Compensation Discussion and Analysis


EXECUTIVE OVERVIEW

Our Compensation Discussion and Analysis describes Allstate’s executive compensation program, including total 2016 compensation for our named executives listed below:

Thomas J. Wilson – Chair and Chief Executive Officer (CEO)
Steven E. Shebik – Executive Vice President and Chief Financial Officer (CFO)
Don Civgin – President, Emerging Businesses
Mary Jane Fortin – President, Allstate Financial
Matthew E. Winter – President

See Appendix C for a list of Allstate’s other executive officers.

Business Highlights

In 2016, Allstate successfully executed its strategy to serve the four customer segments with unique value propositions, met near-term financial commitments and invested in long-term growth platforms. Stockholders received $1.8 billion in cash in 2016 through a combination of stock repurchases and common stock dividends. Our management team continued to advance all five of our 2016 operating priorities:

*

The operating income and underlying combined ratio measures are not based on accounting principles generally accepted in the United States of America (“non-GAAP”) and are defined and reconciled to the most directly comparable GAAP measures in Appendix A.

Allstate’s one-year total shareholder return was 21.5%. The following chart shows Allstate’s total shareholder return over one, three and five years relative to the market cap weighted average of the peer group used for 2016 compensation benchmarking (identified on page 46).

COMPARISON OF TOTAL SHAREHOLDER RETURN



Alignment of Pay with Performance

The committee designs the executive compensation program to deliver pay in accordance with corporate, business unit and individual performance. A large percentage of total target compensation is at risk through long-term equity awards and annual cash incentive awards. These awards are linked to performance measures that correlate with long-term stockholder value creation. The mix of target total direct compensation for 2016 for our CEO and the average of our other named executives is shown in the chart below.

CHIEF EXECUTIVE OFFICER
AVERAGE OF OTHER NAMED EXECUTIVE OFFICERS

In addition to the compensation structure at target, the 2016 compensation paid to our named executives reflects strong pay for performance alignment.

  • Annual cash incentive. For our annual cash incentive award, we set performance ranges to align with our operating plan and strategy. The annual incentive plan was funded for the named executives at 55.1% of target. Allstate continued to execute operational improvements in a challenging external environment. These operational improvements, however, led to a modest decline in insurance policies in force and, in part, led to results below threshold on the total premiums performance measure in the annual incentive program. Operating income was below target due to catastrophe losses in excess of plan. Net investment income was close to target levels, and total return on our investment portfolio was well above target.

The following table shows the annual cash incentive award paid to each named executive as a percentage of target in the last three years.

AIP % OF TARGET
Name   2014   2015   2016
Mr. Wilson   118.9%   80.8%   55.1%
Mr. Shebik   118.9%   90.7%   62.3%
Mr. Civgin   114.3%   80.8%   55.1%
Ms. Fortin       51.2%
Mr. Winter   130.4%   89.3%   55.1%
  • Long-term incentive awards. Senior executives received equity grants in 2016 composed of 60% performance stock awards (“PSAs”) and 40% stock options. The committee selected Average Adjusted Operating Income ROE and Earned Book Value as the performance measures for PSAs since those measures were deemed to be best correlated to long-term stockholder value. See pages 43-45. The 2014-2016 PSAs paid out at 87.1% of target.

CONSIDERATION OF 2016 STOCKHOLDER VOTE

Stockholders approved the 2016 say-on-pay resolution with approximately 95% of the votes cast in favor. The committee, with input from the independent compensation consultant, considered the vote results, investor input, and current market practices as it evaluated whether changes to the compensation program were warranted.

As we strive to continuously improve our practices, we made the following modifications to our program in 2016:

  • Annual Incentive Plan. Our annual incentive plan for 2016 included total return as a fourth performance measure, further aligning our short-term incentive program with our long-term investments strategy.
  • Stock Ownership Guidelines. The President and all executive vice presidents are now required to own Allstate common stock worth a multiple of three times their base salary.

ALLSTATE’S EXECUTIVE COMPENSATION PRINCIPLES

Allstate’s executive compensation program includes industry best practices.

