EX-10.8



 





Exhibit 10.8




THE PROGRESSIVE CORPORATION

2007 GAINSHARING PLAN





	1.	 	The Plan. The Progressive Corporation and its subsidiaries (collectively,
“Progressive” or the “Company”) have adopted The Progressive Corporation 2007 Gainsharing Plan
(the “Plan”) as part of their overall compensation program. The Plan is performance-based and
is administered under the direction of the Compensation Committee of the Board of Directors of
The Progressive Corporation (the “Committee”). Plan years will coincide with Progressive’s
fiscal years.
	 
	2.	 	Participants. Plan participants for each Plan year shall include all officers and
regular employees of Progressive, unless determined otherwise by the Committee. The
Gainsharing opportunity, if any, for those executive officers who participate in The
Progressive Corporation 2004 Executive Bonus Plan or The Progressive Corporation 2007
Executive Bonus Plan will be provided by those plans, although participants in those plans may
also participate in this Plan if and to the extent determined by the Committee.
	 
	3.	 	Gainsharing Formula. Annual Gainsharing Payments under the Plan will be determined
by application of the following formula:






Annual Gainsharing Payment = Paid Earnings x Target Percentage x Performance Factor




	4.	 	Paid Earnings. Paid Earnings for any Plan year shall mean and include the following:
regular, used Earned Time Benefit, sick, holiday (excluding, for all purposes hereunder,
premium holiday pay for exempt employees), funeral and overtime pay, and retroactive payments
of any of the foregoing items, received by the participant during the Plan year for work or
services performed as an officer or employee of Progressive.






For purposes of the Plan, Paid Earnings shall exclude all other types of compensation,
including, without limitation, any short-term or long-term disability payments made to the
participant, the earnings replacement component of any workers’ compensation award, payments
from the discretionary cash fund or any other bonus or incentive compensation awards, any
dividend payments and unused Earned Time Benefit.




Notwithstanding the foregoing, if at the end of the 24th pay period of a Plan year,
any Plan participant’s then current annual salary exceeds his or her salary range maximum plus
$105, then for purposes of computing his or her Annual Gainsharing Payment under the Plan, his
or her Paid Earnings shall be equal to the sum of: (i) his or her regular, used Earned Time
Benefit, sick, holiday and funeral pay for each bi-weekly pay period during the Plan year, but
not to exceed 1/26th of his or her annual salary range maximum (as in effect as of
the end of the applicable pay period) for any such bi-weekly pay period; plus (ii) the full
amount of the following items, if any, received by such participant during that Plan year: (a)
overtime pay, and (b) retroactive payments of regular, used Earned Time Benefit, sick,
holiday, overtime and funeral pay.



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	5.	 	Target Percentages. Target Percentages vary by position. Target Percentages for
Plan participants typically are as follows:





	 	 	 	 	 
	POSITION	 	TARGET %
	 
	 	 	 	 
	Senior Executives, Executive Level Managers and Business Leaders
	 	 	60 - 150	%
	Directors of Large Functional Areas
	 	 	35 - 60	%
	Senior Managers
	 	 	20 - 35	%
	Middle Managers
	 	 	15 - 20	%
	Senior Professionals and Entry Level Managers
	 	 	9 - 20	%
	Administrative Support and Entry Level Professionals
	 	 	0 - 8	%







Target Percentages will be established within the above ranges by, and may be changed with the
approval of, the following officers of The Progressive Corporation (collectively, the
“Designated Executives”): (a) the Chief Executive Officer, and (b) either the Chief Human
Resource Officer or the Chief Financial Officer; provided, however, that only the Committee
may establish the Target Percentages for the Company’s executive officers. Target Percentages
also may be changed from year to year by the Designated Executives.




If a participant’s position changes during a Plan year resulting in a change in Target
Percentage, the Target Percentages used to calculate such participant’s Annual Gainsharing
Payment hereunder shall be weighted appropriately.




