawton W. Fitt | Kahina Van Dyke | | | | Chair | | | | |
| | | | | | | | | | | | | | | | | Meetings Held in 2023 | | | Primary Responsibilities | | 5 | | | •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.
| | | | | Independence | | | | The Board has determined that all members are independent. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nominating and Governance Committee Members | | | | | | | | | | | | | | | | | | | | | Lawton W. Fitt | Philip Bleser | Roger N. Farah | | | | Chair | | | | |
| | | | | | | | | | | | | | | | | Meetings Held in 2023 | | | Primary Responsibilities | | 5 | | | •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, 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 2023, 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.”
| | | | | Independence | | | | The Board has determined that all members are independent. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Technology Committee Members | | | | | | | | | | | | | | | | | | | | | Pamela J. Craig | Danelle M. Barrett | Stuart B. Burgdoerfer | Devin C. Johnson | Kahina Van Dyke | | Chair | | | | |
| | | | | | | | | | | | | | | | | Meetings Held in 2023 | | | Primary Responsibilities | | 5 | | | •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.
| | | | | Independence | | | | The Board has determined that all members are independent. | | | | | | | | | | | | | | | | | | | | | | | |
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 Committeescommittees and the power to adopt amendments to our Code of Regulations. During 2017,2023, the Executive Committee adopted resolutions bywrittenactionpursuanttoOhiocorporationlawon sixfour occasions.
BOARD EVALUATION PROCESS
Audit Committee. The AuditOur Board recognizes that a constructive evaluation process enhances our Board’s effectiveness and supports good corporate governance. Every year, the Nominating and Governance Committee is responsible for ensuring that the organizational structure, policies, controls, and systems are in place to monitor and accurately report performance. The Audit Committee monitors the integrityoversees a self-evaluation process of our financial statements,Board’s overall performance, and of each of our financial reporting processes, internal control over financial reporting,Board’s committees, which is designed to elicit feedback from the directors that will improve the effectiveness of the Board and the public release of financial information,committees, and oversees our compliance and ethics and risk management programs. The Committee also is responsible for confirming the independence of, and the selection, appointment, compensation, retention, and oversight ofenable each director to contribute actively to the work of our independent registered public accounting firms.the Board. The Committee provides an independent channel to receive appropriate communications from employees, shareholders, auditors, legal counsel, bankers, consultants, and other interested parties. The Board of Directors has determined that each of the members of the Audit Committee is financially literate, has no relationship to Progressive that may interfere with the exercise of his or her independence from management and Progressive, and is independent as defined in the applicable SEC rules and NYSE Listing Standards. During 2017, the Audit Committee met 10 times and adopted resolutions by written action pursuant to Ohio corporation law on one occasion.
Audit Committee Financial Experts. The Board of Directors has determined that each of Dr. Nettles, Mr. Burgdoerfer, and Mr. Kelly is an audit committee financial expert, as that term is defined in the applicable SEC regulations, and that each has accounting or related financial management expertise, as required by the NYSE Listing Standards. Dr. Nettles is the current Executive Chairman of the Board of Ciena Corporation and its former Chief Executive Officer, and has been a member of our Audit Committee since 2005. Mr. Burgdoerfer is the Chief Financial Officer of L Brands, Inc. and was formerly the Senior Vice President of Finance of a major retail company. Mr. Kelly was formerly the Chief Operating Officer and Chief Financial Officer of RenaissanceRe Holdings Ltd., and previously served as the Chief Financial Officer at a major commercial bank.
Compensation Committee. The Compensation Committee is composed entirely of independent directors, each of whom, the Board has determined, also satisfies the additional requirements for independence of a compensation committee member under NYSE rules. The Compensation Committee makes final determinations regarding executive compensation, including salary, equity-based awards, and annual cash incentive targets, and related performance goals, formulae, and procedures. The Committee (or in certain circumstances, the full Board of Directors, based on the Committee’s recommendation) also approves the terms of the various compensation and benefit plans in which executive officers and other employees may participate. 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 Chief Executive Officer, our Chief Human Resource Officer, members of our compensation and law departments, and sometimes compensation consultants. In addition, the Committee frequently reports these results to the full Board of Directors on executive compensation matters.for discussion, and feedback is shared with directors.
The Committee’s determinations regarding incentive compensation for executive level employees (for example,In assessing their performance, criteriathe Board and standards relatingits committees take a multi-year perspective to “Gainsharing,” our annual cash incentive program) also applyidentify and evaluate trends. Each year, the committee re-examines the evaluation process to incentive plans covering most non-executive employees. Under this arrangement, executives and non-executives alike are motivated to achieveensure that the same performance objectives. The Committee has delegated to managementprocess allows directors the authority to implement such plans, and make other compensation-related decisions (such as salary and equity-based awards), for non-executive level employees. During 2017, the Compensation Committee met eight times and adopted resolutions by written action pursuant to Ohio corporation law on six occasions.
Compensation Consultants. The Committee has the authority under its charter to hire its own compensation consultants, at Progressive’s expense. The Committee has engaged Semler Brossy Consulting Group, LLC (“Semler Brossy”)opportunity to provide advice
actionable feedback. Accordingly, the process varies year to year and other services relatedinvolves 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. From time to executive officertime, the committee may engage an independent third party to conduct the annual evaluations to gain an additional perspective and director compensation matters in general. Prior to this engagement,encourage even more candid participation and annually thereafter, the Committee reviewed the independence of Semler Brossy and reviewed this relationship for conflicts of interest. The Committee has concluded that Semler Brossy is independent of the company’s management and does not have a conflict of interest. During 2017, management retained Pearl Meyer & Partners to provide comparative compensation information and analyses for our executive officers and directors, among other assignments. The company determined that Pearl Meyer does not have a conflict of interest.
Investment and Capital Committee. The Investment and Capital Committee’s responsibilities include monitoring: whether the company has adopted and adheres to rational and prudent investment and capital management policies; whether management’s investment and capital management actions are consistent with our investment policy, financial objectives, and business goals; our compliance with legal and regulatory requirements, as well as internal guidelines, pertaining to investment and capital management; the competence and performance of the company’s internal and
external money managers, and the compensation of the company’s external money managers; and such other matters as the Board or the Committee deems appropriate. 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 of Directors must approve significant changes to the company’s capital structure, dividend policy, or portfolio asset allocation. During 2017, the Investment and Capital Committee met six times and adopted resolutions by written action pursuant to Ohio corporation law on one occasion.
Nominating and Governance Committee.feedback. The Nominating and Governance Committee is composed entirelyengaged an independent third party in 2021 and plans to continue to evaluate the use of an independent directors. Among other responsibilities,third party for the evaluations every few years as part of its multi-year approach.
In early 2022, 2023, and 2024, the evaluation process used a written survey addressing a wide range of topics including: •Board overall effectiveness •Board composition •Committee considers the qualifications of individuals who are proposed as possible nominees for election to the structure and effectiveness •Board meeting content and structure •Board and makes recommendations to the Board with respect to such potential candidates. The Committee also oversees the procedures for evaluating director, committee and Board performance. The Committee also is responsible for monitoring corporate governance matters affecting the Board and the company. The Committee regularly reviews our Corporate Governance Guidelines to ensure that they continue to correspond to and support the Board’s governance philosophy. The Committee considers and, where appropriate, recommends to the Board for approval, changes to the Corporate Governance Guidelines based on suggestions from its members, other Board members, or management. During 2017, the Nominating and Governance Committee met five times.information needs
The Nominating and Governance Committee welcomes input from shareholders regarding potential director nominees. Shareholders can recommend a candidatereported these results to the full Board for consideration bydiscussion, and used the Committee. These procedures are described under “Procedures for Recommendationsinformation obtained to enhance Board and Nominations of Directorscommittee performance and Shareholder Proposals.”processes. Communications with the Board of DirectorsCOMMUNICATIONS WITH THE BOARD OF DIRECTORS
The Board of Directors has adopted procedures for shareholdersShareholders or other interested parties tomay 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 as appropriate, and sent to anyeither of the following:
Glenn M. Renwick, Chairman•Lawton W. Fitt, Chairperson of the Board email: chairman@progressive.com
Lawton W. Fitt, Lead Independent Director, email: lead_director@progressive.com
Daniel P. Mascaro, Secretary, The Progressive Corporation
email: chair@progressive.com •David M. Stringer, Secretary The Progressive Corporation 6300 Wilson Mills Road Mayfield Village, OH 44143 or email: secretary@progressive.com The recipient will promptly forward appropriate communications so received to the full Board of Directors or to the non-management directors, as specified by the sending party. Transactions with Related PersonsTRANSACTIONS WITH RELATED PERSONS
From time to time, we may enter into transactions with a director or executive officer, certain of his or hertheir relatives, or an entity in which one or more of our directors or executive officers, or a relative of such person, is a substantialan owner, director, or executive officer. With limited exceptions relating to transactions made in the ordinary course of our businessesbusiness and certain low dollar transactions, such transactions must be disclosed to and in some circumstances, approved by our Board of Directors 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. The following discussion sets forthDuring 2023, no transactions with related persons during 2017 that exceededexceeding $120,000 in value were identified and are reportable under SEC rules. Each of these relationships and transactions was approved by the Board. 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 didwere determined not exceed 1% of eitherto confer a material interest in our revenuesdirector, executive officer, or the other company's revenues for the year.related person. John F. Auer, President and CEO of our majority-owned subsidiary, ARX Holding Corp. ("ARX"), has two adult children, a nephew and a spouse of a child, who were employed by an ARX subsidiary during 2017. Using the Summary Compensation Table methodology, the collective dollar value of these employment relationships for 2017 was less than $325,000. We believe that the level of compensation is appropriate in view of each individual’s position, responsibilities, and experience and is consistent with the overall compensation structure.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Auer is also a stockholder of ARX, along with ProgressiveFarah (Chair), Ms. Craig, Ms. Snyder, and other minority stockholders. Under the stockholders' agreement among ARX and its stockholders, each of the minority stockholders, including Mr. Auer and an entity he controls, has the right to “put” to Progressive (i.e., require Progressive to purchase) up to 50% of the ARX shares that they own in a transaction expected to be completed in the second quarter 2018. Mr. Auer and that entity have elected to put to Progressive approximately 47.1% of their aggregate holdings, and we currently expect that this transaction will result in Progressive paying to Mr. Auer and that entity approximately $177.6 million in the aggregate in exchange for those shares.
Compensation Committee Interlocks and Insider Participation
Dr. Sheares and Mr. Farahour former director Jan E. Tighe, served as members of the Board’s Compensation Committee during 2017.2023, which was renamed to the Compensation and Talent Committee in 2024. There arewere no Compensation Committeecompensation 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 annual compensation 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.
| | | REPORTREPORT 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 fourthree 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 Dr. Nettles, 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 Committeecommittee 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 Committeecommittee oversees the company’s compliance and ethics and enterprise risk management programs. During 2017,2023, the Committeecommittee held 10 meetings to review these matters and conduct other business.
The Committeecommittee 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 2017,2023, the Committeecommittee appointed PricewaterhouseCoopers LLP (PwC) as the company’s independent registered public accounting firm. The Committee’scommittee’s appointment of PwC was ratified by shareholders at the company’s 20172023 Annual Meeting of Shareholders.
In supervising the work of PwC on the 20172023 audit, the Committee hascommittee 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 Committeecommittee has discussed with PwC its independence. In addition, the Committee hascommittee 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, and PwC’s response to the report;PwC; regulatory developments during the year that impacted PwC’s audit work for the company or its communications with the Committee;committee; and the other matters that PwC is required to communicate to the Committeecommittee under Auditing Standard No. 16, “Communication with Audit Committees,” as adopted bythe applicable requirements of the PCAOB.
The Committee’scommittee’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 Committeecommittee 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 Committeecommittee also oversees the work of PwC and the company’s internal audit staff. During 2017, the Committee2023 audit, the committee discussed with PwC and the internal auditors the overall scope and plans for their respective audits. The Committeecommittee 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, and the overall quality of the company’s financial reporting.reporting, and the critical accounting matters addressed during PwC's audit.
Notwithstanding the Committee’scommittee’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 Committeecommittee reviewed and discussed with management the company’s audited consolidated financial statements for the year ended December 31, 2017.2023. 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 Committeecommittee 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 Committeecommittee 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, 2017,2023, for filing with the SEC.
The CommitteeAfter reviewing the performance of PwC in planning and conducting the 2023 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 2018.2024. Shareholders are being given the opportunity to vote on the ratification of this selection at the 20182024 Annual Meeting of Shareholders.
The Committeecommittee operates under a written charter, the terms of which are reviewed annually by the Committee.committee. The current charter, as approved by the Board, is posted on the company’s website at progressive.com/governance.governance.
AUDIT COMMITTEE
Patrick H. Nettles, Ph.D., Chairman
Stuart B. Burgdoerfer,Chair Philip Bleser Jeffrey D. Kelly Barbara R. Snyder
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Beneficial Owners 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, 2017.2023. | | | | | | | | | 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 | 40,062,263 |
| 2 | | 6.9 | % | BlackRock, Inc. and subsidiaries 55 East 52nd Street New York, New York 10055 | 38,769,936 |
| 3 | | 6.7 | % |
| | | | | | | | | | | | Name and Address of
Beneficial Owner | Amount and
Nature of
Beneficial
Ownership | | Percent
of Class | 1
| The information contained in this table, including related footnotes, is based on the Schedule 13G filings made by the beneficial owners identified herein. |
| | 2
| The Vanguard Group, Inc. has sole investment power over 39,104,097 shares, shared investment power over 958,166 shares, sole voting power over 833,446 shares and shared voting power over 145,181 shares. |
100 Vanguard Blvd. Malvern, PA 19355 | 51,466,044 1 | | 8.8 | % | 3
| BlackRock, Inc. and its subsidiaries have sole investment power over 38,769,936 shares, sole voting power over 33,746,401 shares, and does not have shared investment or voting power over any shares.50 Hudson Yards New York, NY 10001 | 46,567,728 2 | | 8.0 | % |
Section 16(a) Beneficial Ownership Reporting Compliance1Derived from the Schedule 13G/A filed on February 13, 2024, the Vanguard Group Inc. has sole investment power over 48,962,358 shares, shared investment power over 2,503,686 shares, shared voting power over 766,936 shares, and does not have sole voting power over any shares.
Due to an administrative error2Derived from the Schedule 13G/A filed on the part of the company, each of the following executive officers of the company failed to timely report one time-based restricted stock unit award granted to them during 2017: Susan Patricia Griffith, John P. Sauerland, William M. Cody, John A. Barbagallo, M. Jeffrey Charney, Daniel P. Mascaro, Lori A. Niederst, Steven A. Broz, Michael D. Sieger, Patrick K. Callahan, John Murphy,February 12, 2024, BlackRock, Inc. and Jeffrey W. Basch. Each of the officers reported the grant of the award on March 28, 2017, three business days later than the March 23, 2017 due date.
its subsidiaries have sole investment power over 46,567,728 shares, sole voting power over 42,379,758 shares, and does not have shared investment or voting power over any shares.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
Security Ownership of Directors, Nominees, and Executive Officers
The following information summarizes the beneficial ownership of Progressive’s common shares as of January 31, 20182024, 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 nominees, 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, 2018.2024. | | | | | | | | | | | | | | | | | | | 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 | 40,806 | | * | 14,551 | | 55,357 | | | | | | Danelle M. Barrett | 1,350 | | * | — | | 1,350 | | | | | | Philip Bleser | 22,480 | | * | 1,017 | | 23,497 | | | | | | Stuart B. Burgdoerfer | 14,050 | | * | — | | 14,050 | | | | | | Patrick K. Callahan | 44,864 | | * | 108,375 | | 153,239 | | | | | | Pamela J. Craig | 12,258 | | * | 249 | | 12,507 | | | | | | Charles A. Davis | 345,851 | | * | 12,869 | | 358,720 | | | | | | Roger N. Farah | 116,036 | | * | 31,744 | | 147,780 | | | | | | Lawton W. Fitt | 115,590 | | * | 23,632 | | 139,222 | | | | | | Susan Patricia Griffith | 570,097 | | * | 70,531 | | 640,628 | | | | | | Devin C. Johnson | 8,176 | | * | — | | 8,176 | | | | | | Jeffrey D. Kelly | 36,809 | | * | — | | 36,809 | | | | | | John Murphy | 60,644 | | * | 15,496 | | 76,140 | | | | | | John P. Sauerland | 400,335 | | * | 19,736 | | 420,071 | | | | | | Barbara R. Snyder | 19,252 | | * | 9,485 | | 28,737 | | | | | | Kahina Van Dyke | 14,327 | | * | — | | 14,327 | | | | | | All 24 Current Executive Officers and Directors as a Group | 1,998,107 | * | 388,489 | 2,386,596 | | | |
*Less than 1% of Progressive’s outstanding common shares. 34 | | | | | | | | | | Name | Total Common Shares Beneficially Owned1 |
| Percent of Class2 | Units Equivalent to Common Shares3 |
| Total Interest in Common Shares and Unit Equivalents |
| John F. Auer4 | 106,003 |
| * | — |
| 106,003 |
| | John A. Barbagallo | 217,849 |
| * | 21,771 |
| 239,620 |
| | Philip Bleser | 4,129 |
| * | — |
| 4,129 |
| | Stuart B. Burgdoerfer | 67,061 |
| * | — |
| 67,061 |
| | William M. Cody | 138,763 |
| * | 84,882 |
| 223,645 |
| | Pamela J. Craig | — |
| * | — |
| — |
| | Charles A. Davis | 325,070 |
| * | 9,129 |
| 334,199 |
| | Roger N. Farah | 94,178 |
| * | 12,221 |
| 106,399 |
| | Lawton W. Fitt | 82,350 |
| * | 7,135 |
| 89,485 |
| | Susan Patricia Griffith | 373,048 |
| * | 123,182 |
| 496,230 |
| | Jeffrey D. Kelly | 59,963 |
| * | — |
| 59,963 |
| | Patrick H. Nettles, Ph.D. | 112,361 |
| * | 20,871 |
| 133,232 |
| | Glenn M. Renwick | 1,673,002 |
| * | 4,147,473 |
| 5,820,475 |
| | John P. Sauerland | 396,381 |
| * | 51,238 |
| 447,619 |
| | Bradley T. Sheares, Ph.D. | 54,652 |
| * | 54,784 |
| 109,436 |
| | Barbara R. Snyder | 28,671 |
| * | 401 |
| 29,072 |
| | Kahina Van Dyke | — |
| * | — |
| — |
| | All 25 Current Directors, Nominees, and Executive Officers as a Group | 4,100,994 |
| * | 4,749,635 |
| 8,850,629 |
|
| | * | 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 |
| Name | Common Shares Subject to Restricted Stock Awardsa | Beneficially Owned Common Share Equivalent Unitsb | Other Common Shares Beneficially Ownedc | | John F. Auer | — |
| — |
| 106,003 |
| | John A. Barbagallo | — |
| — |
| 217,849 |
| | Karen B. Bailo | | | Danelle M. Barrett | | | Philip Bleser | 4,129 |
| — |
| — |
| | Stuart B. Burgdoerfer | 4,053 |
| — |
| 63,008 |
| | William M. Cody | — |
| — |
| 138,763 |
| | Patrick K. Callahan | | | Pamela J. Craig | — |
| — |
| — |
| | Charles A. Davis | 7,004 |
| 10,768 |
| 307,298 |
| | Roger N. Farah | 6,879 |
| 79,799 |
| 7,500 |
| | Lawton W. Fitt | 8,755 |
| 64,206 |
| 9,389 |
| | Susan Patricia Griffith | — |
| — |
| 373,048 |
| | Devin C. Johnson | | | Jeffrey D. Kelly | 4,053 |
| — |
| 55,910 |
| | Patrick H. Nettles, Ph.D. | 7,379 |
| 94,699 |
| 10,283 |
| | Glenn M. Renwick | — |
| — |
| 1,673,002 |
| | John Murphy | | | John P. Sauerland | — |
| — |
| 396,381 |
| | Bradley T. Sheares, Ph.D. | 4,278 |
| 45,410 |
| 4,964 |
| | Barbara R. Snyder | 6,754 |
| 14,245 |
| 7,672 |
| | Kahina Van Dyke | — |
| — |
| — |
| | All 25 Current Directors, Nominees, and Executive Officers as a Group | 53,284 |
| 309,127 |
| 3,738,583 |
| | All 24 Current Executive Officers and Directors as a Group | |
a Represents common shares held pursuant to unvested restricted sharestock awards issued under The Progressive Corporationthe 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'sdirector’s account under The Progressive Corporation Directors Restricted Stock Deferral Plan, as amended and restated (the “DirectorsDirectors Restricted Stock Deferral Plan”)Plan), under which each director has the right to defer restricted sharestock 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 sixty (60)60 days, and those shares are deemed “beneficially owned.” See “Director Compensation – Narrative Disclosure ofto 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, certain immediate family members. For Mrs. Griffith, the amount includes a total of 108,47769,811 common shares held in trust for the benefit of her spouse and 16,23219,108 common shares held by her spousespouse. 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 our 401(k) plan.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 individual’sapplicable director's or executive officer’s account under one or more of our deferred compensation plans as dividend equivalent units, or, equity incentive plans.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. AmountsFor the applicable executive officers, amounts in this columncolumn: (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,”Year-End” and “Executive Compensation – Potential Payments Upon Termination or Change in Control” for additional information on these awards. 4 Mr. Auer also beneficially owns approximately 23% of the outstanding capital stock of ARX, our majority-owned subsidiary, consisting of 10,000 common shares held directly by him and 55,000 common shares and 195,677 preferred shares (that are convertible into common shares on a 1-for-1 basis) held by a limited liability partnership in which Mr. Auer is the general partner. These shares represent approximately 75% of the outstanding minority ownership in ARX. Mr. Auer disclaims beneficial ownership of the shares held by the partnership except to the extent of his economic interest in the partnership. See "Item 1. Election of Directors – Transactions with Related Parties."
.
COMPENSATION DISCUSSION AND ANALYSIS HIGHLIGHTS FOR 2017OVERVIEW
Consistent with prior years,Our Vision is to become consumers’, agents’, and business owners' number one destination for insurance and other financial needs. We believe that our Core Values, including our Profit Core Value, build the awards madefoundation that drives every decision we make and influences how we treat others. Accordingly, these values are deeply-rooted in 2017the minds and actions of our executive officers. We structure our executive compensation program to support our Vision and our long-term profitability goal, providing strong alignment between pay and performance. We generally provide target compensation to our Chief Executive Officerexecutives at or 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 significant percentage of total compensation to executives in the other “named executive officers” (identified in "Executive Compensation – Summary Compensation Table") were weighted heavily towardsform of performance-based annual cash incentive paymentsequity awards, and generally, longer-term equity awards. Wewe believe that these awards support a strong pay-for-performance linkage in our executive compensation program and appropriatelyfurther align the interests of our named executive officersexecutives with those of our shareholders. In For many years, our goal has been to grow as fast as we can at a 96 or better combined ratio during each calendar year while continuing to deliver high-quality customer service. To us, this section,profitable growth goal is not a value of convenience from which we provide a brief summarylook to waiver depending on the state of our 2017 pay decisions, as well as information concerningbusiness. Instead, we believe it remains steadfast and that our performance resultscontinued and pay outcomesunrelenting focus on our profitable growth goal has increased, and will continue to increase, our shareholders’ value over the long term. The combined ratio represents the profitability of our insurance operations and is used in certain of our executive compensation program’s performance-based equity and cash awards. These awards represent 86% and 77% (on average) of the maximum potential 2023 annual compensation for Susan Patricia Griffith, our President and Chief Executive Officer (CEO), and our other named executive officers (NEO), respectively. We take a long-term view towards creating, sustaining, and increasing shareholder value and believe that focusing on achieving a 96 or better combined ratio, in addition to the year.other growth elements of our executive compensation program, supports this goal. In our view, by focusing on putting profit before growth, we are enabled to embrace uncertainty, be nimble and resilient, and ultimately pivot our focus and strategies to achieve our business objectives and In 2015,
deliver solid results. We believe this serves the long-term interests 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 acquired a controlling interest in ARX Holding Corp., the parent companyhave profitably grown our net premiums earned (the source of American Strategic Insurance Corp. ("ASI"), which comprises substantiallynearly all of our Property business. John F. Auer, onenon-investment revenue) by $19.4 billion, or 49%. During 2023, net premiums written grew by 20% and net premiums earned grew by 19%, at a profitable 94.9 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 of the founders of ASI, has ledinsurance business lines we measure, resulting in the ASI business operations for many years. Although Mr. Auer’s compensation must be approved by our Compensation Committee, the naturerelated vesting of the performance-based restricted stock unit awards above target; •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; and •our Gainshare program paid out an average of 162% of target based on the growth in average policies in force and profitability of our insurance businesses (for 2023, it paid out at 178% of target). In addition, our cumulative total shareholder return over the past five years exceeded that of the S&P 500 by 1.9 times (x), as disclosed in our performance graph in our 2023 Annual Report to Shareholders. Our cumulative total shareholder return over the past four years also exceeded that of our industry peer group by 2.2x, as disclosed in "Pay Versus Performance." See “Proxy Statement Summary” for more information regarding our annual financial results for 2023 and "Pay Versus Performance" for an additional discussion related to our pay-for-performance alignment.
COMPENSATION HIGHLIGHTS FOR 2023 For 2023, in addition to our CEO, the other NEOs included John P. Sauerland, our Vice President and Chief Financial Officer, Patrick K. Callahan, our Personal Lines President, Karen B. Bailo, our Commercial Lines President, and John Murphy, our Claims President. Consistent with prior years, the total target compensation in 2023 for our CEO and the process for that approval is different than is the case for other executive officers. Therefore, except where specifically noted, Mr. Auer's compensation is excluded from all discussions below regarding compensation decisions. His compensation and the process by which his compensation is approved are described under “Compensation for Mr. Auer.”NEOs was heavily weighted toward at-risk, performance-based, compensation. 2017 Pay Decisions
2023 CEO Compensation -(comparisons use 2016 annualized compensation as CEO) At-risk annual equity and cash incentive and equity awards represented over 95%97% of maximum potential compensation and over 90%93% of target compensationcompensation. Salary:Mrs. Griffith received a salary increase of 3.6%;5.3% and her salary remains well below the market median.
Annual Cash Incentive (Gainsharing):Equity Awards: Payout•Time-based: 1.0x salary
•Performance-based: •Insurance operations: 8.0x target - could range from 0%zero to 300% of salary, with a 150% target20.0x salary; and Actual payout for 2017 was about 270% of salary•Investment results: 1.0xtarget - could range from zero to 2.0x salary.
Total equity awards equal 900% of base salary:
Time-based: 300% of base salary
Performance-based:Annual Cash Incentive: 2.5x target - could range from zero to 5.0x salary. | | ▪ | Vehicle insurance operations: 500% of base salary |
| | ▪ | Investment results: 100% of base salary |
CEO’s equity ownership at(as of January 31, 2018:2024): Our CEO directly owned shares valued at 86x salary, well in excess of the 6x required by our Corporate Governance Guidelines (which excludes all unvested equity awards). Expected to hold
2023 Other NEOs Compensation At-risk annual equity havingand cash incentive awards averaged 90% of maximum potential compensation and 82% of target compensation. Each NEO received a value of at least 6 times base salary Value of shares owned directly and in 401(k) plan over 15 times base salary
Other Named Executive Officers (excluding Mr. Auer)
Weighted average salary increase, of approximately 3.4%as discussed below.
Annual Equity Awards: •Time-based: 1.0x salary; and •Performance-based: 2.17x target, on average - could range from the prior yearzero up to 6.9x salary (amounts vary by executive). Annual Cash Incentive:Incentives: between 1.0x and 1.5x target (amounts vary by executive) - could range between zero and 3.0x salary. Opportunities remained unchanged from the prior year: between 0% to 250% of salary or 0% to 200% of salary, with a target of 125% or 100%, respectively
Actual payout was between 179% and 240% of salary
Annual equity awards divided between time-based and performance-based:
Time-based = 100% of base salary
Performance-based at target = 155% (on average) of base salary, up from 148% in 2016 Equity ownership requirements: Expected torequirements (as of January 31, 2024): 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) havingvalued at a valueminimum of at least 3 times base salary3x salary.
All of the other named executive officers were in compliance with this requirement at January 31, 2018
Annual Financial Results and Shareholder Return | | | | Key Performance Outcomes for 2017 | | Net premiums written growth | 16% |
| Policies in force growth | 10 | % | Combined ratio | 93.4 |
| Underwriting margin | 6.6 | % | Returns on average shareholders' equity (attributable to Progressive): | | Net income | 17.8 | % | Comprehensive income | 21.7 | % | Net income attributable to Progressive | $1.6 billion |
| Earnings per share attributable to Progressive | $2.72 |
20172023 Say-on-Pay Vote
At our 20172023 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 98%95% of the votes cast supporting our program.in support. During 2017,2023, the Compensation and Talent Committee of the Board of Directors reviewed these results with management. Due toBecause of the strong level of shareholder support and the absence of specific shareholder concerns expressed by shareholders, the Committeecommittee determined that no specific actions with respect to 20182024 compensation should be taken as a result ofin response to 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 and Talent Committee. Broadly stated, we seek to maintain a consistent executive compensation program with the following objectives: Attract•attract and retain outstanding executives with the leadership skills and expertise necessary to drive results, and build an increasingly strongenduring business, and create long-term shareholder value;
Motivate•motivate executives to achieve our short- and long-term strategic goals and those of their assignedwhile meeting challenging short-term business units;objectives;
Reward•reward performance and differentiate executive performancecompensation based on differences in responsibilities and the achievement of challenging performance goals; and
Align•align the interests of our executives with those of shareholders.
Progressive'sProgressive’s executive compensation program is designed to serve the shareholders’ interests by strongly tying our executives’ potential compensation to our satisfactionthe achievement of important strategicoperating 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 at-risk components consisting of equity awards and annual cash incentive opportunities and longer-term equity awards. Details about the various elements of Progressive's compensation program and 2017 awards to the named executive officers are discussed in the following sections.opportunities.
ELEMENTS OF COMPENSATION – 2017 DECISIONS AND AWARDS
On July 1, 2016, Mrs. Griffith became Chief Executive Officer of the company. At that time, the Compensation Committee increased her compensation to reflect the responsibilities of her new role. Statistics and comparisons to Mrs. Griffith's 2016 compensation in this Compensation Discussion and Analysis refer to Mrs. Griffith's annualized compensation effective July 1, 2016, not the actual compensation she earned during 2016.
References in this section to “named executive officers” exclude Mr. Auer.
Salaries
Executive salaries are designed to attract and retain executive talent and to reward individual performance. As a general matter, executive salaries are intended to be competitive withat, or somewhat lower than, median amounts paid to executives who have similar responsibilities at comparable companies, withwhile our performance-based equity and annual incentive programs provide the potential to earn above averageabove-market median total compensation being provided bywhen the variablecompany achieves challenging goals designed into these plans.
While we consider market data when making decisions on executive compensation, elements discussed below. Variations from market medians canvariations occur for a number of reasons, including the unique nature of a specific executive’s position and responsibilities, individual performance, the tenure
and experience of an executive, in his or her current position, the executive’s future potential, and our business needsneeds.
ELEMENTS OF COMPENSATION 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 | Provides a fixed amount of income to attract and retain 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 focus on 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."
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 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. We continued to strive for diversity in our teams, equity in our practices, and inclusion in our culture. Accordingly, in addition to the assessment of market data, in establishing 2023 target total compensation for our NEOs, the Compensation and Talent Committee broadly considered the investments and actions taken during 2022 under our executive team’s leadership to further support our DEI efforts, including those highlighted below: Select 2022 Diversity, Equity, and Inclusion Efforts •Guiding companywide strategy and efforts that strengthened the company’s commitment to ensuring a healthy culture where all of 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, which is an inclusive program open to employees across every demographic and business area, 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. •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 2023, including: Fortune® 100 Best Companies to Work For, 2017,Forbes® Best Employers for Diversity, Gallup Exceptional Workplace Award, and National Association of Corporate Directors (NACD) Diversity, Equity and Inclusion Award. The Compensation and Talent Committee made a similar assessment with respect to establishing 2024 target total compensation for the NEOs and broadly considered the several DEI investments and actions taken during 2023 under our executive team’s leadership. See "Proxy Statement Summary – Human Capital Management – Diversity, Equity, and Inclusion” for more information.
2023 DECISIONS AND AWARDS Salaries For 2023, annual salaries for our named executive officersNEOs were as follows: | | | | | | | | | | Name | 2023 Salary1 | Change From
Prior Salary | Susan Patricia Griffith2 | $1,000,000 | 5.3 | % | | John P. Sauerland | 700,000 | 3.7 | | | Patrick K. Callahan | 650,000 | 4.0 | | | Karen B. Bailo | 600,000 | 9.1 | | | John Murphy | 580,000 | 5.5 | |
| | | | | | | Name | 2017 Salary1 |
| Change From Prior Salary |
| | Susan Patricia Griffith | $725,000 | 3.6 | % | | John P. Sauerland | 575,000 |
| 4.5 |
| | William M. Cody | 480,000 |
| 3.2 |
| | John A. Barbagallo | 475,000 |
| 2.2 |
|
| | 1
| Salary changes are typically implemented in January or February of each year, so2Mrs. Griffith previously requested that her target compensation for 2022 and 2021 remain the same since 2020, and the Compensation and Talent Committee honored her request. After reviewing the applicable market comparison and also taking into account each executive's experience in the specific role, and individual performance, annual number listed in the table may vary from the salary amounts shown on the Summary Compensation Table. |
The salary increases in early 2017 were intendedprovided to each NEO to improve the competitive nature of our compensation for senior management given current market conditions. Even aftertotal compensation. After taking into account thesethe increases, the 2017 base2023 salaries for Mrs. Griffith and Messrs. Sauerland, Cody, and Barbagallo wereeach applicable NEO remained below the median for similar executives at comparable companies based on the comparison data reviewed by the Compensation and Talent Committee in late 2016 and early 2017 (see “– Procedures and Policies – Compensation Comparisons” below for further information on our market comparison process).2022.
Annual Cash Incentive Payments
Gainsharing. Gainsharing is designed to reward executives based on the annual operating performance of our insurance businesses as compared with objective growth and profitability criteria for those businesses approved by the Compensation Committee at the beginning of the year. Gainsharing does not take into account the performance results of our investment portfolio. The purpose of this annual cash incentive program is to motivate executives to achieve and surpass annual operating performance goals in our insurance businesses, which we believe will benefit shareholders over time.
Gainsharing payments for named executive officers are determined using the same performance criteria as used for the Gainsharing payments that may be earned by virtually all of our other employees, resulting in a consistent set of goals across our employee population. Gainsharing payments for the named executive officers are determined using the following formula:
40 | | | | | | | | Paid
Salary
| X
| Target
Percentage
| X
| Gainshare (i.e.,
Performance)
Factor
| =
| Annual
Incentive Payment
|
For each executive, his or her salary and target percentage are established by the Compensation Committee each year during the first calendar quarter. When the participant’s paid salary is multiplied by his or her 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 0.0 to 2.0 each year, and annual cash incentive payments, therefore, can vary between zero and two times the target annual incentive payment amount, depending on our actual performance results for the year.
The objective performance goals applicable to the Gainsharing program are established by the Compensation Committee each year in the first quarter and are not modified thereafter. The Gainshare Factor for our core business (defined below) is then calculated on a monthly basis, using year-to-date results, and published in our monthly earnings releases. The Gainshare Factor is also one component of the formula used to calculate the dividend that may be paid to shareholders each year under our annual variable dividend policy. In this way, the annual performance of our core insurance businesses also can translate into a direct benefit to shareholders. For 2017, our annual variable dividend policy generated a dividend of $1.1247 per share, which was paid to shareholders in February 2018.
Historical Gainsharing Experience. Throughout the 25-year history of our companywide Gainsharing program (including 2017), the final Gainshare Factor has ranged from 0.0 to 2.0 and has averaged 1.32. These results confirm management’s view that our Gainsharing plans have operated to provide annual cash incentive payments to our employees, including our executive officers, commensurate with our level of achievement as compared with the annual predefined goals.
2017Gainsharing Payments. For 2017, each named executive officer’s annual cash incentive payment was determined under the Gainsharing program based on the performance of our “core business.” The Compensation Committee determined that the named executive officers’ Gainsharing target percentages would be as follows:
| | | | | Name | 2017 Target
(% of Salary)
| Susan Patricia Griffith | 150 | % | | John P. Sauerland | 125 |
| | William M. Cody1
| 50 |
| | John A. Barbagallo | 100 |
| |
1 Mr. Cody also earned a separate 75% target incentive payment relating to investment performance, as described below.
For all the executives, these values remained unchanged from 2016. All Gainsharing payments for the named executive officers are reported in the Summary Compensation Table as “Non-Equity Incentive Plan Compensation.”
The “core business” for 2017 was defined to include our Agency auto, Direct auto, and special lines business units (collectively, Personal Lines), Commercial Lines, and Property, with limited exclusions, and in the aggregate represent nearly 100% of net premiums written companywide. This focus on performance at the business level was consistent with management’s approach to evaluating our operations. We used the number of “policies in force” to measure growth for each of those businesses, which aligns our Gainsharing program with our companywide strategic goal of growing policies in force as fast as possible at a 96 or better combined ratio while providing high-quality customer service. This strategic goal, which is applicable to virtually all employees through the Gainsharing program, allows employees to observe and understand how their day-to-day efforts to bring new customers on board and retain existing customers (i.e., increase policies in force) and control costs, while at the same time maintaining profitability and high-quality customer service, can enhance company performance and increase the Gainsharing scores.
Under the Gainsharing program, we evaluated the performance of each of the core business units separately and determined a score for the business unit of between 0.0 and 2.0, based on a growth and profitability matrix that had been approved for each business unit by the Compensation Committee. For each matrix, a 1.0 score was established at a targeted profitability level together with a growth component that management believed, based on internal projections, to be challenging yet achievable (although it should be noted that a score at or near 1.0 could also be generated by a variety of other growth and profitability combinations; that is, if growth is below expectations, a 1.0 might still be achieved if profitability increases and, likewise, a moderate decrease in profitability might be offset by higher growth levels to generate a score around 1.0). Thus, assuming that targeted profitability levels could be achieved for a particular business unit (an assumption that was considered reasonable at the beginning of 2017 and consistent with our recent performance), the potential for that business unit to achieve the targeted 1.0 score was viewed as reasonably challenging when these goals were established in early 2017.
An aggregate Gainshare Factor of 1.0 or higher for the core business as a whole, however, would require targeted performance or higher by all five business units, or outperformance by one or more units to make up for underperformance by another unit. Such a result was very uncertain at the beginning of the year when these goals were set in view of the very competitive nature of the insurance markets in which we operate. As a result, achieving an aggregate 1.0 score for the core business as a whole was viewed as being a more difficult feat than achieving a 1.0 score on any of the individual matrices. See "Executive Compensation – Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table,” below, for a more detailed discussion of the Gainsharing matrices and the calculation of performance scores.
The nature of the Gainsharing program, and the measures that we use, were relatively unchanged over the past several years, except that a matrix for the Property business was added to the Gainsharing calculation beginning with 2017. Although we review the interplay of profitability and growth levels for each business unit matrix every year, 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 with respect to our current operations, strategies, and 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. We believe that our current level of disclosure regarding performance goals is in the best interests of our shareholders.
For 2017, we achieved a Gainshare Factor of 1.79 for our core business, out of a possible 2.0 score. The following table presents the overall 2017 growth and profitability data for the individual business units that comprised our core business. The growth figures in the table below represent the change in average policies in force year-over-year, which is management’s preferred measure for evaluating growth. Average policies in force were determined by adding the
fiscal-month-end number of policies in force for each month during the year and dividing the total by twelve. Profitability was measured by the combined ratio calculated using GAAP financial information.
| | | | | | | | Business Unit |
Combined
Ratio1
|
| Increase in
Policies in
Force (%)2 |
| | | Agency | 92.5 |
| 9 | % |
| | Direct | 93.7 |
| 9 |
|
| | Special lines | — |
| 3 |
| | | Commercial Lines | 92.3 |
| 5 |
| | | Property | 105.1 |
| 12 |
| |
| | 1
| Consistent 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 Progressive. |
| | 2
| Based 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 Gainsharing matrices discussed above, we determined the performance score for each business unit comprising the core business, 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 | 2.00 |
| 39.3 | % | .79 |
| | Direct auto | 2.00 |
| 39.9 |
| .80 |
| | Special lines | 1.04 |
| 6.1 |
| .06 |
| | Commercial Lines | 1.28 |
| 10.9 |
| .14 |
| | Property | 0.00 |
| 3.8 |
| .00 |
| | Gainshare Factor | |
| |
| 1.79 |
|
As can be seen from this table, except for Property, each of the business units contributed performance scores above a 1.0 target for 2017. Agency auto and Direct auto reached the maximum score of 2.0. These results reflect solid growth and profitability across our vehicle businesses. Although Property experienced the highest percentage of policies in force growth among the business units, catastrophe losses caused it to be less profitable than the minimum combined ratio at that growth level that would have resulted in a positive score. Under the Gainshare calculations, our core business' average policies in force grew by about 8% and net premiums written and earned grew by 16% and 15%, respectively, at a profitable 93.2 combined ratio. Overall, we believe that the resulting 1.79 Gainshare Factor was a reasonable outcome based on these performance figures for the year.
2017Investment-Related Annual Incentive Payment. In addition to amounts earned under our Gainsharing program, Mr. Cody, our Chief Investment Officer, and the other investment professionals who work in his group, were eligible for a separate annual cash incentive payment under our 2017 Progressive Capital Management Annual Incentive Plan (“PCM Incentive Plan”). Mr. Cody had a target annual incentive payment equal to 75% of his 2017 salary under this incentive plan; his annual incentive payment under this plan for 2017 could range from 0.0 to 2.0 times the target amount, or from 0% to 150% of his salary.
