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                                                                 Exhibit (10)(P)









                       MERCHANTS MUTUAL INSURANCE COMPANY
                            ADJUSTED RETURN ON EQUITY
                           INCENTIVE COMPENSATION PLAN
                                 JANUARY 1, 2000










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                       MERCHANTS MUTUAL INSURANCE COMPANY
                            ADJUSTED RETURN ON EQUITY
                           INCENTIVE COMPENSATION PLAN

                                 JANUARY 1, 2000


I.       ADJUSTED RETURN ON EQUITY.

         Merchants Mutual Insurance Company ("Merchants Mutual") has established
         the Adjusted Return on Equity ("AROE") Incentive Compensation Plan (the
         "AROE Plan") to provide incentives to align the interests of eligible
         employees with the interests of the stakeholders of Merchants Mutual
         and of Merchants Group, Inc. ("MGI").

         The AROE Plan is based on the tenets of economic value added, which
         compares after tax returns to the cost of capital, or return expected
         by investors. Merchants Mutual believes that the creation of value is a
         result of returns that exceed the cost of capital, and that the
         converse is also true.

         The AROE Plan is effective January 1, 2000. The AROE Plan year will be
         the calendar year, beginning with 2000.

II.      ELIGIBILITY.

         All full time and part time regular employees of Merchants Mutual who
         have commenced employment prior to July 1 of an AROE Plan year and are
         employed on the last business day of that year are eligible to
         participate in the AROE Plan for that year.

         Each participant will be included in one of two groups: participants
         whose performance is directly related to business unit performance,
         such as members of the Eastern Strategic Business Center, and
         participants whose performance is not directly related to a business
         unit, but is measured more appropriately by company-wide results, such
         as members of the Accounting or Human Resources departments.
         Individuals whose performance is directly related to business unit
         performance will have 75% of their incentive compensation based on the
         performance of the business unit under other incentive compensation
         plans (e.g. CTCO, Premiums & Profits) and 25% of their incentive
         compensation based on the AROE performance of Merchants Mutual and MGI
         as a whole. The President & C.E.O. of Merchants Mutual, in consultation
         with the Vice President in charge of an area, will, in his discretion,
         determine the group in which an eligible employee shall be included.



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III.     CALCULATION OF AROE.

         AROE is composed of two elements - adjusted return and adjusted equity,
         both of which use results reported in accordance with generally
         accepted accounting principles ("GAAP") as a starting point. AROE shall
         be determined separately for Merchants Mutual and MGI as follows:

<TABLE>

<S>                                    <C>
                  Adjusted Return   =       GAAP Net Income
                                            - (+) realized gains (losses) on the sale of
                                                 investment securities, after taxes
                                            + (-) a rolling three year average of realized gains
                                               (losses) on the sale of investment securities, after taxes
                                            +/- deferred taxes that affect the income statement
                                            + the financing portion of minimum lease
                                               obligations, after taxes.

                 Adjusted Equity    =       GAAP Beginning Equity
                                            -(+) unrealized (gains) losses on investment
                                               securities, after taxes
                                            -(+) deferred tax (assets) liabilities.
                                            + present value of minimum lease obligations.
                                            + a time weighted adjustment to eliminate from
                                               beginning equity capital distributed during
                                               the year through transactions such as
                                               share repurchases and cash dividends.

                 AROE                       =  Adjusted Return / Adjusted Equity
</TABLE>

         AROE will be calculated AFTER deduction of the accrual for all
         incentive compensation payments, including AROE bonus awards.

         The Corporate Finance Department of Merchants Mutual will calculate
         AROE no less frequently than after the close of each fiscal quarter.
         However, the Compensation Committee of the Board of Directors of
         Merchants Mutual will make the final determination of AROE for the
         year.

         The Compensation Committee may, in its discretion, include or exclude
         significant events or transactions (such as significant changes in the
         adequacy of loss and loss adjustment expense reserves) from the AROE
         calculation.

IV.      AROE TARGETS.

         The Compensation Committee will establish AROE targets and AROE
         thresholds for bonus eligibility for each AROE Plan year.