	6.	 	The Performance Factor.






	 	A.	 	General






The Performance Factor shall be determined by the performance scores achieved with
respect to profitability and growth outcomes for one or more Performance Components,
as defined below. The Performance Components may be weighted to reflect the nature
of the individual participant’s assigned responsibilities. The weighting factors
may differ among participants and will be determined, and may be changed from year
to year, by or under the direction of the Committee.




	 	B.	 	Performance Components






The Performance Components for the Plan year in question shall consist of either:




     (i) Progressive’s “Core Business” (consisting of the Drive business
unit, the Direct business unit, the Commercial Auto business unit and the
Special Lines business unit, each as described below in more detail); or



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     (ii) One of the individual business units designated in clause (i)
above (each a “business unit”), or a portion of such designated business
unit as defined by the Committee (each, a “business sub-unit”).




For purposes of computing a performance score for each Performance Component,
operating performance results for each applicable business unit or sub-unit are
measured by a performance matrix, as established by or under the direction of the
Committee for the Plan year. Each matrix assigns a performance score to various
combinations of profitability and growth outcomes for the business unit or business
sub-unit, as applicable.




For 2007, and for each Plan year thereafter until otherwise determined by the
Committee, separate Gainsharing matrices will be used, and separate performance
scores will be determined, for the following individual business units or business
sub-units:




	 	•	 	Drive
	 
	 	•	 	Direct—New
	 
	 	•	 	Direct—Renewal
	 
	 	•	 	Commercial Auto—Light Local
	 
	 	•	 	Commercial Auto—Specialty
	 
	 	•	 	Special Lines






For purposes hereof, the Drive business unit includes the Auto business produced by
agents or brokers, including Strategic Alliances Drive Auto (but excluding Drive
Special Lines business); the Direct business unit includes the Auto business
produced by phone or over the Internet (but excludes Direct Special Lines business);
and the Special Lines business unit includes Special Lines business generated by
agents and brokers and directly by phone or over the Internet.




For purposes of this Plan, the results of the Professional Liability Group, and the
results of the Midland Financial Group, Inc. and other businesses in run-off, are
excluded from the Drive, Direct, Commercial Auto and Special Lines business units
and, thus, from Core Business results. Net operating gains/losses from other
products in the Core Business, if any, will be apportioned among the various
business units or sub-units in accordance with the respective amount(s) of net
earned premiums generated by such products in each such business unit or sub-unit,
and the apportioned net operating gains/losses will be included in the calculation
of the GAAP combined ratio for such unit(s) or sub-unit(s). Assigned risk business
is not included in determining the growth of any business unit or sub-unit, but the
net operating gains/losses for such business will be included in the calculation of
the GAAP combined ratio for the applicable business unit or sub-unit.




	 	C.	 	Performance Measures






The growth measure for all matrices will be based on policies in force (“PIFs”).
For all matrices other than those for the Direct business unit, growth will be
measured by the change in average PIFs for the Plan year over average PIFs for the
immediately preceding fiscal year. Average PIFs for each of the Plan year



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and the immediately preceding fiscal year will be determined by adding the
fiscal-month-end number of PIFs for each month during such year and dividing by
twelve.




For the Direct business unit, the following will apply to the matrices for its
business sub-units:




     (i) For the Direct—New matrix, growth will be measured by the change
in the number of new policies written during the applicable Plan year that
remain in force as of the last day of the Plan year, as compared with the
number of new policies written during the immediately preceding fiscal year
that remained in force as of the last day of such fiscal year.




     (ii) For the Direct—Renewal matrix, growth will be measured by the
Direct business unit’s retention rate for the Plan year (i.e., the
relationship, expressed as a percentage, between the number of PIFs on the
first day of the Plan year and the number of those same policies that are
still in effect as of the last day of the Plan year).




For all matrices, profitability will be measured by the GAAP combined ratio for the
Plan year. The GAAP combined ratio will be separately determined for each of the
business units and business sub-units identified above. The GAAP combined ratio of
each such business unit or sub-unit will then be matched with the growth measure for
such business unit or sub-unit, using the applicable Gainsharing matrix, to
determine a performance score for the applicable business unit or sub-unit.