Under the PCM Incentive Plan, we determine the performance of our fixed-income portfolio, which is actively managed by our investment group, for the current year and over the trailing three-year period, on the basis of the fully taxable equivalent total return, including the benefit of state premium tax abatements associated with certain municipal securities held in our portfolio. We then compare those results against the total return results achieved by a benchmark group of comparable firms for the same time periods. After the end of the year, using performance data supplied by an independent third party, separate performance scores are determined based on our percentile ranking in the benchmark group for the one- and three-year periods, as follows:
| | | | | Period | Score=0
Rank at or below
| Score=1.0
Rank equal to
| Score=2.0
Rank at or above
| One year | 15th percentile
| 50th percentile
| 85th percentile
| Three year | 25th percentile
| 50th percentile
| 75th percentile
|
Percentile rankings between the ranks that will earn a score of 0.0 and a score of 2.0 as shown above would receive an interpolated score based on the percentile ranking of our investment portfolio (e.g., a rank at the 40th percentile would receive a score between 0.0 and 1.0). The two scores are then averaged to determine an indicated performance score for the year, and this score is communicated to the Compensation Committee. The Committee then evaluates the indicated score in the context of our investment results and other factors relevant to our investment performance for the year. The Committee may consult with other Board members or others, as it deems appropriate, for additional perspectives. Based on its evaluation, the Committee has the discretion to accept the indicated performance score, decrease it by an appropriate amount (including to zero), or increase it up to the maximum allowed factor of 2.0, and to adjust the cash incentives paid to Mr. Cody and our other investment professionals accordingly.
The fixed-income portfolio was chosen for the PCM Incentive Plan because it represents a substantial portion of our investment portfolio (nearly 90% at year-end) and Mr. Cody and the investment professionals in his group actively manage the fixed-income portfolio. To the extent that our equity investments are managed, they are managed by third parties.
The use of the 15th and 25th percentiles as the minimum performance level, and of the 75th and 85th percentiles as the maximum performance levels, reflects the Committee’s decision that our investment constraints and guidelines differ from other firms included in the benchmark group. The Committee determined that requiring “average” performance prior to payout, or rewarding performance above the 75th or 85th percentile, as applicable, 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 15th or 25th percentile, as applicable, and the 50th percentile was, on balance, fair compensation for results achieved.
For 2017, we achieved a total return in our fixed-income portfolio of 3.25% (including the benefit of state premium tax abatements associated with certain municipal securities held in our portfolio), which ranked us at the 93rd percentile of the benchmark group of over 100 comparable investment firms. For the three years ending on December 31, 2017, our fixed-income portfolio earned a cumulative return of 8.39%, ranking us at the 93rd percentile of the comparable firms. Using the methodology described above, we computed an indicated performance score of 2.0 under the plan for the year, which was communicated to the Compensation Committee. After reviewing the calculation and our investment results, and consulting with management and members of the Board’s Investment and Capital Committee, the Committee decided to pay the 2017 cash incentives under the PCM Incentive Plan using a 2.0 performance factor, consistent with the calculated score. The Committee viewed this factor as a reasonable outcome under the plan for the year, given the excellent relative performance of the portfolio while investing within the constraints imposed by the investment guidelines approved by the Investment and Capital Committee. Mr. Cody’s annual incentive payment under the PCM Incentive Plan is reported in the Summary Compensation Table as part of “Non-Equity Incentive Plan Compensation.”
Equity Awards OurA high percentage of our executive compensation program also provides longer-termlong-term incentives through an annual grantgrants of equity-based awards, currently in the form of restricted stock units.units, which creates a strong pay-for-performance linkage and aligns the interests of our executives with those of our shareholders. 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 vested.that is vesting. Annual awards of restricted stock units are made to the NEOs in the form of performance-based awards and time-based awards. As with other elements of our executive compensation program, integral to our performance-based equity awards are pre-established growth and profitability measurements that correlate to shareholder value, are consistent with our companywide objectives, and align with our Profit Core Value.
For 2023, the aggregate dollar value (fair value on the date of grant) of annual equity awards made to the NEOs was approximately $14.5 million in performance-based awards (at target value) and $3.5 million in time-based awards. Those awards were determined based on the following target levels: | | | | | | | | | | | | | | Performance-Based Award Target Value (Multiple of Salary)1, 2 | | Time-Based Award Value (Multiple of Salary)2 | | Name | 2023 | | 2023 | | Susan Patricia Griffith | 9.00 | x | 3 | 1.00 | x | | John P. Sauerland | 2.75 | | 3 | 1.00 | | | Patrick K. Callahan | 2.75 | | | 1.00 | | | Karen B. Bailo | 1.50 | | | 1.00 | | | John Murphy | 1.50 | | | 1.00 | |
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 2023, the Compensation and Talent Committee revised the allocation of Mrs. Griffith’s annual equity awards to increase the amount granted as performance-based awards to 9.0x of her salary and decrease the amount granted as time-based awards to 1.0x her salary. The other executives remained unchanged from the prior year. 3For the following executives, investment-based awards represented the indicated multiple of each executive's salary for the year: Mrs. Griffith, 1.0x; and performance-based awards. These awards are intended to encourage our senior executives to stay with Progressive, to drive longer-term performance, and to tie the amount of compensation ultimately earned by the executives to the market value of our common shares.Mr. Sauerland, 0.45x.
26Since 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”).
Time-Based Awards. In 2017, time-based restricted stock unit awards were granted to the named executive officers, except for Mr. Auer, and 746 other senior level employees, comprising approximately 2.2% of our entire employee population. These awards will vest in three equal annual installments, on January 1 of 2020, 2021, and 2022, subject to accelerated vesting and forfeiture provisions in the applicable plan and grant agreement.
Annual Performance-Based Awards – Performance versus Market Insurance Results. In addition, eachEach of the named executive officers, except for Mr. Auer,NEOs and 3954 other senior managers were granted performance-based restricted stock unit awards that measure the growth of our auto insurance businesses, and compare that growth over a three-year period as compared withto the growth of the U.S. auto insurance industrymarket as a whole, withover a three-year performance period, and also include a profitability goalrequirement of a combined ratio of 9696.0 or better over the most recent 12 fiscal month12-month period when the vesting is determined. The committee granted these awards to each of the NEOs in March 2023.
These awards require our business lines to outgrow the market by a specified percentage for that business line in determining the actual number of units eligible to vest. Specifically, the 2023 awards will vest, if at all, only ifmeasure the compounded annual growth rate of our direct premiums written in ourtwo business lines (private passenger auto businesses for 2017and commercial auto) from 2023 through 2019 exceeds2025 as compared to the growth rate of the auto insurance marketeach 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. With respect to the 2023 awards, the homeowners multiple-peril business line was removed from the awards, in light of our 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 had previously been included in prior awards. 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 award is madefinal performance factor will be used as a “multiplier” to each executive in a target amountincrease 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 a percentage of salary and the value of our common shares on the grant date. profitability requirement previously described.
The ultimate payout (if any) isperformance score for each business unit will be determined at the end of the three-year period, as follows: | | | | | | | | | Performance vs. Business Line Market1 | | Determination of the Performance Score for the Business Line | | | | Performance vs. Market | | Number of Units Vesting | If our growth ratefor the business line exceeds the market growth rate by three and a half percentage pointsthe maximum measure for that business line or more | | 250% of the target number of unitsScore will vest;be 2.5x; this is the maximum possible award valuescore | If our growth rate for the business line exceeds the market growth rate by more than two percentage pointsthe target measure for that business line but less than threethe maximum measure for that business line | | Score will be between 1.0x and a half percentage points | | Between 100% and 250% of the target number of units will vest,2.5x, in proportion to the extent to which oureach business line’s growth rate exceeds the market’s growth rate above two percentage points (e.g., ifthe target rate | If our growth rate for the business line exceeds the market growth rate by 2.4 percentage points, then 140%less than the target measure for that business line | | Score will be up to 1.0x of the award will vest) | If our growth rate exceeds the market growth rate by up to two percentage points | | Up to 100% of the target number of units will vest, in proportion to the extent to which oureach business line’s growth rate exceeds the market’s growth rate (e.g., if our growth rate exceeds the market growth rate by 1.4 percentage points, then 70% of the award will vest) | If ourthe business line’s growth rate is equal to or less than the market growth rate | | The award will not vest andscore for the business line will be forfeited0 |
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 2023, 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 |
For the 2023 awards, the performance factor is expected to be determined in July 2026. If the minimum growth goalperformance factor is not achieved,zero, the awardawards will not vest and will be forfeited. If the growth goalperformance factor is achieved at or abovegreater than zero, the minimum level forperformance factor is determined and the three-year period, butawards are eligible to vest, if and when the 12-month profitability goalrequirement is not satisfied when the initial performance results are reviewed (which, forsatisfied. For these awards, is expected to be July 2020), then the award will not vest at that time. The award will vest at a later date only if the 12-month profitability goal is met before January 31, 2022; if the profitability goalrequirement is not satisfied by that date,January 31, 2028, 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 insurance market as a whole,and commercial auto markets, provides appropriate focus on our full competitor set in the auto insurance market, consistent with our long-standing financial objective to grow as fast as possible constrained only by ourprofitable growth goals. In addition, the profitability objective and our ability to provide high-quality servicerequirement imposes an additional challenge to our customers.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 2017,2023, the Compensation and Talent Committee also awarded performance-based restricted stock units to Mrs. Griffith, Messrs.Mr. Sauerland, and Cody, and three investment portfolio managersour CIO, with a performance goal relating to investment performance. These awards measure the performance of our fixed-income portfolio, which is actively managed by our investment group, over a three-year period (2017 through 2019) against the performance results of a benchmark of comparable investment firms meeting a series of objective criteria. A target number of restricted stock units was awarded to each executive, and the number of units that ultimately will vest can vary from 0% of the target award (if our performance is at or below the 25thpercentile of the benchmark firms) to 200% of the target (for performance at or above the 75thpercentile of the benchmark). These awards did not increase the aggregate size of the equity awards to the named executive officers,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 2023 through 2025, on the basis of the fully taxable equivalent (FTE) total return. The Committee implementedFTE total return 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 95% at year end) and our CIO and other investment professionals actively manage this fixed-income portfolio and do not actively manage our equity investments.
The CEO, CFO, and CIO each 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 better align the compensation of these executives with their responsibilities in connection with the longer-term performance of our fixed-income portfolio. TheFor the 2023 awards, the use of the 25thpercentile as the minimum performance level, and of the 75thpercentile as the maximum performance level, reflectsreflected the Compensation and Talent Committee’s decision at the time of grant that our investment constraints and guidelines may differ from other firms included in the comparison. The Committee feltcommittee determined that requiring “average” performance prior to vesting and/or rewarding performance above the 75thpercentile might create an incentive to increase investment risks to a level that wouldmay exceed the company’s overall risk tolerance, and that below target payouts for performance between the 25thand 50thpercentiles was,would be, on balance, fair compensation for the results achieved. 2017 Annual EquityTime-Based Awards. For 2017, the aggregate dollar value (fair value on the date of grant) of annual equity In 2023, time-based restricted stock unit awards madewere granted to the namedNEOs and 1,077 other senior level employees, comprising approximately 2% of our entire employee population. These awards will vest in three equal annual installments, in January of 2026, 2027, and 2028, subject to accelerated vesting and forfeiture provisions in the 2015 Equity Incentive Plan (2015 Plan) and the grant agreement.
Annual Cash Incentive Payments (Gainshare) Our Gainshare program has been around for three decades and has been the primary vehicle to motivate and reward our employees to achieve our profitability and growth objectives. Most companies of our size utilize some form of bonus program. Under our Gainshare program nearly all of our employees participate, 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 and is supported by our Core Values. Like other elements of our compensation program, 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. The Gainshare Plan is currently comprised of six matrices that objectively measure our various products and channels. We use different matrices 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. We believe that focusing on performance at the business level is consistent with management’s approach to evaluating our operations. Beginning in 2023, the Property business is split into two matrices in light of our focus on growing in states with traditionally less catastrophe exposure and limiting growth in coastal and hail-prone states, weighted by premium. 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 |
Annually, each executive’s salary and Gainshare target percentage are determined by the Compensation and Talent Committee for the calendar year. 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 2.00 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 31-year history of our companywide Gainshare program (including 2023), the final Gainshare Factor has ranged from zero to 2.00 and, over the past 5 years of profitable growth, has averaged 1.62. 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, was approximately $3.7 million in time-based awards and $6.8commensurate with our level of achievement.
The Compensation and Talent Committee set the following Gainshare targets for 2023: million in performance-based awards (at | | | | | | | Name | 2023 Target (Multiple of Salary) | | Susan Patricia Griffith | 2.50 | x | | John P. Sauerland | 1.50 | | | Patrick K. Callahan | 1.50 | | | Karen B. Bailo | 1.00 | | | John Murphy | 1.00 | |
For each NEO, the 2023 target value). Those awards werevalues remained unchanged from 2022. The Gainshare payout was determined based on the following target levels:performance of our Agency auto, Direct auto, and special lines business units (collectively, Personal Lines), Commercial Lines, and Property, subject to the following: •For several years, the business lines excluded from growth and profitability results (i.e., our umbrella, renters, flood, and business owners’ policy) represented less than 1% of our companywide net premiums earned. •We began including the transportation network company (TNC) business and the business of Protective Insurance Corporation and subsidiaries in the Commercial Lines’ profitability results in 2022 and 2023, respectively, but the businesses continue to be excluded from the average policies in force calculations since the policies for these businesses often include multiple vehicles. •Additionally, for 2023, both the Commercial Lines and Property businesses were subject to new profitability thresholds such that if the combined ratio of the applicable business unit in its entirety equaled or exceeded 100, the Gainshare Factor for that business unit would be 0. The Gainshare Factor for 2023 was 1.78 out of a possible 2.00 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 2023 Gainshare plan evaluated the growth and profitability of each of our businesses separately and determined a score between zero and 2.00 for each business. The individual scores were calculated based on a matrix that was approved by the Compensation and Talent Committee at the beginning of the year that contemplated several profit and growth scenarios. Each matrix was built by anchoring the 1.00 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 1.00 could be earned with a variety of other growth and profitability combinations; that is, if growth was below expectations, a 1.00 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 1.00. 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 appropriate and is in the best interests of our shareholders. | | | | | | | | | | | | | | Time-Based Award Value (% of Salary) | | Performance-Based Award Target Value (% of Salary)1 | | Name | 2016 |
| 2017 |
| | 2016 |
| 2017 |
| | Susan Patricia Griffith2 | 300 | % | 300 | % | | 600 | % | 600 | % | 3 | | John P. Sauerland | 100 |
| 100 |
| | 200 |
| 220 |
| 3 | | William M. Cody | 100 |
| 100 |
| | 125 |
| 125 |
| 3 | | John A. Barbagallo | 100 |
| 100 |
| | 120 |
| 120 |
| |
44 | |
The following table presents the overall 2023 growth and profitability data for the individual core business units that contributed to the 1.78 Gainshare Factor: | | | | | | | | | | | | | Business Unit |
Combined
Ratio | Increase in
Policies in
Force (%)3 | | | Agency auto | 95.1 | | 8 | % |
| | Direct auto | 92.7 | | 14 | |
| Special lines1 | — | | 6 | |
| Commercial Lines2 | 98.8 | | 5 | |
| Property2 | 98.9 | | 4 | | |
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. 2Represents the combined results of the segment, consistent with our public reports. 3Based 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: | | | | | | | | | | | | | Matrix |
Performance
Score | Weighting
Factor
(%) | Weighted
Performance
Score | | Agency auto | 1.92 | | 33.7 | % | 0.64 | | | Direct auto | 2.00 | | 40.9 | | 0.82 | | | Special lines | 2.00 | | 4.5 | | 0.09 | | | Commercial Lines | 1.31 | | 16.9 | | 0.22 | | Property – growth1 | 0.00 | | 1.8 | | 0.00 | | Property – limited2 | 0.30 | | 2.2 | | 0.01 | | | Gainshare Factor | | 1.78 | |
1 Results for the portion of our Property business focused on growth in states with traditionally less catastrophe exposure. 2 Results for the portion of our Property business focused on limiting growth in coastal and hail-prone states. | Pursuant to performance-based awards, between 0-250% (0-200% for investment-based awards) of the number of units awarded can vest. See discussion above. |
| | 2
| Amounts for 2016 are the annualized amount of pro-rated awards granted in July 2016 when CEO transition occurred. |
| | 3
| For the following executives, investment-based awards represented the indicated percentage of her or his total performance-based award for the year: Mrs. Griffith, 17%; Mr. Sauerland, 9%; and Mr. Cody, 60%. |
As mentioneddepicted in the table above, Mrs. Griffith’s awardour Direct auto business and special lines business achieved the maximum score of 2.00, and our Agency auto business achieved a score of 1.92. These results reflect solid growth and profitability in these products. Commercial Lines experienced moderate policies in force growth and profitability, reflected by its slightly above target 1.31 score. For our Property business, the growth states had a score of zero due to an underwriting loss for the year, while the states where we are limiting growth had a score of 0.30 primarily due to achieving profitability for the year. Under the Gainshare calculations, average policies in force for the included products grew by just over 9%. Along with this unit growth, during 2023, companywide net premiums written grew 20% and net premiums earned grew 19%, at a 94.9 combined ratio. We were able to generate this growth despite the actions we took during the year to slow growth as part of our efforts to ensure we met our profitability target. We believe that the resulting 1.78 Gainshare Factor was split between time-basedan appropriate and reasonable outcome based on the overall profitability and growth achieved in 2023. The fact that the 2023 Gainshare Factor was higher than our average factor for the past 5 years of 1.62 further demonstrates our strong pay-for-performance alignment in our Gainshare program. Clawback Provisions In 2023, our Board of Directors adopted a clawback policy in accordance with applicable SEC and NYSE rules (the “Dodd-Frank Clawback Policy”). The Dodd-Frank Clawback Policy requires us to recover incentive-based compensation awarded to our current and former executive officers resulting from erroneously reported financial informationin the event that we are required to prepare an accounting restatement. For several years, our cash and equity incentive plans have included, and will continue to include language that incorporates the Dodd-Frank Clawback Policy into them. Additionally, our equity and cash incentive plans each include one or more provisions that permit recoupment of performance-based compensation when a specified event occurs or an executive officer engages in 2017. Herspecified 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). 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. In addition to provisions in our equity plan, 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 was proportionally larger invests after the aggregate than other executives’ awards dueconduct
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 the levelour reputation or that is a material violation of responsibilities inherent in the CEO position and the substantially below-market levelour Code of her base salary. As a result, a greater percentage of her compensation was at risk and dependent on our operating and investment performance and stock price over the next several years.Conduct. Additional Comments Regarding 20172023 Compensation Decisions Chief Executive Officer. The Committee increased Mrs. Griffith’s compensation substantially in July 2016 when she assumed her current role as Chief Executive Officer. Based on the Board of Director's evaluation of her first six months as CEO in early 2017, and the Committee's review of market data for CEOs promoted internally mid-year, the Committee increased her salary from $700,000 to $725,000. This amount remains well below the 50thpercentile of approximately $1.25 million for CEO salaries at comparable companies. Mrs. Griffith’s annual cash incentive payment (Gainsharing) potential as CEO remained at the same level as that established in July 2016. Consistent with the Company'sour compensation philosophy and its history with respect to CEOexecutive compensation, in 2017 the Compensation and Talent Committee again granted a large proportion of Mrs. Griffith's potentialeach NEO’s compensation in the form of equity-based awards. The Committee determined that these awards would present appropriate incentives to drive our performance and maximize the extent to which Mrs. Griffith's interests are aligned with the interests of shareholders. Depending on the level of our performance, Mrs. Griffith's 2017 awards can vest from 0% to 250% (or, with respect to her investment-related award, up to 200%) of the target units awarded.performance-based compensation, including equity compensation. In this way, we kept Mrs. Griffith’s overall compensation at afor these individuals is competitive, level, while maintaining a very high portion of her potentialproviding the opportunity to earn above-market median compensation at riskif and dependent on ourwhen justified by the company’s performance and our stock price, increasingwhich aligns 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 As has been the case in prior years, Mrs. Griffith’s salary amount remained well below the 50thpercentile of approximately $1.45 million for CEO salaries reflected in the market data reviewed by the Compensation and Talent Committee. After honoring Mrs. Griffith’s previous requests that her target compensation for 2020 through 2022 remain the same, for 2023, the committee increased her salary and revised the allocation of her annual equity participationawards to increase the amount granted as performance-based awards and decrease the amount granted as time-based awards. The committee determined that this equity award allocation would continue to provide Mrs. Griffith with compensation at an appropriate level, while adding significantly to the performance-based nature of her compensation and further aligning her interests with those of our shareholders. The Committee believescommittee believed that this pay package was consistent with the company'scompany’s compensation philosophiesphilosophy and presented a rational and strongly performance-basedan appropriate pay package for a recently promoted CEO.that is largely performance-based.
The result of these determinations for 20172023 was that, despite her below medianbelow-median salary and target cash incentive, Mrs. Griffith hascontinues to have the potential to earn total compensation significantly above the median if the company performed well.performs exceptionally well over the various performance periods related to her compensation granted in 2023. If Mrs. Griffith were to receivehave 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 well belowjust above the 25th percentilefor CEOs.However, her annual compensation would almost reachbe above the 75thpercentile of comparable CEO compensation if all performance-based compensation, cash and equity, payouts were to be maximized. The value of these awards to Mrs. Griffith, and the eventual ranking of her compensation for 2017 in her comparison group, depends on her 2017 Gainsharing payment (which paid out above the target value, but below the maximum value, at a 1.79 factor for the year), the extent to which her restricted stock unit awards ultimately will vest, and the value of our common shares at that time.
Other Current Named Executive Officers. The combination of annual salaries and variable compensation (i.e., the potential for cash incentives and the possibility of restricted stock unit awards vesting in future years) is expected to allow our executives the opportunity to earn above average compensation if and when justified by the company’s performance and our stock price. Comparison Market comparison information is only one of a number of factors considered by the Compensation and Talent 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, and the variable nature of significant portions of each executive’s pay package.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 vestedwere to vest at the target 1.0 factor, Mr. Sauerland and Mr. CodyMs. Bailo would receive total compensation for 2017 below2023 between the 25th and 50thpercentile level andreflected in the market data reviewed by the committee, Mr. BarbagalloCallahan would receive total compensation between the 50thand 75thpercentile level, and Mr. Murphy would receive total compensation above the 75th percentile for comparable jobs. 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. CodySauerland, Mr. Callahan, Ms. Bailo, and Mr. Murphy would be between the 50th and 75th percentile and Mr. Sauerland and Mr. Barbagallo would receive total compensation above the 75th percentile. It should be noted, however, that the ultimate value of these awards (if any) remains dependent on our achieving the applicable performance goals, and the value of our common shares at the time of vesting of restricted stock unit awards. Thus, for each named executive officer, a substantial portion of the compensation used to establish his or her potential percentile rank, and the value of those awards, will remain at risk for years before it is earned by the executive, and some of the restricted stock unit awards in fact may never vest.
Changes for 20182024 Our named executive officers other than Mr. Auer received salary increases for 2018, including a 10% raise for Mrs. Griffith. In addition, a couple ofWhile the named executive officers received a modest increase in their performance-based award target values, including a 17% increase to Mrs. Griffith's performance-based equity target. However, thebasic structure of the 2024 annual compensation for the NEOs approved by the Compensation and Talent Committee in February 2018 for the namedfourth quarter of 2023 was consistent with 2023, after a review of market data and individual executive officers does not include any significant changesperformance, Mrs. Griffith received a 5.0% salary increase, the other NEOs received salary increases between 4.3% and 6.7%, and Ms. Bailo's Gainshare target increased from the annual compensation awarded in 2017. 1.00x to 1.25x.
With respect to changes in the terms2024 Performance-Based Awards (Investment Results), the Compensation and Talent Committee increased the maximum number of restricted stock units that may ultimately vest under this award from 2.0x to 2.5x target and additionally rewarded performance between the 75th and 90th percentiles. In making this plan design change, the committee considered the Investment and Capital Committee's oversight of the company's internal investment guidelines applicable to our fixed-income portfolio. Since the awards no significant changes were made exceptare designed to measure the performance of our fixed-income portfolio over a longer term (three years), the Compensation and Talent Committee felt this change was appropriate and would not create an incentive to increase investment risks to a level that would exceed the company’s overall risk tolerance. The committee believes that the performance-based restricted stock awardsfocus on the three-year results, along with the investment constraints mentioned above that are overseen by the Investment and Capital Committee, and the use of the 90th percentile as the maximum payout measure, growth versus the market have been revised to: add a homeowners component, with 7% growth in excess of market growth producing a target score and 10% growth in excess of market growth producing a maximum score; measure the growth of private passenger auto and commercial auto separately, instead of combining company and market growthprovides appropriate incentives for these two business lines; and weight the performance score produced by each business line, based on premium contribution, when calculating a final performance factor.executives without creating inappropriate risks. OTHER ELEMENTS OF COMPENSATION Perquisites We provide perquisites to our executives only when the Board or the Compensation and Talent 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 business travel and subject to availability, the Chairman'sother executive officers’ business travel. At the request of the Board, of Directors, 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 2017,2023, Mrs. Griffith took fewer flights than the prior year and we incurred approximately $65,000$150,518 in incremental costs as a result of Mrs. Griffith'sGriffith’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 sheMrs. Griffith is responsible for paying the taxes on such income without further contribution or reimbursement from us.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 carcompany-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. PriorIn addition, in connection with Mrs. Griffith’s 2023 filing made to July 1, 2017, Mr. Auer received perquisitesthe Federal Trade Commission under the Hart-Scott-Rodino (HSR) Act’s pre-merger notification requirements, we paid for Mrs. Griffith’s associated filing fee ($30,000) and related legal expenses ($6,120). These filings are required prior to the acquisition of a company’s common shares when ownership levels will exceed certain dollar thresholds and are subject to certain exceptions. Often, significant shareholders are exempt from ARXthese filing requirements because they hold the shares on an “investment only” basis (i.e., as a passive investor). Under the HSR rules, directors and executive officers are not considered to be passive investors.
A large portion of Mrs. Griffith’s compensation during her tenure has been in the form of equity-based awards and Mrs. Griffith has accumulated a significant number of our common shares. This has resulted in strong alignment between Mrs. Griffith’s interests and those of our shareholders. To further strengthen this alignment, a significant portion of her annual total compensation each year continues to be in the form of equity awards. Based on the considerable appreciation of her common stock holdings from previous equity award vesting events, and also taking into consideration future vesting events, a future vesting could cause Mrs. Griffith's ownership levels to exceed the HSR threshold. The Compensation and Talent Committee considered all of these factors when it determined that were not available to Progressive employees. See "Compensation for Mr. Auer" for additional information.the company's payment of these amounts was appropriate since they arose as a result of the operation of the company’s executive compensation program. See the “All Other Compensation” column of “Executive Compensation – Summary Compensation Table” and related footnote for additional information concerning perquisites.
Deferral Arrangements The named executive officersNEOs and certain other senior level employees are given the opportunity to defer the receipt of annual cash incentive payments and annual equity-basedequity awards under our Executive Deferred Compensation Plan (EDCP). This deferral mechanism allows the executiveNEOs to delay receipt of cash incentives or the vesting of
equity awards that he or she hashave 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 also allow executives to manage their receipt of compensation to better fit their life circumstances, including their individual financial and tax planning objectives. We do not contribute additional amounts to an executive’sa participant’s deferral account, either in the year of deferral or in future years. We also do not guarantee a specific investment return to executives who elect to participateparticipants in the deferralthis plan. Deferred amounts are deemed to be invested in specific investments selected by the executive, includingparticipant, which includes an option to invest in Progressive common shares. Deferrals of currently outstanding equity awards are currently required to be invested in Progressive common shares throughout the deferral period. The value of each executive’sparticipant’s deferred account thus varies based on the executive’sparticipant’s investment choices and market factors; these deferredfactors. Deferred amounts are at risk and may decrease in value if Progressive common shares or the other investments selected by the executiveparticipant do not perform well during the deferral period. Additional details concerning this plan, including the named executive officers’NEOs’ respective holdings in the plan, can be found under “Executive Compensation – Nonqualified Deferred Compensation.” 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. Moreover, the plan allows an executive to arrange for a portion of his or her income to be paid in post-employment years, which can be important because weRetirement
We do not offer aprovide pension planbenefits or supplemental retirement benefits to executives. All of the named executive officers other than Mr. Auer were eligible to participate in the EDCP for 2017. Mr. Auer and other ARX employees became eligible to participate in the EDCP beginning with compensation to be granted in 2018.
Retirement
Executivesour NEOs. NEOs are eligible to participate in our 401(k) plan on the same terms and conditions as are available to all other regular employees, subject to limitations under applicable law, andlaw. Also, upon leaving the company, he or shethe NEO may receive a payout of unused vacationpaid time off and, personal time (which we call “earned time benefit”),where legally required, paid sick leave, subject to limitations applicable to all employees.
We do not provide other post-retirement payments or benefits to executives such as a pension programrelated to retirement or supplemental executiveeligibility for retirement plan, other than with respect to equity awards. Our NEOs, along with all other equity award recipients, are eligible for “qualified retirement” (also referred to as "Rule of 70") treatment under our 2015 Plan. Beginning with the following: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 2023: •100% of their 2023 time-based award will vest; and •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 and 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 choseelects to participate in our deferral program may be entitled to receive post-employment distributions from the EDCP. Our named executive officers, along with all other equity award recipients, are eligible for “qualified retirement” treatment under our equity compensation plans.
Under this arrangement, an equity award holder who reaches age 55 with 15 years of service (or, with respect to awards granted in 2017 and later, age 60 with 10 years of service) and having satisfied certain other requirements is entitled to retain rights to 50% (and in some cases 100%) of his or her outstanding performance-based awards, which remain at risk and will vest (if at all) only to the extent that the applicable performance criteria are achieved prior to expiration of the award.
With respect to time-based equity awards, once an executive is eligible for a qualified retirement, 50% of his or her time-based restricted stock unit awards vest and, thereafter, 50% vest shortly after the grant of each new award. The remaining 50% will vest only if the equity award holder remains with the company for the required time period(s). Should the executive leave the company after being eligible for a qualified retirement but before a subsequent time-based vesting date, any unvested units would be forfeited.
For any unvested performance-based award, if the performance period ended prior to the participant’s retirement, then similar to any other participant, they will retain 100% of the award for a period of time after departure. 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 who retire from Progressive after satisfying the ageemployees. Mrs. Griffith, Mr. Sauerland, and service requirements. Currently, Mr. Barbagallo and Mr. Cody are the only named executives who haveMs. Bailo satisfied the age and serviceRule of 70 requirements for a qualified retirement. See "Executive
“Executive Compensation – Potential Payments uponUpon Termination or Change in Control – Qualified Retirement Provisions Under Equity Plans."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 an executiveeligible employees (including the NEOs) when an adverse change in his or hertheir employment situation is required due to our company needs or upon the occurrence of certain unexpected corporate events, and to recognize past contributions by suchthose executives, who are typically long-tenured employees. These arrangements allow the executiveexecutives to focus on the company'scompany’s performance, and not his or heron their personal financial situation, in the face of uncertain or difficult times or events beyond his or hertheir 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 is designed to provide(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. ForBased on tenure with us, for each of our named executive officers,NEOs, the severance payment would equal three years oftimes the executive’s base salary only (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 for at least 2 years following termination. These benefits are payable to the named executive officersNEOs upon any qualifying separation from Progressive,the company, whether in a change-in-control situation or otherwise.
In addition, if a change in control occurs and an executive officerNEO terminates his or her employment within 24 months following the change in control for “good reason,” then the executiveNEO will be entitled to receive the same severance benefits described above as though he or shethey 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 executive’s baseNEO’s salary) is reasonable based on available market data.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 equity incentive plans2015 Plan if the executive is eligible for a qualified retirement, discussed above, or in a change-in-control scenario, as discussed immediately below). Finally, the executiveexecutives will not receive noany tax “gross-up” payment to compensate him or herthem for any taxes which he or shethey may be required to payowe in connection with a severance payment. Management and the Compensation and Talent Committee accordingly believe that suchthe severance rights provide executivesthe 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 named executive officersNEOs upon a qualifying termination under our severance plan are summarized under “Executive Compensation – Potential Payments uponUpon Termination or Change in Control.” Change-in-Control Benefits underUnder Equity Plans. The change-in-control provisions vary among our outstanding equity awards depending on the equity plan under which they were awarded.Plan The provisions of the 2015 Equity Incentive Plan (the "2015 Plan") are describedsummarized below. Additional details regarding these provisions and the provisions of the 2010 Equity Incentive Plan can be found under "Executive“Executive Compensation – Potential Payments Upon Termination or Change in Control – Change-in-Control Provisions Under Equity Plans."Plan.” The 2015 Plan has a "double-trigger"“double-trigger” change-in-control provision. Unless the Committeecommittee 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 canceledcancelled 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 With certain exceptions (including those described below), uponBeginning with awards granted in 2021, if an NEO is employed through the deathend of a named executive officer, his or her estate (i) will retain rights to outstanding performance-based restricted stock unit awards to the extentcalendar year in which the awards vest duringgrant is made, the 12 months immediately following death, (ii)time-based award will vest immediately with respect to outstanding time-based awards to100% if the extent the award would have vested during that same 12-month period,NEO dies; and (iii) all other restricted stock unit awards are forfeited. However, other than special awards granted to Mrs. Griffith and Mr. Sauerland in August 2015, and to Mr. Auer in 2017, once an executive has reached his or her qualified retirement eligibility date (described above), all time-based unit awards that have not vested prior to his or her death will be forfeited and his or her death will be treated as a qualified retirement with respect to performance-based awards. These provisions apply equallyawards, if the NEO dies (i) before the end of the performance period, then the award will vest at 100% of target; or (ii) after the end of the performance period, then the award will remain outstanding and will vest if, when and to all participants.
If an executive had chosen to participatethe 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 our deferral plan, his or her estate would also be entitled to receive distributions from the EDCP.Control.”
Health and Welfare Benefits Named executive officersNEOs 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
References in this section to “named executive officers” exclude Mr. Auer.
Annual Compensation and Talent Committee Decisions The Compensation and Talent 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 20172023 were made in the first quarter of 2023, 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'smanagement’s compensation consultant and other third parties, and analyses performed by our Compensation Departmentcompensation department and/or consultants. Our CEO participates in certain Committeecommittee meetings to discuss significant compensation issues with the Committeecommittee or to provide recommendations to the Committeecommittee regarding the compensation of other executive officers. The Committee’scommittee’s executive compensation decisions thus represent the culmination of extensive analysis and discussion between the Committeecommittee and management, including our CEO, our Chief Human ResourceResources Officer, and members of the Compensation Departmentour compensation and Law Department.law departments. The Committeecommittee routinely reports to the full Board of Directors on compensation and other human capital management matters, including talent, generally after each regularly scheduled Committeecommittee meeting.
The Committeecommittee delegates to management the day-to-day implementation of compensation programs for employees below the level ofwho are not executive management,officers, subject to the terms of plans approved by the Committeecommittee or the Board. Generally, however, we seek to offer a consistent compensation program across our company, and as a result, determinations made by the Committeecommittee on executive compensation, such as performance goals under our GainsharingGainshare program, generally apply to other employees as well. The Committeecommittee has the authority under its charter to hire its own compensation consultants and legal advisors, at our expense. During 2017,2023, the Committee continued to usecommittee retained Semler Brossy Consulting Group to advise the Committeecommittee with respect to certain aspects of executive officer and director compensation, including advising on the use of comparative publicly held companies and providing input on the proposed 2024 Equity Incentive Plan, 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 Compensation and Talent Committee’s decisions, which result from a number of factors described above that are reviewed and evaluated by the Committee. These factors can be different for individual executives, can vary from year-to-year,year to year, and can include a number of qualitative and quantitative judgments, including the nature of a specific executive’s position and responsibilities, our business needs and culture, the experience of an executive in his or her position, past compensation history, individual performance, and the executive’s future potential, among other matters.judgments. Compensation comparisons also enter intoare one factor in this analysis. For annual compensation decisions, made in February 2017,the following executive compensation survey data and statistical analyses, that we used for our Chief Executive Officer and our Chief Financial Officer were provided by management’s compensation consultant, Pearl Meyer & Partners, as follows:
32consultant, Pay Governance LLC, were used for Mrs. Griffith and Mr. Sauerland:
•Proxy statement data for 13 publicly held insurance companies;and financial services companies with comparable revenues between $14.2 billion and $71.0 billion; •Survey data published by Willis Towers Watson and Aon HewittRadford Global Compensation Database of public companies in the $10 billion to $25 billion revenue range;with revenues greater than $20.0 billion; and •Proxy statement data for 4027 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. TheFor 2023, the companies in this category are listed below in descending order according to total revenue for 2016, the latest data available.2022. MetLife, Inc. Prudential Financial, Inc. American International Group, Inc. American Express Company The Allstate Corporation The Progressive Corporation Chubb Limited The Travelers Companies, Inc. The ProgressiveCapital One Financial Corporation
Aflac Incorporated
The Hartford Financial Services Group, Inc. Aflac Incorporated Lincoln National Corporation Principal Financial Group, Inc. Unum Group
CNA FinancialLoews Corporation
Genworth Financial, Inc.
Assurant, Inc.
The remaining two categories included a large number of companies from many industries. These companies were also selectedSimilar 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, this choice reflects that we do not generally recruit senior management level talent from other insurance companies, and that 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 the other named executive officers, we useMr. 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, we use survey data published by Willis Towers Watson and Aon Hewitt ofRadford Global Compensation
Database, which included public companies in the $1.0 billionwith revenue scopes similar to $2.5 billion revenue range.these business units was used. The comparison data for Mr. Murphy, our Chief Investment OfficerClaims President, was obtained from proxy statement data for the 13 insurance companies discussed above and survey data published by McLagan,Mercer PCICS, which included comparisons to chief investment officersproperty and casualty claims executives at other insurance companies.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 Committeecommittee in late 2016December 2022 and early 2017, at the time that the Committee was considering 2017supported their discussions regarding 2023 compensation decisions for the named executive officers.NEOs. Use of "Tally“Tally Sheets” When the Compensation and Talent Committee is considering annual compensation decisions for executives, the CommitteeNEOs, the committee is provided with information showing, for each executive,NEO, the total aggregatetarget and maximum compensation (salary, target annual cash incentive potential, and equity-based award values) proposed to be awarded to such executive for the upcoming year.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 Committeecommittee to review each executive’sNEO’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 Committeecommittee monitors and assesses the reasonableness of its annual compensation decisions for each executive.NEO. In addition, at least annually, the Committeecommittee reviews summaries of the potential payments that would be made to each executiveNEO upon the occurrence of various events, such as termination, retirement, or a change in control. These tally sheets allow the Committeecommittee to see in one place, all of the potential payouts that an executive canthe 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, vesting of equity-based awards upon a “qualifying retirement” or a “change in control”). The Committeecommittee 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 executive’sNEO’s prior earnings (such as distributions from deferral accounts), the Committeecommittee 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 the executive’stheir 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 Committeecommittee 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 Committeecommittee 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 executives.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 Committeecommittee believe that suchthese types of limitations are not an appropriate way to make compensation decisions for our executives and that such procedures 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,“at-risk,” performance-based component that is commensurate with the executive’s responsibilities. We rely on the judgment of the Committee, after considering recommendations from management, including the CEO, available market data, and evaluations of executive performance, in making these decisions. 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 current terms of our cash incentive programs and performance-based equity awards allow us to recoup payments and vested awards from namedour executive officers, if the applicable operating or financial results triggering such payment or the vestingincluding our NEOs, pursuant to our Dodd-Frank Clawback Policy and other recoupment provisions in a number of such award are later restated,instances related to the extent that such incentive payments or awards would not have been paid out based on the revised
restatement of applicable operating or financial results. For additional information concerning these recoupment or “clawback” rights, including limitations on those rights, see “Executive Compensation“– 2023 Decisions and Awards – Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table.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 vested interests, such as shares held on her behalf in our 401(k) plan or equivalent units held in our executive deferred compensation plan, but excluding unvested restricted stock units)interests) with a minimum value of six times the CEO's baseCEO’s salary. Executive officers who report directly toFor 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 threefive years of becoming an executive officer, each executiveof these executives is expected to hold restrictedProgressive common shares or unrestricted equityequivalent units with a minimum value of at least three times his or her basethe 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 Committeecommittee believe that equity holdings under these guidelines, as well as additional, voluntary holdings by executivesexecutive 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 2018,31, 2024, Mrs. Griffith and each of the other named executive officersNEOs satisfied the applicable guideline. 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.
Prohibitions on Derivatives and Hedging Transactions OurUnder our insider trading policy, our executive officers and directors are prohibited from making any "short sales"“short sales” of our common shares and from purchasing, selling, or writing exchange-traded or over-the-counter options (including puts and callscalls) 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 in recentfor 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 suchannual 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 alsoMarch 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 only at the time of his or her appointment to or promotion within the executive team;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 and Talent Committee.
COMPENSATION FOR MR. AUER
We acquired a controlling interest in ARX in April 2015. Originally, ARX operated substantially independently from Progressive, and its compensation practices and programs remained independent. Over time, we have begun to integrate the operations of ARX into those of Progressive, with compensation practices and programs beginning to be integrated during 2017. Mr. Auer’s compensation is initially reviewed by the compensation committee of the ARX board of directors, a majority of which is comprised of Progressive appointees, and is then recommended to, and subject to the approval of, our Compensation Committee.
Mr. Auer has an employment agreement with ARX, which dates back to 2004, under which Mr. Auer is entitled to receive a minimum salary of $250,000 and a discretionary bonus, determined by the ARX board of directors, based on the performance of ARX and its subsidiaries. See “Executive Compensation – Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table” for additional information regarding Mr. Auer’s employment agreement.
With respect to 2017 compensation for Mr. Auer, our Compensation Committee reviewed Mr. Auer’s historical compensation history, including the mix of pay, and approved changes to align his compensation more closely to the company's compensation philosophy. For 2017, Mr. Auer received a base salary of $550,000 and a Gainsharing target of 125% of salary under a separate Gainsharing Plan applicable to ARX employees. The ARX Gainsharing Plan was substantially similar to the Progressive Gainsharing program described above, except that the performance results for Property were weighted 25% and the performance results of the other business units were collectively weighted 75%, with each contributing to the 75% based on their contribution to direct earned premium. The performance factor for the ARX Gainsharing Plan was 1.39 for 2017, lower than the factor under Progressive’s plan, and Mr. Auer's payment was 174% of his base salary. As noted above, although Property experienced impressive growth, catastrophe losses prevented it from achieving the minimum combined ratio at that growth level to produce a positive score, and the heavier weight given to Property results under the ARX Gainsharing Plan magnified that impact, compared to the Progressive plan.