What We Do
Pay for Performance. A significant percentage of total target direct compensation is pay at-risk and is based on measurable performance goals.
Strong Link between Performance Measures and Strategic Objectives. Performance measures for incentive compensation are linked to operating priorities designed to create long-term stockholder value.
Independent Compensation Consultant. The committee retains an independent compensation consultant to review the executive compensation programs and practices.
Targeted Pay at 50th Percentile of Peers. The committee targets total direct compensation at the 50th percentile of peers.
Benchmark Peers of Similar Revenues and Business Complexity. The committee benchmarks our executive compensation program and reviews the composition of the peer group annually with the assistance of the independent compensation consultant.
Moderate Change-in-Control Benefits. Change-in-control severance benefits are three times target cash compensation for the CEO and two times target cash compensation for other executive officers.
Double Trigger in the Event of a Change in Control. Beginning with grants made in 2012, equity incentive awards have a double trigger; that is, they will not vest in the event of a change in control unless also accompanied by a qualifying termination of employment.
Maximum Payout Caps for Annual Cash Incentive Compensation and Performance Stock Awards (“PSAs”). The committee establishes a maximum limit on the number of PSAs and the amount of annual cash incentive that can be earned. The respective compensation plans also limit awards for certain executives.
Robust Equity Ownership and Retention Requirements. In addition to executive stock ownership guidelines, we extended holding requirements beginning with awards granted in 2014. Senior executives must hold a portion of their equity for one additional year after vesting of the PSAs or restricted stock units or exercise of options.
Clawback of Certain Compensation if Restatement or Covenant Breach. Certain awards made to executive officers are subject to clawback in specified circumstances.
What We Don't Do
No Employment Agreements for Executive Officers. Our executive officers are at-will employees with no employment contracts.
No Guaranteed Annual Salary Increases or Bonuses. For the named executives, annual salary increases are based on evaluations of individual performance, while their annual cash incentives are tied to corporate and individual performance.
No Special Tax Gross Ups. No tax gross ups are provided beyond limited items which are generally available to all full-time employees.
No Repricing or Exchange of Underwater Stock Options. Our equity incentive plan does not permit repricing or exchange of underwater stock options or stock appreciation rights without stockholder approval, except in connection with certain transactions involving Allstate or a change in control.
No Plans that Encourage Excessive Risk-Taking. Based on the annual review, it was determined that the company’s compensation practices are appropriately structured and avoid incenting employees to engage in unnecessary and excessive risk-taking.
No Hedging or Pledging of Allstate Securities. Officers, directors, and employees are prohibited from hedging Allstate securities. Directors, executive officers and other senior executives are prohibited from pledging Allstate securities as collateral or holding securities in a margin account, unless an exception is granted by the Chair or lead director.
No Inclusion of Equity Awards in Pension Calculations. Compensation realized from the exercise of stock options or the settlement of PSAs is not used in the calculation of an employee’s pension benefit.
No Dividends Paid on Unvested PSAs. Dividend equivalents are accrued but not paid on PSAs until the performance conditions are satisfied and the PSAs vest after the performance measurement period.
No Excessive Perks. We offer only limited benefits as required to remain competitive and to attract and retain highly talented executives.

ELEMENTS OF 2016 EXECUTIVE COMPENSATION PROGRAM DESIGN

The following table lists the elements of target direct compensation for our 2016 executive compensation program. The committee uses the 50th percentile of our peer companies as a guideline when setting total target direct compensation. The program uses a mix of fixed and variable compensation elements and provides alignment with both short- and long-term business goals through annual and long-term incentives. Our incentives are designed to drive overall corporate performance, specific business unit strategies, and individual performance using measures that correlate to stockholder value and align with our long-term strategic vision and operating priorities.

    Fixed       Variable    
    Base Salary   Annual Cash Incentive Awards   Performance Stock Awards ("PSAs")   Stock Options
Key Characteristics  
  • Fixed compensation component payable in cash.
  • Reviewed annually and adjusted when appropriate.
 
  • Variable compensation component payable annually in cash.
  • Actual performance against annually established goals determines overall corporate pool, which is allocated based on individual performance.
 
  • Equity award based on achieving performance goals.
  • PSAs vest on the day before the third anniversary of the grant date based on actual performance against goals established at the beginning of the performance period.
  • See page 45 for the retention requirements for PSAs.
 
  • Non-qualified
    stock options to
    purchase shares at
    the market price
    when awarded.
    Vest ratably over
    three years.(1)
  • Expire in ten years or in the event of retirement, the earlier of five years or normal expiration.
  • See page 45 for the retention requirements for stock options.
Why We Pay This Element  
  • Provide a base level of competitive cash compensation for executive talent.
 
  • Motivate and reward executives for performance on key strategic, operational, and financial measures during the year.
 
  • Motivate and reward executives for performance on key long-term measures.
  • Align the interests of executives with long-term stockholder value and retain executive talent.
 
  • Align the interests of executives with long-term stockholder value and retain executive talent.
How We Determine Amount  
  • Experience, job scope, market data, and individual performance.
  • Senior executive payments are approved by the compensation and succession committee.
 
  • A corporate-wide funding pool is based on performance on four measures:
    • Adjusted Operating Income(2)
    • Total Premiums(2)
    • Net Investment Income(2)
    • Total Return(2)
  • Individual awards are based on job scope, market data, and individual performance.
 
  • Target awards based on job scope, market data, and individual performance.
  • Vested awards based on performance on Adjusted Operating Income Return on Equity(2) and Earned Book Value(2) with a requirement of positive Net Income for any payout above target.
 