	 	D.	 	Calculation of Performance Factor 






	 	1.	 	Core Business 






For most participants, the Performance Factor will be determined solely by
the performance results for the Core Business, calculated in the manner
described below.




The performance scores achieved by each of the Drive, Direct, Commercial
Auto and Special Lines business units will be determined as follows.




     (i) The performance score for each of the Drive and Special
Lines business units will be separately determined directly from the
applicable matrix, as described above.




     (ii) The performance score for the Direct business unit will
be based on business sub-unit performance, weighted as follows:
two-thirds (2/3) from the score determined under the Direct—Renewal
matrix and one-third (1/3) from the score determined under the
Direct—New matrix.



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     (iii) The performance score for the Commercial Auto business
unit will be determined based on the respective scores determined
under the Commercial Auto—Light Local matrix and the Commercial
Auto—Specialty matrix, weighted based on the relative amount of net
earned premiums generated by each such business sub-unit.




The resulting performance scores for each of the Drive, Direct, Commercial
Auto and Special Lines business units will then be multiplied by the
applicable weighting factor (based on the percentage of net earned premiums
generated by each such business unit during the Plan year), the weighted
performance scores will be combined and the sum of the weighted Performance
Scores will be the performance score for the Core Business.




	 	2.	 	Core Business Plus Assigned Business Unit’s Performance Component






For all employees who are assigned primarily to one of the business units
comprising the Core Business and who are eligible to participate in the
Company’s equity incentive plans, the Performance Factor will be based on
the performance scores for both the Core Business, as a whole, and his or
her assigned business unit. Generally, for these employees, the Performance
Factor will be weighted 50% on the Core Business performance score and 50%
on his or her assigned business unit’s performance score, unless determined
otherwise by or under the direction of the Committee.




With respect to each of the IT Business Leaders selected by the Designated
Executives, the Performance Factor will be based on both the Core Business
performance score and the performance score of his or her assigned business
unit, in such ratio or otherwise weighted as shall be determined by or under
the direction of the Committee.




The performance score for each Performance Component (i.e., the Core
Business and the employee’s assigned business unit) will be multiplied by
the assigned weighting factor to produce a weighted performance score for
each such Performance Component. The sum of the weighted performance scores
equals the Performance Factor.




	 	E.	 	Limitations






The final Performance Factor can vary from 0 to 2.0, determined under the procedures
described above based on actual performance. The final Performance Factor cannot
exceed 2.0, regardless of results.




	7.	 	Payment Procedures; Deferral. Subject to Paragraph 9 below, no later than December
31 of each Plan year, each participant will receive an initial payment in respect of his or
her Annual Gainsharing Payment for that Plan year equal to 75% of an amount calculated on the
basis of Paid Earnings for the first 24 pay periods of the Plan year, estimated earnings for
the remainder of the Plan year, and performance data through the first 11 months of the Plan
year (estimated, if necessary). No later than February 15 of the following year,




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	 	 	each participant will receive the balance of his or her Annual Gainsharing Payment, if any,
for such Plan year, based on his or her Paid Earnings and performance data for the entire Plan
year.






Any Plan participant who is then eligible to participate in The Progressive Corporation
Executive Deferred Compensation Plan (“Deferral Plan”) may elect to defer all or a portion of
the Annual Gainsharing Payment otherwise payable to him/her under this Plan, subject to and in
accordance with the terms of the Deferral Plan.




	8.	 	Other Plans. If, for any Plan year, an employee has been selected to participate in
both this Plan and another incentive plan offered by the Company, then with respect to such
employee, the Gainsharing formula set forth in Paragraph 3 hereof shall be appropriately
adjusted by applying a weighting factor to reflect the proportion of the employee’s total
annual incentive opportunity that is being provided by this Plan. The Committee shall have
full authority to determine the incentive plan or plans in which any employee will participate
during any plan year and, if an employee is selected to participate in more than one plan, the
weighting factor that will apply to each such plan.
	 