Mr. Auer did not receive a time-based restricted stock unit award during 2017. He received a performance-based restricted stock unit award during 2017, with a value equal to 175% of his salary, that measured the number of households with an auto policy bundled with a homeowners’ policy (i.e., Robinsons) at the end of 2017. This award was granted to Mr. Auer and other employees of Progressive and ARX who were seen as instrumental to achieving Progressive’s internal goal of having 1 million Robinsons customers by the end of 2017. The award could vest between 0.85 and 1.5 times target if the number of households with an auto and homeowners bundle was between 750,000 and 1.25 million at year end, with 1 million of those households producing a target payout. This award vested in February 2018 at a 0.88 performance factor.
Mr. Auer is also eligible to participate in health and welfare benefits offered by ARX to its employees, including medical and dental benefits, and a 401(k) savings plan. Since July 2017, ARX employees have participated in Progressive’s employee benefit plans on the same basis as Progressive employees.
Mr. Auer did not participate in any deferred compensation plan with respect to 2017 compensation, and ARX does not provide tax gross-up payments in connection with his compensation, severance, perquisites, or other benefits. During 2017, Mr. Auer and the other employees of ARX who meet eligibility requirements became eligible to participate in the Executive Deferred Compensation Plan with respect to 2018 and future compensation.
Beginning in July 2017, Mr. Auer also became eligible to participate in the Executive Separation Allowance Plan; however, amounts payable to him under his employment agreement will reduce, potentially to zero, any amounts payable to him under the Executive Separation Allowance Plan.
In addition to holding Progressive common shares, Mr. Auer also beneficially owns (directly and indirectly) a significant percentage of ARX’s outstanding securities and, as a result, his interests are aligned with those of the other shareholders of ARX, including Progressive. Although Progressive’s equity ownership guidelines do not apply to Mr. Auer, if they had applied and if comparable guidelines had been in place at ARX, he would have satisfied both guidelines as of January 31, 2018.
Mr. Auer will be retiring as president and chief executive officer of ARX in April 2018. As a result of this decision, the Committee decided in February 2018 to continue his current salary until his retirement and not to grant any incentive awards to him with respect to 2018. Mr. Auer will remain a director of ARX and is expected to serve as chairman of the board of ARX.
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”)deduction limit) the deduction allowed for federal income tax purposes for compensation paid to each of“covered employees.” That term includes the chief executive officer, the chief financial officer, and the three other most highly compensated executives, of a public company other than the chief financial officer (“covered employees”). For 2017 and prior years, the determination of who was a covered employee was made independently each year. Beginning with the 2018 tax year, the group of "covered employees" will also include the chief financial officer, and any individual who meets the definition of "covered employee"“covered employee” in the 20172018 or any later tax year will be a "covered employee" in perpetuity. For 2017 and prior years, this deduction limit does not apply to compensation paid under a plan that meets certain requirements for “performance-based compensation.” Generally, to qualify for this exception: (a) the compensation must be payable solely on accountyear.Each of the attainment of one or more pre-established objective performance goals; (b) the performance goals must be established byNEOs is now a compensation committee of the board of directors that is comprised solely of two or more “outside directors”; (c) the material terms of the performance goals must be disclosed tocovered employee and approved by shareholders before payment; and (d) the compensation committee must certify in writing prior to payment that the performance goals and any other material terms have been satisfied. For 2018 and later tax years, there will not be an exception for "performance-based compensation" other than compensation that satisfies the definition and that is paid under a legally binding agreement in effect as of November 2017. We are awaiting guidance from the Internal Revenue Service to help us determine if any of our existing arrangements, including outstanding performance-based equity awards, meets this exception. With respect to compensation granted in 2017, our policy was to structure incentive compensation programs for covered employees to satisfy the requirements for the “performance-based compensation” exception to the deduction limit and, thus, to preserve the deductibility of compensation paid to covered employees, to the extent consistent with our compensation practices and programs. Several elements of our compensation program, however, constitute income that was not considered “performance-based” under Section 162(m). For example, salary, incentive payments to Mr. Cody under the PCM Incentive Plan, and time-based equity awards were not "performance-based" within the meaning of Section 162(m).
If the total of any covered employee’s compensation that does not satisfy the “performance-based compensation” exception exceeds the deduction limit in any year, Progressive will not be entitledable to a federal income taxdeduct any compensation paid to them for any taxable year in excess of $1 million. In 2023, compensation that did not qualify exceeded the deduction for the excess.limit by $93.8 million, including $51.2 million related to Mrs. Griffith’s compensation.
Because tax legislation was enacted late in 2017 and uncertainties regarding its implementation remain, when making compensation decisions for 2018, the Committee determinedThe committee has not to makediscontinued or changed any significant changes tocomponent of the compensation structure or programs for executive officers. Management and the Committee will monitor developments in tax regulations and interpretations and consider whether to make any changes beginning with 2019 compensation. We will not necessarily discontinue or decline to adopt a compensation plan, however,program that has a potential negative impact under Section 162(m), if we believesince it believes that the overall program in question is appropriate and in the interestinterests of shareholders.
In 2017, the non-performance-based compensation earned by Mrs. Griffith, Mr. Cody, and Mr. Barbagallo exceeded the deduction limit by approximately $0.5 million, $2.4 million, and $0.2 million, respectively, principally
arising from salary, the vesting of time-based equity awards and, with respect to Mr. Cody, amounts paid under the PCM Incentive Plan.
Because ARX is not a part of The Progressive Corporation's affiliated group for federal income tax purposes for the 2017 tax year, and ARX is not a publicly held corporation, the company does not expect deductions for amounts paid by ARX to Mr. Auer, with respect to 2017, will be limited by Section 162(m).
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.
| | | 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 members of the Compensation and Talent Committee of the Board of Directors of The Progressive Corporation (“Progressive”) during 2017 havehas reviewed and discussed with Progressive’s management the Compensation Discussion and Analysis set forth above. Based on the review and discussions noted above, those members of the Compensation and Talent Committee recommended to the Board that the Compensation Discussion and Analysis be included in Progressive’s Proxy Statement for 2018,2024, and incorporated by reference into Progressive’s Annual Report on Form 10-K for the year ended December 31, 2017.2023.
COMPENSATION AND TALENT COMMITTEE DURING 2017 Bradley T. Sheares, Ph. D., Chairman
Roger N. Farah,Chair Pamela J. Craig Barbara R. Snyder |
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 GainsharingGainshare 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 GainsharingGainshare 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, the PCM Incentive Plan provideswe have an annual cash incentive program for our investment professionals including(including our Chief Investment Officer,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 annual cash 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 and Talent 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 and Talent 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 three otherselect 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 75thpercentile 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 75thpercentile 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, pursuant to our Dodd-Frank Clawback Policy and other recoupment provisions, 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 “Executive Compensation“Compensation Discussion and Analysis – Narrative Disclosure to Summary Compensation Table2023 Decisions and Grants of Plan-Based Awards Table.– 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 the total compensation of our named executive officers (NEOs) for 2017:2023: our Chief Executive Officer (CEO); our Chief Financial Officer (CFO); and our three other most highly compensated executive officers. SUMMARY COMPENSATION TABLE | | | | | | | | | | | | | | | | | | | | | | | Name and Principal Position | Year | Salary1 ($) | | Stock Awards2 ($) | Non-Equity Incentive Plan Compensation3 ($) | All Other Compensation4 ($) | Total
($) | | Susan Patricia Griffith | 2023 | $ | 994,231 | | | $ | 10,000,106 | | $ | 4,424,327 | | $ | 217,954 | | $ | 15,636,618 | | | President and Chief Executive Officer | 2022 | 950,000 | | | 9,500,203 | | 2,042,501 | | 256,122 | | 12,748,826 | | | 2021 | 950,000 | | | 9,500,212 | | 3,847,502 | | 165,247 | | 14,462,961 | | | John P. Sauerland | 2023 | 697,115 | | | 2,625,224 | | 1,861,298 | | 12,000 | | 5,195,637 | | | Vice President and Chief Financial Officer | 2022 | 672,116 | | | 2,531,445 | | 867,029 | | 12,000 | | 4,082,590 | | | 2021 | 650,000 | | | 2,437,643 | | 1,579,500 | | 12,000 | | 4,679,143 | | | Patrick K. Callahan | 2023 | 647,115 | | | 2,437,619 | | 1,727,798 | | 12,000 | | 4,824,532 | | | Personal Lines President | 2022 | 622,115 | | | 2,343,838 | | 802,529 | | 12,500 | | 3,780,982 | | | 2021 | 594,231 | | | 2,100,095 | | 1,443,981 | | 12,000 | | 4,150,307 | | | Karen B. Bailo | 2023 | 594,231 | | | 1,500,148 | | 1,057,731 | | 12,000 | | 3,164,110 | | | Commercial Lines President | 2022 | 550,000 | | | 1,375,024 | | 473,000 | | 12,000 | | 2,410,024 | | | 2021 | 400,000 | | | 900,157 | | 648,000 | | 12,000 | | 1,960,157 | | | John Murphy | 2023 | 576,539 | | | 1,450,083 | | 1,026,239 | | 12,000 | | 3,064,861 | | | Claims President | 2022 | 550,000 | | | 1,375,024 | | 473,000 | | 12,750 | | 2,410,774 | | | 2021 | 496,154 | | | 1,125,128 | | 803,769 | | 12,000 | | 2,437,051 | | | | | | | | | |
1 Amounts may differ from the salary amounts reported in “Compensation Discussion and Analysis – 2023 Decisions and Awards – Salaries” as salary changes are typically implemented in February of each year. | | | | | | | | | | | | | | | | | | | | | | Name and Principal Position | Year | Salary ($) |
| Bonus ($) |
| Stock Awards1 ($) |
| Non-Equity Incentive Plan Compensation2 ($) |
| All Other Compensation3 ($) |
| Total ($) |
| | Susan Patricia Griffith | 2017 | $ | 721,154 |
| — |
| $ | 6,525,051 |
| $ | 1,936,298 |
| $ | 91,936 |
| $ | 9,274,439 |
| | President and Chief Executive Officer | 2016 | 616,346 |
| — |
| 4,800,172 |
| 1,422,631 |
| 24,997 |
| 6,864,146 |
| | 2015 | 516,538 |
| — |
| 3,560,097 |
| 1,033,077 |
| 12,000 |
| 5,121,712 |
| | John P. Sauerland | 2017 | 571,154 |
| — |
| 1,840,065 |
| 1,277,957 |
| 12,000 |
| 3,701,176 |
| | Vice President and Chief Financial Officer | 2016 | 546,538 |
| — |
| 1,650,117 |
| 1,140,899 |
| 12,000 |
| 3,349,554 |
| | 2015 | 516,538 |
| — |
| 3,560,097 |
| 1,033,077 |
| 12,750 |
| 5,122,462 |
| | William M. Cody | 2017 | 477,692 |
| — |
| 1,080,068 |
| 1,144,073 |
| 12,000 |
| 2,713,833 |
| | Chief Investment Officer | 2016 | 463,269 |
| — |
| 1,046,275 |
| 1,081,734 |
| 12,500 |
| 2,603,778 |
| | 2015 | 448,269 |
| — |
| 1,012,553 |
| 1,031,018 |
| 12,000 |
| 2,503,840 |
| | John F. Auer | 2017 | 537,885 |
| — |
| 962,505 |
| 934,574 |
| 25,000 |
| 2,459,964 |
| | President and Chief Executive Officer, ARX Holding Corp. | 2016 | 452,192 |
| — |
| — |
| — |
| 34,789 |
| 486,981 |
| | 2015 | 318,750 |
| $ | 2,800,000 |
| — |
| — |
| 34,289 |
| 3,153,039 |
| | John A. Barbagallo | 2017 | 473,462 |
| — |
| 1,045,076 |
| 847,496 |
| 12,000 |
| 2,378,034 |
| | Commercial Lines President | 2016 | 463,269 |
| — |
| 1,023,014 |
| 773,660 |
| 12,000 |
| 2,271,943 |
| | 2015 | 447,692 |
| — |
| 990,034 |
| 716,308 |
| 12,750 |
| 2,166,784 |
|
1 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 thedate 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“– Outstanding Equity Awards at Fiscal Year End"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.
| | | | | | | | | | Name | Grant
Year | Grant Date Fair
Value (Maximum
Performance) | | Susan Patricia Griffith | 2023 | $ | 22,000,179 | | | 2022 | 16,150,367 | | 2021 | 16,150,288 | | John P. Sauerland | 2023 | 4,655,368 | | 2022 | 4,489,006 | | 2021 | 4,322,660 | | Patrick K. Callahan | 2023 | 4,469,014 | | 2022 | 4,297,017 | | 2021 | 3,750,203 | | Karen B. Bailo | 2023 | 2,250,153 | | 2022 | 2,062,535 | | 2021 | 1,250,263 | | John Murphy | 2023 | 2,175,055 | | 2022 | 2,062,535 | | 2021 | 1,562,603 |
| | | | | | | Name | Grant Year | Grant Date Fair Value (Maximum Performance) |
| | Susan Patricia Griffith | 2017 | $ | 10,512,583 |
| | | 2016 | 7,825,164 |
| | | 2015 | 6,600,055 |
| | John P. Sauerland | 2017 | 3,105,085 |
| | | 2016 | 2,695,082 |
| | | 2015 | 6,548,065 |
| | William M. Cody | 2017 | 1,320,101 |
| | | 2016 | 1,278,793 |
| | | 2015 | 1,237,542 |
| | John F. Auer | 2017 | 1,443,757 |
| | | 2016 | — |
| | | 2015 | — |
| | John A. Barbagallo | 2017 | 1,425,095 |
| | | 2016 | 1,395,027 |
| | | 2015 | 1,350,002 |
|
For the terms of awards granted in 2017,2023, see “Executive Compensation –“– Grants of Plan-Based Awards” below and “Executive Compensation –“– Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table.”Table” below. Also, see the “Compensation Discussion and Analysis,” as well as Note 9 – Employee Benefit Plans in Progressive’s 2017our 2023 Annual Report to Shareholders which is included as an appendix to this Proxy Statement, for further discussion of the restricted stock unit awards and our recognition of expense relating to such awards. | | 2
| Amounts were earned under The Progressive Corporation 2017 Executive Annual Incentive Plan ("Executive Plan"), which is part of our overall Gainsharing program, for all NEOs except Mr. Cody and Mr. Auer. Mr. Cody also earned amounts under the 2017 Progressive Capital Management Annual Incentive Plan ("PCM Plan"), and Mr. Auer earned amounts under the ARX Holding Corp. 2017 Gainsharing Plan ("ARX Plan"). Non-equity incentive plan compensation earned by these executives with respect to 2017 was paid (if not deferred by the NEO) in early 2018. 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,” “Executive Compensation – Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table,” and “Executive Compensation – Nonqualified Deferred Compensation.” |
| | 3
| All Other Compensation for 2017 is comprised of the following: |
3 For 2023, amounts were earned exclusively under The Progressive Corporation 2023 Gainshare Plan (Gainshare Plan) for all NEOs. Non-equity incentive plan compensation earned by these executives with respect to 2023 was paid (if not deferred by the NEO) in early 2024. 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 2023 is comprised of the following: | | | Name | 401(k) Employer Contributionsa |
| | Perquisitesb |
| | Otherc |
| | Name | | | Name | | | Susan Patricia Griffith | | | Susan Patricia Griffith | | | Susan Patricia Griffith | $12,000 | | $79,936 | | — |
| | John P. Sauerland | 12,000 |
| | — |
| | — |
| | William M. Cody | 12,000 |
| | — |
| | — |
| | John F. Auer | 24,000 |
| | — |
| | $1,000 | | John A. Barbagallo | 12,000 |
| | — |
| | — |
| | John P. Sauerland | | | John P. Sauerland | | | Patrick K. Callahan | | | Patrick K. Callahan | | | Patrick K. Callahan | | | Karen B. Bailo | | | Karen B. Bailo | | | Karen B. Bailo | | | John Murphy | | | John Murphy | | | John Murphy | |
a This personal benefit representsRepresents employer matching contributions made during 20172023 under applicableour 401(k) plans.plan. Amounts contributed are based on level of employee contribution, with a maximum annual employer contribution under the Progressive plan of $12,000. Until July 1, 2017, Mr. Auer participated in the ARX 401(k) Plan which had a $18,000 maximum contribution limit, and thereafter participated in Progressive's 401(k) Plan. b Includes $65,228$150,518 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 relatedtrip-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 $14,708$18,566 in incremental costs attributable to the personal use of a company carcompany-owned vehicle by Mrs. Griffith, which is primarily limited toused for commuting to and from work. This also includes a $36,120 payment of a regulatory filing fee and related legal expenses paid with respect to a pre-merger notification filing under the Hart-Scott-Rodino Act. For more information, see “Compensation Discussion and Analysis -– Other Elements of Compensation -– Perquisites.” c IncludesReflects a service anniversary award paid for each five-year anniversary of employment with ARX,the company, under a program availableapplicable to all ARX employees, and an amount earned from an employee referral, under a program previously available to all employees of ARX.employees.
GRANTS OF PLAN-BASED AWARDS
Grants of Plan-Based Awards
The following table summarizes annual cash incentive awards (non-equity incentive plan awards) and equity incentive awards that were eligible to be earned by our NEOs with respect to 2017.2023 and equity awards granted to our NEOs during 2023. Each restricted stock unit is equivalent in value to one common share. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards1 | | Estimated Future Payouts Under
Equity Incentive Plan Awards | | Grant Date Fair Value of Equity Awards2 ($) | | Name | Grant
Date | Threshold
($) | Target
($) | Maximum
($) | | Threshold
(#) | | Target
(#) | | Maximum
(#) | | | Susan Patricia Griffith | NA | 0 | | $2,485,577 | $4,971,154 | | | | | | | | | | 3/20/2023 | | | | | | | 7,191 | 3 | | | $1,000,052 | | 3/20/2023 | | | | | 0 | | 4 | 64,716 | 4 | 158,195 | 4 | 9,000,054 | | John P. Sauerland | NA | 0 | | 1,045,673 | 2,091,346 | | | | | | | | | | 3/20/2023 | | | | | | | 5,034 | 3 | | | 700,078 | | 3/20/2023 | | | | | 0 | | 4 | 13,843 | 4 | 33,475 | 4 | 1,925,146 | | Patrick K. Callahan | NA | 0 | | 970,673 | 1,941,346 | | | | | | | | | | 3/20/2023 | | | | | | | 4,674 | 3 | | | 650,013 | | 3/20/2023 | | | | | 0 | | 4 | 12,854 | 4 | 32,135 | 4 | 1,787,606 | | Karen B. Bailo | NA | 0 | | 594,231 | 1,188,462 | | | | | | | | | | 3/20/2023 | | | | | | | 4,315 | 3 | | | 600,087 | | 3/20/2023 | | | | | 0 | | 4 | 6,472 | 4 | 16,180 | 4 | 900,061 | | John Murphy | NA | 0 | | 576,539 | 1,153,078 | | | | | | | | | | 3/20/2023 | | | | | | | 4,171 | 3 | | | 580,061 | | 3/20/2023 | | | | | 0 | | 4 | 6,256 | 4 | 15,640 | 4 | 870,022 |
GRANTS OF PLAN-BASED AWARDS IN 2017NA = Not applicable
1The amount of non-equity incentive plan compensation earned by the NEOs under the Gainshare Plan with respect to 2023 is included in the “– Summary Compensation Table.” Further description of both the non-equity and equity incentive plan awards is provided in “Compensation Discussion and Analysis” and in the “– Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table.” | | | | | | | | | | | | | | | | | | | | | | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards1 | Estimated Future Payouts Under Equity Incentive Plan Awards | | Grant Date Fair Value of Equity Awards2 |
| | Name | Grant Date | Threshold ($) |
| Target ($) |
| Maximum ($) |
| Threshold (#) |
| | Target (#) |
| | Maximum (#) |
| | | Susan Patricia Griffith | NA | $0 | $1,081,731 | $2,163,462 | | | | | | | | | 3/20/2017 | | | | | | 54,078 |
| 3 | | | $ | 2,175,017 |
| | | 3/20/2017 | | | | 0 |
| 4 | 108,156 |
| 4 | 261,377 |
| 4 | 4,350,034 |
| | John P. Sauerland | NA | 0 |
| 713,942 |
| 1,427,884 |
| | | | | | | | | | 3/20/2017 | | | | | | 14,297 |
| 3 | | | 575,025 |
| | | 3/20/2017 | | | | 0 |
| 4 | 31,453 |
| 4 | 77,203 |
| 4 | 1,265,040 |
| | William M. Cody | NA | 0 |
| 597,115 |
| 1,194,230 |
| | | | | | | | | | 3/20/2017 | | | | | | 11,935 |
| 3 | | | 480,026 |
| | | 3/20/2017 | | | | 0 |
| 4 | 14,919 |
| 4 | 32,822 |
| 4 | 600,042 |
| | John F. Auer | NA | 0 |
| 672,356 |
| 1,344,712 |
| | | | | | | | | | 3/20/2017 | | | | 20,341 |
| 5 | 23,931 |
| 5 | 35,897 |
| 5 | 962,505 |
| | John A. Barbagallo | NA | 0 |
| 473,462 |
| 946,924 |
| | | | | | | | | | 3/20/2017 | | | | | | 11,811 |
| 3 | | | 475,038 |
| | | 3/20/2017 | | | | 0 |
| 4 | 14,173 |
| 4 | 35,433 |
| 4 | 570,038 |
|
NA=Not Applicable3Represents the number of shares covered by time-based restricted stock unit awards.
| | 14Represents 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 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. | The amount of non-equity incentive plan compensation earned by the NEOs with respect to 2017 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 following narrative disclosure. |
| | 2
| Awards were granted under the 2015 Plan and are valued at the closing price of our common shares on the date of grant, which was $40.22 for March 20, 2017. The target amount of performance-based restricted stock unit awards granted is used to determine grant date fair value. |
| | 3
| Represents the number of shares covered by time-based restricted stock unit awards. |
| | 4
| Represents 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 against market 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 grant awards, Mrs. Griffith received 18,0267,191 units and Mr. Sauerland received 2,860 units, and Mr. Cody received 8,9512,266 units in the form of performance-based awards that measure the performance of our fixed-income portfolio returns against a benchmark.benchmark peer group. These awards can vest from 0-200% of the target award only if and when pre-established performance goals are attained. 5 Represents the number of shares covered by a performance-based restricted stock unit award. This award measured auto policies combined (or "bundled") with one or more specified homeowners policies at the end of 2017. If a minimum level of performance was achieved, this award could vest from 85-150% of the target award. The award vested at 88% in February 2018.
NARRATIVE DISCLOSURE TO SUMMARY
COMPENSATION TABLE AND GRANTS OF
PLAN-BASED AWARDS TABLE
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
Employment Agreements. As of December 31, 2017, none of the NEOs other than Mr. Auer had an employment agreement. Pursuant to an employment agreement between ARX and Mr. Auer, which dates back to 2004, Mr. Auer is entitled to receive a minimum salary of $250,000 and a discretionary bonus, determined by the ARX board of directors, based on the performance of ARX and its subsidiaries. The employment agreement also provides that Mr. Auer cannot be terminated for a disability until he has been unable to perform his duties for 180 consecutive days. If ARX terminates Mr. Auer without cause, or if he resigns for good reason (as defined in the agreement) then Mr. Auer shall continue to receive his salary and average bonus (determined by reference to the preceding two years) for two years following termination. During that two-year period, Mr. Auer will be prohibited from competing with ARX within any state in which ARX or ASI is engaged in business. If he becomes employed or engages in business during the two-year period, the payments to him will be reduced by 50% of the amounts paid to him in respect to such other employment or business. ARX can choose to waive the non-compete restrictions at any time during that two-year period and stop making payments to Mr. Auer. If Mr. Auer retires or resigns without good reason, he is subject to the non-compete restrictions for two years but does not receive compensation during the restriction period. Mr. Auer will be retiring in April 2018.
Salary. For 2017,2023, salary comprised approximately 8%6% of total compensation for Mrs. Griffith, 15%13% for both Mr. Sauerland 18% for Mr. Cody, 20% for Mr. Barbagallo, and 22% for Mr. Auer. Non-Equity Incentive Compensation. Non-equity incentive compensation for the NEOs with respect to 2017 was available under one or more of three plans: all of the NEOs, other than Mr. Auer, participated in the Gainsharing program through the 2017 Executive Annual Incentive Plan ("Executive Plan"); Mr. Auer participated in the ARX Holding Corp. 2017 Gainsharing Plan ("ARX Plan"), and Mr. Cody also participated in the 2017 Progressive Capital Management Annual Incentive Plan ("PCM Plan"). Amounts earned under these three plans are include as non-equity incentive plan compensation in the Summary Compensation Table.
Executive Plan (Gainsharing). Amounts earned under the Executive Plan with respect to 2017 were determined using the following formula:
| | | | | | | | Paid
Salary
| X
| Target
Percentage
| X
| Gainshare (i.e.,
Performance)
Factor
| =
| Annual
Incentive (Gainsharing) Payment
|
For each participating named executive officer, the salaryCallahan, and the target percentage (as a percent of salary) were established by the Compensation Committee during the first quarter of the year. When the participant’s paid salary19% for the year is multiplied by his or her assigned target percentage, the product is referred to as the participant’s “target incentive payment” or “target Gainsharing amount” for the year. For 2017, Mrs. Griffith's target percentage was 150% of salary; the target percentage was 125% of salary for Mr. Sauerland; the target percentage was 100% of salary for Mr. Barbagallo;both Ms. Bailo and Mr. Cody's target percentageMurphy. See “Compensation Discussion and Analysis – 2023 Decisions and Awards – Salaries” above for the Executive Plan was 50% of his salary.more information.
Under the Executive Plan, the Gainshare Factor was determined for all participating named executive officers 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 Gainshare Factor could range from 0.0 to 2.0, depending on the extent to which our results meet, exceed, or fall short of the objective performance goals established by the Committee. As a result, each participant could earn an incentive payment of between 0.0 and 2.0 times his or her target payment, with the amount equal to 2.0 times an executive’s target incentive payment thus being the executive’s maximum potential payment. The executive’s incentive payment would equal the target Gainsharing amount if the applicable Gainshare Factor equaled a 1.0 for the year. Each executive had to be employed on November 30thof 2017 to receive an incentive payment for that year. Annual incentive payments were made in early February of 2018, after the appropriate approvals and certifications were received from the Compensation Committee.
For 2017, incentive payments were based on performance criteria designed to evaluate the growth and profitability of our core insurance businesses, which do not include our investment results (the “core business”). The core business was defined to include the Agency auto, Direct auto, and the special lines business units (collectively, Personal Lines), the Commercial Lines business unit and the Property business unit.
The Gainshare Factor for the core business for 2017 was calculated as follows:
A separate “Gainsharing matrix” was established by the Committee for each of the Agency auto, Direct auto, and special lines business units, our Commercial Lines business unit, and our Property business unit. Each
matrix assigned a performance score between 0.0 and 2.0 to various combinations of growth and profitability for the applicable business unit.
In each case, profitability was measured by the calendar-year combined ratio determined by reference to financial information prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), and growth was measured by reference to “policies in force” for each business unit.
Actual growth and profitability performance results for each of the Agency auto, Direct auto, and special lines business units, our Commercial Lines business unit, and our Property business unit were determined after year end and compared to the appropriate matrix to produce a performance score for each business unit.
For the 2017 Plan, the performance scores achieved by each of the business units were weighted, based on the percentage of net premiums earned in the respective business unit during the year as compared to the core business as a whole. The weighted scores for the business units were then added together to produce the Gainshare Factor.
In 2017, the final core business Gainshare Factor determined according to these criteria was 1.79. The following table presents the overall 2017 growth and profitability data for the business units that comprised our core business:
| | | | | | | Business Unit | Combined
Ratio1 |
| Increase in
Policies in
Force2 (%) |
| | Agency | 92.5 |
| 9 | % | | Direct | 93.7 |
| 9 |
| | Special lines | — |
| 3 |
| | Commercial Lines | 92.3 |
| 5 |
| | Property | 105.1 |
| 12 |
|
| | 1
| Consistent 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 Progressive. |
| | 2
| Based 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 Gainsharing matrices discussed above, we determined the performance score for each business unit comprising the core business, weighted those scores based on each business unit’s relative contribution to overall net premiums earned by the core business, and then added the weighted scores to determine the Gainshare Factor, as follows:
| | | | | | | | | Business Unit | Business
Unit
Performance
Score |
| Weighting
Factor (%)1 |
| Weighted
Performance
Score |
| | Agency auto | 2.00 |
| 39.3 | % | .79 |
| | Direct auto | 2.00 |
| 39.9 |
| .80 |
| | Special lines | 1.04 |
| 6.1 |
| .06 |
| | Commercial Lines | 1.28 |
| 10.9 |
| .14 |
| | Property | 0.00 |
| 3.8 |
| — |
| | Gainshare Factor | | | 1.79 |
|
1 Weighting factor is based on earned premium for each business unit.
The 2017 Gainsharing payments under the Executive Plan were calculated using the 1.79 core business Gainshare Factor. Under the Executive Plan, incentive payments made to executives are subject to recoupment by Progressive if operating or financial results that are used in the payment calculation are later restated. If an executive engages in fraud or other misconduct leading to the restatement, we can require him or her to repay the entire incentive payment for the year(s) in question, plus interest and the costs of collection, and there is no time limit on our ability to recover these amounts other than limits imposed by law. In addition, we would have the right to require repayment of any excess incentive payment resulting from the calculation from an executive who did not engage in misconduct, but nonetheless received an incentive payment that was artificially high due to the use of incorrect financial results, but
only if the restatement occurs within three years after the bonus is paid. Further, the bonuses will be subjected to recoupment to the extent required by the rules of the SEC, NYSE or any policy we adopt to comply with those rules.
ARX Plan. For 2017, employees of ARX, including Mr. Auer, participated in Gainsharing through the ARX Plan. The ARX Plan, which was approved by the Progressive Compensation Committee and adopted by the board of directors of ARX during the first quarter of the year, was substantially similar to the Executive Plan described above, except that the performance results for Property were weighted 25% and the performance results of the other business units were collectively weighted 75%, with each contributing to the 75% based on its contribution to direct earned premium. Mr. Auer's target percentage was 125% of his base salary, and his payment under the ARX Plan was calculated using a 1.39 ARX Gainshare Factor. His payment under the ARX Plan is subject to recoupment under provisions similar to those described above in the event of a restatement of Progressive or ARX's operating or financial results, except that if Mr. Auer did not engage in fraud or other misconduct, the recoupment right would apply only if the potential recovery would exceed the lesser of 5% of the incentive payment or $20,000. For 2018, all ARX employees will participate in the Progressive Gainsharing Plan.
PCM Plan. In addition to his Gainsharing payment earned under the Executive Plan for 2017, Mr. Cody was eligible to earn a separate incentive payment under our PCM Plan with a target incentive payment equal to 75% of his 2017 paid salary. His incentive payment under this plan for 2017 could range from 0.0 to 2.0 times the target amount, or from 0% to 150% of his salary. Under the PCM Plan, we determine the performance of our fixed-income portfolio, which is actively managed by our investment group, for the current year and over the trailing three-year period, on the basis of the fully taxable equivalent total return, including the benefit of state premium tax abatements associated with certain municipal securities held in our portfolio. We then compare those results against the total return results achieved by a benchmark group of comparable firms for the same time periods. After the end of the year, using performance data supplied by an independent third party, separate performance scores are determined based on our percentile ranking in the benchmark group for the one- and three-year periods as follows:
| | | | | | | | | | | | | | Period | | Score=0
Rank at or below
| | | Score=1.0
Rank equal to
| | | Score=2.0
Rank at or above
| | One year | | | 15th percentile
| | | | 50th percentile
| | | | 85th percentile
| | Three year | | | 25th percentile
| | | | 50th percentile
| | | | 75th percentile
| |
The two scores are then averaged to determine an indicated performance score for the year, and this score is communicated to the Compensation Committee. The Committee then evaluates the indicated score in the context of our investment results and other factors relevant to our investment performance for the year. The Committee may consult with other Board members or others, as it deems appropriate, for additional perspectives. In the end, the Committee has the discretion, based on its evaluation, to accept the indicated performance score, decrease it, or increase it up to the maximum allowed factor of 2.0, and to adjust the annual incentive payments under the PCM Plan accordingly.
For 2017, we achieved a total return, as described above, in our fixed-income portfolio of 3.25%, (including the benefit of state premium tax abatements associated with certain municipal securities held in our portfolio), which ranked us at the 93rd percentile of the benchmark group of over 100 comparable investment firms. For the three years ending on December 31, 2017, our fixed-income portfolio earned a cumulative return of 8.39%, ranking us at the 93rd percentile of the comparable firms. Using the methodology described above, we computed an indicated performance score of 2.0 under the plan for the year, which was communicated to the Compensation Committee. The Committee decided to pay the 2017 annual incentives under the PCM Plan using a 2.0 performance factor, consistent with the calculated score.
Equity Incentive Plan Awards. In 2017,2023, 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 Mrs. Griffith, Mr. Sauerland, Mr. Cody, and Mr. Barbagallo. Mr. Auer received only performance-based restricted stock unit awards.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 Mrs. Griffith2023, each of the NEOs received an annuala time-based restricted stock unit award with a value equal to 300% of her salary, and Messrs. Sauerland, Cody and Barbagallo received time-based restricted stock unit with a value equal to 100% of their respective salaries.award. These time-based awards are scheduled to vest in equal installments on in January 1, 2020, 2021,of 2026, 2027, and 2022,2028, provided that the executive continues to satisfy the vesting requirements atremains an employee through that time. For each of these officers, 50% of their respective time-based awards, to the extent they have not yet vested, will vest earlier, upon their satisfying the ageThe Compensation and years of service requirements for a “qualified retirement,” as discussed below in more detail under “Potential Payments upon Termination or Change in Control – Qualified Retirement Provisions under Equity Plans.” Mr. Auer did not receive a time-based restricted stock unit award. WeTalent Committee also granted annual performance-based restricted stock units to the named executive officersthese NEOs in March 2017. The values of the performance-based awards2023, which were determined by the Compensation Committee, based on a percentage of each individual’s salary and the value of our common shares at the time of grant. For the March 2017 grant, Mrs. Griffith received awards with a total value equal to 600% of her salary, Mr. Sauerland received awards with a total value equal to 220% of his salary, Mr. Cody received awards with a total value equal to 125% of his salary, Mr Auer received an award with a value equal to 175% of his salary and Mr. Barbagallo received an award with a value equal to 120% of his salary. All of the NEOs other than Mr. Auer received a performance-based restricted stock unit award tied to the operating performance of our vehicleinsurance businesses. Mrs. Griffith Mr. Sauerland, and Mr. CodySauerland also received an additional performance-based award tied to the performance of our fixed-income investment portfolio, as further described below. Mr. Auer received a performance-based award tied to the number of households with bundled auto and homeowners policies at December 31, 2017.
For the performance-based restricted stock unit awards tied to the operating performance of our vehicleinsurance businesses, the awards will vest (i) if andhave a performance goal that compares our growth to the extent that the compounded annualizedindustry growth rate of our personal and commercial auto insurance businesses, measured in terms of direct premiums written, for the three-year period ending December 31, 2019 (whether positive or negative) exceeds the aggregate personal and commercial auto insurance market’s compounded annualized growth rate (excluding Progressive) over that period, in each case determined using A.M. Best data, and (ii) if our combined ratio is 96 or lower for the 12-month period preceding the Committee’s required certification of those performance results. More specifically, the ultimate payout (if any) at the end of the three-year period is determined by the performance of the company, as follows: | | | | Performance vs. Market | | Number of Units Vesting | If our growth rate exceeds the market growth rate by three and a half percentage points or more | | 250% of the target number of units will vest; this is the maximum possible award value | If our growth rate exceeds the market growth rate by more than two percentage points but less than three and a half percentage points | | Between 100% and 250% of the target number of units will vest, in proportion to the extent to which our growth rate exceeds the market’s growth rate above two percentage points (e.g., if our growth rate exceeds the market growth rate by 2.4 percentage points, then 140% of the award will vest) | If our growth rate exceeds the market growth rate by up to two percentage points | | Up to 100% of the target number of units will vest, in proportion to the extent to which our growth rate exceeds the market’s growth rate (e.g., if our growth rate exceeds the market growth rate by 1.4 percentage points, then 70% of the award will vest) | If our growth rate is equal to or less than the market growth rate | | The award will not vest and will be forfeited |
If the minimum growth goal is not satisfied the awards will not vestperiod (2023 through 2025) and will be forfeited. In the event that the growth goal is satisfied for the three-year period but theincludes a restriction on vesting based on a profitability goal is not satisfied when the Committee is in a position to certify the growth results, the awards will remain open for vesting until January 31, 2022, in order to allow the opportunity to satisfy the profitability goal; if the profitability goal is not satisfied by January 31, 2022, the awards will expire and be forfeited.
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 annualized total return of our fixed-income portfolio, which is actively managed by our investment professionals, over a three-year period (2017(2023 through 2019)2025), against the returns of a set of comparable investment firms. The number of units that ultimately will vest can vary from 0% to 200% of the target amount, as described in the table below. These awards did not increase the size of the executives’ respective equity awards, but were a portion of the total performance-based awards that otherwise would have been granted to them in 2017.
| | | | Investment Returns vs. Comparable
Investment Firms
| | Number of Units Vesting | If our ranking is at or above the 75th percentile
| | 200% of the target number of units will vest; this is the maximum possible award value | If our ranking is between the 25th and 75th percentile
| | Between 0% and 200% of the target number of units will vest in proportion to our percentile ranking (e.g., if our investment return is ranked at the 56th percentile, then 124% of the award will vest)
| If our ranking is at or below the 25th percentile
| | The award will not vest and will be forfeited |
The performance-based restricted stock unit awards tied to the growth in our "Robinsons" customers measure the number of households with an auto policy that is combined (or "bundled") with a homeowners, condominium owners, or manufactured home owners policy issued by ASI or an unaffiliated insurance company under one of our bundling programs. The number of units that could vest varied from 85% to 150% of the target amount, as described in the table below. This award vested at 88% in February 2018.
| | | | Number of Robinsons | | Number of Units Vesting | More than 1,250,000 | | 150% of the target number of units will vest; this is the maximum possible award value | Between 1,000,000 and 1,250,000 | | Between 100% and 150% of the target number of units will vest proportionately (e.g., if 1,150,000 Robinsons are achieved, then 130% of the award will vest) | Between 750,000 and 1,000,000 | | Between 85% and 100% of the target number of units will vest pro-rata (i.e., if 850,000 Robinsons are achieved then 91% of the award will vest) | Less than 750,000 | | The award will not vest and will be forfeited |
The annual performance-based restricted stock unit awards are subject to provisions that permit the named executive officers receiving those awards to retain a higher percentage of their awards (compared to other award recipients) if they retire after having satisfied qualified retirement provisions. See “Potential Payments Upon Termination or Change in Control” below for further discussion of these plan provisions.
All restricted stock unit awards granted during 20172023 are made subject to potentially accelerated vesting pursuant to the “change in control” provisions in the 2015 Plan. See “Potential“– 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 20172023 are subject to recoupment by Progressive under certain circumstances. See “Compensation Discussion and Analysis – 2023 Decisions and Awards – Clawback Provisions.” Non-Equity Incentive Compensation Non-equity incentive compensation for the NEOs with respect to 2023 was available under the 2023 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 and Talent 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 1.00 for the year. Each executive had to be employed on November 30thof 2023 to receive an incentive payment for the year. Annual incentive payments to all NEOs were paid in February 2024, after the appropriate approvals and certifications were received from the committee. The Gainshare Factor for the core business units for 2023 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 2.00 to various combinations of growth and profitability for the applicable business unit. In 2023, the final Gainshare Factor determined according to these criteria was 1.78. For more information about the target percentages for the NEOs and the calculation of the Gainshare Factor, see “Compensation Discussion and Analysis – 2023 Decisions and Awards –Annual Cash Incentive Payments (Gainshare).” Under the Gainshare Plan, incentive payments made to the NEOs are subject to recoupment by Progressive in the event of a financial restatement of the operating or financial results that caused those performance-based shares to vest, in certain circumstances. An executive who engages in fraud or other misconduct leading to the restatement would be required to repay all such shares or an equivalent dollar amount, at our election, plus interest and the costs of collection, and there would be no time limit on our ability to recover those amounts other than limits imposed by law. In addition, we would have the right to require repayment from an executive who does not engage in fraud or other misconduct, but nonetheless has his or her shares vest due to the use of incorrect financial results, but only to the extent the incorrect results caused a vesting, without interest and only if the restatement occurs within three years after the vesting date. Further, the awards will be subject to recoupment to the extent required by the SEC, NYSE or any policy we adopt to comply with those rules. Further discussion of our compensation strategy and plans can be found inSee “Compensation Discussion and Analysis.Analysis – 2023 Decisions and Awards – Clawback Provisions.”
