Exhibit 10.3

EASTERN INSURANCE HOLDINGS, INC.

MANAGEMENT ANNUAL INCENTIVE PLAN

Approved – August 19, 2010

Board of Directors Meeting

Plan Document

Effective January 1, 2011

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Eastern Insurance Holdings, Inc.

MANAGEMENT ANNUAL INCENTIVE PLAN

 

 

I. Introduction

A vital component of Eastern Insurance’s success is the ability of the
management team and all employees to meet and achieve performance objectives
consistent with the strategic objectives of the company and the best interests
of the shareholders. The ability to grow and manage the company in a positive
manner is critical to Eastern’s future success.

This Management Annual Incentive Plan has been designed with the fundamental
objective of supporting the company’s core values and strategic mission and
vision. The basis of the company’s compensation philosophy is to align the
interest of management with those of the company’s shareholders.

The major purposes of the plan are:

 

  •  

To motivate and reward management for positive performance on an annual basis

 

  •  

To provide a form of variable compensation to management which is directly
linked to their individual and collective performance

 

  •  

To emphasize the growth and profitability of the company

The focus of this plan is to have the management team achieve annual performance
objectives, which are coordinated with the long-term objectives of the company.

II. Plan Year

The plan year for this program will be the calendar year. The effective date of
the plan is January 1, 2011. The performance measures for this plan will be
determined, calculated, and approved annually beginning with 2011 fiscal year.

 

 

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Eastern Insurance Holdings, Inc.

MANAGEMENT ANNUAL INCENTIVE PLAN

 

 

III. Participation

Participation in the plan will be recommended at the beginning of each plan year
by the President and CEO, and approved by the Compensation Committee and
subsequently the Board of Directors. To participate, an individual must be a
regular employee of the company in a senior management position and under the
review of the Compensation Committee unless otherwise approved by the
Compensation Committee. The President and CEO’s participation will be approved
annually by the Compensation Committee and subsequently by the Board of
Directors.

Exhibit A will list participants each year and may include multiple levels of
participation. These levels will generally be based upon position
responsibility.

An employee may become a new participant during the plan year if newly hired or
promoted into an eligible position by July 1 of that year. Any awards are
pro-rated for the portion of the year in which participation occurs. Plan
participation for any participant being demoted during the year will be
determined on a case by case basis.

A participant’s eligibility ceases at termination of employment (other than
retirement, death, or disability) and the executive will not receive any awards
under the plan for the year of termination. Termination as a result of
retirement (as defined in the company’s pension plans and currently at age 65),
death or disability with a minimum of six months of service during the year of
occurrence, will provide pro-rated awards in the plan through the last working
date for the year in which termination occurred.

IV. Performance Factors

The plan is based upon annual company financial performance factors, which may
change from year to year. In general, these factors may be measures such as
return on average equity, net income, earnings per share or similar indicators.
The factors and weighing of the factors are determined at the beginning of each
plan year. Each factor

 

 

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Eastern Insurance Holdings, Inc.

MANAGEMENT ANNUAL INCENTIVE PLAN

 

 

has quantifiable objectives consisting of threshold, target, and optimum goals.
Additionally, a portion of each participant’s award may be based on individual
performance objectives, which are determined by management, subject to approval
of the Compensation Committee, at the beginning of each year. Generally, the
President and CEO will have most or all of his or her performance based on
company performance and other executives will have a proportionately greater
level of their award based on individual performance. Individual performance
factors will be based primarily on quantitative measures.

The company performance factors for each year’s annual portion of the plan are
found in Exhibit B. Individual objectives are established and recorded between
the participant and the participant’s manager.

V. Award Calculation and Distribution

Awards under the plan are calculated according to determination of the
established performance factors at year-end. Company performance between the
threshold and target, and target and optimum is interpolated. Individual
performance is determined by each participant’s manager according to the
achievement of objectives and will be approved by successive levels of
management before submittal to the Compensation Committee. Individual employee
performance which is not meeting the position’s requirements (an annual
performance evaluation which is less than satisfactory) will result in no award
granted to that individual for that year even though company performance is
above threshold.

