<PAGE> 1
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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(E)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
THE PROGRESSIVE CORPORATION
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------
(2) Aggregate number of securities to which transaction applies:
----------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------
(4) Proposed maximum aggregate value of transaction:
----------------------
(5) Total fee paid:
-------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------
(3) Filing Party:
---------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
[LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 26, 1996
Notice is hereby given that the Annual Meeting of Shareholders of The
Progressive Corporation will be held at 6671 Beta Drive, Mayfield Village, Ohio,
on Friday, April 26, 1996, at 10:00 a.m., Cleveland time, for the following
purposes:
1. To elect eight directors, each to serve for a term of one year; and
2. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on February 29, 1996,
will be entitled to notice of and to vote at said meeting or any adjournment
thereof.
By Order of the Board of Directors.
DAVID M. SCHNEIDER, Secretary
March 14, 1996
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
<PAGE> 3
THE PROGRESSIVE CORPORATION
PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies
for use at the Annual Meeting of Shareholders of The Progressive Corporation, an
Ohio corporation (the "Company"), to be held at 10:00 a.m., Cleveland time, on
Friday, April 26, 1996, at 6671 Beta Drive, Mayfield Village, Ohio 44143, and at
any adjournment thereof. This statement and the accompanying proxy, together
with the Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1995, will first be sent to shareholders on or about March 18,
1996.
The close of business on February 29, 1996, has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at
the meeting. At that date, the Company had outstanding 72,179,817 Common Shares,
each of which will be entitled to one vote.
ITEM 1: ELECTION OF DIRECTORS
The Company's Code of Regulations provides that the number of directors may
be fixed by shareholders at no less than five or more than twelve. The number of
directors has been fixed at nine. At the meeting, the shares represented by the
proxies obtained hereby, unless otherwise specified, will be voted for the
election as directors of the eight nominees hereinafter named, to serve until
the next Annual Meeting of Shareholders and until their respective successors
are duly elected and qualified. One vacancy will remain on the Board. If, by
reason of death or other unexpected occurrence, any one or more of the nominees
hereinafter named should not be available for election, the proxies will be
voted for such substitute nominee(s), if any, as the Board of Directors may
propose. Proxies cannot be voted at the Annual Meeting for a greater number of
persons than the eight nominees named in this proxy statement, although persons
in addition to those nominees may be nominated by the shareholders at the
meeting.
No decision has been made to fill the vacancy on the Board, nor have any
candidates been considered and approved by the Board. However, the Board
believes that it is desirable to have this vacancy available, so that it could
be filled by action of the Board should a person who could make a valuable
contribution as a director of the Company be identified during the year. Through
the process of electing directors on an annual basis, shareholders will have the
opportunity to determine whether any person named to fill the vacancy will
continue to serve as a director after the Annual Meeting immediately following
his or her appointment to the Board and from year to year thereafter.
If notice in writing is given by any shareholder to the President or
Secretary not less than 48 hours before the time fixed for holding the meeting
that he desires that the voting for election of directors shall be cumulative,
and if an announcement of the giving of such notice is made upon the convening
of such meeting by the Chairman or Secretary or by or on behalf of the
shareholder giving such notice, each shareholder shall have the right to
cumulate such voting power as he possesses at such election and to give one
nominee a number of votes equal to the
1
<PAGE> 4
number of directors to be elected multiplied by the number of shares he holds,
or to distribute such number of votes among two or more nominees, as he sees
fit. If the enclosed proxy is executed and returned and voting for the election
of directors is cumulative, the persons named in the enclosed proxy will have
the authority to cumulate votes and to vote the shares represented by such
proxy, and by other proxies held by them, so as to elect as many of the eight
nominees named below as possible.
The following information is set forth with respect to each person
nominated for election as a director. Unless otherwise indicated, each such
nominee has held the principal occupation indicated for more than the last five
years. Each such nominee is currently a director of the Company.
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND DIRECTOR
NAME AGE LAST FIVE YEARS' BUSINESS EXPERIENCE SINCE
---- --- ------------------------------------ --------
<S> <C> <C> <C>
Milton N. Allen (1) 68 Director of various companies 1978
B. Charles Ames (2) 70 Principal, Clayton, Dubilier & Rice, Inc., New 1983
York, New York (investment banking)
Stephen R. Hardis (3) 60 Chairman of the Board and Chief Executive 1988
Officer of Eaton Corporation, Cleveland, Ohio
(manufacturing) since January 1996; Chief Fi-
nancial and Administrative Officer, Vice
Chairman and a director of Eaton Corporation
prior to January 1996
Janet Hill (4) 48 President, Staubach Alexander Hill, LLC, Wash- 1995
ington, D.C. (commercial real estate
consulting) since January 1995; Vice
President, Alexander & Associates, Inc.,
Washington, D.C. (management consulting)
Peter B. Lewis (5) 62 President and Chief Executive Officer of the 1965
Company; Chairman of the Board of the Company
since April 1993; President, Chairman of the
Board and Chief Executive Officer of Pro-
gressive Casualty Insurance Company
Norman S. Matthews (6) 63 Consultant, New York, New York 1981
Donald B. Shackelford (7) 63 Chairman of the Board, State Savings Company, 1976
Columbus, Ohio (savings and loan)
Paul B. Sigler 62 Professor, Yale University and Investigator in 1981
the Howard Hughes Medical Institute
</TABLE>
2
<PAGE> 5
- ---------------
(1) Mr. Allen is also a director of AGA Gas, Inc., which is publicly held, and
Actron Manufacturing Company and The Bradford Group, Inc., which are
privately held.