  • Target awards based on job scope, market data, and individual performance.
(1)   Stock options granted prior to February 18, 2014 vested over four years with 50% exercisable on the second anniversary of the grant date, and 25% exercisable on each of the third and fourth anniversary dates. The change to a three-year vesting schedule with one-third exercisable on each anniversary was made in 2014 to reflect current market practice.
(2)   For a description of how these measures are determined, see pages 64-66.

COMPENSATION DECISIONS FOR 2016

Chief Executive Officer
Mr. Wilson, Chair and Chief Executive Officer
  • Mr. Wilson’s total compensation and the amount of each compensation element are driven by the design of our compensation program, his experience, his responsibility for Allstate’s overall strategic direction, performance and operations, and the committee’s analysis of peer company CEO compensation. In conjunction with the committee’s independent compensation consultant, the committee conducts an annual review of Mr. Wilson’s total target direct compensation and determines if any changes are warranted.
  • Mr. Wilson’s performance as Chair and CEO is evaluated under the following categories which are determined by the committee: operating results, total shareholder return, developing and implementing long-term strategy, maintaining and motivating a high performance team, corporate stewardship and Board effectiveness. Performance is assessed over one- and three-year time periods.
    • Operating Results. Allstate made substantial progress in executing the profit improvement plan for auto insurance. However, the auto insurance profit improvement plan negatively impacted the total premiums measure in the annual incentive plan. Operating profit was below plan due to a substantial increase in catastrophe losses in 2016.
    • Total Shareholder Returns. Total shareholder returns of 21.5% and 43.2% over one and three years are substantially higher than the compensation peer group (see page 34).
    • Long-term Strategy. Successful execution of the customer segmentation strategy and building long-term growth platforms such as Arity and Allstate Benefits, and the acquisition of SquareTrade.
    • High Performance Team. Allstate has a strong performance based culture, exceptional employee engagement and an excellent leadership team.
    • Board Effectiveness. The Board is highly collaborative, transparent and fully engaged. Mr. Traquina joined the Board in 2016.
  • During the 2016 annual review, the committee determined that Mr. Wilson’s target direct compensation was appropriately aligned with the median of the compensation peer group. Furthermore, Mr. Wilson’s annual cash incentive target of 300% of salary and long-term equity incentive target of 750% of salary remained unchanged.
    • Salary. In 2016, the Board did not adjust Mr. Wilson’s salary of $1,200,000. Mr. Wilson’s last salary increase was in March 2015.
    • Annual Cash Incentive Award. Mr. Wilson’s target annual incentive payment of 300% of base salary with a maximum funding opportunity for the award pool of 200% of target was unchanged in 2016. The committee approved an annual cash incentive award of $1,982,880, which was 55.1% of target and equal to the funding level as determined by the actual results for the four performance measures. This was 19.8% of the maximum payment established by the Board.
    • Equity Incentive Awards. In February 2016, based on its assessment of Mr. Wilson’s performance in delivering strong business results in 2015, the committee granted him equity awards of stock options with a grant date fair value of $3,600,000 and performance stock awards with a grant date fair value of $5,400,028, which was Mr. Wilson’s target equity incentive award opportunity of 750% of salary.
    • Other. The change in pension value for Mr. Wilson in 2016 of $1,574,760 was $3,907,387 lower than the change would have been had management not recommended a change in pension benefits beginning in 2014, as discussed on page 47. The total value of Mr. Wilson’s pension benefit as of December 31, 2016 is $13.4 million less than it would have been without the 2014 pension change.
Other Named Executives

Mr. Wilson and the Board evaluate the performance and contributions of each member of the senior leadership team, including each other named executive. Based on his review, Mr. Wilson recommended specific adjustments to salary as well as actual incentive awards. The recommendations were considered and approved by the committee.

