Compensation of Outside Directors and Outside
Director Compensation Table
Our non-employee directors, who we refer to as our outside
directors, receive compensation for the services they perform as members of our Board and the Board committees on which they serve. The charter for the Compensation Committee requires the Compensation Committee to annually review the
compensation of our outside directors and recommend any changes to such compensation to our Board. In accordance with this requirement, the Compensation Committee reviewed the compensation of our outside directors at its November 2013 meeting with
the assistance of Pay Governance, LLC, the Compensation Committees compensation consultant. At the meeting, Pay Governance, LLC discussed its report on director compensation which analyzed the director compensation data set forth in the
proxy statements filed in 2013 by certain members of the Companys peer group. Pay Governance, LLC found that this data supports the conclusion that the target total compensation for outside directors who do not serve as the chairperson of a
Board committee is within the range of the peer group median compensation and could be left unchanged at $125,000. Pay Governance, LLC recommended that the additional cash retainer paid to each chairperson of our Board committees could be increased
by $2,500 to reflect the median paid by the peer group. After considering Pay Governance, LLCs report and analysis and the underlying data, the Compensation Committee decided to recommend that our Board increase the committee
chairpersons retainers by $2,500 but maintain the current level of total compensation paid to the Lead Director and to outside directors who do not serve as the chairperson of a Board committee. Our
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Board approved at its November 7, 2013 meeting the increase to committee chairpersons retainers recommended by the Compensation Committee.
The total compensation of our outside directors for 2013 was $125,000, with 52% paid in an annual cash retainer of
$65,000 and 48% in equity compensation in the form of RSUs. No meeting fees are payable to any of our directors, as our directors are expected to attend and participate in all meetings of the Board and the Board committees on which they serve
without the incentive of additional compensation. Our Board may, however, elect to pay additional meeting fees to directors if it determines that extraordinary circumstances warrant the formation of a special committee or necessitate a large number
of meetings, but no additional meeting fees were paid to our directors in 2013. Each chairperson of our Board committees received an additional $5,000 annual cash retainer in 2013, other than the chairpersons of the Audit Committee and the
Compensation Committee, who received an additional annual cash retainer of $15,000 and $10,000, respectively. Our Lead Director, Mr. Williams, was also paid an additional cash retainer of $20,000. We reimburse our outside directors for the
travel expenses they incur to attend Board and committee meetings and an annual Board retreat. The Company also reimburses each of our outside directors for the travel expenses incurred by a guest of the outside director to attend the annual Board
retreat, subject to applicable tax laws.
Our outside directors may defer all or any portion of the cash
compensation they receive for Board or committee service under our deferred compensation plan for directors. The amount of cash compensation earned by each director in 2013, whether or not deferred, is included in the amounts shown in the Fees
Paid or Earned in Cash column of the 2013 Outside Director Compensation table set forth below.
Our outside directors also receive equity compensation in the form of RSUs granted pursuant to our Outside Directors Restricted Share Unit Plan (the Directors RSU Plan). An RSU is a unit
representing one Common Share. The value of each RSU, on any particular day, is equal to the last reported sale price of a Common Share on the Nasdaq Stock Market on the immediately previous trading day. Each outside director was granted 4,214 RSUs
under the Directors RSU Plan promptly following our 2013 Annual Meeting of our Shareholders. To determine the number of RSUs granted to each outside director, the targeted annual equity compensation for each director is divided by the average
daily closing price of a Common Share during the prior calendar year. In addition, whenever a dividend is paid with respect to our Common Shares, an amount equal to the value of the dividend is paid to the holders of RSUs with respect to each RSU in
their account on the dividend record date in the form of additional RSUs. RSUs vest upon the completion of six months of service as an outside director from the date of grant.
Our Compensation Committee has the authority, in its capacity as the administrative committee under the Directors RSU
Plan, to decrease or increase the annual award of RSUs to outside directors by 500 to 5,000 RSUs without shareholder approval. The Directors RSU Plan generally requires outside directors to hold their RSUs until their service on the Board
terminates, at which time the director may settle the RSUs in cash or Common Shares payable, at the directors election, in a single lump sum or in annual installments over a five- or ten-year period. An outside director elected or appointed to
the Board outside of an annual meeting of our shareholders will be granted a pro rata amount of RSUs based upon the number of anticipated days after the date of election or appointment until our next annual meeting of shareholders.
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2013 Outside Director Compensation
In 2013, our outside directors received the following compensation:
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Name
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Fees Paid or
Earned in Cash
($)
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Restricted
Share
Unit
Awards
($)(1)
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Total
($)
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Robert E. Baker
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75,000
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73,197
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148,197
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David J. DAntoni
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70,000
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73,197
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143,197
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Eileen A. Mallesch
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80,000
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73.197
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153,197
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Thomas E. Markert
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65,000
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73,197
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138,197
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David R. Meuse
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70,000
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73,197
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143,197
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S. Elaine Roberts
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65,000
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73,197
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138,197
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Alexander B. Trevor
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70,000
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73,197
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143,197
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Paul S. Williams
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85,000
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73,197
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158,197
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(1)
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The total dollar amount shown in the Restricted Share Unit Awards column represents the cash value of the total number of RSUs awarded in 2013
valued at the closing price of Common Shares on the grant valuation date ($17.37 per RSU). This valuation, required for proxy statement reporting purposes, is based on a single days market value, which differs substantially from the one-year
average price used to determine the actual grant. We believe the valuation methodology used by the Company is more representative of the value of the RSUs at the time of grant.
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Outside Directors Ownership of Restricted Share Units and Stock Options
The following table sets forth the aggregate number of RSUs and stock options owned by each of our current outside
directors as of March 7, 2014. These outstanding options were awarded to our directors under prior director stock option plans, which were replaced by the Directors RSU Plan in 2005. No stock options have been granted to any outside
directors since 2004. The stock options, if unexercised, will expire on May 26, 2014.
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Name
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Number of
Restricted Share Units
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Number of
Stock Options
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Robert E. Baker
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19,744
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0
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David J. DAntoni
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23,232
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4,200
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Eileen A. Mallesch
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13,292
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0
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Thomas E. Markert
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19,744
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0
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David R. Meuse
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21,480
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0
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S. Elaine Roberts
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23,232
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4,200
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Alexander B. Trevor
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21,480
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0
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Paul S. Williams
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23,232
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4,200
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Outside directors receive no other forms of compensation than as described in this
section.
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CORPORATE GOVERNANCE
Director Independence
The Nominating and Governance Committee has affirmatively determined that eight of our nine directors, namely Robert E. Baker, David J. DAntoni, Eileen A. Mallesch, Thomas E. Markert, David R.
Meuse, S. Elaine Roberts, Alexander B. Trevor and Paul S. Williams, are independent as defined by the Nasdaq listing rules. The Nominating and Governance Committee made this determination based upon its review of information included in
director questionnaires provided by each of the incumbent directors and a report by our General Counsel. This included information on the relationships between Mr. Meuse and Stonehenge Financial Holdings and RED Capital Group, two of his
affiliates. From time to time we make investments in debt and equity funds sponsored by affiliates of these two companies and receive securities broker-dealer services from an affiliate of RED Capital Group. The Nominating and Governance Committee
determined that Mr. Meuse is independent because our investments in the funds sponsored by, and the fees paid to, these two companies and their affiliates are not material to us or to them and Mr. Meuses relationships with these
companies do not interfere with his independent judgment in carrying out his responsibilities as a director. The fees paid to either Stonehenge Financial Holdings and RED Capital Group in 2013 did not exceed $200,000.
Our Corporate Governance Guidelines expressly provide that four of the five standing committees are to be comprised
solely of independent directors. Our Boards Audit, Compensation, standing Independent, and Nominating and Governance Committees meet this standard. Our Board of Directors has concluded that the Investment and Finance Committee does not need to
be comprised solely of independent directors. Robert P. Restrepo, Jr., who is our employee and thus does not qualify as an independent director under the Nasdaq Marketplace Rules, is a member of the Investment and Finance Committee.
Communications with the Board
As further described in our Corporate Governance Guidelines, we provide a process by which security holders may send communications to our Board. Any security holder who desires to communicate with one or
more of our directors may send such communication to any or all directors through our Corporate Secretary, by e-mail to corporatesecretary@stateauto.com or in writing to the Corporate Secretary at our principal executive offices, 518 East Broad
Street, Columbus, Ohio 43215. Security holders should designate whether such communication should be sent to a specific director or to all directors. The Corporate Secretary is responsible for forwarding such communication to the director or
directors so designated by the security holder.
Director Attendance at Annual Meeting of Shareholders
Our Corporate Governance Guidelines provide that directors are expected to attend our annual meetings of
shareholders. All of our directors who were members of the Board at the time of last years annual meeting of shareholders attended that meeting.
Executive Sessions of Independent Directors
Our Board meets in executive session, without management present, prior to each regular quarterly Board meeting. Consistent with our Corporate Governance Guidelines and the Nasdaq listing rules, during
2013 there were four executive sessions with only independent directors present. In addition, following each regular quarterly Board meeting, our Board meets in executive session with the State Auto Mutual board of directors, without management
present. Our Corporate Governance Guidelines provide that the Lead Director acts as the presiding director at these executive sessions.
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Nomination of Directors
The Nominating and Governance Committee sets the minimum qualifications for persons it will consider to recommend for
nomination for election or re-election (election and re-election are hereafter collectively referred to as election) as a director of the Company. These minimum qualifications are described in the Nominating and Governance
Committees charter, which is posted on our website as set forth in this section. The following matters will be considered in the Nominating and Governance Committees determination of persons to recommend for nomination as directors of
the Company: (i) freedom from relationships or conflicts of interest that could interfere with that persons duties as a director of the Company or to its shareholders; (ii) status as independent based on the then-current Nasdaq
rules; (iii) business or professional skill and experience; (iv) temperament; (v) integrity; (vi) educational background; and (vii) judgment. The objective of the Nominating and Governance Committee in this regard is to
nominate for election as directors persons who share our values and possess the following minimum qualifications: high personal and professional integrity; the ability to exercise sound business judgment; an inquiring mind; professional demeanor;
and the time available to devote to Board activities and the willingness to do so. The Nominating and Governance Committee will consider these criteria in the context of an assessment of the perceived needs of our Board as a whole. Ultimately, the
Nominating and Governance Committees intention is to select nominees for election to our Board who the Nominating and Governance Committee believes will be effective, in conjunction with the other members of our Board, in collectively serving
the long-term interests of the shareholders. In the context of recommending an incumbent director to be re-nominated for election to our Board, the Nominating and Governance Committee will focus its assessment on the contributions of such person
during his or her Board tenure and such persons independence at that time.
As required by its charter,
the Nominating and Governance Committee seeks to achieve diversity of occupational and personal backgrounds. The Nominating and Governance Committee considers diversity as a factor in director nominations. In making such selections, the Nominating
and Governance Committee views diversity in a broad context to include race, gender, geography, industry experience and personal expertise.
In addition to incumbent directors who will be evaluated for re-nomination as described above, the Nominating and Governance Committee may maintain a list of other potential candidates whom the Nominating
and Governance Committee may evaluate pursuant to the criteria set forth above for consideration as Board members. By following the procedures set forth below, shareholders may recommend potential candidates to be included on this list. As a matter
of policy, the Nominating and Governance Committee will consider and evaluate such candidates recommended by shareholders in the same manner as all other candidates for nomination to our Board who are not incumbent directors.
The charter of the Nominating and Governance Committee details the process by which our Board of Directors fills
vacancies on the Board. The Nominating and Governance Committees charter provides that, in the absence of extraordinary circumstances, when a director vacancy arises for any reason, the Nominating and Governance Committee will first look to
the list of names of potential nominees, as described above, and make a preliminary evaluation of such person(s) based on the criteria set forth above. If there are no names on the list or if all of the names on this list are eliminated following
such evaluation process, the Nominating and Governance Committee may solicit other potential nominees names from our other directors, directors of our parent, the Chairman or other persons who the Nominating and Governance Committee reasonably
believes would have the opportunity to possess firsthand knowledge of a suitable candidate based on the criteria described above. The Nominating and Governance Committee may also hire a director search firm to identify potential candidates. Once the
Nominating and Governance Committee has preliminarily concluded that a person(s) may meet the criteria described above, the Nominating and Governance Committee will, at a minimum, obtain from such person(s) a completed Prospective Director
Questionnaire which shall solicit information regarding the persons business experience, educational background, personal information, potential conflicts of interest and information relating to the persons business, personal or family
relationships with the Company and other directors, among other matters. Following a review of such completed Prospective Director Questionnaire by the
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Nominating and Governance Committee and the Chairman and counsel for the Company, the Nominating and Governance Committee will conduct at least one interview with a person(s) whose candidacy it
desires to pursue. Based on all information secured from the prospective nominee, including a background check and a criminal record check, the Nominating and Governance Committee will meet and decide whether or not to recommend such person(s) for
nomination for election as a director of the Company. Any decision by the Nominating and Governance Committee in this regard will reflect its judgment of the ability of the person(s) to fulfill the objectives outlined above.
We have adopted procedures by which shareholders may recommend individuals for membership to our Board. As described in
its charter, it is the policy of the Nominating and Governance Committee to consider and evaluate candidates recommended by shareholders for membership on our Board in the same manner as all other candidates for nomination to our Board who are not
incumbent directors. If a shareholder desires to recommend an individual for Board membership, then that shareholder must provide a written notice to the Corporate Secretary of the Company at 518 East Broad Street, Columbus, Ohio 43215 (the
Recommendation Notice). For a recommendation to be considered by the Nominating and Governance Committee, the Recommendation Notice must contain, at a minimum, the following: (i) the name and address, as they appear on our books,
and telephone number of the shareholder making the recommendation, including information on the number of shares owned; (ii) if such person is not a shareholder of record or if such shares are owned by an entity, reasonable evidence of such
persons ownership of such shares or such persons authority to act on behalf of such entity; (iii) the full legal name, address and telephone number of the individual being recommended, together with a reasonably detailed description
of the background, experience and qualifications of that individual; (iv) a written acknowledgement by the individual being recommended that he or she has consented to that recommendation and consents to our undertaking of an investigation into
that individuals background, experience and qualifications in the event that the Nominating and Governance Committee desires to do so; (v) the disclosure of any relationship of the individual being recommended with our Company or any of
our subsidiaries or affiliates, whether direct or indirect; and (vi) if known to the shareholder, any material interest of such shareholder or individual being recommended in any proposals or other business to be presented at our next annual
meeting of shareholders (or a statement to the effect that no material interest is known to such shareholder).
Board Leadership
We are managed under the direction of our Board in the interest of all shareholders. Our Board delegates its authority to our senior executive team to manage the day-to-day operations and ongoing affairs
of our business. Our Board requires that our senior executive team review major initiatives and actions with our Board prior to implementation.
Mr. Restrepo serves as both Chairman and Chief Executive Officer under our leadership structure. He also holds these same positions with our parent, State Auto Mutual. Our Board believes this
leadership structure is appropriate given the overall corporate structure of our Company and State Auto Mutual. We and our subsidiaries operate and manage our businesses in conjunction with State Auto Mutual and its subsidiaries and affiliates under
various management and cost sharing agreements under the leadership and direction of the same senior management team. In addition, our insurance subsidiaries participate in a pooling arrangement with State Auto Mutual and certain of its insurance
subsidiaries and affiliates which covers all of the property and casualty insurance written by our insurance subsidiaries. See Related Person Transactions Transactions Involving State Auto Mutual. Because of the way our business
is operated, our Board believes separating the positions of Chairman and Chief Executive Officer would cause unnecessary complexity and complications and perhaps cause a split in our strategic direction, in particular since our Board has received no
indication from the State Auto Mutual Board that it is considering, or would consider, separating these positions in its leadership structure.
Our Board has adopted a counterbalancing governance structure which includes:
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A designated independent Lead Director;
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A Board composed entirely of independent directors other than the Chairman and Chief Executive Officer;
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A Board composed entirely of directors independent from State Auto Mutual other than the Chairman and Chief Executive Officer;
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Committees composed entirely of independent directors, with the exception of our Investment and Finance Committee; and
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Established governance structures and processes and ethics guidelines.
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Our Lead Directors responsibilities include, among other things, leading the executive session of our independent
directors, being a primary advisor to and principal point of contact with our Chairman and Chief Executive Officer, working with the Chairman and soliciting input from other Board members to develop a regular board meeting schedule and an agenda for
each meeting, securing input from other directors on agenda items, ensuring the adequate flow of information from management to our Board and delivering the Chief Executive Officers performance evaluation on behalf of the Compensation
Committee of our Board. In May 2013, our Board re-elected Paul S. Williams to serve as Lead Director. Mr. Williams has served in that position since May 2010. We believe our Board leadership is effective and appropriate for our Company, given
the specific circumstances of our overall corporate structure and operation in conjunction with State Auto Mutual, the established effectiveness of the Lead Directors role on the Board, the Nominating and Governance Committees
significant role in the nominee selection process for new or re-elected directors, the independence of eight of nine directors, and the effectiveness of the executive session meetings of independent directors at each regularly scheduled meeting of
our Board.
Other Governance Issues of Interest
Formal Stock Ownership Holding Periods
The Companys Ownership Guidelines require its Section 16 officers to hold the net amount of Common Shares
obtained through the exercise of stock options or vesting of restricted stock until the later of (i) the first anniversary of the date the officer exercised the stock options or vested in the restricted stock or (ii) the date on which the
officer satisfies the Ownership Target Amounts. (See Compensation Discussion and AnalysisStock Ownership Guidelines.)
Directors Stock Ownership Guidelines
Our
Companys Corporate Governance Guidelines contain the expectation that each of our outside directors will own Company shares or RSUs granted under the RSU Plan having a total market value of at least four times the then current cash portion of
the directors annual retainer. Each director has five years to attain this level of ownership. Our directors are required to hold all RSUs until their membership on the Board terminates.
As of March 7, 2014, all of our directors have satisfied their ownership requirements under these guidelines.
Anti-Hedging Policy
A policy adopted by our Board prohibits all Company employees and members of the Board from engaging in certain hedging transactions with respect to Company securities held by them, including short sales
and other transactions that shift the economic consequences of ownership of Company securities to a third party. Another policy adopted by the Board prohibits our Section 16 officers and members of the Board from holding Company securities in a
margin account or otherwise pledging Company securities as collateral for a loan. (See Compensation Discussion and AnalysisAnti-Hedging Policy.)
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Availability of Corporate Governance Documents
The following documents are available on our website at www.stateauto.com under Investors and then under
Corporate Governance:
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The charters for our Audit Committee, Compensation Committee, Nominating and Governance Committee, Investment and Finance Committee and standing
Independent Committee;
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Our Corporate Governance Guidelines, including Board of Directors Ethical Principles;
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Our Employee Code of Business Conduct; and
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Our Code of Ethics for Senior Financial Officers.
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ENTERPRISE RISK MANAGEMENT
The
Boards Role in Enterprise Risk Management
Risk management activities include the development of
strategies and implementation of actions intended to anticipate, identify, assess and manage risks. Our Board views enterprise risk management as an integral part of our business and strategic planning.
Our Boards role in the process of enterprise risk management is one of oversight. The independent structure of our
Board enables objective oversight of the process. The direct responsibility for enterprise risk management lies with our senior management. We utilize an internal enterprise risk management committee comprised of our Chief Executive Officer, our
Chief Risk Officer (CRO) and other senior executives. Among other things, this internal committee works with business units across the Company in carrying out its responsibility of anticipating, identifying, assessing and managing
significant risks facing our Company.
Our Board has delegated its enterprise risk oversight responsibility to
various committees of the Board, believing risk oversight is best performed by the committee with relevant knowledge in its area of responsibility.
The Nominating and Governance Committee is the committee with primary responsibility for oversight of enterprise risk management on behalf of our Board. The Nominating and Governance Committee charter
specifies that the Nominating and Governance Committee is responsible to monitor and discuss with management the Companys major enterprise risks, and the programs and steps management has integrated or anticipates integrating into its
practices and processes to address those risks. The charter also provides that the Nominating and Governance Committee is responsible to regularly review and discuss with management the Companys risk appetite statement and monitor compliance
with the risk appetite statement. The Nominating and Governance Committee annually reviews and evaluates the Companys risk assessment and risk management programs as well as the Nominating and Governance Committees own effectiveness in
performing its enterprise risk management oversight duties. The Nominating and Governance Committee focus includes consideration of risks that may affect the Companys reputation. The Nominating and Governance Committee provides quarterly
reports on its enterprise risk oversight activities to our Board.
To assist the Nominating and Governance
Committee in discharging its duties under the committee charter, management provides quarterly reports which monitor the status of major risks inherent in our business, including credit risks, market risks, liquidity, underwriting risks, operational
risks, strategic risks, legal risks, litigation risks, compliance and regulatory risks. In addition, the Nominating and Governance Committee regularly meets with our CRO, who reports to the Chairman and Chief Executive Officer. The CRO has direct
access to the Nominating and Governance Committee, including quarterly executive sessions without other members of management in attendance. Besides meeting with the CRO, the Nominating and Governance Committee also meets periodically with our
officers responsible for the adequacy of information security, and other members of management as the Nominating and Governance Committee deems appropriate.