Company performance below threshold will result in no award under the plan for
the company portion of the award. Awards for individual performance may still be
paid, with Compensation Committee approval, at a reduced level and according to
each participant’s individual performance.

 

 

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Eastern Insurance Holdings, Inc.

MANAGEMENT ANNUAL INCENTIVE PLAN

 

 

Annual awards are paid in cash less normal payroll tax withholding. Payment will
be after completion and approval of the Company’s annual audit report and within
75 days after year-end. Any participant terminating employment (except
retirement, death, or disability) prior to actual payment of award will forfeit
that award. The award schedule for each year is found with the performance
factors in Exhibit B.

VI. Administration

The Board of Directors of the company may amend the plan at any time.

Once established, performance factors will remain in place for the respective
fiscal year.

Participation, performance factors, thresholds, targets, and any other
participation features are established each plan year and may change from year
to year according to the strategic objectives of the company.

The plan does not constitute a contract of employment, and participation in the
plan does not give any employee the right to be retained in the service of the
company or any right or claim to an award under the plan unless specifically
accrued under the terms of this plan.

Any right of a participant or his or her beneficiary to the payment of an award
under this plan may not be assigned, transferred, pledged, or encumbered.

Any adjustments to the financial performance results utilized in this plan
because of extraordinary gains or losses, in or outside the normal course of
business, or other items must be approved by the Board of Directors.

 

 

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Eastern Insurance Holdings, Inc.

MANAGEMENT ANNUAL INCENTIVE PLAN

 

 

VII. Plan Approval

This plan has been approved by the Board of Directors of Eastern Insurance
Holdings, Inc. on August 19, 2010.

 

By  

 

  Board of Directors   Eastern Insurance Holdings, Inc.

 

 

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Eastern Insurance Holdings, Inc.

MANAGEMENT ANNUAL INCENTIVE PLAN

 

 

Exhibit A – Participation

Plan Year 2011

(Participating employees and their participant categories should be listed at
the beginning of each year and adjusted for changes in participation throughout
the year.)

 

Category 1    –    Michael Boguski – President and Chief Executive Officer
Category 2    –    Kevin Shook – EVP - Chief Financial Officer Category 3    –
   Robert Gilpin – SVP – Field Operations/Marketing       Suzanne Emmet – SVP –
Claims/TPA       Cynthia Sklar – VP – Underwriting/Risk Management       Harry
Talbert – Chief Information Officer Category 4    –    Bob Enderlein – Regional
Business Executive       Lucia Tompkins – Regional Business Executive       Mike
Michael – Regional Business Executive       Noreen Dishart – Director – Human
Resources Category 5    –    Brent Shirk – VP – Finance       Curt Melville –
Director – Alternative Markets

 

 

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Eastern Insurance Holdings, Inc.

MANAGEMENT ANNUAL INCENTIVE PLAN

 

 

Exhibit B – Performance Factors and Award Schedule

Plan Year 2011 (performance numbers are examples only)

Category 1 – President and CEO Position

COMPANY GOALS

Performance Measures

Net Income - 30%

 

Threshold   Target   Optimum $ 7,000,000   $ 10,000,000   $ 15,000,000

Return on Average Equity - 30%

 

Threshold   Target   Optimum 4.2%   6.0%   9.0%

Earnings Per Share - 30%

 

Threshold   Target   Optimum $.70   $1.00   $1.50

Strategic Objective or Specific Operational Objective - 10%

One or more measures will be determined annually and each will have quantitative

measurements with threshold, target and optimum levels.

COMPANY GOAL AWARD – 90%

(% of Base Pay)

 

Threshold   Target   Optimum 12%   30%   42%

INDIVIDUAL GOAL AWARD – 10%

(% of Base Pay)

 

Meets Minimum Performance   Meets Expected Performance   Exceeds Expected
Performance 1%   3%   5%

TOTAL AWARDS

(% of Base Pay)

 

Threshold   Target   Optimum 13%   33%   47%

Parameters for 2011

 

  1. Company financial measures will be 30% Net Income, 30% ROAE, 30% EPS, and
10% Strategic Objectives. Strategic Objectives will be quantifiable goals within
the strategic plan which apply to 2011 and performance will be rated against
number, timeliness, and quality of goals achieved.