Mr. Shebik, Executive Vice President and Chief Financial Officer
  • Salary. The committee approved an increase from $750,000 to $775,000 during 2016, based on an evaluation of his performance, level of responsibility, and target compensation as compared to the peer group.
  • Incentive Targets. No changes were made to Mr. Shebik’s incentive targets during 2016. Mr. Shebik’s annual incentive target was 125% of salary and his target equity incentive opportunity was 300% of salary.
  • Annual Cash Incentive Award. The committee approved an annual cash incentive award of $600,000 for Mr. Shebik. This award was slightly above pool funding based on excellent performance in 2016. This was 11.1% of the maximum payment established by the Board.
  • Equity Incentive Awards. In February 2016, based on a review of Mr. Shebik’s performance during 2015, the committee granted him equity awards with a grant date fair value of $2,749,985, which is approximately $500,000 above his target equity incentive award opportunity.
  • 2016 Performance. Mr. Shebik had exceptional performance in 2016. As Chief Financial Officer he was integral to all of the operational and strategic accomplishments across Allstate. He also served as Interim Chief Investment Officer beginning in April 2016 and delivered strong investment results.
Mr. Civgin, President, Emerging Businesses
  • Salary. The committee approved an increase from $762,000 to $780,000 during 2016, based on an evaluation of his performance, level of responsibility, and target compensation as compared to the peer group.
  • Incentive Targets. No changes were made to Mr. Civgin’s incentive targets during 2016. Mr. Civgin’s annual incentive target was 125% of salary and his target equity incentive opportunity was 300% of salary.
  • Annual Cash Incentive Award. The committee approved an annual cash incentive award of $535,066 for Mr. Civgin, which was at the calculated pool funding and 9.9% of the maximum payment established by the Board.
  • Equity Incentive Awards. In February 2016, based on a review of Mr. Civgin’s performance during 2015, the committee granted him equity awards with a grant date fair value of $2,400,027, which is approximately $114,000 above his target equity incentive award opportunity.
  • 2016 Performance. Mr. Civgin’s business results were slightly below plan as profit improvement initiatives were more complicated than expected. Excellent progress was made in building two longterm growth opportunities, Arity and Allstate Benefits.
Ms. Fortin, President, Allstate Financial
  • Salary. The committee approved an increase from $625,000 to $634,375 during 2016, based on an evaluation of her performance, level of responsibility, and target compensation as compared to the peer group.
  • Incentive Targets. No changes were made to Ms. Fortin’s incentive targets during 2016. Ms. Fortin’s annual incentive target was 90% of salary and her target equity incentive opportunity was 250% of salary.
  • Annual Cash Incentive Award. The committee approved an annual cash incentive award of $291,774 for Ms. Fortin, which was slightly below calculated pool funding and 5.4% of the maximum payment established by the Board.
  • Equity Incentive Awards. In February 2016, based on a review of Ms. Fortin’s performance during 2015, the committee granted her equity awards with a grant date fair value of $1,562,486, which was Ms. Fortin’s target equity incentive award opportunity of 250% of salary.
  • 2016 Performance. Allstate Life and Retirement operating income was above plan, but sales were below the prior year. Substantial long-term economic value should be created by the repositioning of the investment portfolio for the payout annuity liabilities.
Mr. Winter, President
  • Salary. The committee approved an increase from $800,000 to $825,000 during 2016, based on an evaluation of his performance, level of responsibility, and target compensation as compared to the peer group.
  • Incentive Targets. No changes were made to Mr. Winter’s incentive targets during 2016. Mr. Winter’s annual incentive target was 225% of salary and his target equity incentive opportunity was 375% of salary.
  • Annual Cash Incentive Award. The committee approved an annual cash incentive award of $1,017,513 for Mr. Winter, which was at calculated pool funding and 14.1% of the maximum payment established by the Board.
  • Equity Incentive Awards. In February 2016, based on a review of Mr. Winter’s performance during 2015, the committee granted him equity awards with a grant date fair value of $3,200,016, which is approximately $200,000 above his target equity incentive award opportunity.
  • 2016 Performance.
    • Operating income was below plan despite a 49.6% increase in catastrophe losses from the prior year. Excellent execution of the auto insurance profit improvement plan while maintaining attractive margins from homeowners insurance. Successfully utilized continuous improvement processes and operational oversight to reduce expenses.
    • Enhanced long-term competitive position of Allstate agencies by implementing the trusted advisor strategy.
    • Developed and recruited a strong senior leadership team.

INCENTIVE DESIGN AND GOAL SETTING

For the annual and long-term incentive programs, the committee oversees a rigorous and comprehensive goal-setting process. The committee works to identify performance measures and ranges of performance in the annual and long-term programs that (1) align with the company’s strategy, operating principles and priorities, and stockholder interests, (2) support the achievement of corporate goals, and (3) reflect the company’s overall performance. The following timeline of key events reflects the committee’s process:

INCENTIVE DESIGN, PAYOUT, AND GOAL-SETTING PROCESS


Salary
  • Executive salaries are set by the Board based on the committee’s recommendations. In recommending executive salary levels, the committee uses the 50th percentile of total target direct compensation of our peer companies as a guideline, which supports Allstate’s ability to compete effectively for and to retain executive talent. Annual merit increases for named executives are based on evaluations of their performance, using the enterprise-wide merit increase budget as a guideline.
Annual Cash Incentive Awards
  • At the beginning of the year, after extensive review, the committee sets performance measure goals based on the operating plan. Target performance is equal to the operating plan. Threshold and maximum measures are informed by probability testing, historical results, and operational performance scenarios. To further test the appropriateness of the ranges, the committee’s independent consultant provides advice based on peer performance, market expectations and industry trends. The chief risk officer reviews the performance measures and ranges to ensure they are consistent with Allstate’s risk and return principles.
  • Actual performance on the performance measures determines the overall funding level of the corporate pool and the aggregate total award budget for eligible employees. In 2016, the pool was funded based on the collective results of four measures: Adjusted Operating Income, Total Premiums, Net Investment Income, and Total Return. Funding for each measure is equal to 0% below threshold, 50% at threshold, 100% at target and 200% at maximum, and results between threshold, target and maximum are subject to interpolation.
  • In the event of a net loss, the corporate pool funding is reduced by 50% of actual performance for senior executives. For example, if performance measures ordinarily would fund the corporate pool at 60% and there was a net loss, then the corporate pool would be funded at 30% for senior executives. This mechanism ensures alignment of pay and performance in the event of a natural catastrophe or extreme financial market conditions.
  • Target annual incentive compensation percentages for each named executive are based on market data pay levels of peer companies and our benchmark target for total direct compensation at the 50th percentile.
  • Individual awards are based on individual performance in comparison to position-specific compensation targets and overall company performance.
  • In order to qualify annual cash incentive awards as deductible performance-based compensation under Internal Revenue Code section 162(m), Allstate has established the maximum awards that could be paid to any of the named executives as the lesser of the stockholder approved maximum of $10 million under the Annual Executive Incentive Plan or a percentage of an award pool. For 2016, the award pool is equal to 1.0% of Adjusted Operating Income (defined on pages 64-65), and the percentage of the award pool for Mr. Wilson is 35%, Mr. Winter, 20%, and for each other named executive, 15%. Although section 162(m) does not apply to the compensation of the CFO, the CFO was included in the award pool consistent with the award opportunity available to the other named executives. The committee retains complete discretion to pay less than the maximums established by the Annual Executive Incentive Plan and the award pool.
  • We paid the 2016 cash incentive awards in March 2017. The following table shows how the corporate pool was funded and distributed to individual participants:

(1)   The committee has discretion to determine the amount of the awards paid from the corporate pool to the named executives. For treatment of catastrophe losses and performance-based long-term income in the funding calculation, see discussion of performance measures on pages 64-66.
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.
  • In 2016 and 2017, the mix of equity incentives for senior executives was 60% PSAs and 40% 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 are awarded based on results over a three-year period with the actual number of PSAs vesting between 0% to 200% of that period’s target PSAs based on Adjusted Operating Income ROE (70%) and Earned Book Value (30%) for the measurement period.
  • The committee selected Adjusted Operating Income ROE as a 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.
  • Earned Book Value was selected to create greater alignment with the increase in performance-based assets in the investment portfolio.
  • Both measures are further described on pages 64-66. For both measures, the committee considered historical and expected performance, market expectations and industry trends when approving the range of performance.
  • For awards in 2014 and 2015, the number of PSAs that vest depends on the three-year Average Adjusted Operating Income ROE. Adjusted Operating Income ROE for those years is defined on pages 64-66.
  • For all PSA awards, Adjusted Operating Income and Earned Book Value include 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 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 and Earned Book Value 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).

For the 2017-2019 award, the Average Adjusted Operating Income ROE and Earned Book Value measures are calculated, respectively, as follows:


(1)   Adjusted Operating Income for the 2017-2019 PSA award is defined on pages 64-66.
(2)   Adjusted Common Shareholders’ Equity for the 2017-2019 PSA award is defined on page 66.
(3)   Earned Book Value is defined on page 66.
2017-2019 PERFORMANCE STOCK AWARD RANGE OF PERFORMANCE
    Performance Measures
    Threshold   Target   Maximum
Average Adjusted Operating Income ROE (70%)(1)   6.0%   11.0%   13.0%
Earned Book Value (Compound Annual Growth) (30%)   6.0%   9.0%   11.0%
Payout   0%   100%   200%
(1) Subject to positive Net Income hurdle

EQUITY OWNERSHIP AND RETENTION REQUIREMENTS

Instituted in 1996, stock ownership guidelines require each of the named executives to own Allstate common stock worth a multiple of base salary to link management and stockholders’ interests. The following chart shows the salary multiple guidelines and the equity holdings that count towards the requirement. The current stock ownership guidelines apply to 93 of our 192 senior executives and other officers as of December 31, 2016 and require these executives to hold 75% of net shares received as a result of equity compensation awards until their salary multiple guidelines are met.

