SENIOR EXECUTIVE COMPENSATION BONUS PROGRAM

The Senior Executive Compensation Bonus Program is a measure of three areas often reviewed when comparing results of different companies or in comparing current company results from one year to the next.

All members of the Policy Committee (except the President of EMC National Life Company) will be eligible for an executive bonus as provided in this Program.  In addition, all vice presidents of Employers Mutual Casualty Company (not covered by a separate program) will be eligible for an executive bonus.  Each bonus will be calculated according to the terms and conditions of the Program and according to each executive’s status as an officer.

 

The bonus plan uses production, surplus growth and the combined ratio, all valid measures of performance, as follows:

The factors in each of the formulas are subject to change each year with final approval by the Senior Executive Compensation and Incentive Stock Option Committee.

 

This component is based on actual net written premium growth compared to a consolidated written premium target established each year and approved by the Committee.  (See appendix for current factor) Achieving goal results in a bonus contribution of plus 7.5 percent of salary.  This changes by 1.5 percent for each 1.0 percent variation from goal, subject to a maximum contribution of plus 15.0 percent and a minimum contribution of minus 15.0 percent.

The actual change equals 7.5 percent premium growth.

7.5 percent minus 8.5 percent equals minus 1 plus 5.0, equals 4.0 times 1.50 equals 6.0.

The contribution in this example of written premium towards the total bonus is equal to 6.0 percent.

The actual change equals minus 1.3 percent premium growth.

Minus 1.3 percent minus 5.7 percent equals minus 7.0 plus 5.0 equals minus 2.0 times 1.50 equals minus 3.0.

The actual change equals 9.8 percent premium growth.

9.8 percent minus 4.7 percent equals 5.1 percent plus 5.0 equals 10.1 times 1.50 equals 15.2 percent.  The contribution in this example of written premium towards the total bonus equals plus 15.0 percent.

The component of surplus is based on the actual change in surplus.  Each one percent increase in surplus produces a 1.0 percent increase in the bonus percent subject to a maximum of 25.0 percent.  Each one percent decrease in surplus represents a 1.0 percent decrease in the bonus percent subject to a minimum of minus 20.0 percent.

Contribution towards total bonus from surplus component equals 4.6 percent times 1.00 equals 4.6 percent.

 

The component for combined ratio is based on EMC's consolidated combined ratio relative to a target combined ratio on a trade basis, adjusted by a comparison of the EMC combined ratio to that of the industry. Refer to appendix for current target combined ratio and maximum combined ratio. The target ratio is subject to Committee approval each year.  For each 1.0 percent change in the combined ratio, the bonus contribution changes 5.0 percent subject to a maximum contribution of plus 65.0 percent and a minimum contribution of minus 40.0 percent.

If the result is a positive number, subtract result (not to exceed 3.0 percent) from EMC's combined ratio to obtain adjusted combined ratio.  Subtract adjusted combined ratio from target combined ratio, add difference between maximum and target combined, multiply by 5.00 to equal the bonus produced by the combined ratio component.

If the result is a negative number or 0.0, no adjustment is necessary and the EMC combined ratio is the adjusted combined ratio.  Subtract the adjusted combined ratio from the target combined ratio, add difference between maximum and target combined ratios, multiply by 5.00 to equal the bonus produced by the combined ratio component.

In the examples below, a target combined ratio of 103.0 and a maximum combined ratio of 109.0 are used.

EMC ratio equals 97.1 percent.

Adjustment * 101.6 minus 97.1 equals 3.0 (maximum adjustment allowed).

Adjusted ratio * 97.1 minus 3.0 equals 94.1 percent.

Target ratio equals 103.0 percent.

103.0 percent minus 94.1 percent equals 8.9 plus 109.0 minus 103.0 equals 14.9 times 5.00 equals 74.5

percent. (Capped at 65.0)

The contribution towards total bonus from the combined ratio component equals 65.0 percent. 

EMC ratio equals 100.1 percent.

Adjustment * 101.6 minus 100.1 equals 1.5 percent.

Adjusted ratio * 100.1 minus 1.5 equals 98.6 percent.

Target ratio equals 103.0 percent.

103.0 percent minus 98.6 percent equals 4.4 percent plus 109.0 minus 103.0 equals 10.4 percent times

5.00 equals 52.0 percent.

The contribution towards the total bonus from the combined ratio component equals 52.0 percent.

EMC ratio equals 110.1 percent.

Adjustment - None (If EMC performance is worse than the industry average, use the EMC ratio in the

formuls).

Adjusted ratio * 110.1.

Target ratio equals 103.0 percent.

103.0 percent minus 110.1 percent equals minus 7.1 plus 109.0 minus 103.0 equals minus 1.1 times 5.00

equals minus 5.5 percent.

The contribution towards the total bonus from the combined ratio component equals minus 5.5 percent.

Assuming each example represents one year, the bonus for the three years would be as follows:

 

* The total bonus is the sum of the three components subject to a maximum of 75.0 percent of salary.

This represents the bonus for Vice Presidents (level 2).  Factors would be applied as follows to arrive at the bonus calculations for Vice Presidents (level 1), Senior Vice Presidents, Executive Vice Presidents, and President.

 

 

1.  An executive must be on the payroll a minimum of six months before he/she is eligible for a bonus payment.

3.  Executives retiring or becoming deceased or disabled before the established date for the payment of bonuses will receive a bonus on the basis of the portion of the year he/she was on the payroll.

4.  If an executive becomes bonus eligible at some time during the year, he/she will receive a pro rata bonus for that portion of the year he/she is eligible.

5.  If an executive is promoted or changes eligibility levels during the year and/or given a salary increase, the bonus will be prorated on the basis of the position and/or the salaries paid for the specific position.

6.  Deductions for federal and state income taxes, and FICA, if applicable, will be made from each bonus on the basis of IRS regulations.

7.  The Executive Compensation Committee may, at its discretion, adjust the bonus calculation for unusual or extenuating circumstances.

8.  The EMC Employee Contingent Salary Plan provides that employees eligible under a separate bonus program will receive the larger of the “bonus” or the “contingent salary” for the plan year.  In the unlikely event the “contingent salary” is larger than the “senior executive bonus” the Executive Compensation Committee may, at its discretion, approve payment of the “contingent salary” in lieu of the “senior executive bonus”.

9.  If there is a disagreement or misunderstanding regarding the basis for the bonus or in the calculation of the amounts, the decision of the Senior Executive Compensation and Incentive Stock Option Committee will be final. The Committee may, at its discretion, choose to pay more than 75% of bonus at one time if final industry results will have little or no impact on the final bonus percentage.