Outstanding Equity Awards at Fiscal Year-EndOUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table summarizes the unvested restricted equity awards outstanding at December 31, 2023, all of which were granted under our 2010 Equity Incentive Plan (the "2010 Plan") and 2015 Plan. The value of the equity awards iswas calculated using $56.32$159.28 per share, the closing price of Progressive common shares on the last business day of 2017.2023. OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | Stock or Unit Awards1 | | Name | Number of Shares or Units of Stock That Have Not Vested (#)2 | | Market Value of Shares or Units of Stock That Have Not Vested ($) | | 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 | 80,968 | | | $ | 12,896,583 | | | 22,174 | | 3 | $ | 3,531,875 | | | | | | | 482,737 | | 4 | 76,890,349 | | | John P. Sauerland | 22,099 | | | 3,519,929 | | | 5,081 | | 3 | 809,302 | | | | | | | 121,504 | | 4 | 19,353,157 | | | Patrick K. Callahan | — | | | — | | 25,678 | | 3 | 4,089,992 | | | | | | | 114,180 | | 4 | 18,186,590 | | | Karen B. Bailo | 13,911 | | | 2,215,744 | | | 4,604 | | 3 | 733,325 | | | | | | | 49,329 | | 4 | 7,857,123 | | | John Murphy | — | | | — | | 21,769 | | 3 | 3,467,366 | | | | | | | 52,329 | | 4 | 8,334,963 | |
1Amounts include restricted stock unit awards and related dividend equivalents, which are rounded to a whole unit. | | | | | | | | | | Stock or Unit Awards1 | | Name | 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 | 144,257 |
| 2 | $ | 8,124,554 |
| | | 646,697 |
| 3 | 36,421,975 |
| | John P. Sauerland | 72,314 |
| 2 | 4,072,724 |
| | | 318,632 |
| 3 | 17,945,354 |
| | William M. Cody | 31,207 |
| 2 | 1,757,578 |
| | | 108,735 |
| 3 | 6,123,955 |
| | John F. Auer | — |
| | — |
| | | 23,931 |
| 3 | 1,347,794 |
| | John A. Barbagallo | 30,993 |
| 2 | 1,745,526 |
| | | 128,009 |
| 3 | 7,209,467 |
|
| | 1
| Amounts include restricted stock unit awards and related dividend equivalents. |
| | 2
| Represents time-based restricted stock unit awards. Following are the applicable vesting dates for those awards: |
| | | | | | | | | | | | | | | | | Name | 1/1/18 |
| 1/1/19 |
| 7/1/19a |
| 10/1/19a |
| 1/1/20 |
| 1/1/21 |
| 1/1/22 |
| | Susan Patricia Griffith | 21,076 |
| 30,231 |
| — |
| 46,475 |
| 20,380 |
| 17,082 |
| 9,013 |
| | John P. Sauerland | 21,076 |
| 19,510 |
| 15,864 |
| — |
| 8,389 |
| 5,092 |
| 2,383 |
| | William M. Cody | 9,335 |
| 8,471 |
| — |
| — |
| 7,133 |
| 4,279 |
| 1,989 |
| | John F. Auer | — |
| — |
| — |
| — |
| — |
| — |
| — |
| | John A. Barbagallo | 9,222 |
| 8,433 |
| — |
| — |
| 7,112 |
| 4,258 |
| 1,968 |
|
a The date on which2Represents time-based restricted equity awards that have been earned under the executive officer is expected to satisfy the qualified retirement“qualified retirement” provisions of the 20102015 Equity Incentive Plan (see "– Potential Payments Upon Termination or 2015 Plan.
| | 3
| The following table presents, as of December 31, 2017, the number of unvested performance-based restricted stock units, including reinvested dividend units, for each of the NEOs, by year of grant. The number of shares shown reflects either the target amount of shares, or the maximum number of shares that can vest, depending on the company’s expectations, as described in the applicable note below. |
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. | | | | | | | | | Name | 2015 |
| 2016 |
| 2017 |
| | Susan Patricia Griffith | 166,637 |
| 236,709 |
| 243,351 |
| | John P. Sauerland | 164,659 |
| 79,630 |
| 74,343 |
| | William M. Cody | 47,080 |
| 37,784 |
| 23,871 |
| | John F. Auer | — |
| — |
| 23,931 |
| | John A. Barbagallo | 51,359 |
| 41,218 |
| 35,432 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | Name | 1/1/24 | 1/16/24 | 1/1/25 | 1/21/25 | 1/20/26 | 1/19/27 | 1/18/28 | | | Susan Patricia Griffith | 22,174 | | 10,771 | | 15,279 | | 19,494 | | 21,896 | | 11,126 | | 2,402 | | | | John P. Sauerland | 5,081 | | 2,456 | | 3,485 | | 4,523 | | 6,205 | | 3,748 | | 1,682 | | | | Patrick K. Callahan | 5,503 | | 2,267 | | 2,949 | | 4,180 | | 5,742 | | 3,475 | | 1,562 | | | | Karen B. Bailo | 2,522 | | 1,512 | | 2,083 | | 3,195 | | 4,637 | | 3,125 | | 1,441 | | | | John Murphy | 4,456 | | 1,890 | | 2,413 | | 3,573 | | 4,967 | | 3,077 | | 1,393 | | |
4The following table presents, as of December 31, 2023, 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. | | | | | | | | | | | | | | Name | 2021 | 2022 | 2023 | | | Susan Patricia Griffith | 183,098 | | 148,294 | | 151,345 | | | | John P. Sauerland | 49,007 | | 41,218 | | 31,279 | | | | Patrick K. Callahan | 42,517 | | 39,455 | | 32,208 | | | | Karen B. Bailo | 14,174 | | 18,938 | | 16,217 | | | | John Murphy | 17,716 | | 18,938 | | 15,675 | | |
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 (CR=Combined Ratio).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. | | | | | | | | | | | | | | | | | | | | | | Type | Measurement Period | Vesting Range | Combined Ratio | Growth Rate Over Base | Reported Value | Expiration Date | Performance versus Marketa | | | | | | | | 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 | | 2023 | 1/1/23-12/31/25 | 0-250% | 96 | 0-3.5% | Max | 1/31/2028 | Investmentb | | | | | | | 2021c | 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 | Max | 3/15/2025 | | 2023 | 1/1/23-12/31/25 | 0-200% | NA | NA | Target | 3/15/2026 |
| | | | | | | | | Typea | Measurement Period | Vesting Range | CR |
| Growth Rate over Base | Reported Value | Expiration Date | Performance versus Marketb | | | | | | | | 2015 | 1/1/15-12/31/17 | 0-250% | 96 |
| 0-3.5% | Max | 1/31/2020 | | 2016 | 1/1/16-12/31/18 | 0-250% | 96 |
| 0-3.5% | Max | 1/31/2021 | | 2017 | 1/1/17-12/31/19 | 0-250% | 96 |
| 0-3.5% | Max | 1/31/2022 | Investmentc | | | | | | | 2015d | 1/1/15-12/31/17 | 0-200% | NA |
| NA | Max | 3/15/2018 | | 2016 | 1/1/16-12/31/18 | 0-200% | NA |
| NA | Max | 3/15/2019 | | 2017 | 1/1/17-12/31/19 | 0-200% | NA |
| NA | Target | 3/15/2020 | Bundled Auto Policies Growthe | | | | | | | | 2015 | 7/1/15-6/30/18 | 0 or 100-200% | 96 |
| 20-40% | Target | 8/31/2018 | Robinsonsf | | | | | | | | 2017 | 1/1/17-12/31/17 | 0 or 85-150% | NA |
| NA | Target | 3/15/2018 |
NA=Not Applicable
a Note: The vesting provisions for the 20172023 awards are discussed in "Executive Compensation - Narrative Disclosure to Summary Compensation Table“Compensation Discussion and Grants of Plan-BasedAnalysis – 2023 Decisions and Awards Table – Equity Incentive Plan Awards,"” and the vesting provisions for the 20152021 and 20162022 awards of the same type(other than actual vesting dates) have the same structure.structure, except that the 2021 and 2022 Performance versus Market awards measure the growth of three business lines (private passenger auto, commercial auto, and homeowners multiple-peril).
ba At December 31, 2017,2023, the company’s expectation for each award is based on our performance through 2017,2023, industry growth rates for the applicable performance period to the extent available, and our estimates of each for the remainder of the performance period.
cb At December 31, 2017,2023, the company’s expectation for each award is based on our performance through 2017,2023, 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.
d c This award vested at the maximum levela factor of 134% out of a possible 200% in February 2018.March 2024.
e The vesting provision for this special award granted in 2015 measures growth in the percentage of auto policies that are combined (or "bundled") with another personal insurance product.
f This award vested at 88% in February 2018.
OPTION EXERCISES AND STOCK VESTED
Option Exercises and Stock Vested
The following table summarizes the vesting of restricted stock unit awards during 2017.2023. Vesting values reflect considerable stock appreciation from the date of grant. For example, the stock price at original grant (March 2020) of the performance-based restricted stock units that vested on November 27, 2023, was $67.04 versus a stock price of $163.74 at vesting. The units that vested included dividend equivalent units valued at various other prices during the performance period; all of those prices were lower than the stock price at vesting. In addition, a vesting factor of 2.45 was achieved under the performance-based restricted stock unit awards that vested on November 27, 2023. | | | | | | | | | | Stock Awards | | Number of Shares Acquired on Vesting1 | Value Realized
on Vesting | | Name | (#) | ($) | | Susan Patricia Griffith | 299,425 | | $ | 46,828,744 | | | John P. Sauerland | 86,857 | | 13,315,273 | | Patrick K. Callahan | 51,489 | | 8,152,273 | | Karen B. Bailo | 6,520 | | 963,863 | | John Murphy | 28,795 | | 4,488,127 |
| | | | | | | OPTION EXERCISES AND STOCK VESTED DURING 2017
| | | Restricted Stock Awards | | | Number of Shares Acquired on Vesting1 |
| Value Realized on Vesting |
| | Name | (#) |
| ($) |
| | Susan Patricia Griffith | 124,837 |
| $ | 5,471,182 |
| | John P. Sauerland | 124,837 |
| 5,471,182 |
| | William M. Cody | 103,670 |
| 4,220,071 |
| | John F. Auer | — |
| — |
| | John A. Barbagallo | 73,316 |
| 3,175,098 |
|
1The 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. In addition to the annual vesting of time-based awards on January 1, 2017, time-based awards vest pursuant to our qualified retirement provision of our equity plans (May 1, 2017 and June 1, 2017), as discussed below. Our performance-based restricted stock unit awards vested either when the Compensation and Talent Committee certified that the performance criteria were achieved for the awards based on investment performance (February 16, 2017)21, 2023) or when the Compensation and Talent Committee certified that the company'scompany’s growth exceeded industry growth and achieved a pre-determinedalso satisfied the predetermined profit targetrequirement for awards based on market performance (July 14, 2017)(November 27, 2023). | | | | | | | | | | | | | | | | | | | | Vesting Date | 1/3/2023 | 2/21/2023 | 11/27/2023 | | | Value at Vesting | $ | 129.53 | | $ | 142.38 | | $ | 163.74 | | | | Type | TB | PB | PB | | Name | | Performance Factor | NA | 1.84 | | 2.45 | | | Susan Patricia Griffith | | | 46,767 | | 28,051 | | 224,607 | | | John P. Sauerland | | | 24,104 | | 3,840 | | 58,913 | | | Patrick K. Callahan | | | 8,142 | | — | | 43,347 | | | Karen B. Bailo | | | 3,030 | | — | | 3,490 | | | John Murphy | | | 6,629 | | — | | 22,166 | |
NA = Not applicable for time-based awards TB = Time-based PB = Performance-based
| | | | | | | | | | | | | | | | | | | | | | Vesting Date | 1/1/2017 |
| 2/16/2017 |
| 5/1/2017 |
| 6/1/2017 |
| 7/14/2017 |
| | | | Value at Vesting | $ | 35.51 |
| $ | 38.48 |
| $ | 39.74 |
| $ | 42.54 |
| $ | 45.59 |
| | | | Type | TB |
| PB |
| TB |
| TB |
| PB |
| | Name | | Performance Factor | NA |
| 2.00 |
| NA |
| NA |
| 2.29 |
| | Susan Patricia Griffith | | | 21,839 |
| — |
| — |
| — |
| 102,998 |
| | John P. Sauerland | | | 21,839 |
| — |
| — |
| — |
| 102,998 |
| | William M. Cody | | | 19,656 |
| 29,948 |
| — |
| 31,207 |
| 22,859 |
| | John F. Auer | | | — |
| — |
| — |
| — |
| — |
| | John A. Barbagallo | | | 13,178 |
| — |
| 5,905 |
| — |
| 54,233 |
|
NA= Not Applicable
TB= Time-based
PB= Performance-based
Nonqualified Deferred CompensationNONQUALIFIED DEFERRED COMPENSATION
The following table summarizes amounts contributed to, earned within, and distributed from The Progressive Corporation Executive Deferred Compensation Plan (EDCP)the EDCP during 2017,2023, as well as each NEO'sNEO’s aggregate ending balance in the EDCP at December 31, 2017.2023. Participation in the EDCP is voluntary; deferral elections are made annually for both non-equity incentive compensation and annual restricted equity awards. NONQUALIFIED DEFERRED COMPENSATION DURING 2017 | | | | | | | | | | | | | | | | | | | 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 | $ | — | | $ | — | | $ | 211,662 | | $ | — | | $ | 1,291,136 | | | John P. Sauerland | — | | — | | 52,385 | | 167,867 | | 179,236 | | | Patrick K. Callahan | — | | — | | 2,768,623 | | — | | 15,656,966 | | | Karen B. Bailo | 473,000 | | — | | 246,418 | | — | | 2,550,424 | | | John Murphy | — | | — | | 72,029 | | — | | 481,697 | |
| | | | | | | | | | | | | | | | | | Executive Contributions in Last Fiscal Year1 |
| Registrant Contributions in Last Fiscal Year2 |
| Aggregate Earnings (Losses) in Last Fiscal Year |
| Aggregate Withdrawals/ Distributions3 |
| Aggregate Balance at Last Fiscal Year End4 |
| | Name | ($) |
| ($) |
| ($) |
| ($) |
| ($) |
| | Susan Patricia Griffith | — |
| — |
| $ | 145,114 |
| — |
| $ | 820,374 |
| | John P. Sauerland | — |
| — |
| 128,349 |
| $ | 100,980 |
| 766,190 |
| | William M. Cody | — |
| — |
| 2,113,095 |
| 190,358 |
| 8,560,932 |
| John F. Auer5 | — |
| — |
| — |
| — |
| — |
| | John A. Barbagallo | $ | 696,294 |
| — |
| 227,825 |
| — |
| 2,221,828 |
|
| | 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, Ms. Bailo, and Mr. Murphy, the amounts recorded in our "– Summary Compensation Table" for previous years were $2,777,037, $473,000, 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 "– Summary Compensation Table." | Amounts contributed in the last fiscal year are not included in the 2017 information in the Summary Compensation Table above since these contributions resulted from non-equity incentive compensation earned with respect to 2016 and paid in 2017. |
| | 2
| Progressive makes no supplemental contributions to the EDCP in the year of deferral or in subsequent years. |
| | 3
| Represents scheduled distributions based on the applicable executive’s elections made in prior years. |
| | 4
| 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. Cody and Mr. Barbagallo, the amounts reported in our Summary Compensation Table for 2006 through 2016 were $670,520 and $1,204,393, respectively, a portion of which may have been distributed to the participant. No other NEO had deferred amounts reported in the Summary Compensation Tables during this period. |
| | 5
| Not eligible to participate in the EDCP during 2017 and does not participate in any deferred compensation plan offered by ARX. |
The named executive officersNEOs employed prior to the beginning of a calendar year can defer all or part of the annual cash incentive payments earned under the ExecutiveGainshare Plan, as well as all of their annual restricted equity awards (but not dividend equivalent units) that were granted under the 2015 Plan.. Amounts equal to the deferred incentive payments or restricted equity awards are credited under the planEDCP 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 1817 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 awardedawards granted in or after March 2005 or thereafter 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, 2017,2023, returns for the EDCP'sEDCP’s deemed investment choices ranged from 0.81%5.09% to 61.6%46.78%. 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 his or her 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 deferrals are distributed in common shares.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Potential Payments Upon Termination or Change In Control
The following table highlights the benefits that generally may be received by our named executive officers,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. | | | | | | | | | | | | | | | | | | | | | | | | | Is thePotential Payments The Executive is Eligible to Receive1:
| | | Under Equity PlansPlan | | | If This Triggering Event Occurs: | Severance Benefits?
Benefits | Change in Control Benefits2? | Qualified
Retirement
Benefits?
Benefits | Other
Termination
Provisions?
Provisions | Payments under EDCP3? | | Involuntary termination (without cause) | ü | | — | — | —ü | | Voluntary separation (including nonqualified retirement) | | — | | ü | — | — | ü | ü | Retirement – qualified (as defined in the plan)4 | | — | ü | | —ü | — | ü | | Termination for cause | | — | — | — | —ü | | Change in control, no loss of employment | | — | | | ü | — | — | ü | | Change in control and involuntary termination (without cause) or resignation due to a significant job change | ü | ü | | — | —ü | | Death | | — | ü | —ü | ü | ü | ü |
| | 1
| This table is intended as a general summary only. 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. |
| | 2
| Depending on the type of the award and nature of the change-in-control event, these awards either vest immediately upon occurrence of the change-in-control event or will vest only if, within 24 months after the change-in-control event takes place, the award recipient is terminated or leaves the company’s employ for “good reason." The 2015 Plan has a double trigger provision. See “Change-in-Control Provisions Under Equity Plans” below for additional information. |
| | 3
| An executive will be entitled to receive payments under the EDCP only if he or she elected to participate in the plan and deferred eligible compensation during the course of his or her employment. See the “Nonqualified Deferred Compensation” discussion above for additional information. |
| | 4
| Under our outstanding equity awards, as discussed below, a “qualified retirement” excludes any termination of employment for cause (as defined in the plans). However, the same event can be treated as a “qualified retirement” under our equity plans and an involuntary termination without cause under our severance plan. |
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 equity plans2015 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 the “Nonqualified“– Nonqualified Deferred Compensation” section above. Potential post-termination payments to Mr. Auer under his employment agreement are discussed under "Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table – Employment Agreements" above.Compensation.” We do not provide other benefits that are triggered by a named executive officer'san 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 definedwell-defined financial payments if we ask the executive to leave under certain circumstances. The plan covers our named executive officers,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: his or her•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 he or shethe executive resigns within a specific period of time
following any change in his or herthe 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. For theBased on tenure, each of our NEOs thewould receive severance payment wouldpayments 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 named executive officerNEO 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 he or shethe executive did prior to termination. The NEO would also be eligible to receive outplacement services for at least two years following separation.separation with an estimated value of $13,000. In addition, the plan provides that participants/eligible executivesNEOs 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 participant’sNEO’s employment is terminated for reasons other than resignation (including retirement),
death, disability, leave of absence, or discharge for cause as(as defined in the plan;plan); or
•the participantNEO resigns due to a job change for "good“good reason."” This plan defines "change“change in control"control” and "good reason"“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. Mr. Auer's employment agreement provides severance benefits if he is terminated without cause or leaves ARX for good reason, as defined in that agreement. If Mr. Auer is entitled to benefits, he will continue to receive his salary and bonus (average of the last two years) for two years after termination. During that time, Mr. Auer is subject to a non-compete clause. See "Executive Compensation – Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table," for further information regarding Mr. Auer's employment agreement. Any amounts Mr. Auer receives under his employee agreement will reduce any amounts for which he may be eligible under the severance 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 he or shethe NEO would have been eligible, if the executive had separated from Progressive at December 31, 2017,2023, under circumstances requiring payments under the executive separation allowance plan or, in the case of Mr. Auer, his employment agreement:plan: | | | | | | | | | | | | | Name | Amount of
Severance
Payment
($) | | Estimated Value of Health Benefits
($) | | Susan Patricia Griffith | $3,000,000 | | $26,779 | | John P. Sauerland | 2,100,000 | | 26,779 | | Patrick K. Callahan | 1,950,000 | | 26,779 | | Karen B. Bailo | 1,800,000 | | 23,044 | | John Murphy | 1,740,000 | | 26,779 |
| | | | | | | | | Name | Amount of Severance Payment ($) |
| | Estimated Value of Health Benefits ($) |
| | Susan Patricia Griffith | $2,175,000 | | $19,259 | | John P. Sauerland | 1,725,000 |
| | 25,734 |
| | William M. Cody | 1,440,000 |
| | 19,259 |
| | John F. Auer | 3,900,000 |
| 1 |
| 15,875 |
| | John A. Barbagallo | 1,425,000 |
| | 19,041 |
|
1 Amount would be payable over a two-year period.
Change-in-Control Provisions Under Equity Plans.Plan Benefits also may be provided under our equity plans2015 Plan to holders of equity awards, including our NEOs, if a change in control occurs.The change-in-control provisions vary among our outstanding equity awards depending on the equity plan under which they were awarded and the type of award. All equity awards granted in 2017 and 2016 as well as the special awards granted in August 2015currently outstanding were granted under the 2015 Plan. The 2015 Plan is expected to be used for any future awards. All other outstanding equity awards were granted under the 2010 Plan. The provisions of each of the plans are discussed briefly below. 2015 Plan. The 2015 Plan has a "double-trigger"“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“change in control"control” in the 2015 Plan is intended to satisfy Section 409A of the Internal Revenue Code and defines the termis 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'scompany’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'scompany’s directors prior to the transaction constitute at least a majority of the board of directors of the surviving entity. "Good reason"“Good reason” involves an adverse employment decision affecting the officer,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. 2010 Plan. Under the provisions of the 2010 Plan, a “change in control” is only deemed to occur upon a change in ownership of the company, a change in the effective control of the company, or a change in the ownership of a substantial portion of our assets, each as further defined in Section 409A of the Internal Revenue Code and related regulations. Upon the occurrence of any change in control, outstanding restricted stock units may vest immediately or they may vest only after the individual is terminated or leaves our employ for “good reason,” depending on the type of award and the nature of the change-in-control transaction. “Good reason” is defined by the plan to include various employment decisions, such as a significant change in duties, position, or responsibilities, or a decrease in pay, bonus opportunity, or equity awards.
Even though a change in control has occurred, outstanding restricted stock unit awards will not vest as a result of the change of control, and will continue to vest according to the terms of the applicable award agreement (unless the individual is terminated or leaves our employ for good reason as described above), if the change in control is solely a result of (i) an investor purchasing the necessary portion of our common shares, (ii) a result of a turnover of our Board of Directors, (iii) if our common shares are the surviving security in a corporate transaction, and (iv) for time-based awards, if in a corporate transaction our common shares are not the surviving security (in which case outstanding awards will be converted into awards covering securities of the surviving entity). On the other hand, immediate vesting upon a change in control and a cash payout will occur in the event of a cash-out merger or similar transaction and, for performance-based awards, in the event of a corporate transaction in which our common shares are not the surviving security (in which case the awards will be valued at target).
Potential Benefits.The following table quantifies the amount of each NEO’s change-in-control benefits under our equity incentive plans,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, 2017:2023: | | | | | | | | | | | Name | Payments on Unvested Restricted Stock Unit Awards/Total1 ($) | |
| Susan Patricia Griffith | $25,711,80548,494,389 | | | John P. Sauerland | 13,717,17512,482,136 | |
William M. CodyPatrick K. Callahan | 4,770,33411,364,628 | |
John F. AuerKaren B. Bailo | 1,347,7946,091,982 | |
John A. BarbagalloMurphy | 4,629,3256,801,415 | |
1Includes 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 underUnder Equity PlansPlan 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). The specialThese benefits, as well as those related to death and disability, have changed over the past few years based upon the Compensation and Talent Committee’s review of applicable market data. Beginning with awards granted to Mrs. Griffith and Mr. Sauerland in August 2015 and2021, if an NEO remains employed through the award granted to Mr. Auer in 2017 do not provide a qualified retirement benefit; termination of employment for any reason other than death would result in a forfeitureend of the award. Under all other outstanding equity awards, named executive officers, along with other equity award recipients, are eligible forcalendar year in which the “qualified retirement” benefit upongrant is made, when the NEO retires after satisfying the following eligibility criteria.Rule of 70 requirements:
•100% of the outstanding time-based award will vest; and
53•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:
For all currently outstanding awards other than the exceptions noted above:
For time-based awards, •50% of each outstanding time-based award will vest.
With respect to unvested time-based awards granted in 2019: •50% of each award vestsvested (or will vest) when the individual first satisfies the eligibility requirements for a qualified retirement and, thereafter, promptly after the grantRule of each new award to 70 requirements; •the participant. The remaining half of each award wouldwill then vest only when the time-based vesting provisions set forth in the applicable award agreement are satisfied,satisfied; and not •no portion of the award vests upon the participant’s retirement. For performance-based awards, 50% of each unvested award will be retained by the qualifying retiree (except as noted below for certain executive officers) when he or she leaves the company for any reason other than termination for cause, subject to the disqualifying activity provisions discussed below. These awards will remain subject to the award agreements and will vest, if at all, only upon the satisfaction of the applicable performance criteria prior to the expiration date. Under these awards, a participant must have received an acceptable evaluation in his or her most recent performance evaluation. In addition to these qualified retirement provisions, see “Other Termination Provisions Under Equity Plans” below.
Generally, an executive who has satisfied the requirements for a qualified retirement participates on the same terms and conditions as are available to other equity award participants, except that if the CEO or one of the executives who directly reports to the CEO, a group that includes Messrs. Sauerland, Cody, and Barbagallo, provides from 12 to 14 months of advanced written notice of his or her intention to retire, the individual will retain 100% of his or her unvested performance-based restricted stock unit awards (not 50% as stated above) when they retire. Beginning with performance-based equity awards granted in 2018, an NEO who has satisfied the requirements for a qualified retirement will retain 100% of his or her performance-based award if he or she become disabled or provides 12 to 18 months of advanced written notice of an intention to retire. In any event, such performance-based equity awards will vest only if, when and to the extent that the applicable performance goals are achieved prior to expiration.
The rights conferred by these provisions, among other rights, may be forfeited if the Compensation and Talent Committee determines that prior to vesting the executive has engaged in any “disqualifying activity,activity.” which is defined to include, among other activities, the following:See “Compensation Discussion and Analysis – 2023 Decisions and Awards – Clawback Provisions.” directly or indirectly being an owner, officer, employee, advisor, or consultant to one of our competitors;
disclosure to third parties or misuse of any confidential information or trade secrets;
any material violation of Progressive’s Code of Business Conduct and Ethics or any agreement between Progressive and the individual; or
failing in any material respect to perform the individual’s assigned responsibilities.
The ownership of less than 2% of the outstanding voting securities of a publicly traded corporation which competes with Progressive will not constitute a disqualifying activity.
As of December 31, 2017,2023, Mrs. Griffith, Mr. CodySauerland, and Ms. Bailo satisfied the Rule of 70 requirements under our 2015 Plan. Mr. Murphy and Mr. Barbagallo were eligible forCallahan will not be able to satisfy the qualified retirement benefits under our equity plans.eligibility until 2024 and 2025, respectively. The table below shows the value of each of their qualifiedthe eligible executive’s retirement benefits if they had retired on December 31, 2017 and provided the required notice of their intended retirement as described above, with2023. The amounts are valued using our closing stock price on December 31, 2017.2023, and include reinvested dividend equivalent units payable when the underlying award vests. For the performance-based equity awards, the amounts disclosed assume that all | | | | | | | | | Value of Qualified Retirement Benefits1 (As of 12/31/2017) | | | Time-Based Equity Awards | Performance-Based Equity Awards2 | | Name | Minimum | Maximum3 |
| | William M. Cody | NA | $0 | $ | 6,628,084 |
| | John A. Barbagallo | NA | 0 | 7,209,484 |
|
NA = Not Applicable
| | 1
| Includes reinvested dividend equivalent units, which will vest and be paid out at the time of vesting in the same proportion that the underlying awards vest. |
| | 2
| Valueoutstanding 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 “Executive Compensation – Outstanding Equity Awards at Fiscal Year End” table for more information. |
| | 3
| Assumes all outstanding awards vest in full.
|
Mrs. Griffith and Mr. Sauerland are expectedthe 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 12/31/2023) | | Time-Based Equity Awards | | Performance-Based Equity Awards at Maximum | | Name | | | Susan Patricia Griffith | $11,748,573 | | $52,784,066 | | John P. Sauerland | 2,716,268 | | 14,371,024 | | Karen B. Bailo | 1,526,836 | | 5,274,114 |
1Awards granted in 2023 do not become retirement-eligible during 2019. Mr. Auer will retirea qualified retirement benefit until January 1 in 2018 and will not bethe year following the calendar year in which the grant is made due to the service requirements discussed above. Had the 2023 awards been eligible for thesevesting as a qualified retirement benefits.benefit on December 31, 2023, Mrs. Griffith’s time-based and performance-based equity awards would have increased by $1,147,973 and $25,254,199, respectively, Mr. Sauerland’s by $803,629 and $5,343,875, respectively, and Ms. Bailo’s by $688,847 and $2,582,978, respectively. Other Termination Provisions Under Equity Plans.Plan Under our equity plans,2015 Plan, termination of an executive for cause (as defined in the applicable plan) will generally result in the forfeiture of all unvested awards. If an equity award recipient, including the NEOs,an NEO, ceases to be an employee prior to meetingsatisfying the age and serviceRule of 70 requirements, for a qualified retirement, the employee generally would forfeit any unvested awards, both time-based and performance-based. A limited exception permits a holder of performance-based restricted stock units (including the NEOs) whose employment is terminated (other than by the company for cause) after the end of an applicable performance period but before the award vests to retain the award but only until the first opportunity for the award to vest; at that time, the award will vest only if and to the extent that all performance measures have been satisfied. If, however, the award does not vest at that time (either because the minimum growth measures are not achieved or the profitability requirement is not satisfied), the award is forfeited. Death mayBeginning with awards granted in 2021, if an NEO is employed through the end of the calendar year in which the grant is made, upon the death of an NEO: •the outstanding time-based awards will vest 100%; •with respect to performance-based awards, if the NEO dies: (i) before the end of the performance period, then the award will vest at 100% of target;
or (ii) 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; and •otherwise, the restricted stock unit awards will be forfeited. For awards granted in 2020 and earlier, upon the death of an NEO prior to the NEO satisfying the Rule of 70 requirements: •any outstanding time-based award will vest to the extent that it would have vested if the NEO had remained employed for the 12 months following death. With respect to awards granted in 2019, once an executive has reached the qualified retirement eligibility date, all eligible time-based awards that have not vested prior to the executive’s death will be forfeited. Unless noted above, these provisions apply equally to all participants. If an NEO had chosen to participate in our deferral plan, following the NEO’s death, the NEO’s estate or beneficiaries would also be entitled to receive distributions from the EDCP. Disability Provisions Under Equity PlanBeginning with awards granted in 2021, if an NEO is employed through the end of the calendar year in which the grant was made and if the NEO’s employment is terminated as a result of their disability: •the outstanding time-based awards will vest 100%; •with respect to performance-based awards, in vesting orthe event the NEO’s employment is terminated •before the end of the performance period, then the performance-based award will vest at 100% of target; •after the end of the performance period, then the performance-based award will remain outstanding and will vest if, when and to the extent that the performance measures are achieved; and •generally all other restricted stock unit awards will be forfeited. For awards granted in 2020 and earlier, no benefit was provided if an NEO’s employment was terminated as a result of their disability, unless the NEO had satisfied the Rule of 70 requirements, in which case the termination was treated as a retirement. Non-Compete Provisions Beginning with awards granted in 2021, annual restricted stock unit awards also include a non-compete provision that will restrict the NEOs from the grant date through one year following termination of an equity award held by an executive. See "Compensation Discussion and Analysis – Other Elementsemployment from engaging in any competitive business activity that would risk disclosure and/or use of Compensation – Death."our confidential information. Pay Ratio DisclosurePAY RATIO DISCLOSURE
Our employee compensation program is designed to support, reinforce, and align our core valuesCore Values with our business strategy of growth and profitability, while ensuring we can attract, motivate, and retain talented employees, at every level, who drive our success. Our compensation program, which is the result of our review of market data for our job families, consists of:
•Basebase pay that is competitive with the range of pay for jobs with similar duties and responsibilities at other companies, and •Anan annual cash incentive payment, which we refer to as Gainsharing,Gainshare, that is available to nearly all permanent employees. Our GainsharingAs noted above, our Gainshare program promotes a common culture and rewards employees when annual business goals and objectives are achieved. The payout can range from 0.0zero to 2.0 times2.00x the target, which is a stated percentage of base pay. The GainsharingUnder the Gainshare Plan, the target percentage is typically: ◦•0 - 8% for administrative support and entry level professionals;
◦8%•8 - 20% for senior professionals and managers; and
◦20% -150%•20 - 150% for senior managers and senior executives, other than the CEO.
The SEC rules for identifying the median employee and calculating that employee’s annual total compensation allows companies to make reasonable assumptions and estimates, to apply a variety of methodologies and exclusions that reflect their compensation practices.
To identify our median employee, as of December 31, 2017,2023, we used the Medicare taxable wages as reported on the 20172023 Form W-2 for all employees (other than the CEO) that were continuously employed for the entire calendar year. Base pay and Gainsharing payments were annualized forFor permanent employees hired during 20172023, base pay and Gainshare payments were annualized to provide
comparability. After we identified the median employee, we determined their total compensation in a manner consistent with the determination of the “Total Compensation”total shown for our CEO in the “Summary"– Summary Compensation Table.”" We believe the pay ratio provides a reasonable estimate of the required information calculated in a manner consistent with the applicable SEC rules. Total compensation in the "– Summary Compensation TableTable" includes a “non-equity incentive plan compensation” component, which for us generally represents payments under our GainsharingGainshare program for our median employee, who on the last day of the year had a Gainshare target of 8%, and payments under the Executive Plan (through which Gainsharing is implemented for our executive officers) for our CEO, whose target was 150%.
Gainshare payments for eligible employees are calculated in the same manner as the executive annual incentive payments described in “Narrative“– Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table – Non-Equity Incentive Compensation.” For 2017: •Our2023, our median employee’s total annual compensation was $68,304, consisting of base pay of $56,769, Gainsharing earned of $8,129,$71,672 and 401(k) company match of $3,406;
•Our CEO, Mrs. Griffith’s,our CEO’s total annual compensation was $9,274,439, consisting of base$15,636,618, which results in a pay of $721,154, Gainsharing earned under the Executive Plan of $1,936,298, equity compensation valued at $6,525,051, and perquisites and other benefits of $91,936; and
•The ratio of our CEO compensation to median employee compensation was 136:1of 218:1.
Given the different methodologies to be used by various public companies, the ratio reported above should not be used as a basis of comparison between or among companies.companies, including companies in our peer group.
PAY VERSUS PERFORMANCE The table below sets forth information regarding compensation for our CEO and non-CEO NEOs, along with the financial performance of Progressive for the last four completed fiscal years. The table also provides a comparison of the compensation reported in the "Executive Compensation – Summary Compensation Table" (Summary Compensation Table) and the compensation actually paid to our NEOs. The disclosure of compensation actually paid is determined in accordance with SEC rules and requires certain adjustments to the amounts reported in the Summary Compensation Table total for each NEO. It does not reflect the amount of compensation actually realized or received by our NEOs during the applicable year. The compensation actually paid amounts include the value of our time-based and performance-based restricted stock unit awards, which is determined, in part, based on the value of Progressive common shares as of the earlier of December 31 or the vesting date, of each covered fiscal year. It also reflects the value of any reinvested dividend equivalent units applicable to these awards and changes in the projected vesting factor for performance-based awards, as described below. The values of these awards reflect considerable stock price appreciation from the date that the awards were originally granted, which is the value reported in the Summary Compensation Table. The ultimate value of unvested restricted stock unit awards remains dependent on our achievement of any applicable performance goals, the satisfaction of applicable vesting periods, and the value of our common shares at the time of vesting of such awards. Further, final values of vested stock holdings are not realized by the NEOs until disposition of their holdings. Additionally, as a property-casualty insurance company, we have earnings from both underwriting activity and investment operations. As discussed elsewhere, during 2023, we recognized an underwriting profit margin of 5.1% (exceeding our companywide profitability target of 4%), or $3.0 billion of pretax underwriting profit, and wrote $10.5 billion more in net premiums than in 2022, to end 2023 at $61.6 billion in net premiums written. Our investment portfolio consists principally of fixed-maturity securities, which represented 91.5% of the fair value of the portfolio at December 31, 2023. Investment income, which consists primarily of interest and dividends, was $1.9 billion in 2023. The changes in the market value of our fixed-maturity securities are not reflected in net income, but rather are a component of comprehensive income. On the other hand, unlike our fixed-maturity securities, changes in the value of our equity securities are reflected in net income. In 2023, 2021, and 2020, net income included total net realized gains on securities of $0.4 billion, $1.5 billion, and $1.6 billion, respectively, compared to total net realized losses of $1.9 billion in 2022. Pay Versus Performance Table | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year | Summary Compensation Table Total for CEO | Compensation Actually Paid to CEO1 | Average Summary Compensation Table Total for Non-CEO Named Executive Officers | Average Compensation Actually Paid to Non-CEO Named Executive Officers2 | Value of initial fixed $100 investment based on3: | Net Income (in billions) | Combined Ratio5 | | Total Shareholder Return | Peer Group Total Shareholder Return4 | | 2023 | $ | 15,636,618 | | $ | 49,003,116 | | $ | 4,062,285 | | $ | 9,728,818 | | $ | 244.66 | | $ | 164.49 | | $ | 3.9 | | 94.9 | | | 2022 | 12,748,826 | | 48,474,661 | | 3,171,093 | | 9,195,384 | | 198.67 | | 148.53 | | 0.7 | | 95.8 | | | 2021 | 14,462,961 | | 26,403,691 | | 3,668,598 | | 5,359,600 | | 156.68 | | 124.95 | | 3.4 | | 95.3 | | | 2020 | 15,220,523 | | 52,840,789 | | 3,582,178 | | 10,086,445 | | 141.38 | | 106.33 | | 5.7 | | 87.7 | |
1 Represents amounts for Mrs. Griffith (our CEO since July 2016) as computed in accordance with Item 402(v) of Regulation S-K and includes certain adjustments to the amounts in the "Summary Compensation Table Total for CEO" column for each covered fiscal year. To determine compensation actually paid, the following adjustments were made to reflect the increase or change in fair value of Stock Awards (defined
below) under the circumstances set forth below:a | | | | | | | | | | | | | | | | 2023 | 2022 | 2021 | 2020 | | Closing stock price as of last trading day of year | $159.28 | $129.71 | $102.65 | $98.88 | Deduction of the grant date fair value of awards reported in the "Stock Awards" column of the Summary Compensation Table (Stock Awards) for the covered fiscal year | $ | (10,000,106) | | $ | (9,500,203) | | $ | (9,500,212) | | $ | (9,500,037) | | Addition of the year-end fair value of all Stock Awards granted during the covered fiscal year that are outstanding and unvested | 20,662,548 | | 16,357,106 | | 12,631,713 | | 25,872,505 | | Change in the year-end fair value (from prior year-end) of all Stock Awards granted in any prior fiscal year that are outstanding and unvested | 15,038,380 | | 23,872,689 | | 8,498,852 | | 16,252,534 | | Change in the fair value (from prior year-end to vesting date) of all Stock Awards granted in any prior fiscal year that vested | 7,665,676 | | 4,996,243 | | 310,377 | | 4,995,264 | | | Total Adjustments | $ | 33,366,498 | | $ | 35,725,835 | | $ | 11,940,730 | | $ | 37,620,266 | |
a The Stock Awards were granted under the 2015 Plan and include time-based and performance-based restricted stock unit awards. For each covered fiscal year, the additions and changes in fair value in the table above also reflect the value of any reinvested dividend equivalent units applicable to these Stock Awards in connection with dividends paid on the company’s common stock, and changes in the projected vesting factor for performance-based restricted stock unit awards. See “Executive Compensation – Summary Compensation Table,” “Executive Compensation – Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table,” “Executive Compensation – Outstanding Equity Awards at Fiscal Year-End,” and “Executive Compensation – Option Exercises and Stock Vested” for further discussion. 2 The non-CEO named executive officers include for (i) 2023 and 2022, Mr. Sauerland, Mr. Callahan, Ms. Bailo, and Mr. Murphy; (ii) 2021, Mr. Sauerland, Mr. Callahan, Remi Kent (Ms. Kent became our Chief Marketing Officer on November 1, 2021), and Michael D. Sieger (Mr. Sieger retired in January 2022); and (iii) 2020, Mr. Sauerland, Mr. Callahan, John A. Barbagallo (Mr. Barbagallo was the Commercial Lines President until mid-January 2021), and Mr. Sieger. As described in Note 1, to determine compensation actually paid, the following adjustments (expressed as averages) were made to reflect the increase or change in fair value of Stock Awards under the circumstances set forth below:a | | | | | | | | | | | | | | | | 2023 | 2022 | 2021 | 2020 | Deduction of the grant date fair value of Stock Awards for the covered fiscal year | $ | (2,003,269) | | $ | (1,906,333) | | $ | (2,134,497) | | $ | (1,609,480) | | Addition of the year-end fair value of all Stock Awards granted during the covered fiscal year that are outstanding and unvested | 3,782,595 | | 3,359,339 | | 2,755,577 | | 4,507,590 | | Change in the year-end fair value (from prior year-end) of all Stock Awards granted in any prior fiscal year that are outstanding and unvested | 2,854,453 | | 3,915,370 | | 1,061,423 | | 2,787,532 | | Change in the fair value (from prior year-end to vesting date) of all Stock Awards granted in any prior fiscal year that vested | 1,032,754 | | 655,915 | | 8,499 | | 818,625 | | | Total Adjustments | $ | 5,666,533 | | $ | 6,024,291 | | $ | 1,691,002 | | $ | 6,504,267 | |
a For additional information, see note a to Note 1. 3 Total shareholder return is cumulative for the measurement periods beginning on December 31, 2019, and ending on the last fiscal day in 2023, 2022, 2021, and 2020, respectively, assuming $100 was invested at the close of trading on December 31, 2019. 4 Our peer group is the Standard & Poor's 500 Property & Casualty Insurance Index (S&P 500 P/C Group). 5Combined ratio is the complement of our underwriting margin. The underwriting margin is the pretax underwriting profit (loss) expressed as a percentage of net premiums earned (i.e., revenues from underwriting operations). The pretax underwriting profit (loss) is calculated as net premiums earned plus fees and other revenues less losses and loss adjustment expenses, policy acquisition costs, other underwriting expenses, and for 2020, policyholder credits. NARRATIVE DISCLOSURE TO PAY VERSUS PERFORMANCE TABLE
The following narrative disclosure and graphs describe the relationships between (i) the compensation actually paid to our NEOs and the performance measures set forth in the Pay Versus Performance Table and (ii) our cumulative total shareholder return (TSR) and the cumulative TSR of our chosen peer group, as disclosed in our performance graph below. For additional information on the awards described below, see “Executive Compensation – Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table” and “Compensation Discussion and Analysis – 2023 Decisions and Awards.”
Relationship Between Compensation Actually Paid and Performance Measures Compensation Actually PaidAs shown in the Pay Versus Performance Table, compensation actually paid decreased in 2020 to 2021 (although still meaningfully higher than the Summary Compensation Table totals), before returning again to higher levels in 2022 and 2023. The variation in these amounts during the covered periods reflected changes to the fair value of our time-based and performance-based restricted stock unit awards, the additional value of any new reinvested dividend equivalent units applicable to these awards, and changes in the projected vesting factor for performance-based awards.
