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                                                                    EXHIBIT 10.3


                           INCENTIVE COMPENSATION PLAN
                      FOR PRESIDENT/CHIEF EXECUTIVE OFFICER
                                      2001

The purpose of this Incentive Compensation Plan (the "Plan") of SAFECO
("Company") is to offer Michael S. McGavick ("Executive") the opportunity to
earn an annual incentive ("Incentive") based on the level of achievement of
specified Performance Goals during the Performance Period.

1.    EFFECTIVE DATE. The Plan shall be effective as of January 26, 2001.

2.    ELIGIBLE PARTICIPANTS. Only the Executive shall be eligible to participate
      in the Plan.

3.    ADMINISTRATION OF THE PLAN. The Plan shall be administered by the SAFECO
      Corporation Board of Directors or under the Board's delegated authority by
      the Compensation Committee of the Board (the "Committee"). The Board shall
      have broad authority to adopt, amend and rescind rules and procedures
      relating to the Plan and shall have exclusive authority to interpret the
      Plan and to determine how Plan provisions should be applied. In the event
      that any of the Performance Goals referenced in this Plan are
      discontinued, superseded, or no longer appropriate in the Board's opinion,
      the Board shall substitute such other Performance Goals as it deems
      suitable.

4.    PERFORMANCE PERIOD. The initial Performance Period shall commence on the
      Effective Date and extend through calendar year 2001. Subsequent
      Performance Periods are defined as the period from January 1 through
      December 31 of each calendar year.

5.    PERFORMANCE GOALS.

      a.    Setting Performance Goals. The Performance Goals on which the
            Executive's Incentive will be based shall be discussed and agreed
            upon by and among the Executive, the Lead Director of the Board and
            the Committee. The Performance Goals for the Performance Period are
            set forth on Appendix A to this Plan.

      b.    Adjusting Performance Goals. The Board may adjust Performance Goals
            in such a manner as it deems equitable in recognition of unusual or
            nonrecurring events affecting SAFECO, changes in applicable tax laws
            or accounting principles, or such other factors as the Board may
            determine.

6.    CALCULATION AND PAYMENT OF INCENTIVES.

      a.    Determination of Amount. The Board in its sole discretion will
            determine whether a Performance Goal has been met, the level of
            achievement and the amount of Incentive that has been earned. The
            Board shall utilize such assessment means as advisable to evaluate
            the Executive's or Company's performance relative to the agreed upon
            Performance Goals.

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            As soon as practicable after the end of the Performance Period, the
            Incentive shall be calculated by multiplying the Executive's Base
            Salary by a whole percentage from 0 to 200%.

      b.    Maximum Incentive. The maximum incentive payable under the Plan to
            the Executive shall be 200% of the Executive's Base Salary.

      c.    Base Salary. "Base Salary" shall mean the base annual salary earned
            by the Executive during the Performance Period before reduction for
            (i) compensation voluntarily deferred or contributed by the
            Executive under qualified or nonqualified plans of SAFECO or any
            subsidiary and (ii) amounts not included in the Executive's gross
            income under Internal Revenue Code Sections 125, 402(e) and 402(h)
            pursuant to plans established by SAFECO or any subsidiary. Base
            Salary excludes any Incentives paid, accrued or awarded under this
            Plan or otherwise.

      d.    Payment. Incentive payments shall be made within 45 days following
            the end of the calendar year (unless the data necessary for the
            calculations are not available, in which case payment will be made
            within 30 days following availability of necessary data).

      e.    Guaranteed Incentives. For the 2001 Performance Period, the
            incentive shall be at least 100% of the Executive's Base Salary. For
            the 2002 Performance Period, the incentive shall be at least 50% of
            the Executive's Base Salary.

8.    TAX WITHHOLDING. SAFECO shall withhold from incentive payments all amounts
      necessary to satisfy applicable federal, state and local withholding tax
      requirements.

9.    TERMINATION OF EMPLOYMENT. If the Executive ceases to be an eligible
      employee for any reason, the Executive's participation in the Plan shall
      cease immediately. The Executive shall not be entitled to payment of any
      incentive under the Plan, except as specified in the Employment Agreement
      dated January 26, 2001 or Change in Control Agreement dated January 26,
      2001. Nevertheless, the Executive shall be entitled to payment on the
      regular payment date of any incentive earned for the year prior to the
      year in which the termination of eligibility occurred.

10.   COORDINATION WITH OTHER BENEFIT PLANS. Incentives paid, accrued or awarded
      under the Plan shall not be taken into account in administering other
      employee benefit and bonus programs for which the Eligible Participant may
      also be eligible (e.g., the SAFECO Employees' Profit Sharing Retirement
      Plan, Cash Balance Plan or 401(k) Savings Plan). The Executive shall be
      entitled to receive the SAFECO profit-sharing cash bonus.

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11.   CONTINUATION OF EMPLOYMENT. Employment of the Executive is pursuant to the
      Employment Agreement dated January 26, 2001 and may be terminated
      according to the provisions of that agreement.

12.   GOVERNING LAW. The laws of the State of Washington, excluding any
      conflict-of-laws or choice-of-law rule or principle that might otherwise
      refer construction or interpretation of this Plan to the substantive law
      of another jurisdiction shall govern this Plan. Participant and Company
      submit to the exclusive jurisdiction and venue of the federal or state
      courts in King County, Washington, to resolve issues that may arise out of
      or relate to this Plan.

13.   AMENDMENTS. The Plan may be modified or terminated at any time by a
      resolution duly adopted by the Board. A certified copy of the Board
      resolution authorizing such action shall evidence adoption of any
      amendment or any action to terminate the Plan. Notwithstanding the
      foregoing, no such amendment or termination of the Plan shall affect an
      Executive's right to any Incentive earned prior to the date of the
      amendment or Plan termination. Unless otherwise specified in the Board
      resolution, any amendment of the Plan shall take effect with respect to
      all Eligible Executives as of the date the resolution was adopted.

14.   INTERPRETATION OF THE PLAN. The Board shall have the exclusive right to
      interpret the provisions of this Plan and determine the disposition of all
      situations not specifically addressed in the Plan.

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                                   APPENDIX A
                        PRESIDENT/CHIEF EXECUTIVE OFFICER
               2001 INCENTIVE COMPENSATION PLAN PERFORMANCE GOALS

BALANCE SHEET IMPROVEMENT

      Redacted


PROFIT IMPROVEMENT PLAN

      Redacted


EXPENSE REDUCTION

      Redacted


STRATEGIC PLANNING

      Redacted


DIVERSITY AND EMPLOYEE COMPETENCY

      Redacted

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