(2) Mr. Ames is also a director of Diamond Shamrock R & M, Inc., M.A. Hanna
Company and Warner-Lambert Company, which are publicly held, and Homeland
Holding, Inc., Lexmark Holding, Inc., WESCO Distribution, Inc. and CDW
Holding, Inc., which are privately held.
(3) Mr. Hardis is also a director of Nordson Corporation and KeyCorp and a
trustee of First Union Realty Investment Trust, all of which, as well as
Eaton Corporation, are publicly held.
(4) Ms. Hill is also a director of Wendy's International, Inc., which is
publicly held, and the New York Cotton Exchange.
(5) Mr. Peter B. Lewis is also an officer and director of other subsidiaries of
the Company.
(6) Mr. Matthews is also a director of Lechters, Inc. and Toys 'R Us, Inc.,
which are publicly held, and Loehmann's, Inc., Eye Care Centers of America
and Finlay Fine Jewelry, Inc., which are privately held.
(7) Mr. Shackelford is also a director of The Limited, Inc., Worthington Foods,
Inc. and Intimate Brands, Inc., which are publicly held.
Seven meetings of the Board of Directors were held during 1995, and the
Board adopted resolutions by written action pursuant to Ohio corporation law on
one occasion.
The Board has named an Executive Committee, an Audit Committee and an
Executive Compensation Committee, as described below. The Board has not
designated a nominating committee.
Messrs. Allen, Hardis and Lewis are the current members of the Board's
Executive Committee, which exercises all powers of the Board between Board
meetings, except the power to fill vacancies on the Board or its committees.
During 1995, the Executive Committee adopted resolutions by written action
pursuant to Ohio corporation law on eight occasions.
Messrs. Allen, Ames and Hardis are the current members of the Board's Audit
Committee, which assures that organization, policies, controls and systems are
in place to monitor performance; provides an independent channel to receive
appropriate communications from employees, auditors, legal counsel, bankers and
consultants; and monitors the public release of financial information. The Audit
Committee met four times during 1995.
Ms. Hill and Messrs. Matthews, Shackelford and Sigler are the current
members of the Board's Executive Compensation Committee. This committee monitors
and directs the administration of the Company's executive compensation program,
including the various cash and stock incentive programs in which officers and
employees of the Company participate. During 1995, the Executive Compensation
Committee met six times and adopted resolutions by written action pursuant to
Ohio corporation law on two occasions.
3
<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners. The following information
is set forth with respect to persons known to management to be the beneficial
owners, as of February 9, 1996, of more than five percent of the Company's
Common Shares:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
------------------- ----------------------- --------
<S> <C> <C>
Peter B. Lewis................................. 11,439,141(2) 15.8%
6300 Wilson Mills Road
Mayfield Village, Ohio 44143
Ruane, Cunniff & Co., Inc...................... 9,390,561(3) 13.0%
767 Fifth Avenue
Suite 4701
New York, New York 10153-4798
Oppenheimer Group, Inc......................... 8,275,188(4) 11.5%
Oppenheimer Tower
World Financial Center
New York, New York 10281
- ---------------
<FN>
(1) Except as otherwise indicated, the persons listed as beneficial owners of
the Common Shares have sole voting and investment power with respect to
those shares. Certain of the information contained in this table, including
related footnotes, is based on the Schedule 13G filings made by the
beneficial owners identified herein.
(2) Includes 13,632 Common Shares held for Mr. Lewis by a trustee under the
Company's Retirement Security Program, 181,200 Common Shares subject to
currently exercisable stock options, 1,942,907 Common Shares held by Mr.
Lewis as trustee of two trusts established for the benefit of his brother,
546,114 shares held by a charitable corporation of which Mr. Lewis serves as
a trustee and an officer, and 98,000 Common Shares held by a limited
partnership in which Mr. Lewis is general partner. The amount does not
include 1,360,706 Common Shares held of record by National City Bank as
trustee of a trust established by Mr. Lewis for the benefit of his adult
children, as to which shares he disclaims any beneficial interest.
(3) The Common Shares are held in investment accounts maintained with Ruane,
Cunniff & Co., Inc., and it disclaims any beneficial interest in such
shares. Ruane, Cunniff & Co., Inc. has advised that it has sole voting power
as to 6,749,737 of these shares, no voting power as to the balance of these
shares, sole investment power as to 4,990,561 of these shares and shared
investment power as to 4,400,000 of these shares.
(4) The Common Shares are held in investment accounts maintained with
Oppenheimer Group, Inc. or affiliates and they disclaim any beneficial
interest in such shares. Oppenheimer Group, Inc. has advised that it has
shared voting and shared investment power as to all of these shares.
