This excerpt taken from the ALL DEF 14A filed Apr 2, 2008.
The weighting for each named executive is provided on page 32. Annual cash incentive awards based on the achievement of the performance measures for 2007 are included in the amounts reported in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table on page 43 and broken out separately from long-term cash incentive awards in a footnote to that table. In addition, the threshold, target and maximum annual award opportunities for 2007 are included in the Estimated Future Payouts under Non-Equity Incentive Plan Awards column in the Grants of Plan-Based Awards table on page 47.
Long-Term Incentive AwardsBalance and Integration of Cash and Equity
As part of total core compensation, we provide three forms of long-term incentive awards: stock options, RSUs, and long-term cash incentive awards. For each executive, these components are balanced and integrated with each other. The size of each named executive's award is determined by the Committee on the basis of the executive's position and the competitive assessment provided by the Committee's executive compensation consultant. Larger awards are granted to executives in positions with higher levels of responsibility for Allstate's long-term performance, with the chairman and the CEO's award being the largest. In addition, the size of these awards is aligned to target total core compensation at the 65th percentile of our peer insurance companies. The relative mix of various forms of these awards is driven by our objectives in providing the specific form of award, as described below.
Long-Term Incentive AwardsEquity
As stated in our compensation philosophy, we believe that a significant amount of executive compensation should be in the form of equity and that a greater percentage of compensation should be at risk for executives who bear higher levels of responsibility for Allstate's performance. Consistent with that philosophy, the size of stock options and restricted stock unit awards granted by the Compensation and Succession Committee are usually larger for executives with the broadest scope of responsibility. However, from time to time, larger equity awards are granted to attract new executives.
Stock options represent the opportunity to buy shares of our stock at a fixed exercise price at a future date. We use them to align the interests of our executives with long-term stockholder value.
Each RSU represents our promise to transfer one fully vested share of stock in the future if and when the restrictions expire (when the RSU "vests"). RSUs are linked to stockholder value and are a tool for retaining executive talent.
Unlike options, RSUs retain some value even if the price of the stock declines. Because RSUs are based on and payable in stock, they serve to reinforce the alignment of interests of our executives and our stockholders. In addition, because RSUs have a real, current value that is forfeited, except in some circumstances, if an executive terminates employment before the RSUs vest, they provide a significant retention incentive. Under the terms of the RSU awards, the executives have only the rights of general unsecured creditors of Allstate and no rights as stockholders until delivery of the underlying shares.
Timing of Equity Awards and Grant Practices
As indicated above, the Compensation and Succession Committee grants equity incentive awards on an annual basis during its February meeting. However, from time to time, the Committee makes an award in connection with the hiring of, or a change in the role or responsibilities of, an executive or in recognition of an executive's achievement of a goal or extraordinary service. The Committee grants awards during meetings at which a quorum is present, not by written consent. The February meeting during which the Committee makes the annual equity incentive awards is held after the issuance of our prior fiscal year-end earnings press release. In the event that the Committee is advised that material information about Allstate has not been publicly disclosed, the Committee will postpone the granting of such annual awards until such time as all material information has been publicly disclosed. For additional information on the Committee's practices, see the Corporate Governance section of this proxy statement.
Stock Ownership Guidelines
The named executives can use their equity incentive awards to satisfy our stock ownership goals. Because we believe strongly in linking the interests of management with those of our stockholders, we instituted stock ownership goals in 1996 that require each of the named executives to own, within five years of the date of assuming a senior management position, common stock, including RSUs and restricted stock, worth a multiple of base salary including merit and promotional increases over time. Unexercised stock options do not count towards meeting the stock ownership guidelines. For the CEO and chairman, the goal is seven times salary. Messrs. Wilson and Liddy held over 12 times and 26 times salary, respectively as of December 31, 2007. For the other named executives, the goal is four times salary. Messrs. Hale, Ruebenson and Simonson each held over 6 times, 3 times, and 6 times salary, respectively as of December 31, 2007. Each of the named executives, except for Mr. Ruebenson, meets or exceeds his respective goals as of December 31, 2007. Mr. Ruebenson has until November 2008 to reach his ownership goal. In accordance with our policy on insider trading, the named executives are prohibited from engaging in transactions with respect to any securities issued by Allstate or any of its subsidiaries that might be considered speculative or regarded as hedging, such as selling short or buying or selling options.
Variation in Total Value of Allstate Equity Holdings Including Outstanding Awards as a Result of Change in Stock Price
The following two charts illustrate how cumulative stockholder returns affect the total value of the named executives' equity holdings including the shares of Allstate common stock that they own and their outstanding options, restricted stock and RSUs. The first chart illustrates the total value of shares of Allstate stock owned plus the total value of all outstanding equity awards held by each named executive
as of December 31, 2007 using the price of Allstate stock as of the end of 2002, 2003, 2004, 2005, 2006, and 2007. Because the chart is based on stock and awards held as of December 31, 2007, it does not reflect year-to-year changes due to new awards, the exercise or forfeiture of awards, or sales or acquisition of shares throughout the five year period. The change in the total value of the named executives' shares of stock owned and outstanding restricted stock and RSU awards generally varies with cumulative stockholder returns for Allstate.
The second chart displays actual cumulative stockholder returns over the same period calculated consistently with those reported on page 27 since December 31, 2002.