Safeco Leadership Performance Plan



 Exhibit 10.5 
 SAFECO LEADERSHIP PERFORMANCE PLAN 
 Effective January 1, 2002 
 (As last amended May 2, 2007) 







 TABLE OF CONTENTS 
  

							
	SECTION 1: PURPOSE	  	3
		
	SECTION 2: DEFINITIONS	  	4
		  	2.1	  	Business Unit	  	4
		  	2.2	  	Change in Control	  	4
		  	2.3	  	Committee	  	4
		  	2.4	  	Company	  	4
		  	2.5	  	Disability	  	4
		  	2.6	  	Effective Date	  	4
		  	2.7	  	Eligible Employee	  	4
		  	2.8	  	Employee	  	4
		  	2.9	  	Incentive Award	  	5
		  	2.10	  	Minimum Financial Requirement	  	5
		  	2.11	  	Participant	  	5
		  	2.12	  	Performance Period	  	5
		  	2.13	  	Plan	  	5
		  	2.14	  	Retirement	  	5
		  	2.15	  	Salary	  	5
		  	2.16	  	Target Award	  	6
		
	SECTION 3: PARTICIPATION	  	6
		  	3.1	  	Eligible Employees	  	6
		  	3.2	  	Participation Date	  	7
		  	3.3	  	Rehired Eligible Employees	  	7
		
	SECTION 4: INCENTIVE POOL	  	8
		  	4.1	  	Funding Performance Measures	  	8
		  	4.2	  	Incentive Pool Calculation	  	8
		
	SECTION 5: INCENTIVE AWARDS	  	10
		  	5.1	  	Calculation of Incentive Award	  	10
		  	5.2	  	Condition Precedent to Payment of Incentive Award	  	11
		  	5.3	  	Payment of Incentive Award	  	11
		  	5.4	  	Termination of Employment	  	11
		  	5.5	  	Partial Year Participation	  	12
		
	SECTION 6: ADMINISTRATION	  	13
		  	6.1	  	Activities, Duties and Responsibilities of the Committee	  	13
		  	6.2	  	Notices	  	13
		
	SECTION 7: AMENDMENT AND TERMINATION	  	14
		  	7.1	  	Amendment and Termination of the Plan	  	14
		
	SECTION 8: MISCELLANEOUS	  	15
		  	8.1	  	Tax Withholding	  	15









							
		  	8.2  	  	Continuation of Employment	  	15
		  	8.3	  	Products and Underwriting	  	15
		  	8.4	  	No Trust or Fund	  	15
		  	8.5	  	Governing Law; Severability	  	15
		  	8.6	  	Spendthrift Clause	  	16
		  	8.7	  	Entire Plan	  	16
		  	8.8	  	Effective Date and Term	  	16

  

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 SECTION 1: PURPOSE 
 The
purpose of the Safeco Leadership Performance Plan (the “Plan”) is to provide certain managers and other salaried employees of the Company with the opportunity to earn an incentive bonus based on achievement of specified performance
measures during a Performance Period, thereby motivating participating employees to achieve company financial and operational objectives. 
  

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 SECTION 2: DEFINITIONS 
  

	2.1	Business Unit 

 “Business Unit” means the
following operating organizations of Safeco Corporation’s subsidiaries: Property & Casualty, Safeco Business Insurance, Safeco Personal Insurance, and Surety. 
  

	2.2	Change in Control 

 “Change in Control”
has the meaning set forth in the Safeco Long-Term Incentive Plan of 1997, or any successor plan thereto. 
  

	2.3	Committee 

 “Committee” means the
Compensation Committee of the Safeco Corporation Board of Directors. 
  

	2.4	Company 

 “Company” means collectively
Safeco Corporation and its subsidiaries. 
  

	2.5	Disability 

 “Disability” has the meaning
set forth in the Safeco 401(k)/Profit Sharing Retirement Plan or any successor plan thereto. 
  

	2.6	Effective Date 

 “Effective Date” has the
meaning set forth in Section 8.8. 
  

	2.7	Eligible Employee 

 “Eligible Employee”
means an Employee who has satisfied the eligibility criteria of Section 3.1. 
  

