pre14c
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Information Statement |
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Definitive Information Statement only |
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Confidential, for use of the Commission Only (as permitted by Rule 14c-5(d)(2))) |
ERIE INDEMNITY COMPANY
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14c-5(g) and 240.0-11. |
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Title of each class of securities to which transaction applies: |
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Aggregate number of securities to which transaction applies: |
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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): |
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Proposed maximum aggregate value of transaction: |
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Total fee paid: |
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Fee paid previously with preliminary materials. |
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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. |
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Amount Previously Paid: |
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Form, Schedule or Registration Statement No.: |
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Filing Party: |
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Date Filed: |
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NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS
TO BE HELD APRIL 19,
2011
To the Holders of Class A Common Stock and
Class B Common Stock of ERIE INDEMNITY COMPANY:
We will hold our 86th annual meeting of shareholders at
9:30 a.m., local time, on Tuesday, April 19, 2011,
at the Auditorium of the F.W. Hirt Perry Square
Building, 100 Erie Insurance Place (Sixth and French Streets),
Erie, Pennsylvania 16530 for the following purposes:
1. To approve amendments to our articles of incorporation
to: (i) modify the corporate purposes clause;
(ii) update our corporate registered address; and
(iii) eliminate the requirement of a specific number of
directors and provide that the size of the board of directors
shall be governed by our bylaws;
2. To elect 13 persons to serve as directors until our
2012 annual meeting of shareholders and until their successors
are elected and qualified;
3. To approve, on an advisory basis, the compensation of
our named executive officers;
4. To select, on an advisory basis, the frequency of the
shareholder advisory vote on the compensation of our named
executive officers; and
5. To transact any other business that may properly come
before our annual meeting and any adjournment, postponement or
continuation thereof.
This notice and information statement, together with a copy of
our annual report to shareholders for the year ended
December 31, 2010, are being sent to all holders of
Class A common stock and Class B common stock as of
the close of business on Friday, February 18, 2011, the
record date established by our board of directors. Holders of
Class B common stock will also receive a form of proxy.
Holders of Class A common stock will not receive proxies
because they do not have the right to vote on any of the matters
to be acted upon at our annual meeting.
Holders of Class B common stock are requested to complete,
sign and return the enclosed form of proxy in the envelope
provided, whether or not they expect to attend our annual
meeting in person.
By order of our board of directors,
James J. Tanous
Executive Vice President,
Secretary and General Counsel
March 18, 2011
Erie, Pennsylvania
NOTICE OF INTERNET AVAILABILITY OF ANNUAL MEETING
MATERIALS
Important Notice Regarding the Availability of our
Information Statement for the Annual Meeting of Shareholders to
be held on April 19, 2011.
Our information statement and annual report are available at
http://www.erieindemnityinfostatement.com.
We Are
Not Asking Holders of Our Class A Common Stock for a Proxy
and
You Are Requested Not to Send Us a Proxy
ERIE
INDEMNITY COMPANY
INFORMATION
STATEMENT
Unless the context indicates otherwise, all references in this
information statement to we, us,
our or the Company mean Erie Indemnity
Company. Erie Insurance Exchange, or the Exchange,
has four property and casualty insurance subsidiaries: Erie
Insurance Company, or Erie Insurance Co., Erie
Insurance Company of New York, or Erie NY, Erie
Insurance Property & Casualty Company, or EI
P&C and Flagship City Insurance Company, or
Flagship. We sometimes refer to the Exchange and its
property and casualty insurance subsidiaries as the
Property and Casualty Group. We hold a 21.63%
interest in the common stock (EFL Common Stock) of
Erie Family Life Insurance Company, or EFL, a life
insurance company. The Exchange owns the remaining 78.37% of
EFLs Common Stock.
TABLE OF
CONTENTS
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ERIE
INDEMNITY COMPANY
100 Erie
Insurance Place
Erie, Pennsylvania 16530
INFORMATION
STATEMENT
This information statement, which is first being mailed to the
holders of our Class A common stock and our Class B
common stock on or about March 18, 2011, is furnished to
such holders to provide information regarding us and our 2011
annual meeting of shareholders. This information statement is
also being furnished in connection with the solicitation of
proxies by our board of directors from holders of Class B
common stock to be voted at our 2011 annual meeting of
shareholders and at any adjournment, postponement or
continuation thereof. Our annual meeting will be held at
9:30 a.m., local time, on Tuesday, April 19, 2011 at
the Auditorium of the F.W. Hirt Perry Square
Building, 100 Erie Insurance Place (Sixth and French Streets),
Erie, Pennsylvania 16530. Holders of Class B common stock
will also receive a form of proxy.
Only holders of Class B common stock of record at the close
of business on February 18, 2011 are entitled to vote at
our annual meeting. Each share of Class B common stock is
entitled to one vote on each matter to be considered at our
annual meeting. Except as otherwise provided in
Sections 1756(b)(1) and (2) of the Pennsylvania
Business Corporation Law of 1988, or BCL, in the
case of adjourned meetings, a majority of the outstanding shares
of Class B common stock will constitute a quorum at our
annual meeting for the election of directors. Abstentions and
shares of Class B common stock held by nominees as to which
we have not received voting instructions from the beneficial
owner, or other person entitled to vote such shares, and as to
which the nominee does not have discretionary voting power, are
considered outstanding shares of Class B common stock
entitled to vote and such shares are counted in determining
whether a quorum or a majority is present.
As of the close of business on February 18, 2011, we had
49,751,555 shares of Class A common stock outstanding,
which are not entitled to vote on any matters to be acted upon
at our 2011 annual meeting, and 2,546 shares of
Class B common stock outstanding, which have the exclusive
right to vote on all matters to be acted upon at our 2011 annual
meeting.
There are three H.O. Hirt Trusts. Susan Hirt Hagen, or
Mrs. Hagen, and Elizabeth Hirt Vorsheck, or
Mrs. Vorsheck, both of whom are directors of
the Company, are beneficiaries of the Trusts. Thomas B. Hagen
and Jonathan Hirt Hagen, both directors of the Company, are
contingent beneficiaries of the Trusts. The H.O. Hirt Trusts
collectively own 2,340 shares of Class B common stock,
which, because such shares represent 91.91% of the outstanding
shares of Class B common stock entitled to vote at our 2011
annual meeting, is sufficient to determine the outcome of any
matter submitted to a vote of the holders of our Class B
common stock, assuming all of the shares held by the H.O. Hirt
Trusts are voted in the same manner. As of the record date for
our 2011 annual meeting, the individual trustees of the H.O.
Hirt Trusts are Mrs. Hagen and Mrs. Vorsheck, and the
corporate trustee is Sentinel Trust Company, L.B.A., or
Sentinel. Mrs. Hagen and Mrs. Vorsheck are
both candidates for re-election to the board at our 2011 annual
meeting.
Under the provisions of the H.O. Hirt Trusts, the shares of
Class B common stock held by the H.O. Hirt Trusts are to be
voted as directed by a majority of trustees then in office. If
at least a majority of the trustees then in office of each of
the H.O. Hirt Trusts vote for the election of the 13 candidates
for director named below, such candidates will be elected as
directors even if all shares of Class B common stock other
than those held by the H.O. Hirt Trusts do not vote for such
candidates. We have not been advised as of the date of this
information statement how the trustees of the H.O. Hirt Trusts
intend to vote at our annual meeting.
Since 1925, we have served as the attorney-in-fact for the
policyholders of the Exchange. As a reciprocal insurance
exchange organized under the laws of the Commonwealth of
Pennsylvania, the Exchange is an unincorporated association of
individuals, partnerships and corporations that agree to insure
one another. Each applicant for insurance from the Exchange
signs a subscribers agreement, which appoints us as the
attorney-
in-fact for the subscriber (policyholder). As attorney-in-fact,
we are required to perform certain services relating to the
sales, underwriting and issuance of policies on behalf of the
Exchange. We also provide management services to the Exchange,
its property and casualty subsidiaries and EFL.
Throughout 2010, we also operated as a property and casualty
insurer through our wholly-owned subsidiaries, Erie Insurance
Co., Erie NY and EI P&C. On December 31, 2010, we sold
all of the outstanding capital stock and voting shares of Erie
Insurance Co., Erie NY and EI P&C to the Exchange. Under
this new structure, all property and casualty insurance
operations are owned by the Exchange, and we will continue to
function as the management company. We also entered into an
agreement to sell our 21.63% interest in EFL Common Stock to the
Exchange. Upon completion of the sale, which is expected to
occur on March 31, 2011, EFL will become a wholly-owned
subsidiary of the Exchange.
The Property and Casualty Group writes personal and commercial
lines of property and casualty insurance coverages exclusively
through approximately 2,080 independent agencies comprised of
more than 9,400 licensed agents. The underwriting results of the
Property and Casualty Group are pooled. As a result of the
Exchanges 94.5% participation in the reinsurance pooling
arrangement, the underwriting risk of the Property and Casualty
Groups business is largely borne by the Exchange. The sale
of our insurance subsidiaries to the Exchange did not affect the
pooling agreement, and had no impact on the subscribers
(policyholders) of the Exchange, the Exchanges independent
insurance agents, or our employees.
Due to FASB Accounting Standards Codification No. 810, we
are required to consolidate our financial statements with those
of the Exchange when reporting to the Securities and Exchanges
Commission, or SEC. This change to our financial
reporting took effect on January 1, 2010. Accordingly, our
first quarter 2010
Form 10-Q,
filed on May 6, 2010, was the first filing under the new
consolidation rules. This change affects the presentation of the
financial reports; it does not change our financial results. For
more information regarding this change to our financial
reporting see the
Form 8-K
we filed with the SEC on May 6, 2010.
We charge the Exchange a management fee calculated as a
percentage, limited to 25%, of the direct written premiums of
the Property and Casualty Group. Management fees accounted for
83.6%, 81.4% and 75.7%, respectively, of our revenues for the
three years ended December 31, 2008, 2009 and 2010. The
management fee rate was 25% during 2008, 2009 and 2010, and
beginning January 1, 2011, the rate has been set at 25%.
BENEFICIAL
OWNERSHIP OF COMMON STOCK
The following table sets forth as of February 18, 2011, the
amount of our outstanding Class B common stock owned by
shareholders known by us to own beneficially more than 5% of our
Class B common stock.
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Shares of Class B
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Percent of
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Common Stock
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Outstanding
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Name of Individual
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Beneficially
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Class B
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or Identity of Group
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Owned
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Common Stock
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H.O. Hirt Trusts(1), Erie, Pennsylvania
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2,340
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91.91
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Hagen Family Limited Partnership(2), Erie, Pennsylvania
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153
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6.01
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There are three H.O. Hirt Trusts. Mrs. Hagen and
Mrs. Vorsheck are two of the beneficiaries of the Trusts,
and Thomas B. Hagen, the husband of Mrs. Hagen, and
Jonathan Hirt Hagen, the son of Mrs. Hagen, are two of the
contingent beneficiaries. The Trustees of the H.O. Hirt Trusts
as of the date of this information statement are
Mrs. Hagen, Mrs. Vorsheck and Sentinel. The Trustees
collectively control voting and disposition of the shares of
Class B common stock. A majority of the Trustees then in
office acting together is required to take any action with
respect to the voting or disposition of shares of Class B
common stock. |
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Thomas B. Hagen, the chairman of our board of directors, is the
general partner of the Hagen Family Limited Partnership. As
general partner, Mr. Hagen has sole voting power and
investment power over the shares of Class B common stock
held by the Hagen Family Limited Partnership. Mr. Hagen is
the husband of Mrs. Hagen and the father of Jonathan Hirt
Hagen. Mrs. Hagen and Jonathan Hirt Hagen are also
directors of the Company. |
2
The following table sets forth as of February 18, 2011, the
amount of the outstanding shares of Class A common stock
and Class B common stock beneficially owned by
(i) each director and candidate for director nominated by
our Nominating and Governance Committee, or nominating
committee, (ii) each executive officer named in the
Summary Compensation Table and (iii) all of our executive
officers and directors as a group.
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Shares of
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Class A
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Percent of
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Shares of Class B
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Percent of
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Common Stock
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Outstanding
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Common Stock
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Outstanding
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Name of Individual
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Beneficially
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Class A
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Beneficially
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Class B
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or Identity of Group
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Owned(1)(2)
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Common Stock(3)
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Owned(1)(2)
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Common Stock(3)
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Directors and Nominees for Director:
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J. Ralph Borneman, Jr.
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50,000
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Terrence W. Cavanaugh
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21,600
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Jonathan Hirt Hagen
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223,130
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1
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Susan Hirt Hagen(4)
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6,658,800
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13.39
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%
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12
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Thomas B. Hagen(5)
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10,091,159
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20.28
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%
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157
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6.17
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C. Scott Hartz
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2,097
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Claude C. Lilly, III
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1,273
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Lucian L. Morrison(6)
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Thomas W. Palmer
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770
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Martin P. Sheffield
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400
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Richard L. Stover
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1,000
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Elizabeth Hirt Vorsheck(7)
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4,782,282
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9.61
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%
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Robert C. Wilburn
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3,000
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Executive Officers(8):
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Marcia A. Dall
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1,250
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George R. Lucore
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3,299
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James J. Tanous
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6,423
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Michael S. Zavasky
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18,232
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Douglas F. Ziegler(9)
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33,699
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All Directors and Executive Officers as a Group
(20 persons)(10)
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21,908,720
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44.04
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%
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170
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6.68
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%
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Information furnished by the named persons. |
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Under the rules of the SEC, a person is deemed to be the
beneficial owner of securities if the person has, or shares,
voting power, which includes the power to vote, or
to direct the voting of, such securities, or investment
power, which includes the power to dispose, or to direct
the disposition, of such securities. Under these rules, more
than one person may be deemed to be the beneficial owner of the
same securities. Securities beneficially owned also include
securities owned jointly, in whole or in part, or individually
by the persons spouse, minor children or other relatives
who share the same home. The information set forth in the above
table includes all shares of Class A common stock and
Class B common stock over which the named individuals,
individually or together, share voting power or investment
power. The table does not reflect shares of Class A common
stock and Class B common stock as to which beneficial
ownership is disclaimed. |
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Less than 1% unless otherwise indicated. |
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Mrs. Hagen owns 300 shares of Class A common
stock directly and 6,658,500 shares of Class A common
stock indirectly through a revocable trust of which
Mrs. Hagen was the grantor and is the sole trustee and
beneficiary. Mrs. Hagen owns 12 shares of Class B
common stock directly. Mrs. Hagen disclaims beneficial
ownership of the 5,100 shares of Class A common stock
and four shares of Class B common stock owned by Thomas B.
Hagen, her husband, and the 10,086,059 shares of
Class A common stock |
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and 153 shares of Class B common stock owned by the
Hagen Family Limited Partnership, for which Thomas B. Hagen, as
general partner, has sole voting power and investment power.
Mrs. Hagen also disclaims beneficial ownership of any
shares of Class B common stock held by the H.O. Hirt Trusts
of which she is a beneficiary, contingent beneficiary and one of
three trustees. |
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Mr. Hagen owns 5,100 shares of Class A common
stock directly and 10,086,059 shares of Class A common
stock indirectly through the Hagen Family Limited Partnership.
Mr. Hagen owns four shares of Class B common stock
directly and 153 shares of Class B common stock
indirectly through the Hagen Family Limited Partnership.
Mr. Hagen disclaims beneficial ownership of the
300 shares of Class A common stock and 12 shares
of Class B common stock owned by Mrs. Hagen, his wife,
and the 6,658,500 shares of Class A common stock owned
indirectly by Mrs. Hagen. Mr. Hagen also disclaims
beneficial ownership of any shares of Class B common stock
held by the H.O. Hirt Trusts of which his wife is a beneficiary,
contingent beneficiary and one of three trustees. |
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(6) |
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See discussion under Director Compensation Director
Stock Ownership Guidelines. |
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(7) |
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Mrs. Vorsheck owns 69,516 shares of Class A
common stock directly and 4,712,766 shares of Class A
common stock indirectly through several trusts. |
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(8) |
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Excludes Mr. Cavanaugh, who is listed under Directors
and Nominees for Director. |
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(9) |
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Includes 27,549 shares of Class A common stock held by
Mr. Ziegler directly and 6,150 shares of Class A
common stock held by his wife. |
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(10) |
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Includes Executive Vice Presidents George D. Dufala and John F.
Kearns. |
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, requires that the
officers and directors of a corporation, such as us, that has a
class of equity securities registered under Section 12 of
the Exchange Act, as well as persons who own more than 10% of a
class of equity securities of such a corporation, file reports
of their ownership of such securities, as well as statements of
changes in such ownership, with the corporation and the SEC.
Based upon written representations we received from our officers
and directors and shareholders owning more than 10% of any class
of our stock, and our review of the statements of changes of
ownership filed with us by our officers and directors and
shareholders owning more than 10% of any class of our stock
during 2010, we believe that all such filings required during
2010 were made on a timely basis.
4
PROPOSAL 1
APPROVAL OF AMENDMENTS TO OUR ARTICLES OF
INCORPORATION
We are proposing certain amendments to our articles of
incorporation, our articles, to: (i) modify the
corporate purposes clause; (ii) update our corporate
registered address; and (iii) eliminate the requirement of
a specific number of directors and provide that the size of the
board of directors shall be governed by our bylaws. Each of
these amendments is discussed below.
Following shareholder approval, the amendments will become
effective upon the filing of articles of amendment with the
Pennsylvania Department of State. We also intend to file a
restatement of our articles to incorporate all amendments that
are adopted by our shareholders at the annual meeting as well as
all other amendments that have been adopted by our shareholders
since the original filing of our articles in 1925.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF
THE PROPOSED AMENDMENTS IN THIS PROPOSAL 1.
A.
AMENDMENT TO MODIFY THE CORPORATE PURPOSES CLAUSE
Article 2nd of our original articles reads as follows:
Said corporation is formed for the purpose of
conducting a general real estate and insurance agency and
brokerage business in all the various branches thereof, the
placing of surety bonds and the transaction of all such business
as is necessary or incidental thereto. Since the
original filing of our articles in 1925, we have never operated
as a real estate agency or brokerage, or otherwise engaged in
the real estate business other than the purchase, sale or lease
of real property incidental to the growth of our insurance
business. Our business has consisted primarily of serving as the
attorney-in-fact for the policyholders of the Exchange and
providing management services to the Exchange, its subsidiaries
and EFL.
