Exhibit 10.9


 


RLI INCENTIVE COMPENSATION PLAN


EFFECTIVE JANUARY 1, 2009


 


I.              ESTABLISHMENT AND PURPOSE


 


RLI Corp. (the “Company”) established the RLI
Incentive Compensation Plan (the “Plan”), effective January 1, 2006 , for
the benefit of its employees and employees of its Affiliates.  The Plan was intended to amend, consolidate
and restate certain prior incentive compensation plans established by the
Company.  The terms of the Plan, as set
forth herein, shall apply to Awards granted under the Plan on and after the
Effective Date.  Awards granted under the
Company’s incentive compensation plans in effect prior to the Effective Date
shall be governed by the terms of such plans. 
The Company hereby restates the Plan effective January 1, 2009 (the
“Effective Date”)  to comply with the
requirements of the final regulations issued under Section 409A of the
Code (“Section 409A”) on April 10, 2007.


 


The Plan is intended to align incentive
compensation with achieving the financial performance factors on which the Company’s
market value is driven.  The Plan is also
designed to promote the accomplishment of management’s primary annual
objectives as reflected in the Company’s annual operating plan and in the
objectives established by management for employees, and to recognize the
achievement of management’s objectives through the payment of incentive
compensation.


 


The Plan provides for incentive payments to employees based upon the
achievement of pre-established performance goals.  The performance goals may be annual or multi-year
goals.  Incentive compensation payable
under the Plan is intended to be deductible by the Company in accordance with Section 162(m) of
the Internal Revenue Code of 1986, as amended (the “Code”).  The Company may adopt a variety of bonus and
incentive programs under the Plan provided such programs are based on the
performance goals described herein.


 


II.            DEFINITIONS


 


For purposes of the Plan, unless the context
otherwise requires, the following terms shall have the meanings set forth
below.


 


2.1           “Affiliate”
means any corporation that is part of a controlled group within the meaning of
Code Section 414(b) or (c).


 


2.2           “Award”
means an award of incentive compensation under the Plan to a Participant in
accordance with the terms set forth herein.


 


12/12/2008


 

















 


2.3           “Board”
means the Board of Directors of the Company as constituted at the relevant
time.


 


2.4           “Board
Approval Limit” means a predetermined Award level at which the independent
directors of the Board approve Awards in accordance with Section 5.3(c).


 


2.5           “Bonus
Bank” means a deferred payment arrangement established under Section 6.2.


 


2.6           “Bonus
Payment Date” means February 1st. 
Any payment that is due to be distributed as of the Bonus Payment Date
will be deemed to be distributed as of that date if it is distributed on such
date or, if later, by the 15th day of March following the date and the
Participant is not permitted, directly or indirectly, to designate the calendar
year of payment.  Further, a payment will
be treated as made on the Bonus Payment Date if it is made no earlier than 30
days before the date, and the Participant is not permitted, directly or
indirectly, to designate the calendar year of payment.


 


2.7           “Bonus
Pool” means an amount available for distribution to Participant’s who have
been assigned an interest in the Bonus Pool (e.g. Market Value Potential bonus
pool arrangement in effect as of the Effective Date.). The amount of the Bonus
Pool will be determined by the Committee based on the Performance Goals.


 


2.8           “Cause”
means termination for reasons described in Section 6.3.


 


2.9           “Code”
means the Internal Revenue Code of 1986, as amended.


 


2.10         “Committee”
means the Executive Resources Committee of the Board, as constituted at the
relevant time, which shall consist of two or more “outside directors” within
the meaning of Section 162(m) of the Code who are not eligible for
participation in the Plan.


 


2.11         “Company”
means RLI Corp., an Illinois corporation.


 


2.12         “Disability
or Disabled,” with respect to a Participant, means that the Participant
satisfies the requirements to receive long-term disability benefits under the
Company-sponsored group long-term disability plan in which the Participant
participates without regard to any waiting periods, or that the Participant has
been determined by the Social Security Administration to be eligible to receive
Social Security disability benefits.  A
Participant shall not be considered to be “Disabled” unless the Participant
furnishes proof of the Disability to the Company in such form and manner as the
Company may require.