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Other Board committees provide enterprise risk management oversight in their
specific areas of responsibility. The Audit Committee is responsible for oversight of risks related to accounting, auditing and financial reporting, establishing and maintaining effective internal controls, and the process for establishing insurance
reserves. A practice of the Audit Committee is to meet regularly with the CRO for reports on selected risk areas and to meet periodically with our officers responsible for the adequacy of legal and regulatory compliance. The CRO and General Counsel
have direct access to the Audit Committee, including quarterly executive sessions without other members of management in attendance.
The Investment and Finance Committee considers risks relevant to our investment portfolio and activities, capital management, liquidity and financing arrangements.
The Compensation Committee oversees the risks related to our compensation plans and arrangements. As required by its
charter, the Compensation Committee annually reviews and monitors incentive compensation arrangements to confirm that incentive pay policies and practices do not encourage unnecessary risk taking, utilizing our independent compensation consultant
and outside legal counsel in this process. The Compensation Committee reviews and discusses, at least annually, the relationship between the Companys risk management policies and practices, corporate strategy and executive management
compensation. Also, the Compensation Committee annually reviews and discusses with our Companys management any disclosures required by SEC rules and regulations relating to the Companys compensation risk management. This
discussion includes, among other things, whether and the extent to which the Company compensates and incentivizes our associates in ways that may create risks that are reasonably likely to have a material adverse effect on the Company.
Risk Assessment in Compensation Programs
Following the Compensation Committees review with senior management, our independent compensation consultant and
outside legal counsel of potential risks within the compensation programs, the Compensation Committee has concluded that no risks exist due to the compensation programs that are reasonably likely to have a material adverse effect on the Company.
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COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis describes the compensation program for our named executive officers (NEOs).
Executive Summary
2013 Performance Summary
Our financial results for
the most recent one- and three-year periods were generally below our targets and are reflected in the incentive payouts earned by our NEOs as highlighted below in 2013 Compensation Summary.
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Financial Performance
. Financial results for 2013 for our non-catastrophe loss ratio, combined ratio and return on equity were as follows
(see page 33 for definitions of these terms):
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Non-catastrophe loss ratio was 65.1% in 2013, which represented an improvement from 2012 but exceeded the threshold performance goal under our
Leadership Bonus Plan (the LBP) for 2013.
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Combined ratio was 103.1% in 2013, which represented an improvement from 2012 and almost met the target performance goal under the LBP for 2013.
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Return on equity was 8% in 2013, which represented an improvement from 2012 and exceeded the Companys target performance goal under the LBP
for 2013.
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Stock Price Performance
. Our performance in 2013 contributed to an increase in the Companys stock price of approximately 42% from
December 31, 2012 to December 31, 2013.
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2013 Compensation Summary
The Companys recent financial results are reflected in the actual compensation earned by our NEOs for 2013, which
was less than the target amounts for 2013.
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Base Salary
. The salaries of our NEOs increased by approximately 3% in 2013, which is consistent with the practices of other financial
services and insurance companies (including many of our peers), except for Mr. Yano, whose base salary increased by approximately 9% in 2013 to move his compensation closer to the median level for similar executives in our competitive market.
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Short-Term Incentive Compensation
. The payout on the Company performance goals under our Leadership Bonus Plan (the LBP) as a
percentage of the target LBP bonus for 2013 (where the target percentage equals 100%) was 57.5% for Messrs. Restrepo, English and Yano, 64.3% for Mr. Fitch and 135.6% for Ms. Buss. The payout on the individual performance goals under the
LBP as a percentage of the target LBP bonus for 2013 (where the target percentage equals 100%) was 90% for Mr. Restrepo, 144.5% for Mr. Fitch, 136% for Ms. Buss, 170% for Mr. English and 180% for Mr. Yano. The Committee
exercised negative discretion to reduce the LBP payouts for 2013 to members of certain of the Companys business units (including the business units of Mr. Fitch and Ms. Buss) by fifteen percent to more equitably allocate the results
of RED across all of our business units. As a result, the Committee reduced the payout to Mr. Fitch and Ms. Buss for 2013 (1) on the Company performance goals as a percentage of the target LBP bonus from 75.6% and 159.3%,
respectively, and (2) on the individual performance goals as a percentage of the target LBP bonus from 170% and 160%, respectively.
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Performance Award Units
. We awarded cash-based performance award units (PAUs) to our NEOs for the 2011-2013 performance period
under the State Auto Financial Corporation Long-Term Incentive Plan, as amended (LTIP). We have not determined the value of these PAUs because the final peer group data for the 2011-2013 performance period has yet to be released.
However, based on
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preliminary performance information indicating that the Companys overall performance for the 2011-2013 performance period relative to the LTIP Peer Group (as defined below in
Executive Compensation Program ElementsLong-Term Equity and Cash Incentive CompensationPerformance Award UnitsPAU Award Process) falls within the 40th percentile, we currently expect that the PAUs awarded to our NEOs
(except for Ms. Buss) for the 2011-2013 performance period will be valued significantly below target.
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Equity Compensation
. We awarded stock options in 2013 to our NEOs under our 2009 Equity Plan.
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The following table shows for each NEO: (i) the targeted bonus payout under the LBP for 2013 and the actual payout
under the LBP for 2013; (ii) the targeted value of the PAUs granted for the 2011-2013 performance period and the amount accrued by the Company for the PAUs granted for the 2011-2013 performance period; and (iii) the targeted value of the
equity compensation awarded to our NEOs in 2013 and the value of the equity compensation awarded to our NEOs in 2013 as of December 31, 2013.
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|
|
|
|
|
|
Short-Term Incentive
Compensation
|
|
|
PAUs
|
|
|
Equity
Compensation
|
|
|
TOTAL
|
|
|
|
Target
|
|
|
Actual
|
|
|
Target
|
|
|
Accrued
|
|
|
Target
|
|
|
Value
|
|
|
Target
|
|
|
Value
|
|
Robert P. Restrepo, Jr.
Chairman, President and Chief Executive Officer
|
|
$
|
642,720
|
|
|
$
|
421,817
|
|
|
$
|
473,200
|
|
|
$
|
189,280
|
|
|
$
|
562,380
|
|
|
$
|
556,118
|
|
|
$
|
1,678,300
|
|
|
$
|
1,167,215
|
|
Steven E. English
Senior Vice President and Chief Financial Officer
|
|
$
|
328,500
|
|
|
$
|
281,295
|
|
|
$
|
172,500
|
|
|
$
|
69,000
|
|
|
$
|
164,250
|
|
|
$
|
162,424
|
|
|
$
|
665,250
|
|
|
$
|
512,719
|
|
Clyde H. Fitch
Senior Vice President and Chief Sales Officer
|
|
$
|
262,500
|
|
|
$
|
221,340
|
|
|
$
|
127,075
|
|
|
$
|
50,830
|
|
|
$
|
113,750
|
|
|
$
|
112,487
|
|
|
$
|
503,325
|
|
|
$
|
384,657
|
|
Jessica E. Buss
Senior Vice President, Specialty Lines
|
|
$
|
200,750
|
|
|
$
|
272,167
|
|
|
$
|
101,699
|
|
|
$
|
183,058
|
|
|
$
|
118,625
|
|
|
$
|
117,482
|
|
|
$
|
421,074
|
|
|
$
|
572,707
|
|
James A. Yano
Senior Vice President, Secretary and General Counsel
|
|
$
|
192,500
|
|
|
$
|
169,650
|
|
|
$
|
92,000
|
|
|
$
|
36,800
|
|
|
$
|
113,750
|
|
|
$
|
112,487
|
|
|
$
|
398,250
|
|
|
$
|
318,937
|
|
Impact of State Auto Group on Compensation of NEOs
Understanding our corporate and management structure and our relationship with State Auto Mutual and the other members of
the State Auto Group (as defined on page 69 of this Proxy Statement) is crucial to understanding our executive compensation program. We and our subsidiaries operate and manage our businesses together with State Auto Mutual and the other members of
the State Auto Group under various pooling, management and cost sharing agreements under the leadership and direction of the same senior management team. See Related Person TransactionsTransactions Involving State Auto Mutual on
page 69 of this Proxy Statement for a discussion of these agreements.
As a result, our NEOs are also officers
of State Auto Mutual and provide services to the Company, State Auto Mutual and the other members of the State Auto Group (e.g., Mr. Restrepo serves as the Chairman, President and Chief Executive Officer of both the Company and State Auto
Mutual). Therefore, when determining the compensation of our NEOs, the Committee takes into account the services our NEOs perform for the Company and the services they perform for State Auto Mutual and the other members of the State Auto Group. The
Committee targets the total amount of each element of compensation payable to our NEOs at or close to the median compensation level in our competitive market, which we define as insurance companies similar in size to the State Auto Group, as opposed
to insurance companies similar in size to the Company (See Benchmarking of
21
Executive Compensation Program Elements on page 27 of this Proxy Statement). The charts below set forth the total revenues and total assets of the median company within the NEO Peer Group
and the Company and the total net written premiums and total admitted assets of the State Auto Group, in each case for the year ended and at December 31, 2012 (the companies included in the NEO Peer Group used for 2013 compensation decisions
were selected based on 2012 financial data).
Total Revenues in 2012
Total Assets as of December 31, 2012
Because our NEOs perform services for the Company, State Auto Mutual and other members
of the State Auto Group, we generally allocated the compensation expenses in 2013 for such services 65% to the Company and its subsidiaries and 35% to State Auto Mutual and certain of its subsidiaries and affiliates. The compensation of our NEOs as
disclosed in this Proxy Statement, however, includes all compensation expenses for the services performed by our NEOs for the Company, State Auto Mutual and the other members of the State Auto Group. As a result, any analysis conducted regarding the
Company and its peers based on the compensation disclosed in this Proxy Statement should consider that such disclosure includes compensation provided to our NEOs for services they performed for State Auto Mutual and the other members of the State
Auto Group. The following table allocates the compensation reported for each NEO in the Total column of the Summary Compensation Table on page 46 of this Proxy Statement between the Company, on the one hand, and State Auto Mutual and
certain of
22
its subsidiaries and affiliates, on the other hand, based on the compensation expense allocation in effect on December 31, 2013 (i.e., 65% to the Company and 35% to State Auto Mutual and
certain of its subsidiaries and affiliates):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
State Auto
Financial
|
|
|
State Auto
Mutual
|
|
|
State Auto
Financial
|
|
|
State Auto
Mutual
|
|
|
State Auto
Financial
|
|
|
State Auto
Mutual
|
|
Robert P. Restrepo, Jr.
|
|
$
|
1,678,793
|
|
|
$
|
903,966
|
|
|
$
|
1,728,804
|
|
|
$
|
930,894
|
|
|
$
|
1,911,532
|
|
|
$
|
1,029,286
|
|
Steven E. English
|
|
$
|
645,535
|
|
|
$
|
347,596
|
|
|
$
|
531,101
|
|
|
$
|
276,078
|
|
|
$
|
591,273
|
|
|
$
|
318,378
|
|
Clyde H. Fitch
|
|
$
|
534,130
|
|
|
$
|
287,609
|
|
|
$
|
482,346
|
|
|
$
|
259,724
|
|
|
$
|
487,765
|
|
|
$
|
262,642
|
|
Jessica E. Buss
|
|
$
|
528,280
|
|
|
$
|
284,189
|
|
|
$
|
519,227
|
|
|
$
|
239,583
|
|
|
$
|
524,395
|
|
|
$
|
282,366
|
|
James A. Yano
|
|
$
|
484,778
|
|
|
$
|
261,035
|
|
|
$
|
379,295
|
|
|
$
|
204,235
|
|
|
$
|
412,027
|
|
|
$
|
221,860
|
|
Pay for Performance
The Committee conducted a pay for performance analysis comparing (i) the total realizable pay earned by our CEO over
the five-year period ended December 31, 2012 to the total realizable pay earned by the CEOs of each member of the NEO Peer Group over that period, and (ii) the total shareholder return (TSR), premium growth, GAAP combined
ratio, total equity growth and return on equity of the Company over the five-year period ended December 31, 2012 to the TSR, premium growth, GAAP combined ratio, total equity growth and return on equity of the members of the NEO Peer Group over
that period.
The total realizable pay used in our pay for performance analysis includes:
|
|
|
base salary earned during the five-year period;
|
|
|
|
actual annual cash bonuses earned during the period;
|
|
|
|
value of cash incentives, or the vesting date value (as opposed to the grant date value reported in the Summary Compensation Table) of stock
incentives, earned for multi-year performance plans that began and ended during the period;
|
|
|
|
the vesting (versus grant date value) date value of service-based restricted stock awards granted during the period and the value of any unvested
restricted stock grants made during the period based on the Companys stock price as of December 31, 2012; and
|
|
|
|
any exercise gains of options granted during the period and paper value of any gains on any unexercised options received during the period based on
the Companys stock price as of December 31, 2012.
|
Based on input from its
compensation consultant, Pay Governance, LLC, the Committee concluded that total realizable pay provides a more accurate basis for comparing the historical alignment of pay and performance than the information reported in the Summary Compensation
Table. Unlike the amounts reported in the Summary Compensation Table, total realizable pay increases or decreases depending on our annual and long-term results and increases or decreases in our stock price and, as a result, better reflects the
Companys performance in comparison to the results of our peers.
The Committee uses a five-year period
in its analysis to provide a long-term perspective and include multiple complete PAU performance periods. The Committee uses the NEO Peer Group (which includes insurance companies comparable to the State Auto Group in terms of both size and type of
business) in its analysis because the Committee (i) takes into account the services our CEO performs for the Company and the services he performs for State Auto Mutual and the other members of the State Auto Group when determining the amount of
his compensation and (ii) targets the total amount of each element of compensation payable to our CEO at or close to the median compensation level in our competitive market, which we define as insurance companies similar in size to the State
Auto Group (See Benchmarking of Executive Compensation Program Elements on page 27 of this Proxy Statement for a more detailed description of the NEO Peer Group).
23
As shown in the chart below, (i) the total realizable pay earned by our
CEO during the five-year period ended December 31, 2012 placed the Company in the 28th percentile when compared to the NEO Peer Group (the individual members of which are identified as diamonds in the chart below) and (ii) the TSR of the
Company over the five-year period ended December 31, 2012 placed the Company in the 1st percentile when compared to the NEO Peer Group.
CEO REALIZABLE PAY vs. TSR: 2008 to 2012
The premium growth, GAAP combined ratio, total equity growth and
return on equity of the Company over the five-year period ended December 31, 2012 placed the Company in the
23
rd
percentile, 5
th
percentile, 10
th
percentile and 6
th
percentile, respectively, when compared to the NEO Peer Group. Based
on the percentile rankings of the Company yielded by our pay for performance analysis, both the Committee and Pay Governance, LLC concluded that the compensation we paid to our CEO for the five-year period ended December 31, 2012 was aligned
with our performance for the period.
Modifications to Executive Compensation Program
We held our annual shareholder advisory vote regarding the compensation of our Named Executive Officers, commonly referred
to as a say-on-pay vote, at our 2013 Annual Meeting of Shareholders. Our shareholders overwhelmingly approved the compensation of our Named Executive Officers, with approximately 99% of the votes cast in favor of our 2013
say-on-pay resolution. Since our 2013 Annual Meeting of Shareholders, the Committee has considered the results of the 2013 say-on-pay vote in its evaluation of our executive compensation programs and practices. Based on the
strong support our shareholders expressed at our 2013 Annual Meeting of Shareholders and the significant changes made to our executive compensation program and practices in 2011 and 2012, the Committee did not make any changes to our executive
compensation
24
program as a result of the 2013 say-on-pay vote. We did, however, make the following changes to our executive compensation program and practices, which we believe will better align
the program with what we consider to represent good corporate governance practices and improve our executive compensation program and its administration.
|
|
|
Amended the 2009 Equity Plan.
The Board recommended amendments to our 2009 Equity Plan that our shareholders approved at our 2013 Annual
Meeting of Shareholders. These amendments increased the number of common shares authorized for issuance under the 2009 Equity Plan, and also implemented the following changes, which we believe are more consistent with current best practices,
including: (i) a prohibition on the replacement or repricing of certain stock option awards without shareholder approval; (ii) a minimum three-year vesting schedule for stock option and restricted stock awards; (iii) a prohibition on
the grant of dividends and/or dividend rights on unearned performance shares; and (iv) a requirement that employment terminate within one year of a change in control or potential change in control to trigger accelerated vesting under the 2009
Equity Plan.
|
|
|
|
Revised Forms of Long-Term Incentive Awards
. In 2013, the Committee provided 50% of each NEOs total long-term incentive compensation
opportunity in the form of stock options and 50% in the form of target PAUs In 2014, the Committee provided 20% of each NEOs total long-term incentive compensation opportunity in the form of stock options, 65% in the form of target PAUs and
15% in the form of restricted stock. The Committee modified the forms of the awards included in the NEOs long-term incentive compensation opportunity for 2014 to reduce our usage of Common Shares under our incentive plans, while continuing to
emphasize the alignment of the interests of the NEOs with the interests of our shareholders, encourage associate retention and respond to evolving best practices in long-term incentive compensation.
|
|
|
|
Revised Charter of Compensation Committee
. In its annual evaluation of the adequacy of its charter, the Committee determined that amendments
to the charter were necessary to satisfy new requirements imposed by the NASDAQ Listing Rules. The Committee prepared a revised version of the charter and unanimously recommended it to the Board for approval. The Board approved the revised charter
in May 2013.
|
Compensation Policies and Practices
We endeavor to maintain governance practices that are consistent with what we believe represent current best practices,
including with respect to the oversight of our executive compensation program. Our compensation policies and practices include the following:
|
|
|
No Tax Gross-Up Payments.
The executive change in control agreements between the Company and our NEOs do not entitle our NEOs to any tax
gross-up payments. (See Employment Agreements with Named Executive Officers on page 55 of this Proxy Statement.)
|
|
|
|
Acceleration of Vesting of Equity Awards Subject to Double Trigger.
The 2009 Equity Plan permits the accelerated vesting of
awards upon a change of control only if the recipients employment with the Company terminates within one year of the change in control, provided, that if the change in control involves a change in the ownership of the Company and the successor
entity does not provide benefits to the recipient of equal or greater value at the time of the change in control transaction, the award will automatically vest upon the closing of the transaction.
|
|
|
|
Stock Ownership Holding Periods.
The Companys Ownership Guidelines (as defined below in Stock Ownership Guidelines) require
its Section 16 officers to hold the net amount of Common Shares obtained through the exercise of stock options or vesting of restricted stock until the later of (i) the first anniversary of the date the officer exercised the stock options
or (ii) the date on which the officer satisfies the Ownership Target Amounts (as defined below in Stock Ownership Guidelines)
.
|
25
|
|
|
Anti
-
Hedging Policy.
All Company employees, including our NEOs, and members of the Board are subject to a Company policy that
prohibits them from engaging in certain hedging transactions with respect to Company securities held by them, including short sales and other transactions that shift the economic consequences of ownership of Company securities to a third party. Our
executive officers and members of the Board are also subject to a Company policy that prohibits them from holding Company securities in a margin account or otherwise pledging Company securities as collateral for a loan.
|
|
|
|
Independent Compensation Consultant
. The Committees independent compensation consultant, Pay Governance, LLC, is engaged directly by
the Committee and performs services solely for the Committee.
|
|
|
|
Clawback Obligations Imposed in Change of Control Agreements .
The executive change of control agreements entered into between
the Company and Mr. English, Mr. Fitch, Ms. Buss and Mr. Yano on October 28, 2011 and the employment agreement and executive agreement entered into between the Company and Mr. Restrepo on December 22, 2011 include
a clawback provision that authorizes the Board to require the NEO to repay all or any portion of the severance benefits paid to the NEO thereunder upon the occurrence of the events described below in Employment Agreements with
Named Executive Officers on page 55 of this Proxy Statement. If the Board determines that the NEO engaged in fraudulent conduct, the Board must seek repayment of such severance benefits.
|
|
|
|
Limited Perquisites.
We provide our NEOs minimal perquisites not tied to individual or Company performance, which we believe are well below
the typical practices of companies of comparable size and have limited cost.
|
|
|
|
Limited Committee Discretion to Increase Awards.
Except for the individual performance component of the LBP, the Committee may not increase
awards under our short-term or long-term incentive plans. The individual performance component of the LBP only represented 25% of the total target compensation of our NEOs for 2013. The Committee retains the discretion to decrease awards under our
short-term or long-term incentive plans.
|
|
|
|
No Repricing of Underwater Stock Options.
As stated in the 2009 Stock Plan, the Company will not reprice, replace or repurchase underwater
stock options without first obtaining shareholder approval.
|
Executive Compensation Philosophy
We structure our executive compensation program to attract, retain, motivate and reward top caliber
executives who deliver on the following key elements of our business strategy:
|
|
|
Top-Quartile Performance
as measured against peers.
|
|
|
|
Enterprise Risk Management
that is operationalized and integrated into our capital allocation, product development, pricing, claims and
service capabilities.
|
|
|
|
Capital Management
as measured by return on equity.
|
We continue to believe that achieving success in these areas will increase the price of our Common Shares over the long
term and should be rewarded by our compensation program. In addition to incenting our executives to achieve success in these areas, our compensation program is also designed to:
|
|
|
Align the individual compensation of our executives with the long-term value delivered to our shareholders.
|
|
|
|
Offer compensation that reflects Company performance and is competitive.
|
|
|
|
Encourage appropriate share ownership while balancing short- and long-term perspectives.
|
26
Each element of our executive compensation program serves a unique role in
establishing an appropriate balance between the rewards for short-term and long-term performance that we believe will support our efforts to increase the price of our Common Shares over the long-term. (See Executive Compensation Program
Elements on page 29 of this Proxy Statement.)