	9.	 	Qualification Date; Leave of Absence; Withholding . Unless otherwise determined by
the Committee, and except as expressly provided herein, in order to be entitled to receive an
Annual Gainsharing Payment for any Plan year, the participant must be an active officer or
regular employee of the Company on November 30 of the Plan year (“Qualification Date”).
Individuals who are hired on or after December 1 of any Plan year are not entitled to an
Annual Gainsharing Payment for that Plan year.






Any participant who is on a leave of absence covered by the Family and Medical Leave Act of
1993, personal leave of absence with the approval of the Company, military leave or short or
long-term disability on the Qualification Date with respect to any Plan year will be entitled
to receive an Annual Gainsharing Payment for such Plan year, calculated as provided in
Paragraphs 3 through 6 above and based on the amount of Paid Earnings received by such
participant during the Plan year.




Annual Gainsharing Payments will be net of any legally required deductions for federal, state
and local taxes and other items.




	10.	 	Non-Transferability. The right to any Annual Gainsharing Payment hereunder may not
be sold, transferred, assigned or encumbered by any participant. Nothing herein shall prevent
any participant’s interest hereunder from being subject to involuntary attachment, levy or
other legal process.
	 
	11.	 	Administration. The Plan shall be administered by or under the direction of the
Committee. The Committee shall have the authority to adopt, amend, revise and repeal such
rules, guidelines, procedures and practices governing the Plan as it shall, from time to time,
in its sole discretion, deem advisable.






The Committee shall have full authority to determine the manner in which the Plan will
operate, to interpret the provisions of the Plan and to make all determinations hereunder.
All such interpretations and determinations shall be final and binding on Progressive, all
Plan participants and all other parties. No such interpretation or determination shall be
relied on as a precedent for any similar action or decision.



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Unless otherwise determined by the Committee, all of the authority of the Committee hereunder
(including, without limitation, the authority to administer the Plan, select the persons
entitled to participate herein, interpret the provisions thereof, waive any of the
requirements specified herein and make determinations hereunder and to select, approve,
establish, change or modify Performance Components and their respective formulae, weighting
factors, performance targets and Target Percentages) may be exercised by the Designated
Executives; provided, however, that only the Committee may take such actions or make such
determinations for the Company’s executive officers. In the event of a dispute or conflict,
the determination of the Committee will govern.




	12.	 	Termination; Amendment. The Plan may be terminated, amended or revised, in whole or
in part, at any time and from time to time by the Committee, in its sole discretion.
	 
	13.	 	Unfunded Obligations. The Plan will be unfunded and all payments due under the Plan
shall be made from Progressive’s general assets.
	 
	14.	 	No Employment Rights. Nothing in the Plan shall be construed as conferring upon any
person the right to remain a participant in the Plan or to remain employed by Progressive, nor
shall the Plan limit Progressive’s right to discipline or discharge any of its officers or
employees or change any of their job titles, duties or compensation.
	 
	15.	 	Set-Off Rights. Progressive shall have the unrestricted right to set off against or
recover out of any Annual Gainsharing Payment or other sums owed to any participant under the
Plan any amounts owed by such participant to Progressive.
	 
	16.	 	Prior Plans. This Plan supersedes all prior plans, agreements, understandings and
arrangements regarding bonuses or other cash incentive compensation payable to participants by
or due from Progressive. Without limiting the generality of the foregoing, this Plan
supersedes and replaces The Progressive Corporation 2006 Gainsharing Plan (the “Prior Plan”),
which is and shall be deemed to be terminated as of December 29, 2006 (the “Prior Plan
Termination Date”); provided, however, that any bonuses or other sums earned and payable under
the Prior Plan with respect to any Plan year ended on or prior to the Prior Plan Termination
Date shall be unaffected by such termination and shall be paid to the appropriate participants
when and as provided thereunder.
	 
	17.	 	Effective Date. This Plan is adopted, and is to be effective, as of December 30,
2006, which is the commencement of Progressive’s 2007 fiscal year. This Plan shall be
effective for the 2007 Plan year (which coincides with Progressive’s 2007 fiscal year) and for
each Plan year thereafter unless and until terminated by the Committee.
	 
	18.	 	Governing Law. This Plan shall be interpreted and construed in accordance with the
laws of the State of Ohio.






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