 


2.13         “Eligible
Employee,” for any Performance Period, means a 162(m) Employee and
such other employees of the Company and its Affiliates as may be designated to
participate in the Plan for such Performance Period.  An employee who is 


 


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designated as eligible to participate in the Plan for a particular
Performance Period is not necessarily eligible to participate in the Plan for
any other Performance Period.


 


2.14         “Effective
Date” means January 1, 2009.


 


2.15         “Fiscal
Year” means the calendar year.


 


2.16         “Normal
Retirement Date,” of a Participant, means the date on which the Participant
has attained both (i) combined age and years of service with the Company
of seventy-five and (ii)  and at least 10 years of service.  For this purpose, Company service will be
based only on Participant’s actual service with the Company (and not any other
employer that may be acquired by the Company with respect to service prior to
the acquisition) and shall be calculated based on the number of whole
employment years the Participant has completed from the date of Participant’s
initial employment with the Company.  No
credit shall be given for fractional years of service.


 


2.17         “162(m) Employee,”
for any Fiscal Year, means any employee described in Code Section 162(m)(3).


 


2.18         “Participant,”
for any Performance Period, means an Eligible Employee and who has commenced
participating in the Plan for such Performance Period.


 


2.19         “Performance
Goals,” of a Participant for a Performance Period, are the goals
established for the Performance Period, the achievement of which is a condition
for receiving an Award under the Plan.


 


In the case of a Participant who is a 162(m) Employee,
all Performance Goals must be pre-established by the Committee, must be
objective, and must state, in terms of an objective formula or standard, the
method for computing the amount of compensation payable if the goal is
attained.  A Performance Goal is
considered “pre-established” for purposes of this paragraph if it is
established in writing by the Committee no later than 90 days after the
commencement of a Performance Period, provided that the outcome is
substantially uncertain at the time the Committee actually establishes the
goal.  However, in no event will a
Performance Goal be considered to be pre-established if it is established after
25% of a Performance Period has elapsed. 
A Performance Goal is considered “objective” if a third party having
knowledge of the relevant facts could determine whether the goal is met.  A formula or standard is considered “objective”
if a third party having knowledge of the relevant performance results could
calculate the amount to be paid to the Participant.  A Performance Goal may be adjusted in
accordance with Code Section 162(m) during a Performance Period to
prevent dilution or enlargement of an Award as a result of extraordinary events
or circumstances as determined by the Committee or to exclude the effects of
extraordinary, unusual or nonrecurring events, changes in accounting
principles, discontinued operations, acquisitions, divestitures and material
restructuring charges.


 


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Performance Goals may be based on one or more
of the following criteria and may be based on attainment of a particular level
of, or on a positive change in, a factor: 
revenue, revenue per employee, earnings before income tax (profit before
taxes), earnings before interest and income tax, net earnings (profit after
taxes), earnings per employee, earnings per share, operating income, total
shareholder return, market share, return on equity, before-tax return on net
assets, after-tax return on net assets, economic value added (economic profit),
market value potential, and underwriting profit.  Such criteria may relate to one or any
combination of two or more of Company, Affiliate, division or individual
performance.


 


2.20         “Performance
Period” means, generally, the Fiscal Year. 
However, the Committee may, its discretion, designate a shorter or
longer Performance Period.


 


2.21         “Plan
Administrative Committee” means the Chief Executive Officer, Chief
Financial Officer, Chief Operating Officer, and Chief Human Resources Officer
of the Company or such other officers as the Committee may designate from time
to time.


 


2.22         “Retirement,”
of a Participant, means the Participant’s Termination of Employment with the
Company and all Affiliates on or after his Normal Retirement Date.


 


2.23         “Salary,”
of a Participant for a Performance Period means the annualized base
compensation payable to a Participant determined by the salary rate in effect
on the last day of the Performance Period. 
The salary rate shall be determined without regard to reductions or
deferrals of compensation under qualified and nonqualified plan or welfare
benefit plan.  The salary rate shall be
determined without regard to fringe benefits, bonuses or other payments in
addition to Participant’s base compensation.