How the Amount of Executive Compensation is Determined
Role of Committee, Senior Management, Compensation Consultants and Other Advisors
In carrying out its responsibilities, the Committee requests and receives regular input and recommendations from the
Board, management, the Board of Directors of State Auto Mutual, an executive compensation consultant and other advisors. The Committee also regularly engages in discussions and continuing education to better understand compensation trends,
regulatory developments relating to compensation issues and the Companys compensation issues and objectives. Management informs and assists the Committee in establishing and monitoring performance goals, and in refining our overall executive
compensation program.
As a result of the sharing of services and compensation expenses among the Company and
the other members of the State Auto Group (See Impact of State Auto Group on Compensation of NEOs on page 21 of this Proxy Statement), the Board of Directors of State Auto Mutual is involved in the performance evaluation process of
our CEO. In addition, members of State Auto Mutuals Compensation Committee are permitted to attend the meetings of the Committee as observers. (See Board of Directors and Board CommitteesBoard Committees and Committee
Meetings on page 10 of this Proxy Statement.)
In making compensation decisions related to both the form
and the amount of compensation, the Committee has historically relied upon competitive information obtained from its compensation consultant. In 2013, the Committee engaged and utilized the services of Pay Governance, LLC, a compensation
consultant. Pay Governance, LLC performs services solely for the Committee. During 2013, Pay Governance, LLC advised the Committee regarding (i) the effectiveness, competitiveness and design of our overall executive compensation program and of
specific compensation packages for our NEOs and other executives, (ii) the competitiveness of compensation to our outside directors in comparison to their peers at similar public companies, (iii) the composition of the NEO Peer Group,
(iv) the content and form of this Compensation Discussion and Analysis and (v) the alignment between the compensation of our NEOs and our performance. During 2013, the Company did not engage Pay Governance, LLC or its affiliates for any
services beyond its support of the Committee.
In 2013, the Committee requested and received completed
questionnaires from Pay Governance, LLC and the Committees outside legal counsel relating to their respective independence. Based on the completed questionnaires and other factors, the Committee has confirmed the independence of Pay
Governance, LLC and the Committees outside legal counsel and determined that its engagement of Pay Governance, LLC and the Committees outside legal counsel did not raise any conflict of interest.
Benchmarking of Executive Compensation Program Elements
We believe that in order to achieve the objectives of our executive compensation program, including retaining our
executive talent, the Company must target competitive compensation. To determine what constitutes competitive compensation for our NEOs, the Committee considers data contained in (and analysis of such data provided by its compensation consultant):
|
|
|
proxy statements filed by other publicly-held insurance companies comparable to the State Auto Group in terms of both size and type of business (the
NEO Peer Group); and
|
|
|
|
pay surveys of the insurance and financial services industry relating to public, private and mutually-owned insurance companies and public and
private financial services companies (the Survey Data).
|
27
NEO Peer Group
The Committee, with input from its compensation consultant and management, approves property and casualty insurance
companies to be part of the NEO Peer Group based on (i) their status as public companies and (ii) whether their size and business overlap with the State Auto Group, which is larger than the Company. Public companies are selected because
they are required to publicly disclose detailed information in their SEC filings regarding the compensation of their NEOs and their executive compensation programs, which allows us to compare the competitiveness of the compensation of our NEOs and
executive compensation program with those of our public company competitors. In considering business overlap, companies are selected that have a significant portion of their business in personal and commercial automobile, homeowners, specialty,
workers compensation and commercial property and casualty insurance. The Committee considers premium volume, total assets, market capitalization and number of employees when determining whether a companys size overlaps with the State Auto
Group. Companies similar in size to the State Auto Group are selected because our NEOs are also officers of State Auto Mutual and provide services to our Company, State Auto Mutual and the other members of the State Auto Group. Some of the companies
in the NEO Peer Group, however, are substantially larger than the State Auto Group while others are smaller. Normally, companies included in the NEO Peer Group are within one-half to two times the size of State Auto Group. The size of the median
company within the NEO Peer Group is comparable to the State Auto Group. The members of the NEO Peer Group change periodically because of mergers, acquisitions, start-ups, spinoffs and similar transactions.
The NEO Peer Group used for 2013 compensation decisions was comprised of the following 20 companies:
|
|
|
|
|
Alleghany Corporation
|
|
AmTrust Financial Services Inc.
|
|
Argo Group International Holdings, Ltd.
|
Cincinnati Financial Corporation
|
|
Erie Indemnity Company
|
|
Horace Mann Educators Corporation
|
Infinity Property & Casualty Corporation
|
|
Kemper Corporation
|
|
Meadowbrook Insurance Group, Inc.
|
Mercury General Corporation
|
|
Montpelier Re Holdings Ltd.
|
|
The Navigators Group, Inc.
|
Old Republic International Corporation
|
|
OneBeacon Insurance Group, Ltd.
|
|
Safety Insurance Group, Inc.
|
Selective Insurance Group Inc.
|
|
The Hanover Insurance Group
|
|
Tower Group Inc.
|
United Fire Group, Inc.
|
|
White Mountains Insurance Group
|
|
|
Survey Data
The Survey Data complements the NEO Peer Group information by providing broader comparisons, which allows us to more
comprehensively assess the compensation we pay to our executive officers relative to the compensation paid in the insurance and financial services industry to similar positions.
Use of Compensation Data
When setting base salaries, short-term and long-term incentive compensation, we use NEO Peer Group data when it relates to a comparable position at the Company and Survey Data that relates to individuals
in similar positions at insurers similar in size to the State Auto Group (which we refer to as our competitive market). We use NEO Peer Group data to benchmark the compensation of some NEOs and Survey Data to benchmark the compensation
of our NEOs and other executives. If relevant data is available from both the NEO Peer Group and the Survey Data for a position, we average the results to determine the benchmark. For example, if the median level of base salary for chief executive
officers reported by the NEO Peer Group and the Survey Data was $815,000 and $840,000, respectively, we would average the two results to establish a median base salary target of $827,500.
The Committee targets the total amount of compensation payable to our NEOs at or close to the median compensation level
in the competitive market by setting the target amount of each element of compensation at or near the median level of compensation in the competitive market. Because it believes superior performance should be rewarded, the Committee provides our
NEOs with the opportunity to earn total compensation in the 75th percentile (or higher) of the competitive market if performance significantly exceeds target results.
28
Conversely, if Company or individual performance is substantially below target or planned results, the Committee believes NEOs should receive substantially less than the median level of total
compensation in the competitive market (i.e., in the bottom quartile). The total amount of compensation that the Committee targeted as payable to each of our NEOs for 2013 was reasonably competitive with the median level of compensation in the NEO
Peer Group and the Survey Data, except for Mr. Fitch who is paid above this range due to his substantial experience and the importance of his skill set to our strategic objectives. Certain compensation elements for Mr. Restrepo, such as
base salary, retirement benefits, employee benefits and executive perquisites, are subject to the terms of his employment agreement. (See Employment Agreements with Named Executive OfficersRestrepo Employment Agreement on page 55
of this Proxy Statement.)
The Committee also uses the compensation data disclosed in the proxy statements of
members of the NEO Peer Group to conduct pay for performance comparisons that helps it (i) understand the expectations of companies within the NEO Peer Group regarding incentive payouts and (ii) evaluate our executive compensation program.
The Committee also uses the Survey Data, in combination with information for the NEO Peer Group, to assess competitive pay levels and evaluate our executive compensation practices.
Use of Tally Sheets
The Committee uses tally sheets in its annual review of NEO compensation to review total compensation and each element of compensation provided to our NEOs. The tally sheets used by the Committee in its
review of NEO compensation for 2013: (i) listed each individual element of compensation along with the amount earned in each category for 2010, 2011 and 2012; (ii) listed the target and maximum amounts of incentive compensation payable for
2012; and (iii) summarized the current value of employee benefits and perquisites. The tally sheets provide a useful perspective on the total value of NEO compensation and show how potential changes in one element of compensation may influence
the other elements. The Committee also used tally sheets to evaluate each NEOs total compensation in 2014.
Executive Compensation Program Elements
We believe that the mix of elements in our executive compensation program supports its objectives and provides appropriate
reward opportunities. Each of these elements is discussed separately below, other than employee benefits which we offer to our NEOs on the same basis as all of our other employees and certain additional long-term disability benefits provided to
Mr. Restrepo pursuant to his employment agreement in the event he is terminated by reason of disability. (See Potential Payments Upon Termination or Change in ControlRestrepo Employment AgreementDisability on page 59 of
this Proxy Statement.)
The Company applies the following principles in designing our executive compensation
program to achieve the objectives of our executive compensation program:
|
|
|
The Company does not have a prescribed mix between cash and non-cash compensation and short- and long-term compensation;
|
|
|
|
The Company targets each element of executive compensation to approximate the median level of our competitive market so that total compensation is
also positioned at median levels;
|
|
|
|
Neither the Committee nor the CEO considers the other elements of compensation available to NEOs, such as salary increases, annual bonuses, option
gains and equity ownership, when setting any one element; and
|
|
|
|
Awards made in prior years or in other parts of our compensation program have not influenced the opportunities or payments made available in the
current year.
|
29
Some of our NEOs compensation is governed by the terms of specific
agreements between the NEO and the Company. (See Contractual Arrangements with Named Executive Officers beginning on page 43 of this Proxy Statement.)
The following chart shows the elements of our executive compensation program for 2013 (except for perquisites, which are
minimal in nature).
*
|
In 2013, all of the NEOs were granted 50% of their total long-term incentive opportunity in the form of stock options and 50% in the form of target
PAUs. In 2014, all of the NEOs were granted 20% of their total long-term incentive opportunity in the form of stock options, 65% in the form of target PAUs and 15% in the form of restricted stock.
|
**
|
These Company performance measures applied to each of the NEOs participating in the LBP in 2013 other than Mr. Fitch, for whom Company
non-catastrophe loss ratio was replaced by standard lines non-catastrophe loss ratio, and Ms. Buss, for whom LBP Combined Ratio was replaced by specialty insurance combined ratio and Company non-catastrophe loss ratio was replaced by specialty
insurance rate change.
|
30
Base Salary
Base Salary Adjustment Process
The Committee believes that in order for the Company to attract and retain the caliber of executives it needs to achieve both short- and long-term success it is critical for the Company to provide the
NEOs with base salaries competitive with those provided to executives in our competitive market with similar skills, competencies, experience and levels of responsibility. Accordingly, the Committee may adjust the amount of an NEOs base salary
based on the median level of base salary for the NEO in our competitive market or to reflect a change in the NEOs scope of responsibility or unique skills or expertise. These adjustments are subject to an aggregate base salary merit increase
budget set by the Company based on our anticipated cost structure.
2013 Base Salaries of NEOs
The Committee set the 2013 base salaries of the NEOs in March 2013 as follows. The adjustments were based on: (i) an
evaluation of each individuals performance; (ii) increases in the median base salaries for individuals in similar roles at peer companies and other insurers comparable in size to the State Auto Group; and (iii) the Companys
overall merit increase budget and policies. Mr. Yanos adjustment was also based on the Committees desire to move his compensation closer to the median level for similar executives in our competitive market.
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
2012 Base Salary
($)
|
|
|
2013 Base Salary
($)
|
|
|
Increase
(Decrease) (%)
|
|
Robert P. Restrepo, Jr.
|
|
|
780,000
|
|
|
|
803,400
|
|
|
|
3
|
|
Steven E. English
|
|
|
425,000
|
|
|
|
438,000
|
|
|
|
3.1
|
|
Clyde H. Fitch
|
|
|
340,000
|
|
|
|
350,000
|
|
|
|
2.9
|
|
Jessica E. Buss
|
|
|
353,736
|
|
|
|
365,000
|
|
|
|
3.2
|
|
James A. Yano
|
|
|
320,000
|
|
|
|
350,000
|
|
|
|
9.4
|
|
2014 Base Salaries of NEOs
The Committee set the 2014 base salaries of the NEOs in March 2014 as follows. The adjustments were based on: (i) an
evaluation of each individuals performance; (ii) increases in the median base salaries for individuals in similar roles at peer companies and other insurers comparable in size to the State Auto Group; and (iii) the Companys
overall merit increase budget and policies.
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
2013 Base Salary
($)
|
|
|
2014 Base Salary
($)
|
|
|
Increase
(Decrease) (%)
|
|
Robert P. Restrepo, Jr.
|
|
|
803,400
|
|
|
|
827,502
|
|
|
|
3.0
|
|
Steven E. English
|
|
|
438,000
|
|
|
|
450,000
|
|
|
|
2.7
|
|
Clyde H. Fitch
|
|
|
350,000
|
|
|
|
360,000
|
|
|
|
2.9
|
|
Jessica E. Buss
|
|
|
365,000
|
|
|
|
375,000
|
|
|
|
2.7
|
|
James A. Yano
|
|
|
350,000
|
|
|
|
360,000
|
|
|
|
2.9
|
|
31
Short-Term Incentive Compensation
The LBPthe short-term incentive plan in which our NEOs participateis intended to provide personal liquidity to
our NEOs, focus our NEOs on achieving our short-term strategic objectives and balance the focus of our long-term incentive plans. The following table shows the amount of short-term cash incentive compensation paid to each NEO for 2013 under the LBP.
Total bonuses for the NEOs were below target, except for the bonus of Ms. Buss which reflects the performance of her business unit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Company
Performance
LBP Bonus
($)
|
|
|
Individual
Performance
LBP
Bonus ($)
|
|
|
Total
Short-
Term
Bonus ($)
|
|
|
Total
Short-Term
Bonus (%) (1)
|
|
Robert P. Restrepo, Jr.
|
|
|
277,205
|
|
|
|
144,612
|
|
|
|
421,817
|
|
|
|
65.6
|
|
Steven E. English
|
|
|
141,682
|
|
|
|
139,613
|
|
|
|
281,295
|
|
|
|
85.6
|
|
Clyde H. Fitch (2)
|
|
|
126,512
|
|
|
|
94,828
|
|
|
|
221,340
|
|
|
|
84.3
|
|
Jessica E. Buss (2)
|
|
|
203,912
|
|
|
|
68,255
|
|
|
|
272,167
|
|
|
|
135.6
|
|
James A. Yano
|
|
|
83,025
|
|
|
|
86,625
|
|
|
|
169,650
|
|
|
|
88.1
|
|
(1)
|
Expressed as a percentage of target where target is set at 100%.
|
(2)
|
The Committee exercised negative discretion to reduce the payouts for 2013 under the LBP to members of certain of the Companys business units
(including the business units of Mr. Fitch and Ms. Buss) by fifteen percent to more equitably allocate the results of RED across all of our business units. As a result, the payouts to Mr. Fitch and Ms. Buss for 2013
(a) under the Company performance component of the LBP were reduced from $148,838 and $239,896, respectively, and (b) under the individual performance component of the LBP were reduced from $111,563 and $80,300, respectively.
|
Leadership Bonus Plan Bonuses
Basis for LBP Bonuses
The LBP is an annual cash incentive program for our executives. For our NEOs, the LBP consists of two components: (i) a Company performance component and (ii) an individual performance
component. For 2013, 75% of an NEOs LBP target bonus opportunity was based on Company performance relative to annual plan targets and 25% was based on individual performance. The Committee believes that this allocation appropriately focuses
our NEOs on attaining objective, quantitative financial results based on the Companys results and business plan, while also providing for the recognition of individual achievements and strategically important non-financial outcomes.
LBP Award Process
The Committee establishes individual performance goals at the beginning of each year and confirms the achievement of those results at the end of the year. The Committee normally establishes threshold,
target and maximum performance goals that determine the amount of the Company performance bonus that is earned. At the end of the year, management provides the Committee with the audited financial results achieved by the Company for each performance
measure selected by the Committee. Based on this information, the Committee certifies the extent to which the performance goals were achieved before payment of the Company performance bonus, if any, is made. The Committee retains the power to
reduce, but not increase, the amount of any Company performance bonus payable to an NEO subject to Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code). (See Tax Deductibility of Executive
Compensation on page 43 of this Proxy Statement.)
32
Each year, the Committee, with input from the Board of Directors of State
Auto Mutual, establishes, and evaluates the satisfaction of, the individual performance goals applicable to the CEO, and the CEO establishes, and evaluates the satisfaction of, the individual performance goals applicable to the other NEOs, for the
individual performance component of the LBP. The Committee and CEO allocate a specific weight for each of the individual performance goals that they establish. The individual performance goals set for each NEO relate to specific strategic and
business objectives relevant to that NEOs area of responsibility and, as a result, the individual performance goals applicable to the individual performance LBP bonuses are unique for each NEO. The Committee, for the CEO, and the CEO, for the
other NEOs, evaluate the satisfaction of the individual performance goals by designating the NEOs performance for each individual performance goal into one of the following categories: (i) does not meet; (ii) somewhat meets;
(iii) meets; (iv) somewhat exceeds; and (v) exceeds. The Committee and the CEO then determine, based on their evaluation of the satisfaction of the individual performance goals, whether the NEOs overall performance met the
threshold, target or maximum performance levels applicable to the individual performance component of the LBP and, therefore, merits the award of an individual performance LBP bonus.
LBP Bonus2013 Company Performance Component
The following table shows the threshold, target and maximum amounts of 2013 Company performance LBP bonuses, both as a
percentage of the NEOs annual base salary and as a dollar amount, for each of the NEOs based on the potential achievement of the Companys performance goals.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Performance
Threshold
|
|
|
Company Performance
Target
|
|
|
Company Performance
Maximum
|
|
Named Executive Officer
|
|
% of
Salary
|
|
|
Dollar
Amount
|
|
|
% of
Salary
|
|
|
Dollar
Amount
|
|
|
% of
Salary
|
|
|
Dollar
Amount
|
|
Robert P. Restrepo, Jr.
|
|
|
6
|
|
|
|
48,204
|
|
|
|
60
|
|
|
|
482,040
|
|
|
|
120
|
|
|
|
964,080
|
|
Steven E. English
|
|
|
5.625
|
|
|
|
24,638
|
|
|
|
56.25
|
|
|
|
246,375
|
|
|
|
112.5
|
|
|
|
492,750
|
|
Clyde H. Fitch
|
|
|
5.625
|
|
|
|
19,688
|
|
|
|
56.25
|
|
|
|
196,875
|
|
|
|
112.5
|
|
|
|
393,750
|
|
Jessica E. Buss
|
|
|
4.125
|
|
|
|
15,056
|
|
|
|
41.25
|
|
|
|
150,563
|
|
|
|
82.5
|
|
|
|
301,125
|
|
James A. Yano
|
|
|
4.125
|
|
|
|
14,438
|
|
|
|
41.25
|
|
|
|
144,375
|
|
|
|
82.5
|
|
|
|
288,750
|
|
The Committee selected LBP Combined Ratio, return on equity and non-catastrophe loss
ratio as the performance measures for the Company performance component of the LBP for each of the NEOs participating in the LBP in 2013 other than Mr. Fitch and Ms. Buss. For Mr. Fitch, the Committee selected standard lines
non-catastrophe loss ratio, as well as LBP Combined Ratio and the Companys return on equity. For Ms. Buss, the Committee selected specialty insurance combined ratio and specialty insurance rate change, as well as the Companys return
on equity. The Committee selected these performance measures for our NEOs because it believes they: (i) align the individual compensation of our executives with the achievement of the strategic objectives of the State Auto Group; (ii) are
among the most important drivers of a long-term increase in the price of our Common Shares and (iii) reward our NEOs for performance or results that are within their control or subject to their influence. The Committee believes the performance
measures it selected for Mr. Fitch and Ms. Buss also serve to focus them on the performance of the operating segments for which they are responsible.
|
|
|
LBP Combined Ratio or combined ratio is a measure of the State Auto Groups underwriting profitability and is equal to
the sum of (i) the State Auto Groups loss and loss adjustment expense ratio (i.e., losses and loss expenses as a percentage of net earned premium) and (ii) the State Auto Groups expense ratio (i.e., underwriting expenses and
miscellaneous expenses offset by miscellaneous income), in each case based upon statutory accounting principles. The LBP Combined Ratio includes positive or negative catastrophe development from the prior year. LBP Combined Ratio is expressed as a
percentage and a LBP Combined Ratio of less than 100% indicates profitability.
|
|
|
|
Return on equity is the percent determined by dividing STFCs net income by STFCs average stockholders equity, based
upon generally accepted accounting principles.
|
33
|
|
|
Non-catastrophe loss ratio is a measure for all lines of business of the State Auto Group of the total losses and loss adjustment
expenses (LAE) incurred as a percentage of the net earned premium. LAE are comprised of the allocated loss adjustment expenses (ALAE), or the costs that can be related to a specific claim, for all of the State Auto
Groups lines of business and the unallocated loss adjustment expenses (ULAE), or the costs incurred in the process of settling claims that cannot be attributed to a specific claim, in each case based upon statutory accounting
principles.
|
|
|
|
Standard lines non-catastrophe loss ratio is a measure for all of the State Auto Groups standard lines of business of the total
losses and LAE incurred as a percentage of the net earned premium, in each case based upon statutory accounting principles.
|
|
|
|
Specialty insurance combined ratio for the State Auto Groups specialty insurance segment is a measure of the profitability of the
State Auto Groups specialty insurance segment and is equal to the sum of (i) the State Auto Groups specialty insurance segments loss and loss adjustment expense ratio (i.e., losses and loss expenses as a percentage of net
earned premium) of the segment and (ii) the State Auto Groups specialty insurance segments expense ratio (i.e., underwriting expenses and miscellaneous expenses offset by miscellaneous income) of the segment, in each case based upon
statutory accounting principles. Specialty insurance combined ratio is expressed as a percentage and a ratio of less than 100% indicates profitability.
|
|
|
|
Specialty insurance rate change is a measure for all lines of business of the State Auto Groups specialty insurance segment of the
percentage change in premium rate charged for the current year compared to the premium rate charged for the prior year. For new products, a benchmark is substituted for the premium rate charged for the prior year.
|
The Committee assigned each of the performance measures applicable to an NEO an equal weight in determining the amount of
any Company performance LBP bonus to balance profitability, shareholder return and growth.