At its meeting on February 24, 2011, our board of directors
unanimously approved, and recommended for approval by our voting
shareholders, an amendment to our articles that would replace
the current Article 2nd in its entirety with the
following: 2. The nature of the business or purposes to
be conducted or promoted by the Corporation is to engage in any
lawful act or activity for which corporations may be organized
under the Business Corporation Law of the Commonwealth of
Pennsylvania, including, but not limited to, the conduct of an
insurance business, whether directly or indirectly, as
attorney-in-fact for the subscribers at Erie Insurance Exchange
or other reciprocal insurance exchanges, or manager or
administrator for stock or mutual insurance companies or risk
retention groups, or agent or broker for insurance underwriting
entities, or other activities related to any of the foregoing
businesses or purposes. The proposed amendment will
conform the corporate purposes clause to the types of business
actually conducted by the Company, but will have no other effect
on the Company or its shareholders.
The affirmative vote of a majority of the shares of Class B
common stock cast at our annual meeting is required to approve
the proposed amendment to our articles.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
PROPOSED AMENDMENT TO MODIFY THE CORPORATE PURPOSES CLAUSE
(ITEM 1A ON THE PROXY CARD).
B.
AMENDMENT TO UDPATE THE COMPANYS REGISTERED
ADDRESS
Article 3rd of our original articles reads as follows:
The business of said corporation is to be transacted in
The City of Erie, Pennsylvania. Since 1925, our
business has grown both in size and geographic area. We
currently transact business in 11 states and the District
of Columbia, primarily as attorney-in-fact for the Exchange and
as a manager of the Exchange, its subsidiaries and EFL.
Accordingly, we believe it would be appropriate to amend our
articles to reflect that, although we remain headquartered in
Erie, Pennsylvania, we regularly transact business within and
outside the City of Erie, Pennsylvania.
At its meeting on February 24, 2011, our board of directors
unanimously approved, and recommended for approval by our voting
shareholders, an amendment to our articles that would replace
the current Article 3rd in
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its entirety with the following: 3. The address of the
Corporation in the Commonwealth is 100 Erie Insurance Place,
City of Erie, County of Erie, Pennsylvania
16530-0001.
The Corporation shall be headquartered in the City of Erie,
Pennsylvania, and the business of the Corporation may be
transacted throughout the United States of America and in such
other sovereign nations as the Board of Directors deems
advisable.
The affirmative vote of a majority of the shares of Class B
common stock cast at our annual meeting is required to approve
the proposed amendment to our articles.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
PROPOSED AMENDMENT TO UPDATE THE COMPANYS REGISTERED
ADDRESS (ITEM 1B ON THE PROXY CARD).
C.
AMENDMENT TO ELIMINATE THE REQUIREMENT OF A SPECIFIC NUMBER OF
DIRECTORS
AND TO PROVIDE THAT THE SIZE OF OUR BOARD SHALL BE GOVERNED BY
OUR BYLAWS
We are also proposing an amendment to our articles that would
allow our bylaws to address the size of our board of directors,
thereby correcting a discrepancy that exists between our
articles and our bylaws with respect to setting the size of the
board. When our original articles were filed on April 17,
1925, the incorporators included a provision fixing the size of
the board of directors at fifteen. When our bylaws were first
adopted on April 18, 1925, they contained a similar
provision requiring that the Company have fifteen directors.
Since 1925, several amendments to our bylaws have addressed the
size of our board, but none of the amendments to our articles
ever transferred such authority to regulate the size of the
board to the bylaws. This proposed amendment to the articles
will definitively allow our bylaws to establish the size of our
board of directors.
Article 6th of our articles currently provides, in
pertinent part, that [t]he number of directors of said
corporation is fixed at Fifteen... At its meeting on
February 24, 2011, our board of directors unanimously
approved, and recommended for approval by our voting
shareholders, an amendment to our articles that would replace
the current Article 6th in its entirety with the
following: 6. The number of directors of the
Corporation shall be determined in accordance with the
Corporations Bylaws, as may be amended from time to
time. Our bylaws provide that our board of directors
shall consist of not less than 7, nor more than 16, directors,
with the exact number to be fixed from time to time by
resolution of our board of directors. The effect of this
amendment would be to provide our board of directors with the
ability to set the size of the board without having to obtain
shareholder approval to do so.
The affirmative vote of a majority of the shares of Class B
common stock cast at our annual meeting is required to approve
the proposed amendment to our articles.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
PROPOSED AMENDMENT TO ELIMINATE THE REQUIREMENT OF A SPECIFIC
NUMBER OF DIRECTORS AND TO PROVIDE THAT THE SIZE OF OUR BOARD
SHALL BE GOVERNED BY OUR BYLAWS (ITEM 1C ON THE PROXY CARD).
PROPOSAL 2
ELECTION OF DIRECTORS
Introduction
The election of directors by the holders of our Class B
common stock is governed by provisions of the Pennsylvania
Insurance Holding Companies Act, or the Holding Companies
Act, in addition to provisions of the BCL, the
Pennsylvania Associations Code and our bylaws. The following
discussion summarizes these statutory and bylaw provisions and
describes the process undertaken in connection with the
nomination of candidates for election as directors by the
holders of Class B common stock at our annual meeting.
Background
of our Nominating Committee
Section 1405(c)(4.1) of the Holding Companies Act provides
that the board of directors of a domestic insurer must establish
one or more committees comprised solely of directors who are not
officers or employees
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of the insurer or of any entity controlling, controlled by or
under common control with the insurer. Such committee or
committees must have responsibility for, among other things,
recommending candidates to be nominated by the board of
directors, in addition to any other nominations by voting
shareholders, for election as directors by the voting
shareholders. Section 1405(c)(5) of the Holding Companies
Act provides that the above provisions shall not apply to a
domestic insurer if the person controlling such insurer is an
insurer or another business entity having a board of directors
and committees thereof which already meet the requirements of
Section 1405(c)(4.1). For purposes of the Holding Companies
Act, we are deemed to control the Exchange, its subsidiaries and
EFL, and our board of directors and its committees are in
compliance with Section 1405(c)(4.1).
Section 3.09 of our bylaws is consistent with this
statutory provision and provides that (i) our board of
directors must appoint annually a nominating committee that
consists of not less than three directors, each of whom is not
an officer or employee of us or of any entity controlling,
controlled by or under common control with us, and (ii) our
nominating committee must, prior to each annual meeting of
shareholders, determine and nominate candidates for the office
of director to be elected by the holders of Class B common
stock to serve terms as established by our bylaws and until
their successors are elected.
In accordance with this bylaw provision, on April 20, 2010
our board of directors designated a nominating committee
consisting of Jonathan Hirt Hagen, chair, Susan Hirt Hagen,
Thomas W. Palmer and Elizabeth Hirt Vorsheck. Thomas B. Hagen
is, ex officio, also a voting member of the nominating
committee. Consistent with the Holding Companies Act, none of
these persons is an officer or employee of us or of any entity
controlling, controlled by or under common control with us. Each
member of our nominating committee is an independent director as
defined in the rules applicable to companies listed on the
NASDAQ Global Select
Market®,
or NASDAQ.
Nominating
Procedures
Under Section 2.07(a) of our bylaws, nominations of persons
for election to our board of directors may be made at any
meeting at which directors are to be elected (i) by or at
the direction of our board of directors upon the recommendation
of our nominating committee or (ii) by any holder of our
Class B common stock.
With respect to nominations by or at the direction of our
nominating committee, except as is required by rules promulgated
by NASDAQ, the SEC or the Holding Companies Act, there are no
specific, minimum qualifications that must be met by a candidate
for our board of directors, and our nominating committee may
take into account such factors as it deems appropriate. Our
nominating committee generally bases its nominations on our
general needs as well as the specific attributes of candidates
that would add to the overall effectiveness of our board of
directors. Specifically, among the significant factors that our
nominating committee may take into consideration are judgment,
skill, experience with businesses and other organizations of
comparable size, the interplay of the candidates
experience with the experience of other directors, and the
extent to which the candidate would be a desirable addition to
our board of directors and any committee of our board of
directors.
Although we do not have a formal policy or guidelines regarding
diversity of membership of our board of directors, our corporate
governance guidelines recognize the value of having a board that
encompasses a broad range of skills, expertise, contacts,
industry knowledge and diversity of opinion. Our board has not
attempted to define diversity or otherwise require
that the composition of our board include individuals from any
particular background or who possess specific attributes.
In identifying and evaluating the individuals that it selects,
or recommends that our board of directors select, as director
nominees, our nominating committee utilizes the following
process:
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Our nominating committee reviews the qualifications of any
candidates who have been recommended by a holder of Class A
common stock or Class B common stock in accordance with our
bylaws.
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Our nominating committee also considers recommendations made by
individual members of our board of directors or, if our
nominating committee so determines, a search firm. Our
nominating committee may consider candidates who have been
identified by management, but is not required to do so.
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Our nominating committee evaluates the background, experiences,
qualifications and suitability of each candidate, including the
current members of our board of directors, in light of the
current size and composition of our board of directors and the
above discussed significant factors.
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After such review and consideration, our nominating committee
recommends a slate of director nominees to the board of
directors.
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Actions
Taken for Nominations
Our nominating committee met on February 19, 2011 for the
purposes of evaluating the performance and qualifications of the
current or proposed members of our board of directors and
nominating candidates for election as directors by the holders
of Class B common stock at our annual meeting.
Our bylaws provide that our board of directors shall consist of
not less than 7, nor more than 16, directors, with the exact
number to be fixed from time to time by resolution of our board
of directors. Our nominating committee recommended at its
February 19, 2011 meeting that the size of our board of
directors remain at 13 persons and that all 13 incumbent
directors as of such date be nominated to stand for re-election
as directors by the holders of Class B common stock at our
annual meeting.
On February 24, 2011, our board of directors accepted the
report and recommendation of our nominating committee, set the
number of directors to be elected at our annual meeting at 13
and approved the nomination of J. Ralph Borneman, Jr.,
Terrence W. Cavanaugh, Jonathan Hirt Hagen, Susan Hirt Hagen,
Thomas B. Hagen, C. Scott Hartz, Claude C. Lilly, III,
Lucian L. Morrison, Thomas W. Palmer, Martin P. Sheffield,
Richard L. Stover, Elizabeth Hirt Vorsheck and Robert C. Wilburn
for election as directors by the holders of Class B common
stock at our annual meeting. If elected, such persons would
serve until our 2012 annual meeting of shareholders and until
their successors are elected and qualified.
Candidates
for Election
Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the election of the nominees named
below. All of the nominees are currently directors of the
Company. If a nominee becomes unavailable for any reason, it is
intended that the proxies will be voted for a substitute nominee
selected by our nominating committee. Our board of directors has
no reason to believe the nominees named will be unable to serve
if elected.
The biography of each director nominee below contains
information regarding that persons principal occupation,
positions held with the Company, service as a director,
committee assignments, business experience, other director
positions currently held or held at any time during the past
five years, involvement in certain legal or administrative
proceedings, if applicable, and the experiences, qualifications,
attributes or skills that caused our nominating committee to
conclude that the person should serve as a member of our board
of directors:
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Principal Occupation
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for Past Five Years and
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Director
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Age
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Positions with the Company;
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of the
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Name
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as of
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Directorships with other Public Companies
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Company
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(Committee Assignments)
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4/1/11
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During Past Five Years
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Since
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J. Ralph Borneman, Jr. CIC, CPIA
(5)(7C)(8)
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72
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President, Chief Executive Officer and Chairman of the Board,
Body-Borneman Insurance & Financial Services LLC, insurance
agency, Boyertown, PA, 2005 to present; President, Chief
Executive Officer and Chairman of the Board, Body-Borneman
Associates, Inc., insurance agency; President, Body-Borneman,
Ltd. and Body-Borneman, Inc., 1967-2005, insurance agencies he
co-founded; Director, National Penn Bancshares; Director, Erie
Family Life Insurance Company, 1992-2007.
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1992
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Principal Occupation
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for Past Five Years and
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Director
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Age
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Positions with the Company;
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of the
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Name
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as of
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Directorships with other Public Companies
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Company
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(Committee Assignments)
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4/1/11
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During Past Five Years
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Since
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Mr. Borneman has extensive knowledge of, and over 40 years
of experience with, the business of insurance, agency matters,
sales and marketing, and insurance distribution strategies. Mr.
Borneman also has experience as a director of other public
companies.
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Terrence W. Cavanaugh
(5)(6)(7)
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57
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President and Chief Executive Officer of the Company, July 2008
to present; Senior Vice President, Chubb & Son/Federal
Insurance and Chief Operating Officer, Chubb Surety, for more
than five years prior thereto.
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2008
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Mr. Cavanaugh has prior executive management experience with a
large national property-casualty insurance company, and broad
knowledge of insurance operations and the insurance industry.
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Jonathan Hirt Hagen, J.D.
(2)(3)(4C)(7)(8)
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48
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Vice Chairman, Custom Group Industries, Erie, PA, machining and
fabrication manufacturing companies, since 1999; private
investor, since 1990; Director, Erie Family Life Insurance
Company, 2005-2007.
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2005
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Mr. Hagen, as the grandson of our late founder and longtime
leader of the Company, has significant knowledge of our history
and culture. His extensive business and legal educational
background, prior insurance experience and service on our board
also give him broad knowledge of the insurance industry and
business law. In addition, he has experience with his
familys business interests, as a private investor and as a
director of another public company.
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Susan Hirt Hagen
(1)(4)(5)(8C)
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75
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Co-Trustee of the H.O. Hirt Trusts, Erie, PA, since 1967;
private investor, since 1989; Director, Erie Family Life
Insurance Company, 1980-2007.
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1980
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Principal Occupation
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for Past Five Years and
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Director
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Age
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Positions with the Company;
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of the
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Name
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as of
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Directorships with other Public Companies
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Company
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(Committee Assignments)
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4/1/11
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During Past Five Years
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Since
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Mrs. Hagen is the daughter of our late founder, who was the
longtime leader of the Company. She is one of three trustees of
the H.O. Hirt Trusts which control a majority of our voting
stock. She also individually directly controls a significant
shareholding interest in the Company. In addition to her
extensive knowledge of the Company, as our longest serving
active director, she is a highly recognized community leader,
both locally and statewide. In 2010, she received the
Distinguished Citizen of the Commonwealth Award from the
Pennsylvania Society. Over many years, she has served on
numerous boards of directors, including Chautauqua Institution,
Wittenberg University and the Erie Community Foundation. Mrs.
Hagen also has prior experience as a director of another public
company.
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Thomas B. Hagen
(1C)(9)
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75
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Chairman/Owner, Custom Group Industries, Erie, PA, machining and
fabrication manufacturing companies, since 1997; General
Partner, Hagen Family Limited Partnership, since 1989;
Non-executive Chairman of the Board of our Company and of our
insurance subsidiaries, since 2007, and an employee (1953-1995)
and former agent of the Company, including service as President
(1982-1990) and Chairman & CEO (1990-1993); Director, Erie
Family Life Insurance Company.
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2007 and 1979-1998
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Mr. Hagen, the son-in-law and close associate of our late
founder and longtime leader of the Company, has extensive
insurance knowledge and experience having previously served the
Company for over 40 years in a variety of leadership
positions, including as our CEO. He has held leadership
positions in various insurance industry and business trade
groups and currently is immediate past Chairman of the
Pennsylvania Chamber of Business and Industry. He also has broad
executive management and leadership experience having served on
various civic and business boards of directors, including the
boards of two other public companies. He has served as
Pennsylvanias Secretary of Commerce and Secretary of
Community & Economic Development, and is a retired Captain
in the U.S. Navy Reserve. Additionally, he controls the second
largest voting and the largest non-voting shareholding interest
in the Company.
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Principal Occupation
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for Past Five Years and
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Director
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Age
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Positions with the Company;
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of the
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Name
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as of
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Directorships with other Public Companies
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Company
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(Committee Assignments)
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4/1/11
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During Past Five Years
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Since
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C. Scott Hartz, CPA
(6C)(7)
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65
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Chief Executive Officer, Hartz Group, IT and technology
consulting, Bala Cynwyd, PA, since 2002; Senior Managing
Director, SCIUS Capital Group, LLC, 2002 to 2007; Director, Erie
Family Life Insurance Company, 2003-2007; Chief Executive
Officer, PwC Consulting, 1995 to 2002.
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2003
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Mr. Hartz has a strong background in technology, information
technology consulting and investments. He has prior experience
in executive management and as a director of another public
company.
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Claude C. Lilly, III, Ph.D., CPCU, CLU
(1)(2C)(6)(7)(8)
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64
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Dean, College Business and Behavioral Science, Clemson
University, Clemson, SC, since 2007; Dean, Belk College of
Business Administration, University of North Carolina Charlotte,
1998 to 2007; James J. Harris Chair of Risk Management and
Insurance, Belk College of Business Administration, University
of North Carolina Charlotte, 1997 to 2007; Chairman of the Board
of Directors, Charlotte Branch of the Federal Reserve Bank of
Richmond; Director, FairPoint Communications, Inc; Director,
Erie Family Life Insurance Company, 2000-2007.
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2000
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Dr. Lilly has extensive experience with risk assessment and
management, and broad knowledge of insurance operations,
regulation of insurance companies and financial reporting. He
satisfies the SEC requirements of an audit committee financial
expert. Dr. Lilly also has experience as a director of
other public companies.
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Lucian L. Morrison, Esq.
(1)(2)(3)(6)(8)
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74
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Independent trustee and consultant in trust, estate, probate and
qualified plan matters, Houston, TX, since 1992; Director, Far
East Energy Corporation; Director, Erie Family Life Insurance
Company, 2006-2007.
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2006
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Mr. Morrison has an extensive background in business law, the
law of fiduciaries, investment analysis and financial
reporting. He also has experience as a director of other public
companies.
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Thomas W. Palmer, Esq.
(2)(3)(4)(7)
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63
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Member and a managing partner of the law firm of Marshall &
Melhorn, LLC, Toledo, OH, since 1972; Director, Erie Family Life
Insurance Company, 2006-2007.
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2006
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11
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Principal Occupation
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for Past Five Years and
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Director
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Age
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Positions with the Company;
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of the
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Name
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as of
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Directorships with other Public Companies
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Company
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(Committee Assignments)
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4/1/11
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During Past Five Years
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Since
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Mr. Palmer has significant experience with business and
corporate law, business dispute resolution, corporate
governance, financial reporting and family-owned enterprises.
