Allstate (ALL)

Chairman Compensation

        As part of its succession planning at the end of 2006, the Board asked Mr. Liddy to stay on as chairman until the spring of 2008 in order to transition Mr. Wilson into his new role as president and CEO. In evaluating Mr. Liddy's compensation package, the Compensation and Succession Committee and the Board considered Mr. Liddy's new role, the length of time he would be serving as chairman, and general compensation practices in the U.S. for chairmen in similar roles. On the basis of that evaluation, on February 20, 2007, Mr. Liddy was granted the stock options and RSUs shown in the table above—with the understanding that he would be given no subsequent salary adjustments or equity awards. The mix of stock options and RSUs was slanted toward RSUs in light of his upcoming retirement since the options would be exercisable for only five years following his retirement rather than for ten years as provided in our standard option awards.

        In addition to the considerations that went into the determination of Mr. Liddy's compensation as chairman, the amount of his total compensation and the amount of each element are driven by the design of our compensation plans, the length of his tenure at Allstate, his years of experience, and the scope of his duties. Because Mr. Liddy earns a final average pay benefit under our defined benefit pension plans and his pension benefit enhancement and because he has been employed by Allstate or Sears for over 19 years, the change in his pension value was significantly larger than that of the other named executives. Moreover, as explained in footnotes 3 and 4 to the Summary Compensation Table, because Mr. Liddy was retirement eligible in 2006, unlike Messrs. Ruebenson and Wilson, the compensation cost of his equity awards listed in the Summary Compensation Table for 2007 and 2006 includes the entire grant date fair value of his 2007 and 2006 RSU and stock option awards respectively, even though the restrictions on the RSUs expire, and the option awards vest in installments over four years and their expiration and vesting are not accelerated upon retirement. Furthermore, because Mr. Liddy became retirement eligible in 2006, unlike Messrs. Hale and Simonson who were already retirement eligible, his equity award compensation cost for 2006 included the cost of the RSUs, restricted stock and stock options that had been granted to him in 2002 through 2005 but not previously recognized in our financial statements.