 

  2. Any Financial Measure must meet threshold to initiate an award in the plan.

 

  3. Will interpolate awards between threshold, target, and optimum.

 

  4. Will pay for performance above optimum at a scale of one-half the increase
between target and optimum.

 

  5. Pay is defined as total base pay for the applicable plan year.

 

  6. Individual goal for each participant will include corporate core values as
the first individual goal.

 

 

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Eastern Insurance Holdings, Inc.

MANAGEMENT ANNUAL INCENTIVE PLAN

 

 

Exhibit B – Performance Factors and Award Schedule

Plan Year 2011 (performance numbers are examples only)

Category 2 – Executive Vice President/CFO Position

COMPANY GOALS

Performance Measures

Net Income - 30%

 

Threshold   Target   Optimum $ 7,000,000   $ 10,000,000   $ 15,000,000

Return on Average Equity - 30%

 

Threshold   Target   Optimum 4.2%   6.0%   9.0%

Earnings Per Share - 30%

 

Threshold   Target   Optimum $.70   $1.00   $1.50

Strategic Objective or Specific Operational Objective - 10%

One or more measures will be determined annually and each will have quantitative

measurements with threshold, target and optimum levels.

COMPANY GOAL AWARD – 90%

(% of Base Pay)

 

Threshold   Target   Optimum 9%   22%   36%

INDIVIDUAL GOAL AWARD – 10%

(% of Base Pay)

 

Meets Minimum Performance   Meets Expected Performance   Exceeds Expected
Performance 1%   3%   5%

TOTAL AWARDS

(% of Base Pay)

 

Threshold   Target   Optimum 10%   25%   41%

Parameters for 2011

 

  1. Company financial measures will be 30% Net Income, 30% ROAE, 30% EPS, and
10% Strategic Objectives. Strategic Objectives will be quantifiable goals within
the strategic plan which apply to 2011 and performance will be rated against
number, timeliness, and quality of goals achieved.

 

  2. Any Financial Measure must meet threshold to initiate an award in the plan.

 

  3. Will interpolate awards between threshold, target, and optimum.

 

  4. Will pay for performance above optimum at a scale of one-half the increase
between target and optimum.

 

  5. Pay is defined as total base pay for the applicable plan year.

 

  6. Individual goal for each participant will include corporate core values as
the first individual goal.

 

 

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Eastern Insurance Holdings, Inc.

MANAGEMENT ANNUAL INCENTIVE PLAN

 

 

Exhibit B – Performance Factors and Award Schedule

Plan Year 2011 (performance numbers are examples only)

Category 3

COMPANY GOALS

Performance Measures

Net Income - 30%

 

Threshold   Target   Optimum $ 7,000,000   $ 10,000,000   $ 15,000,000

Return on Average Equity - 30%

 

Threshold   Target   Optimum 4.2%   6.0%   9.0%

Earnings Per Share - 30%

 

Threshold   Target   Optimum $.70   $1.00   $1.50

Strategic Objectives - 10%

One or more measures will be determined annually and each will have quantitative

measurements with threshold, target and optimum levels.

COMPANY GOAL AWARD – 80%

(% of Base Pay)

 

Threshold   Target   Optimum 4%   14%   22%

INDIVIDUAL GOAL AWARD – 20%

(% of Base Pay)

 

Meets Minimum Performance   Meets Expected Performance   Exceeds Expected
Performance 2%   4%   6%

TOTAL AWARDS

(% of Base Pay)

 

Threshold   Target   Optimum 6%   18%   28%

Parameters for 2011

 

  1. Company financial measures will be 30% Net Income, 30% ROAE, 30% EPS, and
10% Strategic Objectives. Strategic Objectives will be quantifiable goals within
the strategic plan which apply to 2011 and performance will be rated against
number, timeliness, and quality of goals achieved.