	2.8	Employee 

 “Employee” means any person who
is employed on a salaried basis other than someone who is (a) a non-union hourly Employee, (b) included in a unit of persons covered by a collective bargaining agreement, or (c) is a leased employee within the meaning of Internal
Revenue Code section 414(n)(2). 
  

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	2.9	Incentive Award 

 “Incentive Award” means
the annual amount awarded to an Eligible Employee under the Plan pursuant to Section 5.1. 
  

	2.10	Minimum Financial Requirement 

 “Minimum
Financial Requirement” means an overall financial result established for the Company by the Committee below which no Incentive Awards are made under the Plan, unless at the discretion of the Committee. 
  

	2.11	Participant  

 “Participant” means an
Eligible Employee who qualifies for participation as provided in Section 3.2 and 3.3. 
  

	2.12	Performance Period 

 “Performance Period”
means the calendar year period during which performance goals are established and an Eligible Employee’s performance is measured in order to determine whether the Eligible Employee is eligible for an Incentive Award. 
  

	2.13	Plan 

 “Plan” means this Safeco Leadership
Performance Plan. 
  

	2.14	Retirement 

 “Retirement” has the meaning
set forth in the Safeco 401(k)/Profit Sharing Retirement Plan or any successor plan thereto. 
  

	2.15	Salary 

 “Salary” means for each
Performance Period the total of all amounts the Employer paid to an Employee for personal services, including: 
  

	 	(a)	Base salary; 

  

	 	(b)	Amounts paid to an Employee while on an Authorized Leave of Absence or short term disability; and 

  

	 	(c)	Any pre-tax Employee contributions made by the Employer on behalf of the Employee for the Plan Year to the Safeco Flexible Benefits Program, the Safeco 401(k)/Profit Sharing
Retirement Plan, or the Safeco Deferred Compensation Plan for Executives; 

 but excluding: 
  

	 	(d)	Amounts paid for overtime; 

  

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	 	(e)	All Employer contributions to deferred compensation or other fringe benefit plans; 

  

	 	(f)	Cash incentives and bonuses paid, accrued or earned under any incentive compensation plan; 

  

	 	(g)	Long-term disability benefits; 

  

	 	(h)	Severance pay; and 

  

	 	(i)	Any other payments or benefits. 

  

	2.16	Target Award 

 “Target Award” means the
value, stated as a percentage of Salary or as a dollar amount, which represents the expected payment for a position when Company, Business Unit and personal measures are achieved. 
 In the event of an Employee’s position change during a Performance Period (e.g. promotion, reclassification, or transfer), the Target Award for that
Performance Period may be adjusted. If the Employee’s position change results in a move from one Target Award to another, or from another company-sponsored incentive plan to the Plan, the Employee’s Target Award will be blended
(“Blended Target Award”). The Blended Target Award is based on the number of calendar days spent at each Target Award level. The Blended Target Award is applied to the Employee’s total Salary for the Performance Period. Where an
incentive plan does not have a defined target award, the target award will be 0% for the purpose of the Blended Target Award calculation. 
 SECTION 3:
PARTICIPATION 
  

	3.1	Eligible Employees 

 An Employee of the Company
shall be eligible to participate in the Plan if he or she: 
  

	 	(a)	is a key management employee, or a non-management employee holding a key leadership position with the Company as determined at the discretion of the Company’s Chief Executive
Officer; 

  

	 	(b)	occupies a position that is assigned to a leadership job band within the Corporation’s compensation structure; and 

 Effective January 1, 2006 Section 3.1(b) is amended to read as follows: 
  

	 	(b)	occupies a position that is assigned to career level six or higher within the Company’s workforce architecture structure; and 

  

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	 	(c)	is not eligible to participate concurrently in the Safeco Success Sharing Plan or any other Company-sponsored variable pay or incentive bonus plan. Provided however, that the
Committee may extend participation in the Plan to any Employee in its sole discretion. 

  

	3.2	Participation Date 

 An Eligible Employee shall
commence participation on the later of: 
  

	 	(a)	the Effective Date; 

  

	 	(b)	the date when transferred or promoted from an ineligible position into a Plan-eligible position; 

  

	 	(c)	if hired by the Company after September 30 in a Performance Period, January 1 of the next following Performance Period. 