The following
table shows the threshold, target and maximum payout percentages and performance goals established for each performance measure applicable to Messrs. Restrepo, English and Yano for the Company performance component of the LBP for 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LBP Combined Ratio
|
|
|
Return on Equity
|
|
|
Non-Catastrophe Loss
Ratio
|
|
|
Payout
as (%)
of Target
|
|
|
Performance
Goal
(%)
|
|
|
Payout
as (%)
of Target
|
|
|
Performance
Goal
(%)
|
|
|
Payout
as (%)
of Target
|
|
|
Performance
Goal
(%)
|
|
Threshold
|
|
|
10
|
|
|
|
105
|
|
|
|
10
|
|
|
|
1.0
|
|
|
|
10
|
|
|
|
65
|
|
Target
|
|
|
100
|
|
|
|
101
|
|
|
|
100
|
|
|
|
7.5
|
|
|
|
100
|
|
|
|
61.7
|
|
Maximum
|
|
|
200
|
|
|
|
97
|
|
|
|
200
|
|
|
|
10.0
|
|
|
|
200
|
|
|
|
58.7
|
|
The following table shows the threshold, target and maximum payout percentages and
performance goals established for each performance measure applicable to Ms. Buss for the Company performance component of the LBP for 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Insurance
Combined Ratio
|
|
|
Return on Equity
|
|
|
Specialty Insurance
Rate Change
|
|
|
Payout
as (%)
of Target
|
|
|
Performance
Goal
(%)
|
|
|
Payout
as (%)
of Target
|
|
|
Performance
Goal
(%)
|
|
|
Payout
as (%)
of Target
|
|
|
Performance
Goal
(%)
|
|
Threshold
|
|
|
10
|
|
|
|
98.9
|
|
|
|
10
|
|
|
|
1.0
|
|
|
|
10
|
|
|
|
1.0
|
|
Target
|
|
|
100
|
|
|
|
95.2
|
|
|
|
100
|
|
|
|
7.5
|
|
|
|
100
|
|
|
|
5.0
|
|
Maximum
|
|
|
200
|
|
|
|
91.4
|
|
|
|
200
|
|
|
|
10.0
|
|
|
|
200
|
|
|
|
12.0
|
|
34
The following table shows the threshold, target and maximum payout
percentages and performance goals established for each performance measure applicable to Mr. Fitch for the Company performance component of the LBP for 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LBP Combined Ratio
|
|
|
Return on Equity
|
|
|
Standard Lines
Non-Catastrophe
Loss
Ratio
|
|
|
Payout
as (%)
of Target
|
|
|
Performance
Goal
(%)
|
|
|
Payout
as (%)
of Target
|
|
|
Performance
Goal
(%)
|
|
|
Payout
as (%)
of Target
|
|
|
Performance
Goal
(%)
|
|
Threshold
|
|
|
10
|
|
|
|
105
|
|
|
|
10
|
|
|
|
1.0
|
|
|
|
10
|
|
|
|
54.7
|
|
Target
|
|
|
100
|
|
|
|
101
|
|
|
|
100
|
|
|
|
7.5
|
|
|
|
100
|
|
|
|
51.4
|
|
Maximum
|
|
|
200
|
|
|
|
97
|
|
|
|
200
|
|
|
|
10.0
|
|
|
|
200
|
|
|
|
48.4
|
|
Target performance is equal to the goal for the financial measure set forth in the 2013
business plan presented by management and approved by the Board in March 2013 following review and discussion of the business plan with the Board of Directors of State Auto Mutual. The Committee believes that target performance is reasonable to
attain but includes an element of stretch performance. Maximum performance goals are intended to reflect superior performance and, although possible, may be extremely difficult to attain. Threshold performance, which the Committee views
as a minimally acceptable level of performance, is the lowest level of performance meriting any form of financial reward. The Committee recognizes that target performance may not be attained and believes that providing for payments to be made for
threshold performance mitigates the incentive for NEOs and others to take excessive risks to achieve the target level of performance.
The following table shows (i) the result achieved for each Company performance measure applicable to our NEOs in 2013, (ii) the percentage payout for that result relative to the target payout
for that performance measure, (iii) the weight of each such performance measure within the Company performance component of LBP and (iv) the value of the actual payout for the result achieved as a percentage of the NEOs target bonus
for the Company performance component of the LBP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Measure
|
|
2013
Result
|
|
|
% of Target
Payout
for Result
|
|
|
Weight
|
|
|
Payout Value
(% of Target)
|
|
LBP Combined Ratio (
All NEOs except Ms. Buss
)
|
|
|
103.1
|
|
|
|
47.5
|
|
|
|
.3334
|
|
|
|
15.8
|
|
Return on Equity (
all NEOs
)
|
|
|
8.0
|
|
|
|
125.0
|
|
|
|
.3334
|
|
|
|
41.7
|
|
Non-Catastrophe Loss Ratio (
Messrs. Restrepo, English and Yano
)
|
|
|
65.1
|
|
|
|
0
|
|
|
|
.3334
|
|
|
|
0
|
|
Standard Lines Non-Catastrophe Loss Ratio (
Mr. Fitch
)
|
|
|
52.9
|
|
|
|
54.3
|
|
|
|
.3334
|
|
|
|
18.1
|
|
Specialty Insurance Combined Ratio (
Ms. Buss
)
|
|
|
90.7
|
|
|
|
200
|
|
|
|
.3334
|
|
|
|
66.7
|
|
Specialty Insurance Rate Change (
Ms. Buss
)
|
|
|
7.9
|
|
|
|
153
|
|
|
|
.3334
|
|
|
|
51.0
|
|
The Committee exercised negative discretion to reduce the payouts for 2013 under the
Company performance component of the LBP to members of certain of the Companys business units (including the business units of Mr. Fitch and Ms. Buss) by fifteen percent to more equitably allocate the results of RED across all of our
business units. As a result, the payouts to Mr. Fitch and Ms. Buss for 2013 under the Company performance component of the LBP were reduced from $148,838 and $239,896, respectively, to $126,512 and $203,912, respectively.
LBP Bonus2013 Individual Performance Component
The Committee, with the input of the Board of Directors of State Auto Mutual, established the individual performance goals
applicable to the CEOs individual performance LBP bonus for 2013. The CEO set the individual performance goals applicable to each of the other NEOs individual performance LBP bonus for 2013. The following table shows the 2013 threshold,
target and maximum payouts, both as a percentage of salary and
35
as a dollar amount, for each of the NEOs assuming attainment of each respective level of these individual performance goals. The Committee retains full positive and negative discretion to adjust
awards made under the individual performance component of the LBP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Individual Performance
Bonus Threshold
|
|
|
Individual Performance
Bonus Target
|
|
|
Individual Performance
Bonus Maximum
|
|
|
% of
Salary
|
|
|
Dollar
Amount
|
|
|
% of
Salary
|
|
|
Dollar
Amount
|
|
|
% of
Salary
|
|
|
Dollar
Amount
|
|
Robert P. Restrepo, Jr.
|
|
|
2
|
|
|
|
16,068
|
|
|
|
20
|
|
|
|
160,680
|
|
|
|
40
|
|
|
|
321,360
|
|
Steven E. English
|
|
|
1.875
|
|
|
|
8,213
|
|
|
|
18.75
|
|
|
|
82,125
|
|
|
|
37.5
|
|
|
|
164,250
|
|
Clyde H. Fitch
|
|
|
1.875
|
|
|
|
6,563
|
|
|
|
18.75
|
|
|
|
65,625
|
|
|
|
37.5
|
|
|
|
131,250
|
|
Jessica E. Buss
|
|
|
1.375
|
|
|
|
5,019
|
|
|
|
13.75
|
|
|
|
50,188
|
|
|
|
27.5
|
|
|
|
100,375
|
|
James A. Yano
|
|
|
1.375
|
|
|
|
4,813
|
|
|
|
13.75
|
|
|
|
48,125
|
|
|
|
27.5
|
|
|
|
96,250
|
|
The following table shows (i) the amount earned by each NEO for the individual
performance component of the LBP for 2013, (ii) the value of the amount earned as a percentage of the NEOs 2013 target bonus for the individual performance component of the LBP, (iii) a description of each individual performance goal
set for each NEO for 2013 and (iv) the weight of each performance goal within the individual performance component of LBP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named
Executive
Officer
|
|
2013
Individual
Performance
LBP Bonus
($)
|
|
|
Payout
Value (%
of Target)
|
|
|
Performance Goal
|
|
Weight
(%)
|
|
Robert P. Restrepo, Jr.
|
|
|
144,612
|
|
|
|
90
|
|
|
1. Homeowners Product Remediation (1)
|
|
|
15
|
|
|
|
|
2. Personal Insurance Pricing (1)
|
|
|
15
|
|
|
|
|
3. Business Insurance Pricing (1)
|
|
|
15
|
|
|
|
|
4. Specialty Insurance Pricing (1)
|
|
|
15
|
|
|
|
|
5. Achieve Claim Loss Adjustment Expense Ratio Target (1)
|
|
|
10
|
|
|
|
|
6. Risk Management (1)
|
|
|
10
|
|
|
|
|
7. Leadership Development (1)
|
|
|
10
|
|
|
|
|
8. Cash Budget (1)
|
|
|
5
|
|
|
|
|
9 Board Communications (1)
|
|
|
5
|
|
Steven E. English
|
|
|
139,613
|
|
|
|
170
|
|
|
1. Capital Management Strategy (1)
|
|
|
40
|
|
|
|
|
2. Refinance the Companys Senior Notes
|
|
|
30
|
|
|
|
|
3. Leadership Development (1)
|
|
|
20
|
|
|
|
|
4. Expense Management (1)
|
|
|
10
|
|
Clyde H. Fitch
|
|
|
94,828
|
(2)
|
|
|
144.5
|
|
|
1. Sales Management: Personal Insurance; Business Insurance; Specialty Insurance; and
Distribution (1)
|
|
|
30
|
|
|
|
|
2. Associate Development: Coaching; Employee Engagement; and Leadership (1)
|
|
|
30
|
|
|
|
|
3. Field Management (1)
|
|
|
25
|
|
|
|
|
4. Industry, Regulatory and Community Initiatives (1)
|
|
|
10
|
|
|
|
|
5. Achieve Cash Budget Target (1)
|
|
|
5
|
|
Jessica E. Buss
|
|
|
68,255
|
(2)
|
|
|
136
|
|
|
1. Specialty Insurance Pricing (1)
|
|
|
20
|
|
|
|
|
2. Profitable Growth (1)
|
|
|
20
|
|
|
|
|
3. Achieve Loss Ratio Targets (1)
|
|
|
20
|
|
|
|
|
4. Implement Policy Administration System for Targeted Business Lines (1)
|
|
|
15
|
|
|
|
|
5. Achieve Expense Ratio Targets (1)
|
|
|
10
|
|
|
|
|
6. Increase Franchise Value (1)
|
|
|
10
|
|
|
|
|
7. Increase Associate Engagement (1)
|
|
|
5
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named
Executive
Officer
|
|
2013
Individual
Performance
LBP Bonus
($)
|
|
|
Payout
Value (%
of Target)
|
|
|
Performance Goal
|
|
Weight
(%)
|
|
James A. Yano
|
|
|
86,625
|
|
|
|
180
|
|
|
1. Corporate Legal: Manage Corporate Legal to provide sound legal advice to the executive team, operational
divisions and boards of directors. Ensure compliance with relevant laws and regulations. Oversee delivery of legal, compliance and government affairs projects.
|
|
|
35
|
|
|
|
|
2. Board Relations: Continue to support and promote the executive teams relationship with the Board
and continue effective coordination of Board and committee meetings.
|
|
|
35
|
|
|
|
|
3. Succession Planning (1)
|
|
|
15
|
|
|
|
|
4. Support Initiation and Development of Enterprise Risk Office (1)
|
|
|
10
|
|
|
|
|
5. Support Associate Engagement (1)
|
|
|
5
|
|
(1)
|
We are not disclosing a more specific description of this performance goal because doing so would reveal confidential information that we do not
disclose to the public, and we believe that disclosure of this information would cause us competitive harm.
|
(2)
|
The Committee also exercised negative discretion to reduce the payouts for 2013 under the individual performance component of the LBP to members of
certain of the Companys business units (including the business units of Mr. Fitch and Ms. Buss) by fifteen percent to more equitably allocate the results of RED across all of our business units. As a result, the payouts to
Mr. Fitch and Ms. Buss for 2013 under the individual performance component of the LBP were reduced from $111,563 and $80,300, respectively, to $94,828 and $68,255, respectively.
|
For 2013, the Committee awarded Mr. Restrepo an individual performance bonus for, among other things, significantly
improving Homeowners results, continuing to make progress in the Companys claims area, continuing to address the Companys IT strategy and infrastructure and strengthening the Companys relationships with our agents. The size
of the bonus reflected the Committees desire to achieve better financial results more consistently.
Mr. Restrepo recommended, and the Committee approved, individual performance bonuses for the other NEOs based
primarily on the following accomplishments during 2013:
|
|
|
Mr. English exceeded target performance by successfully refinancing the Companys debt in a cost effective and innovative manner, refining
our planning and expense management processes saving significant expense dollars, strengthening the finance staff with high quality new leaders, and maintaining superior relationships with reinsurers, rating agencies, investors and bankers.
|
|
|
|
Mr. Fitch exceeded target performance by improving standard lines profitability, growing commercial lines, addressing personal lines profit
issues, implementing responsive agency management actions, and enhancing our already high quality agency/company communications.
|
|
|
|
Ms. Buss exceeded target performance by broadening the specialty product portfolio and distribution network, recruiting new executive talent,
building and broadening the underwriting teams, and successfully deploying a new technology platform to support future growth and profitability.
|
|
|
|
Mr. Yano exceeded target performance by continuing to deliver sound counsel to the Board, CEO and other senior executives, implementing an
innovative leadership development program, enhancing our risk management capability, and continuing to achieve a high level of associate engagement.
|
37
LBP Bonus Opportunities2014 Company and Individual Performance Bonuses
On March 6, 2014, the Committee set the total 2014 LBP bonus opportunities for our NEOs, including
the Company performance and individual performance components of the LBP. The Committee used the same performance measures for the 2014 Company performance component of the LBP and assigned each such performance measure the same weight as in 2013.
The Committee also set the threshold, target and maximum payout percentages for the Company performance and individual performance components of the LBP for 2014, including a range of payout levels between threshold and maximum. We believe that the
disclosure of the specific performance measures for the Company performance and individual performance components of the LBP and the range of awards related to the achievement of such measures are reflective of our 2014 business plan, and as such
constitute confidential information. We believe that the disclosure of this information in this Compensation Discussion and Analysis would cause us competitive harm. The Committee believes that the target performance goals are difficult but
attainable. For 2012 and 2013, the payout on the Company performance goals was 6.1% and 57.5%, respectively, of the target LBP bonus (where the target percentage equals 100%) for all of our NEOs except for (i) Mr. Fitch, whose payout on
the Company performance goals under the LBP for 2012 and 2013 was 44.4% and 75.6% (without applying the negative adjustment for RED), respectively, of his target LBP bonus and (ii) Ms. Buss, whose payout on the Company performance goals
under the LBP for 2012 and 2013 was 132.8% and 159.3% (without applying the negative adjustment for RED), respectively, of her target LBP bonus. For 2014, the payment of an individual performance LBP bonus for our NEOs, if any, will be determined by
the Committee and the CEO at the end of the Companys 2014 fiscal year on the same basis as in 2013.
Long-Term
Equity and Cash Incentive Compensation
The Committee awards long-term incentive compensation to our
NEOs in the form of stock options under the State Auto Financial Corporation 2009 Equity Incentive Compensation Plan, as amended (2009 Equity Plan), and PAUs under the LTIP. The Committee also occasionally grants restricted common
shares. The Committee targets the long-term incentive compensation awards to the NEOs at the median of long-term incentive compensation awards in our competitive market. For 2013, the Committee provided 50% of each NEOs total long-term
incentive compensation opportunity in the form of stock options and 50% in the form of target PAUs For 2014, the Committee provided 20% of each NEOs total long-term incentive compensation opportunity in the form of stock options, 65% in the
form of target PAUs and 15% in the form of restricted stock. The Committee modified the forms of the awards included in the NEOs long-term incentive compensation opportunity for 2014 to reduce our usage of Common Shares under our incentive
plans, while continuing to emphasize the alignment of the interests of the NEOs with the interests of our shareholders, encourage associate retention and respond to evolving best practices in long-term incentive compensation.
Stock Options
Basis for Stock Option Awards
We believe that issuing
stock options to our executives (i) encourages business behaviors that drive appreciation in the price of our Common Shares over the long-term because the stock options we award have no value unless the price of the underlying Common Shares
increases from the date of grant and (ii) helps align the interests of our executives who hold stock options, including our NEOs, with the interests of our shareholders. Stock options also represent a significant element of the compensation
paid to executives at many peer companies that we compete with for executive talent and build appropriate levels of Common Share ownership among our executive team. The Company has not and will not reprice or replace underwater stock options without
first obtaining shareholder approval.
38
Stock Option Award Process
In 2013 and 2014, the Committee granted stock options to our NEOs representing the number of Common Shares set forth in
the table below. Each grant of options consisted of non-qualified stock options with a ten-year exercise period, a three-year graduated vesting schedule (i.e., one third of the total options granted vests on each anniversary of the grant date for
three years) and an option exercise price equal to the closing price of our Common Shares on the grant date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
2013
Stock
Option
Awards
(# of
Common
Shares)
|
|
|
Exercise
Price ($)
|
|
|
2014
Stock
Option
Awards
(# of
Common
Shares)
|
|
|
Exercise
Price ($)
|
|
Robert P. Restrepo, Jr.
|
|
|
125,252
|
|
|
|
16.80
|
|
|
|
37,432
|
|
|
|
21.23
|
|
Steven E. English
|
|
|
36,582
|
|
|
|
16.80
|
|
|
|
10,905
|
|
|
|
21.23
|
|
Clyde H. Fitch
|
|
|
25,335
|
|
|
|
16.80
|
|
|
|
7,561
|
|
|
|
21.23
|
|
Jessica E. Buss
|
|
|
26,420
|
|
|
|
16.80
|
|
|
|
7,876
|
|
|
|
21.23
|
|
James A. Yano
|
|
|
25,335
|
|
|
|
16.80
|
|
|
|
7,561
|
|
|
|
21.23
|
|
The Committee grants stock options each year at the same time as other annual awards are
determined, based on the CEOs recommendations to the Committee, which the CEO determines using competitive market data. Although the Committee retains the discretion to set the terms of any options granted, including the number of options
granted to any optionee, the Committee did not exercise such discretion for the 2013 or 2014 stock option grants and instead implemented the CEOs recommendations.
The Committee determined the number of stock options granted by multiplying (i) the average daily closing price of
our Common Shares for the prior fiscal year (ii) by a Black-Scholes factor. The Black-Scholes factor is a financial model used to determine the current value of stock options and was provided to the Company by Pay
Governance, LLC. Pay Governance, LLC advised the Committee that this method, which is consistent with the practice the Committee used in prior years, provides stability in option grants, is similar to the practices of other companies and prevents
significant fluctuation in the number of options granted that may be caused by short-term swings in stock price associated with focusing on the closing stock price for a particular day.
Performance Award Units
Basis for PAU Awards
PAUs reward participants for
achieving sustained financial results that we believe should increase the price of our Common Shares over the long term. The Committee also believes that PAUs balance the focus of our annual operating plan by rewarding participants for our financial
results relative to the results of other property and casualty insurers, which is consistent with our executive compensation program objective to provide compensation relative to our performance as compared to the performance of our peers. In
addition, PAUs minimize shareholder dilution as they are paid in cash.
PAU Award Process
PAUs are awarded annually by the Committee to the NEOs and are paid in cash at the end of a three-year performance period.