He also has prior experience as a director of another public
company.
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Martin P. Sheffield, CPCU
(2)(7)
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61
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Owner, Sheffield Consulting, LLC, Bath, PA, insurance
consultants, since 2003; Director, Penn-America Group, Inc.,
2002-2005.
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2010
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Mr. Sheffield has extensive insurance industry, business and
executive management experience, including having served
22 years as CEO of Co-Operative Insurance Company of
Western New York, which ultimately became part of the Erie
Insurance Group, as the Executive Director of Strategic
Consulting for Ward Group, and as Vice President of the
Property-Casualty Rating Division of A.M. Best. Mr. Sheffield
also has prior experience as a director of another public
company.
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Richard L. Stover
(2)(6)
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68
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Managing Principal, Birchmere Capital, L.P., Wexford, PA,
private equity fund, since 2000.
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2010
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Mr. Stovers career has been concentrated in banking and
finance. In addition to prior executive experience with
financial institutions, including Mellon Bank, Bank of New
England and GE Capital, he has extensive knowledge of
investments, credit and corporate finance.
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Elizabeth Hirt Vorsheck
(1)(4)(5C)(7)(8)
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55
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Co-Trustee of the H.O. Hirt Trusts, Erie, PA, since 2007;
Administrator of family limited partnerships and a principal of
a family charitable foundation for more than five years.
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2007
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Mrs. Vorsheck is a granddaughter of the late founder and
longtime leader of the Company and she is one of three trustees
of the H.O. Hirt Trusts which control a majority of our voting
stock. In addition, she individually directly controls a
significant shareholding interest in the Company.
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12
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Principal Occupation
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for Past Five Years and
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Director
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Age
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Positions with the Company;
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of the
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Name
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as of
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Directorships with other Public Companies
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Company
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(Committee Assignments)
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4/1/11
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During Past Five Years
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Since
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Robert C. Wilburn, Ph.D.
(3C)(5)(6)
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67
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Distinguished Service Professor and Director, Heinz College,
Carnegie Mellon University, Washington, D.C., since 2009;
President and Chief Executive Officer, Gettysburg Foundation,
Gettysburg, PA, 2000 to 2009; Lead Director, Harsco, Inc.;
Director, Erie Family Life Insurance Company, 1999-2007.
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1999
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Dr. Wilburn has broad executive management experience as a
university president, CEO of two nationally prominent
foundations and service as Pennsylvanias Secretary of
Budget and Secretary of Education. He has extensive knowledge of
corporate finance and executive compensation. Dr. Wilburn
also has experience as a director of other public companies.
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(1) |
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Member of our Executive Committee. |
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(2) |
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Member of our Audit Committee. |
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(3) |
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Member of our Compensation Committee |
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(4) |
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Member of our Nominating Committee. |
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(5) |
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Member of our Charitable Giving Committee. |
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(6) |
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Member of our Investment Committee. |
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(7) |
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Member of our Strategy Committee. |
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(8) |
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Member of our Exchange Relationship Committee. |
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(9) |
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Ex officio non-voting member of our Audit and
Compensation Committees and voting member of all other
committees. |
C Denotes committee chairperson.
13
Our board of directors has determined that each of the following
directors and director nominees satisfies the definition of an
independent director as set forth in the rules
promulgated by NASDAQ:
Jonathan Hirt Hagen
Susan Hirt Hagen
Thomas B. Hagen
C. Scott Hartz
Claude C. Lilly, III
Lucian L. Morrison
Thomas W. Palmer
Martin P. Sheffield
Richard L. Stover
Elizabeth Hirt Vorsheck
Robert C. Wilburn
Required Vote. Cumulative voting rights do not
exist with respect to the election of directors. Of the 13
candidates for election as a director, only those who receive
the affirmative vote of holders of a majority of the shares of
Class B common stock will be elected or re-elected to our
board of directors.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF
THE CANDIDATES FOR DIRECTOR NOMINATED BY OUR NOMINATING
COMMITTEE.
OUR BOARD
OF DIRECTORS
Introduction
Our board of directors is currently comprised of 13 members, all
of whom were elected at our 2010 annual meeting to serve for a
term of one year. Vacancies on our board of directors may be
filled only by persons elected by a majority of the remaining
directors, or by our voting shareholders, in accordance with our
bylaws.
All directors hold office until their respective successors are
elected and qualified, or until their earlier death, resignation
or removal. There are no family relationships between any of our
directors or executive officers, except for the following:
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Thomas B. Hagen, chairman of our board of directors and chairman
of our executive committee, and Mrs. Hagen, a director, are
husband and wife;
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Jonathan Hirt Hagen, a director, is the son of Thomas B. Hagen
and Mrs. Hagen, and a first cousin of
Mrs. Vorsheck; and
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Mrs. Vorsheck, a director, is a niece of Mrs. Hagen
and a first cousin of Jonathan Hirt Hagen.
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During 2010, each director attended more than 75% of the number
of meetings of our board of directors and the standing
committees of our board of directors of which such director was
a member.
Board
Leadership and Executive Sessions
The chairman of our board of directors is elected annually by
the remaining directors on our board. In addition to presiding
at all meetings of shareholders and of our board of directors,
the chairmans duties include setting priorities,
establishing agendas for meetings of the board, providing board
leadership, and communicating with the CEO on matters of
strategic direction. The chairman also serves ex officio
as a member of all other board committees of which he is not a
designated member.
Since our incorporation in 1925, we have traditionally separated
the positions of chairman of the board and chief executive
officer of the Company. Although our board of directors has no
specific policy regarding separation of these offices and our
bylaws permit the chairman to serve as chief executive officer,
our board has determined that separating these positions is
currently in the best interest of the Company and our
14
shareholders. Given the length of time and different capacities
in which our current chairman has served the Company, including
as a prior chief executive officer, and his status as an
independent director under NASDAQ rules, our board believes that
separating these positions is an important component of our
management succession plan, and allows our chairman to lead the
board in its independent oversight of management and our CEO to
focus on the
day-to-day
issues affecting our business.
A majority of the directors on our board meet the definition of
an independent director under NASDAQ rules. Our
independent directors meet in executive session without
management directors or management present. These sessions
generally take place prior to or following regularly scheduled
board meetings. The directors met in such sessions five times
during 2010.
Risk
Oversight
Our board of directors oversees our risk management process.
This oversight is primarily accomplished through the
boards committees and managements reporting
processes. We do not have a formal risk committee; however, our
audit committee focuses on risk related to accounting, internal
controls and financial and tax reporting. The audit committee
also assesses economic and business risks and monitors
compliance with ethical standards. Our Executive Compensation
and Development Committee, or compensation
committee, identifies and oversees risks associated with
our executive compensation policies and practices, and our
nominating committee identifies and oversees risks associated
with director independence, related party transactions and the
implementation of corporate governance policies.
Committees
of Our Board
Our board of directors met five times in 2010. The standing
committees of our board of directors are our executive
committee, audit committee, compensation committee, nominating
committee, charitable giving committee, investment committee,
strategy committee and exchange relationship committee.
Our executive committee, which did not meet during 2010, has the
authority, subject to certain limitations, to exercise the power
of our board of directors between regular meetings.
Our audit committee met seven times in 2010. Consistent with
Section 1405(c)(4) of the Holding Companies Act and the
Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, our
audit committee has responsibility for the selection of
independent registered public accountants, reviewing the scope
and results of their audit and reviewing our financial condition
and the adequacy of our accounting, financial, internal and
operating controls. Our audit committee operates pursuant to a
written charter, a copy of which may be viewed on our website
at:
http://www.erieinsurance.com.
Our compensation committee met five times in 2010. Consistent
with Section 1405(c)(4.1) of the Holding Companies Act and
our bylaws, our compensation committee has responsibility for
recommending to our board of directors, at least annually, the
competitiveness and appropriateness of the salaries, short- and
long-term incentive plan awards, terms of employment,
non-qualified retirement plans, severance benefits and
perquisites of our chief executive officer, executive vice
presidents and such other named executives as required by rules
of the SEC or NASDAQ listing standards, and such other
responsibilities as our board of directors may designate. See
Executive Compensation Compensation Committee
Interlocks and Insider Participation. Our compensation committee
operates pursuant to a written charter, a copy of which may be
viewed on our website at:
http://www.erieinsurance.com.
Our nominating committee met two times in 2010. Consistent with
Section 1405(c)(4.1) of the Holding Companies Act and our
bylaws, our nominating committee has responsibility for
identification of individuals believed to be qualified to become
members of our board of directors and to recommend to our board
of directors nominees to stand for election as directors;
identification of directors qualified to fill vacancies on any
committee of our board; and evaluation of the procedures and
process by which each committee of our board of directors
undertakes to self-evaluate such committees performance.
Our nominating committee operates pursuant to a written charter,
a copy of which may be viewed on our website at:
http://www.erieinsurance.com.
15
DIRECTOR
SHAREHOLDER COMMUNICATIONS
Our shareholders may communicate with our board of directors
through our secretary. Shareholders who wish to express any
concerns to any of our directors may do so by sending a
description of those concerns in writing addressed to a
particular director, or in the alternative, to
Non-management Directors as a group, care of our
secretary at our headquarters, 100 Erie Insurance Place, Erie,
Pennsylvania 16530. All such communications that are received by
our secretary will be promptly forwarded to the addressee or
addressees set forth in the communication.
Recognizing that director attendance at our annual meeting can
provide our shareholders with an opportunity to communicate with
directors about issues affecting us, we actively encourage our
directors to attend our annual meeting. In 2010, all of our
directors attended our annual meeting.
COMPENSATION
DISCUSSION AND ANALYSIS
Overview
Our executive compensation program is developed and monitored by
our compensation committee. The committee establishes the
compensation philosophy and policies for our executive officers,
which include our CEO and executive vice presidents. In
fulfilling this role, the committee is responsible for
establishing principles that guide the design of compensation
programs for all executives. In so doing, it reviews the
performance results of each executive and establishes individual
compensation levels. The compensation committee engaged an
outside consultant, Aon Hewitt, formerly Hewitt Associates, to
assist with these duties in setting 2010 executive compensation.
Although Aon Hewitt did not perform any additional services for
our organization in 2010, we used Aon Risk Insurance Services,
Inc. as our broker for our management liability insurance
program and paid them $125,000 for these services in 2010.
The two primary corporate goals used for our performance plans
in 2010 were the Property and Casualty Groups statutory
combined ratio and growth in direct written premium. We exceeded
expectation on both corporate goals during 2010. Direct written
premium increased by 4.5% in 2010 versus the target of 3.9%.
This increase was primarily driven by a 3.3% increase in
policies in force as we continue to have strong policyholder
retention rates. The statutory combined ratio for 2010 was 99%
versus the target of 101% which is the result of favorable prior
year loss reserve development. This favorable prior year loss
development improved the combined ratio by 4.8 points and
resulted from improvements in severity trends on our personal
auto line of business as well as certain commercial lines.
Another key financial measurement is net operating income which
was $163 million for 2010, an increase of 49% from 2009.
This increase was primarily due to equity in earnings of limited
partnerships in 2010 versus losses in 2009. Additional
information regarding our financial results for the year ended
December 31, 2010, is provided in Part II,
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations in our
Form 10-K
filed with the SEC on February 24, 2011.
16
Named
Executive Officers (NEOs)
In accordance with SEC regulations, our NEOs for 2010, as
presented in our Summary Compensation Table, include the
following:
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Principal executive officer
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Terrence W. Cavanaugh, President and CEO
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Principal financial officer
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Marcia A. Dall, Executive Vice President and CFO
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Next three most highly compensated officers
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James J. Tanous, Executive Vice President, Secretary and General
Counsel
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Michael S. Zavasky, Executive Vice President, Insurance
Operations
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Douglas F. Ziegler, Senior Vice President, Chief Investment
Officer and Treasurer
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Additional named executive officer
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George R. Lucore, former Executive Vice President, Field
Operations
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Mr. Lucore retired from serving as our executive vice
president of field operations on March 31, 2010. Although
Mr. Ziegler is included hereafter as an NEO, as a senior
vice president his compensation is reviewed and set by our chief
financial officer.
Risk
Management
We have a formal enterprise risk management program that falls
under the leadership of our CFO. The purpose of this program is
to promote risk-intelligent decision making and, in turn,
increase the likelihood of achieving our corporate objectives.
Our board of directors receives regular reports advising them of
potential organizational risks and supporting mitigating
policies.
The compensation committee evaluates risks associated with the
annual and long-term incentive compensation programs for our
executive and senior leader team each year to ensure that they
do not negatively impact the value of the Company. The committee
ensures that performance measures used in these programs align
with our overall business strategy. One risk management tool is
our stock retention requirement which is a prerequisite to
continued participation in our annual incentive plan, or
AIP. We believe that requiring executives to hold
shares of our stock for an extended period of time discourages
them from taking risks for short-term or immediate gain. In
addition to the stock purchase and retention requirement, our
compensation committee also has the ability to exercise
discretion to reduce awards to any individual participant in the
incentive plans. Finally, the committee balances compensation
risk by comparing our property and casualty insurance results
against a peer group in our long-term incentive plan, or
LTIP. The committee closely monitors our results
against those of our peers during the three-year performance
period to see whether we are performing dramatically above or
below the industry, which may be an indicator of inappropriate
risk-taking by management.
Consistent with our
pay-for-performance
philosophy, we utilize annual variable pay programs for all
other members of our management team and certain non-management
employees. Approximately 900 of our 4,200 full-time
employees participate in one of these programs. The corporate
performance measures used in these programs are aligned with
those used in the AIP for our executive and senior leaders. We
believe this promotes alignment of efforts across the
organization while minimizing conflict among management team
members as they lead the organization to achieve operational
goals each year. While the compensation committee does not
directly oversee the variable pay programs, changes to
compensation programs for all employees are communicated to the
committee when they occur.
Compensation
Philosophy
The goal of our executive compensation program is to attract,
motivate, retain and reward executives in a fiscally responsible
manner. To achieve this objective, we design executive
compensation programs that encourage our executives to strive
for performance that is better than the industry average. We
provide a mix
17
of fixed and variable compensation that is intended to motivate
our executives to execute on short and long-term objectives that
build sustainable long-term value. We also believe our
compensation program balances the interests of our primary
stakeholders, our shareholders, with the policyholders of the
Exchange.
Our variable compensation is tied to (1) each
executives individual performance and (2) the overall
performance of the company, thereby supporting our
performance-based compensation philosophy. Because our
executives have a greater ability to influence our financial
performance through their decisions, the percentage of an
executives total direct compensation (i.e., base salary,
annual and long-term incentive plans) comprised of variable pay
increases with their level of individual responsibility.
Base salary is a fixed level of income to our executives for the
competencies and performance they demonstrate in their roles.
Base salaries are linked to other compensation elements,
including short- and long-term incentive plans. Targets in these
plans are based upon a percentage of each executives base
salary. Accordingly, we consider all elements of our executive
compensation program when considering its potential to influence
short- and long-term organizational success.
Setting
Executive Compensation
As stated in the overview, our executive compensation program is
developed and monitored by our compensation committee which
establishes the compensation philosophy and policies for our
executive officers, including our CEO and executive vice
presidents. In fulfilling this role, the committee is
responsible for establishing principles that guide the design of
compensation programs for all executives. In so doing, it
reviews the performance results of each executive and
establishes individual compensation levels. The compensation
committee engaged Aon Hewitt for recommendations concerning 2010
executive compensation. In setting 2010 executive compensation,
the committee considered a formal report from Aon Hewitt which
included an analysis of (1) market pay data collected from
various published surveys from a broad group of property and
casualty insurance companies and (2) data from publicly
disclosed proxy materials of a select group of property and
casualty insurance companies. Our compensation committee then
considered the nature and extent of each executives
skills, scope of responsibilities, performance and effectiveness
in supporting our long-term goals.
In preparing the 2010 benchmark and survey data for our
compensation committees consideration, the following
methodology was used:
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Competitive compensation levels for our executives were
determined by matching each position to survey benchmark
positions found in the market.
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Compensation data was obtained from various published insurance
industry and general industry sources, including William M.
Mercer, Towers Watson (formerly known as Towers Perrin)
Executive Survey and Towers Watson (formerly known as Watson
Wyatt) Survey Report on Top Management.
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An executive compensation benchmarking was performed for a peer
group of property and casualty insurance companies we consider
to be our competitors for policyholders, and in some cases
employees, and similar to us in terms of lines of business, net
premiums written and asset size. The peer group used in our 2010
base salary analysis consisted of: American Family Insurance,
Auto Club of MI, Auto-Owners, Cincinnati Insurance Companies,
COUNTRY Insurance, Farmers Insurance, The Hanover Insurance
Group, Inc., Harleysville Group, Inc., Mercury General
Corporation, Selective Insurance Group, Inc., Sentry Insurance,
State Auto Insurance Companies, State Farm Mutual Automobile
Insurance Company, United Service Automobile Association, and
Westfield Insurance Company.
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Our existing compensation levels were analyzed and compared at
the 50th percentile for comparable positions.
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18
Executive
Compensation Elements
We achieve our compensation objectives stated above by providing
the following elements of executive compensation:
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A base salary that represents a fixed level of cash compensation
for performing
day-to-day
responsibilities based on external competitiveness, level of
experience, and individual performance;
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A performance-based annual incentive program that provides each
executive an opportunity to earn a cash award based on the
achievement of pre-determined goals or other performance
objectives during the course of a one-year period;
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A long-term incentive program that provides an opportunity for
each executive to earn an award based on the achievement of
performance objectives, as measured against a pre-defined peer
group, that create long-term value for our shareholders; and
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Benefits that include an unfunded, non-qualified supplemental
retirement plan, or SERP, that enables eligible
participants to earn benefits in excess of those benefits that
can be earned under our tax-qualified defined benefit pension
plan and an unfunded, non-qualified deferred compensation
arrangement, or deferred compensation plan, that
enables eligible participants to defer receipt of a portion of
their compensation until a later date.
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Base
Salary
For 2010, the compensation committee approved the following base
salary increases to recognize performance, change in
responsibility
and/or
market comparables. Mr. Zieglers increase was in
accordance with normal practices for other employees within our
organization, since he is a senior vice president.