</TABLE>
4
<PAGE> 7
Security Ownership of Management. The following information is set forth
with respect to the Company's Common Shares beneficially owned as of February 9,
1996, by all directors and nominees for election as directors of the Company,
each of the named executive officers and by all directors and executive officers
of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME BENEFICIAL OWNERSHIP(1) OF CLASS
---- ----------------------- --------
<S> <C> <C>
Milton N. Allen................................ 53,703(2) *
B. Charles Ames................................ 49,005(3) *
Charles B. Chokel.............................. 141,666(4) *
Allan W. Ditchfield............................ 65,200(5) *
Stephen R. Hardis.............................. 29,808(3) *
Janet Hill..................................... 2,500(6) *
Peter B. Lewis................................. 11,439,141(7) 15.8%
Bruce W. Marlow................................ 149,100(8) *
Norman S. Matthews............................. 40,201(3) *
David M. Schneider............................. 322,926(9) *
Donald B. Shackelford.......................... 93,002(10) *
Paul B. Sigler................................. 14,409(11) *
All 13 Executive Officers
and Directors as a Group..................... 12,432,684(12) 17.1%
- ---------------
<FN>
* Less than one percent of the outstanding Common Shares of the Company.
(1) Includes Common Shares held for executive officers under The Progressive
Retirement Security Program and currently exercisable stock options held by
directors and executive officers under various plans maintained by the
Company. Unless otherwise indicated below, beneficial ownership of the
Common Shares reported in the table is comprised of both sole voting power
and sole investment power, or voting power and investment power that is
shared with the spouse and/or minor children of the director or executive
officer.
(2) Includes 2,400 Common Shares owned by Mr. Allen's wife, as to which shares
he disclaims any beneficial interest, and 24,000 Common Shares subject to
currently exercisable stock options.
(3) Includes 24,000 Common Shares subject to currently exercisable stock
options.
(4) Includes 2,042 Common Shares held as custodian for his minor children, as
to which shares he disclaims any beneficial interest, and 43,082 Common
Shares subject to currently exercisable stock options. The amount reported
does not include 1,754 Common Shares held under The Progressive Corporation
Executive Deferred Compensation Plan, as to which Mr. Chokel has neither
voting nor investment power.
(5) Includes 30,000 Common Shares subject to currently exercisable stock
options.
</TABLE>
5
<PAGE> 8
(6) Includes 2,000 Common Shares subject to currently exercisable stock
options.
(7) See footnote 2 on page 4.
(8) Includes 103,500 Common Shares subject to currently exercisable stock
options.
(9) Includes 244,500 Common Shares subject to currently exercisable stock
options and 6,197 Common Shares held by Mr. Schneider as co-trustee of
certain trusts established by his father for the benefit of various family
members.
(10) Includes 24,000 Common Shares subject to currently exercisable stock
options and 6,831 Common Shares held by Mr. Shackelford as trustee of a
trust established for the benefit of his daughter.
(11) Includes 12,000 Common Shares subject to currently exercisable stock
options.
(12) Includes 753,282 Common Shares subject to currently exercisable stock
options.
6
<PAGE> 9
EXECUTIVE COMPENSATION
The following information is set forth with respect to the Company's Chief
Executive Officer and the other four most highly compensated executive officers,
each of whom was serving as an executive officer at December 31, 1995 (the
"named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND SALARY BONUS(1) COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- ------------------------------------ ----- ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Peter B. Lewis 1995 $ 800,000 $ 772,800 $147,197(2) 93,200 $294,018(3)
Chairman, President and 1994 800,000 1,124,000 139,295(2) 122,400 3,030
Chief Executive Officer 1993 1,000,000 1,400,000 127,646(2) 67,100 --
Bruce W. Marlow 1995 558,040 669,090 -- 65,000 180,611(4)
Chief Operating 1994 558,040 673,219 -- 85,400 18,736
Officer 1993 558,040 892,800 -- 37,500 6,704
Allan W. Ditchfield 1995 417,240 187,346 -- 13,100 5,164(5)
Chief Information 1994 412,004 191,005 -- 17,500 4,824
Officer 1993 400,000 200,000 -- 10,500 6,923
Charles B. Chokel 1995 298,310 285,880 -- 26,000 123,162(6)
Treasurer and Chief 1994 292,948 337,792 -- 31,700 6,685
Financial Officer 1993 275,000 385,000 -- 11,500 6,558
David M. Schneider 1995 283,040 203,619 -- 20,600 60,824(7)
Secretary and Chief 1994 283,040 213,271 -- 30,900 2,174
Legal Officer 1993 283,040 200,160 -- 10,500 3,035
- ---------------
<FN>
(1) Includes bonus amounts, if any, deferred under The Progressive Corporation
Executive Deferred Compensation Plan.
(2) Other Annual Compensation includes $121,264, $105,935 and $96,588 in the
form of personal use of corporate aircraft in 1995, 1994 and 1993,
respectively.
(3) Represents $3,060 of employer contributions made during 1995 under the
Company's Retirement Security Program, a $290,500 one-time cash award
payable in connection with the December 13, 1989 option grant and $458 as an
anniversary award for 40 years of employment with the Company.
(4) Represents $6,311 of employer contributions made during 1995 under the
Company's Retirement Security Program and a $174,300 one-time cash award
payable in connection with the December 13, 1989 option grant.
(5) Represents $5,164 of employer contributions made during 1995 under the
Company's Retirement Security Program.
(6) Represents $6,962 of employer contributions made during 1995 under the
Company's Retirement Security Program and a $116,200 one-time cash award
payable in connection with the December 13, 1989 option grant.