Combined Ratio We have selected our combined ratio as the “company-selected measure” for the Pay Versus Performance Table because it supports a strong pay-for-performance linkage and further aligns our executives’ interests with those of our shareholders. A fundamental tenet of our executive compensation program continues to be to support our long-standing companywide goal of growing as fast as we can at a 96 or better combined ratio while continuing to deliver high-quality customer service. We strongly believe that achieving our target profit margin takes precedence over growing premiums in years where we are challenged to achieve both, as was the case in both 2022 and 2023.  Our Gainshare program is designed to support our long-standing companywide goal. Gainshare payments each year, if any, are based in part on the profitability of our insurance businesses, on a weighted-average basis, through our combined ratio performance measure. Accordingly, in years where our combined ratio is higher, the payouts under the Gainshare program are adversely impacted. During all of the covered fiscal years, we satisfied our goal of achieving a 96 or better combined ratio on a companywide basis, although not all of our insurance businesses achieved this target. The combined ratio was better in 2023, compared to the prior year, and the Gainshare payout for each NEO was correspondingly higher. Because Gainshare is a cash incentive program, the value applicable to Gainshare payouts is the same in both the Summary Compensation Table total and the compensation actually paid columns in the Pay Versus Performance Table. Additionally, our annual performance-based restricted stock unit awards (performance versus market insurance results) include a profitability requirement of a combined ratio of 96 or better over the most recent 12-month period when the vesting is determined. The profitability requirement was met for the awards that vested in each of the years shown. The vesting of these awards was included in the applicable compensation actually paid column in the Pay Versus Performance Table and reflected changes in the fair value of these awards as described above. Cumulative TSR As shown in the Pay Versus Performance Table, our TSR increased over the covered periods from $141.38 to $244.66. During all of the covered fiscal years, our cumulative TSR outpaced the TSR of our chosen peer group, the S&P 500 P/C Group. As noted above, the compensation actually paid amounts to our NEOs during the covered periods reflected changes in the fair value of our time-based and performance-based restricted stock unit awards. These amounts were significantly higher than the values reflected in the Summary Compensation Table totals for each NEO during each covered year. We do not include TSR as a performance measure in our executive compensation program. Rather, we focus on our stated operating and investment goals and allow TSR to reflect our achievement of those goals. However, we do provide a high percentage of total compensation to our NEOs in the form of equity awards. Accordingly, as our stock price increases (and TSR likewise increases), we expect that the compensation actually paid amounts to our NEOs will generally increase proportionately.
Net Income As a property-casualty insurance company, we have earnings from both underwriting activity and investment operations. We believe that our shareholder value will be increased in the long run if we continue to focus on profitable growth of our insurance operations and the relative performance of our fixed-maturity portfolio. Net income, which includes the impact of market fluctuations on our equity investments, increased in 2023, reflecting profitable underwriting and investment results. Due to our long-term focus on our insurance operations, we make business decisions and set annual targets that are designed to enhance the longer-term performance of those operations. Accordingly, the trends in the compensation actually paid amounts to our NEOs may not correlate with net income as we do not use net income as a performance measure in our executive compensation program.
Relationship Between Our Cumulative TSR and our Peer Group's Cumulative TSR The following graph depicts the relationship between our cumulative TSR and the cumulative TSR of our chosen peer group for the last four years, assuming $100 was invested at the close of trading on December 31, 2019.
TABULAR LIST OF PERFORMANCE MEASURES The following table lists the most important performance measures used in our executive compensation program to link the compensation actually paid to our current NEOs during 2023 to the company’s performance. For our NEOs, other than our CEO and CFO, we used fewer than three financial performance measures to link compensation actually paid for the most recently completed fiscal year to the company’s performance. For additional information on how these performance measures are calculated and used in our executive compensation program, see “Compensation Discussion and Analysis – 2023 Decisions and Awards.” | | | | | | | | | | | | | | | | Name | Combined Ratio | Premium Growth | 3-Year Return Fixed- Income Portfolio | Policies In Force
(PIF) Growth | | Susan Patricia Griffith | ✔ | ✔ | ✔ | ✔ | | John P. Sauerland | ✔ | ✔ | ✔ | ✔ | | Patrick K. Callahan | ✔ | ✔ | | ✔ | | Karen B. Bailo | ✔ | ✔ | | ✔ | | John Murphy | ✔ | ✔ | | ✔ |
The following supplemental table shows the executive compensation program that uses these performance measures: | | | | | | | | | | | | | | | | Program | Combined Ratio | Premium Growth | 3-Year Return Fixed- Income Portfolio | PIF Growth | | Gainshare Program | ✔ | | | ✔ | | Performance-Based Restricted Stock Unit Awards (Growth in Market Share) | ✔ | ✔ | | | | Performance-Based Restricted Stock Unit Awards (Investment Results) | | | ✔ | |
DIRECTOR COMPENSATION
COMPENSATION OF NON-EMPLOYEE DIRECTORS AT FISCAL YEAR-END Compensation of Non-Employee Directors Total compensation of our non-employee directors for the year ended December 31, 2017,2023, was as follows:
DIRECTOR COMPENSATION | | | | | | | | | | | | | | | Name | Fees Earned or Paid in Cash1 ($) | Stock Awards2 ($) | | | Total ($) | | Danelle M. Barrett | $ | 120,000 | | $ | 180,131 | | | | $ | 300,131 | | | Philip Bleser | — | | 325,035 | | | | 325,035 | | | Stuart B. Burgdoerfer | — | | 350,120 | | | | 350,120 | | | Pamela J. Craig | 136,000 | | 204,014 | | | | 340,014 | | | Charles A. Davis | — | | 325,035 | | | | 325,035 | | | Roger N. Farah | — | | 340,113 | | | | 340,113 | | | Lawton W. Fitt | — | | 520,110 | | | | 520,110 | | | Devin C. Johnson | — | | 300,084 | | | | 300,084 | | | Jeffrey D. Kelly | 124,000 | | 186,001 | | | | 310,001 | | | Barbara R. Snyder | — | | 300,084 | | | | 300,084 | | Jan E. Tighe3 | — | | — | | | | — | | | Kahina Van Dyke | — | | 315,028 | | | | 315,028 | |
YEAR ENDED DECEMBER 31, 20171The cash fees will be earned on April 12, 2024, if the individual continues as a director until that date.
| | | | | | | | | | | | | | | Name | Fees Earned or Paid in Cash1 ($) |
| Stock Awards2 ($) |
| All Other Compensation ($) |
| Total ($) |
| | Philip Bleser | — |
| $ | 195,013 |
| — |
| $ | 195,013 |
| | Stuart B. Burgdoerfer | $ | 108,000 |
| 162,039 |
| — |
| 270,039 |
| | Charles A. Davis | — |
| 280,020 |
| — |
| 280,020 |
| | Roger N. Farah | — |
| 275,022 |
| — |
| 275,022 |
| | Lawton W. Fitt | — |
| 350,025 |
| — |
| 350,025 |
| | Jeffrey D. Kelly | 108,000 |
| 162,039 |
| — |
| 270,039 |
| | Patrick H. Nettles, Ph.D. | — |
| 295,012 |
| — |
| 295,012 |
| Glenn M. Renwick3 | 680,496 |
| — |
| $ | 12,000 |
| 692,496 |
| | Bradley T. Sheares, Ph.D. | 114,000 |
| 171,034 |
| — |
| 285,034 |
| | Barbara R. Snyder | — |
| 270,025 |
| — |
| 270,025 |
|
| | 1
| Represents the portion of compensation to be paid in cash. The fees will be earned and payment will be made on April 12, 2018, if the individual continues as a director until that date. |
| | 2
| Represents grant date fair value of restricted share awards. The following table presents the time-based restricted share awards granted to non-employee directors in 2017, along with the grant date fair value of such awards. Except as noted, awards were made on May 12, 2017,2Represents grant date fair value of restricted stock awards. Awards were granted on May 12, 2023, and valued based on that day’s closing price of $39.98. All awards will vest on April 12, 2018, if the individual remains as a director until that date. |
| | | | | | | | | | | Awarded in 2017 | | | | | Restricted Share Awards |
| Grant Date Fair Value |
| Aggregate Number of
Restricted Share Awards
Outstanding at
December 31, 2017 |
| | | Name | (#) |
| ($) |
| (#) |
| | Philip Blesera | 4,129 |
| $195,013 | 4,129 |
| | | Stuart B. Burgdoerfer | 4,053 |
| 162,039 |
| 4,053 |
| | | Charles A. Davis | 7,004 |
| 280,020 |
| 7,004 |
| | | Roger N. Farah | 6,879 |
| 275,022 |
| 6,879 |
| | | Lawton W. Fitt | 8,755 |
| 350,025 |
| 8,755 |
| | | Jeffrey D. Kelly | 4,053 |
| 162,039 |
| 4,053 |
| | | Patrick H. Nettles, Ph.D. | 7,379 |
| 295,012 |
| 7,379 |
| | | Glenn M. Renwick | — |
| — |
| 506,925 |
| b | | Bradley T. Sheares, Ph.D. | 4,278 |
| 171,034 |
| 4,278 |
| | | Barbara R. Snyder | 6,754 |
| 270,025 |
| 6,754 |
| |
a Mr. Bleser, who was elected to the Board in August 2017, received a restricted stock award for 4,129 shares on August 13, 2017, valued on that day's closing price of $47.23, which represents prorated compensation, as$133.43 for all directors. All awards will vest on April 12, 2024, if hethe individual remains a director until that date. The 2023 awards are the only outstanding restricted stock awards held by directors. See “Security Ownership of Certain Beneficial Owners and Management – Security Ownership of Directors and Executive Officers” for the number of shares awarded.
3Ms. Tighe was a member of our Board until May 2023. NARRATIVE DISCLOSURE TO DIRECTOR COMPENSATION TABLE Our director compensation program is market-based and is designed to be competitive with other compensation opportunities available to directors. Each year prior to the beginning of the term, the Compensation and Talent Committee reviews director compensation committee.data from comparable companies obtained from management’s compensation consultants and other third parties, and analyses performed by our compensation department and/or consultants. With respect to compensation decisions made in May 2023 for the 2023-2024 term, and after a review of proxy data for companies similar to those reviewed in connection with 2023 executive officer compensation, the committee recommended to the Board no change in total compensation from 2022 for the Chairperson of the Board and each non-employee director. b Amount represents performance-based restricted stock unit awards (at target), including dividend equivalents, awarded in 2015 and 2016 while Mr. Renwick was CEO.
| | 3
| Mr. Renwick was Executive Chairman of the Board until June 30, 2017 when he retired as an employee and became Non-Executive Chairman of the Board. Fees Earned or Paid in Cash represents salary for the first half of 2017 and director compensation awarded in the second half of 2017 for the remainder of the 2017-2018 term. All Other Compensation represents employer matching contributions under our 401(k) plan made during the first half of 2017. |
Narrative Disclosure to Director Compensation Table
Amount of Compensation.Compensation After receiving a recommendation from the Compensation and Talent Committee, the Board establishes compensation levels for each term based primarily on committee assignments, with additionalseparate compensation provided for serviceservices as Lead Independent Director.Chairperson of the Board. The following table sets forth the annual compensation levels approved by the Board of Directors for the 2017-20182023-2024 term:
| | | | | | | | | ChairmanChairperson of the Board1
| $470,000 | 485,000 | | | Non-Employee Director | 300,000 | | | Additional compensation for Committee Chair: | Audit Committee Chair | 295,00035,000 | |
Audit Compensation and Talent Committee Member | 270,00025,000 | |
Compensation Committee Chair | 285,000 |
| Compensation Committee Member | 260,000 |
| Investment and Capital Committee Chair | 285,00025,000 | |
Investment and Capital Committee Member | 260,000 |
| Lead Independent Director2
| 50,000 |
| Nominating and Governance Committee Chair2 | 20,000 | |
| Technology Committee | 25,000 | | | Other additional compensation: | Nominating and Governance Audit Committee Member2
members | 15,00010,000 | |
| | 1Secondary Committee assignment
| Represents total compensation; no additional compensation is earned for service on any committee.15,000 | |
| | 2
| The Lead Independent Director and each member of the Nominating and Governance Committee has a primary assignment on one of the other Committees and receives additional compensation for service in these positions. No additional compensation is earned for service on the Executive Committee. |
No additional compensation is earned for service on the Executive Committee.
Form of Compensation. For the 2017-20182023-2024 term, each non-employee director other than Mr. Renwick, was given an opportunity to indicate his or hera preference to receive either (1) 100% of his or her compensation in the form of a restricted stock award or to receive (2) 60% of his or her compensation in the form of a restricted stock award and 40% in the form of cash. If the director did not state a preference, it was presumed that he or she preferred to receive 100% of his or her compensation in the form of restricted stock. After considering such preferences, the Committeecommittee provided for restricted stock awards under The Progressive Corporation the Amended and Restated 2017 Directors Equity Incentive Plan (the “DirectorsDirectors Equity Plan”)Plan) and cash awards, as indicated in the table above. When Mr. Renwick transitioned from Executive Chairman to Non-Executive Chairman as of July 1, 2017, the Compensation Committee determined that his current stockholdings, which far exceed the equity ownership guidelines for directors, adequately align his interests with those of other shareholders and that he should receive cash compensation only. Cash compensation will be paid, and restricted stock awards will vest, in April 2018,2024, or earlier if a director dies or becomes disabled, or a change in control occurs. IfWhen a new director is appointed to the Board or a director changes committee assignments during a term, a proration or other appropriate adjustment to his or her award may be made. We did not pay any additional retainer or meeting fees for the 2017-2018 term. 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 his or herthe director’s annual compensation (based on primary Committee assignment) for the most recently completed term, and then the director must maintain such level of holdings as long as he or she servesthroughout their tenure as a director. A director’s unvested restricted stock awards and any common share equivalent units held in The Progressive Corporation Directors Restricted Stock Deferral Plan, as amended and restated (the "DirectorsDirectors Restricted Stock Deferral Plan")Plan) are treated as common shares held when determining whether this requirement is satisfied. As of December 31, 2017,2023, each director who had been on our Board for more than five years satisfied this requirement. Directors Restricted Stock Deferral Plan. Directors receiving restricted stock awards under the Directors Equity Plan have the right to defer the receipt of the common shares covered by each such award under the Directors Restricted Stock Deferral Plan. If a director elects to defer a restricted stock award under this plan, immediately prior to vesting of the applicable award, the restricted shares are converted to units equivalent in value to Progressive common shares and credited to the participating director’s plan account. The participating director’s plan account will further be credited with amounts equal to any dividends and other distributions on Progressive common shares that are thereafter authorized by the Board. There are no other investment options under the Directors Restricted Stock Deferral Plan. All such accounts will be distributed in common shares (except that amounts attributable to dividend equivalent payments will be distributed in cash) in a lump sum or installments, at the time(s) designated by the participating director at the time of election (or later, if permitted); distributions may be accelerated, however, in the event of the participant’s death, the participant leavingparticipant’s departure from our Board, of Directors, or a change in control of Progressive. Directors Deferral Plan. Under The Progressive Corporation Directors Deferral Plan, as amended and restated (the “DirectorsDirectors Deferral Plan”)Plan), directors are able to elect to defer cash compensation. Deferred fees are credited into a stock unit account under which the units are equivalent in value and dividend rights to Progressive common shares. All such accounts will be distributed in cash, in a lump sum or installments, when and as designated by the participating director at the time of election (or later, if permitted) or, if earlier, upon the death of the director or upon a change in control of the company.
Progressive.
Each participating director’s unit holdings in the Directors Deferral Plan and the Directors Restricted Stock Deferral Plan are included in the table under “Security Ownership of Certain Beneficial Owners and Management – Security Ownership of Directors Nominees, and Executive Officers,” under the column titled Total“Total Common Shares Beneficially OwnedOwned” or under the column titled Units“Units Equivalent to Common Shares.” Perquisites. Consistent with our general practice, during 2017,2023, we did not provide perquisites to any of our non-employee directors in excess of $10,000.
ITEM 2: ADVISORY VOTEPROPOSAL TO APPROVE OUR EXECUTIVE COMPENSATION PROGRAMTHE PROGRESSIVE CORPORATION 2024 EQUITY INCENTIVE PLAN This proposal presents shareholders with the opportunityINTRODUCTION We have long had in effect stock-based incentive plans that have allowed us to cast an advisory vote to approve our compensation program for our executive officers. We currently conduct advisory shareholder votes on our executive compensation program annually. Our executive compensation philosophy, and our compensation program, plans, and awards for 2017 for our namedgrant executive officers are described above in "Compensation Discussion and Analysis"other key employees various types of equity-based awards. These programs reflect our Board’s belief that encouraging stock ownership by executive officers and in "Executive Compensation" with its accompanying tables and narrative discussions. Our executive compensation program is intendedother key employees serves to attract, and retain, qualified executives, and motivate them to achieve both short-term and longer-term business resultsby providing a direct, financial interest in our continued success. Our Board also believes that management and the Compensation Committee believe will drive shareholder returns over time. While we seek to maintain a consistentequity-based compensation program from year to year (generally comprised principally of salary, annual cash incentives, and annual time-based and performance-based equity awards), the Compensation Committee sets the details of the applicable compensation awards each year, including performance goals and the potential compensation levels that may be attained. Our named executive officers’ pay is heavily weighted toward performance-based compensation and equity-based awards. We believe that our compensation programs align our executives’closely aligns these employees’ interests with those of our shareholders.shareholders and provides a strong incentive for executive officers and other key employees to remain in our service.
With these goals in mind, in March 2024, upon the recommendation of the Compensation and Talent Committee, our Board adopted, subject to shareholder approval, The Progressive Corporation 2024 Equity Incentive Plan (the “2024 Plan”). We are submitting the 2024 Plan to shareholders for approval in accordance with NYSE rules and, while not presently part of our executive compensation program's design, to qualify certain stock options authorized under the 2024 Plan for treatment as incentive stock options (“ISOs”) under Section 422 of the Internal Revenue Code. In addition, we are asking shareholders to approve the 2024 Plan to prevent any interruption to our equity-based compensation practices. If our shareholders approve the 2024 Plan, it will replace the 2015 Equity Incentive Plan (the “2015 Plan”) and no further grants will be made under the 2015 Plan after the 2024 Plan is registered with the Securities and Exchange Commission on Form S-8. Any additional awards we grant to management prior to the approval and registration of the 2024 Plan will be granted under the 2015 Plan and will be subtracted from the number of common shares remaining available for additional awards under the 2015 Plan. As a result, the shares from any such additional awards will reduce the number of common shares that may be issued under the 2024 Plan. If the 2024 Plan is approved by our shareholders, we will have 6 million additional common shares authorized for issuance pursuant to employee equity plans. In setting the total number of common shares authorized for issuance under the 2024 Plan, we considered a number of factors, including the following, which are discussed in more detail below: shares available and total outstanding equity awards under our existing employee equity plan; our historical employee equity award granting practices; potential dilution to our shareholders; and estimates regarding the number of years that the 2024 Plan would last (sometimes referred to as the duration of the plan). In addition, some shares authorized under our 2015 Plan will be rolled over to the 2024 Plan as described in more detail under “– Description of the 2024 Plan – Shares Available for Issuance.” As of March 15, 2024, we had 585,698,431 common shares issued and outstanding (not including treasury shares). The market value of one common share listed on the NYSE, as determined by reference to the closing price on March 15, 2024, was $204.88. Overview The 2024 Plan provides us with the flexibility to develop and deliver a long-term equity incentive program that is competitive, attracts and retains key talent, and meets current and evolving compensation practices. Additionally, the 2024 Plan contains key features to protect the interests of our shareholders, which include the following: •Double-trigger vesting in the event of a change in control. Both a change in control and a termination of employment must occur in order for accelerated vesting of awards to apply. Awards will not be accelerated upon a change in control if the committee determines, prior to the change in control, that awards will be honored, assumed, or replaced with an equivalent award. •There is no annual or automatic increase in the number of shares available for issuance under the 2024 Plan. •Performance-based awards are subject to our Dodd-Frank Clawback Policy and additional clawback provisions that subject performance-based awards to recoupment if an executive's conduct results in reputational harm or if the awards vest based upon certain financial or operating results that are thereafter restated. •Limitations apply to the number of shares an individual participant may receive in a given calendar year and the number of shares that can be the subject of stock options or stock appreciation rights granted to any individual during the life of the 2024 Plan. •The exercise price of stock options and the strike price/base value of stock appreciation rights must equal at least 100% of the fair market value of the underlying common shares at the time of grant. •We are not permitted to reduce the exercise price, reprice, or provide cash payment for underwater stock options or stock appreciation rights without shareholder approval. •We currently expect the duration of the 2024 Plan to be between 7 and 10 years.
In addition, we believe that our recent grant practices reflect a responsible use of equity as compensation for our executive officers and other key employees: •74% of our CEO’s target equity compensation in the past 5 years has been in the form of performance-based equity awards. •65% of our other then-named executive officers’ target equity compensation in the past 5 years has been in the form of performance-based equity awards. •Pursuant to our financial policies, we repurchase common shares to neutralize dilution from equity-based compensation in the year of grant. Factors Considered We considered a number of factors when developing the 2024 Plan, including the current availability of common shares under our existing employee equity plan, awards outstanding under such equity plan, and our desire to maintain our current equity grant practices without disruption. Since 2015, we have used time- and performance-based restricted stock units as the form of equity compensation for our executive officers and other key employees. The following table shows awards outstanding under, and common shares available under, our existing equity compensation plans as of December 31, 2023: | | | | | | | | | | | | | | | | | | | EQUITY COMPENSATION PLAN INFORMATION | | | Plan Category | Number of
Securities to be
Issued upon
Exercise
of Outstanding
Options, Warrants
and Rights | | Weighted-Average
Exercise Price
of Outstanding
Options,
Warrants
and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans 1 | | | Equity compensation plans approved by security holders | | | | | | Employee Plans: | | | | | | | 2015 Equity Incentive Plan | 2,893,743 | | 2 | NA | 5,185,949 | | 3 | Director Plans: | | | | | | | Amended and Restated 2017 Directors Equity Incentive Plan | 25,075 | | | NA | 392,436 | | 4 | | Equity compensation plans not approved by security holders | | | | | | | None | | | | | | | Total | 2,918,818 | | | NA | 5,578,385 | | |
NA = Not applicable because awards do not have an exercise price. 1 Excludes shares included in the Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights column. 2 Reflects restricted stock unit awards, including reinvested dividend equivalents, under which, upon vesting, the holder has the right to receive common shares on a one-to-one basis. Performance-based restricted stock unit awards, including dividend equivalents, of 557,119 units are included under the 2015 Equity Incentive Plan at their target value. Maximum potential payout for the performance awards outstanding under the 2015 Equity Incentive Plan was 1,370,877. For a description of the performance-based awards, including the performance measurement and vesting ranges, see Note 9 — Employee Benefit Plans in our Annual Report. 3 Gives effect to reservation of common shares subject to performance-based awards at maximum potential payout. 4 Reflects Progressive’s Amended and Restated 2017 Directors Equity Incentive Plan that was approved by shareholders in 2022 and increased the authorized shares by 150,000 under this plan. Since December 31, 2023, we granted additional awards of restricted stock units to our executive officers and other key employees under the 2015 Plan and dividend equivalents under outstanding restricted stock unit awards were reinvested in additional restricted units when our annual-variable and quarterly dividends were paid to shareholders. As a result of these actions, as of the date of this proxy statement there were roughly 4.5 million shares available for future issuance of awards under the 2015 Plan. This number reflects our reservation of the maximum potential payout of performance-based awards, as required by the terms of the 2015 Plan. Information regarding our historical equity award grant practices can be found in Note 9 – Employee Benefit Plans to our audited financial statements contained in our 2023 Annual Report attached as an appendix to this Proxy Statement. The 2015 Plan, which is the plan under which equity compensation is currently granted to our executive officers and other key employees, expires on January 31, 2025. If shareholders do not approve the 2024 Plan, we will not be able to grant any additional equity awards under the 2015 Plan after January 31, 2025, although
awards will remain outstanding until vested or forfeited in accordance with their terms. If we do not receive shareholder approval for the 2024 Plan, we will need to consider compensation alternatives for 2025 and beyond that do not include equity compensation. We also considered potential dilution to our investors from awards that could be granted under the 2024 Plan. The 6 million additional common shares authorized by the 2024 Plan, together with shares available under existing equity plans and shares subject to outstanding equity awards, referred to as “overhang,” represent approximately 2.5% of the outstanding common shares as of December 31, 2023. Pursuant to our financial policies, we repurchase common shares to neutralize dilution from equity-based compensation in the year of grant. We also considered the expected duration of the 2024 Plan. Duration is inherently uncertain because it involves estimates regarding a number of factors, including: •the number of common shares to be covered by awards to be granted, which changes with the number of recipients, their compensation levels, and the fair market value of our common shares at the time of grant; •dividends to be paid by us in the future and the fair market value of our common shares at the time of any dividend payment; •with respect to performance-based awards that can vest below, at, or above a target number of units, based on performance goals, the actual number of units that vest based on actual performance; and •the rate of termination or forfeiture of awards that are made. Based on a number of assumptions regarding these matters, we currently estimate that the duration of the 2024 Plan will be between 7 and 10 years. DESCRIPTION OF THE 2024 PLAN The material features of the 2024 Plan are summarized below. The following description of the material features of the 2024 Plan is qualified in its entirety by reference to the text of the 2024 Plan, which is attached to this Proxy Statement as Exhibit A. Shares Available for Issuance Subject to adjustment upon the occurrence of certain events described below, the number of common shares that may be issued under the 2024 Plan will be equal to: •6 million, plus •the number of common shares, if any, remaining available for additional awards under the 2015 Plan as of the effective date of the 2024 Plan, minus 300,000 shares or any greater number determined by the committee (see “– Administration”), which will remain in the 2015 Plan to satisfy divided equivalent rights; plus •the number of shares subject to awards outstanding under the 2015 Plan as of the effective date of the 2024 Plan that subsequently expire or are cancelled or forfeited. To satisfy awards under the 2024 Plan, we may use authorized but unissued shares or shares held in treasury. The actual or deemed reinvestment of dividends, other distributions or dividend equivalents in additional stock, restricted stock, or restricted stock units (“dividend equivalents”) will only be permitted if, at the time of the reinvestment, sufficient common shares are available under the 2024 Plan. If an award provides for the provision of dividend equivalents but dividend equivalents cannot be provided because sufficient shares are not available, then the committee can determine alternative mechanism(s) to credit the value of those dividend equivalents on outstanding awards or can discontinue the crediting of dividend equivalents on a prospective basis only. If all or any portion of an award granted under the 2024 Plan is forfeited, or otherwise terminates or expires, the common shares that are subject to the award, to the extent of the forfeiture, termination, or expiration, will again be available for future awards under the 2024 Plan, unless the participant has received a benefit of ownership with respect to the common shares. The exercise of voting rights (if any) will not be considered to be a benefit of ownership. In addition, accumulation of dividends or dividend equivalents that are not actually paid because the underlying award did not vest will not be considered to be a benefit of ownership. However, the use of common shares subject to an award to pay an option exercise price or to satisfy a participant’s tax withholding obligations will be considered to be a benefit of ownership. The number of common shares available for grant under the 2024 Plan will not be reduced by common shares subject to awards granted upon the assumption or substitution of awards granted by a business or entity acquired by the company. In addition to aggregate share limits, the 2024 Plan establishes individual limits that provide that no participant may receive: •in any calendar year, awards with respect to more than 1.5 million common shares; and •over the life of the 2024 Plan, stock options and stock appreciation rights related to more than 3 million common shares. In the context of performance-based awards that stipulate a target number of units or common shares
and that may vest at, below, or above that target, the maximum number of common shares issuable under the award will be used for purposes of determining compliance with these individual limitations. For all awards, any dividend equivalents are disregarded for purposes of determining if these limits are satisfied. Except as described in the last sentence of this paragraph, in the event of any merger, reorganization, consolidation, recapitalization (including, without limitation, extraordinary cash dividends), share dividend, share split, reverse share split, spin-off, stock rights offering, liquidation, acquisition of property or shares, combination of shares, or other similar event affecting the company, the committee will make substitution(s) or adjustment(s) as it deems appropriate and equitable to prevent dilution or enlargement of rights of participants under the 2024 Plan to: (1) the aggregate number and kind of shares of stock or other securities reserved for issuance under the 2024 Plan; (2) the various maximum limitations on the number of shares of stock or units that may be subject to awards granted to any participant during any calendar year or other period described above; (3) the number and kind of shares of stock or other securities subject to, and the exercise price, strike price, or base value of, then outstanding awards granted under the 2024 Plan; and (4) any vesting criteria (including performance goals) applicable to any outstanding award. In connection with any adjustment, the committee can provide for the adjustment to result in a whole number of shares, and for the fractional shares to be paid in cash. Adjustments or substitutions by the committee do not need to be the same for all participants. No adjustment can be made by the committee if the adjustment would cause an award to be subject to adverse tax consequences to the participant under Section 409A of the Internal Revenue Code, which is described in more detail below. Administration The 2024 Plan will be administered by or under the direction of the Compensation and Talent Committee of the Board or a subcommittee of that committee (referred to in this proposal as the “committee”). The committee must consist of not less than two Board members, all of whom are “non-employee directors” (within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) and “independent directors” as defined in Section 303A.02 of the NYSE rules; however, in the event that the committee fails to satisfy this requirement, the actions of the committee will still be valid for all purposes other than Section 16(b) of the Exchange Act. The functions of the committee specified in the 2024 Plan will be exercised by the Board if and to the extent that no committee with authority to administer the 2024 Plan exists. The committee has full power to interpret and administer the 2024 Plan, including the authority to adopt and amend rules, guidelines, and practices governing the 2024 Plan and the authority to interpret any agreement governing an award under the 2024 Plan. It also has full authority to select the eligible individuals to whom awards will be granted under the 2024 Plan and to determine: the type and amount of awards to be granted to each participant; the consideration, if any, to be paid for awards; the timing of awards; and the terms and conditions of the awards and related agreements to be entered into with eligible individuals. The committee will grant all awards under the 2024 Plan to participants who are executive officers of the company and subject to Section 16 of the Exchange Act. As to the grant of awards to other participants, the committee may delegate its responsibilities to members of the company’s management. Any interpretation and administration of the 2024 Plan by the committee, and all actions and determinations of the committee, are final, binding, and conclusive on the company, its shareholders, subsidiaries, and affiliates, all participants in the 2024 Plan, their respective legal representatives, successors, and assigns, and all persons claiming under or through any of them. However, following a “change in control” as defined in the 2024 Plan, any determination as to whether “cause,” “good reason,” or a “disqualifying activity” exists or has occurred will be subject to review by a court, arbitrator, or other dispute resolution body. No director will incur any liability for any action taken or omitted, or any determination made, in good faith in connection with the 2024 Plan. Eligibility to Participate in the 2024 Plan Executive officers and other key employees of the company, its subsidiaries, or affiliates who are responsible for or contribute to our management, growth, or profitability are eligible to be granted awards under the 2024 Plan. During 2023, approximately 1,080 employees, including each of our executive officers, received awards under the 2015 Plan, which contains a similar eligibility provision. Because the committee has the authority to determine which eligible individuals will receive awards under the 2024 Plan, the benefits or amounts that will be received by any individual officer, the executive officers as a group, and other key employees cannot be determined. Types and Terms of Awards The committee has the discretion to decide who will receive awards under the 2024 Plan, the types of awards they will receive and, subject to the provisions described below, the terms of any award. The
committee can grant restricted stock units, restricted stock, stock options, stock appreciation rights, and dividend equivalent rights associated with these awards. Generally Applicable Provisions The committee has broad discretion to decide the terms of awards that may be granted under the 2024 Plan. However, the 2024 Plan provides certain parameters for awards, including the following: Purchase Price The purchase price for each award, if any, will be determined by the committee at the time of grant. Time-Based and Performance-Based Awards An eligible individual may be granted an award that will vest based on continued employment (a time-based award), an award that will vest based on the achievement of performance goals (a performance-based award), or a combination of both. The committee will determine the vesting periods for time-based awards and the restrictions and other terms applicable to time-based awards prior to vesting, as well as any other conditions that must be satisfied prior to the vesting of the awards. For awards that are performance-based, the committee will establish the objective performance goals and any other conditions that must be satisfied as a condition to vesting. The committee may provide for the lapse of the restrictions and conditions to vesting in “award installments” (if an award consists of multiple installments, each with a separate vesting date, expiration date and/or other unique term or condition, this term refers to any one of those installments), as set forth in the related award agreement. The provisions of awards need not be the same with respect to each participant. Performance Goals Performance-based awards will be structured to vest, if at all, only if the company satisfies the conditions to vesting established by the committee in its discretion at the time of the award, including objective criteria which may include, but are not limited to, one or more of the following measures: •Revenues •Premiums (written, net, earned, per policy, or per vehicle) •Expense levels •Cost control or cost savings levels •Combined ratio (target, weighted, variation from target, or cohort (expected lifetime combined ratio for a group of policies commencing during a specified time period)) •Return on shareholders’ equity, revenue, or capital (including return on total capital or return on invested capital) •Policies in force •Policy renewals •Policy life expectancy •Vehicles insured •Drivers insured •Earned car years •Market share •Physical damage earned car years •Investment income •Investment returns •Net realized gains •Net income •Comprehensive income •Shareholders’ equity •Net book value per share •Total shareholder return •Value of a common share Performance goals may be measured on a companywide, subsidiary, significant subsidiary, segment, business unit, product line, product, or any combination of these bases, as determined by the committee at the time of grant. Performance goals also may reflect absolute performance or a relative comparison of performance to the results in other periods, to a target, to a peer group of entities, to an index, or to another external measure. Performance goals may also be measured on an aggregate or per share basis. Investment performance goals may also be measured by reference to a specific portion of a portfolio or assets under management and may reflect risk adjustment, or the benefit of any state premium tax abatement, attributable to the investment portfolio(s) or investment(s) that is the subject of the goals. The committee may provide for the exclusion from any one or more applicable periods of the impact of extraordinary, unusual, and/or non-recurring items, including, without limitation: (1) any act of God or nature that adversely affects the company’s business operations for a significant period of time; (2) any profit, loss, or expense attributable to acquisitions or dispositions of stock, assets, or any other portion of a business; (3) operating or financial results attributable to the operations of an entity or business acquired or disposed of by the company; (4) gains or losses due to litigation or settlements; (5) all other items of gain, loss, or expense determined to be extraordinary or unusual in nature or infrequent in occurrence; and (6) such other items that the committee deems appropriate in its discretion. Unless expressly determined by the committee at the time the performance goals for an award are established and stated in the related award agreement, the satisfaction of any performance goals will be determined by eliminating the impact of any change in accounting rules which becomes effective following the time the performance goals are established. Performance-based awards will vest and all restrictions thereon will terminate upon the
certification by the committee of the achievement of the specified performance goals, provided all other conditions to vesting have been met. In the committee’s discretion, performance-based awards may: (1) stipulate that an award will vest only in its entirety upon the satisfaction of the specified performance goals; (2) stipulate a portion of the award that will vest either in whole or in part, depending on the level of achievement in comparison to the specified performance goals, pursuant to a formula, calculation, or other objective mechanism approved by the committee at the time of the award; or (3) stipulate a target number of shares of stock or units (the “Target”) that may vest in part, in whole, or up to a specified multiple of the Target, depending on the level of achievement in comparison to the specified performance goals pursuant to a formula, calculation, or other objective mechanism approved by the committee at the time of the award. In the case of any award authorized under clause (3) of the previous sentence, a number of common shares equal to the maximum possible number of common shares that may be delivered to the participant under the award will be reserved by the company until such time as the applicable multiple of the Target has been determined by the committee, even if the certification of achievement of results does not occur at that time due to additional performance goals that must be met prior to vesting, or if the actual exercise, vesting, or delivery of stock does not occur at that time due to any delay in delivery imposed for purposes of Section 409A of the Internal Revenue Code. If, or to the extent that, a performance-based award does not vest under the applicable performance goals on or before the expiration date established by the committee for the award, the award will be forfeited automatically. Committee Discretion to Reduce or Eliminate AwardsThe committee can reduce the amount of, or eliminate in full, but not increase, the amount of stock, units, or other interests that are subject to any performance-based award at, or at any time prior to, the committee’s certification of the vesting of the award. The committee may treat individual participants differently for these purposes. Any determination of this type by the committee will be final and binding on each affected participant. TransferabilityAwards under the 2024 Plan may not be transferred by the participant other than by will or by the laws of descent and distribution. Deferral Election Any participant who is then eligible to participate in The Progressive Corporation Executive Deferred Compensation Plan or any other deferral plan adopted or maintained by the company may elect to defer any award granted to the participant under the 2024 Plan, subject to and in accordance with the terms of the applicable deferral plan. Tax Withholding No later than the date an award becomes taxable, the participant must satisfy the participant's minimum withholding taxes by delivering to the company cash, or, unless the committee determines otherwise, common shares that are already owned by the participant or that would otherwise be delivered to the participant as a result of the taxable event. The committee must approve any election by an executive officer subject to Section 16 to satisfy tax withholding obligations by delivering common shares already owned by the participant. Restricted Stock Units A restricted stock unit is a contractual right awarded by the company that entitles the participant to receive one common share upon the satisfaction of all conditions to vesting of, and the lapse of all restrictions applicable to, the award, as determined by the committee. Conditions to vesting may relate to continued employment, the achievement of performance goals established by the committee, or both. The units remain subject to restrictions, and subject to forfeiture, termination, or expiration as provided in the 2024 Plan, until the satisfaction of the conditions established by the committee for the vesting of the applicable award. In addition to the terms established by the committee, the following provisions will apply to all restricted stock unit awards: •No instruments or certificates evidencing the units will be issued, but the company will keep a record of the units. •Participants will not have the right to vote the common shares represented by the restricted stock units prior to the delivery of any common shares due in respect of the vesting of the units. •Participants will not have the right to receive dividends, other distributions or dividend equivalents with respect to the shares subject to the award prior to the delivery of those shares of stock. The committee may provide for any restricted stock unit award to be credited with dividend equivalents while restrictions apply to the award. If the committee provides for the crediting of dividend equivalents, the equivalents can be paid in cash or reinvested in additional units, and can be paid immediately or made subject to the terms and conditions applicable to the underlying award, as determined by the committee. Restricted Stock Restricted stock awards consist of grants by the company of common shares that are subject to various restrictions, including, without limitation, restrictions on sale or transfer by the participant. The common shares will remain subject to those restrictions, and to forfeiture, termination, or expiration as provided in the 2024 Plan, until the
satisfaction of the conditions established by the committee for the vesting of the applicable award. Upon vesting of an award and the lapse of any other restrictions, the restrictions on the common shares awarded will be removed, and the participant will become entitled to sell or transfer those shares subject to applicable legal requirements. In addition to the terms established by the committee, the following provisions will apply to all restricted stock awards: •Each participant receiving a restricted stock award will be issued a stock certificate for the common shares covered by the award. The certificates will be registered in the name of the participant, and will bear an appropriate legend referring to the terms, conditions, and restrictions applicable to the award. The stock certificates evidencing those common shares will be held by the company, or our designee, until the conditions to the vesting of the award has been satisfied and all other restrictions on the shares have lapsed. However, at our option, any common shares covered by a restricted stock award may be issued and held in book-entry form. In such event, no stock certificates evidencing the shares will be issued and the applicable restrictions will be noted in the records of our transfer agent and in the book-entry system. •Except as provided in the 2024 Plan or the applicable award agreement, with respect to the common shares that are the subject of the restricted stock award, a participant will have all of the rights of a shareholder of the company, including the right to vote the common shares. •Participants who are granted awards of restricted stock also have the right to receive any cash dividends or other distributions declared by the Board, subject to the 2024 Plan. However, the committee may determine that dividends or other distributions will not be paid or distributed immediately and will be and remain subject to all the terms and conditions regarding vesting, restrictions, and forfeiture that apply to the common shares covered by the restricted stock award to which the dividends or distributions relate. Stock Options A stock option award represents the right to purchase a specified number of common shares from the company at a specified price during a specified time period. Generally, stock options are not exercisable immediately and may be exercised in accordance with the requirements of the 2024 Plan only after the satisfaction of the conditions established by the committee for the vesting of the award. The committee will have the authority to grant either incentive stock options or non-qualified stock options, or a combination of both, subject to the requirements of the 2024 Plan. Incentive stock options are stock options intended to satisfy the requirements of Section 422 of the Internal Revenue Code or any successor to Section 422. Non-qualified stock options are stock options that do not qualify as incentive stock options. In addition to the terms established by the committee, the following provisions will apply to each stock option award: •The option exercise price per common share that may be purchased under a stock option will be determined by the committee at the time of grant. •For non-qualified stock options, the exercise price must be at least equal to 100% of the fair market value of the company’s common shares on the date of grant. •For incentive stock options, the exercise price must be at least equal to: (1) 100% of the fair market value of the company’s common shares at the date of grant; or (2) 110% of the fair market value of the common shares at the date of grant, in the case of a participant who at the date of grant owns shares representing more than 10% of the total combined voting power of all classes of stock of the company or its parent or subsidiary corporations (as determined under Section 424(d), (e), and (f) of the Internal Revenue Code) (a “10% participant”). •The term of each stock option (“option term”) will be determined by the committee at the time of grant and may not exceed 10 years from the date of grant (or, with respect to incentive stock options, five years in the case of a 10% participant). •Subject to any installment exercise provisions and other conditions to vesting that may apply with respect to the stock options, stock options may be exercised, in whole or in part, at any time during the option term, by giving to the company written notice of exercise specifying the number of common shares to be purchased. The notice of exercise must be accompanied by payment in full of the option exercise price of the common shares for which the option is exercised. The committee may allow cashless broker exercises or, to the extent approved by the committee at or after grant, payment by the participant’s election to have shares of stock withheld that have a fair market value equal to the amount of tax to be withheld. •Unless otherwise determined by the committee, at or after grant, payment, in full or in part, of the option exercise price of incentive stock options and non-qualified stock options and related minimum withholding taxes may be made in the form of unrestricted common shares then owned by the participant and having a value equal to the option exercise price and minimum withholding taxes. However, the committee must approve in advance any transaction of this type by an
executive officer who is subject to Section 16 of the Exchange Act. •No common shares will be issued pursuant to an exercise of an option until full payment of the exercise price and minimum withholding has been made. A participant will not have rights to dividends or any other rights of a shareholder with respect to any common shares subject to an option until the participant gives written notice of exercise, has paid in full for the common shares, and such shares have been issued to the participant. •All stock options will be exercisable during the participant’s lifetime only by the participant or, if the participant is unable to exercise an option as a result of the participant’s disability, by his or her authorized legal representative. •Unless otherwise determined by the committee or directed by a participant in writing to the company, the 2024 Plan allows for the automatic exercise of stock options for in-the-money awards prior to expiration.