The amount payable at the end of the performance period is determined by multiplying the number of PAUs by the value of the PAU at the end of the performance period. PAUs are granted with a target value of $1.00, although the final value
of each PAU can range from $0.00 to $2.00 depending on our performance. The final value of a PAU depends on the State Auto Groups performance relative to a peer group of other property and casualty insurers during the performance period (the
LTIP Peer Group). The peer-comparison approach reduces the subjectivity involved in setting performance goals for a three-year period, which can be difficult, particularly in the current economic environment.
39
PAUs are valued based on the State Auto Groups
achievement of performance goals selected by the Committee compared against the results of the LTIP Peer Group during the three-year period. Each goal has threshold, target and maximum levels of performance. The target level for each performance
measure is achieved if the State Auto Groups performance equals the median level of performance of the companies in the LTIP Peer Group for such performance measure. The maximum level for each performance measure is achieved if the State Auto
Group performs at or above the 80
th
percentile of the LTIP
Peer Group. The threshold level of performance is achieved if the State Auto Group performs at the 20
th
percentile. No amount is payable for a performance measure if the State Auto Group performs below the 20
th
percentile.
For example, if at the end of the 20132015 performance period there are 60 insurance companies
in the LTIP Peer Group, and if such companies are ranked 1 60 (best to worst) in average statutory combined ratio, each NEO will receive a target award if the State Auto Groups three-year average statutory combined ratio is between the
30/31
st
ranked companies. A maximum award will be received
if our three-year average statutory combined ratio equals or exceeds the 12
th
ranked company (equal to the groups 80
th
percentile). Finally, a threshold award will be received if our three-year statutory combined ratio equals the 48
th
ranked company (or the groups 20
th
percentile). The same comparison is performed for the other performance measures, with the results equally weighted to
determine the final PAU value awarded to each NEO.
PAU Awards2011-2013 Performance Period
PAUs awarded to each of the NEOs other than Ms. Buss for the 2011-2013 performance period are valued based on the
achievement of three equally-weighted performance measures: (i) statutory combined ratio for the State Auto Group, (ii) the State Auto Groups net written premium growth (excluding the impact of the quota share reinsurance agreement
entered into by the State Auto Group on December 31, 2011 relating to its homeowners book of business (the Quota Share Agreement)) and (iii) the State Auto Groups surplus growth (excluding the impact of the Quota Share
Agreement). PAUs awarded to Ms. Buss for the 2011-2013 performance period are valued based on the achievement of three equally-weighted performance measures: (i) combined ratio for Rockhill, (ii) Rockhills net written premium
growth and (iii) Rockhills surplus growth.
We have not determined the value of the PAUs awarded
for the 2011-2013 performance period because the final LTIP Peer Group data for the 2011-2013 performance period has not been released as of the date of this Proxy Statement. However, based on preliminary performance information for the 2011-2013
performance period, we currently expect that the PAUs awarded for the 2011-2013 performance period will be valued below target for all of the NEOs, except for Ms. Buss. We currently expect that the PAUs awarded to Ms. Buss for the
2011-2013 performance period will be valued significantly above target. We will determine the value of the PAUs awarded to our NEOs for the 2011-2013 performance period (and pay such amount to our NEOs) in May 2013 after the final LTIP Peer Group
data for the 2011-2013 performance period is released.
PAU Awards2013
PAUs awarded to each of the NEOs for the 2013-2015 performance period are valued based on the achievement of target
results for three equally-weighted performance measures: (i) statutory combined ratio for the State Auto Group, (ii) the State Auto Groups net written premium growth (excluding the impact of the Quota Share Agreement) and
(iii) the State Auto Groups surplus growth (excluding the impact of the Quota Share Agreement). The performance measures selected by the Committee focus on our ability to appropriately price and underwrite business, control expenses,
develop new products and services, invest in assets that best balance risks and rewards and enter new markets. They also assess long-term profitability and the capital we need to underwrite future business. We believe sustained, high levels of
performance in each of these areas should create value for our shareholders.
The LTIP Peer Group used to
determine our achievement of (i) the surplus growth performance measure applicable to PAUs awarded to our NEOs in 2013 and (ii) the direct written premium growth and direct, statutory
40
combined ratio performance measures applicable to PAUs awarded to all of our NEOs in 2013 except for Ms. Buss consists of approximately 60 insurance companies included in the A.M. Best Total
U.S. P&C Agency Companies Composite with net written premiums ranging from $0.5 billion to $5.0 billion. The LTIP Peer Group used to determine our achievement of the direct written premium growth and direct, statutory combined ratio performance
measures applicable to PAUs awarded to Ms. Buss in 2013 consists of 49 surplus lines peers with net written premiums ranging from $100 million to $500 million and 29 workers compensation peers with net written premiums ranging from $25 million
to $500 million.
For the 2013-2015 performance period, our NEOs received PAUs in the number and with the
target, threshold and maximum values described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
2013 Target
Units(#)
|
|
|
Target Award
Value($)
|
|
|
Threshold Award
Value($) (1)
|
|
|
Maximum Award
Value($)
|
|
Robert P. Restrepo Jr.
|
|
|
562,380
|
|
|
|
562,380
|
|
|
|
224,952
|
|
|
|
1,124,760
|
|
Steven E. English
|
|
|
164,250
|
|
|
|
164,250
|
|
|
|
65,700
|
|
|
|
328,500
|
|
Clyde H. Fitch
|
|
|
113,750
|
|
|
|
113,750
|
|
|
|
45,500
|
|
|
|
227,500
|
|
Jessica E. Buss
|
|
|
118,625
|
|
|
|
118,625
|
|
|
|
47,450
|
|
|
|
237,250
|
|
James A. Yano
|
|
|
113,750
|
|
|
|
113,750
|
|
|
|
45,500
|
|
|
|
227,500
|
|
(1)
|
Units have a target value equal to $1.00, a threshold value of $0.40 and a maximum value of $2.00.
|
PAU Awards2014
PAUs awarded for the 2014-2016 performance period are valued based on the achievement of three equally-weighted performance measures. The Committee selected the same performance measures for the 2014-2016
performance period as it did for the 2013-2015 performance period for the reasons discussed above in PAU Awards2013. For the 2014-2016 performance period, our NEOs received PAUs in the number and with the target, threshold
and maximum values described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
2014 Target
Units(#)
|
|
|
Target Award
Value($)(1)
|
|
|
Threshold Award
Value($)(1)
|
|
|
Maximum Award
Value($)(1)
|
|
Robert P. Restrepo Jr.
|
|
|
753,027
|
|
|
|
753,027
|
|
|
|
301,211
|
|
|
|
1,506,054
|
|
Steven E. English
|
|
|
219,375
|
|
|
|
219,375
|
|
|
|
87,750
|
|
|
|
438,750
|
|
Clyde H. Fitch
|
|
|
152,100
|
|
|
|
152,100
|
|
|
|
60,840
|
|
|
|
304,200
|
|
Jessica E. Buss
|
|
|
158,438
|
|
|
|
158,438
|
|
|
|
63,375
|
|
|
|
316,876
|
|
James A. Yano
|
|
|
152,100
|
|
|
|
152,100
|
|
|
|
60,840
|
|
|
|
304,200
|
|
(1)
|
Units have a target value equal to $1.00, a threshold value of $0.40 and a maximum value of $2.00.
|
Retirement and Deferred Compensation
Retirement Plans
We maintain a defined benefit pension
plan, referred to as our Retirement Plan, to recognize the career contributions and service of our employees, assist in the retention of our employees and provide our employees with income continuity into retirement. We also maintain a
non-qualified Supplemental Executive Retirement Plan, referred to as our SERP, to offset the impact of limitations imposed by tax laws on the amount of income or wages that can be considered in calculating benefits under traditional
defined benefit pension plans, such as our Retirement Plan. All of our current NEOs are eligible to participate in the Retirement Plan and SERP except for Ms. Buss. The SERP enables highly compensated officers to achieve the same percentage of
salary replacement as other employees upon retirement. An NEO is automatically enrolled in the SERP when his or her annual base salary exceeds the limit that can be considered in calculating benefits under the Retirement Plan. In addition to the
standard SERP, we have entered into an individual SERP agreement with Mr. Restrepo to offset
41
the impact of the relatively shorter duration of employment available to him at our Company. Under the Retirement Plan, an employees period of service has a significant impact on the amount
of retirement benefits they would be eligible to receive. Under the standard SERP, the amount of retirement benefits that an employee would be eligible to receive is determined solely by the employees actual period of service. The emphasis of
our Retirement Plan and SERP on period of service may negatively affect our ability to attract a CEO who would not have the same opportunity to earn benefits under the Retirement Plan and SERP comparable to other employees with longer service
periods. For this reason, the Committee approved the individual SERP agreement for Mr. Restrepo. Mr. Restrepos individual SERP agreement does not provide him with any additional age or service credits upon his entry into the plan.
See Contractual Arrangements with Named Executive OfficersEmployment Agreements on page 43 of this Proxy Statement and Retirement Plans on page 52 of this Proxy Statement for more information regarding our
retirement plans.
Defined Contribution Plan/401(k) Plan
We maintain a defined contribution plan intended to be a qualified plan under Sections 401(a) and 401(k) of the Code that
we refer to as our Retirement Savings Plan or RSP. The RSP is intended to help ensure the long-term financial stability of our employees. Participation in the RSP is available on the same terms to all of our employees,
including our NEOs. Each participant can elect to contribute from 1% to 50% of his or her base salary to the RSP. The Company may make a discretionary matching contribution of 100% of each participants RSP contributions for the first 1% of
base salary, plus 50% of each participants RSP contribution between 2% and 6% of base salary, subject to an annual maximum of $17,500. In 2010, all of our employees hired before January 1, 2010, including our NEOs, made an election to
either (i) continue participating in the Retirement Plan and RSP or (ii) cease participating in the Retirement Plan as of June 30, 2010 in favor of participating in an expanded benefit under the RSP beginning on July 1, 2010,
under which the Company would annually contribute to the RSP an amount equal to 5% of their annual base salary until the termination of their employment with the Company. If an employee elected to participate in the expanded RSP benefit, they would
continue to be eligible to receive upon retirement their accrued benefit under the Retirement Plan as of June 30, 2010. See Deferred Compensation PlansDefined Contribution Plan/401(k) Plan on page 53 of this Proxy Statement
for more information regarding the RSP.
Non-Qualified Deferred Compensation Plan/Supplemental 401(k) Plan
We maintain a non-qualified, unfunded deferred compensation plan for eligible key employees, which we refer to as our
Shadow Plan. Non-qualified plans provide highly compensated employees with the same retirement savings opportunities, on a relative basis, as other employees. Participants in non-qualified plans become unsecured creditors and incur the
credit risk associated with that status. Employees eligible to participate in the Shadow Plan include those who are precluded by regulatory limitations from contributing a full 6% of salary to the RSP or who may choose to defer a portion of their
salary beyond the amount matched by the RSP. Each employee who is eligible to participate in the Shadow Plan is credited annually with his or her allocable share of Company matching contributions on the same basis that contributions are matched
under the RSP, provided that no more than 6% of any employees base salary is subject to being matched in the aggregate under the RSP and the Shadow Plan. See Deferred Compensation PlansNon-Qualified Deferred Compensation
Plan/Supplemental 401(k) Plan on page 54 of this Proxy Statement for more information regarding the Shadow Plan.
Executive Perquisites
We provide our executive officers certain minimal perquisites not tied to individual or Company performance. We believe these benefits are well below the typical practices of companies of comparable size,
are highly valued by recipients, have limited cost and are part of a competitive reward program that helps us attract and retain the best executives.
42
Contractual Arrangements with Named Executive Officers
Employment Agreements
The Company enters into employment agreements to provide appropriate protection to the employee and the Company and clarity to the employee and the Company about the Companys expectations. The
Companys only current employment agreement is with Mr. Restrepo, its Chairman, President and Chief Executive Officer. The Company believes that having an employment agreement in place with Mr. Restrepo ensures leadership stability
and focus and assists in long-term retention. The Company also believes that continuity has a cumulative effect on the achievement of our long-term strategic and operational objectives and, therefore, also furthers the objectives of our executive
compensation program.
The terms of Mr. Restrepos employment agreement were the result of
arms length negotiations between the Committee and Mr. Restrepo. As is the case with most executive employment agreements, our employment agreement with Mr. Restrepo addresses separation and severance benefits in connection with the
termination of his respective employment with us, either prior to or at the end of the employment term. These provisions benefit both us and the executive in that they provide a clear understanding of the rights and obligations of the parties upon
events resulting in the termination of the employment relationship. The terms of the employment agreement with Mr. Restrepo, including the severance and separation benefits provided to Mr. Restrepo upon the occurrence of certain
termination events, are described in detail below under Agreements with Named Executive OfficersRestrepo Employment Agreement.
Change of Control Agreements
Change of control
agreements are part of our corporate strategy to retain our well-qualified senior executive officers, notwithstanding a potential or actual change of control of our Company. Change of control agreements also serve our shareholders interests by
ensuring that senior executives will view any potential transaction objectively since an adverse change in their employment situation will not have adverse personal financial consequences. We entered into new change in control agreements, which we
refer to as executive agreements, with each of our NEOs in 2011. The terms of the executive agreements with our NEOs are described in detail below under Agreements with Named Executive OfficersExecutive Agreements. The
severance and separation benefits provided to the NEOs under their respective executive agreements are described below under Agreements with Named Executive OfficersRestrepo Employment Agreement and Agreements with Named
Executive OfficersEnglish, Fitch, Buss and Yano Executive Agreements.
Tax Deductibility of
Executive Compensation
Section 162(m) of the Code imposes a limit on the amount of compensation that
we may deduct in any one year for our NEOs unless certain specific criteria are satisfied. Qualified performance-based compensation, as defined in Section 162(m) of the Code, is fully deductible if the programs are approved by
shareholders and meet other requirements. Our shareholders have approved the material terms of the LBP, the 2009 Equity Plan and the LTIP as required by Section 162(m) of the Code. Accordingly, compensation paid for the attainment of Company
performance-based awards under the LBP, stock options awarded under the 2009 Equity Plan and compensation paid for the attainment of the PAUs under the LTIP are intended to be deductible for federal income tax purposes under Section 162(m) of
the Code. While we generally attempt to tax qualify our compensation programs, we also seek to maintain flexibility in compensating our executives. As a result, our Committee has not adopted a policy requiring all compensation to be deductible. For
example, compensation paid for the attainment of individual performance-based awards under the LBP are not intended to constitute qualified performance-based compensation for purposes of Section 162(m) of the Code.
43
Stock Ownership Guidelines
We have adopted stock ownership guidelines (Ownership Guidelines) for our Section 16 officers, including
our NEOs. These Ownership Guidelines reinforce one of the objectives of our executive compensation program and primary reasons for awarding stock options to build appropriate levels of Common Share ownership among our executive team. Each
person subject to the Ownership Guidelines is required to acquire and maintain ownership of a designated number of Common Shares based on the persons position with us (the Ownership Target Amounts). We revised our Stock Ownership
Guidelines to also require our Section 16 officers to hold the net amount of Common Shares they obtain through the exercise of stock options or vesting of restricted stock until the later of (i) the first anniversary of the date the
officer exercised the stock options or (ii) the date on which the officer satisfies the Ownership Target Amounts.
Equity grants vary based on an individuals level in the Company, our competitive market data, the scope of the NEOs responsibility and the number of Common Shares available for issuance under
our equity compensation plans. As a result, it makes sense to also vary the level of ownership we require of these individuals based on their level in the Company and the number of option grants they receive. Following the promotion of several
members of our executive management team to Senior Vice President positions and the reduction in the equity compensation awarded to our NEOs in 2014, the Committee determined that the difference between the Ownership Target Amounts applicable to
Senior Vice Presidents and Vice Presidents was too large and, therefore, reduced the Ownership Target Amount applicable to Senior Vice Presidents from 30,000 to 15,000. The following Ownership Target Amount categories will remain in place until
changed by the Committee:
|
|
|
|
|
|
|
|
|
Chairman/CEO
|
|
|
100,000
|
|
|
|
Common Shares
|
|
Senior Vice President
|
|
|
15,000
|
|
|
|
Common Shares
|
|
Vice President
|
|
|
7,000
|
|
|
|
Common Shares
|
|
Executives are in compliance with the Ownership Guidelines if they meet the Ownership
Target Amounts within five years of assuming the designated category of management or if they invest a minimum of 6% of their annual base salary in Company stock through a payroll deduction plan. All Common Shares directly owned by officers count
toward meeting their respective Ownership Target Amounts, including unvested restricted stock. In addition, for purposes of the Ownership Target Amounts we count as owned by officers one-third of their vested in-the-money stock options.
The following table shows the Ownership Target Amounts for the NEOs and the number of Common Shares currently owned by the NEOs as of March 7, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Ownership Target
Amount for
Common Shares
|
|
|
Eligible Options
Owned by NEO (1)
|
|
|
Unvested
Restricted
Stock
Owned by
NEO
|
|
|
Common Shares
Owned Directly
by NEO
|
|
|
Total Common
Share Ownership
Toward Target
|
|
Robert P. Restrepo, Jr.
|
|
|
100,000
|
|
|
|
88,199
|
|
|
|
30,352
|
|
|
|
78,572
|
|
|
|
197,123
|
|
Steven E. English
|
|
|
15,000
|
|
|
|
25,299
|
|
|
|
2,572
|
|
|
|
11,218
|
|
|
|
39,089
|
|
Clyde H. Fitch
|
|
|
15,000
|
|
|
|
20,123
|
|
|
|
1,783
|
|
|
|
16,168
|
|
|
|
38,074
|
|
Jessica E. Buss
|
|
|
15,000
|
|
|
|
9,319
|
|
|
|
1,857
|
|
|
|
2,651
|
|
|
|
13,827
|
|
James A. Yano
|
|
|
15,000
|
|
|
|
15,344
|
|
|
|
1,783
|
|
|
|
9,689
|
|
|
|
26,816
|
|
(1)
|
One-third of vested in the money stock options count toward the ownership level requirement. Vested options with an exercise price that
is higher than the fair market value of the Companys Common Shares (i.e., underwater stock options) do not count towards the Ownership Guidelines. The stock options included in this table are one-third of those exercisable within 60 days of
March 7, 2014 and in the money based on a price of $21.54, which represents the average closing price for the Companys Common Shares during the 30-period ending January 27, 2014.
|
44
Anti-Hedging Policy
Our anti-hedging policy prohibits all Company employees, including our NEOs, and members of the Board from engaging in
certain hedging transactions relating to Company securities held by them, including short sales and other transactions that shift the economic consequences of ownership of Company securities to a third party (e.g., the purchase or sale of puts,
calls or listed options and hedging transactions such as prepaid variable forwards, equity swaps, caps, collars and exchange funds). Our executive officers and members of the Board are also subject to a policy that prohibits them from holding
Company securities in a margin account or otherwise pledging Company securities as collateral for a loan.