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         For 2000, the AROE target for Merchants Mutual is 10.75% and the AROE
         target for MGI is 13.62%. These targets are the AROEs it is projected
         the companies would produce if each achieved a combined ratio of 100
         for the year. The thresholds for bonus eligibility for 2000 will be an
         AROE of 7.5% for Merchants Mutual and an AROE of 8.58% for MGI. The
         threshold for MGI, 8.58%, is the AROE required to cover MGI's cost of
         capital. It is estimated that MGI would produce an AROE of 8.58% at a
         combined ratio of 105.2%, and that Merchants Mutual would produce an
         AROE of 7.5% at the same combined ratio.
                                             Merchants
                                               Mutual          MGI
                                               ------          ---
                  Year 2000 AROE threshold      7.50%         8.58%
                  Year 2000 AROE target        10.75%        13.62%

         The AROE targets and AROE thresholds for Merchants Mutual and MGI for
         2001 and 2002 will be the same as for 2000, unless the Compensation
         Committee, in its discretion, determines otherwise.

         The Compensation Committee may, in its discretion, use other factors to
         establish AROE targets or thresholds, or modify AROE targets and
         thresholds based on the operating performance and financial condition
         of the companies.

V.       TARGET BONUS.

         Each position in Merchants Mutual will have an AROE target bonus equal
         to a percentage of covered compensation for the AROE Plan year, which
         percentage will increase as the position's grade level increases. AROE
         target bonus percentages follow:

            Grade Level                                     Target Bonus %
            -----------                                     --------------

            10 or below                                           5.0%
            11 to 18                                              7.5%
            19 or above                                          10.0%
            Corporate and Regional Officers        Set by Compensation Committee


         An eligible participant whose grade level changes prior to October 1 of
         an AROE Plan year will be eligible for an incentive award at the target
         bonus percentage of the new grade level. If an eligible participant's
         grade level changes on or after October 1, no change will be made to
         the target bonus percentage for that AROE Plan year.

         For the purposes of the AROE Plan, "covered compensation" means:

                  Pay for regular hours worked, holidays, vacations, and other
                  company-compensated absences, and, in the case of non-exempt


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                  employees, overtime pay. Other compensation, such as bonuses
                  and fringe benefits, will not be taken into account under the
                  AROE Plan.


VI.      BONUS AWARD.

         AROE incentive awards will be determined using the Target bonus
         percentages described in Section V., which will be adjusted based on
         the actual AROE earned for each year, and will be calculated in
         separate parts for Merchants Mutual and MGI as follows:

         (a)      Calculate the participant's actual AROE Plan bonus percentage
                  for Merchants by multiplying

                  (i)  the participant's target bonus percentage for the year by

                  (ii) a factor calculated according to the following equation,
                       using Merchant Mutual's target, threshold, and actual
                       AROEs for the year:

                           Factor = 1 MINUS AROE target for the year
                                            MINUS actual AROE for the year

                                            -------------------------------

                                            AROE target for the year
                                            MINUS AROE threshold for the year

         (b) Calculate the participant's actual AROE Plan bonus percentage for
             MGI using the method described in (a), but substituting MGI's
             target, threshold, and actual AROEs.

         (c) Allocate a participant's covered compensation between Merchants
             Mutual and MGI, in proportion to each company's share of the
             companies' combined written premiums for the AROE Plan year.

         (d) Multiply the participant's actual AROE Plan bonus percentage for
             Merchants Mutual by Merchant Mutual's share of the participant's
             covered compensation.

         (e) Multiply the participant's actual AROE Plan bonus percentage for
             MGI by MGI's share of the participant's covered compensation.

         (f) The sum of (d) and (e) is the participant's AROE bonus for the
             year unless the participant is included within the group of
             individuals whose performance is directly related to business
             unit performance, in which case the participant's AROE bonus for
             the year will be 25% the sum of (d) and (e).