Base
Salary
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Effective
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Effective
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March 1, 2009
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March 1, 2010
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Increase
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Terrence W. Cavanaugh
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$
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700,000
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$
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735,000
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$
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35,000
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Marcia A. Dall
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$
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400,000
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$
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410,000
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$
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10,000
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James J. Tanous
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$
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375,000
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$
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410,000
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$
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35,000
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Michael S. Zavasky
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$
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325,000
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$
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340,000
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$
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15,000
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Douglas F. Ziegler
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$
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361,555
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$
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372,402
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$
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10,847
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Annual
Incentive Plan (AIP)
Our 2010 AIP payouts for our NEOs were based on the attainment
of corporate and individual performance measures established at
the beginning of 2010. With respect to the 2010 AIP, 80% of the
award was based on corporate performance measures, while 20% was
based upon individual performance measures for our CEO and
executive vice presidents. For our senior vice presidents, 40%
of the award was based on corporate performance measures, 40%
was based upon divisional measures and the remaining 20% was
based upon individual performance goals. Our compensation
committee determined that linking annual incentive awards to
individual performance for our executive and senior leadership
team would result in increased differentiation of rewards and
line of sight among participants.
19
2010 AIP
Performance Measures and Weighting
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% Increase in
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Statutory
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Individual
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Direct Written
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Combined
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and Division
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Premiums
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Ratio
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Weighting
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Terrence W. Cavanaugh
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40
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%
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40
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%
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20
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%
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Marcia A. Dall
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40
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%
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40
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%
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20
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%
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James J. Tanous
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40
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%
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40
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%
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20
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%
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Michael S. Zavasky
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40
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%
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40
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%
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20
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%
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Douglas F. Ziegler
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20
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%
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20
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%
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60
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%
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George R. Lucore(1)
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50
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%
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50
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%
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n/a
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(1) |
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No individual goals were established for Mr. Lucore in 2010
since he retired on March 31, 2010. |
Once the target percentages were determined, our compensation
committee, after discussion with our board of directors,
established appropriate AIP performance measures expected to
drive strong organizational performance. Our board of directors
and management reviewed our historical performance, operating
goals and industry estimates to determine which areas needed to
be incented to help us achieve our strategic objectives in the
following year.
The compensation committee then set a minimum, or
threshold, a target and a maximum for each
performance measure. The maximum was intended to incent a
participants performance to achieve a maximum performance
payout. Results between the threshold and target provided a
partial payout when a portion of the goal was achieved. The
target goals for the growth and profitability measures were set
at a level equal to or better than projected average industry
performance.
The company performance measures for the NEOs are noted in the
table below. See the 2010 AIP Performance Measures and Weighting
table for the specific measures assigned to each NEO.
2010
Company Performance Measures
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Actual
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Result
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Threshold
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Target
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Maximum
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% increase in Direct Written Premium(1)
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4.5
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%
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1.9
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%
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3.9
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%
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5.9
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%
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Statutory Combined Ratio(2)
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99
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%
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103
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%
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101
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%
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98
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%
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(1) |
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The
year-over-year
percentage increase in the Property and Casualty Groups
direct written premium. |
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(2) |
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The statutory combined ratio of the Property and Casualty Group
measures the underwriting profitability of our property and
casualty insurance business without consideration of investment
earnings or federal income taxes. |
The committee believes these performance measures promote growth
while maintaining a strong underwriting discipline (through the
statutory combined ratio).
The following table describes the NEO individual goals, and
Mr. Zieglers divisional goals, that account for the
remaining portion of their AIP payouts.
20
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Goals
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Participants
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Description
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Organizational
Structure
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Terrence W. Cavanaugh
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Develop an organizational structure that assures long-term
operational and financial success.
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Succession Planning
and Employee
Development
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Marcia A. Dall
James J. Tanous
Michael S. Zavasky
Douglas F. Ziegler
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Complete and execute a development plan for their direct reports
with the goal of developing potential successors, as well as
strengthening our leadership pipeline.
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Structure and
Capital Options
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Terrence W. Cavanaugh
Marcia A. Dall
Douglas F. Ziegler
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Develop various corporate structuring and capital options that
create a strong operating platform while enhancing financial
performance and strength.
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Technology
Deliverables
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Michael S. Zavasky
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Deliver a pre-determined menu of projects to strengthen and
enhance our technology platform.
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Compliance
Function
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James J. Tanous
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Deliver a strategic plan for compliance in appropriate focus
areas.
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Investment Process
Improvement
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Douglas F. Ziegler
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Enhance our investment modeling capabilities, as well as
automate and increase the use of technology in our investment
processes.
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The 2010 target and actual percentages for AIP awards earned are
noted in the table below. AIP bonuses were paid on March 9,
2011.
2010 AIP
Target and Actual Awards
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Achievement Relative
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AIP Target as a % of
|
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Actual 2010 AIP as a %
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Actual 2010
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to Threshold, Target or
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Base Salary
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of Base Salary
|
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AIP Payout ($)
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Maximum
|
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Terrence W. Cavanaugh
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75
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%
|
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118
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%
|
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$
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863,610
|
|
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|
Above Target
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|
Marcia A. Dall
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60
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%
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|
|
94
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%
|
|
$
|
385,393
|
|
|
|
Above Target
|
|
James J. Tanous
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60
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%
|
|
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86
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%
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|
$
|
353,413
|
|
|
|
Above Target
|
|
Michael S. Zavasky
|
|
|
60
|
%
|
|
|
87
|
%
|
|
$
|
295,115
|
|
|
|
Above Target
|
|
Douglas F. Ziegler
|
|
|
50
|
%
|
|
|
70
|
%
|
|
$
|
259,437
|
|
|
|
Above Target
|
|
George R. Lucore(1)
|
|
|
60
|
%
|
|
|
22
|
%
|
|
$
|
71,320
|
|
|
|
Above Target
|
|
|
|
|
(1) |
|
Mr. Lucores AIP payout was pro-rated based on time in
position during the year prior to his retirement on
March 31, 2010. |
21
The following table summarizes the results of the 2010 NEO
individual goals and Mr. Zieglers divisional goals:
|
|
|
|
|
Goals
|
|
Participants
|
|
Results
|
|
Organizational
Structure
|
|
Terrence W. Cavanaugh
|
|
Developed a strong organizational structure with more effective
roles and responsibilities defined. Moved talent into right
positions for greater building of capabilities. Created a longer
term perspective on our talent needs resulting in a more robust
staffing and succession management program.
|
Succession Planning
and Employee
Development
|
|
Marcia A. Dall
James J. Tanous
Michael S. Zavasky
Douglas F. Ziegler
|
|
Developed and implemented individual development priorities for
direct reports with current and future career potential as
focus. Identified potential successors and made significant
progress in executing on effective talent development practices.
|
Structure and
Capital Options
|
|
Terrence W. Cavanaugh
Marcia A. Dall
Douglas F. Ziegler
|
|
Delivered strong leadership and executed transactions in a short
time horizon to realign the insurance operations under the
Exchange and return the Company to a management company.
|
Technology
Deliverables
|
|
Michael S. Zavasky
|
|
Gained momentum this year on key deliverables creating the
foundation for stronger implementation in 2011. However, certain
key deliverables were not met.
|
Compliance
Function Buildout
|
|
James J. Tanous
|
|
Continued to mature our compliance function. We focused our
efforts on strengthening our information security capability
through formal strategic planning efforts.
|
Investment Process
Improvement
|
|
Douglas F. Ziegler
|
|
Among other process improvements in this area, we successfully
created a paperless environment for our alternative investments
process.
|
We continued to use a funding qualifier for the 2010 AIP. The
compensation committee determined that it would be appropriate
to first consider our overall financial results before a payout
could be made based on our above property and casualty insurance
measures. The funding qualifier is based on our net operating
income (i.e., net income excluding realized gains or losses and
impairments on investments and related taxes). Use of our net
operating income helps to bring balance between shareholder
interests and policyholder interests. In order for a payout to
occur under the 2010 AIP, net operating income had to exceed
$82 million, calculated as 75% of our 2009 net
operating income. For 2010, our net operating income totaled
$163 million, thereby exceeding the qualifier and funding
the 2010 AIP.
22
Long-Term
Incentive Plan (LTIP)
The purpose of our LTIP is to enhance our growth and
profitability, and that of the Exchange, by providing longer
term rewards to executives who are capable of having a
significant impact on our performance. We accomplish this
objective by providing eligible executives with incentives based
on attainment of certain performance goals over three-year
performance periods; performance is measured and compared to an
industry peer group selected by the compensation committee.
For the
2010-2012
performance period under our LTIP, the peer group is comprised
of the following companies: Allstate Insurance Group, American
Family Insurance Group, Auto Owners Insurance Group, Cincinnati
Insurance Companies, Country Financial, Farmers Insurance Group,
Government Employees Insurance Group (GEICO), Grange Insurance
Group, Liberty Mutual Insurance Companies, Nationwide Insurance
Group, State Auto Insurance Companies, State Farm Insurance
Group, Travelers Group and USAA Group. The compensation
committee believes this peer group is representative of our
competition as it comprises a large share of the industrys
property and casualty insurance premiums.
The tables below outline LTIP targets as a percentage of base
salary, the criteria selected to ensure long-term sustainability
and competitive positioning, as well as the weighting of the
LTIP performance measures established by the compensation
committee for the
2010-2012
performance period.
2010-2012
LTIP Targets
|
|
|
|
|
|
|
LTIP Target as a % of
|
|
|
Base Salary
|
|
Terrence W. Cavanaugh
|
|
|
95
|
%
|
Marcia A. Dall
|
|
|
75
|
%
|
James J. Tanous
|
|
|
75
|
%
|
Michael S. Zavasky
|
|
|
75
|
%
|
Douglas F. Ziegler
|
|
|
70
|
%
|
George R. Lucore
|
|
|
75
|
%
|
2010-2012
LTIP Performance Measures and Weighting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Increase in Direct
|
|
Statutory
|
|
Total Return on
|
|
|
Written Premiums
|
|
Combined Ratio
|
|
Invested Assets
|
|
Terrence W. Cavanaugh
|
|
|
40
|
%
|
|
|
40
|
%
|
|
|
20
|
%
|
Marcia A. Dall
|
|
|
40
|
%
|
|
|
40
|
%
|
|
|
20
|
%
|
James J. Tanous
|
|
|
40
|
%
|
|
|
40
|
%
|
|
|
20
|
%
|
Michael S. Zavasky
|
|
|
40
|
%
|
|
|
40
|
%
|
|
|
20
|
%
|
Douglas F. Ziegler(1)
|
|
|
20
|
%
|
|
|
20
|
%
|
|
|
60
|
%
|
George R. Lucore(2)
|
|
|
40
|
%
|
|
|
40
|
%
|
|
|
20
|
%
|
|
|
|
(1) |
|
The LTIP performance measure weightings established for
Mr. Ziegler reflect his responsibilities as chief
investment officer. |
|
(2) |
|
In consideration of Mr. Lucores retirement on
March 31, 2010, the
2010-2012
performance period was treated as having ended on
December 31, 2010; he is entitled to receive a cash payment
representing the LTIP earned award that will be pro-rated for
the number of days he served in his position during the full
36-month
performance period prior to his retirement. |
Given the nature of our business, underwriting profitability and
return on investments are important to long-term financial
strength. The Property and Casualty Groups direct written
premium growth is also important to our financial results as it
is the primary driver of the management fee revenue we earn from
the Exchange.
23
The
2008-2010
performance period is closed and participants have vested in
those shares. Distribution of the shares will occur later in
2011 since computations require peer group data for the year
ended December 31, 2010, which is not yet available. For
this performance period, we have information on eleven of the
twelve measurement quarters and expect the payout to be
approximately 140% of target. See Executive
Compensation Outstanding Equity Awards table. Awards
are expected to be paid in cash rather than stock for the
2009-2011
and
2010-2012
LTIP performance periods.
Executive
Compensation Changes for 2011
In determining 2011 executive compensation, the committee used
tally sheets prepared by management. The tally sheets set forth
all components of the executives compensation, including
base salary, annual and long-term incentive compensation,
benefits, perquisites and retirement plan accruals. These tally
sheets also contained a market review of each individual
position. Based upon a review of this information and in
recognition of performance, the compensation committee approved
the following changes to executive compensation for 2011:
|
|
|
|
|
A $100,000 increase in Mr. Cavanaughs base salary
effective March 1, 2011. His new base salary will be
$835,000. An increase in target opportunity for
Mr. Cavanaugh from 75% to 80% in the AIP was also made.
These changes reflect Mr. Cavanaughs
contributions-to-date
and bring his total compensation closer to the median of our
peer group.
|
|
|
|
Increase to base salary to recognize performance
and/or
market comparables. Base salary effective March 1, 2011 for
Ms. Dall is set at $425,000, an increase of $15,000; for
Mr. Tanous, $422,000, an increase of $12,000; and for
Mr. Zavasky, $360,000, an increase of $20,000.
Mr. Zieglers base salary is set at $383,574, an
increase of $11,172, and was computed in accordance with normal
merit increase practices for other employees within the Company.
|
|
|
|
Awards for the
2011-2013
LTIP performance period will be paid in shares of our
Class A common stock. The committee believes that this
change conveys the importance of ownership of Company stock by
our executive and senior leaders and aligns our
managements wealth accumulation with that of our
shareholders.
|
Policy on
Recoupment of Officer Bonuses
The committee developed and our board of directors approved a
clawback policy for our AIP and LTIP
performance-based incentive compensation, effective July 1,
2009. To the extent permitted by law, our policy requires the
reimbursement of all or a portion of any performance-based
annual or long-term bonus paid to any officer after
June 30, 2009 where (a) the payment was predicated
upon the achievement of certain financial results that were
subsequently the subject of a restatement, and (b) a lower
payment would have been made to the officer based upon the
restated financial results. In each such instance, the Company
will, to the extent practicable, seek to recover the amount by
which the officers bonus for the relevant period exceeded
the lower payment that would have been made based on the
restated financial results. We will not seek to recover bonuses
paid more than two years prior to the date on which our board of
directors was made aware of the need to restate our financial
statements. We will continue to monitor regulatory requirements
and adjust our policy as may be considered necessary.
We also have a policy which states that, to the extent permitted
by law, officers are required to reimburse us for any
performance-based annual or long-term bonus we paid to such
officer after June 30, 2009 where the officers
employment with us has been terminated for cause either prior to
the payment of the bonus or within six months thereafter.
Stock
Retention Program
Effective in 2009, we implemented an officers stock
purchase and retention program that applies to all officers who
participate in our AIP. Each participant is required annually to
purchase shares of our Class A common stock, the aggregate
purchase price of which must equal at least ten percent (10%) of
the value of the
24
officers most recent AIP award. Shares of our Class A
common stock previously acquired and shares purchased in an
officers 401(k) savings plan do not count toward the
minimum annual purchase requirement. However, shares of our
Class A common stock acquired after 2009 by an officer
under the Companys 2004 LTIP, or under a similar plan or
arrangement granted in lieu of the LTIP, may be used to satisfy
these purchase requirements for 2010 and 2011. AIP participants
are required to retain a portion of the stock purchased pursuant
to this program until six months after the date on which such
participant ceases to be an officer of the Company. 100% of any
LTIP shares used to satisfy these purchase requirements must be
retained until six months after the date on which such
participant ceases to be an officer of the Company. The
six-month post employment retention period does not apply in the
event of the death of a participant.
The program provides that an officer who does not satisfy the
minimum annual purchase requirement in any year shall not be
eligible for an AIP award for the following year. Our board of
directors retains the discretion to grant exceptions to the
purchase and retention requirements, and to suspend the program
entirely, where the application of these requirements would
result in a hardship. The first year during which participants
were required to purchase stock was 2010. Our NEOs satisfied
this requirement for 2010.
Tax
Implications of Executive Compensation
Section 162(m) of the Internal Revenue of 1986, or the
Code, places a limit of $1.0 million on the
amount of compensation that we may deduct in any one year with
respect to each of our five most highly paid executive officers,
subject to an exception for performance-based compensation that
meets certain requirements. Our AIP and LTIP awards are
performance-based and have been approved by our shareholders. As
such, payments made under these plans are not included in the
$1.0 million limit on deductible compensation. All of our
compensation and individual incentive awards are subject to
federal income, FICA and other tax withholdings as required by
applicable law.
All compensation paid in 2010 to our NEOs is deductible under
Section 162(m) of the Code. While our compensation
committee strives to provide compensation opportunities to our
executives in as tax-efficient a manner as possible, it
recognizes that from time to time it may be in the best interest
of our shareholders to provide non-tax deductible compensation.
Additional
Benefits
We believe retirement benefits are an important part of a
competitive reward opportunity that enables us to attract and
retain top-tier leadership talent. Accordingly, we have
maintained a tax-qualified defined benefit pension plan since
1946. The tax-qualified defined benefit pension plan has been
available to all of our salaried employees since that time. We
also provide a SERP to our NEOs in response to Code, which
limits the maximum annual pension award that can be paid to any
eligible employee. As illustrated in the Pension Benefits table,
an older NEO can produce a significantly higher present value
compared to a younger, more highly paid NEO. This result occurs
primarily because the nearer an NEO is to normal retirement age,
the shorter the discount period used in calculating the present
value of the benefits. See also Executive
Compensation Pension Plan.
We maintain a deferred compensation plan in which executives are
eligible to participate. This plan is an unfunded,
non-qualified, deferred compensation arrangement created for a
select group of management and highly compensated employees. Two
of our NEOs participated in this plan in 2010. See Executive
Compensation Nonqualified Deferred Compensation.
Our executives also participate in the broad-based benefit plans
offered generally to all of our full-time employees (e.g.,
401(k) plan, health insurance and other employee benefits).
Executive participation in these benefit plans is on the same
terms as all of our other employees.
Agreements
with Executive Officers
We have an employment agreement with Mr. Cavanaugh, our
president and CEO. Because Mr. Cavanaugh joined us
mid-career, his employment agreement was developed to provide
him with a minimum level of
25
financial security. Terms of Mr. Cavanaughs agreement
are included in Executive Compensation Agreements
with Executive Officers. Termination scenarios for all of our
NEOs, with the exception of Mr. Lucore, are included in
Executive Compensation Potential Termination or
Change in Control Payments.