(7) Represents $2,724 of employer contributions made during 1995 under the
Company's Retirement Security Program and a $58,100 one-time cash award
payable in connection with the December 13, 1989 option grant.
</TABLE>
7
<PAGE> 10
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- ------------------------------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS TERM
OPTIONS GRANTED TO EXERCISE -------------------------
GRANTED(1) EMPLOYEES PRICE EXPIRATION 5% 10%
NAME (#) IN 1995 ($/SHARE) DATE ($) ($)
- ---- ---------- ---------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Peter B. Lewis 93,200 10.5% $ 38.00 12/31/04 $1,952,584 $4,809,308
Bruce W. Marlow 65,000 7.3 38.00 12/31/04 1,361,781 3,354,131
Allan W. Ditchfield 13,100 1.5 38.00 12/31/04 274,451 675,986
Charles B. Chokel 26,000 2.9 38.00 12/31/04 544,712 1,341,652
David M. Schneider 20,600 2.3 38.00 12/31/04 431,580 1,063,001
---------------------
<FN>
(1) Options become exercisable January 1, 2000, subject to accelerated
vesting and a "cash-out" provision upon the occurrence of any "Change
in Control" of the Company or certain similar events described in the
1989 Incentive Plan.
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT 12/31/95 OPTIONS AT 12/31/95
ACQUIRED ON VALUE (#) ($)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ---- ------------ ----------- ---------------------- ---------------------------
<S> <C> <C> <C> <C>
Peter B. Lewis -- -- Exercisable 75,000 Exercisable $ 2,678,175
Unexercisable 495,100 Unexercisable 11,500,295
Bruce W. Marlow -- -- Exercisable 45,000 Exercisable 1,606,905
Unexercisable 304,900 Unexercisable 6,810,704
Allan W. Ditchfield 30,000 $ 793,770 Exercisable -- Exercisable --
Unexercisable 87,600 Unexercisable 2,175,050
Charles B. Chokel 16,918 369,388 Exercisable 13,082 Exercisable 467,145
Unexercisable 115,700 Unexercisable 2,588,413
David M. Schneider 7,500 250,943 Exercisable 232,500 Exercisable 9,052,267
Unexercisable 90,500 Unexercisable 1,916,376
</TABLE>
8
<PAGE> 11
PENSION PLANS
Messrs. Lewis, Marlow and Chokel, as well as substantially all other
full-time employees of the Company and its subsidiaries who were hired before
January 1, 1989, and satisfy certain other requirements, are eligible to
participate in The Progressive Pension Plan (the "Pension Plan"). The Pension
Plan is a defined benefit plan within the meaning of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), is a qualified plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") and
is subject to the minimum funding standards of Section 412 of the Code.
Benefits payable under the Pension Plan are determined pursuant to a
formula based upon a participant's years of service with the Company and its
subsidiaries, the participant's average annual compensation not in excess of the
Social Security taxable wage base during such years of service ("Average
Earnings") and Social Security benefits. For purposes of determining Average
Earnings, the Pension Plan recognizes base salary, overtime earnings, cash
bonuses and commissions. The benefit formula is: 2% of Average Earnings times
years of service minus 50% of primary Social Security benefit for years of
service through December 31, 1988, plus 1.3% of Average Earnings times years of
service through December 31, 1993.
Participants accrue benefits under the Pension Plan formula over their
years of service with the Company and its subsidiaries, and become fully vested
in their accrued benefits under the Pension Plan upon (i) completion of five
years of service (subject to certain break-in-service rules); (ii) attainment of
age 65; or (iii) retirement on account of permanent and total disability.
The estimated net annual pensions (expressed as a life and 120-month
certain annuity) payable upon retirement at normal retirement age (65) under the
Pension Plan for each of the three named executive officers who participate in
the Pension Plan are as follows: Mr. Lewis, $10,188; Mr. Marlow, $8,983; and Mr.
Chokel, $9,042.
As of December 31, 1993, all benefit accruals under the Pension Plan were
frozen. The Company now has a two-tiered Retirement Security Program ("RSP").
The RSP is a defined contribution pension plan within the meaning of ERISA and a
qualified plan under the Code and covers all employees who meet requirements as
to age and length of service. The first tier of the RSP provides employer
contributions of 1% to 5% of annual eligible compensation up to the Social
Security wage base, based on years of eligible service. The second tier is a
long-term savings plan under which the Company matches, into a Company stock
account, amounts contributed to the plan by each employee up to a maximum of 3%
of the employee's eligible compensation. All named executive officers are
eligible to participate in the RSP, and contributions made by the Company in
1995 are included in "All Other Compensation" in the Summary Compensation Table
on page 7.
SEPARATION PLANS
The named executive officers, as well as substantially all other regular,
non-temporary employees of the Company and its subsidiaries, are eligible to
participate in The Progressive
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<PAGE> 12
Corporation Separation Allowance Plan (the "Separation Plan"). The Separation
Plan provides payments to eligible employees whose employment is involuntarily
terminated as a result of a reduction in force or a reorganization, as defined
in the Separation Plan. Payments are based on compensation in effect immediately
prior to termination and years of service and cannot exceed an aggregate of two
years of compensation. The Separation Plan is a welfare benefit plan within the
meaning of ERISA. All payments under the Separation Plan are made from the
general assets of the Company and its subsidiaries. Individual employment or
separation arrangements may supplement or supersede the Separation Plan in whole
or in part.