STOCK OWNERSHIP AS MULTIPLE OF BASE SALARY AS OF DECEMBER 31, 2016
Named Executive   Guideline   Actual   Vested In The Money Option Value (after-tax)
Mr. Wilson   6   34   35
Mr. Shebik   3   9   6
Mr. Civgin   3   10   1
Ms. Fortin   3   6   0
Mr. Winter   3   11   9
What Counts Toward the Guideline
Allstate shares owned personally and beneficially
Shares held in the Allstate 401(k) Savings Plan
Restricted stock units
What Does Not Count Toward the Guideline
Unexercised stock options
Unvested performance stock awards
Retention Requirements

Beginning with awards granted in 2014, Allstate added a requirement that, regardless of a senior executive’s stock ownership level, senior executives must retain at least 75% of net shares received as a result of equity compensation awards for one year. In the case of PSAs and restricted stock units, senior executives must retain 75% of net after-tax shares after the three or four-year vesting period for one year. In the case of stock options, senior executives must retain 75% of all shares remaining after covering the exercise price of the shares and taxes. This retention requirement applies to approximately 9% of officers in 2016.

Policies on Hedging and Pledging Securities

We have a policy that prohibits all officers, directors, and employees from engaging in transactions in securities issued by Allstate or any of its subsidiaries that might be considered speculative or hedging, such as selling short or buying or selling options. We instituted a policy in 2014 that prohibits senior executives and directors from pledging Allstate securities as collateral for a loan or holding such securities in a margin account, unless an exception is granted by the Chair or lead director.

Timing of Equity Awards and Grant Practices

Typically, the committee approves grants of equity awards during a meeting in the first fiscal quarter. The timing allows the committee to align awards with our annual performance and business goals.

Throughout the year, the committee may grant equity incentive awards to newly hired or promoted executives or to retain or recognize executives. The grant date for these awards was fixed as the third business day of a month following the later of committee action or the date of hire or promotion, or for recognition grants, such other date specified by the committee.

For additional information on the committee’s practices, see portions of the Board Leadership Structure and Practices section of this proxy statement on pages 23-24, and 26.

PEER BENCHMARKING

The committee monitors performance toward goals throughout the year and reviews executive compensation program design and executive pay levels annually. As part of that evaluation, Compensation Advisory Partners, the committee’s independent compensation consultant, provided executive compensation data, information on current market practices, and alternatives to consider when determining compensation for our named executives. The committee benchmarks executive compensation program design, executive pay, and performance against a group of peer companies that are publicly-traded. Product mix, market segment, annual revenues, premiums, assets, and market value were considered when identifying peer companies. The committee believes Allstate competes against these companies for executive talent, business and stockholder investment. The committee reviews the composition of the peer group annually with the assistance of its compensation consultant. In 2016, the committee made one change to the peer group. The Chubb Corporation and Ace Ltd. merged and the resulting entity (Chubb Limited) is now included in the peer group. CNA Financial Corporation will be included as a peer company for 2017 compensation benchmarking. The following table reflects the peer group used for 2016 compensation benchmarking.

PEER COMPANIES(1)

                    Total Shareholder Return (%)
Company Name   Revenue
($ in billions)
  Market Cap
($ in billions)
  Assets
($ in billions)
  Premiums
($ in billions)
  One
Year
  Three
Years
  Five
Years
AFLAC Inc.   22.6   28.2   129.8   19.2   19.0   12.2   81.4
American International Group, Inc.   52.4   65.0   498.3   37.1   7.5   33.3   194.5
Chubb Limited   31.7   61.6   159.8   28.7   15.4   36.9   111.3
The Hartford Financial Services Group, Inc.   18.3   17.8   223.4   14.8   11.6   38.5   218.5
Manulife Financial Corporation   29.1   26.3   400.5   15.6   22.7   -1.0   95.9
MetLife, Inc.   63.5   59.0   898.8   48.4   15.0   8.6   95.6
The Progressive Corporation   23.4   20.6   33.4   22.5   14.4   43.9   116.7
Prudential Financial, Inc.   58.8   44.7   784.0   36.9   31.3   22.2   136.0
The Travelers Companies, Inc.   27.6   34.2   100.2   24.5   10.8   43.9   130.5
Allstate   36.5   27.1   108.6   33.6   21.5   43.2   196.6
Allstate Ranking Relative to Peers:   3 of 7   5 of 7   5 of 7   3 of 7   1 of 7   3 of 7   2 of 7
– Property and Casualty Insurance Products
– Life Insurance and Financial Products   4 of 7   5 of 7   7 of 7   4 of 7   3 of 7   1 of 7   2 of 7
– All Peer Companies   4 of 10   7 of 10   8 of 10   4 of 10   3 of 10   3 of 10   2 of 10
(1)   Information as of year-end 2016.

In its executive pay discussions, the committee also considered compensation information for 19 general industry companies in the S&P 100 with fiscal year 2015 revenues between $24 billion and $53 billion. The committee uses compensation surveys for certain executives that provide information on companies of similar size and business mix as Allstate, as well as companies with a broader market context.

The committee uses the 50th percentile of our peer group as a guideline in setting the target total direct compensation of our named executives. Within the guideline, the committee balances the various elements of compensation based on individual experience, job scope and responsibilities, performance, and market practices.