45
Summary Compensation Table for 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal
Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)(1)
|
|
|
Option
Awards
($)(2)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)(3)
|
|
|
Change in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(4)
|
|
|
All Other
Compensation
($)(5)
|
|
|
Total
($)
|
|
Robert P. Restrepo, Jr.
|
|
|
2013
|
|
|
|
798,900
|
|
|
|
0
|
|
|
|
0
|
|
|
|
683,876
|
|
|
|
421,817
|
|
|
|
581,148
|
|
|
|
97,018
|
|
|
|
2,582,759
|
|
Chairman, President and Chief Executive Officer
|
|
|
2012
|
|
|
|
780,000
|
|
|
|
0
|
|
|
|
291,247
|
(6)
|
|
|
314,150
|
|
|
|
383,022
|
|
|
|
776,837
|
|
|
|
114,442
|
|
|
|
2,659,698
|
|
|
|
2011
|
|
|
|
775,192
|
|
|
|
0
|
|
|
|
284,734
|
(6)
|
|
|
258,632
|
|
|
|
626,145
|
|
|
|
884,172
|
|
|
|
111,943
|
|
|
|
2,940,818
|
|
|
|
|
|
|
|
|
|
|
|
Steven E. English
|
|
|
2013
|
|
|
|
435,500
|
|
|
|
0
|
|
|
|
0
|
|
|
|
199,738
|
|
|
|
281,295
|
|
|
|
61,525
|
|
|
|
15,073
|
|
|
|
993,131
|
|
Senior Vice President and Chief Financial Officer
|
|
|
2012
|
|
|
|
420,192
|
|
|
|
0
|
|
|
|
0
|
|
|
|
51,783
|
|
|
|
207,840
|
|
|
|
121,112
|
|
|
|
16,152
|
|
|
|
817,079
|
|
|
|
2011
|
|
|
|
392,308
|
|
|
|
0
|
|
|
|
64
|
|
|
|
106,582
|
|
|
|
257,475
|
|
|
|
133,774
|
|
|
|
19,448
|
|
|
|
909,651
|
|
|
|
|
|
|
|
|
|
|
|
Clyde H. Fitch
|
|
|
2013
|
|
|
|
348,077
|
|
|
|
0
|
|
|
|
0
|
|
|
|
138,329
|
|
|
|
221,340
|
|
|
|
98,920
|
|
|
|
15,073
|
|
|
|
821,739
|
|
Senior Vice President and Chief Sales Officer
|
|
|
2012
|
|
|
|
340,000
|
|
|
|
0
|
|
|
|
150
|
|
|
|
38,150
|
|
|
|
241,759
|
|
|
|
105,859
|
|
|
|
16,152
|
|
|
|
742,070
|
|
|
|
2011
|
|
|
|
338,077
|
|
|
|
0
|
|
|
|
64
|
|
|
|
78,514
|
|
|
|
211,808
|
|
|
|
106,833
|
|
|
|
15,061
|
|
|
|
750,407
|
|
|
|
|
|
|
|
|
|
|
|
Jessica E. Buss
|
|
|
2013
|
|
|
|
362,834
|
|
|
|
0
|
|
|
|
0
|
|
|
|
144,253
|
|
|
|
272,167
|
|
|
|
0
|
|
|
|
33,215
|
|
|
|
812,469
|
|
Senior Vice President, Specialty Lines
|
|
|
2012
|
|
|
|
353,736
|
|
|
|
0
|
|
|
|
0
|
|
|
|
30,531
|
|
|
|
385,891
|
|
|
|
0
|
|
|
|
28,652
|
|
|
|
798,810
|
|
|
|
2011
|
|
|
|
353,736
|
|
|
|
0
|
|
|
|
214
|
|
|
|
62,837
|
|
|
|
374,913
|
|
|
|
0
|
|
|
|
15,061
|
|
|
|
806,761
|
|
|
|
|
|
|
|
|
|
|
|
James A. Yano
|
|
|
2013
|
|
|
|
344,231
|
|
|
|
0
|
|
|
|
0
|
|
|
|
128,447
|
|
|
|
169,650
|
|
|
|
88,412
|
|
|
|
15,073
|
|
|
|
745,813
|
|
Senior Vice President,
|
|
|
2012
|
|
|
|
320,000
|
|
|
|
0
|
|
|
|
150
|
|
|
|
27,618
|
|
|
|
124,153
|
|
|
|
98,301
|
|
|
|
13,308
|
|
|
|
583,530
|
|
Secretary and General Counsel
|
|
|
2011
|
|
|
|
318,077
|
|
|
|
0
|
|
|
|
64
|
|
|
|
56,846
|
|
|
|
144,500
|
|
|
|
101,460
|
|
|
|
12,940
|
|
|
|
633,887
|
|
(1)
|
Except as described in other footnotes, the dollar amounts shown in this column represent the grant date fair value of Common Shares awarded to
the NEOs on holidays and certain service anniversary milestones. These awards are made to all employees of the Company on the same basis and in the same amounts.
|
(2)
|
The dollar amounts shown in this column represent the aggregate grant date fair value of the stock options awarded in the fiscal year indicated. The
grant date fair value of each stock option granted was calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, CompensationStock Options (ASC Topic 718). For a discussion of
the assumptions used in the calculations, see Note 13 to our Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-K for our fiscal year ended December 31, 2013.
|
(3)
|
The amounts earned in 2013 by the NEOs with respect to the PAUs awarded in 2011 under our LTIP for the 2011-2013 performance period are not included
in this column as the results for the 2011-2013 performance period applicable to such PAUs were not available as of the date of this Proxy Statement. We expect to determine the amounts payable to the NEOs with respect to such PAUs in May 2014.
|
46
For 2013 non-equity incentive plan compensation, the dollar amounts shown in
this column reflect the aggregate total of the following awards earned in 2013 by each NEO under the Company performance component of the LBP and the individual performance component of the LBP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LBP
Company
Performance
Award ($)
|
|
|
LBP
Individual
Performance
Award ($)
|
|
|
Total
Non-Equity
Incentive Plan
Compensation
Awards ($)
|
|
Robert P. Restrepo, Jr.
|
|
|
277,205
|
|
|
|
144,612
|
|
|
|
421,817
|
|
Steven E. English
|
|
|
141,682
|
|
|
|
139,613
|
|
|
|
281,295
|
|
Clyde H. Fitch
|
|
|
126,512
|
|
|
|
94,828
|
|
|
|
221,340
|
|
Jessica E. Buss
|
|
|
203,912
|
|
|
|
68,255
|
|
|
|
272,167
|
|
James A. Yano
|
|
|
83,025
|
|
|
|
86,625
|
|
|
|
169,650
|
|
For 2012 non-equity incentive plan compensation, the dollar amounts shown in this column
reflect the aggregate total of the following awards earned in 2012 by each NEO under the Company performance component of the LBP, the individual performance component of the LBP and the PAUs relating to the 2010-2012 performance period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LBP
Company
Performance
Award ($)
|
|
|
LBP
Individual
Performance
Award ($)
|
|
|
PAU
Award
($)
|
|
|
Total
Non-Equity
Incentive Plan
Compensation
Awards ($)
|
|
Robert P. Restrepo, Jr.
|
|
|
28,579
|
|
|
|
140,400
|
|
|
|
214,043
|
|
|
|
383,022
|
|
Steven E. English
|
|
|
14,600
|
|
|
|
119,530
|
|
|
|
73,710
|
|
|
|
207,840
|
|
Clyde H. Fitch
|
|
|
84,941
|
|
|
|
89,250
|
|
|
|
67,568
|
|
|
|
241,759
|
|
Jessica E. Buss
|
|
|
176,126
|
|
|
|
79,590
|
|
|
|
130,175
|
|
|
|
385,891
|
|
James A. Yano
|
|
|
7,328
|
|
|
|
68,000
|
|
|
|
48,825
|
|
|
|
124,153
|
|
For 2011 non-equity incentive plan compensation, the dollar amounts shown in this column
reflect the aggregate total of the following awards earned in 2011 by each NEO under the Company performance component of the LBP, the individual performance component of the LBP, the Quarterly Performance Bonus Plan (the QPB) and the
PAUs relating to the 2009-2011 performance period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LBP
Company
Performance
Award ($)
|
|
|
LBP
Individual
Performance
Award ($)
|
|
|
QPB
Award ($)
|
|
|
PAU
Award
($)
|
|
|
Total
Non-Equity
Incentive Plan
Compensation
Awards ($)
|
|
Robert P. Restrepo, Jr.
|
|
|
85,800
|
|
|
|
127,776
|
|
|
|
28,224
|
|
|
|
384,345
|
|
|
|
626,145
|
|
Steven E. English
|
|
|
41,250
|
|
|
|
113,026
|
|
|
|
14,474
|
|
|
|
88,725
|
|
|
|
257,475
|
|
Clyde H. Fitch
|
|
|
35,063
|
|
|
|
83,322
|
|
|
|
12,303
|
|
|
|
81,120
|
|
|
|
211,808
|
|
Jessica E. Buss
|
|
|
176,868
|
|
|
|
62,369
|
|
|
|
12,800
|
|
|
|
122,876
|
|
|
|
374,913
|
|
James A. Yano
|
|
|
22,000
|
|
|
|
52,421
|
|
|
|
11,579
|
|
|
|
58,500
|
|
|
|
144,500
|
|
The Compensation Committee revised the QPB in 2012 to provide that participants in the
LBP (i.e., our executives) may no longer participate in the QPB.
(4)
|
The dollar amounts shown in this column reflect the change in the pension values for each of our NEOs, including amounts accruing under our
Retirement Plan and SERPs in which certain of our NEOs participate. None of our NEOs who participate in our non-qualified deferred compensation plan receive preferential or above-market earnings.
|
47
(5)
|
The table below shows the components of the All Other Compensation column for 2011 through 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Company
Matches
($)(a)
|
|
|
Spousal Travel
Expenses
($)(b)
|
|
|
Restricted
Stock
Dividends
($)
|
|
|
Club
Membership
Dues
($)(c)
|
|
|
Legal
Expenses
($)(d)
|
|
|
Insurance
Premiums
($)
|
|
|
Total
($)
|
|
Robert P. Restrepo, Jr.
|
|
|
2013
|
|
|
|
27,962
|
|
|
|
6,148
|
|
|
|
17,011
|
|
|
|
2,790
|
|
|
|
0
|
|
|
|
43,107
|
(e)
|
|
|
97,018
|
|
|
|
|
2012
|
|
|
|
27,300
|
|
|
|
7,402
|
|
|
|
30,018
|
|
|
|
2,790
|
|
|
|
4,013
|
|
|
|
42,919
|
(e)
|
|
|
114,442
|
|
|
|
2011
|
|
|
|
27,132
|
|
|
|
6,486
|
|
|
|
17,826
|
|
|
|
2,790
|
|
|
|
12,015
|
|
|
|
45,694
|
(e)
|
|
|
111,943
|
|
|
|
|
|
|
|
|
|
|
Steven E. English
|
|
|
2013
|
|
|
|
8,925
|
|
|
|
6,148
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15,073
|
|
|
|
|
2012
|
|
|
|
8,750
|
|
|
|
7,402
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
16,152
|
|
|
|
2011
|
|
|
|
12,962
|
|
|
|
6,486
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
19,448
|
|
|
|
|
|
|
|
|
|
|
Clyde H. Fitch
|
|
|
2013
|
|
|
|
8,925
|
|
|
|
6,148
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15,073
|
|
|
|
|
2012
|
|
|
|
8,750
|
|
|
|
7,402
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
16,152
|
|
|
|
|
2011
|
|
|
|
8,575
|
|
|
|
6,486
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15,061
|
|
|
|
|
|
|
|
|
|
|
Jessica E. Buss
|
|
|
2013
|
|
|
|
27,067
|
|
|
|
6,148
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
33,215
|
|
|
|
|
2012
|
|
|
|
21,250
|
|
|
|
7,402
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
28,652
|
|
|
|
|
2011
|
|
|
|
8,575
|
|
|
|
6,486
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15,061
|
|
|
|
|
|
|
|
|
|
|
James A. Yano
|
|
|
2013
|
|
|
|
8,925
|
|
|
|
6,148
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15,073
|
|
|
|
|
2012
|
|
|
|
8,750
|
|
|
|
4,558
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
13,308
|
|
|
|
2011
|
|
|
|
8,575
|
|
|
|
4,365
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
12,940
|
|
|
(a)
|
The dollar amounts in this column reflect Company-paid matches and contributions under our 401(k) and/or non-qualified deferred compensation plans.
None of the amounts paid as matches or contributions received preferential earnings or interest.
|
|
(b)
|
The dollar amounts in this column reflect spousal travel hosting on agent incentive trips.
|
|
(c)
|
All of the dollar amounts in this column reflect non-golf club membership dues.
|
|
(d)
|
The dollar amount in this column reflects certain legal expenses paid by the Company on behalf of Mr. Restrepo.
|
|
(e)
|
These dollar amounts reflect the income attributed to Mr. Restrepo as a result of the long term disability policy obtained by the Company to
address its disability obligation under his Employment Agreement ($28,992 in 2013, 2012 and 2011), and an amount to reimburse Mr. Restrepo for the income tax liability that he incurred as a result of such policy ($14,115, $13,927 and $16,702 in
2013, 2012 and 2011, respectively).
|
(6)
|
These dollar amounts include the grant date fair value of the restricted common shares awarded to Mr. Restrepo under our 2009 Equity Plan. The
grant date fair value of these restricted common shares was determined by multiplying the closing price of our Common Shares on the date of grant (13.53 and $17.03 for 2012 and 2011, respectively) by the number of restricted common shares granted.
|
48
Grants of Plan-Based Awards in 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Grant
Date
|
|
|
Non-Equity
Incentive
Plan
Number of
Units
(#)
|
|
|
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards
($)
|
|
|
All Other
Stock
Awards:
Number of
Shares of
Stock
or Units
(#)
|
|
All
Other
Option Awards:
Number of
Securities
Underlying
Options
(#)
|
|
|
Exercise or
Base Price
of Option
Awards
($/Sh)
|
|
|
Grant Date
Fair Value
of Stock
and
Option
Awards
($)
|
|
|
|
|
Threshold
($)
|
|
|
Target
($)
|
|
|
Maximum
($)
|
|
|
|
|
|
Robert P. Restrepo, Jr.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option award (1)
|
|
|
2-28-13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,252
|
|
|
|
16.80
|
|
|
|
683,876
|
|
LBP Company performance award (2)
|
|
|
2-28-13
|
|
|
|
|
|
|
|
48,204
|
|
|
|
482,040
|
|
|
|
964,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LBP individual performance award (3)
|
|
|
2-28-13
|
|
|
|
|
|
|
|
16,068
|
|
|
|
160,680
|
|
|
|
321,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAU award (4)
|
|
|
2-28-13
|
|
|
|
562,380
|
|
|
|
224,952
|
|
|
|
562,380
|
|
|
|
1,124,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven E. English:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option award (1)
|
|
|
2-28-13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,582
|
|
|
|
16.80
|
|
|
|
199,738
|
|
LBP Company performance award (2)
|
|
|
2-28-13
|
|
|
|
|
|
|
|
24,638
|
|
|
|
246,375
|
|
|
|
492,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LBP individual performance award (3)
|
|
|
2-28-13
|
|
|
|
|
|
|
|
8,213
|
|
|
|
82,125
|
|
|
|
164,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAU award (4)
|
|
|
2-28-13
|
|
|
|
164,250
|
|
|
|
65,700
|
|
|
|
164,250
|
|
|
|
328,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clyde H. Fitch:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option award (1)
|
|
|
2-28-13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,335
|
|
|
|
16.80
|
|
|
|
138,329
|
|
LBP Company performance award (2)
|
|
|
2-28-13
|
|
|
|
|
|
|
|
19,688
|
|
|
|
196,875
|
|
|
|
393,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LBP individual performance award (3)
|
|
|
2-28-13
|
|
|
|
|
|
|
|
6,563
|
|
|
|
65,625
|
|
|
|
131,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAU award (4)
|
|
|
2-28-13
|
|
|
|
113,750
|
|
|
|
45,500
|
|
|
|
113,750
|
|
|
|
227,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jessica E. Buss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option award (1)
|
|
|
2-28-13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,420
|
|
|
|
16.80
|
|
|
|
144,253
|
|
LBP Company performance award (2)
|
|
|
2-28-13
|
|
|
|
|
|
|
|
15,056
|
|
|
|
150,563
|
|
|
|
301,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LBP individual performance award (3)
|
|
|
2-28-13
|
|
|
|
|
|
|
|
5,019
|
|
|
|
50,188
|
|
|
|
100,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAU award (4)
|
|
|
2-28-13
|
|
|
|
118,625
|
|
|
|
47,450
|
|
|
|
118,625
|
|
|
|
237,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James A. Yano:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option award (1)
|
|
|
2-28-13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,335
|
|
|
|
16.80
|
|
|
|
138,329
|
|
LBP Company performance award (2)
|
|
|
2-28-13
|
|
|
|
|
|
|
|
14,438
|
|
|
|
144,375
|
|
|
|
288,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LBP individual performance award (3)
|
|
|
2-28-13
|
|
|
|
|
|
|
|
4,813
|
|
|
|
48,125
|
|
|
|
96,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAU award (4)
|
|
|
2-28-13
|
|
|
|
113,750
|
|
|
|
45,500
|
|
|
|
113,750
|
|
|
|
227,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
In 2013, all of our NEOs received options under our 2009 Equity Plan. The options shown in this column were granted on the date indicated, at the
closing price on that date, pursuant to action of the Compensation Committee at a meeting held on that day. These options vest in equal annual installments over a three-year period and are exercisable for a ten-year term. All of these options are
non-qualified stock options. The grant date fair value of these options was determined in accordance with ASC Topic 718. These options have not been re-priced or otherwise materially amended. For a further discussion of the 2009 Equity Plan, see
Executive Compensation Program ElementsLong-Term Equity and Cash Incentive Compensation.
|
(2)
|
In 2013, all of our NEOs participated in the LBP, an annual cash incentive bonus plan that has a Company performance component and an individual
performance component. For our NEOs, awards for the Company performance component of the LBP are based solely upon the achievement of certain Company performance measures established by the Compensation Committee at the beginning of a performance
year. The Company performance measures for our NEOs for 2013 were LBP Combined Ratio (or specialty insurance combined ratio in the case of Ms. Buss), return on equity and non-catastrophe loss ratio (or standard lines non-catastrophe loss ratio
and specialty insurance rate change in the case of Mr. Fitch and Ms. Buss, respectively). The actual payments made to each NEO for the Company performance component
|
49
|
of the LBP for 2013 are reported in the Summary Compensation Table in the Non-Equity Incentive Plan Compensation column and the footnotes thereto. For a further discussion of the Company
performance component of the LBP, see Executive Compensation Program ElementsShort-Term Incentive CompensationLeadership Bonus Plan Bonuses.
|
(3)
|
For our NEOs, awards for the individual performance component of the LBP are based on the attainment of individual performance goals for a
performance year. Our Compensation Committee, with input from the Board of Directors and the State Auto Mutual Board, establishes the individual performance goals for the CEO. The CEO establishes the individual performance goals for the other NEOs.
The actual payments made to each NEO for the individual performance component of the LBP for 2013 are reported in the Summary Compensation Table in the Non-Equity Incentive Plan Compensation column and the footnotes thereto. For a further discussion
of the individual performance component of the LBP, see Executive Compensation Program ElementsShort-Term Incentive CompensationLeadership Bonus Plan Bonuses.
|
(4)
|
In 2013, all of our NEOs were selected to participate in the LTIP, a cash incentive bonus plan, for the performance period beginning January 1,
2013 and ending December 31, 2015. Under the LTIP, the NEOs receive performance award units, or PAUs, the value of which is determined by our Companys performance in three equally weighted measuresdirect, statutory
combined ratio for the State Auto Group, the State Auto Groups direct written premium growth and the State Auto Groups surplus growthin comparison to the LTIP Peer Group over the three-year performance period. PAUs are granted with
a target value of $1.00, although the final value of each PAU can range from $0.00 to $2.00. For a further discussion of the LTIP, see Executive Compensation Program ElementsLong-Term Equity and Cash Incentive Compensation.
|
50
Outstanding Equity Awards at Fiscal 2013 Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options (#)(1)
Unexercisable
|
|
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
(2)
|
|
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)*
|
|
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
That
Have Not
Vested
(#)
|
|
Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units
or
Other
Rights
That
Have Not
Vested
($)
|
Robert P. Restrepo, Jr.
|
|
|
30,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
31.94
|
|
|
|
3/1/16
|
|
|
|
38,233
|
|
|
|
812,069
|
|
|
|
|
|
|
|
|
23,012
|
|
|
|
0
|
|
|
|
0
|
|
|
|
29.53
|
|
|
|
5/2/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,624
|
|
|
|
0
|
|
|
|
0
|
|
|
|
25.81
|
|
|
|
3/5/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,088
|
|
|
|
0
|
|
|
|
0
|
|
|
|
14.49
|
|
|
|
3/4/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,015
|
|
|
|
0
|
|
|
|
0
|
|
|
|
18.78
|
|
|
|
3/3/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,436
|
|
|
|
17,454
|
|
|
|
0
|
|
|
|
17.03
|
|
|
|
3/2/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,352
|
|
|
|
62,705
|
|
|
|
0
|
|
|
|
13.53
|
|
|
|
2/28/22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
125,252
|
|
|
|
0
|
|
|
|
16.80
|
|
|
|
2/27/23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven E. English
|
|
|
2,500
|
|
|
|
0
|
|
|
|
0
|
|
|
|
30.86
|
|
|
|
5/26/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,252
|
|
|
|
0
|
|
|
|
0
|
|
|
|
30.75
|
|
|
|
5/31/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
0
|
|
|
|
0
|
|
|
|
26.45
|
|
|
|
5/9/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,300
|
|
|
|
0
|
|
|
|
0
|
|
|
|
33.50
|
|
|
|
5/16/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,910
|
|
|
|
0
|
|
|
|
0
|
|
|
|
29.53
|
|
|
|
5/2/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,834
|
|
|
|
0
|
|
|
|
0
|
|
|
|
25.81
|
|
|
|
3/5/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,025
|
|
|
|
0
|
|
|
|
0
|
|
|
|
14.49
|
|
|
|
3/4/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,601
|
|
|
|
0
|
|
|
|
0
|
|
|
|
18.78
|
|
|
|
3/3/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,603
|
|
|
|
7,193
|
|
|
|
0
|
|
|
|
17.03
|
|
|
|
3/2/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,491
|
|
|
|
10,982
|
|
|
|
0
|
|
|
|
13.53
|
|
|
|
2/28/22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
36,582
|
|
|
|
0
|
|
|
|
16.80
|
|
|
|
2/27/23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clyde H. Fitch
|
|
|
18,850
|
|
|
|
0
|
|
|
|
0
|
|
|
|
25.72
|
|
|
|
11/4/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,834
|
|
|
|
0
|
|
|
|
0
|
|
|
|
25.81
|
|
|
|
3/5/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,994
|
|
|
|
0
|
|
|
|
0
|
|
|
|
14.49
|
|
|
|
3/4/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,351
|
|
|
|
0
|
|
|
|
0
|
|
|
|
18.78
|
|
|
|
3/3/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,460
|
|
|
|
10,596
|
|
|
|
0
|
|
|
|
17.03
|
|
|
|
3/2/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,615
|
|
|
|
3,807
|
|
|
|
0
|
|
|
|
13.53
|
|
|
|
2/28/22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
25,335
|
|
|
|
0
|
|
|
|
16.80
|
|
|
|
2/27/23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jessica E. Buss
|
|
|
8,610
|
|
|
|
4,240
|
|
|
|
0
|
|
|
|
17.03
|
|
|
|
3/2/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,047
|
|
|
|
6,094
|
|
|
|
0
|
|
|
|
13.53
|
|
|
|
2/28/22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
26,420
|
|
|
|
0
|
|
|
|
16.80
|
|
|
|
2/27/23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James A. Yano
|
|
|
5,682
|
|
|
|
0
|
|
|
|
0
|
|
|
|
29.53
|
|
|
|
5/2/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,527
|
|
|
|
0
|
|
|
|
0
|
|
|
|
25.81
|
|
|
|
3/5/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,929
|
|
|
|
0
|
|
|
|
0
|
|
|
|
14.49
|
|
|
|
3/4/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,322
|
|
|
|
0
|
|
|
|
0
|
|
|
|
18.78
|
|
|
|
3/3/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,789
|
|
|
|
3,836
|
|
|
|
0
|
|
|
|
17.03
|
|
|
|
3/2/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,756
|
|
|
|
5,513
|
|
|
|
0
|
|
|
|
13.53
|
|
|
|
2/28/22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
25,335
|
|
|
|
0
|
|
|
|
16.80
|
|
|
|
2/27/23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
The closing price of our Common Shares on December 31, 2013 was $21.24.
|
(1)
|
All options listed in this table are exercisable for a ten-year period from their respective date of grant. The following schedule describes the
vesting dates for the options listed as unexercisable by date of grant:
|
|
|
|
Options expiring March 2, 2021 were granted on March 3, 2011. These options vest in equal annual installments over a three-year period.
