Assurant 2005 Annual Report Download - page 25

value of each operating business segment that participates in the plan. However, the number of incentive units has been adjusted over time for
cash flows into and out of each entity. Upon the Company’s initial public offering, Company incentive units were converted into stock
appreciation rights. The entity value of the respective operating business segments are determined as of each December 31st based on a
valuation provided by an independent, qualified appraiser. Each incentive right entitles the holder to a cash payment equal to the difference
between the base value of the incentive unit and the value of the incentive unit as of the date of exercise.
All awards issued under the AAIR Plan become vested on the third anniversary of the effective date the right was granted, subject to full
acceleration upon a change in control of the Company or the relevant operating business segment, or pro-rata acceleration upon the
participant’s retirement, death, or disability. To the extent not previously exercised, all rights will automatically be exercised on the tenth
anniversary of the date of grant.
The Compensation Committee established the size of the AAIR awards issued in 2004 based upon prior performance and by considering
recommendations from outside compensation consultants based upon long-
term compensation reported by peer companies in the insurance and
financial services industry. The number of incentive units and estimated future payouts of awards granted to the named executive officers for
2004 are reported in the Long-Term Incentive Plan Awards table.
The Company anticipates that it will not grant any additional rights under the AAIR plan.
Retirement Program Contributions. The Assurant Executive Pension and 401(k) Plan provides retirement benefits to executives above the
benefits provided under the broad-based qualified pension plan. The 401(k) portion of the plan is intended to restore to participants amounts
that they are restricted from receiving under the Assurant 401(k) Plan due to Section 401(a)(17) of the U.S. tax code, which generally limits the
compensation that may be taken into account under a tax-qualified pension plan to no more than $205,000 in 2004 (subject to cost of living
adjustments). The Company makes an annual contribution to executives participating the Executive Pension and 401(k) Plan equal to 7% of
compensation in excess of this compensation limit. The amount credited to a participant’s account is deemed to be invested at the participant’s
direction in investment vehicles that are also available under the Company’s 401(k) Plan. A participant becomes vested in the credits and
deemed investment earnings thereon in the Executive Pension and 401(k) Plan after three years of vesting service. Total Company
contributions to retirement programs for the named executive officers for 2004 is reported in the “all other compensation” column of the
Summary Compensation Table.
Compensation of Chief Executive Officer
In determining the compensation for 2004 for Mr. Clayton, President and Chief Executive Officer of the Company, the Compensation
Committee applied the principles outlined above in the same manner as they were applied to the other executives. It compared Mr. Clayton’s
compensation with the level of compensation paid to chief executive officers at peer companies in the insurance and financial services industry.
In addition, consistent with past practices, the Committee assessed Mr. Clayton’s 2003 performance, including the accomplishment of
performance goals established for 2003, and a subjective assessment of his performance. The Committee noted that under Mr. Clayton’s
leadership, the Company had successfully completed its initial public offering and had achieved net operating income of $329 million, the best
in the Company’s 25-year history.
In recognition of Mr. Clayton’s continued strong leadership, the Committee increased Mr. Clayton’s base salary to $840,000, a 3.6%
increase over 2003. Mr. Clayton’s target bonus for 2004 remained at 100% of his base salary. These amounts placed Mr. Clayton’s target cash
compensation slightly below the median cash compensation paid by those companies selected for peer comparison. The actual payout of
Mr. Clayton’s bonus award at $1,444,800 (1.72 times base salary) represented commendable performance under the Executive Management
Incentive Plan.
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