EXECUTIVE
COMPENSATION
The following table sets forth the compensation during 2010,
2009 and 2008 for our NEOs. Compensation disclosed herein is for
services rendered in all capacities to us, EFL, the Exchange and
their subsidiaries and affiliates. Compensation is allocated
among us, the Exchange, EFL and their subsidiaries and
affiliates according to an estimated proportion of the
executives time dedicated to the affairs of the various
entities. Our share of total compensation expense for the NEOs
in 2010, 2009 and 2008 was 55.6%, 54.4% and 56.2%, respectively.
Amounts indicated are pre-individual income taxes.
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
Value and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
Deferred
|
|
All
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Compen-
|
|
Compensation
|
|
Other
|
|
|
Name and
|
|
|
|
Salary
|
|
Bonus
|
|
Awards
|
|
Awards
|
|
sation (5)
|
|
Earnings
|
|
Compensation
|
|
Total
|
Principal Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Terrence W. Cavanaugh
|
|
2010
|
|
728,269
|
|
0
|
|
0
|
|
0
|
|
|
1,097,610
|
|
|
|
139,648
|
|
|
|
101,770
|
|
|
|
2,067,297
|
|
President and CEO
|
|
2009
|
|
700,000
|
|
0
|
|
0
|
|
0
|
|
|
530,530
|
|
|
|
108,736
|
|
|
|
299,194
|
|
|
|
1,638,460
|
|
|
|
2008
|
|
274,615
|
|
0
|
|
1,075,516
|
|
0
|
|
|
576,940
|
|
|
|
99,414
|
|
|
|
128,304
|
|
|
|
2,154,789
|
|
Marcia A. Dall
|
|
2010
|
|
408,077
|
|
0
|
|
0
|
|
0
|
|
|
385,393
|
|
|
|
53,257
|
|
|
|
36,258
|
|
|
|
882,985
|
|
Executive Vice President and CFO(1)
|
|
2009
|
|
289,231
|
|
100,000
|
|
0
|
|
0
|
|
|
212,372
|
|
|
|
32,212
|
|
|
|
137,052
|
|
|
|
770,867
|
|
James J. Tanous
|
|
2010
|
|
403,269
|
|
18,500
|
|
0
|
|
0
|
|
|
353,413
|
|
|
|
110,581
|
|
|
|
15,782
|
|
|
|
901,545
|
|
Executive Vice President,
|
|
2009
|
|
375,000
|
|
0
|
|
0
|
|
0
|
|
|
262,350
|
|
|
|
81,731
|
|
|
|
14,334
|
|
|
|
733,415
|
|
Secretary and General Counsel(2)
|
|
2008
|
|
375,000
|
|
0
|
|
280,972
|
|
0
|
|
|
261,525
|
|
|
|
79,755
|
|
|
|
89,444
|
|
|
|
1,086,696
|
|
Michael S. Zavasky
|
|
2010
|
|
337,115
|
|
0
|
|
0
|
|
0
|
|
|
295,115
|
|
|
|
183,726
|
|
|
|
49,782
|
|
|
|
865,738
|
|
Executive Vice President
|
|
2009
|
|
325,000
|
|
0
|
|
0
|
|
0
|
|
|
227,370
|
|
|
|
152,742
|
|
|
|
42,354
|
|
|
|
747,466
|
|
Insurance Operations
|
|
2008
|
|
319,972
|
|
0
|
|
243,526
|
|
0
|
|
|
212,932
|
|
|
|
272,423
|
|
|
|
33,730
|
|
|
|
1,082,583
|
|
Douglas F. Ziegler
|
|
2010
|
|
370,316
|
|
0
|
|
0
|
|
0
|
|
|
259,437
|
|
|
|
111,462
|
|
|
|
13,460
|
|
|
|
754,675
|
|
Senior Vice President,
|
|
2009
|
|
359,042
|
|
0
|
|
0
|
|
0
|
|
|
291,016
|
|
|
|
64,826
|
|
|
|
12,316
|
|
|
|
727,200
|
|
Chief Investment Officer and Treasurer(3)
|
|
2008
|
|
347,758
|
|
0
|
|
243,682
|
|
0
|
|
|
232,615
|
|
|
|
0
|
|
|
|
764,084
|
|
|
|
1,588,139
|
|
George R. Lucore
|
|
2010
|
|
93,750
|
|
64,375
|
|
0
|
|
0
|
|
|
71,320
|
|
|
|
96,993
|
|
|
|
818,716
|
|
|
|
1,145,154
|
|
Former Executive Vice President,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Field Operations(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Ms. Dall joined the Company as our executive vice president
and chief financial officer on March 30, 2009 and received
a signing bonus of $100,000 at that time. |
|
(2) |
|
Mr. Tanous was paid a special merit bonus in 2011 related
to his assistance in developing structure and capital options
for Erie Insurance Group in 2010. |
|
(3) |
|
Mr. Ziegler was paid the value of his SERP agreement on
December 12, 2008 and will not accrue additional SERP
benefits. He had a decrease in pension value of $443,452 due to
this lump sum payment. |
|
(4) |
|
Mr. Lucore, our former executive vice president of field
operations, retired on March 31, 2010. The reported bonus
amount relates to vacation paid at termination of $61,375 and a
sick pay retirement bonus of $3,000. |
|
(5) |
|
The non-equity incentive plan compensation column includes the
2010 AIP projected payout, as well as the shares of restricted
stock awarded to Mr. Cavanaugh in 2010. See also Grants of
Plan-Based Awards and Option Exercises and Stock Vested for
additional details. |
Stock
Awards: Long-Term Incentive Plans
The 2004 LTIP, administered by our compensation committee,
became effective March 2, 2004 and was amended and restated
effective January 1, 2009. The restatement of the LTIP
added a new form of award that provides for payment in cash
and/or
stock, and expands the list of performance measures that can be
used to
26
establish performance goals. Awards for the
2010-2012
and
2009-2011
performance period are expected to be cash payments. For these
performance periods, the LTIPs specified performance
criteria have not yet been satisfied and amounts have not been
earned. Disclosure of the target and maximum award amounts for
the
2010-2012
performance period appear in the Grants of Plan-Based Awards
Table rather than the Stock Awards column of the
Summary Compensation Table because the award is payable in cash.
Awards for the
2008-2010
performance period are payable in shares of Class A common
stock and amounts shown in the Summary Compensation Table for
2008 reflect the grant date fair value of these awards as
further described below.
For 2008, the grant date fair value of the award was calculated
by multiplying the target equity incentive plan award by the
closing share price of $52.08 on April 7, 2008, the date
our compensation committee formally approved the 2004 LTIP
performance goals for the
2008-2010
performance period. For this performance period,
Mr. Cavanaugh was not an official participant in the LTIP,
however, he will receive stock payments outside the plan equal
to the amount he would have earned if he were a participant,
pro-rated to reflect his service during the three-year
performance period. Additionally, Mr. Cavanaugh was awarded
16,000 restricted stock units which will be earned ratably
through July 2011; he will be paid dividends on these shares
equal to the then-prevailing dividend rate per share multiplied
by the number of shares that have not yet been issued. For
Mr. Cavanaugh, the grant date fair value of the award was
calculated by multiplying the target equity incentive plan award
by the closing share price of $42.62 on July 14, 2008, the
date of Mr. Cavanaughs employment agreement.
The
2008-2010
performance period is closed and participants vested in those
shares on December 31, 2010. However, distribution of the
shares will not occur until later in 2011 since computations
require peer group data for the year ended December 31,
2010, which is not yet available. Accordingly, the amounts are
reported in the Outstanding Equity Awards table.
Change in
Pension Value and Non-Qualified Deferred Compensation
Earnings
The Summary Compensation Table includes the net change in the
present value of accrued benefits from December 31, 2009 to
December 31, 2010 under our pension plan, a tax-qualified
defined benefit pension plan, and our SERP, a non-qualified
defined benefit arrangement. The present value information
presented utilizes assumptions consistent with those used for
fiscal year 2010 disclosure under FASB Accounting Standards
Codification 715, Compensation Retirement
Plans. Discount rates used for December 31, 2008,
2009 and 2010 were 6.06%, 6.11%, and 5.69%, respectively (5.00%
post-retirement discount rate for our SERP for 2008 and 2009 and
5.19% for 2010).
There are no above-market or preferential non-qualified deferred
compensation earnings to disclose in this column. See the
Nonqualified Deferred Compensation section for a description of
the investment funds and earnings.
27
All Other
Compensation
The following table provides details of the amounts presented in
the All Other Compensation column.
Supplemental
Table for All Other Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
Supple-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
mental
|
|
|
Tax
|
|
|
Member-
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
& Related
|
|
|
Relocation
|
|
|
401(k)
|
|
|
401(k)
|
|
|
Gross-
|
|
|
ship
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
|
|
|
Earnings
|
|
|
Expenses
|
|
|
Match
|
|
|
Match
|
|
|
Ups
|
|
|
Dues
|
|
|
Other
|
|
|
|
|
Name
|
|
Year
|
|
|
(1)($)
|
|
|
(2)($)
|
|
|
(3)($)
|
|
|
(4)($)
|
|
|
(5)($)
|
|
|
(6)($)
|
|
|
(7)($)
|
|
|
(8)($)
|
|
|
Total ($)
|
|
|
Terrence W. Cavanaugh
|
|
|
2010
|
|
|
|
0
|
|
|
|
19,200
|
|
|
|
0
|
|
|
|
9,800
|
|
|
|
19,331
|
|
|
|
22,363
|
|
|
|
25,959
|
|
|
|
5,117
|
|
|
|
101,770
|
|
|
|
|
2009
|
|
|
|
0
|
|
|
|
25,200
|
|
|
|
162,572
|
|
|
|
9,800
|
|
|
|
18,200
|
|
|
|
73,323
|
|
|
|
2,460
|
|
|
|
7,639
|
|
|
|
299,194
|
|
|
|
|
2008
|
|
|
|
0
|
|
|
|
7,040
|
|
|
|
48,166
|
|
|
|
0
|
|
|
|
0
|
|
|
|
36,799
|
|
|
|
5,339
|
|
|
|
30,960
|
|
|
|
128,304
|
|
Marcia A. Dall
|
|
|
2010
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
9,800
|
|
|
|
0
|
|
|
|
10,630
|
|
|
|
12,488
|
|
|
|
3,340
|
|
|
|
36,258
|
|
|
|
|
2009
|
|
|
|
0
|
|
|
|
0
|
|
|
|
80,364
|
|
|
|
5,925
|
|
|
|
0
|
|
|
|
41,178
|
|
|
|
5,664
|
|
|
|
3,921
|
|
|
|
137,052
|
|
James J. Tanous
|
|
|
2010
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
9,800
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,480
|
|
|
|
3,502
|
|
|
|
15,782
|
|
|
|
|
2009
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
9,800
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,078
|
|
|
|
3,456
|
|
|
|
14,334
|
|
|
|
|
2008
|
|
|
|
0
|
|
|
|
0
|
|
|
|
44,432
|
|
|
|
9,200
|
|
|
|
0
|
|
|
|
22,534
|
|
|
|
1,468
|
|
|
|
11,810
|
|
|
|
89,444
|
|
Michael S. Zavasky
|
|
|
2010
|
|
|
|
0
|
|
|
|
994
|
|
|
|
0
|
|
|
|
9,800
|
|
|
|
3,685
|
|
|
|
13,981
|
|
|
|
17,708
|
|
|
|
3,614
|
|
|
|
49,782
|
|
|
|
|
2009
|
|
|
|
0
|
|
|
|
1,401
|
|
|
|
0
|
|
|
|
9,800
|
|
|
|
3,200
|
|
|
|
9,665
|
|
|
|
10,489
|
|
|
|
7,799
|
|
|
|
42,354
|
|
|
|
|
2008
|
|
|
|
0
|
|
|
|
2,389
|
|
|
|
0
|
|
|
|
9,200
|
|
|
|
3,599
|
|
|
|
1,955
|
|
|
|
8,234
|
|
|
|
8,353
|
|
|
|
33,730
|
|
Douglas F. Ziegler
|
|
|
2010
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
9,800
|
|
|
|
0
|
|
|
|
0
|
|
|
|
224
|
|
|
|
3,436
|
|
|
|
13,460
|
|
|
|
|
2009
|
|
|
|
0
|
|
|
|
354
|
|
|
|
0
|
|
|
|
9,800
|
|
|
|
0
|
|
|
|
0
|
|
|
|
224
|
|
|
|
1,938
|
|
|
|
12,316
|
|
|
|
|
2008
|
|
|
|
0
|
|
|
|
2,119
|
|
|
|
0
|
|
|
|
9,200
|
|
|
|
4,710
|
|
|
|
742,575
|
|
|
|
1,366
|
|
|
|
4,114
|
|
|
|
764,084
|
|
George R. Lucore
|
|
|
2010
|
|
|
|
807,709
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,750
|
|
|
|
0
|
|
|
|
5,945
|
|
|
|
367
|
|
|
|
945
|
|
|
|
818,716
|
|
|
|
|
(1) |
|
The special payments for Mr. Lucore relate to his
retirement and include (a) a special retirement payment of
$400,000, (b) a SERP lump sum payment of $399,075, and
(c) a payment of $8,634 to cover the cost of certain
benefits. |
|
(2) |
|
The Dividends, Deferred Dividends & Related
Earnings column includes dividends paid on unvested
shares, and deferred dividends and related earnings under the
Pre-2004 LTIP. For Mr. Cavanaugh, the dividends paid relate
to his outstanding restricted stock units. |
|
(3) |
|
We pay certain home closing costs, moving expenses, maintenance
fees and travel costs on behalf of our relocating employees. We
provide this relocation benefit for most employees, with various
thresholds for payment, based upon the employees level
within our organization. |
|
(4) |
|
We have a tax-qualified 401(k) savings plan for our employees.
See also Postretirement Benefits in the notes to
consolidated financial statements in our 2010 annual report for
additional information. |
|
(5) |
|
Included in the Supplemental 401(k) Match column are
our contributions that cannot be credited to the tax-qualified
401(k) savings plan because of compensation and contribution
limits imposed by the Code. See Nonqualified Deferred
Compensation for additional discussion. |
|
(6) |
|
We pay taxes on behalf of our executives for moving expenses,
membership dues, spousal travel and other minor perquisites.
Mr. Zieglers 2008 amount represents the tax
gross-up on
the December 12, 2008 lump sum cash payment of his SERP
benefit. |
|
(7) |
|
We provide certain professional, dining and/or country club
membership dues to certain executives. |
|
(8) |
|
The Other column includes executive physicals, the
taxable value of group term life insurance, certain spousal
travel costs, personal use of the company airplane and other
miscellaneous payments. |
28
Grants of
Plan-Based Awards
The following table summarizes awards that were eligible to be
earned during 2010 under our AIP and LTIP plans.
Grants of
Plan-Based Awards Table for 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Non-Equity Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards(1)
|
|
|
|
|
|
|
Grant
|
|
|
Performance
|
|
|
Thresh-
|
|
|
Target
|
|
|
Maxi-
|
|
Name
|
|
Plan
|
|
|
Date
|
|
|
Period
|
|
|
old ($)
|
|
|
($)
|
|
|
mum ($)
|
|
|
Terrence W. Cavanaugh
|
|
|
AIP
|
|
|
|
03/23/10
|
|
|
|
2010
|
|
|
|
0
|
|
|
|
551,250
|
|
|
|
1,102,500
|
|
|
|
|
LTIP
|
|
|
|
03/23/10
|
|
|
|
2010-2012
|
|
|
|
0
|
|
|
|
698,250
|
|
|
|
1,745,625
|
|
Marcia A. Dall
|
|
|
AIP
|
|
|
|
03/23/10
|
|
|
|
2010
|
|
|
|
0
|
|
|
|
246,000
|
|
|
|
492,000
|
|
|
|
|
LTIP
|
|
|
|
03/23/10
|
|
|
|
2010-2012
|
|
|
|
0
|
|
|
|
307,500
|
|
|
|
768,750
|
|
James J. Tanous
|
|
|
AIP
|
|
|
|
03/23/10
|
|
|
|
2010
|
|
|
|
0
|
|
|
|
246,000
|
|
|
|
492,000
|
|
|
|
|
LTIP
|
|
|
|
03/23/10
|
|
|
|
2010-2012
|
|
|
|
0
|
|
|
|
307,500
|
|
|
|
768,750
|
|
Michael S. Zavasky
|
|
|
AIP
|
|
|
|
03/23/10
|
|
|
|
2010
|
|
|
|
0
|
|
|
|
204,000
|
|
|
|
408,000
|
|
|
|
|
LTIP
|
|
|
|
03/23/10
|
|
|
|
2010-2012
|
|
|
|
0
|
|
|
|
255,000
|
|
|
|
637,500
|
|
Douglas F. Ziegler
|
|
|
AIP
|
|
|
|
03/23/10
|
|
|
|
2010
|
|
|
|
0
|
|
|
|
186,201
|
|
|
|
372,402
|
|
|
|
|
LTIP
|
|
|
|
03/23/10
|
|
|
|
2010-2012
|
|
|
|
0
|
|
|
|
260,681
|
|
|
|
651,703
|
|
George R. Lucore(2)
|
|
|
AIP
|
|
|
|
03/23/10
|
|
|
|
2010
|
|
|
|
0
|
|
|
|
48,082
|
|
|
|
96,164
|
|
|
|
|
LTIP
|
|
|
|
03/23/10
|
|
|
|
2010-2012
|
|
|
|
0
|
|
|
|
20,034
|
|
|
|
50,085
|
|
|
|
|
(1) |
|
The maximum AIP payout is 200% of the target award. See
Compensation Discussion and Analysis Annual
Incentive Plan and Incentive Plans and Deferred
Compensation in the notes to consolidated financial
statements included in our 2010 annual report. The minimum
funding qualifier for the 2010 AIP award was satisfied. AIP
results were certified and approved by our compensation
committee on February 23, 2011, and the award was paid on
March 9, 2011. |
|
|
|
Under the 2004 LTIP, our compensation committee grants
performance shares and/or performance units to participants.