The Company has entered into a separate arrangement with Bruce W. Marlow,
pursuant to which he would be entitled to receive certain benefits if his
employment with the Company were to end prior to January 31, 2000, for any
reason other than death, total disability or termination by the Company for
justifiable cause. Such benefits include a continuation of salary and bonus
payments for three years after termination and the accelerated vesting of his
stock options that would otherwise have become exercisable within three years
after his termination date, so that such options would be exercisable at any
time within the five years after his termination date. In consideration for
these benefits, Mr. Marlow has agreed, among other things, that he will not
compete with the Company or attempt to hire away any of the Company's employees
for three years after any such termination of his employment.
DIRECTORS' FEES AND PLANS
Each member of the Board of Directors who is not an employee of the Company
receives an annual director's fee of $8,000 ("Retainer Fee"). In addition, each
such director receives fees for attendance at meetings of the Board and those
committees of the Board of which he or she is a member ("Meeting Fee").
Directors receive $3,000 for attendance at each regular meeting of the Board and
$1,000 for attendance at each special meeting, unless attendance is by
telephone, in which case the fee is $500. Each member of a Board committee
receives $750 for attendance at each meeting of the committee, except that the
committee chairman receives $1,000 for attendance at each such meeting, unless
attendance is by telephone, in which case the fee is $500. Directors are also
compensated for attendance at certain meetings of the Company's senior managers,
which are typically attended by one or two directors, at rates equal to the fee
received for attendance at regular Board meetings.
Each director of the Company who is not an employee of the Company
participates in The Progressive Corporation Directors Deferral Plan, as amended
(the "Directors Deferral Plan"). Each participant in the Directors Deferral Plan
may elect, annually, to defer receipt of all or a portion of his or her Meeting
Fees for the following year until the date designated by the director in
accordance with the Directors Deferral Plan. A participating director may elect
to have such deferred fees credited to or allocated between (a) a cash account
which will earn interest at a rate equal to the rate of interest on new 3-month
certificates of deposit, and (b) a stock account under which the deferred fees
are converted into units equivalent in value and dividend rights to the
Company's Common Shares. Account balances may not be transferred from one
account to another. All such accounts will be distributed in cash, in a lump sum
or
10
<PAGE> 13
installments, when and as designated by the participating director at the time
of election or, if earlier, upon the death of the director. All director's
Retainer Fees are deferred, credited to a stock account and distributed in cash
on any date designated by the participating director which is on or after the
later of (a) the date of the expiration of the director's then current term or
(b) the date which is six months and one day after the date such fees are
credited to the director's stock account ("Minimum Deferral Date") or, if no
such designation is made, the first day of the calendar quarter immediately
following the Minimum Deferral Date. All account balances of a director will be
distributed to his or her beneficiary, if he or she dies. However, if any
director ceases to serve as such for any reason other than death, disability or
removal without cause prior to the expiration of his or her current term, all
Retainer Fees credited to his or her stock account during such term are
forfeited.
Each director who is not an employee of the Company is eligible to receive
awards under The Progressive Corporation 1990 Directors' Stock Option Plan, as
amended (the "Directors' Stock Plan"). The Directors' Stock Plan authorizes the
issuance of up to 450,000 Common Shares, subject to adjustment for stock splits
and similar events. Promptly after each Annual Meeting of Shareholders, each
participating director receives an option to purchase 2,000 Common Shares with
an exercise price equal to the fair market value of the Common Shares on the
date of such Annual Meeting. The term of each such stock option is ten years
commencing on the date of grant. Options become exercisable six months and one
day following the date of grant and are not transferable. Upon death, to the
extent then exercisable, a stock option may be exercised for a period of one
year. During 1995, the Company granted stock options under this plan covering an
aggregate of 14,000 shares to seven directors.
EXECUTIVE COMPENSATION COMMITTEE REPORT
EXECUTIVE COMPENSATION POLICY
The Company's executive compensation program is administered under the
direction of the Executive Compensation Committee of the Board of Directors (the
"Committee"). The Committee is comprised of four independent, nonemployee
directors. The executive compensation program is designed to promote the
following objectives:
- Attract, retain and motivate executives who can significantly contribute
to the success of the Company.
- Reward the achievement of corporate objectives that have been approved by
the Board.
- Provide a fair, rational and competitive executive compensation system.
The Committee believes that if these objectives are consistently achieved,
shareholder value will be enhanced over time.
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<PAGE> 14
EXECUTIVE COMPENSATION PROGRAM
For 1995, the Company's executive compensation program was designed to base
compensation on corporate, division and individual performance. Performance
objectives and related measurements, as well as the compensation awards that
would result from various levels of performance, were clearly defined in
advance.
The executive compensation program consists of three components: salary,
annual bonus and long-term incentives through equity-based awards. Variable
compensation (consisting of annual bonus and long-term incentive awards) is a
larger part of total compensation at more senior levels in the organization. For
each executive officer, a target amount is established for each component of
variable compensation. Target amounts are determined primarily by reference to
data contained in national compensation surveys. These surveys include
compensation data for a broad range of public companies in a variety of
industries. Since the Company competes for executive level personnel on a
nationwide basis with companies in a variety of industries, the compensation
data utilized are not limited to companies included in the P/C Group referred to
on page 17. The Company's practice is to pay its officers and employees
competitive salaries (i.e. within 20% of the midpoint of the survey range of
salaries for their respective positions) and to provide variable compensation
which can take total direct compensation to or above the high end of the survey
range for total direct compensation when the Company and, if applicable, the
employee's division meet or exceed challenging performance goals.