The following additional provisions will apply to incentive stock options and, in the event of conflict, will override the general provisions set forth above: •Only employees of the company or one of its subsidiaries can receive an incentive stock option. •In the event of the death or disability of a participant who holds an incentive stock option, the incentive stock option will be exercisable by: (1) the participant’s authorized legal representative (if the participant is unable to exercise the incentive stock option as a result of the participant’s disability) only if, and to the extent, permitted by Section 422 of the Internal Revenue Code and Section 16 of the Exchange Act; and (2) the participant’s estate, in the case of death, or authorized legal representative, in the case of disability, no later than 10 years from the date the incentive stock option was granted (or five years in the case of a 10% participant), in addition to any other restrictions or limitations that may apply. The terms of the 2024 Plan relating to incentive stock options will be interpreted so as not to disqualify the 2024 Plan under Section 422 of the Internal Revenue Code. In addition, the 2024 Plan cannot be amended, and any discretion permitted by the 2024 Plan cannot be exercised, in a manner that would disqualify the 2024 Plan under Section 422 or, without the consent of the affected participant, to disqualify any outstanding incentive stock option under Section 422. Stock Appreciation Rights Stock appreciation rights may be granted alone, in addition to, or in tandem with other awards granted under the 2024 Plan or cash awards made outside of the 2024 Plan. In the case of an award of stock appreciation rights relating to an award of non-qualified stock options, the rights may be granted either at or after the time of the grant of the related non-qualified stock options. In the case of incentive stock options, the rights may be granted in tandem with incentive stock options only at the time of the grant of the options and may be exercised only when the fair market value of the stock subject to the option exceeds the option exercise price. Stock appreciation rights issued in tandem with stock options (“tandem SARs”) will terminate and will cease to be exercisable upon the termination or exercise of the related stock option, subject to any provisions that the committee specifies at grant if the stock appreciation right is granted with respect to less than the full number of common shares subject to the related stock option. Upon exercise, the participant will be entitled to receive an amount determined in the manner prescribed below and the applicable award agreement. Stock appreciation rights granted under the 2024 Plan are subject to the following terms and conditions and any other terms and conditions established by the committee: •Tandem SARs will be exercisable only at the times, and to the extent, that the stock options to which they relate are exercisable in accordance with the provisions of the 2024 Plan, and stock appreciation rights not granted in tandem with stock options (“freestanding SARs”) will be exercisable as the committee determines. •Upon exercising a stock appreciation right, a participant is entitled to receive an amount in cash or common shares, as determined by the committee at the time of grant, equal in value to the excess of the fair market value of one common share on the date of exercise of the stock appreciation right over: (1) in the case of tandem SARs, the option exercise price per share specified in the related stock option, which price will be fixed no later than the date of grant of the tandem SARs; or (2) in the case of freestanding SARs, the price per share specified in the related award agreement, which price will be fixed at the date of grant and will be not less than the fair market value of the common shares on the date of grant, multiplied by the number of common shares in respect of which the stock appreciation right was exercised. The committee will have the right to determine the form of payment (i.e., cash, stock, or any combination of cash and stock) and to approve any election by the participant to receive cash, in whole or in part, upon exercise of the stock appreciation right. When payment is to be made in stock, the number of common shares to be paid will be calculated on the basis of the fair market value of the common shares on the date of exercise. However, the committee nevertheless
may limit the appreciation in value of any stock appreciation right at any time prior to exercise. •Upon the exercise of a tandem SAR, the related stock option also must be exercised. •Stock appreciation rights will be exercisable, during the participant’s lifetime, only by the participant or, in the event of the participant’s disability, by the participant’s authorized legal representative. •Unless otherwise determined by the committee or directed by a participant in writing to the company, the 2024 Plan allows for the automatic exercise of stock appreciation rights for in-the-money awards prior to expiration. Termination of Employment; Forfeiture Upon Engaging in Disqualified Activity Unless otherwise determined by the committee, if any participant’s employment is terminated, all outstanding awards held by the participant, whether vested or unvested, will be terminated and forfeited automatically. The committee can provide for exceptions to this rule, including in the case of a participant’s death, disability, or retirement. If the committee determines that a participant is engaging or has engaged in any “disqualifying activity” (as defined below), then: •to the extent that any award held by the participant has not vested or, if a vested award has not been exercised, as applicable, as of the date of such determination by the committee, the award will terminate, and all related common shares, units, stock options, or stock appreciation rights will be forfeited, as of the date of determination; or •to the extent that an award has vested and, if applicable, was exercised after the “disqualification date” (as defined below) but prior to the date that the committee determines that a disqualifying activity occurred, the award will be deemed to be terminated and forfeited as of the disqualification date. The participant must transfer or pay to the company, promptly upon demand, all common shares (or, if those common shares have been sold or transferred by the participant, an equivalent number of common shares or, at the company’s option, the value thereof), or other proceeds received or deferred by the participant in connection with the vesting or exercise event, and the participant will not receive any consideration from the company. If the participant fails to do so, the company will also be entitled to recover interest, reasonable attorney’s fees, and court costs related to its recovery efforts. Under the 2024 Plan, “disqualification date” means the earliest date on which the participant engaged in any disqualifying activity, as determined by the committee. “Disqualifying activity” means any of the following acts or activities: •serving as a principal, shareholder, partner, director, officer, employee or agent of, or as a consultant or advisor to, any business or entity that competes with the company to an extent deemed material by the committee, without the company’s consent; •disclosure by the participant, or any use by the participant for his or her own benefit or for the benefit of any other person or entity (other than the company), of any of our confidential information or trade secrets without our consent; •any material violation of any of the provisions of any code of conduct applicable to the participant or of any agreement between the participant and the company; •making any other disclosure or taking any other action which is determined by the committee to be materially detrimental to the business, prospects or reputation of the company; or •the participant’s failure, in any material respect, to perform his or her assigned responsibilities as an employee, as determined by the committee after consulting with our Chief Executive Officer or Chief Human Resources Officer. The ownership of less than 2% of the outstanding voting securities of a publicly traded corporation that competes with the company will not constitute a disqualifying activity. Change in Control Unless otherwise provided in the applicable award agreement, the following provisions will govern awards if a change in control occurs. No acceleration of vesting or payment will occur with respect to any outstanding award upon a change in control if, prior to the change in control, the committee determines that outstanding awards will be honored or assumed, or new rights substituted for outstanding awards by the surviving entity (which may be the company). Any honored, assumed, or new right substituted for outstanding awards (“Alternative Awards”) must comply with the following provisions: •provide for rights, terms and conditions that are substantially identical to, and not less favorable than, the rights, terms and conditions applicable under the award being substituted for the Alternative Award, including an identical or better exercise or vesting schedule; •have substantially equivalent economic value to the award being substituted (determined at the time of the change in control by the committee); •have terms and conditions which provide that if the participant’s employment or service is involuntarily terminated without cause (as defined in the 2024 Plan), or constructively terminated for good reason (as described below) by the participant, the
awards will vest and pay out consistent with the provisions described below; and •not subject the participant to the assessment of taxes or penalties under Section 409A of the Internal Revenue Code. As long as the Alternative Award satisfies the requirement in the immediately preceding bullet point, the committee will have the discretion with respect to any outstanding performance-based award to provide in the Alternative Award: (1) for the same performance goals as are contained in the original award; (2) for different performance goals than are in the original award; or (3) that the performance goals in the original award agreement will be considered to be achieved and to determine at what level they will be deemed to have been achieved (for example, at target or at a multiple of target based on the level of achievement through the date of the change in control) with the award being converted into a time-based award that will vest at the end of the performance period stated in the original award agreement. The determination whether the conditions for Alternative Awards are satisfied will be made by the committee, as constituted immediately before the change in control. Any Alternative Award will be subject to accelerated vesting after a change in control as follows. If within 24 months following a change in control, a participant’s employment is involuntarily terminated (other than for cause) or is terminated by the participant for good reason (after 30 days’ notice to the surviving entity and an opportunity to cure), then upon the occurrence of the termination: (1) all outstanding options and stock appreciation rights held by the participant will become vested and exercisable immediately upon the termination; and (2) all outstanding unvested restricted stock and restricted stock unit awards will become vested immediately upon the termination. With respect to any performance-based awards held by the participant, the awards will be considered to be earned in full at the higher of target (if applicable) or a multiple of target (determined by reference to the award agreement) based on the level of achievement as of the date of the termination, if such level of achievement is determinable at the time of the termination. “Good reason” is defined in the 2024 Plan, unless provided in any award agreement, as: (1) any significant diminution in the participant’s duties, position (including status, title and reporting requirements), authority, or responsibilities; (2) a decrease, as compared with the six months immediately preceding the change in control, in any of the participant’s salary, rate of pay, cash bonus opportunity, allotted vacation time, the value of annual time-based and performance-based (if applicable) equity or other long-term incentive awards, or the prompt reimbursement of appropriate business expenses as set forth in the company’s policies immediately prior to the change in control (or a reasonable replacement policy); (3) requiring the participant to be based at an office location other than the location at which he or she was based immediately before the change in control, if the change in office location would increase the participant’s regular commute by greater than 50 miles; or (4) denying the participant the right to participate in savings, retirement and welfare benefit plans on the same basis (or a substantially similar basis) as is available to other similarly situated employees, subject to legal requirements (including under the Employee Retirement Income Security Act of 1974). If the above requirements are not satisfied, either because the surviving entity chooses not to honor, assume, or provide equivalent replacement awards for outstanding awards, or the committee determines that any proposed replacement awards do not satisfy the requirements for Alternative Awards described above, then upon a change in control all outstanding awards will vest and, if applicable, become exercisable, immediately prior to the change in control, and the following will occur: (1) each option and stock appreciation right will be cancelled in exchange for an amount equal to the excess, if any, of the fair market value of a common share on the date of the change in control over the option exercise price for the option or the base value/strike price applicable to the stock appreciation right; and (2) each restricted stock and restricted stock unit award will be cancelled in exchange for an amount equal to the fair market value of one common share on the business day immediately preceding the change in control, in each case multiplied by the number of 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 (determined by reference to the original award agreement) based on the level of achievement through the date of the change in control, if the level of achievement is determinable by the committee at the time of the change in control. Payment of any amounts described in this paragraph will be made in cash or, if determined by the committee (as constituted prior to the change in control), in shares of the stock of the surviving entity having an aggregate fair market value (determined by the committee in good faith) equal to such amount or in a combination of such shares of stock and cash. All amounts described in this paragraph will be payable in full, as soon as reasonably practicable, but in no event later than 10 business days, following the change in control. Notwithstanding the foregoing, no payment of any award subject to Section 409A will be accelerated upon a change in control unless such change in
control qualifies as a change in the ownership of the company, a change in effective control of the company, or a change in the ownership of a substantial portion of the company’s assets, as such terms are defined by Section 409A, or such accelerated payment does not otherwise cause any Award to be subject to tax and penalties under Section 409A. For purposes of the 2024 Plan, The 2024 Plan defines “change in control” as any of the following: •the acquisition by any individual, entity or group of beneficial ownership of 30% or more of either the then outstanding common shares of the company or the combined voting power of the then outstanding voting securities of the company entitled to vote generally in the election of directors (“outstanding company voting stock”), except that the following acquisitions will not constitute a change in control: •any acquisition directly from the company; •any acquisition by the company; •any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the company or any entity controlled by the company; •any acquisition by any entity pursuant to a transaction that qualifies as a Business Combination, as defined below, but does not constitute a change in control because of the Business Combination Exceptions defined below; or •a change in the composition of the Board such that the individuals who, as of the date that the 2024 Plan becomes effective, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; with the following rules being applicable to individuals who become a member of the Board subsequent to the effective date of the 2024 Plan: •any individual whose election, or nomination for election by the company’s shareholders, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this bullet) will be considered as though the individual were a member of the Incumbent Board; and •any individual whose initial assumption of office occurs as a result of either an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board will not be considered as a member of the Incumbent Board; or •the consummation of a reorganization, merger, statutory share exchange or consolidation or similar transaction involving the company or any of its subsidiaries or a sale or other disposition of all or substantially all of the assets of the company, or the acquisition of assets or securities of another entity by the company or any of its subsidiaries (a “Business Combination”), in each case, unless, following such Business Combination (the following being referred to as the “Business Combination Exceptions”): •all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding common shares and outstanding company voting securities immediately prior to the transaction beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock (or, for a noncorporate entity, equivalent securities) and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors (or, for a noncorporate entity, equivalent securities), as the case may be, of the entity resulting from the transaction (including, without limitation, an entity that, as a result of the transaction, owns the company or all or substantially all of the company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to the transaction, of the outstanding common shares and outstanding company voting securities, as the case may be; •no person (excluding any entity resulting from the transaction or any employee benefit plan (or related trust) of the company or the entity resulting from the transaction) beneficially owns, directly or indirectly, 30% or more of, respectively, the then outstanding shares of common stock (or, for a noncorporate entity, equivalent securities) of the entity resulting from the transaction or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the transaction; and •at least a majority of the members of the board of directors (or, for a noncorporate entity, equivalent body or committee) of the entity resulting from the transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for the transaction; or •the approval by the shareholders of the company of a complete liquidation or dissolution of the company.
Clawback and Recoupment Provisions The company will have the right to clawback or recoup performance-based awards that have previously vested in certain circumstances. Any award that qualifies as incentive-based compensation as defined in the NYSE rules is subject to our Dodd-Frank Clawback Policy. For a description of the policy see “Compensation Discussion and Analysis – 2023 Decisions and Awards – Clawback Provisions.” Under additional clawback provisions in the 2024 Plan, if a performance-based award vesting event occurs that is based on financial or operating results that are restated within three years after the vesting, then we will have the right to recoup awards from executive officers who benefited from the vesting. In those circumstances, we will have the right to adjust and amend the terms of all outstanding stock options, and to recover from each executive officer, and each such executive officer will refund to the company promptly on demand, either: (1) the number of common shares that vested (or that were subject to stock options that vested and were thereafter exercised); (2) the dollar equivalent of such number of common shares as of the date of such vesting, without interest; or (3) the value that was paid to our executives is reasonable and competitive with similarly sized public companies, although above median compensation canor earned by the participant, as applicable, at the time of vesting or upon the exercise of rights under any such vested award, without interest. Any recovery by the company under these circumstances, at the committee’s discretion, may be earned when aggressive performance goals are achievedmade by lump sum payment, installment payments, credits against unvested awards made under our variousthe 2024 Plan, credits against future bonus or other incentive plans.payments or awards, or other appropriate mechanism. We provide limited perquisites to executives, while including competitive health and welfare benefits, deferral rights, and limited severance rights. We dowill have this right of recoupment whether or not provide pensionsthe executive officer in question was at fault or supplemental retirement benefits to our executives.responsible in any way in causing the restatement. Our Board recognizesIf any individual who received an award under the fundamental interest you, our shareholders, have2024 Plan engages in our executive compensation practices. We value your input on these matters and encourage you to contact the Board through onefraud or other misconduct that results in a restatement of the methods outlinedfinancial or operating results used to determine the vesting of a performance-based award, we will have the right to recoup from that individual, and the individual will transfer or pay to the company promptly upon demand, in the company’s discretion, either: (1) the number of common shares that vested (or that were subject to stock options that vested and were exercised), were distributed or were deferred (as applicable) upon or after the vesting based on the incorrect operating or financial results; (2) the dollar equivalent of the number of common shares determined as of the date of such vesting; or (3) the value that was paid to or earned by the individual, as applicable, at or after the time of vesting or upon the exercise of rights pursuant to the vested award, and, in the case of (2) and (3), interest at the rate of 8% per annum or, if lower, the highest rate permitted by
law, calculated from such vesting date. We also will have the right to terminate and cancel any and all awards previously made to the individual at any time that are then unvested or, if applicable, that vested but have not been exercised, and to recover from the individual our costs and expenses incurred in connection with recovering shares or funds from them and enforcing our rights, including reasonable attorneys’ fees and court costs. There is no time limit on our right to recover these amounts, except as otherwise provided by applicable law. The recoupment rights described above are in addition to, and will not limit, any other rights or remedies that the company may have under “Other Boardthe 2024 Plan or applicable law. Section 409A of Directors Information – Communicationsthe Internal Revenue Code The 2024 Plan is intended to comply with the Boardrequirements of Directors” should you have specific pointsSection 409A of viewthe Internal Revenue Code or concernsan exemption or exclusion from Section 409A and, with respect to awards and amounts that youare subject to Section 409A, it is intended that the 2024 Plan will be administered in all respects in accordance with Section 409A. Accordingly, any action taken under the 2024 Plan, including any acceleration or conversion under the change-in-control provisions described above, will be made in compliance with Section 409A. The 2024 Plan contains a number of requirements aimed at compliance with Section 409A, including the following provisions: •no option or stock appreciation right granted under the 2024 Plan will contain any feature for the deferral of compensation; •each payment under any award that constitutes non-qualified deferred compensation subject to Section 409A will be treated as a “separate payment” for purposes of Section 409A; •in no event may a participant, directly or indirectly, designate the calendar year of any payment to be made under any award that constitutes non-qualified deferred compensation subject to Section 409A; •in the event that a participant is a “specified employee” within the meaning of Section 409A (as determined in accordance with the methodology established by the company), amounts that constitute “non-qualified deferred compensation” within the meaning of Section 409A that would likeotherwise be payable during the six-month period immediately following a participant’s termination of employment with the company by reason of the termination will instead be paid or provided on the first business day of the seventh month following the month in which the participant’s termination occurs; •if the participant dies following any termination of employment with the company and prior to the
payment of any amounts delayed on account of Section 409A, those amounts will be paid to the personal representative of the participant’s estate within 30 days following the date of the participant’s death; and •interest will not accrue on any amounts during the periods of delay described above. Amendments and Termination The 2024 Plan may be amended or terminated at any time by our Board or the Compensation Committeecommittee, except that no amendment or termination can impair the rights of a participant under an award granted prior to consider. Although this is an advisory vote,the amendment or termination without the participant’s consent unless expressly authorized by the 2024 Plan. Subject to the specific prohibitions described below, the Board and the result accordinglycommittee have the authority to amend the 2024 Plan and outstanding awards to take into account changes in applicable securities and tax laws and accounting rules, as well as other developments. The company will submit to the shareholders for approval any plan amendment that is required to be approved by shareholders by any regulatory authority or stock exchange on which the common shares are listed. Unless changes in applicable law and legal requirements otherwise permit, shareholder approval will also be required for any amendment that would: •increase the total number of shares of stock (other than adjustments described above under “– Shares Available for Issuance”) that may be: •issued under the 2024 Plan; •issued to any eligible person during any calendar year; or •the subject of stock options and stock appreciation rights granted to any eligible person; •permit the granting of stock options or stock appreciation rights with an exercise price lower than fair market value at the date of grant; or •change the eligibility requirements for the 2024 Plan. The committee, at any time, may also amend the terms of any outstanding award, but other than adjustments described above or creating Alternative Awards in connection with a change in control, no amendment of an award agreement can impair the rights of a participant under an outstanding award without the participant’s consent, or make an applicable exemption provided by Rule 16b-3 under the Exchange Act unavailable to a participant subject to Section 16 of the Exchange Act without his or her consent. In no event can an amendment to an outstanding award be made if the award is subject to the restrictions on deferred compensation under Section 409A of the Internal Revenue Code and the amendment would cause the award to be subject to adverse tax consequences to the participant under Section 409A. In addition, except for adjustments as described above: •no stock option or stock appreciation right can be amended to decrease the option exercise or strike price/base value of the award; •no stock option or stock appreciation right can be cancelled in exchange for either: •a cash payment exceeding the excess of the fair market value of the shares covered by the award over the corresponding option exercise or strike price/base value for the award; or •the grant of a new option with a lower exercise price or a stock appreciation right with a lower strike price/base value; and •no stock option or stock appreciation right can be subject to any action that would be treated under the rules of the NYSE (or any other exchange on which our common shares may be listed at that time) as a “repricing” of the award unless the action is approved by the company’s shareholders. Term of the 2024 Plan No award can be granted under the 2024 Plan after January 31, 2034; however, awards granted prior to that date can extend beyond that date. DESCRIPTION OF FEDERAL INCOME TAX CONSEQUENCES UNDER THE 2024 PLAN The following is a summary of certain Federal income tax consequences of awards made under the 2024 Plan based on provisions of the Internal Revenue Code in effect as of the date of this Proxy Statement, which are subject to change. The summary does not cover any state, local, foreign, or other tax consequences of participation in the 2024 Plan. This summary is general in nature and does not take into account a number of considerations which may apply in light of the circumstances of any given participant under the 2024 Plan. Restricted Stock Units A participant will not recognize taxable income at the time of grant of a restricted stock unit and we will not be bindingentitled to a tax deduction at that time. A participant will recognize compensation taxable as ordinary income (and subject to income tax withholding) at the time of settlement of the award, equal to the fair market value of any shares delivered (determined at that time) and the amount of cash paid by us, and we will be entitled to a corresponding deduction at that time, except to the extent the deduction limits of Section 162(m) apply. Restricted Stock In general, a participant will not recognize taxable income at the time of grant of shares of restricted stock, and we will not be entitled to a tax deduction at that time, unless the participant makes an election under Section 83(b) of the Internal Revenue Code to
be taxed at that time. If such election is made, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding) at the time of the grant equal to the excess of the fair market value of the common shares at that time over the amount, if any, paid for those common shares. If an election is not made, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding) at the time the restrictions lapse in an amount equal to the excess of the fair market value of the common shares at that time over the amount, if any, paid for such common shares. We will be entitled to a corresponding deduction at the time the ordinary income is recognized by the participant, except to the extent the deduction limits of Section 162(m) apply. In addition, a participant receiving dividends with respect to restricted stock for which the above-described election has not been made and prior to the time the restrictions lapse will recognize compensation taxable as ordinary income (and subject to income tax withholding), rather than dividend income. We will be entitled to a corresponding deduction at that time, except to the extent the deduction limits of Section 162(m) apply. Non-Qualified Stock Options For stock options that are non-qualified stock options with an exercise price equal to or greater than the fair market value of the common shares on the Board, our Compensation Committeedate of grant, no income is recognized by the participant at the time the stock option is granted. A participant will considerrecognize compensation taxable as ordinary income (and subject to income tax withholding) upon exercise of a non-qualified stock option equal to the outcomeexcess of the vote and any related communications from shareholders when evaluatingfair market value of the effectiveness of our compensation program and determining future plans and awards. Basedcommon shares on the foregoing,date of exercise over the Board is seeking shareholder approvalexercise price, and we generally will be entitled to a corresponding deduction at that time, except to the extent the deduction limits of Section 162(m) apply.
Incentive Stock Options A participant will not recognize taxable income at the time of grant of an incentive stock option. A participant will not recognize taxable income (except for purposes of the following:alternative minimum tax) upon exercise of an incentive stock option. If the common shares acquired by exercise of an incentive stock option are held for the longer of two years from the date the stock option was granted and one year from the date the common shares were transferred to the participant, any gain or loss arising from a subsequent disposition of those common shares will be taxed as long-term capital gain or loss, and we will not be entitled to any deduction. RESOLVEDIf, however, those common shares are disposed of at a gain within such two- or one-year periods, then in the year of disposition the participant will recognize
compensation taxable as ordinary income equal to the excess of the lesser of the amount realized upon such disposition and the fair market value of the common shares on the date of exercise over the exercise price, and we generally will be entitled to a corresponding deduction at that time, except to the extent the deduction limits of Section 162(m) apply. Any excess of the amount realized on the disposition date over the fair market value of the common shares on the exercise date will be treated as capital gain. For the purposes of computing a participant’s alternative minimum tax, the excess of the fair market value of the common shares at the time of exercise over the option price is an item of tax preference, unless there is a disposition of the shares acquired upon exercise in the same taxable year of exercise. Stock Appreciation Rights Generally, a participant will not recognize taxable income at the time of grant of a stock appreciation right, and we will not be entitled to a tax deduction at that time. Upon exercise, a participant will recognize compensation taxable as ordinary income (and subject to income tax withholding) equal to the fair market value of any common shares delivered (determined at that time) and the amount of cash paid by us, and we generally will be entitled to a corresponding deduction at that time, except to the extent the deduction limits of Section 162(m) apply. Dividend Equivalents In general, with respect to dividend equivalents, a participant will recognize compensation taxable as ordinary income when the dividend equivalents are paid to the participant equal to the amount being paid (which may include accrued interest), and we generally will be entitled to a corresponding deduction at that time, subject to the deduction limits under Section 162(m). Section 409A Section 409A of the Internal Revenue Code provides that if, at any time during a taxable year, a “non-qualified deferred compensation plan” or arrangement fails to meet the requirements of Section 409A (a “non-qualified plan”), is not operated in accordance with those requirements or is not otherwise exempt or excluded from the requirements of Section 409A, all of an employee’s compensation that was deferred under the non-qualified plan (or any other plan required to be aggregated with the non-qualified plan) for the taxable year and all preceding years will be included in the employee’s gross income, but only to the extent that the compensation paidwas not subject to a substantial risk of forfeiture and not previously included in gross income. In addition to the company’s named executive officers,tax imposed on that compensation, the employee’s tax for the taxable year will be increased by interest and an additional tax equal to 20% of such compensation.
The 2024 Plan is intended to comply with the requirements of Section 409A or an exemption or exclusion therefrom and, with respect to awards and amounts that are subject to Section 409A, it is intended that the 2024 Plan will be administered in all respects in accordance with Section 409A. See “– Description of the 2024 Plan – Section 409A of the Internal Revenue Code.” The foregoing general tax discussion is intended for the information of shareholders considering how to vote with respect to this proposal and not as disclosedtax guidance to participants in the company’s Proxy Statement dated March 30, 2018, pursuant2024 Plan. Participants in the 2024 Plan should consult with their tax advisors as to Item 402the Federal, state, local, foreign, and other tax consequences of Regulation S-K, including Compensation Discussion and Analysis, compensation tables, and narrative discussions, is hereby APPROVED.their receipt of awards under the 2024 Plan.
| | | | | | | | | | | | | | | | The Board of Directors recommends that you vote FOR this proposal. |
VOTE REQUIRED FOR APPROVAL The affirmative vote of a majority of the votes cast on this proposal is required for approval of this proposal. Abstentions and unvoted shares, including broker non-votes, will not be considered by us as votes cast.
ITEM 3: ADVISORY VOTE TO APPROVE OUR EXECUTIVE COMPENSATION PROGRAM This proposal presents shareholders with the opportunity to cast an advisory vote to approve our compensation program for our executive officers in accordance with Section 14A of the Securities Exchange Act of 1934 (Exchange Act). We currently conduct advisory shareholder votes on our executive compensation program annually. Our executive compensation philosophy and our compensation program, plans, and awards for 2023 for our named executive officers, are described above in “Compensation Discussion and Analysis” and in “Executive Compensation.” Our executive compensation program is intended to attract and retain qualified executives and motivate them to achieve both short-term and longer-term business results that management and the Compensation and Talent Committee believe will drive shareholder returns over time. While we seek to maintain a consistent compensation program from year to year (generally comprised principally of salary, performance-based and time-based equity awards, and annual cash incentives), the Compensation and Talent Committee sets the details of the applicable compensation awards for executive officers each year, including performance goals and the potential compensation levels that may be attained. The Compensation and Talent Committee also considers modifications to the program, for example in the context of external hiring. Our named executive officers’ pay is heavily weighted toward performance-based compensation and equity-based awards and is intended to align our executives’ interests with those of our shareholders. We believe that the amount of compensation paid to our executives is reasonable and competitive with similarly sized public companies, although generally above median compensation can be earned when aggressive performance goals are achieved under our various incentive plans. We provide limited perquisites to executives, while including competitive health and welfare benefits, deferral rights, and limited severance rights. We do not provide pensions or supplemental retirement benefits to our executives. Our Board recognizes the fundamental interest you, our shareholders, have in our executive compensation practices. We value your input on these matters and encourage you to contact the Board through one of the methods outlined above under “Other Board of Directors Information – Communications with the Board of Directors” should you have specific points of view or concerns that you would like the Board or the Compensation and Talent Committee to consider. Although this is an advisory vote, and the result accordingly will not be binding on the Board, our Compensation and Talent Committee will consider the outcome of the vote and any related communications from shareholders when evaluating the effectiveness of our compensation program and determining future plans and awards. Based on the foregoing, the Board is seeking shareholder approval of the following: RESOLVED, that the compensation paid to the company’s named executive officers, as disclosed in the company’s Proxy Statement dated March 25, 2024, pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables, and narrative discussions, is hereby APPROVED. | | | | | | | | | | | | | | | | The Board of Directors recommends that you vote FOR this proposal. |
VOTE REQUIRED FOR APPROVAL If a majority of the votes cast are cast “FOR” the proposal, shareholders will have approved our current executive compensation program. Abstentions and unvoted shares, including broker non-votes, will not be considered by us as votes cast. | | | | | | The Board of Directors recommends that you vote FOR this proposal. |
ITEM 3:4: PROPOSAL TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 20182024 The Audit Committee of the Board of Directors has appointed PricewaterhouseCoopers LLP ("PwC")(PwC) as the independent registered public accounting firm to perform an integrated audit of the consolidated financial statements of The Progressive Corporation and its subsidiaries for the year ending December 31, 20182024, and the effectiveness of the company’s internal control over financial reporting as of December 31, 2018.2024. The Committeecommittee is directly responsible for the appointment, compensation, retention, and oversight of the company’s independent registered public accounting firm and it oversees the negotiation of the fees that are paid for these services. In the course of these responsibilities, the Committeecommittee periodically considers whether it would be in the company’s and shareholders’ interests to change the company’s independent registered public accounting firm. In addition, the Committeecommittee ensures the regular rotation of the lead audit partner, and in connection with that rotation, the Committeecommittee and its ChairmanChair are involved in the selection of the new lead audit partner. PwC's current lead audit partner has been in place since the 20172022 audit. After reviewing
In connection with the performance2023 audit, the committee continued its practice of conducting an annual, formal review of PwC’s performance. This process involves feedback from committee members, management, and PwC inconcerning various dimensions of PwC’s work, including the coursequality of its 2017services, relevant skills, audit planning and execution, sufficiency of resources, communication and interactions, and the auditor’s independence, objectivity, and professional skepticism. In evaluating PwC’s independence, among other matters,the committee further considers the extent of non-audit services performed by PwC, which could adversely impact PwC’s independence and objectivity. Based on these reviews, the Audit Committee believes that the continued retention of PwC to serve as the company’s independent registered public accounting firm for 20182024 is in the best interests of the company and its shareholders. Pursuant to this proposal, we are asking shareholders to ratify the Committee’scommittee’s selection of PwC. If shareholders do not ratify the appointment of PwC, the selection of the independent registered public accounting firm will be reconsidered by the Audit Committee, but the Committeecommittee may decide to continue the engagement of PwC for 2018,2024, due to difficulties in making such a transition after the year has begun. In such a case, the Committeecommittee would again consider such a vote in connection with the selection of the independent registered public accounting firm for 2019.2025. PwC has been our external auditors continuously since 1998, when its predecessor merged with Coopers & Lybrand, which had been our external auditors continuously since 1984. | | | | | | | | | | | | | | | | The Board of Directors recommends that you vote FOR this proposal. |
VOTE REQUIRED FOR APPROVAL The affirmative vote of a majority of the votes cast on this proposal is required for approval. Abstentions and unvoted shares will not be considered by us as votes cast. | | | | | | The Board of Directors recommends that you vote FOR this proposal. |
OTHER INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM INFORMATION Approval of Audit and Non-Audit ServicesAPPROVAL OF AUDIT AND NON-AUDIT SERVICES The Audit Committee of the Board of Directors requires that each engagement of PwC, or other appointed independent auditors, to perform any audit or permissible non-audit services including the fees and terms of the engagement, must be approved by the Committee,committee or be entered into under the committee’s pre-approved authority described below. The committee expects that most engagements will be approved by the Chairman ofcommittee at the Committee (who has authority to approve engagements arising between Committee meetings, not to exceed $50,000 in the aggregate), before engagingtime that the independent auditor is engaged for its annual audit services. Proposed services that arise thereafter may be separately reviewed and, if appropriate, approved by the particular service.committee. In addition, the Audit Committeecommittee has authorized management, between regular committee meetings, to enter into specific categories of services on a pre-approved a budgetbasis, subject to specific dollar caps. Those pre-approved categories include services relating to: •securities offerings; •financial statements and public disclosures for specific auditSEC and non-audit servicesinsurance regulatory filings; •the operation or implementation of up to $25,000 per quarter for the following services: Services associated with SEC registration statements, periodic reports, and other documents filed with the SEC, such as research and advice regarding the accounting or disclosure treatment of certain transactions;
Consultations with the company’s management assystems or processes;
•acquisitions, divestitures, or other transactions; •state and local taxes; and •ordinary course purchases of accounting tools, education, and similar items. All engagements entered into under this pre-approved authority must be reported to the accounting or disclosure treatment of transactions or impact of final or proposed rules, standards, or interpretations by the SEC, Financial Accounting Standards Board, or other regulatory or standard setting bodies; Expanded audit procedures related to accounting records required to respond to or comply with financial, accounting, or regulatory reporting matters;
Assistance in connection with financial or market conduct reviews conducted by state insurance regulatory authorities; and
Advice regarding tax and accounting treatment related to executive and employee stock or other compensation plans.
committee at its next regular meeting. The Committeecommittee has not adopted any other policies or procedures that would permit management to engage PwC or any other appointed independent auditor for non-audit services without the specific prior approval of the Committee or its Chairman.committee.
Independent Registered Public Accounting Firm Fees
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES
Following are the aggregate fees billed by PwC for the fiscal years ended December 31, 2017 and 2016:31: | | | | | | | | | | Fees | 2023 | 2022 | | Audit | $ | 5,790,624 | | $ | 5,806,505 | | | Audit-related | 1,333,614 | | 967,732 | | | Tax | 9,505 | | 60,118 | | | Other | 129,858 | | 147,494 | | | Total | $ | 7,263,601 | | $ | 6,981,849 | |
| | | | | | | | | Fees | 2017 |
| 2016 |
| | Audit | $ | 3,419,200 |
| $ | 3,204,660 |
| | Audit-related | 206,400 |
| 81,500 |
| | Tax | — |
| 17,839 |
| | Total | $ | 3,625,600 |
| $ | 3,303,999 |
|
•Audit fees. Amounts include professional services rendered for the integrated audit of Progressive’s consolidated financial statements, statutory audits, and the audit of our internal controlcontrols over financial reporting. •Audit-related fees. feesAmounts include PwC’s audit procedures in connection with the implementation of new systems and providing assurance on our issuances of debt securities, various non-audit research and consultation, and acquisition-related items.internal controls for reliance by third-parties. •Tax fees. Amounts include fees for tax compliance, planning, consultation, and advice. •Other Amounts include PwC’s attestation services, along with fees for data we purchased from them. All of these fees were either pre-approved by the Audit Committee, or by its Chairman pursuant to delegatedentered into under the pre-approved authority as described above.previously described. Representatives of PwC are expected to be present at the Annual Meeting. They will have the opportunity to make a statement about Progressive’s financial condition, if they desire to do so, and will be available to respond to appropriate questions.
ITEM 5: SHAREHOLDER PROPOSAL We expect the following proposal (Item 5 on the proxy card and voting instruction card) to be presented by the National Center for Public Policy Research for consideration at the annual meeting. The shareholder proponent’s address and shareholdings will be supplied promptly upon oral or written request. Following SEC rules, other than minor formatting changes, we are reprinting the proposal and supporting statement as it was submitted to us. | | | Report to Shareholders on Risks Created by the Company's Diversity, Equity, and Inclusion Efforts
WHEREAS:
The US Supreme Court ruled in SFFA v. Harvard on June 29, 2023, that discriminating on the basis of race in college admissions violates the equal protection clause of the 14th Amendment.1
Attorneys General of 13 States warned Fortune 100 companies on July 13, 2023, that SFFA implicated corporate diversity, equity, and inclusion (DEI) programs.2
Prior legal advice regarding the legality of racially discriminatory programs has been called into question post-SFFA.3
Recent analysis of American Fortune 100 hiring in the wake of the 2020 race riots found that whites were excluded from 94% of the hiring decisions,4 a statistic that itself provides prima facie proof of illegal discrimination on the basis of race by these companies, given that whites constitute 76% of the American population.5 A review of Progressive's website on Nov. 21, 2023, revealed that Progressive has possibly implemented illegal racial quotas by (1) setting "an ambitious goal to double the representation of people of color in senior leadership from 10% to 20% by the end of 2025,"6 and (2) implementing hiring practices resulting in 21 percent of Progressive employees being Black even though Blacks only make up 12 percent of the U.S. population, which may explain why Asians and "LatinX" employees are underrepresented.7 The foregoing may partly explain why a 2022 article in Insurance Business ran under a headline that read in part: "Progressive slammed for 'woke' hiring practices."8
RESOLVED:
Shareholders ask that the board commission and publish a report on (1) whether the Company engages in any practices directly or indirectly associated with diversity, equity, and inclusion (DEI) initiatives that may create risks of discriminating illegally on bases such as race and sex, thereby potentially triggering justice-seeking responses from stakeholders of the company (including employees, suppliers, contractors, and retained professionals), and (2) the potential costs of such discrimination to the business.
SUPPORTING STATEMENT:
In just the past year, a corporation was successfully sued for a single case of discrimination against a white employee resulting in an award of more than $25 million.9 The risk of being sued for such discrimination appears only to be rising.10 With over 50,000 employees,11 Progressive likely has at least 37,000 employees who are potentially the victims of this type of illegal discrimination because they are white, Asian, male, or straight.12 Accordingly, even if only 10 percent of such employees were to file suit, and only 10 percent of those prove successful, the cost to the company could exceed $9 billion. And while racial equity audits can cost up to $4 million, this report should cost much less, as it need review only the potentially discriminatory programs, unless Progressive has established so many such programs that its liability for this discrimination must be expected to be much higher.
| |
| | | 1 https://www.scotusblog.com/case-files/cases/students-for-fair-admissions-inc-v-president-fellows-of-harvard-college/ 2https://ag.ks.gov/docs/default-source/documents/corporate-racial-discrimination-multistate-letter.pdf?sfvrsn=968abc1a_2 3 https://freebeacon.com/democrats/starbucks-hired-eric-holder-to-conduct-a-civil-rights-audit-the-policies-he-blessed-got-the-coffee-maker-sued/ 4https://www.bloomberg.com/graphics/2023-black-lives-matter-equal-opportunity-corporate-diversity/ https://www.dailywire.com/news/bloomberg-flubs-data-for-bombshell-report-that-only-6-of-new-corporate-hires-are-white 5https://www.census.gov/quickfacts/fact/table/US/PST045222 6https://www.progressive.com/about/diversity-and-inclusion/ 7 Id. 8https://www.insurancebusinessmag.com/us/news/breaking-news/ceo-steps-in-as-progressive-slammed-for-woke-hiring-practices-406351.aspx 9https://www.foxbusiness.com/features/starbucks-manager-shannon-phillips-wins-25-million-lawsuit-fired-white-donte-robinson-rashon-nelson 10 See, e.g., https://aflegal.org/america-first-legal-files-class-action-lawsuit-against-progressive-insurance-for-illegal-racial-discrimination/; https://aflegal.org/afl-files-federal-civil-rights-complaint-against-activision-for-illegal-racist-sexist-and-discriminatory-hiring-practices-and-sends-letter-to-activision-board-demanding-they-end-unlawful-dei-polici/; https://aflegal.org/america-first-legal-files-federal-civil-rights-complaint-against-kelloggs-warns-management-that-its-violating-fiduciary-duties/ 11https://www.progressive.com/careers/ 12https://www.census.gov/quickfacts/fact/table/US/PST045222 |
Our Board’s Statement in Opposition
The Board has considered the proposal and believes that the proposal would not be in the best interests of the Company or its shareholders.
The Board maintains active oversight. Progressive regularly monitors and reviews its Diversity, Equity, and Inclusion (DEI) programs and efforts to assess their effectiveness and to evaluate and address any potential risks associated with them. The Board engages regularly with management on these matters, and has done so for many years, consistent with Progressive’s longstanding approach to fostering a healthy and engaging work environment. The Board oversees these programs and efforts and their related risks through the Compensation and Talent Committee.
Our DEI programs and initiatives are longstanding, inclusive, and designed to comply with law. DEI is nothing new at Progressive. Our commitment to the underlying principles of DEI stretches back well over a decade, since long before DEI became the subject of heightened external attention. Indeed, our DEI philosophy is integral to how we do business and stems directly from our five longstanding Core Values: Integrity, Golden Rule, Objectives, Excellence, and Profit.
For us, DEI is about nurturing an inclusive culture that empowers all Progressive people to learn, grow, and reach toward their career aspirations. DEI is not a standalone initiative, but a foundation of our award-winning culture of welcoming difference and disagreement, challenging assumptions, and embracing new ideas. We believe this culture has helped us expand and grow our businesses and deliver superior performance and value creation for all of our shareholders—and additional career opportunities for all Progressive people. As such, we
believe DEI as we define and implement it is not only plainly lawful, but a business imperative.
We focus our DEI efforts on attracting, developing, and retaining talented, passionate people, regardless of demographic background. We seek people who care deeply about their work and each other, and we’re committed to providing our employees a work environment where they feel comfortable being themselves at work, introducing new ideas, and sharing different points of view. We also work hard to offer all Progressive employees the tools and support they need to excel in their roles, achieve their full potential, and find professional fulfillment and the motivation to build long-term careers at Progressive. Every day, our talented employees create innovative products and services, serve our customers, and work hard to help us achieve our Vision of becoming consumers’, agents’, and business owners’ No. 1 destination for insurance and other financial needs.
