Exhibit 10.1



                           1997 ANNUAL INCENTIVE PLAN
                                       OF
                             ERIE INDEMNITY COMPANY


1.  PURPOSE.  The  purpose of the  Annual  Incentive  Plan (the  "Plan") of Erie
Indemnity  Company (the  "Company") is to promote the best interests of the Erie
Insurance  Exchange  while  enhancing  shareholder  value of the  Company and to
promote the attainment of significant  business  objectives by the Company,  its
subsidiaries  and  affiliates  by  basing  a  portion  of  selected   employees'
compensation  on the  performance  of such  employee and the Company (as defined
below).

2.       DEFINITIONS.

         a. "Award  Agreement"  means the  agreement  entered  into  between the
Company and a Participant,  setting forth the terms and conditions applicable to
an award granted to the Participant under this Plan.

         b. "Base Salary" shall mean the annual base salary for a Participant at
the end of the calendar year 1997.

         c.  "Combined  Ratio" means the sum of the loss ratio  (including  loss
adjustment  expenses),   expense  ratio  and  policyholder  dividend  ratio,  as
determined in accordance  with statutory  accounting  principles and reported to
A.M.  Best Company for the combined  property  casualty  operations  of the Erie
Insurance  Exchange and affiliated  property  casualty  companies  (collectively
"Erie").  For Erie the Combined Ratio shall be adjusted  downward to reflect the
excess of management fees over actual expenses for the management operations.

         d.  "Company"  means  Erie  Indemnity   Company  and  any  corporation,
partnership  or  other  organization  of which  the  Company  owns or  controls,
directly or indirectly,  not less than 50% of the total combined voting power of
all classes of stock or other equity  interests.  For purposes of this Plan, the
term "Company" shall include any successors thereto.

         e. "Committee" means the Executive  Compensation Committee of the Board
of Directors  of the Company,  or its  functional  successor,  unless some other
Board  committee has been designated by the Board of Directors to administer the
Plan.

         f.  "Participant"  means  any  individual  who has met the  eligibility
requirements set forth in Section 5 hereof and to whom a grant has been made and
is outstanding under the Plan.

         g. "Peer Group" means a group of companies selected by the Committee on
an industry and line of business basis.

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         h. "Performance Measures" means the criteria upon which awards for 1997
will be based and, unless otherwise  determined by the Committee shall be: (i) a
combination  of the difference  between  Erie's  Combined Ratio for 1997 and the
averaged  Combined Ratio of the Peer Group for 1997 and the  difference  between
the Erie's  growth in net written  premiums as compared to growth in net written
premiums  of the Peer  Group  ("Financial  Performance  Measure");  and (ii) the
Participant's  individual  performance  assessment under the Company's  existing
performance assessment system ("Individual  Performance Measure"). The Financial
Performance  Measure and the  Individual  Performance  Measure are  collectively
referred to as (the "Performance Measures").

         i. "Target Award" means 25% of a Participant's Base Salary for 1997.

3. ADMINISTRATION. The Plan shall be administered by the Committee.

         The Committee's  determinations  under the Plan need not be uniform and
may be made by it  selectively  among  persons who  receive,  or are eligible to
receive,  awards  under the Plan,  whether  or not such  persons  are  similarly
situated.  Whenever  the  Plan  refers  to a  determination  being  made  by the
Committee,  it shall be deemed to mean a  determination  by the Committee in its
sole discretion.

         Subject  to  the  provisions  of  the  Plan,  the  Committee  shall  be
authorized to interpret  the Plan,  to make,  amend and rescind such rules as it
deems  necessary  for the proper  administration  of the Plan, to make all other
determinations  necessary or advisable for the administration of the Plan and to
correct any defect or supply any omission or reconcile any  inconsistency in the
Plan in the manner and to the extent the Committee  deems desirable to carry the
Plan into effect.  Any action taken or determination made by the Committee shall
be conclusive on all parties.

4.  WEIGHTING OF PERFORMANCE  MEASURES.  The Target Award shall be weighted in a
manner  so that  75% of the  Target  Award  shall be  based  upon the  Financial
Performance  Measure  and 25% of the  Target  Award  shall  be  based  upon  the
Individual  Performance  Measure.  Satisfaction  of  either  of the  Performance
Measures  shall entitle a Participant to payment with respect to that portion of
the award  notwithstanding  the fact that the other  Performance  Measure is not
satisfied.

5.  ELIGIBLE  PERSONS.  Any  key  employee  of the  Company  who  the  Committee
determines,  in its sole discretion,  has a significant effect on the operations
of the Company shall be eligible to participate in the Plan. Any  Participant in
this Plan shall be deemed  ineligible to participate in the Erie Insurance Group
Employee  Profit  Sharing Bonus Plan.  No employee  shall have a right (a) to be
selected  under the Plan, or (b) having once been  selected,  to (i) be selected
again or (ii) continue as an employee.


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6. MAXIMUM  AMOUNT  AVAILABLE  FOR AWARDS.  The aggregate  maximum  pay-out with
respect to awards for 1997  under the Plan shall be 15% of the  increase  in the
Company's  after tax earnings (as defined by the  Committee) in 1997 compared to
1996.  In the event that the total  awards  earned  under the Plan  exceed  this
limitation,  each Participant's award shall be reduced on a pro rata basis until
the total  pay-out of awards  under the Plan does not  exceed  the Plan  maximum
established in the preceding sentence.