OTHER ELEMENTS OF COMPENSATION

To remain competitive with other employers and to attract, retain, and motivate highly talented executives and other employees, we offer the benefits listed in the following table.

Benefit or Perquisite   Named Executives   Other Officers and Certain Managers   All Full-time and Regular Part-time Employees
401(k)(1) and defined benefit pension
Supplemental retirement benefit  
Health and welfare benefits(2)
Supplemental long-term disability
Deferred compensation
Tax preparation and financial planning services(3)
Personal use of aircraft, ground transportation,
and mobile devices(4)
Tickets to Allstate events(5)
(1)   Allstate contributed $0.80 for every dollar of matchable pre-tax or Roth 401(k) deposits made in 2016 (up to 5% of eligible pay).
(2)   Including medical, dental, vision, life, accidental death and dismemberment, long-term disability, and group legal insurance. For named executives and other senior officers, Allstate offers an executive physical program.
(3)   All officers are eligible for tax preparation services. Financial planning services were provided only to senior executives.
(4)   The Board encourages the CEO to use our corporate aircraft when it improves his efficiency in managing the company, even if it is for personal purposes. Personal usage is counted as taxable compensation. The committee also approved the President’s usage of corporate aircraft for personal use up to 40 hours annually. In limited circumstances approved by the CEO, other senior executives are permitted to use our corporate aircraft for personal purposes. Ground transportation is available to senior executives. Mobile devices are available to senior executives, other officers, and certain managers and employees depending on their job responsibilities.
(5)   Tickets to Allstate sponsored events or the Allstate Arena are offered as recognition for service.
Retirement Benefits

Each named executive participates in two different defined benefit pension plans. The Allstate Retirement Plan (ARP) is a tax qualified defined benefit pension plan available to all of our regular full-time and regular part-time employees who meet certain age and service requirements. The ARP provides an assured retirement income based on an employee’s level of compensation and length of service at no cost to the employee. As the ARP is a tax qualified plan, federal tax law limits (1) the amount of an individual’s compensation that can be used to calculate plan benefits and (2) the total amount of benefits payable to a plan participant on an annual basis. For certain employees, these limits may result in a lower benefit under the ARP than would have been payable otherwise. Therefore, the Supplemental Retirement Income Plan (SRIP) is used to provide ARP-eligible employees whose compensation or benefit amount exceeds the federal limits with an additional defined benefit in an amount equal to what would have been payable under the ARP if the federal limits did not exist. Effective January 1, 2014, Allstate modified its defined benefit pension plans so that all eligible employees earn future pension benefits under a new cash balance formula.

Change-in-Control and Post-Termination Benefits

Consistent with our compensation objectives, we offer these benefits to attract, motivate, and retain executives. A change in control of Allstate could have a disruptive impact on both Allstate and our executives. Change-in-control benefits and post-termination benefits are designed to mitigate that impact and to maintain alignment between the interests of our executives and our stockholders.

The following summarizes Allstate’s change-in-control benefits for the executive officers:

  • The change-in-control severance plan (CIC Plan) does not include excise tax gross ups or a lump sum cash pension enhancement.
  • For the CEO, the amount of cash severance payable is three times the sum of base salary and target annual incentive. For the other executive officers, the amount of cash severance payable is two times the sum of base salary and target annual incentive.
  • In order to receive the cash severance benefits under the CIC Plan, a participant must have been terminated (other than for cause, death, or disability) or the participant must have terminated employment for good reason (such as adverse changes in the terms or conditions of employment, including a material reduction in base compensation, a material change in authority, duties, or responsibilities, or a material change in job location) within two years following a change in control.
  • Long-term equity incentive awards vest on an accelerated basis due to a change in control only if the participant has been terminated (other than for cause, death, or disability) or the participant terminated employment for good reason (as defined above) within two years following a change in control.

The change-in-control and post-termination arrangements which are described in the Potential Payments as a Result of Termination or Change in Control section on pages 60-62 are not provided exclusively to the named executives. A larger group of management employees is eligible to receive many of the post-termination benefits described in that section.

Clawback of Compensation

Awards made to executive officers after May 19, 2009, under short- and long-term incentive compensation plans, are subject to clawback in the event of certain financial restatements. Annual cash incentive and equity awards granted after May 19, 2009 are also subject to cancellation or recovery in certain circumstances if the recipient violates non-solicitation covenants. Equity awards granted after February 21, 2012, are subject to cancellation in certain circumstances if the recipient violates non-competition covenants.