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         (g)     Notwithstanding any contrary provision of this plan, no AROE
                 bonus will be payable with respect to Merchant Mutual's or
                 MGI's share of a participant's covered compensation if the
                 respective company's actual AROE does not exceed its threshold
                 AROE for the year. If neither company's actual AROE exceeds its
                 threshold AROE for the year, no AROE bonus will be payable.
                 The Compensation Committee may, in its discretion, adjust the
                 AROE bonuses as calculated under (a) through (g) above for
                 participants who are corporate or regional officers of
                 Merchants Mutual, MGI, or Merchants Insurance Company of New
                 Hampshire, Inc., and the President of Merchants Mutual may, in
                 his discretion, adjust the AROE bonuses as calculated under (a)
                 through (g) above for participants who are employees with a
                 grade of 19 or above and are not corporate or regional
                 officers. Adjustments shall be based on a participant's
                 individual performance and may not exceed plus or minus 50
                 percent in the case of corporate and regional officers or 25
                 percent in the case of other employees with a grade of 19 or
                 above.

          AROE Plan bonuses for an AROE Plan year will be paid on or about March
          1 of the following year.

          An employee whose employment has terminated before the last business
          day of an AROE Plan year will not be eligible for a bonus award for
          that year unless the Compensation Committee, in its discretion,
          determines that an exception is warranted in the case of death,
          disability, or retirement under the terms of the Merchants Mutual
          Capital Accumulation Plan.

          A participant who voluntarily terminates employment or whose
          employment is terminated by Merchants Mutual for cause, in either case
          after the end of an AROE Plan year and before the date of payment of
          the AROE bonus award for that year, will forfeit all rights to payment
          of an AROE bonus award for that year. For the purposes of this
          paragraph, termination by reason of disability, death, or retirement
          under the terms of the Merchants Mutual Capital Accumulation Plan will
          not be considered voluntary.

VII.     PLAN ADMINISTRATION

         The Compensation Committee will administer the AROE Plan. The
         Compensation Committee shall have all power and authority necessary or
         appropriate for carrying out its duties. The Compensation Committee may
         establish procedures for the administration of the AROE Plan and may
         correct any defect or reconcile any inconsistency in the AROE Plan. The
         Compensation Committee shall have full power and authority to interpret
         the AROE Plan and decide all matters arising in connection with the
         AROE Plan, including by way of illustration and not by way of
         limitation matters concerning the establishment of AROE targets and
         thresholds, the determination of the actual AROE for a year, the
         inclusion or exclusion of events or transactions from the calculation
         of AROE, and the determination of the entitlement of a participant to
         an AROE bonus award and the amount of any bonus award. In exercising
         its power and authority, the Compensation


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         Committee shall have complete discretion, and its decisions shall be
         conclusive and binding upon Merchants Mutual, its employees and AROE
         Plan participants.

VIII.    MISCELLANEOUS

         The Board of Directors of Merchant Mutual may, in its discretion, amend
         the AROE Plan or terminate the AROE Plan at any time. By way of
         illustration and not by way of limitation, the Board may terminate the
         AROE Plan before the last business day of the AROE Plan year, in which
         case participants would not be entitled to any AROE Plan bonus for that
         year.

         The AROE Plan shall be construed in accordance with the laws of the
         State of New York, without giving effect to the principles of conflict
         of law. References in the AROE Plan to either gender shall be construed
         to include the other gender.

         Nothing in the AROE Plan shall confer upon an employee any right to
         continue in the employ of Merchants Mutual, nor limit the right of
         Merchants Mutual to discharge an employee.

         Nothing in this AROE Plan shall be construed to create or require the
         creation of a trust or a fiduciary relationship between Merchants
         Mutual and any other person. To the extent that any person acquires a
         right to receive payments from Merchants Mutual under the AROE Plan,
         that right shall be no greater than the right of an unsecured general
         creditor of Merchants Mutual. A participant may not assign his or her
         interest in any award under this AROE Plan.

         Merchants Mutual shall withhold from each bonus payment to be made the
         amount required to satisfy any federal, state, and local income and
         employment tax withholding obligations it incurs in connection with the
         payment.

         IN WITNESS WHEREOF, this plan document is executed pursuant to the
         authorization of the Board of Directors of Merchants Mutual Insurance
         Company this 26th day of July, 2000.



                                            MERCHANTS MUTUAL INSURANCE COMPANY




                                            by /s/ Robert M. Zak
                                               --------------------------------


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