Most officer perquisites, such as company cars and extended health care,
have been phased out. In addition to the executive compensation program,
executive officers participate in the Company's health and retirement plans
which are available on the same basis to all regular employees of the Company
who satisfy minimum eligibility requirements.
Salary Component
Executive officers receive a salary based on their responsibilities and
potential at market levels indicated by compensation survey data. The Company's
objective is to set executive salaries to be within 20% of the midpoint of the
survey range of salaries for positions at other companies judged to be
comparable. Salaries are reviewed annually and adjusted upward or downward for
changes in those factors and the individual's performance. Better performance
generally results in an increased salary, subject to the limits of the salary
range established by the Company. For employees who exceed expectations, some
part of the increase will be paid in a single lump sum, as a merit cash award,
rather than becoming a part of the future salary base.
Annual Bonus Component
In 1995, Messrs. Lewis, Marlow, Chokel and Schneider and one other
executive officer of the Company participated in the 1995 Executive Bonus Plan.
Mr. Ditchfield, along with all other full-time employees of the Company,
participated in the 1995 Gainsharing Plan. These Plans
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<PAGE> 15
have been designed to reward participants appropriately for current corporate
and/or division performance.
Under the 1995 Executive Bonus Plan, a target annual bonus amount, which
varied by position, was established for each of the five participants. For
Messrs. Lewis and Marlow, the target annual bonus amount for 1995 equaled 100%
of salary; for Mr. Chokel, the target was 80% of salary; for Mr. Schneider and
the other participating executive, the target amount was 60% of salary.
In 1995, awards under the Executive Bonus Plan were determined by reference
to three quantitative components. The Core Business Gainsharing Component
included: (a) a performance matrix ("Gainsharing Matrix") which assigned a
performance score to various combinations of profitability and growth outcomes
for the core business (profitability was measured by the combined ratio ("CR")
for continuing operations, determined in accordance with generally accepted
accounting principles ("GAAP"), while growth was measured in terms of the
year-to-year change in market share), and (b) a factor which measured success in
reducing costs in the core business. The ROE Component measured the Company's
return on average shareholders' equity against pre-established objectives and
the Investment Component measured the performance of the Company's investment
activities compared to appropriate indices. The weighting of the three
components differed depending on the nature and scope of the individual
executive's responsibilities. A bonus equal to the target annual bonus resulted
if designated goals were met. Actual awards could range from 0% to 200% of the
target annual bonus amount, depending on the extent to which performance was
worse or better than the goals.
All other officers and qualified employees (approximately 7,875) of the
Company, including Mr. Ditchfield, participated in the Company's 1995
Gainsharing Plan. The 1995 Gainsharing Plan is substantially similar to the 1995
Executive Bonus Plan, but does not include performance criteria for return on
average shareholders' equity or investment performance. Under the 1995
Gainsharing Plan, awards were based on performance in achieving profitability
and market share goals, as measured by the Gainsharing Matrix, for both the
Company as a whole and the individual participant's division, and on the success
of both the Company and such division in reducing costs.
Long-Term Incentive Component
In 1995, the executive compensation program included long-term incentives
through the grant of nonqualified stock options. This component is designed to
encourage the long-term retention of key executives and to align executive
compensation directly with the long-term enhancement of shareholder value. Stock
option grants are intended to focus the executive on managing the Company from
the perspective of an owner. The named executive officers and approximately 220
other management employees of the Company currently participate in the long-term
incentive program.
The value of a stock option depends directly on the future performance of
the Company's Common Shares, since it has value to the recipient only if and to
the extent that the price of the
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<PAGE> 16
Company's Common Shares increases above the option exercise price. Stock option
awards are normally made annually. A target award value, which varies by
position, is established for each executive officer in order to bring total
targeted compensation to the top of the survey range. In 1995, for the executive
officers, these target award values ranged from 54%-200% of salary, depending on
job classification. The target award value is then divided by a value per share
developed through a modified Black-Scholes pricing model, to determine the
number of option shares to be awarded. In 1995, the pricing model valued the
stock options awarded to executive officers at $17.168 per share, which is
45.18% of the per share exercise price of $38.00. The following assumptions were
used to derive the ratio: 10-year option term, .28 annualized volatility rate,
7.5% risk-free rate of return and .79% dividend yield, and an assumed annual
attrition factor of 3%. The stock options have an exercise price which is equal
to the market price of the Company's Common Shares on the date of grant, contain
provisions which defer vesting of the options for five years and may be
exercised at any time during the five years following vesting.
CHIEF EXECUTIVE OFFICER COMPENSATION
Peter B. Lewis, the Company's Chief Executive Officer, received cash
compensation in the amount of $1,572,800 for 1995, consisting of a salary of
$800,000 and an annual bonus award of $772,800 in addition to the non-cash
compensation disclosed in the Summary Compensation Table and related footnotes
on page 7. Mr. Lewis' salary has been reduced from a high of $1,198,077 in 1991,
because the Committee desires to place more emphasis on the variable components
of executive pay.