  

	3.3	Rehired Eligible Employees  

 An individual who
terminates employment and is rehired during the same Performance Period and who satisfies the eligibility criteria of Section 3.1 shall be eligible to participate in the Plan for such Performance Period only if he or she has been employed for
at least 90 consecutive days during such Performance Period. 
  

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 SECTION 4: INCENTIVE POOL 
  

	4.1	Funding Performance Measures 

  

	 	(a)	The Committee shall establish Company and Business Unit funding performance measures (“Funding Performance Measures”) and a Minimum Financial Requirement for each
Performance Period on the basis of such criteria and to accomplish such objectives as the Committee may from time to time select. Funding Performance Measures may include performance criteria for the Company, a subsidiary, a Business Unit, an
operating group, or a division of the Company or a subsidiary. 

  

	 	(b)	During any Performance Period, the Committee may adjust the Funding Performance Measures for such Performance Period as it deems equitable in recognition of unusual or nonrecurring
events affecting the Company, changes in applicable tax laws or accounting principles, or such other factors as the Committee may determine. 

  

	 	(c)	The Funding Performance Measures shall be any one or a combination of net income, earnings per share, return on equity, return on assets, stock price appreciation, total shareholder
return, cash flow, revenues, item count, market share, assets, assets under management, any profit-related ratio or calculation, or any growth, concentration-of-business or market-share ratio or calculation. Such Funding Performance Measures may be
measured on an absolute basis or relative to a group of peer companies selected by the Committee, relative to internal goals, or relative to levels attained in prior years. 

  

	 	(d)	The Committee will establish Funding Performance Measures and the Minimum Financial Requirement not later than 90 days after the beginning of the Performance Period.


  

	4.2	Incentive Pool Calculation 

  

	 	(a)	For each Performance Period, the Committee shall establish target incentive pools based on the sum of Target Awards and Blended Target Awards for all Participants within the
Business Units. 

  

	 	(b)	Participants are assigned to Business Units according to their employing departments as identified within the Company’s human resource system. Such assignment of departments to
Business Units may be amended from time-to-time by the Company. 

  

	 	(c)	 The target incentive pools, Target Awards and Blended Target Awards shall then be adjusted based on a combination of Company and relevant Business 



  

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Unit results relative to Funding Performance Measures established under Section 4.1. Target Awards and Blended Target Awards adjusted pursuant to
Section 4.2 (a) and (b) shall be defined as “Modified Target Awards.” 


 in no event may any
incentive pool be adjusted in excess of 200% of the target incentive pool. 
  

	 	(d)	After such adjustments, the incentive pools shall be allocated among the Business Units in order to calculate Incentive Awards to Participants. 

  

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 SECTION 5: INCENTIVE AWARDS 
  

	5.1	Calculation of Incentive Award 

  

	 	(a)	The Participant’s Incentive Award for a Performance Period shall be based on (1) the amount of the incentive pool (if any) for the relevant Business Unit assignment,
(2) the Participant’s paid Salary during the Performance Period, (3) the Participant’s Target Award, and (4) individual performance measures. 

 In the event that a Participant moves from one target award to another or from another company-sponsored incentive plan to the Plan, providing that the
Employee meets the definition of Participant in the Plan, the Employee’s Target Award will be blended as indicated in Section 2.16. The Participant’s Incentive Award for the Performance Period shall be based on (1) the amount of
the incentive pool (if any) for the relevant Business Unit assignment as of the last day as a Participant, or the last day of employment for eligible terminated employees, (2) the Participant’s total paid Salary during the Performance
Period, (3) the Participant’s Blended Target Award, and (4) individual performance. 
 As soon as practical after the end of a
Performance Period, the Participant’s management shall assess individual performance based on pre-established measures . Such performance measures may represent any combination and weighting of Business Unit, operating group, division, unit or
individual measures as determined by the Company. Assessment of performance shall occur through application of Company-approved evaluation tools. 
  