 


2.24         “Target
Performance Award” means a dollar amount (which may be expressed as a
percentage of Salary) established for a Participant if the Performance Goal for
the Participant is achieved.  The Target
Performance Award may also state the maximum amount that may actually be paid
to the Participant under Section 5.3 (which may be expressed as a
percentage of Salary.)


 


2.25         “Termination
of Employment” with respect to a Participant, means the Participant’s
separation from service with all Affiliates, within the meaning of Section 409A(a)(2)(A)(i) of
the Code and the regulations under such section.  Solely for this purpose, a Participant who is
an eligible Employee will be considered to have a Termination of Employment
when the Participant dies, retires, or otherwise has a termination of
employment with all Affiliates.  The
employment relationship is treated as continuing intact while the Participant
is on military leave, sick leave, or other bona fide leave of absence if the
period of such leave does not exceed six months, or if longer, so long as the
individual retains a right to reemployment with an Affiliate under an
applicable statute or by contract.  For
purposes hereof, a leave of absence constitutes a bona fide leave of absence
only if there is a reasonable expectation that the Participant will return to perform
services for an Affiliate.  If the period
of leave exceeds six months and the individual does not retain a right to
reemployment under an applicable statute or 


 


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by contract, the employment relationship is deemed to terminate on the
first date immediately following such six-month period.  Notwithstanding the foregoing, where a leave
of absence is due to any medically determinable physical or mental impairment that
can be expected to last for a continuous period of not less than six months,
where such impairment causes the employee to be unable to perform the duties of
such employee’s position of employment or any substantially similar position of
employment, RLI may substitute a 29-month period of absence for such six-month
period.


 


Whether a termination of employment has
occurred is determined based on whether the facts and circumstances indicate
that the Affiliate and the Participant reasonably anticipated that no further
services will be performed after a certain date or that the level of bona fide
services the Participant will perform after such date will permanently decrease
to no more than 49 percent of the average level of bona fide services performed
over the immediately preceding 36-month period (or the full period of services
if the Participant has been providing services for less than 36 months).


 


Notwithstanding anything in Section 2.1.2
to the contrary, in determining whether a Participant has had a Termination of
Employment with an Affiliate, an entity’s status as an “Affiliate” shall be
determined substituting “50 percent” for “80 percent” each place it appears in Section 1563(a)(1),(2),
and (3) and in Treasury Regulation Section 1.414(c)-2.


 


RLI shall have discretion to determine
whether a Participant has experienced a Termination of Employment in connection
with an asset sale transaction entered into by RLI or an Affiliate, provided
that such determination conforms to the requirements of Section 409A and
the regulations and other guidance issued under such section, in which case RLI’s
determination shall be binding on the Participant.


 


III.           ADMINISTRATION


 


3.1           Duties
of Committee.  The Committee will
administer the Plan.  Any actions taken
by the Committee shall be by a majority vote of all Committee members.  The Committee may establish such rules and
regulations as it deems necessary for the Plan and its interpretation.  In addition, the Committee may make such
determinations and take such actions in connection with the Plan as it deems necessary.  Each determination made by the Committee in
accordance with the provisions of the Plan will be final, binding and
conclusive. The Committee may rely on the financial statements certified by the
Company’s independent public accountants.


 


3.2           Duties
of Plan Administrative Committee. 
Except as provided in Section 3.3, the Committee may delegate some
or all of its administrative powers and responsibilities under the Plan to the
Plan Administrative Committee. Unless the Committee determines otherwise, the
Committee shall be treated as delegating its authority to the Plan
Administrative Committee to the full extent permitted hereunder.  The Plan Administrative Committee may make
such determinations and take such actions within the scope of such delegation
and as otherwise provided in the Plan, as it deems necessary.  The Plan Administrative Committee may further
delegate any duties delegated to it pursuant to this 


 


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Section 3.2 to other officers or employees
of the Company and any such delegation may allow for further delegation to
other officers or employees.   Each
determination made by the Plan Administrative Committee, or its delegate, will
be final, binding and conclusive. The Plan Administrative Committee and its
delegates may rely on the financial statements certified by the Company’s
independent public accountants. 
Notwithstanding any such delegation, the Committee may review and change
any decision made by the Plan Administrative Committee or its delegate.


