Allstate 2012 Annual Report Download - page 63

Risk Management and Compensation
We have reviewed our compensation policies and Annual Executive Incentive Plan are subject to clawback in
practices, and we believe that they are appropriately the event of certain financial restatements.
structured, that they are consistent with our key operating
priority of keeping the company financially strong, and Performance Measures for 2011 Annual Cash Incentive
that they avoid providing incentives for employees to Awards
engage in unnecessary and excessive risk taking. We Information regarding our performance measures is
believe that executive compensation has to be examined disclosed in the limited context of our annual cash
in the larger context of an effective risk management incentive awards and should not be understood to be
framework and strong internal controls. As described in statements of management’s expectations or estimates of
the Board Role in Risk Oversight section of the Corporate results or other guidance. We specifically caution
Governance Practices and Code of Ethics portion of this investors not to apply these statements to other contexts.
proxy statement, the Board and audit committee both play
an important role in risk management oversight, including The following are descriptions of the performance
reviewing how management measures, evaluates, and measures used for our annual cash incentive awards for
manages the corporation’s exposure to risks posed by a 2011. These measures are not GAAP measures. They were
wide variety of events and conditions. In addition, the developed uniquely for incentive compensation purposes
compensation and succession committee employs an and are not reported items in our financial statements.
independent executive compensation consultant each year Some of these measures use non-GAAP measures and
to assess Allstate’s executive pay levels, practices, and operating measures. The Committee has approved the use
overall program design. of non-GAAP and operating measures when appropriate
to drive executive focus on particular strategic,
A review and assessment of potential compensation- operational, or financial factors or to exclude factors over
related risks was conducted by management and reviewed which our executives have little influence or control, such
by the chief risk officer. Performance-related incentive as capital market conditions.
plans were analyzed using a process developed in
conjunction with our independent executive compensation Adjusted Underlying Operating Income: This measure is
consultant. used to assess financial performance. This measure is
equal to net income adjusted to exclude the after tax
The 2011 risk assessment specifically noted that our effects of the items listed below:
compensation programs:
• Realized capital gains and losses (which includes the
• Provide a balanced mix of cash and equity through related effect on the amortization of deferred
annual and long-term incentives to align with acquisition and deferred sales inducement costs) except
short-term and long-term business goals. for periodic settlements and accruals on certain
• Utilize a full range of performance measures that we non-hedge derivative instruments.
believe correlate to long-term shareholder value • Valuation changes on embedded derivatives that are
creation. not hedged.
• Incorporate strong governance practices, including • Business combination expenses and the amortization of
paying cash incentive awards only after a review of purchased intangible assets.
executive and corporate performance.
• Gains and losses on disposed operations.
• Enable the use of negative discretion to adjust annual
incentive compensation payments when formulaic • Adjustments for other significant non-recurring,
payouts are not warranted due to other circumstances. infrequent, or unusual items, when (a) the nature of the
charge or gain is such that it is reasonably unlikely to
• Limit annual incentive payouts by containing a recur within two years or (b) there has been no similar
maximum payout level. charge or gain within the prior two years.
Furthermore, to ensure our compensation programs do • Restructuring or related charges.
not motivate imprudent risk taking, awards to the
executive officers made after May 19, 2009, under the • Underwriting results of the Discontinued Lines and
2009 Equity Incentive Plan and awards made under the Coverages segment.
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Executive Compensation
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