Performance shares represent the right to receive shares of
common stock, and performance units represent the right to
receive a cash payment. For the
2010-2012
performance period, the award will be paid in cash rather than
shares. Accordingly, the equity incentive plan awards columns
have been omitted from the table. The maximum payout under this
plan is 250% of the target award. Awards, if any, for the
2010-2012
performance period will vest at December 31, 2012. |
|
(2) |
|
Mr. Lucore retired from the Company on March 31, 2010
and his AIP and LTIP awards shown in the above table have been
pro-rated at 25% and 8%, respectively, to reflect his partial
year of service for the applicable performance periods. |
An executives target award is established by our
compensation committee. The target number of performance units
for each executive is based on a competitive total direct
compensation target opportunity and an
agreed-upon
target pay mix. When our compensation committee approves target
awards, it also approves the performance measures, performance
goals and the calibration of shares
and/or cash
awarded at performance levels above and below the target
performance goals. Our compensation committee has the ability to
exercise discretion to reduce awards to any individual
participant in the incentive plans, and we have a policy for
recoupment of officer bonuses. See Compensation Discussion and
Analysis.
Under the 2004 LTIP, the actual cash award paid to an executive
at the end of a performance period may be more or less than the
executives target. However, the cash award paid to an
executive may not exceed $3 million at the end of a
performance period. See also Incentive Plans and Deferred
Compensation, in the notes to consolidated financial
statements contained in our 2010 annual report.
29
Outstanding
Equity Awards
The following table details outstanding equity awards at
December 31, 2010. Ms. Dall did not have any
outstanding equity awards at December 31, 2010.
Outstanding
Equity Awards at December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
|
Plan Awards:
|
|
|
Market or
|
|
|
|
Number of
|
|
|
Market Value
|
|
|
Number of
|
|
|
Payout Value of
|
|
|
|
Shares or
|
|
|
of Shares or
|
|
|
Unearned Shares,
|
|
|
Unearned Shares,
|
|
|
|
Units of Stock
|
|
|
Units of Stock
|
|
|
Units or Other
|
|
|
Units or Other
|
|
|
|
That Have
|
|
|
That Have
|
|
|
Rights That Have
|
|
|
Rights That Have
|
|
|
|
Not Vested
|
|
|
Not Vested
|
|
|
Not Vested
|
|
|
Not Vested
|
|
Name
|
|
(#)
|
|
|
($)
|
|
|
(#)
|
|
|
($)
|
|
|
Terrence W. Cavanaugh
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008-2010 (1)
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
23,088
|
|
|
|
1,511,572
|
|
2008
|
|
|
6,400
|
|
|
|
419,008
|
|
|
|
n/a
|
|
|
|
n/a
|
|
James J. Tanous
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008-2010 (1)
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
13,488
|
|
|
|
883,060
|
|
Michael S. Zavasky
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008-2010 (1)
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
11,690
|
|
|
|
765,345
|
|
Douglas F. Ziegler
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008-2010 (1)
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
11,698
|
|
|
|
765,869
|
|
George R. Lucore
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008-2010 (1)
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
11,038
|
|
|
|
722,658
|
|
|
|
|
(1) |
|
For the
2008-2010
performance period, we have information on eleven of the twelve
measurement quarters and estimate the payout to be approximately
140% of target. Because the expected payout is above target, it
is disclosed in the table above at the maximum amount of 250% of
the target award. Shares have been pro-rated for
Messrs. Cavanaugh and Lucore at 81% and 94%, respectively. |
All shares in the above table were valued using the closing
share price of $65.47 at December 31, 2010. All shares
noted are outstanding under the 2004 LTIP with the exception of
Mr. Cavanaughs. In accordance with
Mr. Cavanaughs employment agreement, he was not
eligible to officially participate in the
2008-2010
LTIP performance period but his award was calculated using the
same LTIP targets, measures and percentages.
Mr. Cavanaughs 6,400 units of restricted stock
will be issued to him in July 2011.
The
2008-2010
performance period is closed and participants vested in those
shares on December 31, 2010. However, distribution of the
shares will not occur until later in 2011 since computations
require peer group data for the year ended December 31,
2010, which is not yet available. Accordingly, the amounts are
reported in this table rather than the Option Exercises and
Stock Vested During Fiscal Year 2010 table below.
30
Option
Exercises and Stock Vested
The following table details stock vested during 2010. We do not
offer option awards to our executives. Ms. Dall and
Mr. Lucore did not vest in any shares during 2010.
Option
Exercises and Stock Vested During 2010
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares Acquired
|
|
|
Value Realized
|
|
|
|
Upon Vesting
|
|
|
Upon Vesting
|
|
Name
|
|
(#)
|
|
|
($)
|
|
|
Terrence W. Cavanaugh
|
|
|
4,800
|
|
|
|
234,000
|
|
James J. Tanous
|
|
|
6,921
|
|
|
|
307,846
|
|
Michael S. Zavasky
|
|
|
4,000
|
|
|
|
177,920
|
|
Douglas F. Ziegler
|
|
|
4,975
|
|
|
|
221,288
|
|
In accordance with his employment agreement, Mr. Cavanaugh
was awarded stock in the form of restricted stock units. On
July 29, 2010, 4,800 shares were awarded to him using
a $48.75 share price, which is the average of the high and
low stock price on that date.
For Messrs. Zavasky and Ziegler, the number of shares
acquired upon vesting relates to the 2004 LTIP performance
period of
2007-2009.
The shares were valued using a $44.48 share price, which
was the average of the high and low stock price on July 1,
2010, the date the shares were awarded. For this performance
period, Mr. Tanous was not an official participant in the
LTIP, however, he did receive a stock payment outside the plan
equal to the amount he would have earned if he were a
participant, pro-rated to reflect his service during the
three-year performance period.
Pension
Plan
The Pension Benefits table below includes the present value of
accrued benefits under our defined benefit pension plan and our
SERP as of December 31, 2010. Messrs. Zavasky, Ziegler
and Lucore are 100% vested in our pension plan.
Messrs. Cavanaugh, Zavasky and Lucore are 100% vested in
our SERP plan.
The present value information presented in the Pension Benefits
table utilizes assumptions consistent with those used for fiscal
year 2010 disclosure under FASB Accounting Standards
Codification 715, Compensation Retirement
Plans, including a 5.69% discount rate as of
December 31, 2010 (5.19% post-retirement discount rate for
our SERP) and assumes a retirement age of 65 and no
pre-retirement decrements for our pension plan and our SERP.
31
Pension
Benefits at December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
of Years
|
|
|
Present Value of
|
|
|
|
|
|
|
|
|
Credited
|
|
|
Accumulated
|
|
|
Payments During
|
|
Name
|
|
Plan Name
|
|
Service
|
|
|
Benefit ($)
|
|
|
Last Fiscal Year ($)
|
|
|
Terrence W. Cavanaugh(1)
|
|
Pension
|
|
|
3
|
|
|
|
89,059
|
|
|
|
0
|
|
|
|
SERP
|
|
|
3
|
|
|
|
258,739
|
|
|
|
0
|
|
Marcia A. Dall
|
|
Pension
|
|
|
2
|
|
|
|
32,584
|
|
|
|
0
|
|
|
|
SERP
|
|
|
2
|
|
|
|
52,885
|
|
|
|
0
|
|
James J. Tanous
|
|
Pension
|
|
|
4
|
|
|
|
120,684
|
|
|
|
0
|
|
|
|
SERP
|
|
|
4
|
|
|
|
212,440
|
|
|
|
0
|
|
Michael S. Zavasky
|
|
Pension
|
|
|
30
|
|
|
|
702,050
|
|
|
|
0
|
|
|
|
SERP
|
|
|
30
|
|
|
|
903,285
|
|
|
|
0
|
|
Douglas F. Ziegler(2)
|
|
Pension
|
|
|
23
|
|
|
|
639,686
|
|
|
|
0
|
|
|
|
SERP
|
|
|
23
|
|
|
|
0
|
|
|
|
0
|
|
George R. Lucore(3)
|
|
Pension
|
|
|
30
|
|
|
|
902,940
|
|
|
|
51,099
|
|
|
|
SERP
|
|
|
30
|
|
|
|
0
|
|
|
|
399,075
|
|
|
|
|
(1) |
|
Mr. Cavanaughs employment agreement provides for 100%
vesting of his SERP benefit as of the day before the termination
of his employment with us, regardless of his number of years of
service. When such benefit is calculated, it will assume that
Mr. Cavanaugh is 100% vested in the basic pension plan
regardless of actual vesting. |
|
(2) |
|
Mr. Ziegler was paid the value of his SERP agreement on
December 12, 2008 and will not accrue additional SERP
benefits. |
|
(3) |
|
Mr. Lucores pension benefit is the actual amount and
payment form he is currently receiving from the qualified plan.
Related to his retirement, Mr. Lucore received a lump sum
payment of $399,075 for his vested accrued benefits in the SERP.
He also received $51,099 in monthly benefit payments from the
pension plan following his retirement in March 2010. |
Normal retirement age under both our pension plan and our SERP
is age 65 because that is the earliest time that an
executive could retire and commence benefit payments under the
plans without any benefit reduction due to age.
Under our pension plan, the executives final average
earnings are the average of the executives highest 36
consecutive months of compensation during his final
120 months of employment. Under our SERP, the
executives final average earnings are the average of the
executives highest 24 consecutive months of compensation
during the executives final 120 months of employment.
For this purpose, compensation includes base salary and a lump
sum paid in lieu of a merit increase but excludes bonuses,
deferred compensation plan payments and severance pay under any
severance benefit plan. An executives compensation that
exceeds annual limits imposed by the Code is excluded in
computing benefits derived under our pension plan but included
in computing benefits due under our SERP.
Each executives credited service is generally
defined as the executives years of employment with us as a
covered employee, up to a maximum of 30 years.
Messrs. Zavasky and Lucore completed more than
30 years of service.
For purposes of determining the number of years of credited
service that will be used to calculate the amount of the
executives benefit, the executive, as well as all other
employees, earns a full year of credited service for a partial
year of employment as a covered employee.
Supplemental plan service in our SERP means employment with us
as both a covered employee and SERP participant.
32
Our pension plans benefit formula at normal retirement age
is 1.0% of the executives final average earnings up to the
social security-covered compensation level (an amount published
each year by the Social Security Administration) plus 1.5% of
the final average earnings in excess of the social security
covered compensation level with the resulting sum multiplied by
the executives years of credited service, up to a maximum
of 30 years. Our pension plans benefit is accrued in
the form of a single life annuity with optional
actuarially-equivalent forms of payment available.
The SERPs benefit formula at normal retirement age is
equal to 60% of SERP final average earnings, reduced
proportionately for less than 30 years of credited service.
This benefit is accrued in the form of a
10-year
certain and life annuity. The executives benefit that is
payable under our pension plan is subtracted from our SERP
benefit. For purposes of this offset, such monthly benefits
which are payable in a form other than a
10-year
certain and life thereafter annuity are converted to a monthly
benefit which is the actuarial equivalent of a
10-year
certain and life thereafter annuity. A lump sum is the only
available form of payment from the SERP.
Each executive may become eligible for a SERP benefit only in
the event that:
|
|
|
|
|
the executive is vested under our pension plan (100% vested
after 5 full years of service);
|
|
|
|
the executive is entitled to receive a benefit under our pension
plan;
|
|
|
|
prior to the executives termination of employment, the
executive has become vested in our SERP benefit according to the
following schedule:
|
|
|
|
|
|
Years of Supplemental Plan Service
|
|
Vested Percentage
|
|
Less than 1
|
|
|
0
|
%
|
1 but less than 2
|
|
|
20
|
%
|
2 but less than 3
|
|
|
40
|
%
|
3 but less than 4
|
|
|
60
|
%
|
4 but less than 5
|
|
|
80
|
%
|
5 or more
|
|
|
100
|
%
|
Executives in our pension plan and our SERP are eligible for
early retirement after attaining age 55 and completing at
least 15 full years of service as a covered employee. The
executives early retirement benefit under these plans is
reduced by 0.25% for each complete calendar month up to
60 months and 0.375% for each complete calendar month in
excess of 60 months by which the executives early
retirement benefit commencement date precedes such
executives normal retirement date. Messrs. Ziegler,
Zavasky and Lucore satisfied the plans eligibility
requirements for early retirement.
See also Postretirement Benefits, in the notes to
consolidated financial statements included in our 2010 annual
report that describes plan assumptions in more detail.
Nonqualified
Deferred Compensation
We maintain a deferred compensation plan in which executives are
eligible to participate. The deferred compensation plan is an
arrangement whereby the participants can elect to defer receipt
of a portion of their compensation until a later date.
Executives may elect to defer up to 100% of their annual salary
and up to 100% of any cash award under our AIP. Those
participating in the plan select hypothetical investment funds
for their deferrals and are credited with the hypothetical
returns generated. This plan is an unfunded, non-qualified,
deferred compensation arrangement created for a select group of
our management and highly compensated employees.
Executives identify:
|
|
|
|
|
the percentage of annual salary and bonus to be deferred;
|
|
|
|
the investment designation;
|
33
|
|
|
|
|
the method by which the amounts credited to the executives
deferred compensation account are to be paid;
|
|
|
|
the date on which payment of the amounts credited to the
executives deferred compensation account is to occur (in
the event of a lump sum distribution) or commence (in the event
of a form of distribution other than a lump sum); and
|
|
|
|
the beneficiary designated to receive payment of the amounts
credited to the deferred compensation account in the event the
executive dies before distribution of the amounts credited to
the deferred compensation account is completed.
|
The following table summarizes NEO contributions, our
contributions, credited earnings, withdrawals and the aggregate
balance as of December 31, 2010. Ms. Dall,
Mr. Tanous and Mr. Lucore did not have any
nonqualified deferred compensation in 2010.
Nonqualified
Deferred Compensation Table for 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Executive
|
|
|
Company
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
Balance at
|
|
|
|
Contributions
|
|
|
Contributions
|
|
|
Earnings
|
|
|
Withdrawals/
|
|
|
December 31,
|
|
Name
|
|
in 2010(1)($)
|
|
|
in 2010(2)($)
|
|
|
in 2010 ($)
|
|
|
Distributions ($)
|
|
|
2010 ($)
|
|
|
Terrence W. Cavanaugh
|
|
|
82,542
|
|
|
|
19,331
|
|
|
|
26,597
|
|
|
|
0
|
|
|
|
193,560
|
|
Michael S. Zavasky
|
|
|
3,371
|
|
|
|
3,685
|
|
|
|
24,510
|
|
|
|
0
|
|
|
|
287,413
|
|
Douglas F. Ziegler
|
|
|
0
|
|
|
|
0
|
|
|
|
43,733
|
|
|
|
0
|
|
|
|
350,763
|
|
|
|
|
(1) |
|
Executive contributions include amounts deferred as supplemental
employee contributions that could not be deferred under our
tax-qualified 401(k) plan. These amounts are disclosed in the
Summary Compensation Table in the Salary column. |
|
(2) |
|
Our contributions are comprised of the company match on
supplemental 401(k) employee contributions. These amounts are
disclosed in the Summary Compensation Table in the All
Other Compensation column. |
With the exception of the T. Rowe Price Science and Technology
Fund, the plans hypothetical investment funds mirror
investment options that are offered to the executives in our
tax-qualified 401(k) plan. As in our 401(k) plan, executives
participating in our deferred compensation plan may exchange
investment funds daily. The return credited to their deferred
compensation plan accounts is determined by the investment
results of the hypothetical investment funds selected.
Agreements
with Executive Officers
We have an employment agreement with Mr. Cavanaugh, our
president and CEO. Because he joined us mid-career, his
employment agreement was developed to provide him with a minimum
level of financial security during his term. The compensatory
provisions of Mr. Cavanaughs agreement include the
following:
|
|
|
|
|
A minimum annual base salary of $700,000;
|
|
|
|
A bonus for 2008 equal to the greater of (i) $455,000 or
(ii) the bonus that would have been payable to him had he
actually participated in the Companys AIP for 2008 at a
target level of sixty-five percent (65%) of annual base salary;
|
|
|
|
Participation in our AIP for calendar years after 2008 at a
target level of at least sixty-five percent (65%) of annual base
salary;
|
|
|
|
A 2008-2010
incentive equal to what Mr. Cavanaugh would have received
had he actually participated in the
2008-2010
performance period under our LTIP based on a target percentage
of eighty-five percent (85%) of annual base salary, pro-rated to
reflect the period of his employment during the three-year
performance period;
|
34
|
|
|
|
|
Participation in our LTIP for calendar years after 2008 at a
target level of at least eighty-five percent (85%) of annual
base salary;
|
|
|
|
Eligibility to participate in the employee benefit plans and
other employee benefit arrangements made available by us from
time to time to our executive officers;
|
|
|
|
Participation in our SERP;
|
|
|
|
A grant of 16,000 shares of our Class A common stock,
in the form of restricted stock units, valued at $681,920 on
July 14, 2008, to be issued to Mr. Cavanaugh in four
installments over the term of his employment agreement;
|
|
|
|
Certain perquisites and reimbursements including payment of
country or social club annual membership dues, tax preparation
and financial planning services, participation in our relocation
program, and reimbursement of certain relocation and other
expenses;
|
|
|
|
Vacation and other absences as are customarily granted to our
other officers; and
|
|
|
|
In the event of termination of Mr. Cavanaughs
employment, he shall be entitled to the following compensation:
|
|
|
|
|
|
If Mr. Cavanaugh terminates employment without good reason,
or we terminate his employment for cause, we will pay
Mr. Cavanaughs salary accrued through the date of
termination and any amount to which he is entitled under our
incentive plans and arrangements; we will reimburse him for
expenses incurred through the date of termination; and we will
pay or provide for any benefits, payments, or continuation
coverage to which Mr. Cavanaugh or his dependents may be
entitled under law or the terms and conditions of any
company-sponsored employee benefit plans or arrangements, on
account of his participation in those plans and arrangements
prior to the termination of his employment, in accordance with
the terms and subject to the conditions of those plans and
arrangements.
|
|
|
|
If Mr. Cavanaugh terminates employment with good reason, or
we terminate his employment without cause and not for
disability, we will pay the same compensation as if he had
terminated his employment without good reason or we terminated
his employment for cause. In addition, we will make payment of
his SERP benefits as provided under the agreement and, to the
extent we had not done so already, deliver shares of our
Class A common stock representing the balance of his
restricted stock units referred to above. We will also make a
lump sum severance payment to Mr. Cavanaugh in the amount
described below on the first day of the seventh month following
the termination of his employment. The severance payment shall
be in an amount that is equal to the greater of (1) the
aggregate base salary that would be payable to
Mr. Cavanaugh if his employment agreement remained in
effect through December 31, 2011, and (2) one
years base salary, taking into account, in either case,
the rate of base salary in effect immediately before the
termination of his employment.
|
|
|
|
Should Mr. Cavanaughs employment terminate due to
death or disability, we will pay the same compensation as if he
had terminated his employment without good reason or we
terminated his employment for cause. In addition, we will make
payment of his SERP benefits as provided under the agreement
and, to the extent we had not done so already, deliver shares of
our Class A common stock representing the balance of his
restricted stock units referred to above.
|
Unless terminated earlier as provided for in the document,
Mr. Cavanaughs employment agreement expires
December 31, 2011. For a discussion of compensation payable
to Mr. Cavanaugh under various termination scenarios, see
the Termination and Change in Control Table.