 


3.3           Committee’s
Duties with Respect to 162(m) Employees and to Amend or Terminate Plan.  Notwithstanding anything in the Plan to the
contrary:  (a) the Committee shall
have sole and exclusive authority to (i) establish the Performance Goals
for all 162(m) Employees, (ii) determine and certify the achievement
of the Performance Goals for all 162(m) Employees, (iii) decrease the
amount of Awards payable to all 162(m) Employees pursuant to Section 5.2
and 5.3, and (iv) to modify, suspend, terminate or reinstate the Plan.


 


IV.           ELIGIBILITY TO PARTICIPATE


 


Participation in the Plan is limited to
Eligible Employees.  An employee who is a
162(m) Employee for a Performance Period shall be eligible to participate
in the Plan for the Performance Period. 
Prior to, or within an administratively reasonable period of time
following, the beginning of a Performance Period, the Plan Administrative
Committee, or its delegate, shall determine which other employees are Eligible
Employees for the Performance Period.  The Committee has final authority to approve
or disapprove the selection of any Eligible Employee.  An Eligible Employee (other than a 162(m) Employee)
shall become a Participant only upon approval by the Plan Administrative
Committee or it’s delegate and compliance with such terms and conditions as the
Committee or Plan Administrative Committee may from time to time establish for
the implementation of the Plan.


 


V.            CALCULATION OF AWARDS


 


A Participant’s Award for a Performance
Period is determined as follows:


 


5.1           Establishing
Performance Goals and Target Performance Awards and Board Approval Limits.  Prior to the beginning of a Performance
Period or as soon thereafter as administratively reasonable, but no later than
the time permitted under Code Section 162(m), the Committee (in the case
of Participants who are 162(m) Employees) and the Plan Administrative
Committee, or its delegate, (in the case of all other Participants), shall
establish the Performance Goal or Goals and each Participant’s Target Performance
Award.  Alternatively the Committee (in
the case of Participants who are 162(m) Employees) and the Plan
Administrative Committee, or its delegate (in the case of all other
Participants), may establish a Bonus Pool for one or more Participants and assign
Participants an interest in the Bonus Pool. 
In addition, the Committee shall establish a Board Approval Limit for
each Award made to a 162(m) Employee.


 


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5.2           Calculation
of Awards. Following the close of a Performance Period, the Committee (in
the case of the 162(m) Employees) and the Plan Administrative Committee
(in the case of all other Participants) shall determine the actual Award
payable to a Participant by (i) multiplying the percentage achievement of
the Performance Goal against the Target Performance Award to determine the
Participant’s Award for the Performance period or (ii) multiplying the
Participant’s interest in any Bonus Pool by the final amount of the Bonus Pool.
No Award will be paid to a Participant if the percentage achievement of a
Performance Goal is below any minimum level of performance established for such
Performance Goal.  In no event shall the
aggregate of all Award payments (including the amount of any Award credited to
a Bonus Bank) with respect to a Participant in any Fiscal Year exceed
$7,500,000.


 


5.3           Adjustments
and Certifications of Awards.  Once
the determination in section 5.2 is made, the Committee, in the case of a
Participant who is a 162(m) Employee, and the Plan Administrative
Committee or its delegate in all other cases, shall:


 


(a)           Review the amount of each Award and
make any adjustments it, in its sole discretion, deems appropriate to the
amount of the Award.  In general, each
Participant’s Award will be the amount pre-established (when the Performance
Goals were established) for achievement of the Performance Goals at the
achievement levels described in Section 5.1.  However, at the discretion of the Plan
Administrative Committee, this amount may be increased (except in the case of a
Participant who is a 162(m) Employee) or decreased based upon such
objective or subjective criteria, as it deems appropriate.  The Committee, in its discretion, may
decrease (but not increase) the amount in the case of a 162(m) Employee
based upon such objective or subjective criteria as it deems appropriate; and


 


(b)           In the case of a Participant who is a
162(m) Employee, the Committee shall certify the extent to which the
Participant has satisfied each of the Performance Goals and all other material
terms of an Award.


