Allstate (ALL)

2005 Chief Executive Officer Compensation

        In determining the Chief Executive Officer's total compensation, we collectively examine the various short and long-term components that comprise Mr. Liddy's total compensation to gain a comprehensive view of his overall compensation opportunities. In April 2005, we increased Mr. Liddy's annual salary by 4% to $1,175,004. Mr. Liddy's annual salary amounts to approximately 12% of the targeted total compensation that we determined to be appropriate for the Chief Executive Officer. The remaining 88% of Mr. Liddy's targeted total compensation was comprised of variable performance-based compensation that was at risk and tied to Allstate's business results.

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        We paid Mr. Liddy an annual incentive bonus of $538,351. This amount was based upon our review of the extent to which Mr. Liddy met the pre-set performance goals for 2005. Mr. Liddy exceeded the threshold level of performance for these goals. His bonus was calculated accordingly.

        We approved a long-term cash incentive bonus for Mr. Liddy of $1,619,750 for the 2003-2005 cycle. This amount was based on the Company achieving the target level of performance for the pre-set goal for this long-term incentive bonus. Mr. Liddy's bonus was calculated accordingly.

        On February 22, 2005 in connection with our annual equity-based grant review and approval process, we granted Mr. Liddy a stock option for 229,840 shares and an award of 35,083 restricted stock units under the 2001 Equity Incentive Plan. These equity-based awards were calculated on the basis of 465% of Mr. Liddy's 2005 base salary. We applied the lattice valuation model to assess the value of Mr. Liddy's stock option award. The restricted stock unit award will vest in February 2009.

        We review on a regular basis the components of Mr. Liddy's compensation, including his annual salary, annual incentive bonus, long-term cash incentive bonus and long-term equity-based compensation. Most of our executive compensation actions are considered for approval over the course of two or more committee meetings where this is a primary agenda item. In addition, we maintain continued oversight throughout the year, holding interim meetings throughout the year as appropriate. Our committee held eight meetings in 2005.

        As a result of this review, we find the amount of Mr. Liddy's total compensation in the aggregate to be reasonable and not excessive based on Mr. Liddy's proven ability to lead Allstate's management through a year in which we turned in an outstanding underlying performance, particularly in our auto business, and were able to earn a profit despite contending with three of the ten most costly disasters in U.S. history. Throughout the year, Mr. Liddy remained focused on executing our strategy to become better, bigger and broader in personal property and casualty insurance and in life insurance, retirement and investment products. Mr. Liddy's execution of this strategy has continued to grow investor value through enhanced stock performance despite unprecedented hurricane related losses.

2004 Chief Executive Officer Compensation

        In April 2004, we increased Mr. Liddy's annual salary by 3.8% to $1,129,992. Mr. Liddy's annual salary amounts to approximately 12% of the targeted total compensation that we determined to be appropriate for the Chief Executive Officer. The remaining 88% of Mr. Liddy's targeted total compensation was comprised of variable performance-based compensation that was at risk and tied to Allstate's business results.

        We paid Mr. Liddy an annual incentive bonus of $3,677,834. This amount was based upon our assessment of the achievement of Mr. Liddy's 2004 performance goals. Mr. Liddy exceeded the target level of the pre-set performance goals for this bonus. The bonus was calculated accordingly.

        We approved a long-term incentive bonus for Mr. Liddy of $2,325,000 for the 2002-2004 cycle. This amount was based on Mr. Liddy's exceeding the target level of the pre-set performance goal for this long-term incentive bonus. The bonus was calculated accordingly.

        On February 6, 2004 in connection with our annual equity-based grant review and approval process, we granted Mr. Liddy a stock option for 272,000 shares and a restricted stock award of 40,000 shares under the 2001 Equity Incentive Plan. These equity-based awards were calculated on the basis of 465% of Mr. Liddy's 2004 base salary. We applied the Black-Scholes valuation formula to assess the value of Mr. Liddy's stock option award. The restricted stock award will vest in February 2008.

        We review on a regular basis the components of Mr. Liddy's compensation, including his annual salary, annual incentive bonus, long-term cash incentive bonus and long-term equity-based compensation. Most of our executive compensation actions are considered and approved over the course of two Committee meetings where this is a primary agenda item. In addition, we maintain continued oversight throughout the year, holding interim meetings throughout the year as appropriate.

        As a result of this review, we find the amount of Mr. Liddy's total compensation in the aggregate to be reasonable and not excessive based on Mr. Liddy's proven ability to lead Allstate's management through a year in which we achieved record net income despite growth and marketing challenges as well

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as an unprecedented hurricane season. Throughout the year, Mr. Liddy remained focused on executing our strategy to become better, bigger and broader in personal property and casualty insurance and in life insurance, retirement and investment products. Mr. Liddy's execution of this strategy has continued to grow investor value through enhanced stock performance.