Potential
Termination or Change in Control Payments
Potential salary and benefits payments expected under various
termination scenarios are disclosed below for the NEOs who were
employed as of December 31, 2010. We developed the
compensation and benefit
35
amounts disclosed in the table below considering a termination
date of December 31, 2010. Amounts represent only payments
estimated in addition to the other compensation disclosed herein.
Termination
and Change in Control Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary
|
|
|
Without
|
|
|
Involuntary
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
Without
|
|
|
Good
|
|
|
With
|
|
|
With Good
|
|
|
|
|
|
|
|
|
|
Cause ($)
|
|
|
Reason ($)
|
|
|
Cause ($)
|
|
|
Reason ($)
|
|
|
Disability ($)
|
|
|
Death ($)
|
|
|
Terrence W. Cavanaugh
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
735,000
|
(1)
|
|
|
0
|
|
|
|
0
|
|
|
|
735,000
|
(1)
|
|
|
0
|
|
|
|
0
|
|
Pension
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(14,696
|
)(3)
|
SERP
|
|
|
69,319
|
(2)
|
|
|
69,319
|
(2)
|
|
|
69,319
|
(2)
|
|
|
69,319
|
(2)
|
|
|
69,319
|
(2)
|
|
|
(40,457
|
)(3)
|
Marcia A. Dall
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
19,276
|
(3)
|
SERP
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
32,146
|
(3)
|
James J. Tanous
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(47,949
|
)(3)
|
SERP
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(83,210
|
)(3)
|
Michael S. Zavasky
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
215,349
|
(4)
|
|
|
215,349
|
(4)
|
|
|
215,349
|
(4)
|
|
|
215,349
|
(4)
|
|
|
0
|
|
|
|
(132,244
|
)(3)
|
SERP
|
|
|
230,301
|
(2)
|
|
|
230,301
|
(2)
|
|
|
230,301
|
(2)
|
|
|
230,301
|
(2)
|
|
|
0
|
|
|
|
(164,079
|
)(3)
|
Douglas F. Ziegler
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
1,206,284
|
(5)
|
|
|
0
|
|
|
|
0
|
|
|
|
1,206,284
|
(5)
|
|
|
0
|
|
|
|
0
|
|
Pension
|
|
|
132,198
|
(4)
|
|
|
132,198
|
(4)
|
|
|
132,198
|
(4)
|
|
|
132,198
|
(4)
|
|
|
0
|
|
|
|
(167,904
|
)(3)
|
|
|
|
(1) |
|
Calculated using a base salary of $735,000 as of
December 31, 2010. |
|
(2) |
|
The early retirement benefit defined in the SERP is considered
to be a subsidized benefit because the early
retirement reduction factors are more generous than an
actuarially equivalent reduction for the early commencement of
benefits. The amount shown is the additional present value
attributable to receiving a reduced early retirement benefit
from the SERP at current age, versus an unreduced benefit at
age 65. |
|
(3) |
|
Upon the death of an NEO, an unreduced survivor benefit under
the SERP and pension begins immediately. The amount shown is the
additional present value attributable to the commencement of the
50% survivor benefit based upon the spouses age at
December 31, 2010. |
|
(4) |
|
The early retirement benefit defined in the tax-qualified
pension plan is considered to be a subsidized
benefit because the early retirement reduction factors are more
generous than an actuarially equivalent reduction for the early
commencement of benefits. The amount shown is the additional
present value attributable to receiving a reduced early
retirement benefit from the tax-qualified pension plan at
age 55, or current age if the NEO is older than
age 55, versus an unreduced benefit at age 65. |
|
(5) |
|
Cash payment is based on the sum of: |
|
|
|
the highest annual base salary paid or payable to
Mr. Ziegler in 2010 or any one of the three calendar years
preceding Mr. Zieglers termination of employment; and
|
|
|
|
an amount equal to the sum of the higher of
Mr. Zieglers target award amount, or actual bonus
amount paid under our AIP for the three calendar years preceding
the date of Mr. Zieglers termination, divided by
three.
|
|
|
|
Mr. Zieglers base annual salary as of
December 31, 2010, and his 2007, 2008 and 2009 AIP bonus
amounts (or target award amount if that amount is greater) were
used for this table. For Mr. Ziegler, the sum is multiplied
by 2.0 to determine the amount of the cash payment.
|
In addition to the items disclosed in the table above, in the
case of involuntary without cause and
voluntary with good reason terminations, the
agreement with Mr. Ziegler provides continuing coverage for
36
all purposes for a period of two years after the date of
termination of employment for the executive and his eligible
dependents under all of our benefit plans in effect as of the
date of termination of employment.
The agreement with Mr. Ziegler also provides for certain
additional payments by us. In the event that any payment or
distribution by us to or for the benefit of the executive,
whether paid or payable pursuant to the terms of their
agreements or otherwise, is determined to be subject to the
excise tax imposed by Section 4999 of the Code as an excess
parachute payment, as that term is used and defined in
Sections 4999 and 280G of the Code, the executive is
entitled to receive an additional payment (a
gross-up
payment) in an amount equal to the then current rate of
tax under Section 4999 multiplied by the total of the
amounts so paid or payable, including the
gross-up
payment, which are deemed to be a part of an excess parachute
payment.
As previously noted, part of Mr. Cavanaughs
employment agreement includes an award of 16,000 shares of
our Class A common stock in the form of restricted stock
units to be issued as follows: 10% six months after date of
hire; 20% on the first anniversary of the date of hire; 30% on
the second anniversary of the date of hire; and the final 40% on
the third anniversary of the date of hire. If he is terminated
for cause or voluntarily leaves the Company for
other than good reason, Mr. Cavanaugh forfeits
any unissued shares. If he leaves the Company as a result of
death or permanent disability, or voluntarily leaves for
good reason or is terminated without
cause, he retains all previously issued shares and any
unissued shares will be issued on the first day of the seventh
month following termination of employment. Mr. Cavanaugh
will be paid dividends on these shares equal to the
then-prevailing dividend rate per share multiplied by the number
of shares that have not yet been issued.
Compensation
Committee Interlocks and Insider Participation
Our compensation committee presently consists of Chair Robert C.
Wilburn, Jonathan Hirt Hagen, Lucian L. Morrison, Thomas W.
Palmer and Thomas B. Hagen, ex officio. During 2010, no
member of our compensation committee was an officer or employee
of us, the Exchange, EFL or any of their respective subsidiaries
or affiliates, nor was any committee member formerly an officer
of us, except that Mr. Thomas Hagen served as an officer of
the Company, including as our CEO, until 1993. All of the
directors that serve on our compensation committee are
independent directors as defined in the NASDAQ rules and
qualified directors as required under the Holding Companies Act.
Furthermore, none of our executive officers serves as a member
of a compensation committee of another entity, one of whose
executive officers serves on our compensation committee, nor do
any of our executive officers serve as a director of another
entity, one of whose executive officers serves on our
compensation committee.
REPORT OF
OUR EXECUTIVE COMPENSATION AND DEVELOPMENT COMMITTEE
The following report of our compensation committee does not
constitute soliciting material and shall not be deemed filed or
incorporated by reference into any other filing by us under the
Securities Act of 1933, or the 1933 Act, or the
Exchange Act, except to the extent that we specifically
incorporate this report of our compensation committee by
reference therein.
The members of our compensation committee reviewed and discussed
the Compensation Discussion and Analysis and, based on such
review and discussions, recommended to our board of directors
that the Compensation Discussion and Analysis be included in
this information statement for filing with the SEC and the
incorporation by reference of such Compensation Discussion and
Analysis in our annual report on
Form 10-K
for the year ended December 31, 2010 for filing with the
SEC.
Erie Indemnity Company Executive Compensation and Development
Committee:
Robert C. Wilburn, Chair
Jonathan Hirt Hagen
Thomas B. Hagen, ex officio (non-voting)
Lucian L. Morrison
Thomas W. Palmer
February 23, 2011
37
DIRECTOR
COMPENSATION
Overview
The goals of our director compensation program are to attract
and retain directors of outstanding competence and ability and
reward them in a fiscally responsible manner. Director
performance is a key influencing factor in organizational
performance. Accordingly, director compensation is reviewed
periodically and adjusted, as appropriate, to align the
interests of directors with our strategic objectives. Our
compensation for directors includes retainer fees, board and
committee meeting fees, stock grants, and committee chair fees.
The periodic review of director compensation is the
responsibility of our compensation committee and our board of
directors. In undertaking this responsibility, the compensation
committee reviews compensation surveys of the financial services
industry. The committee also engages, from time to time,
independent advisors who provide supplemental data that is
considered in setting director compensation levels. After
reviewing the data, the compensation committee formulates a
recommendation for review by our board of directors.
2010 Director
Compensation
The annual cash retainer in 2010 for our directors for services
to us was $35,000, plus $1,500 for each board of directors or
committee meeting attended. Our directors also received $40,000
of deferred stock credits as further described below. Committee
chairpersons each received an additional $5,000, except for our
audit committee chairperson who received $15,000 and our
compensation committee chairperson who received $10,000. In lieu
of committee meeting fees and committee chair fees, the chairman
of our board, who is ex officio a member of all
committees, received an additional annual fee of $75,000.
Directors are paid retainers quarterly and all directors are
reimbursed for their expenses incurred for attending meetings.
Officers of the Company who serve as directors are not
compensated for attendance at meetings of our board of directors
and its committees. See also Related Person Transactions.
A director may elect prior to the end of a calendar year to
defer receipt of up to 100% of the directors compensation
for the following year, including retainers, meeting fees and
chairperson fees. A deferred compensation account is maintained
for each outside director who elects to defer director
compensation. A director who defers compensation may select
hypothetical investment options for amounts in the
directors deferred compensation account and such account
is credited with hypothetical interest, based on the investment
results of the hypothetical investment options selected. The
hypothetical investment funds mirror investment options that are
offered to participants in our tax-qualified 401(k) plan. As in
our 401(k) plan, participants in the outside directors deferred
compensation plan may exchange investment funds daily. The
return credited to a participants deferred compensation
plan account is determined by the investment results of the
hypothetical investment funds selected by the participant.
We also maintain a deferred stock account in the deferred
compensation plan for each outside director. The purpose of this
plan is to further align the interests of outside directors with
shareholders by providing for payment of a portion of annual
compensation for directors services in annual share
credits, the value of which are determined by shares of our
Class A common stock. The account is updated annually with
additional share credits. The number of additional annual share
credits is determined by dividing $40,000 by the closing price
of our Class A common stock on the first business day after
our annual meeting of shareholders. Each director vests in the
share credits 25% every three full calendar months over the
course of a year, with the final 25% vesting on the day before
the next annual meeting, if the next annual meeting is held
before the final three full calendar months have elapsed.
Dividend equivalent credits paid by us are reinvested into each
directors deferred stock account as additional share
credits which vest immediately. Upon leaving board service,
directors receive shares of our Class A common stock equal
to the amount of share credits in their deferred stock account.
We account for the fair value of the directors share
credits and dividend equivalent credits under the plan in
accordance with FASB Accounting Standards Codification
718-740,
Compensation Stock Compensation. In
2010, the annual charge related to this plan was approximately
$480,000.
38
We also have an outside directors pension plan that has
been frozen since 1997. This plan provides for an annual
benefit, payable upon retirement from board service, equal to
the annual retainer fee paid to directors on the date the plan
was frozen. Mr. Borneman is the only participant in this
plan.
We make adjustments to maintain each directors
compensation at market median or about the 50th percentile
of our peer group. Added responsibilities or additional duties,
such as committee chairperson or chairman of the board, may
cause variations in each directors total compensation
earned. Mr. Cavanaugh does not receive compensation for
serving on our board of directors as that is considered as part
of the duties of the president and CEO. The following table sets
forth the compensation earned by our directors for services
rendered in that capacity during 2010.
Director
Compensation Table for 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
Fees
|
|
|
|
|
|
Non-Qualified
|
|
|
|
|
|
|
|
|
|
Earned
|
|
|
|
|
|
Deferred
|
|
|
All Other
|
|
|
|
|
|
|
or Paid
|
|
|
Stock
|
|
|
Compensation
|
|
|
Compen-
|
|
|
|
|
|
|
in Cash
|
|
|
Awards
|
|
|
Earnings
|
|
|
sation
|
|
|
Total
|
|
Name
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
($)(4)
|
|
|
($)
|
|
|
J. Ralph Borneman, Jr.
|
|
|
63,000
|
|
|
|
40,000
|
|
|
|
3,982
|
|
|
|
12,007
|
|
|
|
118,989
|
|
Terrence W. Cavanaugh
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Jonathan Hirt Hagen
|
|
|
79,000
|
|
|
|
40,000
|
|
|
|
0
|
|
|
|
8,611
|
|
|
|
127,611
|
|
Susan Hirt Hagen
|
|
|
65,500
|
|
|
|
40,000
|
|
|
|
0
|
|
|
|
34,705
|
|
|
|
140,205
|
|
Thomas B. Hagen
|
|
|
122,000
|
|
|
|
40,000
|
|
|
|
0
|
|
|
|
28,680
|
|
|
|
190,680
|
|
C. Scott Hartz
|
|
|
76,000
|
|
|
|
40,000
|
|
|
|
0
|
|
|
|
10,926
|
|
|
|
126,926
|
|
Claude C. Lilly, III
|
|
|
92,000
|
|
|
|
40,000
|
|
|
|
0
|
|
|
|
12,007
|
|
|
|
144,007
|
|
Lucian L. Morrison
|
|
|
75,875
|
|
|
|
40,000
|
|
|
|
0
|
|
|
|
7,294
|
|
|
|
123,169
|
|
Thomas W. Palmer
|
|
|
74,000
|
|
|
|
40,000
|
|
|
|
0
|
|
|
|
7,294
|
|
|
|
121,294
|
|
Martin P. Sheffield
|
|
|
48,750
|
|
|
|
40,000
|
|
|
|
0
|
|
|
|
849
|
|
|
|
89,599
|
|
Richard L. Stover
|
|
|
59,250
|
|
|
|
40,000
|
|
|
|
0
|
|
|
|
849
|
|
|
|
100,099
|
|
Elizabeth A. Vorsheck
|
|
|
74,500
|
|
|
|
40,000
|
|
|
|
0
|
|
|
|
5,963
|
|
|
|
120,463
|
|
Robert C. Wilburn
|
|
|
90,000
|
|
|
|
40,000
|
|
|
|
0
|
|
|
|
12,007
|
|
|
|
142,007
|
|
|
|
|
(1) |
|
For further information on directors compensation, see
2010 Director Compensation above. |
|
(2) |
|
Amounts reported in this column represent the 2010 annual share
credits to the directors deferred stock account, under the
outside directors deferred compensation plan. The closing stock
price on the date of grant, April 20, 2010, was $45.23. See
2010 Director Compensation above for a more detailed
explanation of the deferred stock account. |
|
(3) |
|
This amount represents the increase in present value from
December 31, 2009 to December 31, 2010 for
Mr. Borneman, the only director who is a participant in a
frozen pension plan for outside directors. The present values
were calculated using an annual benefit of $15,000 and discount
rates of 6.11% and 5.69% at December 31, 2009 and 2010,
respectively. No pre-retirement decrements are assumed prior to
the beginning of the receipt of benefits at age 75 (payable
for 21 quarters). All other assumptions are the same as used for
the FASB Accounting Standards Codification
715-10,
Employers Accounting for Pensions. |
|
(4) |
|
All Other Compensation includes dividend equivalent credits
associated with the deferred stock account in the deferred
compensation plan. Amounts for Mrs. Hagen and
Mr. Thomas Hagen also include $22,697 and $22,717,
respectively, as indemnification for early repayments on
split-dollar life insurance policies. |
Director
Stock Ownership Guidelines
Each of our directors is required to maintain ownership of a
minimum of $40,000 of our stock on a cost basis. Newly elected
directors are required to purchase an equivalent of $40,000 of
our stock on a cost basis
39
within 24 months of having been elected as a director.
Directors are expected to continue to meet these minimum stock
ownership requirements until they leave board service.
Our minimum stock ownership requirements do not apply to a
director who is an owner, partner, director, trustee, officer or
employee of, or advisor to, any person holding, of record or
beneficially, directly or indirectly, more than 5% of the
Companys Class A or Class B common stock, or the
sole or shared power to vote or direct the voting of such
shares. Lucian L. Morrison serves in one or more of these
capacities to Sentinel, the corporate trustee of the H.O. Hirt
Trusts. Accordingly, he is not subject to our minimum stock
ownership requirements.
Director
Education Program
We offer a director education program which provides each
director with access to various resources to assist him or her
with enhancing the skills and strategies that drive effective
directorship. We pay for the cost of each directors
membership in the National Association of Corporate Directors,
underwrite the cost of attendance at certain educational
seminars and conferences, and provide subscriptions to relevant
business news journals, magazines and on-line resources.
Matching
Gifts Program
Through our Matching Gifts Program, we will match contributions
made by employees or directors to eligible charitable
organizations and educational institutions up to a maximum of
$5,000 per employee or director, per year. Company matching
applies to personal contributions of cash or marketable
securities actually made, not pledged, by the employee or
director during the calendar year.
PROPOSAL 3
APPROVAL, ON AN ADVISORY BASIS, OF
THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
Introduction
The recently enacted Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010, or Dodd-Frank Act, gives our
shareholders the right to approve, on a non-binding advisory
basis, the compensation paid to our named executive officers as
disclosed in this information statement in accordance with SEC
rules.
The goal of our executive compensation program is to attract,
motivate, retain and reward executives in a fiscally responsible
manner. To achieve this objective, we design executive
compensation programs that encourage our executives to strive
for performance that is better than the industry average and
achieve our corporate goals. We provide a mix of fixed and
variable compensation that is intended to motivate our
executives to execute on short- and long-term objectives that
build sustainable long-term value. We believe that our
compensation program balances the interests of our primary
stakeholders, our shareholders, with the policyholders of the
Exchange. For more information about our compensation philosophy
and practices, see the Compensation Discussion and
Analysis and Executive Compensation sections
above.