 


(c)           In the case of any Award subject to a
Board Approval Limit, the independent directors serving on the Board may reduce
the actual Award, but not below the Board Approval Limit established by the
Committee.


 


VI.           PAYMENT OF AWARDS


 


6.1           Timing
of Award Payment.  Except as provided
in Section 6.2, a Participant’s Award for a Performance Period shall be
paid in a cash lump sum to him or her no later March 15 following the end
of the Fiscal Year in which the Performance Period ends.  A Participant who is also eligible to
Participate in the RLI Corp. Executive Deferred Compensation Plan may elect to
defer some or all of any amount otherwise payable to him or her under this Section 6.2
to the extent permitted by such plan.


 


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6.2           Bonus
Bank.  The Committee may specify that
a portion of an Award will be credited to a Bonus Bank immediately prior to the
beginning of a Performance Period. Any such Award will be in writing and shall
specify a fixed schedule of payments and such other terms and conditions as the
Committee or Plan Administrative Committee may choose.  The terms of the Award may provide that
amounts credited to the Bonus Bank may be reduced if Performance Goals in a
subsequent Performance Period are not met. 
Amounts deposited to the Bonus Bank will be credited with interest
equivalent to the interest rate on three year U.S. Government Treasury Bills in
effect at the beginning of the fiscal year.


 


6.3           Change
in Employment Status During Performance Period.  In general, in order to receive a payment a
Participant must be employed by the Company or Affiliate on (i) the date
of actual payment with respect to an Award that is not held under a Bonus Bank
and (ii) the date of actual payouts from a Bonus Bank arrangement.  If the Participant’s employment is terminated
during a Performance Period due to death, Retirement, or Disability, the
Participant (or the Participant’s beneficiary in the case of the Participant’s
death) will be entitled to receive a pro rata portion of the Award only if the
Award expressly provides for such payment. 
If the Participant’s employment is terminated at a time when a
Participant has a balance in a Bonus Bank due to death or Disability, the
Participant (or the Participant’s beneficiary in the case of the Participant’s
death) will be entitled to receive a payment equal to the balance of the Bonus
Bank adjusted for interest through the end of the preceding quarter within 30
days of termination.  Notwithstanding
anything in this Section 6.3 to the contrary, a Participant shall not be
entitled to any Award for a Performance period if the Participant’s employment
is terminated by the Company or Affiliate for “Cause” during the Performance
Period.  For these purposes “Cause” shall
mean the Participant’s:  (a) failure
to comply with any material policies and procedures of the Company or
Affiliate; (b) conduct reflecting dishonesty or disloyalty to the Company
or Affiliate, or which may have a negative impact on the reputation of the
Company or Affiliate; (c) commission of a felony, theft or fraud, or
violations of law involving moral turpitude; (d) failure to perform the
material duties of his or her employment; (e) excessive absenteeism; (f) unethical
behavior; or (g) violation of a material policy of the Company.  If a Participant’s employment is terminated
for “Cause,” the date on which the Participant’s employment is considered to be
terminated, for purposes of this Section 6.3, shall be the time at which
such Participant is instructed or notified to cease performing job
responsibilities for the Company or any Affiliate, whether or not for other
reasons, such as payroll, benefits or compliance with legal procedures or
requirements, he or she may still have other attributes of an employee.


 


6.4           Beneficiary.  In the event that any amount becomes payable
under the Plan by reason of the Participant’s death, such amount shall be paid
to the same beneficiary or  beneficiaries
(and in the same proportions) as last designated by the Participant to receive
benefits under the Company basic life insurance plan upon the Participant’s
death.  Such amount shall be paid to the
beneficiary or beneficiaries at the same time such amount would have been paid
to the Participant had he or she survived. 
In order for such designation to be valid for purposes of the Plan, it
must be completed and filed with the 


 


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Company according to the rules established
by the Company for the Company basic life insurance plan.  If the Participant has not completed a
beneficiary designation for the Company basic life insurance plan, or all such
beneficiaries have predeceased the Participant, then any amount that becomes
payable under the Plan by reason of the Participant’s death shall be paid to
the personal representative of the Participant’s estate.  If there is any question as to the legal
right of any person to receive a distribution under the Plan by reason of the
Participant’s death, the amount in question may, at the discretion of the
Committee, be paid to the personal representative of the Participant’s estate,
in which event the Company shall have no further liability to anyone with
respect to such amount.