7.  DETERMINATION  OF AWARDS.  The Committee shall determine the actual award to
each Participant for the year, based upon the following formula:

Participant  Award = (.75 of Target  Award x  Financial  Performance  Percentage
Earned) + (.25 of Target Award x Individual Performance Percentage Earned).

         The Financial Performance  Percentage Earned and Individual Performance
Percentage Earned shall be determined in accordance with Appendix I and Appendix
II, respectively.  For the Financial  Performance  Percentage Earned, the amount
shall be  mathematically  interpolated  between  cells in the matrix  based upon
Erie's actual  differences in Combined Ratio and Growth in New Written Premiums.
The Individual  Performance  Percentage Earned shall be based on the performance
assessment conducted during calendar year 1997.

         The total award payable to any  Participant  may range from zero (0) to
one hundred and sixty (160) percent of the Participant's Target Award, depending
upon  whether,  or the  extent  to which,  the  Performance  Measures  have been
achieved.  Notwithstanding  anything in this Plan to the contrary, a Participant
shall not be entitled to, and no amount shall be payable to, such Participant in
the event that the  Participant's  Performance  Points (as reflected in Appendix
II)  are  below  94.  All  such  determinations  regarding  the  achievement  of
Performance  Measures and the determination of actual awards will be made by the
Committee.

8.  DISTRIBUTION OF AWARDS.  Awards under the Plan shall be paid in cash as soon
as  practicable  after  1997  audited  financial  statements  for Erie have been
prepared and Peer Group data is available.

9.  TERMINATION OF EMPLOYMENT.  A Participant  must be actively  employed by the
Company  on the  date his or her  award is  determined  by the  Committee  ("the
Payment  Date") in order to be  entitled  to payment of any award.  In the event
active  employment of a Participant  shall be terminated before the Payment Date
for any reason other than  discharge for "Cause" (as defined in such  employee's
employment  agreement  with the  Company  or, if no such  agreement  exists,  as
defined by the Committee) or voluntary resignation, such Participant may receive
such  portion  of his or her  award as may be  determined  by the  Committee.  A
Participant  discharged for Cause shall not be entitled to receive any award for
the year. A Participant who voluntarily  resigns prior to the Payment Date shall
not be  entitled  to  receive  any  award  unless  otherwise  determined  by the
Committee.


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10.      MISCELLANEOUS.

         a.       NONASSIGNABILITY.  No award will be assignable or transferable
without the written consent of the Committee in its sole discretion, except by
 will or by the laws of descent and distribution.

         b. WITHHOLDING TAXES.  Whenever payments under the Plan are to be made,
the  Company  will  withhold  therefrom  an amount  sufficient  to  satisfy  any
applicable governmental withholding tax requirements related thereto.

         c.  AMENDMENT OR TERMINATION OF THE PLAN. The Board of Directors of the
Company may at any time amend,  suspend or discontinue  the Plan, in whole or in
part.  The Committee may at any time alter or amend any or all Award  Agreements
under the Plan to the extent permitted by law.

         d. OTHER  PAYMENTS  OR AWARDS.  Nothing  contained  in the Plan will be
deemed in any way to limit or  restrict  the  Company  from  making any award or
payment  to any  person  under any other  plan,  arrangement  or  understanding,
whether now existing or hereafter in effect.

         e. PAYMENTS TO OTHER  PERSONS.  If payments are legally  required to be
made to any person other than the person to whom any amount is  available  under
the Plan, payments will be made accordingly. Any such payment will be a complete
discharge of the liability of the Company under this Plan.

         f.       LIMITS OF LIABILITY.

                  1.  Any  liability  of the  Company  to any  Participant  with
respect to an award shall be based solely upon contractual  obligations  created
by the Plan and the Award Agreement.

                  2.  Neither  the  Company,  nor any  member  of its  Board  of
Directors  or of the  Committee,  nor  any  other  person  participating  in any
determination  of  any  question  under  the  Plan,  or in  the  interpretation,
administration or application of the Plan, shall have any liability to any party
for any action taken or not taken in good faith under the Plan.

         g.       RIGHTS OF EMPLOYEES.

                  1.  Status as an  employee  eligible to receive an award under
the Plan  shall not be  construed  as a  commitment  that any award will be made
under this Plan to such employee or to other such employees generally.

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                  2. Nothing  contained  in this Plan or in any Award  Agreement
(or in any  other  documents  related  to this  Plan or to any  award  or  Award
Agreement)  shall confer upon any employee or Participant  any right to continue
in the employ or other  service of the  Company or  constitute  any  contract or
limit in any way the right of the Company to change such  person's  compensation
or other benefits or to terminate the employment or other service of such person
with or without cause.

         h. SECTION HEADINGS.  The section headings contained herein are for the
purposes of convenience only, and in the event of any conflict,  the text of the
Plan, rather than the section headings, will control.

         i.  INVALIDITY.  If any term or provision  contained herein will to any
extent be invalid or  unenforceable,  such term or provision will be reformed so
that it is valid,  and such invalidity or  unenforceability  will not affect any
other provision or part hereof.

         j. APPLICABLE LAW. The Plan, the Award Agreements and all actions taken
hereunder or thereunder  shall be governed by, and construed in accordance with,
the laws of the  Commonwealth of Pennsylvania  without regard to the conflict of
law principles thereof.

         k. EFFECTIVE DATE. The Plan shall be effective as of January 1, 1997.



                                             /s/ Peter B. Bartlett
                                -----------------------------------------
                                         Peter B. Bartlett, Chairman
                                       Executive Compensation Committee




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