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.
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|
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:
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.|
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.
|Base Salary||Annual Cash Incentive Awards||Performance Stock Awards ("PSAs")||Stock Options|
|Why We Pay This Element||
|How We Determine Amount||
|(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.|
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.
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|
|(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.|
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|
|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%|
|(1)||Subject to positive Net Income hurdle|
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)|
|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|
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.
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.
|Total Shareholder Return (%)|
($ in billions)
($ in billions)
($ in billions)
($ in billions)
|American International Group, Inc.||52.4||65.0||498.3||37.1||7.5||33.3||194.5|
|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|
|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 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.
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|
|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.|
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 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.
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%|
|(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.|
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
|Total Shareholder Returns|
|2015-2017||6.0%||13.5%||14.5%||Two year results are currently
- Earned Book
|One year results are
currently below target for
|(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.
|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
|(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.|