 


6.5           Forfeiture.  All Awards paid to the Chief Executive
Officer and Chief Financial Officer of the Company under this Plan are subject
to forfeiture as provided in Section 304 of the Sarbanes-Oxley Act of
2002, and the implementing rules and regulations.


 


VII.          MISCELLANEOUS


 


7.1           No
Guaranty of Employment.  Neither the
adoption nor maintenance of the Plan, the designation of an employee as an
Eligible Employee, the setting of Performance Goals, nor the provision of any
Award under the Plan shall be deemed to be a contract of employment between the
Company or an Affiliate and any employee. 
Nothing contained in the Plan shall give any employee the right to be
retained in the employ of the Company or an Affiliate or to interfere with the
right of the Company or an Affiliate to discharge any employee at any time, nor
shall it give the Company or an Affiliate the right to require any employee to
remain in its employ or to interfere with the employee’s right to terminate
employment at any time.


 


7.2           Release.  Any payment of an Award to or for the benefit
of a Participant or beneficiary that is made in good faith by the Company in
accordance with the Company’s interpretation of its obligations hereunder shall
be in full satisfaction of all claims against the Company for payments under
the Plan to the extent of such payment.


 


7.3           Notices.  Any notice provided by the Company under the
Plan may be posted to a Company-designated web-site.


 


7.4           Nonalienation.  No benefit payable at any time under the Plan
shall be subject in any manner to alienation, sale, transfer, assignment,
pledge, levy, attachment, or encumbrance of any kind by any Participant or
beneficiary.


 


7.5           Plan
is Unfunded.  All Awards under the
Plan shall be paid from the general assets of the Company.  No Participant shall be deemed to have, by virtue
of being a Participant in the Plan, any claim on any specific assets of the
Company such that the Participant would be subject to income taxation on any
Award prior to distribution to him or her, and the rights of a Participant or
beneficiary to any payment to which he or 


 


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she is otherwise entitled under the Plan shall be those of an unsecured
general creditor of the Company.


 


7.6           Tax
Liability.  The Company may withhold
from any payment of Awards or other compensation payable to or on behalf of a
Participant or beneficiary such amounts as the Company determines are
reasonably necessary to pay any taxes required to be withheld under applicable
law.


 


7.7           Captions.  Article and section headings and captions
are provided for purposes of reference and convenience only and shall not be
relied upon in any way to construe, define, modify, limit, or extend the scope
of any provision of the Plan.


 


7.8           Invalidity
of Certain Plan Provisions.  If any
provision of the Plan is held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision of the Plan and the Plan
shall be construed and enforced as if such provision had not been included.


 


7.9           Venue.  As a substantial portion of the duties and
obligations of the parties created by the Plan will be performed in Peoria,
Illinois, it shall be the sole and exclusive venue for any arbitration,
litigation, special proceedings, or other proceedings between the parties in
connection with the Plan.


 


7.10         Hold
Harmless.  A Participant shall hold
the Company harmless from and pay any cost, expense or fee (not to exceed the
bank balance) incurred by the Company with respect to any claim, due or demand
asserted by any person, except the Company against any amounts due Participant
under the Plan.


 


7.11         No
Other Agreements.  The terms and
conditions set forth herein constitute the entire understanding of the Company
and the Participants with respect to the matters addressed herein.


 


7.12         Incapacity.  In the event that any Participant is unable
to care for the Participant’s affairs because of illness or accident, any
payment due may be paid to the Participant’s duly qualified guardian or other
appointed legal representative.


 


7.13         Applicable
Law.  The Plan and all rights under
it shall be governed by and construed according to the laws of the State of
Illinois.


 


 


	
  Date:
                            ,
  2006

  	
  RLI CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Chief Executive Officer

  



 


 


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