We integrate DEI into our workplace in many ways, all directed at creating an environment where all our people feel welcomed, valued, and respected. For example, we offer nine different Employee Resource Groups (ERGs), each of which is open to all employees and through which we build community, raise cultural awareness, and promote workplace inclusivity. Our ERGs serve not just to enhance our work environment, but to build our business by providing firsthand knowledge and information about opportunities to better serve our customers. We also host a recurring event, Inclusion Quarterly, which features a series of speakers, discussion groups, and storytelling focused on the themes of diversity, equity, and inclusion. These are just two of our many inclusive opportunities.
We believe the proposal fundamentally misunderstands the meaning and operation of DEI at Progressive. We do not have “quotas” for our workforce. We recognize the great breadth of diversity of our employees and of the external talent market, from demographic diversity to diversity of experiences, perspectives, backgrounds, and more. We recruit broadly, seeking to leave no corner of this diverse talent pool untapped, whether we’re hiring from within our workforce or from external markets. We believe that if our recruiting, retention, and development efforts are successful, and if we hire the best candidates for each of our openings, then we will naturally find diversity—in all its dimensions—in our candidate pools and, ultimately, at every level of our workforce.
We believe this proposal’s supposition that “Progressive likely has at least 37,000 employees who are potentially the victims of…illegal discrimination because they are white, Asian, male, or straight” is cynical, baseless, and runs counter to our longstanding commitment to non-discrimination. Progressive’s Code of Business Conduct and Ethics, which all Progressive people must follow, “prohibit[s] discrimination by or against any person on the basis of age, race, religion, color, sex, disability, national origin, ancestry, citizenship status, marital status, sexual orientation, gender identity or expression, military or veteran status or any other factor that is unrelated to Progressive’s legitimate business interests.” By suggesting that Progressive’s demographic makeup is driven by an “illegal racial quota” rather than the outcome of our thoughtful investments in culture and talent, the proposal supposes that hiring the best people is somehow incompatible with demographic diversity. We feel that our company’s accomplishments conclusively disprove this misguided view. Simply put, Progressive’s commitment to non-discrimination is foundational to our DEI philosophy, not at odds with it.
In sum, DEI at Progressive is focused on creating a meritocratic workplace where people from all walks of life can thrive and contribute to our success.
We believe the proposed report is unnecessary and would not meaningfully benefit shareholders. We recognize the importance of transparency and provide substantial disclosure concerning our workforce and DEI at Progressive. We believe these existing disclosures, including in our Corporate Sustainability Report, in SEC filings, and on our dedicated DEI site at progressive.com/about/diversity-and-inclusion, provide meaningful information that allows shareholders to determine the effectiveness of our DEI efforts. (These additional existing disclosures are not incorporated by reference in, and do not form part of, this Proxy Statement or any other SEC filing.)
| | | | For the reasons described above, the Board believes the requested report is unnecessary, would be a poor use of the Company’s resources, and would not be in the best interests of the Company or its shareholders. Therefore, the Board recommends that you vote AGAINST this proposal. |
VOTE REQUIRED FOR APPROVAL The affirmative vote of a majority of the votes cast on this proposal is required for approval. Abstentions and unvoted shares, including broker non-votes, will not be considered by us as votes cast.
OTHER MATTERS PROCEDURES FOR RECOMMENDATIONS AND NOMINATIONS OF DIRECTORS AND SHAREHOLDER PROPOSALS To Recommend a Candidate for our Board of Directors Pursuant to the Nominating and Governance Committee’s charter, the Board has adopted procedures for Progressive’s shareholders to propose director candidates and a policy of considering director candidates who are recommended by Progressive’s shareholders.such candidates. Any shareholder desiring to recommendpropose a candidate for election to the Board may do so by mailing to Progressive’s Secretary a written notice identifying the candidate. The written notice must also include the supporting information required by these procedures, the complete text of which can be found on our website at progressive.com/governance. governance.The notice and supporting information should be sent to the Secretary at the following address: Daniel P. Mascaro, David M. Stringer, Secretary The Progressive Corporation 6300 Wilson Mills Road Mayfield Village, OH 44143. 44143 Upon receipt, the Secretary will forward the notice and the other information provided to the Nominating and Governance Committee. Shareholders may recommend candidates to the Committeecommittee pursuant to the these procedures at any time. However, to be considered by the Committeecommittee in connection with Progressive’s 20192025 Annual Meeting of Shareholders, the Secretary must receive the shareholder’s recommendation and the information required information described above,by the procedures on our website on or before November 30, 2018.2024. The Committee’scommittee’s policy is to review and evaluate each candidate for nomination properly recommended by shareholders on the same basis as all other candidates, as previously discussed in "Item“Item 1: Election of Directors – Director Nominee Selection of Nominees for Director."Process.” The Committeecommittee will give strong preference to candidates who are likely to be deemed independent under SEC and NYSE rules. As to candidates recommended by a shareholder, the Committeecommittee may give more weight to candidates who are unaffilliatedunaffiliated with the shareholder recommending their nomination and to candidates who are recommended by long-standing shareholders with significant share ownership (i.e., greater than 1% of our common shares owned for more than two years). Upon the expiration of a director'sdirector’s term on the Board, that director will be given preference for nomination when the director indicates his or hertheir willingness to continue serving and, in the Committee'scommittee’s judgment, the director has made, and is likely to continue to make, significant contributions to the Board and Progressive. We will not publicize any decision by the Committeecommittee not to nominate a particular individual for election to the Board, unless required by applicable laws or NYSE rules. The Committeecommittee will have no obligation to respond to shareholders who recommend candidates that the Committeecommittee has determined not to nominate for election to the Board, but the Committeecommittee may choose to do so. To Nominate a Person for Election as a Director underUnder our Proxy Access Provision Under the proxy access provision in our Code of Regulations, an Eligible Shareholder who complies with the provision may nominate one or more individuals for election to the Board of Directors at an annual shareholders’ meeting and have the nomination included in the company’s proxy statement for that meeting. An Eligible Shareholder is a record or beneficial owner (or group of up to 20 record and/or beneficial owners) whothat has owned continuously for at least 3three years at least 3% of our outstanding common shares. A shareholder cannot be a part of more than one group nominating individuals for any particular annual meeting. Among other technical details, the proxy access provision includes rules to determine whether a record or beneficial holder “owns” the capital stockcommon shares of the company for purposes of the proxy access provision and addresses the treatment of loaned shares and hedging transactions. The number of nominees that can be nominated under the proxy access provision for any particular annual meeting cannot exceed one or 20% of the number of directors then in office (rounded down to the nearest whole number), whichever is greater, reduced by (a) the number of nominees for which the company has received nominations under a separate provision of our Code of Regulations related to shareholder nominations for director that are not intended to be included in the company’s proxy statement, (b) the number of directors or nominees that will be included in the proxy statement (as an unopposed (by the company) nominee) as a result of an agreement, arrangement, or other understanding between the company and a shareholder, and (c) the number of directors then in office who were originally nominated and elected through the proxy access provision and will again be included in the company’s proxy statement (except to the extent that any such director has served continuously for two terms as a nominee of the Board). If the company receives more nominations under the proxy access provision than are permitted, then the Eligible Shareholder with the
largest stock ownership will be able to nominate one individual, and the Eligible Shareholder with the second largest stock ownership will be able to nominate one individual, and so on until the number of permitted nominations is reached.
The deadline for an Eligible Shareholder to submit a shareholder nomination under the proxy access provision for the 20192025 Annual Meeting of Shareholders is December 3, 2018.November 25, 2024. For any nomination to be considered timely under the proxy access provision, the company must receive by the deadline the shareholder nomination and all required information and documentation described in our proxy access provision, and any supporting statement of 500 words or less that the Eligible Shareholder wishes to be included in the proxy statement. Shareholder nominations and related documentation should be sent to the Secretary at our principal executive offices located at 6300 Wilson Mills Road, Mayfield Village, OH 44143.the address set forth above. The proxy access provision has a number of additional limitations and requirements related to director nominations by Eligible Shareholders. Interested parties should refer toreview our Code of Regulations. To Nominate a Person for Election as a Director Under our Advance Notice Provision A shareholder who intends to nominate one or more individuals for election to the Board of Directors at an annual shareholders’ meeting but does not want the nomination included in the company’s proxy statement for that meeting, may nominate directors if the shareholder complies with the advance notice provision in our Code of Regulations. To nominate a director for election under the advance notice provision for the 2025 Annual Meeting of Shareholders, written notice must be received by the Secretary between January 10, 2025, and February 9, 2025, together with all required information described in the advance notice provision in our Code of Regulations. A shareholder’s notice should be sent to the Secretary at the address set forth above. In the event the date of the annual shareholders’ meeting is more than 30 days before or more than 60 days after the first anniversary of the immediately preceding year’s annual shareholders’ meeting, notice by the shareholder to be timely must be received not later than the 90th day prior to the current year’s annual meeting or, if later, the 10th day following the day on which public disclosure of the date of the current year’s annual meeting is first given to shareholders. In addition to the requirements of our advance notice provision, shareholders who intend to solicit proxies in support of director nominees other than the company’s nominees must also comply with the additional requirements of Rule 14a-19(b) under the Exchange Act (including a statement in the shareholder’s notice that such shareholder intends to solicit the holders of shares representing at least 67% of the voting power of shares entitled to vote on the election of directors in support of director nominees other than the company’s nominees). To Make a Shareholder Proposal Any shareholder who intends to present a proposal at the 20192025 Annual Meeting of Shareholders for inclusion in the proxy statementProxy Statement and form of proxy relating to that meeting in compliance with SEC Rule 14a-8 is advised that the proposal must be received by the Secretary at our principal executive offices located at 6300 Wilson Mills Road, Mayfield Village, OH 44143, not later than December 3, 2018.the address set forth above, on or before November 25, 2024. Shareholder proposals that are not intended to comply with Rule 14a-8 must be submitted to us between January 11, 201910, 2025, and February 10, 2019,9, 2025, together with the supporting information required by our Code of Regulations, to ensure that they may be presented at our Annual Meeting in 2019.2025. If a shareholder submits such a proposal after February 10, 2019,9, 2025, the presiding officer at the Annual Meeting may refuse to acknowledge the proposal. However, if the presiding officer allows the consideration of a proposal submitted after February 10, 2019,9, 2025, the proxies designated by the Board may exercise their discretionary voting authority with respect to any such proposal, without our discussing the proposal in our proxy materials. HOUSEHOLDING SEC regulations permit a single set of the Annual Report and Proxy Statement to be sent to any household at which two or more shareholders reside if they appear to be members of the same family. Each shareholder will continue to receive a separate proxy card. This procedure, referred to as householding, reduces the volume of duplicate information shareholders receive and reduces our mailing and printing costs. A number of brokerage firms have also instituted householding procedures. In accordance with a notice sent to certain beneficial shareholders who share a single address, only one copy of this Proxy Statement and the attached Annual Report will be sent to that address, unless any shareholder residing at that address gives contrary instructions. We will deliver promptly, upon written or oral request, a separate copy of this Proxy Statement and the attached Annual Report to a shareholder at a shared address to which a single copy of the documents was delivered.
A shareholder who wishes to receive a separate copy of the Proxy Statement and Annual Report, now or in the future, should submit thiscan make that request by: •calling toll-free: 1-866-540-7095; •writing to: The Progressive Corporation, Investor Relations, 6300 Wilson Mills Road, Box W33, Mayfield Village, OH 44143; or •emailing: investor_relations@progressive.com. Shareholders sharing an address who are receiving multiple copies of these materials maycan request to receive a single copy of such materials in the future by contacting us at the phone number or addresses provided above. CHARITABLE CONTRIBUTIONS Within the preceding three years, Progressive has not made a contribution to any charitable organization in which any of our directors serves as a director, trustee, or executive officer. The Progressive Insurance Foundation, which is a charitable foundation that receives contributions from Progressive, contributes to certain qualified tax-exempt organizations identified by our ERGs and others that are financially supportedrecommended by our employees. These contributions are made on a matching basis, and do not exceed $3,000 for each employee inemployees through the aggregate.Name Your Cause program. In matchinghonoring an employee’s gift,recommendation, the Foundation may have contributed to charitable organizations in which one or more of our directors, nominees, or executives may be affiliated as an executive officer, director, or trustee. See “Proxy Statement Summary – Human Capital Management – Diversity, Equity, and Inclusion” for more information. In addition, the Foundation sometimes contributes funds in honor of certain of our retiring executives and directors to qualified tax-exempt organizations chosen by the retiree. Within the preceding three years, no such
contribution was made to a charitable organization in which any of our directors serves as a director, trustee, or executive officer.
OTHER MATTERS
TheProgressive is paying the cost of this solicitation, including the reasonable expenses of brokerage firms and other record holders for forwarding these proxy materials to beneficial owners, will be paid by Progressive.owners. In addition to solicitation by mail, proxies may be solicited by telephone, facsimile, other electronic means, or in person. We have engaged the firm of Morrow Sodali LLC, 470 West Ave.,333 Ludlow Street, 5th Floor, South Tower, Stamford, CT 06902 to assist us in the solicitation of proxies at an estimated fee of $15,000$16,500 plus expenses. Proxies may also be solicited by our directors, officers, and employees without additional compensation.
PROXY VOTING MATTERS If any other matters properly come before the meeting, the persons named in the proxy, or their substitutes, will vote thereon in accordance with their judgment. The Board of Directors does not know at this time of any other matters that will be presented for action at the meeting.
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING Why did I receive these materials? You received these materials because you were a shareholder of The Progressive Corporation on March 15, 2024, the record date. We hold a meeting of our shareholders annually. This year, the Annual Meeting will be held entirely online via live audio-only webcast to allow for greater participation by all of our shareholders, regardless of their geographic location. At the meeting, shareholders will be asked to vote on the matters listed in the Notice of Annual Meeting of Shareholders. Since it is not practical or convenient for all shareholders to attend the virtual Annual Meeting, our Board of Directors is seeking your proxy to vote on these matters. What is a proxy? A proxy is the legal authority that you give to another person to vote the shares you own at our Annual Meeting. The person you designate to vote your shares also is referred to as your proxy. If you designate someone as your proxy in a written document, that document sometimes is referred to as a proxy or proxy card. When you submit a proxy card or you submit your vote online or by calling a toll-free number, the person named as your proxy is required to vote your shares at the Annual Meeting in the manner you have instructed. Voting by proxy ensures that your vote is counted without having to attend the Annual Meeting. Who is soliciting my proxy? This solicitation of proxies is made by and on behalf of our Board of Directors. The Board has approved the matters to be acted upon at the Annual Meeting. What is a proxy statement? This document (excluding the 2023 Annual Report to Shareholders, which is attached as an appendix) is our Proxy Statement. A proxy statement is a document that SEC regulations require us to give shareholders when we are soliciting shareholders’ proxies to vote their shares. This Proxy Statement and the Annual Report contain important information about The Progressive Corporation and its subsidiaries and affiliates, and about the matters that will be voted on at the Annual Meeting. Please read these materials carefully so that you have the information you need to make informed decisions. How do I access the live audio-only webcast option for the Annual Meeting? Any shareholder can listen and participate in the Annual Meeting via live audio-only webcast at virtualshareholdermeeting.com/PGR2024. The audio-only webcast will start at 10:00 a.m., eastern time. You will need your 16-digit control number that is shown on your proxy card or voting instruction form to vote and submit questions before or while attending the meeting online. If your voting instruction form does not include a 16-digit control number, you must contact your brokerage firm, bank, or other financial institution (“broker”) for instructions to access the meeting. If you do not have your 16-digit control number, you will still be able to attend the Annual Meeting as a “guest” and listen to the proceedings, but you will not be able to vote, ask questions, or otherwise participate. A replay of the audio-only webcast of our Annual Meeting will be made available on our website for approximately one year. The virtual meeting will be fully supported across browsers (Firefox, Chrome, Microsoft Edge, and Safari) and devices (desktops, laptops, tablets, and other mobile devices) running the most updated version of applicable software and plugins. We strongly recommend that you ensure you have a strong Wi-Fi or cell phone connection. Shareholders are encouraged to log into the webcast 15 minutes prior to the start of the meeting to provide time to register, test their internet or cell phone connectivity, and download the required software, if needed. What if I have technical or other IT problems logging into or participating in the Annual Meeting audio-only webcast? A toll-free technical support “help line” will be available on the morning of the Annual Meeting for any shareholder who is having challenges logging into or participating in the meeting. If you encounter technical difficulties, please call the technical support line number that will be posted on the virtual Annual Meeting login page at virtualshareholdermeeting.com/PGR2024. Technical support will be available 15 minutes before the start of the Annual Meeting and until the end of the meeting. The technical support will not be able to provide you with your 16-digit control number, however, so ensure that you have that number available prior to accessing the Annual Meeting. Can I ask questions before or during the Annual Meeting? Shareholders as of the record date may submit questions in advance of the Annual Meeting at proxyvote.com and shortly before or during the Annual Meeting through the virtual meeting platform at virtualshareholdermeeting.com/PGR2024. In order to submit questions online before the meeting or while attending the virtual meeting, you will need your 16-digit control number that is shown on your proxy
card or voting instruction form. If you enter the meeting as a guest, you will not be able to submit questions. Please refer to the Rules of Conduct and Procedures for the Annual Meeting that will be posted on the meeting website and our Investor Relations website at investors.progressive.com for more information. Who is entitled to vote at the Annual Meeting? Holders of our common shares at the close of business on March 15, 2024, the record date, are entitled to receive the Notice of Annual Meeting and Proxy Statement and to vote their shares at the Annual Meeting. Each share is entitled to one vote for each director nominee and on each other matter properly brought before the meeting. What is the difference between a “shareholder of record” and a shareholder who holds shares in “street-name?” If you hold Progressive common shares directly, either in stock certificate form or book-entry form, in your name with our transfer agent, Equiniti Trust Company, LLC, you are a “shareholder of record” (also known as a registered shareholder). The Notice of Annual Meeting, Proxy Statement, Annual Report to Shareholders, and proxy card have been sent directly to you by us or our representative. If you own your shares indirectly through a broker, your shares are said to be held in “street-name.” Technically, your broker votes those shares. In this case, these materials and a voting instruction form have been forwarded to you by your broker or their designated representative. Through this process, your broker collects voting instructions from all of its customers who hold Progressive common shares and then submits votes to us in accordance with those instructions. Under NYSE rules, we expect that your broker will NOT be able to vote your shares with respect to the election of directors, and Items 2, 3, and 5, UNLESS you provide voting instructions to your broker (see the question “What are broker discretionary voting and broker non-votes?” below for more information). We strongly encourage you to exercise your right to vote. How can I vote? Internet or Telephone All shareholders of record can vote online or by touch-tone telephone prior to 11:59 p.m., eastern time, on Thursday, May 9, 2024, from the U.S. and Canada, following the directions on the proxy card. Online and telephone voting for street-name holders is typically made available by brokers. If applicable to you, voting instructions will be included in the materials you receive from them. | | | | | | | | | | | | | | | | If you vote online or by telephone, you do not have to return your proxy card or voting instruction form. |
MailAll shareholders of record can vote using the enclosed proxy card. Please be sure to complete, sign, and date the proxy card and return it in the enclosed, prepaid envelope. If you are a street-name holder, you will receive from your broker information on how to submit your voting instructions. At the Virtual MeetingAll shareholders of record may vote online at the Annual Meeting. Street-name holders may vote online at the Annual Meeting if they obtain a 16-digit control number from their broker (typically on their voting instruction form). If you hold your shares in street-name and want to participate in the virtual Annual Meeting but did not receive a 16-digit control number, you must contact your broker for instructions to access the meeting. Participants in the 401(k) plan are not eligible to vote online at the virtual Annual Meeting. 401(k) Plan ParticipantsIf you hold shares through Progressive’s 401(k) plan, you will receive separate information on how to instruct the plan trustee to vote the shares held on your behalf under the plan. If your voting instructions are received before the trustee’s deadline, your 401(k) plan shares will be voted according to the instructions that you provide. If you do not specify your voting instructions in the manner required, your shares will not be voted. To allow the trustee sufficient time to process instructions, you must submit your voting instructions by 11:59 p.m., eastern time, on Tuesday, May 7, 2024. If I submit a proxy, may I later change or revoke it? Yes. If you are a shareholder of record, you may revoke your proxy at any time before votes are cast at the Annual Meeting by: •providing written notice to the Secretary of the company; •timely delivering a valid, later-dated, and signed proxy card or a later-dated vote via the Internet or by telephone prior to 11:59 p.m., eastern time, on Thursday, May 9, 2024; or •voting at the Annual Meeting. If you are a street-name holder of shares, you may submit new voting instructions by contacting your broker. You may also attend the audio-only webcast for the Annual Meeting and vote at the Annual Meeting, if you obtain a 16-digit control number as described in the answer to the previous question. If you hold shares through our 401(k) plan, you can change your voting instructions at any time prior to
11:59 p.m., eastern time, on Tuesday, May 7, 2024; voting of 401(k) plan shares at the Annual Meeting is not permitted. Only your last vote will be counted. All shares that have been properly voted and not revoked will be voted at the Annual Meeting as instructed. Who counts the votes? Votes will be tabulated by, or under the direction of, the Inspector(s) of Election, who may be our regular employee(s). The Inspector(s) of Election will certify the results of the voting.
What are my voting options and what vote is needed to pass the proposals included in this Proxy Statement? You have the right to vote FOR or AGAINST each director nominee and each other proposal, or to ABSTAIN from voting. Assuming that at least a majority of our common shares outstanding are present at the meeting either virtually or by proxy (called a quorum), the following table summarizes the vote required for approval regarding the director elections and each other proposal, as well as the Board’s voting recommendation. | | | | | | | | | | | | | | | | | | | | | | | | | | | Item
Number | Proposal | | Board
Recommendation | | Affirmative Vote Required for Approval1 | | Broker Discretionary Voting Allowed?2 | | | 1 | Elect as directors the 12 nominees identified in this Proxy Statement, each to serve for a term of one year | | FOR
each
nominee | | Majority of votes cast | | No | | | 2 | Approve The Progressive Corporation 2024 Equity Incentive Plan | | FOR | | Majority of votes cast | | No | | | 3 | Cast an advisory vote to approve our executive compensation program | | FOR | | Majority of votes cast | | No | | | 4 | Ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2024 | | FOR | | Majority of votes cast | | Yes | | | 5 | Act on a shareholder proposal, if properly presented | | AGAINST | | Majority of votes cast | | No | |
1 Abstentions and unvoted shares (including broker non-votes) will not be considered by us as votes cast. 2 See the question below entitled “What are broker discretionary voting and broker non-votes?” for additional explanation. What are broker discretionary voting and broker non-votes? For shares held in street-name, when a broker does not receive voting instructions from its customers, the question arises whether the broker is able to vote those shares. For us, the answer to that question depends on whether the NYSE classifies the matter being voted on as “routine” or “non-routine.” For routine matters, the NYSE gives brokers the discretion to vote, even if they have not received voting instructions from their customers (sometimes referred to as the beneficial owners). Each broker has its own policies that control whether or not it casts votes for routine matters. In this Proxy Statement, only the ratification of our independent registered public accounting firm (Item 4) is expected to be considered routine by the NYSE. For non-routine matters, the NYSE prohibits brokers from casting votes on behalf of the beneficial owners if the broker has not received voting instructions. When the broker is unable to vote under these rules, it reports the number of unvoted shares to us as “broker non-votes.” In this Proxy Statement, each item other than Item 4, the ratification of our independent registered public accounting firm, is expected to be considered non-routine by the NYSE. As a result, on each of those items, if you hold your shares in street-name, your shares will NOT be voted unless you give instructions to your broker. The NYSE will make final determinations about our proposals and will inform the brokers whether each proposal is considered routine or non-routine. To ensure that your shares are voted, we strongly encourage you to provide your broker with your voting instructions. Can I access the proxy materials on the Internet? Yes. The proxy materials and our Annual Report to Shareholders are available on a dedicated website at progressiveproxy.com. In addition, our Annual Report on Form 10-K is available at the Investor Relations section of our website at progressive.com/sec. If you hold your shares in street-name, your broker may also provide you copies of these documents electronically. Please check the information provided in the proxy materials delivered to you by your broker regarding the availability of this service.
AVAILABLE INFORMATION Progressive’s Corporate Governance Guidelines, Board of Director Committee Charters, our Code of Business Conduct and Ethics, for directors, officers, and employees and our CEO/Senior Financial Officer Code of Ethics for our CEO, CFO, Chief Accounting Officer and a few other officers are available at progressive.com/governance or may be requested in print. You can also request printed copies of these documents by writing to The Progressive Corporation, Investor Relations, 6300 Wilson Mills Road, Box W33, Mayfield Village, OH 44143.44143 or emailing investor_relations@progressive.com. We will furnish, without charge, to each person to whom a Proxy Statement is delivered upon oral or written request, a copy of our Annual Report on Form 10-K for 20172023 (other than certain exhibits). RequestsYou can make that request by writing or calling us. Written requests for suchthese documents should be submitted in writingsent to Jeffrey W. Basch, Chief Accounting Officer, The Progressive Corporation, Investor Relations, 6300 Wilson Mills Road, Box W33, Mayfield Village, OH 44143 by telephoneor emailed to investor_relations@progressive.com. Or you can call us at (440) 395-2222, or email at investor_relations@progressive.com.440-395-2222 to request these documents. By Order of the Board of Directors.Directors, Daniel P. Mascaro, David M. Stringer, Secretary
March 30, 201825, 2024
THE PROGRESSIVE CORPORATION
2024 EQUITY INCENTIVE PLAN
SECTION 1. Establishment; Definitions.
(a) The Progressive Corporation, an Ohio corporation (the “Company”), hereby establishes an incentive compensation plan for key employees, to be known as “The Progressive Corporation 2024 Equity Incentive Plan,” as set forth in this document. The Plan permits the grant of Restricted Stock Units, Restricted Stock, Stock Options, Stock Appreciation Rights and Dividend Equivalents to key employees of the Company and its Subsidiaries and Affiliates. The purpose of the Plan is to enable the Company to attract, retain, motivate and reward key employees of the Company and its Subsidiaries and Affiliates and strengthen the mutuality of interests between such key employees and the Company’s shareholders by offering such key employees equity or equity-based incentives.
(b) For purposes of the Plan, the following terms shall have the meanings set forth below:
“Affiliate” means any entity (other than the Company and its Subsidiaries) that the Company, directly or indirectly, controls, is controlled by or is under common control with, determined by the possession of the power to direct or cause the direction of management or policies of such entity (through ownership of securities, by contract or otherwise).
“Award” means any award of Restricted Stock Units, Restricted Stock, Stock Options, Stock Appreciation Rights or Dividend Equivalents under the Plan.
“Award Agreement” means a written or electronic agreement or grant certificate setting forth the terms and conditions applicable to an Award granted to a Participant under the Plan.
“Award Installment” means, (i) if an Award consists of multiple installments, each with a separate Vesting Date, Expiration Date and/or other unique term or condition, any one of such installments, or (ii) if the Award consists of a single installment, then the entire Award.
“Automatic Exercise Date” means, with respect to an Option or a Stock Appreciation Right, the last business day of the applicable Option Term or Stock Appreciation Right term that was established by the Committee for such Option or Stock Appreciation Right (e.g., the last business day prior to the 10th anniversary of the date of grant of such Option or Stock Appreciation Right if the Option or Stock Appreciation Right initially had a 10-year Option Term or Stock Appreciation Right term, as applicable); provided that with respect to an Option or Stock Appreciation Right that has been amended pursuant to this Plan so as to alter the applicable Option Term or Stock Appreciation Right term, “Automatic Exercise Date” shall mean the last business day of the applicable Option Term or Stock Appreciation Right term that was established by the Committee for such Option or Stock Appreciation Right as amended.
“Board” means the Board of Directors of the Company.
“Cause” means, unless otherwise determined by the Committee and stated in the Award Agreement for any Award: a felony conviction of a Participant or the failure of a Participant to contest prosecution for a felony; a Participant’s willful misconduct or dishonesty, any of which, in the judgment of the Committee, is harmful to the business or reputation of the Company or any Subsidiary or Affiliate; or any material violation of any of the provisions of a Code of Conduct, or of any confidentiality agreement, non-solicitation agreement, or other agreement between the Participant and the Company or any Subsidiary or Affiliate.
“Change in Control” means the happening of any of the following events:
(i) An acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (1) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control: (w) any acquisition directly from the Company, (x) any acquisition by the Company, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, or (z) any acquisition by any entity pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (iii) of this definition); or
(ii) A change in the composition of the Board such that the individuals who, as of the Plan Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that, for purposes of this definition, any individual who becomes a member of the Board subsequent to the Plan Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be considered as a member of the Incumbent Board; or
(iii) The consummation of a reorganization, merger, statutory share exchange or consolidation or similar transaction involving the Company or any of its subsidiaries or sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or securities of another entity by the Company or any of its subsidiaries (a “Business Combination”), in each case, unless, following such Business Combination, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock (or, for a noncorporate entity, equivalent securities) and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors (or, for a noncorporate entity, equivalent securities), as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any entity resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 30% or more of, respectively, the then outstanding shares of common stock (or, for a noncorporate entity, equivalent securities) of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the Business Combination, and (3) at least a majority of the members of the board of directors (or, for a noncorporate entity, equivalent body or committee) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(iv) The approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
“Change in Control Price” means the Fair Market Value of the Stock on the New York Stock Exchange Composite Index on the last full trading day immediately preceding the occurrence of the Change in Control.
“Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto, and all regulations promulgated thereunder.
“Code of Conduct” means the Company’s Code of Business Conduct and Ethics, Chief Executive Officer/Senior Financial Officer Code of Ethics, or any other Company code or standards of conduct applicable to the Participant from time to time.
“Committee” means the Compensation and Talent Committee of the Board or a subcommittee of that committee.
“Company” means The Progressive Corporation, an Ohio corporation, or any successor corporation (which, following a Change in Control where the Company becomes a wholly-owned Affiliate of another Person, shall mean the ultimate parent entity of such Person (if such Person is not the ultimate parent entity) (the “New Company”)).
“Disability” means, unless otherwise provided in an Award Agreement, permanent and total disability as determined under the Company’s long-term disability plan applicable to the Participant.
“Disqualification Date” means the earliest date as of which the Participant engaged in any Disqualifying Activity, as determined by the Committee.
“Disqualifying Activity” means any of the following acts or activities:
(i) directly or indirectly serving as a principal, shareholder, partner, director, officer, employee or agent of, or as a consultant or advisor or in any other capacity to, any business or entity which competes with the Company or its Subsidiaries or Affiliates in any business or activity then conducted by the Company or any of its Subsidiaries or Affiliates to any extent deemed material by the Committee, without the Company’s prior written consent; or
(ii) any disclosure by the Participant, or any use by the Participant for his or her own benefit or for the benefit of any other person or entity (other than the Company or its Subsidiaries or Affiliates), of any confidential information or trade secret of the Company or any of its Subsidiaries or Affiliates without the prior written consent of the Company; or
(iii) any material violation of any of the provisions of any Code of Conduct or any agreement between the Participant and the Company, as determined by the Committee; or
(iv) making any other disclosure or taking any other action which is determined by the Committee to be materially detrimental to the business, prospects or reputation of the Company or any of its Subsidiaries or Affiliates; or
(v) the Participant’s failure, in any material respect, to perform his or her assigned responsibilities as an employee of the Company or any of its Subsidiaries or Affiliates, as determined by the Committee after consulting with the Chief Executive Officer or the Chief Human Resources Officer.
The ownership of less than 2% of the outstanding voting securities of a publicly traded corporation which competes with the Company or any of its Subsidiaries or Affiliates shall not constitute a Disqualifying Activity.
“Dividend Equivalent” means an amount equal to a cash dividend paid or the fair market value of property distributed by the Company in respect of one share of Stock.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Expiration Date” means the date upon which an Award, or any portion thereof, is scheduled to expire or terminate if not exercised or vested prior thereto, as determined by the Committee and set forth in the related Award Agreement.
“Fair Market Value” means, as of any given date, the average of the high and low quoted selling price of the Stock on such date on the New York Stock Exchange or, if no such sale of the Stock occurs on the New York Stock Exchange on such date, then such mean price on the next succeeding day on which the Stock was traded on the New York Stock Exchange. If the Stock is no longer traded on the New York Stock Exchange, then the Fair Market Value of the Stock shall be determined by the Committee in good faith.
“Good Reason” means, unless otherwise provided in any Award Agreement, on or after the date of a Change in Control, and subject to the notice and cure provisions contained in Section 11 below:
(i) any significant diminution in the Participant’s duties, position (including status, title and reporting requirements), authority, or responsibilities;
(ii) a decrease, as compared with the 6 months immediately preceding the Change in Control, in any of the Participant’s salary, rate of pay, cash bonus opportunity, allotted vacation time, the value of annual time-based and performance-based (if applicable) equity or other long-term incentive awards, or the prompt reimbursement of appropriate business expenses as set forth in the Company’s policies immediately prior to the Change in Control (or a reasonable replacement policy);
(iii) requiring the Participant to be based at an office location other than the location at which he or she was based immediately prior to the Change in Control if the change in office location would increase the Participant’s regular commute (using the most direct, commonly traveled route) by greater than 50 miles; or
(iv) denying the Participant the right to participate in savings, retirement and welfare benefit plans on the same basis (or a substantially similar basis) as is available to other similarly situated employees, subject to legal requirements (including under the Employee Retirement Income Security Act of 1974).
“Incentive Stock Option” means any Stock Option intended to be and designated as an “Incentive Stock Option”, which satisfies the requirements of Section 422 of the Code or any successor section thereto.
“Independent Director” means a director who satisfies the standards for an independent director as set forth in Section 303A.02 of the NYSE Listed Company Manual or any successor rule thereto.
“Non-Employee Director” shall have the meaning set forth in Rule 16b-3(b)(3)(i) promulgated by the Securities and Exchange Commission under the Exchange Act, or any successor definition adopted by the Commission. “Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.
“Option Exercise Price” means the price at which a share of Stock may be purchased by a Participant pursuant to the exercise of an Option, as determined by the Committee and set forth in the related Award Agreement.
“Option Installment” means an Award Installment of Stock Options.
“Option Term” means the period commencing on the grant date of a Stock Option and terminating on the Expiration Date of such Option.
“Participant” means any individual who received and holds an outstanding Award granted under the Plan.
“Performance-Based Award” means any Award that by the terms of the related Award Agreement is subject to vesting, in whole or in part, upon the Committee’s certification of the achievement of Performance Goals established by or under the direction of the Committee and set forth in the related Award Agreement.
“Performance Goals” means the one or more goals established by the Committee based upon business criteria or other performance measures determined by the Committee in its discretion. In determining if Performance Goals have been achieved, the Committee may exclude from any one or more applicable periods the impact of extraordinary, unusual and/or non-recurring items, including, without limitation, (v) any act of God or nature that adversely affects the Company’s business operations for a significant period of time, (w) any profit, loss or expense attributable to acquisitions or dispositions of stock, assets or any other portion of a business, (x) operating or financial results attributable to the operations of an entity or business acquired or disposed of by the Company, (y) gains or losses due to litigation or settlements, (z) all other items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence, and (aa) such other items as the Committee deems appropriate in its discretion. Unless expressly determined by the Committee at the time the Performance Goals for an Award are established and stated in the related Award Agreement, the satisfaction of any Performance Goals shall be determined by eliminating the impact of any change in accounting rules which becomes effective following the time such Performance Goal is established.
“Plan” means The Progressive Corporation 2024 Equity Incentive Plan, as amended from time to time.
“Prior Plan” means the Company’s 2015 Equity Incentive Plan, as amended from time to time.
“Qualified Retirement” means, unless otherwise determined by the Committee in any Award Agreement, any termination of a Participant’s employment with the Company or its Subsidiaries or Affiliates for any reason (excluding death, and an involuntary termination for Cause) that (a) qualifies as a “separation from service” within the meaning of Section 409A, and (b) occurs on or after the first day of the calendar month in which either of the following conditions are scheduled to be satisfied: (i) the Participant is 55 years of age or older and has completed at least 15 years of service as an employee of the Company or one or more of its Subsidiaries or Affiliates; or
(ii) the Participant is 60 years of age or older and has completed at least 10 years of service as an employee of the Company or one or more of its Subsidiaries or Affiliates.
“Qualified Retirement Date” means the date as of which a Participant’s employment with the Company or its Subsidiaries or Affiliates terminates pursuant to a Qualified Retirement.
“Qualified Retirement Eligibility Date” means the first day of the calendar month in which the Participant is scheduled to satisfy the age and years-of-service requirements for a Qualified Retirement.
“Restricted Stock” means shares of Stock granted pursuant to Section 7.
“Restricted Stock Unit” or “Unit” means the contractual right awarded pursuant to Section 6.
“Restriction Period” means the period commencing on the date of the Award and expiring on the date on which all restrictions thereon (including any delay in delivery of Stock imposed for purposes of Section 409A) have lapsed and all conditions to vesting of such Award have been satisfied.
“Section 16” means Section 16 of the Exchange Act (or any successor provision) and the regulations promulgated thereunder.
“Section 16 Participant” means an Eligible Person or Participant under the Plan who is then subject to Section 16.
“Section 409A” means Section 409A of the Code (or any successor provision) and the regulations and other guidance promulgated thereunder.
“Significant Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 80% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
“Stock” means the Common Shares, $1.00 par value per share, of the Company.
“Stock Appreciation Right” means rights granted pursuant to Section 9.
“Stock Option” or “Option” means any option to purchase shares of Stock granted pursuant to Section 8.
“Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
“Taxes” means, collectively, any federal, state, local or foreign withholding taxes due. “Time-Based Award” means any Award that by the terms of the related Award Agreement is subject to vesting if the Participant remains employed by the Company or one of its Subsidiaries or Affiliates for a specified time period determined by or under the direction of the Committee and specified in the related Award Agreement, or earlier if the Committee so determines at the time of grant, including under circumstances in which the Participant’s Qualified Retirement Eligibility Date precedes the grant date or occurs during the Restriction Period, provided all other conditions to vesting have been met.
“Vesting Date” means the date on which the conditions to vesting of an Award Installment are satisfied and such Award Installment vests.
SECTION 2. Administration.
(a) The Plan shall be administered by the Committee. The Committee shall consist of not less than two directors of the Company, all of whom shall be Non-Employee Directors and Independent Directors; provided, however, that, if at any time not all members are Non-Employee Directors and Independent Directors, all actions taken by the Committee shall nonetheless be valid for all purposes other than Section 16 of the Exchange Act, if applicable. Because the provisions of this Plan are intended to ensure that no transaction under this Plan is subject to (and all such transactions will be exempt from) the short-swing recovery rules of Section 16(b) of the Exchange Act, a subcommittee of the Board or the Committee shall be established subject to such limitations as the Board deems appropriate to permit
transactions pursuant to this Plan to be exempt (pursuant to Rule 16b-3 promulgated under the Exchange Act) from Section 16(b) of the Exchange Act. Committee members shall be appointed by the Board and shall serve on the Committee at the pleasure of the Board. The functions of the Committee specified in the Plan shall be exercised by the Board if and to the extent that no Committee exists which has the authority to so administer the Plan.
(b) The Committee shall have full power to interpret and administer the Plan and full authority to select the Eligible Persons to whom Awards will be granted and to determine the type and amount of Awards to be granted to each Eligible Person, the consideration, if any, to be paid for such Awards, the timing of such Awards, the terms and conditions of Awards granted under the Plan and the terms and conditions of the related Award Agreements which will be entered into with Eligible Persons. As to the selection of and grant of Awards to Eligible Persons who are not Section 16 Participants, the Committee shall have the power to delegate its authority and responsibilities to members of the Company’s management consistent with applicable law.
(c) The Committee shall have the authority, from time to time, to: adopt, alter, change and repeal such rules, regulations, guidelines and practices governing the Plan as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any Award Agreement relating thereto); and to direct employees of the Company or other advisors to prepare such materials or perform such analyses as the Committee deems necessary or appropriate; and otherwise to supervise the administration of the Plan. The Committee may consult with the Company’s management and retain consultants and advisors.
(d) Any interpretation and administration of the Plan by the Committee, and all actions (including discretionary actions) and determinations of the Committee, shall be final, binding and conclusive on the Company, its shareholders, Subsidiaries, Affiliates, all Participants in the Plan, their respective legal representatives, successors and assigns and all persons claiming under or through any of them; provided, however, notwithstanding the foregoing or the terms of any Award Agreement, following a Change in Control, any determination as to whether “Cause,” “Good Reason” or a “Disqualifying Activity” (or any terms of similar meaning applicable to an Award) exists shall be subject to de novo review by a court, arbitrator or other dispute resolution body, as applicable, in the event of a dispute.
(e) No member of the Board or of the Committee shall incur any liability for any action taken or omitted, or any determination made, in good faith in connection with the Plan.
SECTION 3. Stock Subject to the Plan.
(a) Aggregate Stock Subject to the Plan. Subject to adjustment as provided in Section 3(c) below, the total number of shares of Stock reserved and available for issuance pursuant to Awards under the Plan is (i) six million (6,000,000), plus (ii) the number of shares remaining available for the granting of awards under the Prior Plan as of the Plan Effective Date minus 300,000 shares of Stock or such greater number of shares as the Committee may determine prior to such date (which will remain in the Prior Plan to satisfy dividend equivalent rights on awards outstanding under the Prior Plan on such date and related to dividends and distributions to be paid after such date), plus (iii) any shares of Stock that relate to awards granted under the Prior Plan that are outstanding as of as of the Plan Effective Date and that subsequent to that date are cancelled, expired, forfeited or otherwise not issued (to the extent of such cancellation, expiration, forfeiture or lack of issuance). Any Stock issued hereunder may consist, in whole or in part, of authorized and unissued shares or treasury shares.
The actual or deemed reinvestment of dividends, other distributions or Dividend Equivalents in additional Stock, Restricted Stock or Restricted Stock Units, as applicable, shall only be permissible if, at the time of such actual or deemed reinvestment, sufficient shares of Stock are available under this Section 3 for such reinvestment (taking into account the then outstanding and previously granted Awards,
subject to Sections 3(b) and (c) below, including shares of Stock reserved in accordance with Section 5(b)(v)). If an Award provides for the reinvestment of Dividend Equivalents but Dividend Equivalents cannot be reinvested in additional Stock, Restricted Stock or Restricted Stock Units, as applicable, due to the operation of this Section 3(a), then the Committee may determine alternative mechanism(s) to credit the value of those Dividend Equivalents to the Participant or may discontinue the crediting of such Dividend Equivalents on a prospective basis only.
