Allstate 2015 Annual Report Download - page 42

36 www.allstate.com
EXECUTIVE COMPENSATION
Performance Stock Awards and Stock Options
• We grant equity awards to executives based
on scope of responsibility, consistent with
our philosophy that a significant amount of
compensation should be in the form of equity.
Additionally, from time to time, equity awards are
granted to attract new executives and to retain
existing executives.
• The mix of equity incentives for senior executives
has been 50% PSAs and 50% stock options. We
believe both PSAs and stock options are forms
of performance-based incentive compensation
because PSAs are earned based on achieving
established performance goals and stock options
require stock price appreciation to deliver value
to an executive. The PSAs have a three-year
performance cycle.
• Starting in 2012, each of the named executives
was awarded a target number of PSAs.
• For the 2012 and 2013 awards, the number of
PSAs that became earned and vested at the end
of the performance cycle was based on an annual
Adjusted Operating Income ROE attained during
each year of the performance cycle.
• For awards beginning in 2014, the number of PSAs
that vest depends on the three-year Average
Adjusted Operating Income ROE. Adjusted
Operating Income ROE is defined on pages 63-64.
Adjusted Operating Income for PSAs includes
a minimum or maximum amount of after-tax
catastrophe losses if actual catastrophe losses are
less than or exceed those amounts, respectively,
which serves to decrease volatility and stabilize
the measure. The committee selected Adjusted
Operating Income ROE as the performance
measure because it:
• Measures performance in a way that is tracked
and understood by investors.
• Captures both income and balance sheet
impacts, including capital management actions.
• Provides a useful gauge of overall performance
while limiting the effects of factors management
cannot influence, such as extreme weather
conditions.
• Correlates to changes in long-term stockholder
value.
• For the 2012 and 2013 awards, performance is
measured in three separate one-year periods,
but all of these goals were established at the
beginning of the three-year performance cycle.
For awards beginning in 2014, performance is
measured in a single three-year measurement
period. The actual number of PSAs vested for
the award’s measurement period varies from
0% to 200% of that period’s target PSAs based
on Adjusted Operating Income ROE for the
measurement period.
• The committee requires positive net income in
order for our executives to earn PSAs based on
Adjusted Operating Income ROE above target. If
Allstate has a net loss in a measurement period,
the number of PSAs vested would not exceed
target, regardless of the Adjusted Operating
Income ROE. This hurdle is included to prevent
misalignment between Allstate reported net
income and the PSAs vested based on the
Adjusted Operating Income ROE result. This
situation could occur if, for example, catastrophe
losses or capital losses that are not included in
Adjusted Operating Income ROE caused Allstate
to report a net loss for the period.
• At the end of each measurement period, the
committee certifies the level of our Adjusted
Operating Income ROE achievement. The
committee does not have the discretion to
adjust the performance achievement for any
measurement period. PSAs will vest following
the end of the three-year performance cycle if
the performance conditions are met, subject to
continued employment (other than in the event
of death, disability, retirement, or a qualifying
termination following a change in control).
• Like the previous year, the 2016-2018 PSA
award will be measured in a single three-year
measurement period. However, the committee
added a secondary performance measure. The
number of PSAs that will vest at the end of
the performance cycle will depend on Average
Adjusted Operating Income ROE (70% of the
award) and a new performance measure, Earned
Book Value (30% of the award). This additional
measure was added to create greater alignment
with the increase in performance-based assets in
the investment portfolio. For both measures, the
committee considered historical and expected
performance, market expectations and industry
trends when approving the ranges of performance.
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