Impact of Tax Considerations on Compensation

We may take a tax deduction of no more than $1 million per executive for compensation paid in any year to our CEO and the three other most highly compensated executives, excluding any individual that served as CFO during the year, as of the last day of the fiscal year in which the compensation is paid, unless the compensation meets specific standards. We may deduct more than $1 million in compensation if the compensation is performance-based and paid under a plan that meets certain requirements. The committee considers the impact of this Internal Revenue Code rule in developing, implementing, and administering our compensation programs. However, the committee balances this consideration with our primary goal of structuring compensation programs to attract, motivate, and retain highly talented executives. In light of this balance and the need to maintain flexibility in administering compensation programs, the committee may authorize compensation in any year that exceeds $1 million and does not meet the required standards for deductibility.

EARNED ANNUAL CASH INCENTIVE AWARDS

In 2016, the total corporate pool was based on four measures: Adjusted Operating Income, Total Premiums, Net Investment Income, and Total Return. The 2016 annual incentive plan targets for Adjusted Operating Income and Net Investment Income were lower than actual 2015 performance to reflect the fact that 2015 catastrophe losses were below expected levels and continued low interest rates negatively impact net investment income. The 2016 targets did factor in improved auto insurance profitability, maintenance of attractive returns from homeowners insurance and continued strong expense controls. Modest adjustments were made to the range between threshold and maximum for Total Premiums in alignment with the operating plan and the probability of achieving the results.

The 2017 annual incentive plan targets are not included since those targets do not relate to 2016 pay, and because target performance is set at the 2017 operating plan, which is proprietary information.

For a description of how the 2016 measures are determined, see pages 64-65. The ranges of performance and 2016 actual results are shown in the following table.

2016 ANNUAL CASH INCENTIVE AWARD RANGES OF PERFORMANCE
Measure   Threshold   Target   Maximum   Actual Results   % Target
Adjusted Operating Income (in millions) $1,500 $2,000 $2,500 $1,928 92.8%
Total Premiums (in millions) $34,200 $34,700 $35,200 $33,872 0.0%
Net Investment Income (in millions) $2,850 $3,050 $3,250 $3,042 98.0%
Total Return 0% 3.5% 6.5% 4.4% 130.0%
Payout Percentages          
Named Executives(1) 50%(2) 100% 200%   55.1%
(1)   Payout percentages reflect contribution to incentive compensation pool. Actual awards are fully discretionary and vary depending on individual performance.
(2)   Actual performance below threshold results in a 0% payout.

PERFORMANCE STOCK AWARDS (“PSAs”)

For the last four PSA grants, the performance measures and levels of performance needed to earn the threshold, target and maximum number of PSAs, as well as actual results and payout percentages, are set forth in the table below. The total shareholder returns for Allstate and its peers are also shown.

PERFORMANCE STOCK AWARDS RANGES OF PERFORMANCE
Performance Cycle(1)   Threshold   Target   Maximum   Actual Results   Payout
Percentage
  Total Shareholder Returns
Allstate   Peers
Vested Awards
    2013-2015(2) 6.0% 12.0% 13.5% 12.8% 154.8% 63.0% 63.1%
    2014-2016 6.0% 13.0% 14.5% 12.1% 87.1% 43.2% 26.8%
Outstanding Awards
    2015-2017 6.0% 13.5% 14.5% Two year results are currently
below target(3)
9.5% 16.5%
    2016-2018
    - Adjusted
    Operating Income
    ROE (70%)
    - Earned Book
    Value (30%)
6.0%

6.0%
13.0%

12.0%

14.0%

15.0%

One year results are
currently below target for
both measures(3)
21.5% 16.5%
Payout 0% 100% 200%        
                   
(1)   For the performance cycles prior to 2016, Average Adjusted Operating Income ROE was the performance measure. In 2016, Earned Book Value was added as a second performance measure.
(2)   Represents the average of the separate 1-year performance goals and payouts. Actual results are 13.4%, 13.2%, 11.9% with payout percentage of 200.0%, 180.0% and 84.3% for 2013, 2014 and 2015, respectively.
(3)   Payouts under the PSAs are based on performance over the three-year period, and actual results will not be known until the end of the performance period.

The following table shows the target number of PSAs granted to each of our named executives for the 2014-2016, 2015-2017 and 2016-2018 performance cycles.

PERFORMANCE CYCLE(1)
Named Executive   Target Number of PSAs for
2014-2016 Performance Cycle
  Target Number of PSAs for
2015-2017 Performance Cycle
  Target Number of PSAs for
2016-2018 Performance Cycle
Mr. Wilson   73,783   65,054   86,650
Mr. Shebik   17,248   15,910   26,476
Mr. Civgin   20,123   16,872   23,107
Ms. Fortin   n/a   3,287   15,043
Mr. Winter   25,153   21,921   30,809
(1)   The actual number of PSAs that will vest will vary from 0% to 200% of the target PSAs based on Average Adjusted Operating Income ROE or Average Adjusted Operating Income ROE and Earned Book Value for the measurement period. The number of PSAs that vest will be determined in 2017, 2018 and 2019, respectively.