(b) Forfeiture or Termination of Awards or Stock. If all or any portion of an Award granted hereunder is forfeited or otherwise terminates or expires without the delivery of Stock, then the Stock that is subject to or reserved for the portion of the Award that is forfeited, terminated or expired shall again be available for issuance in connection with future Awards under the Plan as set forth in Section 3(a), except to the extent the Participant who had been awarded such forfeited, expired or terminated Award (or portion thereof) has theretofore received a benefit of ownership with respect to the Stock covered by such Award (or portion thereof). For purposes hereof, (i) a Participant shall not be deemed to have received a benefit of ownership with respect to an Award by the exercise of voting rights or the accumulation of dividends, other distributions or Dividend Equivalents which are not realized due to the expiration, forfeiture or termination of the related Award without delivery of such Stock to the Participant, and (ii) a Participant shall be deemed to have received a benefit of ownership with respect to any shares of Stock withheld to pay an Option Exercise Price or strike price/base value or to satisfy applicable Taxes in connection with an exercise or vesting of all or any portion of an Award. The number of shares of Stock available for grant under the Plan shall not be reduced by shares subject to Awards granted upon the assumption of or in substitution for awards granted by a business or entity that is merged into or acquired by (or whose assets are acquired by) the Company.
(c) Adjustment. In the event of any merger, reorganization, consolidation, recapitalization (including, without limitation, extraordinary cash dividends), share dividend, share split, reverse share split, spin-off, stock rights offering, liquidation, acquisition of property or shares, combination of shares or other similar event affecting the Company, the Committee shall make such substitution(s) or adjustment(s) as it deems appropriate and equitable to prevent dilution or enlargement of rights of Participants under the Plan to: (i) the aggregate number and kind of shares of Stock or other security(ies) reserved for issuance under the Plan (including any shares of Stock currently authorized by the Prior Plan and that increase the authorized shares under the Plan pursuant to Section 3(a)); (ii) the various maximum limitations on the number of shares of Stock or Units that may be subject to Awards set forth in Section 3(d) granted to any Participant during any calendar year or other period; (iii) the number and kind of shares of Stock or other securities subject to then outstanding Awards granted under the Plan; (iv) the Option Exercise Price of any outstanding Stock Option and strike price/base value of any outstanding Stock Appreciation Right; and (v) any vesting criteria (including Performance Goals) applicable to any outstanding Award under the relevant Award Agreement; provided, in each case, that no such adjustment authorized under this Section 3(c) shall be made to the extent that such adjustment would cause an Award to be subject to adverse tax consequences to the Participant under Section 409A. Notwithstanding the foregoing, the Committee may provide that the number of shares of Stock with respect to any Award shall always be a whole number, and for the payment of fractional shares to be paid out in cash. Any adjustment or substitutions made under this Section 3(c) need not be the same for all Participants.
(d) Limitations on Awards. No Eligible Person may be granted Awards under the Plan with respect to an aggregate of more than 1,500,000 shares of Stock (subject to adjustment as provided in Section 3(c) hereof) during any calendar year. In addition, no Eligible Person may be granted Options and Stock Appreciation Rights with respect to an aggregate of more than 3,000,000 shares of Stock (subject to adjustment as provided in Section 3(c) hereof) under the Plan. Any dividends, other distributions or Dividend Equivalents that may be payable with respect to an Award will be disregarded for purposes of determining compliance with this Section 3(d). Subject to the preceding sentence, with respect to Performance-Based Awards that stipulate a target number of Units or shares and that may vest at, below or above such target, the maximum number of shares of Stock issuable under such Award shall be used for purposes of determining compliance with this Section 3(d).
SECTION 4. Eligibility.
Officers and other key employees of the Company and its Subsidiaries and of any of its Affiliates that are designated by the Committee as a participating employer under the Plan (but excluding members of the Committee and any other person who serves only as a director) who are responsible for or contribute to the management, growth or profitability of the business of the Company or its Subsidiaries or Affiliates (“Eligible Persons”) are eligible to be granted Awards under the Plan.
SECTION 5. Terms and Conditions Applicable to all Awards.
(a) Grant. Subject to the terms and conditions of the Plan, Awards may be awarded to Eligible Persons at any time and from time to time as determined by the Committee. The Committee shall determine the Eligible Persons to whom, and the time or times at which, grants of Awards will be made, the nature of each Award, the number of shares of Stock, Restricted Stock Units or other interests that are covered by or subject to such Award, the requirements for the vesting of such Award and any other restrictions applicable thereto, and the other terms and conditions of such Awards, in addition to those set forth in Section 5(b) and in the following Sections that apply to each specific type of Award. In the event of any inconsistency between this Section 5 and any of the following Sections that apply to a specific type of Award, the provisions of the Section applying to that specific type of Award will control.
(b) Terms and Conditions. Awards made under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall deem desirable:
(i) The purchase price for the Award, if any, shall be determined by the Committee at the time of grant.
(ii) Awards must be accepted by executing the related Award Agreement, delivering an executed copy of such Award Agreement to the Company and paying whatever price (if any) is required. An Eligible Person who receives an Award shall not have any rights with respect to such Award unless and until such Eligible Person has executed and delivered to the Company the applicable Award Agreement, in the form approved from time to time by the Committee, and has otherwise complied with the applicable terms and conditions of such Award Agreement. In the Company’s discretion, the execution and delivery of such Award Agreement may be accomplished electronically or by other legally acceptable means.
(iii) An Eligible Person may be granted a Time-Based Award or a Performance-Based Award, or a combination thereof. The Committee may provide for the lapse of the restrictions and conditions to vesting in Award Installments, as set forth in the related Award Agreement. The terms and conditions of Awards need not be the same with respect to each Participant.
(iv) Notwithstanding anything to the contrary contained herein, the Committee may reduce the amount of, or eliminate in full, the amount of Stock, Units or other interests that are subject to any Performance-Based Award at, or at any time prior to, the Committee’s certification of the vesting of such Award. The Committee may treat individual Participants differently for these purposes. Any such determination by the Committee shall be final and binding on each Participant who is affected thereby.
(v) Performance-Based Awards will vest and all restrictions thereon will terminate upon the certification by the Committee of the achievement of the specified Performance Goals, provided all other conditions to vesting have been met. In the Committee’s discretion, Performance-Based Awards may (A) stipulate that an Award will vest only in its entirety upon the
satisfaction of the specified Performance Goals, (B) stipulate a portion of the Award that will vest either in whole or in part, depending on the level of achievement in comparison to the specified Performance Goals, pursuant to a formula, calculation or other objective mechanism approved by the Committee at the time of the Award, or (C) stipulate a target number of shares of Stock or Units (the “Target”) that may vest in part, in whole or up to a specified multiple of the Target, depending on the level of achievement in comparison to the specified Performance Goals pursuant to a formula, calculation or other objective mechanism approved by the Committee at the time of the Award. In the case of any Award authorized under clause (C) of the previous sentence, a number of shares of Stock equal to the maximum possible number of shares of Stock that may be delivered to the Participant under such Award will be reserved by the Company until such time as the applicable multiple of the Target has been determined by the Committee, even if the certification of achievement of results does not occur at that time due to additional Performance Goals that must be met prior to vesting, or if the actual exercise, vesting or delivery of Stock does not occur at that time due to any delay in delivery imposed for purposes of Section 409A. If, or to the extent that, Performance-Based Awards do not vest under the applicable Performance Goals on or before the Expiration Date established by the Committee for such Award, such Award will be forfeited automatically.
(vi) Subject to the provisions of this Plan and the related Award Agreement, during the Restriction Period, the Participant who has received such Award shall not be permitted to sell, transfer, pledge, assign or otherwise encumber such Award or the Stock, Units or other interests which are subject to such Award, other than by will or by the laws of descent and distribution.
(vii) Any Participant who is then eligible to participate in The Progressive Corporation Executive Deferred Compensation Plan or any other deferral plan hereafter adopted or maintained by the Company (in each case, a “Deferral Plan”) may elect to defer each Award granted to him or her under this Plan, subject to and in accordance with the terms of the applicable Deferral Plan and in compliance with the requirements of Section 409A.
SECTION 6. Restricted Stock Units.
(a) Grant. Subject to the terms and conditions of the Plan, Restricted Stock Units may be awarded to Eligible Persons at any time and from time to time as shall be determined by the Committee.
(b) Terms and Conditions. In addition to the terms and conditions set forth in Section 5, Restricted Stock Units awarded under the Plan shall be subject to the following terms and conditions and any Award Agreement providing for the grant of Restricted Stock Units shall contain such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall deem desirable:
(i) No instruments or certificates evidencing such Units will be issued, but record thereof will be maintained by the Company or its designee.
(ii) The Participant shall not have the right to vote the shares of Stock represented by the Restricted Stock Units prior to the vesting of such Units and the delivery of any shares of Stock due in respect of such vesting event.
(iii) The Participant shall not have the right to receive any dividends, other distributions or Dividend Equivalents, as applicable, in respect of the shares of Stock represented by the Restricted Stock Units prior to the delivery of such shares of Stock. At the discretion of the Committee determined at the time of the Award, subject to the provisions of Section 3(a) of the Plan, the Participant may be credited with Dividend Equivalents with respect to each dividend or other distribution for which a record date occurs during the Restriction Period and for the payment of such Dividend Equivalents in cash or the reinvestment of such Dividend Equivalents in additional Units. The Committee may provide that any dividends, other distributions or Dividend
Equivalents, whether payable in cash or shares of Stock, shall not be paid or distributed immediately, but shall remain subject to all the terms and conditions regarding vesting, restrictions and forfeiture that apply to the Restricted Stock Units to which such dividends, other distributions or Dividend Equivalents relate.
(iv) Upon the satisfaction of all conditions to vesting of, and the lapse of the Restriction Period applicable to, all or part of an Award of Restricted Stock Units, as set forth in this Plan and the applicable Award Agreement, (A) the Company shall deliver to the Participant one share of Stock in exchange for each such vested Restricted Stock Unit and any Restricted Stock Units relating to the reinvestment of related Dividend Equivalents, and (B) the applicable Restricted Stock Units shall be cancelled, and the shares of Stock so delivered shall not be subject to any further restrictions or limitations pursuant to this Plan. Unless determined otherwise by the Committee at any time prior to the applicable delivery date, each fractional Restricted Stock Unit shall vest and be settled in an equal fraction of a share of Stock.
SECTION 7. Restricted Stock.
(a) Grant. Subject to the terms and conditions of the Plan, Restricted Stock may be awarded to Eligible Persons at any time and from time to time as shall be determined by the Committee.
(b) Terms and Conditions. In addition to the terms and conditions set forth in Section 5, Restricted Stock awarded under the Plan shall be subject to the following terms and conditions and any Award Agreement providing for the grant of Restricted Stock shall contain such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall deem desirable:
(i) The purchase price for shares of Restricted Stock shall be determined by the Committee at the time of grant and may be equal to their par value or zero.
(ii) Each Participant receiving a Restricted Stock Award shall be issued a stock certificate in respect of such shares of Restricted Stock. Such certificate shall be registered in the name of such Participant, and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Award. The stock certificate evidencing such shares of Restricted Stock shall be held in custody by the Company, or its designee, until the conditions to the vesting of such Award have been satisfied and all other restrictions thereon shall have lapsed. Notwithstanding the foregoing, in the discretion of the Company, any shares of Restricted Stock awarded to any Eligible Person may be issued and held in book entry form. In such event, no stock certificates evidencing such shares will be issued and the applicable restrictions will be noted in the records of the Company’s transfer agent and in the book entry system.
(iii) As a condition of any Restricted Stock Award, the Participant shall deliver to the Company a stock power, endorsed in blank, relating to the Stock covered by such Award, or make such other arrangements with respect thereto as the Committee may require.
(iv) Except as provided otherwise in the Plan or the applicable Award Agreement, the Participant shall have, with respect to the shares of Restricted Stock awarded, all of the rights of a shareholder of the Company, including the right to vote the Stock and the right to receive any dividends or other distributions (in the form of cash or Dividend Equivalents). The Committee may provide that any dividends, other distributions or Dividend Equivalents, whether payable in cash or shares of Stock, shall not be paid or distributed immediately, but shall remain subject to all the terms and conditions regarding vesting, restrictions and forfeiture that apply to the shares of Restricted Stock to which such dividends, other distributions or Dividend Equivalents relate.
SECTION 8. Stock Options.
(a) Grant. Subject to the terms and conditions of the Plan, Stock Options may be granted to Eligible Persons at any time and from time to time, as shall be determined by the Committee. Stock Options granted under the Plan may be either of two types, which shall be indicated in the related Award Agreement: Incentive Stock Options or Non-Qualified Stock Options. Subject to Section 8(c) hereof, the Committee shall have the authority to grant to any Eligible Person Incentive Stock Options, Non-Qualified Stock Options or a combination thereof.
(b) Terms and Conditions. In addition to the terms and conditions set forth in Section 5, Stock Options granted under the Plan shall be subject to the following terms and conditions and any Award Agreement providing for the grant of Stock Options shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(i) The Option Exercise Price per share of Stock purchasable under a Non-Qualified Stock Option shall be determined by the Committee at the time of grant and shall not be less than 100% of the Fair Market Value of the Stock on the date of grant. The Option Exercise Price per share of Stock purchasable under an Incentive Stock Option shall be determined by the Committee at the time of grant and shall be not less than 100% of the Fair Market Value of the Stock at the date of grant (or 110% of the Fair Market Value of the Stock at the date of grant in the case of an Eligible Person who at the date of grant owns shares possessing more than ten percent of the total combined voting power of all classes of stock of the Company or its parent or subsidiary corporations (as determined under Section 424(d), (e) and (f) of the Code) (a “10% Participant”)).
(ii) The Option Term shall be determined by the Committee at the time of grant and may not exceed 10 years from the date the Option is granted (or, with respect to Incentive Stock Options, 5 years in the case of a 10% Participant).
(iii) Stock Options shall be exercisable at such time or times, in one or more installments, and subject to such terms and conditions (which may include, without limitation, the achievement of one or more Performance Goals) as shall be determined by the Committee at grant.
(iv) Subject to whatever installment exercise provisions apply with respect to such Stock Option, and any other conditions to vesting, Stock Options may be exercised in whole or in part, at any time during the Option Term, by giving to the Company or its designee written or other appropriate notice of exercise specifying the number of shares of Stock to be purchased. Such notice shall be accompanied by payment in full of the Option Exercise Price of the shares of Stock for which the Stock Option is exercised and Taxes due upon such exercise, in cash or by check or by such other instrument or arrangement as the Committee may approve at or after grant (which may, to the extent permitted by applicable law, include payment through the delivery of irrevocable instructions to a broker to deliver promptly to the Company the amount of sales proceeds of shares of Stock otherwise deliverable upon such exercise of the Option as is necessary to pay the Option Exercise Price and Taxes due upon such exercise, or, to the extent approved by the Committee at or after grant, payment by the Participant’s election to have shares of Stock withheld that have a Fair Market Value equal to the amount of tax to be withheld). Subject to the following two sentences, unless otherwise determined by the Committee, at or after grant, payment, in full or in part, of the Option Exercise Price of Incentive Stock Options and Non-Qualified Stock Options and Taxes may be made in the form of unrestricted Stock which is then owned by the Participant and which has a value equal to the Fair Market Value equal to such Option Exercise Price and Taxes. Notwithstanding the foregoing, the specific details of any such delivery of Stock by a Section 16 Participant shall be approved in advance by the Committee.
No Stock shall be issued pursuant to an exercise of an Option until full payment of the Option Exercise Price and Taxes due on such exercise has been made therefor. A Participant shall not have rights to dividends, other distributions or Dividend Equivalents or any other rights of a shareholder with respect to any Stock subject to an Option unless and until the Participant has given written notice of exercise, has paid in full for such shares, has given, if requested, the representation described in Section 14(a) and such shares have been issued to the Participant.
(v) All vested Stock Options shall be exercisable, during the Participant’s lifetime, only by the Participant or, subject to Section 8(c) and the terms of the applicable Award Agreement, by the Participant’s authorized legal representative if the Participant is unable to exercise an Option as a result of the Participant’s Disability.
(vi) Unless otherwise determined by the Committee (in an Award Agreement or otherwise) or as otherwise directed by the Participant in writing to the Company, each Option outstanding on the Automatic Exercise Date with an exercise price per share that is less than the Fair Market Value per share of Stock as of such date shall automatically and without further action by the Participant or the Company be exercised on the Automatic Exercise Date. In the discretion of the Committee, payment of the Option Exercise Price and Taxes upon the automatic exercise of any such Option shall be made by having shares of Stock withheld as contemplated by Section 8(b)(iv). Unless otherwise determined by the Committee, this Section 8(b)(vi) shall not apply to an Option if the Participant of such Option incurs a Termination of Employment on or before the Automatic Exercise Date. For the avoidance of doubt, no Option with an exercise price per share that is equal to or greater than the Fair Market Value per share of Common Stock on the Automatic Exercise Date shall be exercised pursuant to this Section 8(b)(vi).
(c) Incentive Stock Options. Notwithstanding Section 4, only employees of the Company or a Subsidiary shall be eligible to receive Incentive Stock Options. Notwithstanding Section 5(b)(vi), an Incentive Stock Option shall be exercisable by (i) a Participant’s authorized legal representative (if the Participant is unable to exercise the Incentive Stock Option as a result of the Participant’s Disability) only if, and to the extent, permitted by Section 422 of the Code and Section 16 of the Exchange Act and the rules and regulations promulgated thereunder and (ii) by the Participant’s estate, in the case of death, or authorized legal representative, in the case of Disability, no later than 10 years from the date the Incentive Stock Option was granted (or 5 years in the case of a 10% Participant) (in addition to any other restrictions or limitations which may apply). Anything in the Plan to the contrary notwithstanding, no term or provision of the Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify the Plan under Section 422 of the Code, or, without the consent of the Participant(s) affected, to disqualify any Incentive Stock Option under such Section 422 or any successor Section thereto.
SECTION 9. Stock Appreciation Rights.
(a) Grant. Stock Appreciation Rights may be granted alone, in addition to or in tandem with other Awards granted under the Plan or cash awards made outside of the Plan. In the case of an Award of Stock Appreciation Rights relating to an Award of Non-Qualified Stock Options, such rights may be granted either at or after the time of the grant of the related Non-Qualified Stock Options. In the case of Incentive Stock Options, such rights may be granted in tandem with Incentive Stock Options only at the time of the grant of such Incentive Stock Options and exercised only when the Fair Market Value of the Stock subject to the Incentive Stock Option exceeds its Option Exercise Price.
Stock Appreciation Rights issued in tandem with Stock Options (“Tandem SARs”) shall terminate and no longer be exercisable upon the termination or exercise of the related Stock Option, subject to such provisions as the Committee may specify at grant if a Stock Appreciation Right is granted with respect to less than the full number of shares of Stock subject to the related Stock Option.
All vested Stock Appreciation Rights granted hereunder shall be exercised in accordance with the procedures established by the Committee for such purpose. Upon such exercise, the Participant shall be entitled to receive an amount determined in the manner prescribed in Section 9(b)(ii) and the applicable Award Agreement.
(b) Terms and Conditions. In addition to the terms and conditions set forth in Section 5, Stock Appreciation Rights granted under the Plan shall be subject to the following terms and conditions and any Award Agreement providing for the grant of Stock Appreciation Rights shall contain such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall deem desirable:
(i) Tandem SARs shall be exercisable only at such time or times and to the extent that the Stock Options to which they relate shall be exercisable in accordance with the provisions of Section 8 and this Section 9, and Stock Appreciation Rights granted separately (“Freestanding SARs”) shall be exercisable as the Committee shall determine.
(ii) Upon the exercise of a Stock Appreciation Right, a Participant shall be entitled to receive an amount in cash or shares of Stock, as determined by the Committee at the time of grant, equal in value to the excess of the Fair Market Value of one share of Stock on the date of exercise of the Stock Appreciation Right over (A) the Option Exercise Price specified in the related Stock Option in the case of Tandem SARs, which price shall be fixed no later than the date of grant of the Tandem SARs, or (B) the price per share specified in the related Award Agreement in the case of Freestanding SARs, which price shall be fixed at the date of grant and shall be not less than the Fair Market Value of the Stock on the date of grant, multiplied by the number of shares of Stock in respect of which the Stock Appreciation Right shall have been exercised. The Committee shall have the right to approve or refuse to approve any election by the Participant to receive cash, in whole or in part, upon exercise of the Stock Appreciation Right. When payment is to be made in Stock, the number of shares of Stock to be paid shall be calculated on the basis of the Fair Market Value of the Stock on the date of exercise. Notwithstanding the foregoing, the Committee may unilaterally limit the appreciation in value of any Stock Appreciation Right at any time prior to exercise.
(iii) Upon the exercise of a Tandem SAR, the related Stock Option must also be exercised at the same time.
(iv) Stock Appreciation Rights shall be exercisable, during the Participant’s lifetime, only by the vested Participant or by the Participant’s authorized legal representative if the Participant is unable to exercise a Stock Appreciation Right as a result of the Participant’s Disability.
(v) Unless otherwise determined by the Committee (in an Award Agreement or otherwise) or as otherwise directed by the Participant in writing to the Company, each Stock Appreciation Right outstanding on the Automatic Exercise Date with an exercise price per share that is less than the Fair Market Value per share of Common Stock as of such date shall automatically and without further action by the Participant or the Company be exercised on the Automatic Exercise Date. In the discretion of the Committee, the Company or any Subsidiary shall deduct or withhold an amount sufficient to satisfy Taxes associated with such exercise from the amount contemplated in Section 9(b)(ii). Unless otherwise determined by the Committee, this Section 9(b)(v) shall not apply to a Stock Appreciation Right if the Participant incurs a Termination of Employment on or before the Automatic Exercise Date. For the avoidance of doubt, no Stock Appreciation Right with an exercise price per share that is equal to or greater than the Fair Market Value per share of Common Stock on the Automatic Exercise Date shall be exercised pursuant to this Section 9(b)(v).
SECTION 10. Termination of Employment; Disqualifying Activity.
(a) Termination of Employment. Unless otherwise determined by the Committee at or after the time of grant of an Award, upon a termination of a Participant’s employment, all outstanding Awards held by such Participant, whether then vested or unvested, shall be terminated and forfeited automatically. Subject to Section 10(b), the Committee may provide for exceptions to this general rule with respect to any Award, including in the case of a Participant’s death, Disability or Qualified Retirement.
(b) Disqualifying Activity. If the Committee determines that the Participant has engaged or is engaging in any Disqualifying Activity, then:
(i) if the Vesting Date of any Award Installment under an Award then held by the Participant is scheduled to occur after the date of the Committee’s determination that the Participant has engaged in a Disqualifying Activity (or with respect to vested Stock Options and Stock Appreciation Rights, such Award Installment has not been exercised by the Participant), then each such Award Installment shall terminate immediately upon the date of the Committee’s determination, and all related Awards (and rights to shares of Stock, Units, Stock Options, Stock Appreciation Rights or Dividend Equivalents thereunder) shall be forfeited automatically at that time; and
(ii) if the Vesting Date of any Award Installment occurred (or with respect to vested Stock Options and Stock Appreciation Rights, such Award Installment was exercised by the Participant) after the Disqualification Date but prior to the date of the Committee’s determination with respect thereto, such Award Installment shall be deemed to have automatically terminated and forfeited as of the Disqualification Date. Accordingly, promptly upon the Company’s demand, the Participant shall transfer or pay to the Company all shares of Stock (or, if such Stock has been sold or otherwise transferred by the Participant, an equivalent number of shares of Stock or, at the Company’s election, the value thereof as of the applicable Vesting Date or exercise date) or other proceeds received or deferred by the Participant in connection with such vesting (or exercise) event(s), and the Participant will be entitled to no consideration in connection therewith. If such shares of Stock or other proceeds are not transferred or paid to the Company promptly upon such demand, then the Company will have the right to recover from the Participant all such shares or other proceeds, plus the costs and expenses incurred by the Company in recovering such shares or other proceeds from the Participant and enforcing its rights hereunder, including, without limitation, reasonable attorneys’ fees and court costs, plus interest at the rate of eight percent (8%) per annum or, if lower, the highest rate permitted by law, calculated from the applicable Vesting Date (or exercise date).
Any determination by the Committee hereunder, which may act upon the recommendation of the Chief Executive Officer or other senior officer of the Company, that the Participant has engaged or is engaging in any Disqualifying Activity, and as to the Disqualification Date, shall be final and conclusive.
SECTION 11. Change In Control Provisions.
Unless otherwise provided in the applicable Award Agreement, and subject to Section 3(c), notwithstanding any other provision of this Plan to the contrary, upon a Change in Control, the following provisions shall apply with respect to all Awards outstanding immediately prior to a Change in Control:
(a) Alternative Awards. No cancellation, acceleration of exercisability or vesting, lapse of any Restriction Period or settlement or other payment shall occur with respect to any outstanding Award upon a Change in Control if the Committee reasonably determines, in good faith, prior to the Change in Control, that such outstanding Awards shall be honored or assumed, or new rights substituted therefor (such honored, assumed, or substituted Award being hereinafter referred to as an “Alternative Award”) by the Company or the New Company, as applicable, provided that any Alternative Award must:
(i) provide for rights, terms and conditions that are substantially identical to, and not less favorable than, the rights, terms and conditions applicable under the Award being substituted for the Alternative Award, including, but not limited to, an identical or better exercise or vesting schedule;
(ii) have substantially equivalent economic value to such Award (determined at the time of the Change in Control by the Committee in its good faith, sole discretion);
(iii) have terms and conditions which provide that if the Participant’s employment or service is involuntarily terminated without Cause by the Company or the New Company, as applicable, or constructively terminated for Good Reason by the Participant, any conditions on a Participant’s rights under, or any restrictions on transfer or exercisability applicable to, each such Alternative Award shall be waived or shall lapse, as the case may be, consistent with the provisions of Section 11(c) below; and
(iv) not subject the Participant to the assessment of taxes or penalties under Section 409A.
Subject to clause (iv) above, with respect to any Alternative Award for a Performance-Based Award, the Committee will have the discretion to provide in the Alternative Award (x) for the same Performance Goals as in the original Award Agreement, (y) for different Performance Goals than are in the original Award Agreement, or (z) that the Performance Goals in the original Award Agreement shall be considered to be achieved and to determine at what level they shall be deemed to have been achieved (for example, at Target or at a multiple of Target based on the level of achievement through the date of the Change in Control) with the Award being converted into a Time-Based Award that will vest at the end of the performance period stated in the original Award Agreement. The determination whether the conditions of this Section 11(a) are satisfied shall be made by the Committee, as constituted immediately before the Change in Control, in its sole discretion.
(b) Accelerated Vesting and Payout. In the event Section 11(a) does not apply, upon a Change in Control: (i) all outstanding Options and Stock Appreciation Rights shall become vested and exercisable immediately prior to the Change in Control; (ii) all outstanding unvested Restricted Stock and Restricted Stock Unit Awards shall become vested immediately prior to the Change in Control; and (iii) the Committee (as constituted prior to the Change in Control) shall provide that in connection with the Change in Control (A) each Option and Stock Appreciation Right shall be cancelled in exchange for an amount (payable in accordance with the following sentence) equal to the excess, if any, of the Fair Market Value of a share of Stock on the date of the Change in Control over the Option Exercise Price for such Option or the base value/strike price applicable to such Stock Appreciation Right and (B) each Restricted Stock and Restricted Stock Unit Award shall be cancelled in exchange for an amount (payable in accordance with the following sentence) equal to the Change in Control Price multiplied by the number of shares of Stock covered by such Award, with any Performance-Based Awards deemed to have been earned in full at the higher of Target or a multiple of Target (determined by reference to the Award Agreement) based on the level of achievement through the date of the Change in Control, if such level of achievement is determinable by the Committee at the time of the Change in Control. Payment of any amounts calculated in accordance with this Section 11(b) shall be made in cash or, if determined by the Committee (as constituted prior to the Change in Control), in shares of the stock of the New Company having an aggregate fair market value (determined by such Committee in good faith) equal to such amount or in a combination of such shares of stock and cash. All amounts payable hereunder shall be payable in full, as soon as reasonably practicable, but in no event later than 10 business days, following the Change in Control. Notwithstanding any provision of this Section 11 to the contrary, payment of any Award Installment subject to and not exempt from Section 409A will not be accelerated upon a Change in Control unless (i) the Change in Control constitutes a change in the ownership of the Company, a change in effective control of the Company, or a change in the ownership of a substantial portion of the Company’s assets, each, as applicable, as defined in, and determined in accordance with, Section 409A,
or (ii) such accelerated payment does not otherwise cause any Award to be subject to adverse tax consequences to any person under Section 409A.
(c) Termination Following Change in Control. Notwithstanding the provisions of subsection (a) above, if on the date of or during the 24-month period following a Change in Control, either (i) the Company or the New Company, as applicable, terminates the Participant’s employment other than for Cause, or (ii) the Participant terminates his or her employment for Good Reason (as stated in a written notice to the Company or the New Company, as applicable, which must be provided within 30 days after the occurrence of the event(s) giving rise to such Good Reason, and must set forth such Good Reason in reasonable detail and the expected date of termination, which shall be not more than 30 days after the date of such notice), and the Company or the New Company, as applicable, fails to cure the event(s) giving rise to the claim of Good Reason within such 30-day period, then upon the occurrence of such termination, (A) all outstanding Options and Stock Appreciation Rights held by such Participant shall become vested and exercisable immediately upon such termination and (B) all outstanding unvested Restricted Stock and Restricted Stock Unit Awards shall become vested immediately upon such termination. For purposes of this Section 11(c), with respect to any Performance-Based Awards, such Awards shall be considered to be earned in full at the higher of Target (if applicable) or a multiple of Target (determined by reference to the Award Agreement) based on the level of achievement as of the date of the termination, if such level of achievement is determinable at the time of the termination.
(d) Section 409A. Notwithstanding the foregoing provisions of Section 11, in connection with the payment to a Participant of any Award Installment subject to Section 409A, solely to the extent that any Award Installment has been deferred pursuant to the terms of the Company’s Executive Deferred Compensation Plan as currently in effect or as hereinafter amended (or any successor or similar deferral plan), Sections 11(a), (b) and (c) hereof shall have no effect on the payment date(s) or form(s) of payment of such Award Installment pursuant to such deferred compensation plan (and any elections made by such Participant pursuant to such plan).
SECTION 12. Amendments and Termination.
(a) The Board or the Committee (if permitted by applicable law), at any time, may amend, supplement, alter or discontinue the Plan, but, except as otherwise expressly provided in the Plan (including Sections 3 and 11), no such amendment, supplement, alteration or discontinuation shall be made which would impair the rights of a Participant under an Award theretofore granted, without the Participant’s consent. The Company shall submit to the shareholders of the Company for their approval any amendments to the Plan which are required to be approved by shareholders by the rules and regulations of any governmental authority or any stock exchange upon which the Stock is then traded.
(b) Subject to changes in law or other legal requirements that would permit otherwise, the Plan may not be amended without the approval of the shareholders, to (i) increase the total number of shares of Stock that may be issued under the Plan or to any Participant during any calendar year (except for adjustments pursuant to Section 3(c)), (ii) permit the granting of Stock Options or Stock Appreciation Rights with an exercise price lower than those specified in Section 8(b)(i) and 9(b)(ii) (except for adjustments pursuant to Section 11(a), if applicable), (iii) modify the Plan’s eligibility requirements, or (iv) increase the total number of shares of Stock that may be the subject of Stock Options and Stock Appreciation Rights granted to any Eligible Person under Section 3(d) (except for adjustments pursuant to Section 3(c)).
(c) Subject to Sections 3(c), 11 and 12(d), as applicable, the Committee, at any time, may amend the terms of any outstanding Award, but, except as otherwise expressly provided by the Plan, no such amendment shall be made which would: (i) impair the rights of a Participant under an Award theretofore granted, without the Participant’s consent; or (ii) make the applicable exemptions provided by Rule 16b-3 under the Exchange Act unavailable to any Section 16 Participant with respect to an Award heretofore granted without the Participant’s consent; provided, however, that in no event shall any such
amendment be made with respect to any Award which is subject to the restrictions on deferred compensation under Section 409A, if such amendment would cause such Award to be subject to adverse tax consequences to the Participant under Section 409A.
(d) Except for adjustments pursuant to Section 3(c), in no event may any Stock Option or Stock Appreciation Right granted under the Plan be amended to decrease the Option Exercise Price or strike price/base value thereof, as the case may be, or be cancelled (i) in exchange for a cash payment exceeding the excess (if any) of the Fair Market Value of shares covered by such Stock Option or Stock Appreciation Right over the corresponding exercise price or strike price/base value for such Award or (ii) in conjunction with the grant of any new Stock Option or Stock Appreciation Right or other Award with a lower Option Exercise Price or strike price/base value, as the case may be, or otherwise be subject to any action that would be treated under the rules of the New York Stock Exchange (or such other exchange upon which the Stock may be listed at that time) as a “repricing” of such Stock Option or Stock Appreciation Right, unless such amendment, cancellation or action is approved by the Company’s shareholders.
(e) Subject to the above provisions, the Board and the Committee shall have all necessary authority to amend the Plan and Award Agreements to take into account changes in applicable securities and tax laws and accounting rules, as well as other developments.
SECTION 13. Unfunded Status of Plan.
The Plan is intended to constitute an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company.
SECTION 14. General Provisions.
(a) The Committee may require each Participant acquiring Stock pursuant to an Award under the Plan to represent to and agree with the Company in writing that the Participant is acquiring the Stock without a view to distribution thereof. Any certificates for such shares may include any legend that the Committee deems appropriate to reflect any restrictions on transfer.
All shares of Stock or other securities issued under the Plan shall be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Stock is then listed, and any applicable federal or state securities laws (including the Company’s Insider Trading Policy, if applicable), and the Committee may cause a legend or legends to be placed on any certificates for such shares to make appropriate reference to such restrictions or to cause such restrictions to be noted in the records of the Company’s stock transfer agent and any applicable book entry system.
(b) Nothing contained in this Plan shall prevent the Board or the Committee from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.
(c) Neither the adoption of the Plan, nor its operation, nor any document describing, implementing or referring to the Plan, or any part thereof, shall confer upon any Participant under the Plan any right to continue in the employ, or as a director, of the Company or any Subsidiary or Affiliate, or shall in any way affect the right and power of the Company or any Subsidiary or Affiliate to terminate the employment, or service as a director, or change the job title, duties, authority, position or compensation of any Participant in the Plan at any time with or without assigning a reason therefor, to the same extent as the Company or any Subsidiary or Affiliate might have done if the Plan had not been adopted.
(d) For purposes of this Plan, a transfer of the employment of a Participant between the Company and any of its Subsidiaries or Affiliates, or between such Subsidiaries or Affiliates, shall not be deemed a termination of employment or adversely affect or enlarge the rights of any Participant under this Plan or with respect to any Award.
(e) No later than the date as of which an amount relating to any Award under the Plan first becomes taxable, the Participant shall pay to the Company, or make arrangements satisfactory to the Committee regarding the payment of, at least the minimum Taxes and other items of any kind required by law to be withheld with respect to such amount. Subject to the following sentence and such rules and procedures as the Committee may determine from time to time, unless otherwise determined by the Committee, minimum Taxes may be settled with Stock, including, without limitation, unrestricted Stock previously owned by the Participant or that would otherwise be delivered to or purchased by the Participant in connection with the Award that gives rise to the withholding requirement. Notwithstanding the foregoing, any election by a Section 16 Participant to settle such tax withholding obligation with Stock that is previously owned by the Participant shall be subject to prior approval by the Committee. The obligations of the Company under the Plan shall be conditioned on such payment or arrangements and the Company and its Subsidiaries and Affiliates to the extent permitted by law shall have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant.
(f) The Plan, all Awards made and all actions taken thereunder and any agreements relating thereto, shall be governed by and construed in accordance with the laws of the State of Ohio applicable to contracts made and performed wholly within such state by residents thereof.
(g) In the event any Award is transferred or assigned pursuant to a court order, such transfer or assignment shall be without liability to the Company and the Company shall have the right to offset against such Award any expenses (including attorneys’ fees) incurred by the Company in connection with such transfer or assignment.
(h) Any Award that qualifies as incentive-based compensation as that term is defined in Section 303A.14(e) of the NYSE Listed Company Manual is subject to the Company’s Dodd-Frank Clawback Policy adopted in accordance with the requirements of Section 303A.14 of the NYSE Listed Company Manual. In addition, the following provisions shall apply to Awards, as applicable, in addition to any similar provisions required to apply to Awards under applicable law and the rules of any national securities exchange on which shares of Stock are traded:
(i) If (A) a Performance-Based Award granted to any executive officer shall vest hereunder on the basis of the achievement of certain financial or operating results as specified by the Committee (which includes, for purposes hereof, all of the Performance Goals that are available to the Committee under this Plan), (B) those financial or operating results were incorrect and were subsequently the subject of a restatement by the Company within 3 years after the date of vesting, and (C) the vesting event would not have occurred as to some or all of such shares if the actual financial or operating results had been known as of the date of vesting, then the Company shall have the right of recoupment from the executive officer who received such shares of Stock upon or after such vesting or who elected to defer such shares at vesting. The Company will have this right of recoupment whether or not the executive officer in question was at fault or responsible in any way in causing such restatement. In such circumstances, the Company will have the right to adjust and amend the terms of all outstanding Stock Options as may be appropriate, and to recover from each executive officer, and each such executive officer will refund to the Company promptly on demand, at the Company’s discretion, either (x) the number of shares of Stock that vested (or that were subject to Stock Options that vested and were thereafter exercised), were delivered or were deferred (as applicable) upon or after such vesting based on the incorrect operating or financial results, (y) the dollar equivalent of such number of Shares as of the date of such vesting, without interest, or (z) the value that was paid to or earned by the executive officer, as applicable, at or after the time of vesting or upon the exercise of rights
pursuant to any such vested Award, without interest. Such recovery, at the Committee’s discretion, may be made by lump sum payment, installment payments, credits against unvested Awards made hereunder, credits against future bonus or other incentive payments or awards, or other appropriate mechanism.
(ii) If any recipient of an Award engaged in fraud or other misconduct (as determined by the Committee or the Board) resulting, in whole or in part, in a restatement of the financial or operating results used to determine the vesting of a Performance-Based Award hereunder, the Company will have the right to recoup from such individual, and such individual will transfer or pay to the Company promptly upon demand, in the Company’s discretion, either (A) the number of shares of Stock that vested (or that were subject to Stock Options that vested and were thereafter exercised), were delivered or were deferred (as applicable) upon or after such vesting based on the incorrect operating or financial results, (B) the dollar equivalent of such number of shares determined as of the date of such vesting, or (C) the value that was paid to or earned by such individual, as applicable, at or after the time of vesting or upon the exercise of rights pursuant to any such vested Award, and in the case of (B) and (C) plus interest at the rate of eight percent (8%) per annum or, if lower, the highest rate permitted by law, calculated from such Vesting Date. The Company further shall have the right to terminate and cancel any and all Awards previously made to such individual at any time hereunder that are then unvested or, if applicable, that have vested but have not then been exercised, and to recover from such individual the Company’s costs and expenses incurred in connection with recovering such Shares or funds from such individual and enforcing its rights under this subsection (ii), including, without limitation, reasonable attorneys’ fees and court costs. There shall be no time limit on the Company’s right to recover such amounts under this subsection (ii), except as otherwise provided by applicable law.
(iii) The rights contained in this subsection (h) shall be in addition to, and shall not limit, any other rights or remedies that the Company may have under this Plan or under any applicable law or regulation. (i) The Plan is intended to comply with the requirements of Section 409A or an exemption or exclusion therefrom and, with respect to Awards and amounts that are subject to Section 409A, it is intended that the Plan be administered in all respects in accordance with Section 409A. Accordingly, any action taken under the Plan, including any acceleration or conversion under Section 11, shall be made in compliance with Section 409A. Notwithstanding anything to the contrary contained herein, no Option or Stock Appreciation Right granted under the Plan shall contain any feature for the deferral of compensation. Each payment under any Award that constitutes non-qualified deferred compensation subject to Section 409A shall be treated as a “separate payment” for purposes of Section 409A. In no event may a Participant, directly or indirectly, designate the calendar year of any payment to be made under any Award that constitutes non-qualified deferred compensation subject to Section 409A. Notwithstanding any other provision of the Plan or any Award Agreement to the contrary, in the event that a Participant is a “specified employee” within the meaning of Section 409A (as determined in accordance with the methodology established by the Company), amounts that constitute “non-qualified deferred compensation” within the meaning of Section 409A that would otherwise be payable during the 6 month period immediately following a Participant’s termination of employment with the Company and its Subsidiaries and Affiliates by reason of such termination shall instead be paid or provided on the first business day of the 7th month following the month in which the Participant’s termination occurs. If the Participant dies following any termination of employment with the Company and its Subsidiaries and Affiliates and prior to the payment of any amounts delayed on account of Section 409A, such amounts shall be paid to the personal representative of the Participant’s estate within 30 days following the date of the Participant’s death (with the first date following the date of the Participant’s death being the first day of such 30-day period). Interest shall not accrue on such amounts during the period of delay. All references in this Plan and any Award Agreement to a Participant’s “termination”, “termination of employment”, “termination of service” and any other similar terminology, shall be interpreted as requiring that a
“separation from service” within the meaning of Section 409A has occurred upon any such referenced event.
(j) The Company shall have the unrestricted right to set off against or recover out of any delivery of shares of Stock (through withholding or cash delivered) to any Participant under an Award Agreement any amounts owed by such Participant to the Company or any of its Subsidiaries or Affiliates.
SECTION 15. Shareholder Approval; Effective Date of Plan.
The Plan was adopted by the Board on March 1, 2024 and is subject to approval by the holders of the Company’s outstanding Stock. The Plan will become effective on the date of such shareholder approval (the “Plan Effective Date”).
SECTION 16. Term of Plan.
No Award shall be granted pursuant to the Plan on or after January 31, 2034, but Awards granted prior to such date may extend beyond that date, subject to the terms hereof and the applicable Award Agreement.
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