We are asking our shareholders to indicate their support for the
compensation of our named executive officers, as described in
this information statement, by approving the following
resolution. This vote is not intended to address any specific
item of compensation, but rather the overall compensation of our
named executive officers and the compensation philosophy and
practices described in this information statement. The
resolution is advisory in nature and, therefore, does not bind
us to any particular action; however, our compensation committee
intends to consider the results of this advisory vote when it
makes future decisions regarding the compensation of our
executive officers.
40
Recommendation
The following resolution will be submitted for a shareholder
vote at our annual meeting:
RESOLVED, that the shareholders of Erie Indemnity Company
approve the compensation paid to the Companys named
executive officers, as disclosed in the Compensation Discussion
and Analysis, compensation tables and narrative discussion in
the Companys 2011 information statement.
Required Vote. The affirmative vote of a majority
of the shares of Class B common stock cast at our annual
meeting is required to approve, on a non-binding advisory basis,
the resolution endorsing the compensation of the Companys
named executive officers.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
APPROVAL OF THE RESOLUTION IN PROPOSAL 3.
PROPOSAL 4
SELECTION, ON AN ADVISORY BASIS, OF THE FREQUENCY OF THE
SHAREHOLDER VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE
OFFICERS
Introduction
The Dodd-Frank Act also allows our shareholders to vote, on a
non-binding advisory basis, as to how often they would like the
opportunity to vote on the compensation of our named executive
officers. Accordingly, we are seeking an advisory determination
from our shareholders as to the frequency with which we should
hold a vote on the approval of our executive compensation
practices, namely every year, every two years or every three
years.
We provide a mix of fixed and variable compensation that is
intended to motivate our executives to achieve short- and
long-term objectives that build sustainable, long-term value.
Accordingly, among the compensation we provide to our executives
are incentive awards with multi-year performance periods to
encourage them to focus on long-term performance.
Recommendation
For the purposes of the non-binding advisory vote on this
Proposal 4, the Company will take into consideration the
shareholder vote on each of the alternatives set forth in the
proxy card with respect to this Proposal 4. However, our
board of directors believes that an advisory vote on executive
compensation every three years would allow our compensation
programs to be evaluated over a similar timeframe and provide
adequate time for the company to respond to the vote results.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE OF EVERY THREE
YEARS ON PROPOSAL 4 RELATING TO THE FREQUENCY OF THE
SHAREHOLDER ADVISORY VOTE ON EXECUTIVE COMPENSATION.
RELATED
PERSON TRANSACTIONS
Recognizing that related person transactions present a
heightened risk of conflicts of interest, or create the
appearance of conflicts of interest, our board of directors
adopted a policy regarding transactions involving us and a
related person. This policy requires that, within the first
60 days of each fiscal year, all related person
transactions from the prior fiscal year be reviewed by our
nominating committee and either be approved or disapproved for
the current fiscal year. The policy also requires that any other
proposed related person transaction, or any change to a
previously approved related person transaction, be presented to
our nominating committee for approval or disapproval. A copy of
the policy as adopted by our board of directors may be viewed on
our website at
http://www.erieinsurance.com.
J. Ralph Borneman, Jr., one of our directors, is an
officer and principal shareholder of an insurance agency that
receives insurance commissions in the ordinary course of
business from the insurance companies
41
we manage in accordance with their standard commission schedules
and agents contracts. During 2010,
Mr. Bornemans agency also qualified for a
Founders Award which will be paid in 2011. The
Founders Award is a performance-based bonus paid by us to
eligible agents. Eligibility for and the amount of compensation
paid under the Founders Award depends on agents
performance in three areas: property and casualty underwriting
profitability, growth in policies in force, and life insurance
production. Payments made to the Borneman insurance agency for
commissions written on insurance policies from the Property and
Casualty Group and EFL totaled $3,127,465 in 2010. At its
meeting on February 7, 2011, our nominating committee
approved: (i) the commissions paid to
Mr. Bornemans agency during 2010; and (ii) the
payment of commissions and any Founders Award to
Mr. Bornemans agency during 2011 in accordance with
the standard commission schedules, agency contracts and
requirements of the Founders Award program.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTANTS
Pursuant to our bylaws, our audit committee has sole authority
to engage our independent registered public accountants. Our
audit committee annually considers the selection of our
independent registered public accountants. Our audit committee
selected Ernst & Young LLP to be our independent
registered public accountants for the fiscal years ended
December 31, 2010 and 2009 and Ernst & Young LLP
served in that capacity for the fiscal years ended
December 31, 2010 and 2009.
Representatives from Ernst & Young LLP are expected to
attend our annual meeting and will have the opportunity to make
a statement if they so desire. Such representatives are expected
to be available at our annual meeting to respond to appropriate
questions from shareholders.
REPORT OF
OUR AUDIT COMMITTEE
The following report of our audit committee does not
constitute soliciting material and shall not be deemed filed or
incorporated by reference into any other filing by us under the
1933 Act or the Exchange Act, except to the extent we
specifically incorporate this report of our audit committee by
reference therein.
The audit committee of our board of directors oversees the
quality and integrity of our accounting, auditing and financial
reporting practices. Our audit committee has adopted a written
charter, a copy of which may be viewed on our website at:
http://www.erieinsurance.com.
Each member of our audit committee is an independent director as
defined in the NASDAQ and SEC rules, satisfies the financial
literacy requirements thereof and meets the requirements of the
Holding Companies Act. In addition, our board of directors has
determined that one member of our audit committee,
Dr. Lilly, satisfies the financial expertise requirements
and has the requisite experience as defined by rules of the SEC.
Our audit committee, which met seven times during 2010, has the
responsibility, consistent with the requirements of
Section 1405(c)(4) of the Holding Companies Act and our
bylaws, for the selection of our independent registered public
accountants and for reviewing our financial condition, the scope
and results of the independent audit and the adequacy of our
accounting, financial, internal and operating controls.
Our audit committee oversees our internal audit department and,
accordingly, reviews and approves its audit plans, reviews its
audit reports and evaluates its performance.
With respect to enterprise risk management, our audit committee
meets periodically with management to inquire about significant
risks and exposures, and to review and assess the steps taken to
monitor and manage such risks.
Our audit committee reviews our financial reporting process on
behalf of our board of directors. In fulfilling its
responsibilities, our audit committee reviewed and discussed our
audited consolidated financial statements for the year ended
December 31, 2010 with management.
Throughout 2010, management continued its documentation, testing
and evaluation of our system of internal control over financial
reporting as required by Section 404 of Sarbanes-Oxley and
related regulations. Our audit committee was kept apprised of
the progress of the evaluation through periodic updates from
42
management and Ernst & Young LLP and provided
oversight to management throughout the process. Our audit
committee reviewed managements report on the effectiveness
of our internal control over financial reporting. Our audit
committee also reviewed Ernst & Young LLPs
opinion on the effectiveness of internal control over financial
reporting based on its audit.
Our audit committee discussed with Ernst & Young LLP
the matters required to be discussed by Statement of Auditing
Standards No. 61, Communication with Audit
Committees, as amended (AICPA Professional Standards,
Vol. 1, AU Section 380), as adopted by the Public
Company Accounting Oversight Board in Rule 3200T. In
addition, our audit committee received and reviewed the written
disclosures and the letter from Ernst & Young LLP
required by Rule 3526 of the Public Company Accounting
Oversight Board, Communication with Audit Committees
Concerning Independence, and has discussed with
Ernst & Young LLP matters relating to its independence.
Our audit committee reviews its charter annually. Our audit
committee has also established a procedure whereby persons with
complaints or concerns about accounting, internal control or
auditing matters may contact our audit committee anonymously.
Based upon the discussions and reviews referred to above, our
audit committee recommended to our board of directors that
(1) our audited consolidated financial statements be
included in our annual report on
Form 10-K
for the year ended December 31, 2010 to be filed with the
SEC, and (2) our board of directors accept
managements report on its assessment of the effectiveness
of our internal control over financial reporting.
Erie Indemnity Company Audit Committee:
Claude C. Lilly, III, Chair
Jonathan Hirt Hagen
Thomas B. Hagen, ex officio (non-voting)
Lucian L. Morrison
Thomas W. Palmer
Martin P. Sheffield
Richard L. Stover
February 22, 2011
43
AUDIT
FEES
Our audit committee approves the fees and other significant
compensation to be paid to our independent registered public
accountants for the purpose of preparing or issuing an audit
report or related work. We provide appropriate funding, as
determined by our audit committee, for payment of fees and other
significant compensation to our independent registered public
accountants. Our audit committee also preapproves all auditing
services and permitted non-audit services (including the fees
and terms thereof) to be performed for us by our independent
registered public accountants, subject to the de minimis
exceptions for non-audit services described in the Exchange
Act. Our audit committee delegated to our audit committee chair
preapproval authority for additional audit and non-audit
services subject to subsequent approval by the full audit
committee at its next scheduled meeting.
Our audit committee reviewed and discussed with
Ernst & Young LLP the following fees for services,
none of which were deemed to be for consulting services,
rendered for our 2010 and 2009 fiscal years and considered the
compatibility of non-audit services with Ernst & Young
LLPs independence:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Erie Indemnity
|
|
|
Erie Insurance
|
|
|
Affiliated
|
|
|
|
|
|
|
Company and
|
|
|
Exchange and
|
|
|
Entities
|
|
|
|
|
|
|
Subsidiaries
|
|
|
Subsidiary
|
|
|
(EFL)
|
|
|
Total
|
|
|
Audit fees
|
|
$
|
1,491,519
|
|
|
$
|
697,487
|
|
|
$
|
347,001
|
|
|
$
|
2,536,007
|
|
Audit-related fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax fees
|
|
|
38,760
|
|
|
|
|
|
|
|
|
|
|
|
38,760
|
|
All other fees
|
|
|
2,790
|
|
|
|
|
|
|
|
|
|
|
|
2,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fees
|
|
$
|
1,533,069
|
|
|
$
|
697,487
|
|
|
$
|
347,001
|
|
|
$
|
2,577,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Erie Indemnity
|
|
|
Erie Insurance
|
|
|
Affiliated
|
|
|
|
|
|
|
Company and
|
|
|
Exchange and
|
|
|
Entities
|
|
|
|
|
|
|
Subsidiaries
|
|
|
Subsidiary
|
|
|
(EFL)
|
|
|
Total
|
|
|
Audit fees
|
|
$
|
1,372,569
|
|
|
$
|
302,290
|
|
|
$
|
337,504
|
|
|
$
|
2,012,363
|
|
Audit-related fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax fees
|
|
|
54,954
|
|
|
|
40,654
|
|
|
|
|
|
|
|
95,608
|
|
All other fees
|
|
|
1,975
|
|
|
|
|
|
|
|
|
|
|
|
1,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fees
|
|
$
|
1,429,498
|
|
|
$
|
342,944
|
|
|
$
|
337,504
|
|
|
$
|
2,109,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax fees includes fees paid for services in connection with
routine tax matters, partnership and state tax issues, federal
income tax returns and refund assistance. All other fees
includes amounts paid for an online accounting and auditing
information subscription.
ANNUAL
REPORT
A copy of our annual report for 2010 is being mailed to all
holders of Class A common stock and Class B common
stock together with this information statement.
44
OTHER
MATTERS
Our board of directors does not know of any matter to be
presented for consideration at our annual meeting other than the
matters described in the notice of annual meeting.
By order of our board of directors,
James J. Tanous
Executive Vice President,
Secretary and General Counsel
March 18, 2011
Erie, Pennsylvania
45
ERIE
INDEMNITY COMPANY
CLASS B COMMON STOCK
PROXY
ANNUAL
MEETING OF SHAREHOLDERS TO BE HELD APRIL 19, 2011
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
The undersigned hereby appoints Terrence W. Cavanaugh, Thomas B.
Hagen and James J. Tanous, and each or any of them, proxies of
the undersigned, with full power of substitution, to vote all of
the shares of the Class B Common Stock of Erie Indemnity
Company that the undersigned may be entitled to vote at our
Annual Meeting of Shareholders to be held in the Auditorium of
the F. W. Hirt Perry Square Building, 100 Erie
Insurance Place (Sixth and French Streets), Erie, Pennsylvania,
on April 19, 2011, at 9:30 a.m. local time, and at any
adjournment, postponement or continuation thereof, and directs
that the shares represented by this proxy shall be voted as
follows:
|
|
ITEM 1A.
|
APPROVAL
OF AN AMENDMENT TO OUR ARTICLES OF INCORPORATION TO MODIFY
THE CORPORATE PURPOSES CLAUSE.
|
|
|
|
|
|
|
|
|
|
o FOR
|
|
|
o AGAINST
|
|
|
|
o ABSTAIN
|
|
|
|
ITEM 1B.
|
APPROVAL
OF AN AMENDMENT TO OUR ARTICLES OF INCORPORATION TO UPDATE
THE COMPANYS REGISTERED ADDRESS.
|
|
|
|
|
|
|
|
|
|
o FOR
|
|
|
o AGAINST
|
|
|
|
o ABSTAIN
|
|
|
|
ITEM 1C.
|
APPROVAL
OF AN AMENDMENT TO OUR ARTICLES OF INCORPORATION TO
ELIMINATE THE REQUIREMENT OF A SPECIFIC NUMBER OF DIRECTORS AND
TO PROVIDE THAT THE SIZE OF OUR BOARD SHALL BE GOVERNED BY OUR
BYLAWS.
|
|
|
|
|
|
|
|
|
|
o FOR
|
|
|
o AGAINST
|
|
|
|
o ABSTAIN
|
|
|
|
ITEM 2.
|
ELECTION
OF DIRECTORS
|
|
|
|
|
|
|
|
o FOR
all candidates listed below
(except as marked to the contrary)
|
|
o WITHHOLD
AUTHORITY to vote for all the candidates listed below
|
INSTRUCTION: To withhold authority to vote for any individual
candidate, strike a line through the candidates name in
the list below.
|
|
|
|
|
|
|
|
|
|
|
|
J. Ralph Borneman, Jr.
|
|
|
|
Thomas B. Hagen
|
|
|
|
Thomas W. Palmer
|
|
|
Terrence W. Cavanaugh
|
|
|
|
C. Scott Hartz
|
|
|
|
Martin P. Sheffield
|
|
|
Jonathan Hirt Hagen
|
|
|
|
Claude C. Lilly, III
|
|
|
|
Richard L. Stover
|
|
|
Susan Hirt Hagen
|
|
|
|
Lucian L. Morrison
|
|
|
|
Elizabeth Hirt Vorsheck
Robert C. Wilburn
|
|
|
|
ITEM 3.
|
APPROVAL,
ON AN ADVISORY BASIS, OF A RESOLUTION APPROVING THE COMPENSATION
OF OUR NAMED EXECUTIVE OFFICERS.
|
|
|
|
|
|
|
|
|
|
o FOR
|
|
|
o AGAINST
|
|
|
|
o ABSTAIN
|
|
|
|
ITEM 4.
|
SELECTION,
ON AN ADVISORY BASIS, OF THE FREQUENCY OF A SHAREHOLDER ADVISORY
VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE
OFFICERS.
|
|
|
|
|
|
|
|
o EVERY
YEAR
|
|
o EVERY
TWO YEARS
|
|
o EVERY
THREE YEARS
|
|
o ABSTAIN
|
In their discretion, the proxies, at the direction of our
Board of Directors, are authorized to vote with respect to
matters incident to the conduct of our Annual Meeting and any
adjournment, postponement or continuation thereof, and upon such
other business as may properly come before our Annual
Meeting.
This proxy will be voted as specified. If a choice is not
specified, the proxy will be voted FOR the amendments to
our Articles of Incorporation, FOR the candidates for
Director named above, FOR adoption of the resolution
approving the compensation of our Named Executive Officers, and
for the selection of EVERY THREE YEARS for the frequency
of an advisory shareholder vote to approve the compensation of
our Named Executive Officers.
This proxy should be dated, signed by the shareholder(s) and
returned promptly to us in the enclosed envelope. Persons
signing in a fiduciary capacity should so indicate.
Date:
, 2011
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS
TO BE HELD APRIL 19,
2011
To the Holders of Class A Common Stock and
Class B Common Stock of ERIE INDEMNITY COMPANY:
We will hold our 86th annual meeting of shareholders at
9:30 a.m., local time, on Tuesday, April 19, 2011,
at the Auditorium of the F.W. Hirt Perry Square
Building, 100 Erie Insurance Place (Sixth and French Streets),
Erie, Pennsylvania 16530 for the following purposes:
1. To approve amendments to our articles of incorporation
to: (i) modify the corporate purposes clause;
(ii) update our corporate registered address; and
(iii) eliminate the requirement of a specific number of
directors and provide that the size of the board of directors
shall be governed by our bylaws;
2. To elect 13 persons to serve as directors until our
2012 annual meeting of shareholders and until their successors
are elected and qualified;
3. To approve, on a non-binding advisory basis, the
compensation of our named executive officers;
4. To select, on a non-binding advisory basis, the
frequency of the shareholder advisory vote on the compensation
of our named executive officers; and
5. To transact any other business that may properly come
before our annual meeting and any adjournment, postponement or
continuation thereof.
This notice is being sent to all holders of Class A common
stock and Class B common stock as of the close of business
on Friday, February 18, 2011, the record date established
by our board of directors. Such persons will also receive an
information statement relating to our annual meeting, together
with a copy of our annual report to shareholders for the year
ended December 31, 2010. Holders of Class B common
stock will also receive a form of proxy. Holders of Class A
common stock will not receive proxies because they do not have
the right to vote on any of the matters to be acted upon at our
annual meeting.
Holders of Class B common stock are requested to complete,
sign and return the form of proxy, whether or not they expect to
attend our annual meeting in person.
By order of our board of directors,
James J. Tanous
Executive Vice President,
Secretary and General Counsel
March 18, 2011
Erie, Pennsylvania
NOTICE OF INTERNET AVAILABILITY OF ANNUAL MEETING
MATERIALS
Important Notice Regarding the Availability of our
Information Statement for the Annual Meeting of Shareholders to
be held on April 19, 2011.
Our information statement and annual report are available at
http://www.erieindemnityinfostatement.com.