Mr. Lewis' annual bonus target for 1995 was $800,000, an amount equal to
100% of his salary. For Mr. Lewis, 50% of his bonus target was based on the Core
Business Gainsharing Component, 30% was based on the ROE Component and 20% was
based on the Investment Component. As noted above, the Core Business Gainsharing
Component includes a Gainsharing Matrix which measures profitability and growth
in market share for the Company's core business and a factor which measures
improvement in the core business' expense ratio. In 1995, the Company's core
business achieved a CR of 94.8, with 16% growth in market share and an expense
ratio of 22.2, resulting in a performance score of 1.199 for the Core Business
Gainsharing Component. In addition, the ROE Component score was 1.2, compared to
a target of 1.0, and the Investment Component score was .03, compared to a
target of 1.0. Applying the weighting factors to the performance scores for each
of the several Components, and then combining the results, produced a
Performance Factor of .966. Mr. Lewis, therefore, earned 96.6% of target, or
$772,800, as his annual bonus.
For the long-term incentive component of his compensation, on May 19, 1995,
Mr. Lewis was awarded stock options to purchase 93,200 of the Company's Common
Shares at an exercise price of $38.00 per share. This award vests on January 1,
2000, and was determined in accordance with the stock option formula described
above.
14
<PAGE> 17
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
In 1993, the Internal Revenue Code was amended by the Omnibus Budget
Reconciliation Act of 1993 ("Budget Reconciliation Act"), which limits to $1
million per year the deduction allowed for Federal income tax purposes for
compensation paid to the chief executive officer and the four other most highly
compensated executive officers of a public company ("Deduction Limit"). This
Deduction Limit, which became effective in 1994, does not apply to compensation
paid under a plan that meets certain requirements for "performance-based
compensation." To qualify for this exception, (a) the compensation must be
payable solely on account of the attainment of one or more pre-established
objective performance goals; (b) the performance goals must be established by a
compensation committee of the board of directors that is comprised solely of two
or more "outside directors"; (c) the material terms of the performance goals
must be disclosed to and approved by shareholders before payment; and (d) the
compensation committee must certify in writing prior to payment that the
performance goals and any other material terms have been satisfied.
Compensation attributable to a stock option award is deemed to satisfy the
requirements for "performance-based compensation" if the award is made by the
compensation committee, the plan under which the award has been granted is
approved by shareholders and states the maximum number of shares with respect to
which options may be granted during a specified period to any employee and,
under the terms of the option, the amount of compensation the employee could
receive is based solely on an increase in the value of the stock after the date
of the award. Generally, the Deduction Limit does not apply to any compensation
payable under a written contract that was in effect on February 17, 1993, or
pursuant to a plan or arrangement approved by shareholders prior to December 20,
1993, provided certain requirements are met.
It is the Company's policy to structure its incentive compensation programs
to satisfy the requirements for the "performance-based compensation" exception
to the Deduction Limit and, thus, to preserve the full deductibility of all
compensation paid thereunder, to the extent practicable. Salaries and any
perquisites are subject to approval of the Committee, but will not be submitted
to a vote of shareholders, and thus will not be deductible if and to the extent
that such compensation exceeds $1 million per year for any such executive.
SUMMARY
The Committee believes that management compensation should be linked to the
creation of shareholder value. The Company's executive compensation program thus
includes significant long-term incentives, through equity-based awards, which
are tied to the long-term performance of the Company's Common Shares. The
Committee recognizes, however, that while stock prices may reflect management
performance over the long term, other factors, such as general economic
conditions and varying investors' attitudes toward the stock market in general,
and specific industries in particular, may significantly affect stock prices at
any point in time. Accordingly, the annual cash components of the program,
consisting of salary and annual bonus, emphasize individual performance and the
realization of defined business objectives, which are independent of short-range
fluctuations in the stock price.
15
<PAGE> 18
The executive compensation program thus has been designed to align
executive compensation with both the Company's business goals and long-term
shareholder interests. The Committee believes that the program, as implemented,
is balanced and consistent with these objectives. The Committee will continue to
monitor the operation of the program and cause the program to be adjusted and
refined, as necessary, to ensure that it continues to support both corporate and
shareholder goals.
EXECUTIVE COMPENSATION COMMITTEE
Donald B. Shackelford, Chairman
Janet Hill
Norman S. Matthews
Paul B. Sigler
16
<PAGE> 19
PERFORMANCE GRAPH
The following performance graph compares the performance of the Company's
Common Shares ("PGR") to the Standard & Poor's 500 Index ("S & P Index") and the
Value Line Property/Casualty Industry Group ("P/C Group") for the last five
years.
CUMULATIVE FIVE-YEAR TOTAL RETURN*
PGR, S&P INDEX, P/C GROUP
(PERFORMANCE RESULTS THROUGH 12/31/95)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) PGR S&P INDEX P/C GROUP
<S> <C> <C> <C>
1990 100 100 100
1991 106 131 127
1992 174 141 158
1993 243 155 157
1994 211 157 158
1995 297 216 209
</TABLE>
*Assumes reinvestment of dividends.
Source: Value Line, Inc.