	 	(b)	In the event that the performance of the Company or a Business Unit does not meet the threshold level of performance to result in the funding of an incentive pool under
Section 4.2, an Incentive Award may nonetheless be paid to a Participant in the discretion of the Committee or the Company’s Chief Executive Officer; provided, however, that the aggregate amount of such discretionary Incentive Awards paid
shall not exceed 25% of the sum of Target Awards and Blended Target Awards for all Participants within the Business Units. No Incentive Awards may be granted under the Plan unless the Minimum Financial Requirement has been satisfied.


  

	 	(c)	In no event may the Participant’s Incentive Award exceed 300% of his or her Target Award, as indicated in Section 4.2, without the approval of the Chief Executive Officer.


  

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	5.2	Condition Precedent to Payment of Incentive Award 

 To receive an Incentive Award under Section 5.1, except as stated in Sections 5.4 and 5.5, a written performance evaluation must have first been completed for the Participant and the Employee must have been a Participant as of the last
day of the Performance Period and remain continuously employed with the Company through the date the Inventive Award is processed for payment by the Company’s payroll. 
  

	5.3	Payment of Incentive Award 

 Subject to the
conditions set forth below, Incentive Awards shall be paid to Participants in a lump sum as soon as administratively feasible after the close of the Performance Period. Such payment shall consist of 100% cash; provided, however: 
  

	 	(a)	The Committee may direct that selected Participants receive all or a portion of their respective Incentive Awards as a grant under the Safeco Long-Term Incentive Plan of 1997 or any
successor plan thereto. The actual amount of such a grant will be determined pursuant to any reasonable methodology chosen by the Committee. The Committee, in accordance with the Safeco Long-Term Incentive Plan of 1997, shall have full and final
authority to establish the terms, conditions and definitions that govern such grants. 

  

	 	(b)	The Committee may permit deferral of some or all of a Participant’s Incentive Award to a company-sponsored deferral plan, in accordance with such plan’s terms.


  

	5.4	Termination of Employment 

 If an Employee’s
employment with the Company terminates prior to the date of the payment of the Incentive Award, he or she shall not be entitled to an Incentive Award; provided, however: 
  

	 	(a)	in the event the Participant’s employment with the Company terminates during the Performance Period, or following the end of the Performance Period but before the payment of
the Incentive Award is made, on account of Retirement, death or Disability, the Participant (or his or her estate) will be entitled to receive an Incentive Award based on (1) the Modified Target Award, and (2) his/her Salary for the
portion of the Performance Period(s) in which the Participant was actively employed with the Company. Determination of the Incentive Award is not further conditioned on an assessment of individual performance. 

  

	 	(b)	 In the event the Participant’s employment with the Company is involuntarily terminated by the Company due to a reduction in force, office closure or other




  

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organizational change, and the Participant is entitled to severance under the Safeco Employees’ Severance Plan and meets the criteria for participation
under that plan, the Participant will be entitled to receive an Incentive Award based on (1) the Modified Target Award, and (2) his/her Salary for the portion of the Performance Period(s) in which the Participant was actively employed with
the Company. Determination of the Incentive Award is not further conditioned on an assessment of individual performance. 


  

	 	(c)	In the event the employment of a Participant who has executed a Change in Control Severance Agreement is terminated without cause (as determined in the sole discretion of the
Committee) during the Performance Period by the Company (or an acquirer corporation or affiliate thereof) following a Change in Control, the Participant shall be eligible to receive an Incentive Award for the entire Performance Period, calculated
and paid in accordance with the Change in Control Severance Agreement. 

  

	5.5	Partial Year Participation 

 If an Employee who has
been a Participant in the Plan for any portion of the Performance Period terminates from the Plan and remains continuously employed with the Company through the date of the payment of the Incentive Award, such Employee shall be entitled to a
pro-rated Incentive Award for such Performance Period, calculated pursuant to Sections 2.19 and 5.1, with the exception of Employees who move from the Plan to the Success Sharing Plan (SSP). These Employees’ incentive award, if any, will be
calculated pursuant to Safeco’s Success Sharing Plan. 
  