All of these options will fully vest as of March 3, 2014.
|
|
|
|
Options expiring February 28, 2022 were granted on March 1, 2012. These options vest in equal annual installments over a three-year
period. All of these options will fully vest as of March 1, 2015.
|
51
|
|
|
Options expiring February 27, 2023 were granted on February 28, 2013. These options vest in equal annual installments over a three-year
period. All of these options will fully vest as of February 28, 2016.
|
(2)
|
All restricted common shares listed in this table vest on the third anniversary of the date of grant. Accordingly, 16,707 of such shares vested on
March 3, 2014 and 21,526 of such shares will vest on March 1, 2015.
|
Option
Exercises and Stock Vested in Fiscal 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Option Awards
|
|
|
Stock Awards(1)
|
|
|
Number of Shares
Acquired on Exercise
(#)
|
|
|
Value Realized
on Exercise
($)
|
|
|
Number of Shares
Acquired on Vesting
(#)
|
|
|
Value Realized
on Exercise
($)
|
|
Robert P. Restrepo, Jr.
|
|
|
0
|
|
|
|
|
|
|
|
16,707
|
|
|
|
333,806
|
|
Steven E. English
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
Clyde H. Fitch
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
Jessica E. Buss
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
James A. Yano
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
(1)
|
Mr. Restrepo surrendered 5,560 of these Common Shares to pay the tax obligations he incurred in connection with the vesting of the 16,707
shares of restricted stock. Mr. Restrepo has not sold the remaining Common Shares that he acquired upon the vesting of the restricted stock as such Common Shares are subject to a one-year holding requirement following the vesting date.
|
Retirement Plans
Retirement Plan
We maintain a defined benefit
pension plan, referred to as our Retirement Plan. The Retirement Plan is intended to be a qualified plan under Section 401(a) of the Code and is subject to the minimum funding standards of Section 412 of the Code. All of our
current NEOs and other employees hired before January 1, 2010 are eligible to participate in the Retirement Plan. Benefits payable under the Retirement Plan are funded entirely through Company contributions to a trust fund. Only base
salary, not incentive compensation, is taken into consideration in the calculation of benefits under our Retirement Plan.
Supplemental Executive Retirement Plans
Our SERP, which mirrors the Retirement Plan, provides a lump sum or deferred cash payments in actuarially determined
amounts upon retirement for certain officers. Like the Retirement Plan, the SERP considers only base salary, not incentive compensation, in calculating the benefit due each participant. The Committee previously approved participation in this SERP
for all NEOs. Executives are now automatically enrolled in the SERP when his or her annual base salary exceeds the limit that can be considered in calculating benefits under the Retirement Plan.
In addition to the standard SERP discussed above, we have entered into an individual SERP agreement with
Mr. Restrepo to offset the impact of the relatively shorter duration of employment available to him at our Company. We have a mandatory retirement age of 65 for certain officers. Mr. Restrepo is currently 63 and has been an employee for
eight years. The Retirement Plan and the standard SERP, discussed above, both use a career average plan formula for benefit determinations. Under those plans, an employees period of service has a significant impact on the amount of retirement
benefits they would be eligible to receive. As a result, our regular plans may inhibit our ability to attract mid-career executives who would not have the same opportunity to earn benefits comparable to other employees. For this reason, the
Committee approved the individual SERP agreements for Mr. Restrepo. (See Employment Agreements with Named Executive Officers on page 55 of this Proxy Statement.)
52
Pension Benefits in Fiscal 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Plan Name
|
|
Number of Years
Credited Service
(#)
|
|
|
Present Value
of Accumulated
Benefit ($) (1)
|
|
|
Payments During Last
Fiscal Year
($)
|
|
Robert P. Restrepo, Jr.
|
|
Retirement Plan
|
|
|
8
|
|
|
|
82,384
|
|
|
|
0
|
|
|
|
SERP
|
|
|
8
|
|
|
|
184,216
|
|
|
|
0
|
|
|
|
Individual SERP
|
|
|
8
|
|
|
|
314,547
|
|
|
|
0
|
|
|
|
|
|
|
Steven E. English
|
|
Retirement Plan
|
|
|
13
|
(2)
|
|
|
30,204
|
|
|
|
0
|
|
|
|
SERP
|
|
|
13
|
(2)
|
|
|
31,321
|
|
|
|
0
|
|
|
|
|
|
|
Clyde H. Fitch
|
|
Retirement Plan
|
|
|
6
|
|
|
|
72,579
|
|
|
|
0
|
|
|
|
SERP
|
|
|
6
|
|
|
|
26,341
|
|
|
|
0
|
|
Jessica E. Buss (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James A. Yano
|
|
Retirement Plan
|
|
|
7
|
|
|
|
69,369
|
|
|
|
0
|
|
|
|
SERP
|
|
|
7
|
|
|
|
19,043
|
|
|
|
0
|
|
(1)
|
The amounts shown in this column represent the present value of the normal retirement benefit each NEO would receive under the Retirement Plan, SERP
and individual supplemental executive retirement plans if the NEO were to retire at his normal retirement age. Normal retirement age under the plans is defined as attaining age 65. The normal retirement benefit is equal to the sum of (i) 1.75%
of a participants covered compensation multiplied by the participants years of service, plus (ii) 0.65% of a participants covered compensation multiplied by the participants years of service. The normal form
of benefit is a single life annuity; however, participants may elect a joint and survivor annuity with a survivor benefit of up to 100% of the participants benefit. A participant who elects a joint and survivor annuity receives a reduced
annual benefit, with a joint and 100% survivor annuity providing the smallest annual benefit. Participants who have attained age 55 with 15 years of service may receive an early retirement benefit under the plans. The early retirement benefit for a
participant is reduced by 5% for each year prior to age 65 for a participant who terminates between ages 55 and 59, and 4% for each year prior to age 65 for a participant who terminates between ages 60 and 65. If a participant were to retire at age
55, their normal retirement benefit would be reduced by 45%. As of December 31, 2013, no NEOs were eligible for early retirement benefits under the plans. Participants may elect to receive up to 50% of their benefits in a lump-sum upon their
retirement.
|
(2)
|
Includes Mr. Englishs one year of service with Meridian Insurance Group, Inc. (MIGI). Mr. English was previously an
executive officer with MIGI, which was acquired by State Auto Mutual in 2001. Following this acquisition, Mr. English became our employee, and for purposes of the Retirement Plan, he was given credit for his one year of eligible service with
MIGI (total actuarial value of $25,742 within the Retirement Plan and $13,989 within the SERP).
|
(3)
|
Ms. Buss is not eligible to participate in the Retirement Plan or SERP and is not a party to an individual supplemental executive retirement
plan.
|
Deferred Compensation Plans
Defined Contribution Plan/401(k) Plan
Our defined contribution plan, which we refer to as the Retirement Savings Plan or RSP, is
intended to be a qualified plan under Sections 401(a) and 401(k) of the Code. Participation in the RSP is available on the same terms to all of our employees, including our NEOs. Each participant may elect to contribute from 1% to 50% of his or her
base salary to the RSP. The deferred amount is contributed to the RSP trust fund and invested in accordance with the election of the participant from among investment funds established under the trust agreement. Investment options include Common
Shares, but only up to 20% of new contributions and the total account balance may be invested in Common Shares. None of our NEOs made this election.
53
The Company may make a discretionary matching contribution of 100% of each
participants RSP contributions for the first 1% of base salary, plus 50% of each participants RSP contribution between 2% and 6% of base salary, subject to an annual maximum of $16,500. This equates to a Company contribution in the RSP
of 58 cents for each salary dollar contributed by an employee who contributed a full 6% of salary to RSP. While a participant is always vested in his or her own salary reduction contributions, the right of a participant to amounts credited to his or
her account as matching contributions is subject to vesting as provided by the 401(k) Plan.
In 2010, all of
our employees hired before January 1, 2010, including our NEOs, made an election to either (i) continue participating in the Retirement Plan and RSP on the terms discussed above or (ii) cease participating in the Retirement Plan as of
June 30, 2010 in favor of participating in an expanded benefit under the RSP beginning on July 1, 2010, pursuant to which the Company would annually contribute to the RSP an amount equal to 5% of their annual base salary until the
termination of their employment with the Company. If an employee elected to participate in the expanded RSP benefit, they would continue to be eligible to receive upon retirement their accrued benefit under the Retirement Plan as of June 30,
2010.
Non-Qualified Deferred Compensation Plan/Supplemental 401(k) Plan
Our Non-Qualified Deferred Compensation Plan, which we refer to as our Shadow Plan, is a non-qualified,
unfunded deferred compensation plan for eligible key employees. Eligible employees include those who are precluded by regulatory limitations from contributing a full 6% of salary to the RSP or who choose to defer a portion of their salary beyond the
amount matched by the RSP. Under the Shadow Plan, eligible employees who wish to participate enter into a salary reduction agreement to defer payment of an additional portion of the employees salary. Each employee who is eligible to
participate in the Shadow Plan is credited annually with his or her allocable share of Company matching contributions on the same basis that contributions are matched under the RSP, provided that no more than 6% of any employees base salary is
subject to being matched in the aggregate under the RSP and the Shadow Plan.
The total amount of salary
deferred under the RSP and the Shadow Plan cannot exceed in the aggregate 50% of a participants base salary. The Shadow Plan also allows participants to defer up to 100% of short-term and long-term incentive compensation, although bonuses
remain ineligible for a Company match. Amounts deferred under the Shadow Plan, along with the Company match on any portion of salary deferral eligible for the match, are invested by State Auto P&C in a variety of mutual fund-type investment
options in accordance with the election of the participants, which the participants may modify on a daily basis. Participants may choose from a variety of mutual fund-type investment options, and elect a five or ten-year payout option or a
date-certain distribution option for withdrawal of funds from the Plan. Neither the Shadow Plan nor the RSP provides for above market or preferential earnings opportunities for any participant.
Nonqualified Deferred Compensation for Fiscal 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Executive
Contributions
in Last Fiscal
Year
($)(1)(2)
|
|
|
Registrant
Contributions in
Last
Fiscal Year
($)(1)(3)
|
|
|
Aggregate Earnings
in Last Fiscal Year
($)(4)
|
|
|
Aggregate
Withdrawals/
Distributions
($)
|
|
|
Aggregate
Balance at
Last
Fiscal
Year-End
($)
|
|
Robert P. Restrepo, Jr.
|
|
|
35,073
|
|
|
|
19,037
|
|
|
|
99,694
|
|
|
|
0
|
|
|
|
529,747
|
|
Steven E. English
|
|
|
0
|
|
|
|
0
|
|
|
|
(7
|
)
|
|
|
0
|
|
|
|
577,400
|
|
Clyde H. Fitch
|
|
|
0
|
|
|
|
0
|
|
|
|
2,694
|
|
|
|
0
|
|
|
|
25,217
|
|
Jessica E. Buss
|
|
|
5,392
|
|
|
|
0
|
|
|
|
2,585
|
|
|
|
0
|
|
|
|
19,481
|
|
James A. Yano
|
|
|
0
|
|
|
|
0
|
|
|
|
6,134
|
|
|
|
0
|
|
|
|
26,306
|
|
(1)
|
Contributions by the NEO or by us, as the case may be, were made pursuant to the State Auto Property & Casualty Insurance Companys
Amended and Restated Incentive Deferred Compensation Plan, referred to as our Shadow Plan.
|
54
(2)
|
The dollar amounts shown in this column are included in the Salary column in the Summary Compensation Table.
|
(3)
|
The dollar amounts shown in this column are included in the All Other Compensation column in the Summary Compensation Table and are
discussed in the footnotes thereto.
|
(4)
|
The dollar amounts shown in this column reflect the total earnings on dollars deposited into the NEOs account in 2013 and all prior years for
which the NEO deferred compensation on a non-qualified basis. Earnings are not preferential, in any sense. The dollars in these accounts are invested in investment funds that mirror the investment funds offered to participants in our RSP.
|
Employment Agreements with Named Executive Officers
Restrepo Employment Agreement
We entered into a new employment agreement with Robert P. Restrepo, Jr., our Chairman, President and Chief Executive Officer, on December 22, 2011. The employment agreement has a four-year term
ending on December 31, 2015, unless terminated earlier due to Mr. Restrepos disability, death, voluntary termination of employment, or involuntary termination of employment by the Company for cause or without cause.
Mr. Restrepos retirement from the Company, whether initiated by Mr. Restrepo or mandatory, will be treated as his voluntary termination of employment.
Under his employment agreement, Mr. Restrepo receives an annual base salary and is entitled to participate in the
LBP, the QPB (for so long as the Company continues to offer the QPB to its executives), the LTIP, any Company employee stock purchase plan, the Retirement Plan, the RSP, the SERP, the Restrepo SERP (as defined below) and the 2009 Equity Plan, and is
eligible to participate in all other incentive compensation plans, stock purchase plans, retirement plans, equity-based compensation plans and fringe benefits generally made available to executives of the Company. The employment agreement further
provides that unless Mr. Restrepo otherwise agrees (i) his annual base salary shall not be less than $780,000, (ii) his target bonus under the LBP shall not be less than 75% of his then-current annual base salary and (iii) his
potential bonus compensation under the LBP shall not be less than his potential bonus compensation under the LBP as of December 22, 2011. The compensation paid to Mr. Restrepo in 2011, 2012 and 2013 is set forth in the Summary
Compensation Table on page 46 of this Proxy Statement.
Mr. Restrepos employment agreement
also imposes post-employment covenants that prohibit Mr. Restrepo from disclosing or using our confidential information, engaging in activities which compete with our businesses and soliciting our employees to work for another company. The
obligations imposed by the non-competition and non-solicitation covenants will continue for a period of two years following Mr. Restrepos separation of service with the Company, provided, that the non-competition obligations will only
continue for a period of one year if Mr. Restrepos separation from service with the Company is voluntary.
The severance and separation benefits provided to Mr. Restrepo under his employment agreement upon the occurrence of certain termination events are described below under Potential Payments Upon
Termination or Change in ControlRestrepo Employment Agreement. Mr. Restrepo may be required to repay all or any part of such severance and separation benefits if:
|
|
|
Mr. Restrepo violates any of the non-competition, non-solicitation or confidentiality covenants applicable to Mr. Restrepo;
|
|
|
|
(i) the amount of such benefits are calculated based upon the achievement of certain financial results that are subsequently the subject of a
financial statement restatement by the Company; (ii) Mr. Restrepo engages in conduct detrimental to the Company that causes or substantially contributes to the need for the financial statement restatement; and (iii) the amount of his
severance and separation benefits would have been lower than the amount actually awarded to him had the financial results been properly reported; or
|
55
|
|
|
Mr. Restrepo engages in (i) any conduct detrimental to the Company during the employment term which has a material adverse effect on the
Company or (ii) any fraudulent conduct.
|
Mr. Restrepo is also eligible to
participate in an individual Supplemental Executive Retirement Plan established for him by the Company (the Restrepo SERP). The Restrepo SERP generally provides Mr. Restrepo with supplemental retirement benefits to the extent
necessary to cause his aggregate retirement benefits to equal 50% of his average total cash compensation during his final three years of employment by the Company; provided, however, that the benefits payable pursuant to the Restrepo SERP will be
proportionately reduced if Mr. Restrepo has less than 20 years of service with the Company at retirement. The Company has a mandatory retirement age of 65 for executive officers, and Mr. Restrepo was age 55 when he began his employment
with the Company. As a result, Mr. Restrepo will have no more than 10 years of service with the Company when he reaches mandatory retirement age, which will reduce the benefits payable pursuant to the Restrepo SERP accordingly.
Change of Control Agreements with Named Executive Officers
We entered into a new change in control agreement, which we refer to as executive agreements, with each of our
NEOs in 2011. The terms of each executive agreement were the result of arms length negotiations between the Committee and the executive. Each of the executive agreements define a Change of Control to include the following:
|
|
|
any person becomes the direct or indirect owner of 30% or more of the combined voting power of the Companys then outstanding securities,
except for acquisitions by the Company or certain of its affiliates or by any employee benefit plan maintained by the Company or certain of its affiliates;
|
|
|
|
a majority of the Board is comprised of other than continuing directors;
|
|
|
|
any event or transaction occurs that the Company would be required to report as a change in control under Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Exchange Act;
|
|
|
|
a merger or consolidation of the Company, other than a merger or consolidation in which the voting securities of the Company immediately prior to
the merger or consolidation continue to represent more than 50% of the combined voting power of the Company or surviving entity immediately after the merger or consolidation with another entity;
|
|
|
|
a sale, exchange, lease, mortgage, pledge, transfer or other disposition of all or substantially all of the assets of the Company (including the
sale of assets or earning power aggregating more than 50% of the assets or earning power of the Company on a consolidated basis);
|
|
|
|
a reorganization, reverse stock split, or recapitalization of the Company which would result in any of the foregoing; and
|
|
|
|
State Auto Mutual affiliates with or is merged into or consolidated with a third party or completes a conversion to a stock insurance company and,
as a result, a majority of the Board of Directors of State Auto Mutual or its successor is comprised of other than continuing directors.
|
Restrepo Executive Agreement
We entered into a new
executive agreement with Mr. Restrepo on December 22, 2011 contemporaneously with our entry into his new employment agreement. The term of Mr. Restrepos executive agreement coincides with the term of his employment agreement,
subject to an extension for 36 months after any month in which a Change of Control occurs. Mr. Restrepos executive agreement will terminate if his employment terminates prior to a Change of Control unless the termination occurs in the
event of a pending Change of Control event.
56
We will provide certain severance benefits to Mr. Restrepo under his
executive agreement if Mr. Restrepo incurs a separation of service (as defined by Section 409A of the Code) during the term of his executive agreement:
|
|
|
by us at any time within 24 months after a Change of Control;
|
|
|
|
by Mr. Restrepo for good reason (as defined in the executive agreement) at any time within 24 months after a Change of Control; or
|
|
|
|
by us at any time after an agreement has been reached with an unaffiliated third party, the performance of which would result in a Change of Control
involving that party, if such Change of Control is consummated within 12 months after the date of Mr. Restrepos termination.
|
The severance and separation benefits provided to Mr. Restrepo under his executive agreement are described below under Potential Payments Upon Termination or Change in ControlRestrepo
Executive Agreement.
Mr. Restrepos executive agreement also provides that, for a period of
five years after the earlier to occur of a Change in Control or a separation of service, we would provide Mr. Restrepo with coverage under a standard directors and officers liability insurance policy at our expense. Furthermore, we
will indemnify and hold harmless Mr. Restrepo to the fullest extent permitted under Ohio law if he is made a party to any proceeding by reason of having served as our director, officer or employee.
English, Fitch, Buss and Yano Executive Agreements
We also entered into new executive change of control agreements in 2011 with certain of our other executive officers,
including Mr. English, Mr. Fitch, Ms. Buss and Mr. Yano. The executive agreements of Mr. English, Mr. Fitch, Ms. Buss and Mr. Yano were effective October 28, 2011 for a three-year term. If a Change of
Control occurs during the three-year period, the term of the executive agreement will automatically extend until the earlier to occur of the 36-month anniversary of the date of the Change of Control or the date on which the executive reaches age 65.
The executive agreement will terminate if the executives employment terminates prior to a Change of Control.
We will provide certain severance benefits to the executive under the executive agreement if during the term of his or her executive agreement the executives employment is terminated:
|
|
|
by us at any time within 24 months after a Change of Control (for any reason other than for cause, the death or disability of the executive or his
mandatory retirement at age 65);
|
|
|
|
by the executive for good reason (as defined in the executive agreement) at any time within 24 months after a Change of Control; or
|
|
|
|
by us at any time after an agreement has been reached with an unaffiliated third party, the performance of which would result in a Change of Control
involving that party, if such Change of Control is actually consummated within 12 months after the date of the executives termination.
|
The severance and separation benefits provided to each of our other executives under his executive agreement are described below under Potential Payments Upon Termination or Change in
ControlEnglish, Fitch, Buss and Yano Executive Agreements.