INDEPENDENT ACCOUNTANTS
At the meeting of the Board of Directors of the Company held on February 9,
1996, the Board selected Coopers & Lybrand L.L.P. to serve as the independent
accountants for the Company and its subsidiaries for 1996. Representatives of
Coopers & Lybrand L.L.P. are expected to be present at the Annual Meeting with
the opportunity to make a statement about the Company's financial condition, if
they desire to do so, and to respond to appropriate questions.
17
<PAGE> 20
SHAREHOLDER PROPOSALS
Any shareholder who intends to present a proposal at the 1997 Annual
Meeting of Shareholders for inclusion in the proxy statement and form of proxy
relating to that meeting is advised that the proposal must be received by the
Secretary at the Company's principal executive offices located at 6300 Wilson
Mills Road, Mayfield Village, Ohio 44143, not later than November 18, 1996. The
Company will not be required to include in its proxy statement or form of proxy
any shareholder proposal which is received after that date or which otherwise
fails to meet requirements for shareholder proposals established by regulations
of the Securities and Exchange Commission.
SHAREHOLDER VOTE TABULATION
Votes will be tabulated by or under the direction of Inspectors of
Election, who may be regular employees of the Company. The Inspectors of
Election will certify the results of the voting at the Annual Meeting.
The director nominees who receive the greatest number of affirmative votes
will be elected directors. Abstentions and broker non-votes thus will not affect
the results of the election.
OTHER MATTERS
The solicitation of proxies is made by and on behalf of the Board of
Directors. The cost of the solicitation, including the reasonable expenses of
brokerage firms or other nominees for forwarding proxy materials to beneficial
owners, will be borne by the Company. In addition to solicitation by mail,
proxies may be solicited by telephone, telegraph or personally. The Company has
engaged the firm of Morrow & Co., New York, New York, to assist it in the
solicitation of proxies at an estimated cost of $16,000. Proxies may be
solicited by directors, officers and employees of the Company without additional
compensation.
If the enclosed proxy is executed and returned, the shares represented
thereby will be voted in accordance with any specifications made therein by the
shareholder. In the absence of any such specifications, the proxies will be
voted to elect the eight nominees named under "Election of Directors" above.
The presence of any shareholder at the meeting will not operate to revoke
his proxy. A proxy may be revoked at any time insofar as it has not been
exercised by giving written notice to the Company or in open meeting.
If any other matters shall properly come before the meeting, the persons
named in the proxy, or their substitutes, will vote thereon in accordance with
their judgment. The Board of Directors does not know at this time of any other
matters that will be presented for action at the meeting.
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<PAGE> 21
AVAILABLE INFORMATION
THE COMPANY WILL FURNISH, WITHOUT CHARGE, TO EACH PERSON TO WHOM A PROXY
STATEMENT IS DELIVERED, UPON ORAL OR WRITTEN REQUEST, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR 1995 (OTHER THAN CERTAIN EXHIBITS). REQUESTS FOR
SUCH DOCUMENT SHOULD BE SUBMITTED IN WRITING TO JEFFREY W. BASCH, CHIEF
ACCOUNTING OFFICER, THE PROGRESSIVE CORPORATION, 6300 WILSON MILLS ROAD,
MAYFIELD VILLAGE, OH 44143 OR BY TELEPHONE AT (216) 446-2851.
By Order of the Board of Directors.
David M. Schneider, Secretary
March 14, 1996
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<PAGE> 22
THE PROGRESSIVE CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS
The undersigned hereby appoints Charles B. Chokel, David M.
Schneider and Dane A. Shrallow, and each of them, with full power of
substitution, as proxies for the undersigned to attend the Annual
Meeting of Shareholders of The Progressive Corporation, to be held at
6671 Beta Drive, Mayfield Village, Ohio, at 10:00 a.m., Cleveland
time, on April 26, 1996, and thereat, and at any adjournment thereof,
to vote and act with respect to all Common Shares of the Company which
the undersigned would be entitled to vote, with all power the
undersigned would possess if present in person, as follows:
1. / / WITH or / / WITHOUT authority to vote (except as marked to the
contrary below) for the election as directors of all eight
nominees listed below for a term of one year.
Milton N. Allen, B. Charles Ames, Stephen R. Hardis, Janet Hill,
Peter B. Lewis,
Norman S. Matthews, Donald B. Shackelford and Paul B. Sigler
(INSTRUCTION: To withhold authority to vote for any individual
nominee, print that nominee's name on the space
provided below.)
----------------------------------------------------------------------
2. In their discretion, to vote upon such other business as may
properly come before the meeting.
(Continued, and to be dated and signed, on the other side)
(Continued from the other side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED BY
THE SHAREHOLDER. IF NO SPECIFICATIONS ARE MADE, THIS PROXY WILL BE
VOTED TO ELECT THE NOMINEES IDENTIFIED IN ITEM 1 ABOVE.
Receipt of Notice of Annual Meeting of Shareholders and the
related Proxy Statement dated March 14, 1996, is hereby acknowledged.
Date: , 1996
----------------------------------
----------------------------------
----------------------------------
Signature of Shareholder(s)
PLEASE SIGN AS YOUR NAME OR NAMES
APPEAR HEREON. IF SHARES ARE HELD
JOINTLY, ALL HOLDERS MUST SIGN.
WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE
OR GUARDIAN, PLEASE GIVE YOUR FULL
TITLE. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY
PRESIDENT OR OTHER AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE
SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
Proxy Card