 

  2. Any Financial Measure must meet threshold to initiate an award in the plan.

 

  3. Will interpolate awards between threshold, target, and optimum.

 

  4. Will pay for performance above optimum at a scale of one-half the increase
between target and optimum.

 

  5. Pay is defined as total base pay for the applicable plan year.

 

  6. Individual goal for each participant will include corporate core values as
the first individual goal.

 

 

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Eastern Insurance Holdings, Inc.

MANAGEMENT ANNUAL INCENTIVE PLAN

 

 

Exhibit B – Performance Factors and Award Schedule

Plan Year 2011 (performance numbers are examples only)

Category 4

COMPANY GOALS

Performance Measures

Net Income - 30%

 

Threshold   Target   Optimum $ 7,000,000   $ 10,000,000   $ 15,000,000

Return on Average Equity - 30%

 

Threshold   Target   Optimum 4.2%   6.0%   9.0%

Earnings Per Share - 30%

 

Threshold   Target   Optimum $.70   $1.00   $1.50

Strategic Objectives - 10%

One or more measures will be determined annually and each will have quantitative

measurements with threshold, target and optimum levels.

COMPANY GOAL AWARD – 70%

(% of Base Pay)

 

Threshold   Target   Optimum 3%   8%   12%

INDIVIDUAL GOAL AWARD – 30%

(% of Base Pay)

 

Meets Minimum Performance   Meets Expected Performance   Exceeds Expected
Performance 1%   4%   6%

TOTAL AWARDS

(% of Base Pay)

 

Threshold   Target   Optimum 4%   12%   18%

Parameters for 2011

 

  1. Company financial measures will be 30% Net Income, 30% ROAE, 30% EPS, and
10% Strategic Objectives. Strategic Objectives will be quantifiable goals within
the strategic plan which apply to 2011 and performance will be rated against
number, timeliness, and quality of goals achieved.

 

  2. Any Financial Measure must meet threshold to initiate an award in the plan.

 

  3. Will interpolate awards between threshold, target, and optimum.

 

  4. Will pay for performance above optimum at a scale of one-half the increase
between target and optimum.

 

  5. Pay is defined as total base pay for the applicable plan year.

 

  6. Individual goal for each participant will include corporate core values as
the first individual goal.

 

 

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Eastern Insurance Holdings, Inc.

MANAGEMENT ANNUAL INCENTIVE PLAN

 

 

Exhibit B – Performance Factors and Award Schedule

Plan Year 2011 (performance numbers are examples only)

Category 5

COMPANY GOALS

Performance Measures

Net Income - 30%

 

Threshold   Target   Optimum $ 7,000,000   $ 10,000,000   $ 15,000,000

Return on Average Equity - 30%

 

Threshold   Target   Optimum 4.2%   6.0%   9.0%

Earnings Per Share - 30%

 

Threshold   Target   Optimum $.70   $1.00   $1.50

Strategic Objectives - 10%

One or more measures will be determined annually and each will have quantitative

measurements with threshold, target and optimum levels.

COMPANY GOAL AWARD – 60%

(% of Base Pay)

 

Threshold   Target   Optimum 2%   5%   7%

INDIVIDUAL GOAL AWARD – 40%

(% of Base Pay)

 

Meets Minimum Performance   Meets Expected Performance   Exceeds Expected
Performance 1%   3%   5%

TOTAL AWARDS

(% of Base Pay)

 

Threshold   Target   Optimum 3%   8%   12%

Parameters for 2011

 

  1. Company financial measures will be 30% Net Income, 30% ROAE, 30% EPS, and
10% Strategic Objectives. Strategic Objectives will be quantifiable goals within
the strategic plan which apply to 2011 and performance will be rated against
number, timeliness, and quality of goals achieved.

 

  2. Any Financial Measure must meet threshold to initiate an award in the plan.

 

  3. Will interpolate awards between threshold, target, and optimum.

 

  4. Will pay for performance above optimum at a scale of one-half the increase
between target and optimum.

 

  5. Pay is defined as total base pay for the applicable plan year.

 

  6. Individual goal for each participant will include corporate core values as
the first individual goal.

 

 

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