These executive agreements prohibit
the executive from disclosing or using our confidential information. The Board may require the executive to repay all or any portion of the severance benefits if:
|
|
|
the executive violates any of the non-competition, non-solicitation or confidentiality covenants applicable to the executive;
|
57
|
|
|
(i) the amount of such benefits are calculated based upon the achievement of certain financial results that are subsequently the subject of a
financial statement restatement by the Company; (ii) the executive engages in conduct detrimental to the Company that causes or substantially contributes to the need for the financial statement restatement; and (iii) the amount of his or
her severance and separation benefits would have been lower than the amount actually awarded to him had the financial results been properly reported; or
|
|
|
|
the executive engages in (i) any conduct detrimental to the Company during the employment term which has a material adverse effect on the
Company or (ii) any fraudulent conduct.
|
These executive agreements also provide that,
for a period of five years after a Change of Control, we will provide the executive with coverage under a standard directors and officers liability insurance policy at our expense. Furthermore, we will indemnify and hold harmless the
executive to the fullest extent permitted under Ohio law if he or she is made a party to any proceeding by reason of having served as our director, officer or employee.
Potential Payments Upon Termination or Change in Control
Restrepo Employment Agreement
Mr. Restrepos employment agreement provides him with the following severance and separation benefits under the
following termination events:
Termination for Cause
. If Mr. Restrepo is terminated for cause, he
would be entitled to receive his base salary through the date of termination plus any compensation to which he would have been entitled under the LBP, QPB and LTIP as then in effect. Mr. Restrepos employment agreement defines cause
as:
|
|
|
the willful and continued failure of the executive to perform the executives duties (other than any such failure resulting from incapacity due
to a disability), after a written demand for performance is delivered to the executive which specifically identifies the manner in which the executive has not performed the executives duties;
|
|
|
|
the willful engaging by the executive in illegal conduct or gross misconduct which has a material adverse effect on the Company;
|
|
|
|
the breach of any of the confidentiality, non-competition or non-solicitation covenants imposed by the employment agreement; or
|
|
|
|
the willful failure by the executive to comply with any code of conduct or code of ethics applicable to the executive.
|
For purposes of the definition of cause, no act or failure to act, on the part of the executive, will be considered
willful unless it is done, or omitted to be done, by the executive in bad faith or without reasonable belief that the executives action or omission was in the best interests of the Company.
Termination Without Cause
. If Mr. Restrepo is terminated without cause (other than in the event of his death,
disability or retirement), he would be entitled to receive:
|
|
|
his then-current base salary for the lesser of 24 months or until December 31, 2015;
|
|
|
|
a one-year bonus payment equal to the average of the aggregate bonuses Mr. Restrepo earned under the QPB, LBP and LTIP for the two years
immediately preceding the year in which the employment agreement is terminated; and
|
|
|
|
an amount equal to the then current monthly per employee cost of providing State Autos health insurance benefit multiplied by the lesser of 24
or the number of months from the date of termination until December 31, 2015.
|
58
In addition, if Mr. Restrepo is terminated without cause, any stock
options granted to Mr. Restrepo shall vest on the termination date.
Death
. In the event
Mr. Restrepo dies while employed by State Auto, his beneficiaries will receive his then-current base salary for the lesser of 12 months or until December 31, 2015 plus a pro rata share of the compensation he earned under the QPB, LBP and
LTIP as of the date of death.
Disability
. If Mr. Restrepo becomes disabled for more than six
consecutive months in any 12-month period, the Company may terminate Mr. Restrepos employment. In the event of a termination for disability, Mr. Restrepo would be entitled to receive his base salary and payments under our incentive
compensation plans to the date of termination. After the date of termination, he would be entitled to receive 80% of his then-current base salary, less any disability benefits received from any of State Autos long-term disability benefit
plans, until the earlier to occur of the end of the period of his disability or December 31, 2015. In addition, Mr. Restrepo shall continue to receive such health insurance benefits as he and his spouse receive on the date of the
disability and such group life insurance as Mr. Restrepo has in place on his life as of the date of the disability.
Voluntary Termination
. If Mr. Restrepo voluntarily terminates his employment, including retirement initiated solely by Mr. Restrepo and mandatory retirement on December 31, 2015, he
shall cease to receive compensation as of the date of his separation from service, except for any compensation to which he is entitled under the QPB, LBP or LTIP as then in effect, provided, that he is employed by State Auto on the date such
compensation is paid under the QPB, LBP or LTIP.
Restrepo Executive Agreement
We will provide the following severance benefits (in addition to accrued compensation, bonuses and vested benefits and
stock options) to Mr. Restrepo under his executive agreement if his employment with State Auto is terminated during the term of his executive agreement under the circumstances set forth above under Change of Control Agreements with Named
Executive OfficersRestrepo Executive Agreement:
|
|
|
a lump sum cash payment equal to 2.99 times Mr. Restrepos then-current annual base salary (subject to reduction if Mr. Restrepo is
within two years of mandatory retirement on December 31, 2015);
|
|
|
|
a lump sum cash payment equal to 2.99 times the sum of (i) the average of the annual aggregate bonuses Mr. Restrepo earned under the LBP
for the two years immediately preceding the year in which the Change of Control occurs and (ii) the total bonus payable to Mr. Restrepo under the QPB during the year immediately preceding the year in which the Change of Control occurs
(subject to reduction if Mr. Restrepo is within two years of mandatory retirement on December 31, 2015);
|
|
|
|
an amount equal to the then current monthly per employee cost of providing the Companys health insurance benefit multiplied by the lesser of
24 or the number of months from the date of termination until December 31, 2015;
|
|
|
|
life and accidental death and dismemberment insurance coverage and disability insurance coverage (other than payment of income replacement benefits)
for a two-year period commencing on the date of termination or until December 31, 2015, whichever is earlier;
|
|
|
|
retirement benefits in an amount equal to
the excess of
(i) the retirement benefits that would be payable to Mr. Restrepo or his
beneficiaries, under the defined benefit retirement plans in which Mr. Restrepo participates (including the SERP and the Restrepo SERP) if (A) the terms of such plans were those most favorable to Mr. Restrepo and
(B) Mr. Restrepos highest average annual compensation as defined under such defined benefit retirement plans
over
(ii) the retirement benefits that are payable to Mr. Restrepo or Mr. Restrepos
beneficiaries under such defined benefit retirement plans in which Mr. Restrepo participates;
|
59
|
|
|
outplacement benefits up to a maximum amount equal to 15% of Mr. Restrepos annual base salary plus up to $5,000 to reimburse
Mr. Restrepo for travel expenses he incurs in connection with seeking new employment; and
|
|
|
|
stock options or other equity-based awards held by Mr. Restrepo become exercisable in accordance with the applicable terms of the equity
compensation plans and award agreements.
|
Mr. Restrepos executive agreement also
provides that State Auto will pay Mr. Restrepo such amounts as would be necessary to compensate him for any excise tax paid or incurred due to any severance payment or other benefit provided under his executive agreement. However, if
Mr. Restrepos severance payments and benefits would not be subject to excise tax if the total of such payments and benefits were reduced by 10% or less, then such payments and benefits would be reduced by the minimum amount necessary (not
to exceed 10% of such payments and benefits) so that we would not have to pay an excess severance payment and Mr. Restrepo would not be subject to an excise tax.
English, Fitch, Buss and Yano Executive Agreements
We will provide the following severance benefits (in addition to accrued compensation and bonuses) to the Executive under
his executive agreement if his employment with the Company is terminated during the term of his executive agreement under the circumstances set forth above under Change of Control Agreements with Named Executive OfficersEnglish, Fitch,
Buss and Yano Executive Agreements.
|
|
|
a lump sum cash payment equal to two times the executives annual base salary (subject to reduction if the executive is within two years of age
65);
|
|
|
|
a lump sum cash payment equal to two times the average of the annual aggregate bonus earned by the executive under each of the LBP and QPB during
the two fiscal years immediately preceding the year in which the Change of Control occurs (subject to reduction if the executive is within two years of age 65);
|
|
|
|
outplacement benefits up to a maximum amount equal to 15% of the executives annual base salary plus up to $5,000 to reimburse the executive
for travel expenses he incurs in connection with seeking new employment;
|
|
|
|
stock options held by the executive become exercisable; and
|
|
|
|
an amount equal to the then current monthly per employee cost of providing the Companys health insurance benefit multiplied by 24.
|
These executive agreements also provide that State Auto will pay the executive such amounts
as would be necessary to compensate him for any excise tax paid or incurred due to any severance payment or other benefit provided under his executive agreement. However, if the executives severance payments and benefits would not be subject
to excise tax if the total of such payments and benefits were reduced by 10% or less, then such payments and benefits would be reduced by the minimum amount necessary (not to exceed 10% of such payments and benefits) so that we would not have to pay
an excess severance payment and the executive would not be subject to an excise tax.
60
The following table summarizes the potential payments to NEOs upon a
termination of employment and/or a change in control of the Company (assuming that the triggering event occurred on December 31, 2013):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Benefit (1)
|
|
|
Termination
Without
Cause (2)
|
|
|
Termination
For Cause or
Voluntary
Termination
|
|
|
Death
|
|
|
Disability
|
|
|
After
Change
in Control
|
|
Robert P. Restrepo, Jr.
|
|
|
Salary
|
|
|
$
|
1,606,800
|
(3)
|
|
$
|
-0-
|
|
|
$
|
803,400
|
(4)
|
|
$
|
377,520
|
(5)
|
|
$
|
2,402,166
|
(6)
|
|
|
|
Cash Bonus (7)
|
|
|
$
|
1,775,127
|
(8)
|
|
$
|
1,270,544
|
(9)
|
|
$
|
1,270,544
|
(9)
|
|
$
|
1,270,544
|
(9)
|
|
$
|
571,921
|
(10)
|
|
|
|
Stock Options
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
|
|
Restricted Stock
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
812,069
|
(11)
|
|
|
|
Health Benefits
|
|
|
$
|
12,864
|
(12)
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
73,072
|
(13)
|
|
$
|
12,864
|
(12)
|
|
|
|
Group Life; Disability
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
604,038
|
(14)
|
|
$
|
9,872
|
(15)
|
|
|
|
Outplacement Assistance
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
125,510
|
(16)
|
|
|
|
Retirement
|
|
|
$
|
3,623,670
|
(17)
|
|
$
|
3,623,670
|
(17)
|
|
$
|
3,623,670
|
(17)
|
|
$
|
3,623,670
|
(17)
|
|
$
|
3,623,670
|
(17)
|
|
|
|
TOTAL:
|
|
|
$
|
7,018,461
|
|
|
$
|
4,894,214
|
|
|
$
|
5,697,614
|
|
|
$
|
5,948,844
|
|
|
$
|
7,558,072
|
(17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven E. English
|
|
|
Salary
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
876,000
|
(18)
|
|
|
|
Cash Bonus (19)
|
|
|
$
|
678,545
|
(9)
|
|
$
|
678,545
|
(9)
|
|
$
|
678,545
|
(9)
|
|
$
|
678,545
|
(9)
|
|
$
|
302,880
|
(20)
|
|
|
|
Stock Options
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
|
|
Health Benefits
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
12,864
|
(12)
|
|
|
|
Outplacement assistance
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
70,700
|
(16)
|
|
|
|
Retirement
|
|
|
$
|
499,859
|
(17)
|
|
$
|
499,859
|
(17)
|
|
$
|
499,859
|
(17)
|
|
$
|
499,859
|
(17)
|
|
$
|
499,859
|
(17)
|
|
|
|
TOTAL:
|
|
|
$
|
1,178,404
|
|
|
$
|
1,178,404
|
|
|
$
|
1,178,404
|
|
|
$
|
1,178,404
|
|
|
$
|
1,762,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clyde H. Fitch
|
|
|
Salary
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
700,000
|
(18)
|
|
|
|
Cash Bonus (19)
|
|
|
$
|
543,934
|
(9)
|
|
$
|
543,934
|
(9)
|
|
$
|
543,934
|
(9)
|
|
$
|
543,934
|
(9)
|
|
$
|
305,080
|
(20)
|
|
|
|
Stock Options
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
|
|
Health Benefits
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
12,864
|
(12)
|
|
|
|
Outplacement assistance
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
57,500
|
(16)
|
|
|
|
Retirement
|
|
|
$
|
486,096
|
(17)
|
|
$
|
486,096
|
(17)
|
|
$
|
486,096
|
(17)
|
|
$
|
486,096
|
(17)
|
|
$
|
486,096
|
(17)
|
|
|
|
TOTAL:
|
|
|
$
|
1,030,030
|
|
|
$
|
1,030,030
|
|
|
$
|
1,030,030
|
|
|
$
|
1,030,030
|
|
|
$
|
1,561,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jessica E. Buss
|
|
|
Salary
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
730,000
|
(18)
|
|
|
|
Cash Bonus (19)
|
|
|
$
|
555,766
|
(9)
|
|
$
|
555,766
|
(9)
|
|
$
|
555,766
|
(9)
|
|
$
|
555,766
|
(9)
|
|
$
|
507,754
|
(20)
|
|
|
|
Stock Options
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
|
|
Health Benefits
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
12,864
|
(12)
|
|
|
|
Outplacement assistance
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
59,750
|
(16)
|
|
|
|
TOTAL:
|
|
|
$
|
555,766
|
|
|
$
|
555,766
|
|
|
$
|
555,766
|
|
|
$
|
555,766
|
|
|
$
|
1,310,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James A. Yano
|
|
|
Salary
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
700,000
|
(18)
|
|
|
|
Cash Bonus (19)
|
|
|
$
|
394,900
|
(9)
|
|
$
|
384,900
|
(9)
|
|
$
|
384,900
|
(9)
|
|
$
|
384,900
|
(9)
|
|
$
|
161,328
|
(20)
|
|
|
|
Stock Options
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
|
|
Health Benefits
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
12,864
|
(12)
|
|
|
|
Outplacement assistance
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
$
|
57,500
|
(16)
|
|
|
|
Retirement
|
|
|
$
|
458,427
|
(17)
|
|
$
|
458,427
|
(17)
|
|
$
|
458,427
|
(17)
|
|
$
|
458,427
|
(17)
|
|
$
|
458,427
|
(17)
|
|
|
|
TOTAL:
|
|
|
$
|
853,327
|
|
|
$
|
853,327
|
|
|
$
|
853,327
|
|
|
$
|
853,327
|
|
|
$
|
1,390,119
|
|
(1)
|
The potential post-employment payments and benefits shown in this table are payable to Messrs. Restrepo, English, Fitch and Yano and Ms. Buss
pursuant to their respective employment and/or executive agreements with us and the applicable terms of the LBP, LTIP, 2009 Equity Plan and associated award agreements. The NEOs have no other agreement or plan which provides them with potential
post-employment payments or benefits, except in the case of disability, where we provide long-term disability benefits to all of our employees subject to certain terms and conditions. Unless otherwise indicated, all payments would be made in
one-lump amount. For narrative disclosure of the material terms of our agreements with Messrs. Restrepo, English, Fitch and Yano and Ms. Buss see Employment Agreements with Named Executive Officers on page 55 of this Proxy
Statement, Change of Control Agreements with Named Executive Officers on page 56 of this Proxy Statement and the narrative disclosure that immediately precedes this table.
|
61
(2)
|
Under the applicable agreements, there are no provisions permitting the NEOs to terminate their employment for good reason prior to a change in
control of our Company or State Auto Mutual.
|
(3)
|
This dollar amount represents two times Mr. Restrepos annual base salary on December 31, 2013.
|
(4)
|
This dollar amount represents Mr. Restrepos annual base salary on December 31, 2013.
|
(5)
|
If terminated for disability, Mr. Restrepo would be entitled to receive 80% of his base salary as of December 31, 2013 until he reaches
age 65 or his disability terminates, less any disability benefits received from any of State Autos long-term disability plans, which equates to 60% of his salary. This dollar amount assumes that Mr. Restrepo will reach age 65 and his
disability will not terminate before then.
|
(6)
|
This dollar amount represents 2.99 times Mr. Restrepos current annual base salary.
|
(7)
|
In the event of the termination of Mr. Restrepos employment without cause or by reason of his death or voluntary termination,
Mr. Restrepo would be entitled to a prorated award under the LTIP for each performance period in effect as of the date of termination based upon the length of time that Mr. Restrepo was employed by the Company during the performance
period. The Company cannot develop a reasonable estimate of any future payments under the LTIP because it does not have final performance data for any performance period under the LTIP and cannot predict the performance of the members of the LTIP
Peer Group. Accordingly, the Company has assumed, solely for the purpose of providing a quantification of the amounts that would be payable to Mr. Restrepo upon a hypothetical termination of his employment without cause or by reason of his
death or voluntary termination, that each of the performance measures applicable to each performance period in effect under the LTIP as of the date of termination would be satisfied at the target level. Mr. Restrepo would not be entitled to any
award under the LTIP in the event his employment is terminated for cause. In the event of the termination of Mr. Restrepos employment by reason of his disability, Mr. Restrepo would be entitled to an award under the LTIP for each
performance period in effect as of the date of termination equal to the target award for each such performance period multiplied by a fraction, the numerator of which would be the number of days of employment in the performance period through the
date of termination, and the denominator of which would be the number of days in the performance period.
|
(8)
|
This dollar amount represents the sum of (i) the average of the aggregate bonuses Mr. Restrepo earned under the QPB, LBP and LTIP for 2011
and 2012 ($504,584) and (ii) the amount of compensation to which he is entitled pursuant to the LBP and LTIP as of December 31, 2013 ($1,270,544).
|
(9)
|
This dollar amount represents the amount of compensation to which the NEO is entitled pursuant to the LBP and LTIP as of December 31, 2013.
|
(10)
|
This dollar amount represents 2.99 times the sum of (i) the average of the annual aggregate bonuses Mr. Restrepo earned under the LBP for
the two years immediately preceding the year in which the Change of Control occurs ($191,278) and (ii) the total bonus payable to Mr. Restrepo under the QPB during the year immediately preceding the year in which the Change of Control
occurs ($0).
|
(11)
|
This dollar amount represents the number of Common Shares underlying the restricted common shares held by the NEO on December 31, 2013
(38,233) multiplied by the closing market price of our Common Shares on December 31, 2013 ($21.24).
|
(12)
|
This dollar amount represents the monthly per employee cost of providing State Autos health insurance benefit as of December 31, 2013
($536) multiplied by 24.
|
(13)
|
This dollar amount represents our estimate of the present value of the health benefits Mr. Restrepo would be entitled to if he was terminated
on December 31, 2013 by reason of his disability.
|
(14)
|
This dollar amount represents our estimate of the present value of the disability benefits Mr. Restrepo would be entitled to if he was
terminated on December 31, 2013 by reason of his disability.
|
62
(15)
|
This dollar amount represents the estimated cost to provide the NEO with 24 of continued life and accidental death and dismemberment insurance
coverage and 24 months of continued disability insurance coverage.
|
(16)
|
This dollar amount represents 15% of the value of the NEOs annual base salary as of December 31, 2013 plus a travel expense account of up
to $5,000 to reimburse the NEO for travel expenses he incurs in connection with seeking new employment.
|
(17)
|
This dollar amount represents the value of the retirement benefits payable to the NEO or his beneficiaries under the retirement plans of the Company
in which the NEO participates assuming the termination event was effective on December 31, 2013.
|
(18)
|
This dollar amount represents two times the NEOs annual base salary as of December 31, 2013.
|
(19)
|
In the event of the termination of the NEOs employment without cause or by reason of his voluntary termination, the NEO would be entitled to a
prorated award under the LTIP for each performance period in effect as of the date of termination based upon the length of time that the NEO was employed by the Company during the performance period. The Company cannot develop a reasonable estimate
of any future payments under the LTIP because it does not have final performance data for any performance period under the LTIP and cannot predict the performance of the members of the LTIP Peer Group. Accordingly, the Company has assumed, solely
for the purpose of providing a quantification of the amounts that would be payable to the NEO upon a hypothetical termination of his employment without cause or by reason of his voluntary termination, that each of the performance measures applicable
to each performance period in effect under the LTIP as of the date of termination would be satisfied at the target level. The NEO would not be entitled to any award under the LTIP in the event his employment is terminated for cause. In the event of
termination of the NEOs employment by reason of his death or disability, the NEO would be entitled to an award under the LTIP for each performance period in effect as of the date of termination equal to his target award for each such
performance period multiplied by a fraction, the numerator of which would be the number of days of employment in the performance period through the date of termination, and the denominator of which would be the number of days in the performance
period.
|
(20)
|
This dollar amount represents two times the average of the annual aggregate bonus earned by the executive under each of the LBP and QPB for 2011 and
2012.
|
63
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of the following four members of our Board of Directors: Chairperson Robert E. Baker; David J. DAntoni; Alexander B. Trevor; and Paul S. Williams. None
of the members of the Compensation Committee is, or was, an officer or employee of our Company or any of our subsidiaries or of State Auto Mutual. Also, none of our executive officers served during 2013 as a member of a compensation committee or as
a director of any entity for which any of our directors served as an executive officer.