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 SECTION 6: ADMINISTRATION 
  

	6.1	Activities, Duties and Responsibilities of the Committee 

 This Plan shall be administered by the Committee. The Committee shall have exclusive authority, in its discretion, to determine all matters relating to Incentive Awards under the Plan. The Committee shall also have exclusive authority to
interpret the Plan and may from time to time adopt and change rules and regulations of general application for the Plan’s administration. The Committee’s interpretation of the Plan and its rules and regulations, and all actions taken and
determinations made by the Committee pursuant to the Plan, shall be conclusive and binding on all parties involved or affected. The Committee may delegate administrative duties to the Company’s officers or managers. 
  

	6.2	Notices 

 All notices and communications to the
Committee in connection with this Plan shall be in writing, shall be delivered by first class mail, by courier or by hand, shall be addressed to the Committee at the following address: Safeco Leadership Performance Plan, Attn: Corporate Compensation
and Benefits, Safeco Corporation, Safeco Plaza, 4333 Brooklyn N.E., Seattle, WA 98185, and shall be deemed to have been given and delivered only upon actual receipt by the Committee. All notices and communications to an Eligible Employee shall be in
writing and shall be delivered via paper or electronic media as determined by the Company. 
  

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 SECTION 7: AMENDMENT AND TERMINATION 
  

	7.1	Amendment and Termination of the Plan  

 The
Committee shall each have the right to amend or terminate the Plan at any time and to discontinue (either temporarily or permanently) the distribution of Incentive Awards; provided, however, that no amendment or termination of the Plan shall
adversely affect an Eligible Employee’s right to payment of an Incentive Award that was earned and awarded prior to the date of the amendment or termination. 
  

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 SECTION 8: MISCELLANEOUS 
  

	8.1	Tax Withholding 

 The Company shall withhold from
Incentive Awards all amounts necessary to satisfy applicable federal, state and local withholding tax requirements. 
  

	8.2	Continuation of Employment 

 The existence of the
Plan does not create any employment contract, any guarantee of continued employment, or any right or assurance as to any minimum length of employment. An Eligible Employee’s employment may be terminated at any time, with or without reason and
with or without prior notice, at the option of the Company or the Eligible Employee. 
  

	8.3	Products and Underwriting 

 The Company reserves the
right to withdraw existing products from distribution, reassign distribution of specific products, make new products available, adjust production credit, revise its business plans and strategies and modify its underwriting, reserves, claims,
employment and other practices and policies without the Eligible Employee’s consent and without adjusting the performance measures. 
  

	8.4	No Trust or Fund 

 The Plan is intended to
constitute an “unfunded” plan. Nothing contained herein shall require the Company to segregate any monies or other property, or to create any trusts, and no Eligible Employee shall have any rights that are greater than those of a general
unsecured creditor of the Company. 
  

	8.5	Governing Law; Severability 

 The Plan shall be
governed by the laws of the State of Washington, without regard to its choice of law or conflict of law provisions. The federal and state courts in King County, Washington, shall have exclusive jurisdiction and venue to resolve issues that may arise
out of or relate to the Plan. If any provision of the Plan is held to be invalid or unenforceable, such invalidity or unenforceability shall in no way affect the validity or enforceability of any other Plan provision. 
  

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	8.6	Spendthrift Clause 

 Except as may be otherwise
provided by law, no benefit, payment or distribution under the Plan, or right to receive such a benefit, payment or distribution, shall be subject either to the claim of any creditor of an Eligible Employee or to attachment, garnishment, levy,
execution or other legal or equitable process by any creditor of such person. No Eligible Employee shall have any right to alienate, commute, anticipate or assign (either in law or equity) all or any portion of any benefit, payment or distribution
under the Plan. 
  

	8.7	Entire Plan 

 The Plan contains the entire
understanding and undertaking of the Company with respect to the provision of an incentive plan for Eligible Employees and, as to that subject, supersedes any and all prior and contemporaneous undertakings, agreements, understandings, practices,
policies, inducements or conditions, whether express or implied, oral or written, except as herein contained. 
  

	8.8	Effective Date and Term 

 The effective date of the
Plan is January 1, 2002. The Plan shall continue from year to year until terminated in accordance with Section 7. 
  

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