Allstate (ALL)

Long-term equity-based compensation

        Another component of our long-term executive compensation program is the grant of equity-based awards to our eligible management-level employees and officers, including the named executive officers. We believe these equity-based awards directly link the interests of our employee-recipients with those of our shareholders because each is served by an increase in Allstate's stock value. Restricted stock and restricted stock unit awards are important components to our executive compensation philosophy and goals to incentivize and reward a long-term focus by executives on company performance.

        Our 2001 Equity Incentive Plan provides for the following types of equity-based compensation: stock options, performance units and performance stock, stock appreciation rights, restricted or unrestricted common stock, restricted stock units and stock in lieu of cash awards to plan participants. Each type of equity-based award is linked to the underlying value and performance of Allstate's stock. To date, only nonqualified stock options, restricted stock and restricted stock units have been granted under the 2001 Equity Incentive Plan.

        One of our responsibilities is to administer the Company's equity incentive plans for employees and as part of the fulfillment of our responsibilities, we formed a subcommittee in 2004 which is currently comprised solely of our committee chairman. This subcommittee has the authority to grant restricted stock and restricted stock units to eligible persons, excluding individuals who are executive officers for purposes of Section 16 of the Securities Exchange Act of 1934, in new hire situations that occur between regularly scheduled committee meetings. In addition, pursuant to the authority provided by Delaware law, beginning in 2002 we authorized the Chief Executive Officer to make stock option awards to eligible employees who are not Section 16 officers. This authority is limited to specific circumstances, including new hires, promotions and awards to key contributors.

        We generally grant awards on an annual basis to management-level employees and officers, including each of the named executive officers. We base the size of each executive's award on a specified percentage of the executive's annual salary and our assessment of individual performance. The annual salary percentages for the total targeted value of the awards range from 15% for management-level employees to 200-350% for the named executive officers and 465% for the Chief Executive Officer.

        Our equity-based awards generally provide for grants weighted to provide 35% of the total value in the form of restricted stock units and the remaining 65% in the form of stock options.     The relative mix of restricted stock units and stock options is based on the advice of our outside compensation consultants, evolving market trends and the overall goals of our executive compensation program to retain talented leadership and reward the achievement of positive long-term performance. Restricted stock units that were granted in 2005 convert to shares of common stock at the end of a four-year vesting period generally measured from the date of grant. All stock option awards are made in the form of nonqualified stock options at exercise prices equal to 100% of the fair market value of Allstate common stock on the date of grant. Except in certain change of control situations or under other special circumstances approved by our committee, options are not fully exercisable until four years after the date

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of grant and expire in ten years. The vested portions of options may be transferred during the holder's lifetime to any defined family member, to a trust in which the family members have more than fifty percent of the beneficial interest, a foundation in which the family members (or the option holder) control the management of assets, and any other entity in which the family members (or option holder) own more than fifty percent of the voting interests. Any taxes payable upon a transferee's subsequent exercise of the option remain the obligation of the original option holder.

Long-term equity-based compensation

        Another component of our long-term executive compensation program is the grant of equity-based awards to our eligible management level employees and officers, including the named executive officers. We believe these equity-based awards directly link the interests of our employee-recipients with those of our shareholders because each interest is served by an increase in Allstate's stock value.

        Our 2001 Equity Incentive Plan provides for the following types of equity-based compensation: stock options, performance units and performance stock, stock appreciation rights, restricted or unrestricted common stock, restricted stock units and stock in lieu of cash awards to plan participants. Each type of equity-based award is linked to the underlying value and performance of Allstate's stock. Through December 31, 2004, only nonqualified stock options and restricted stock have been granted under the 2001 Equity Incentive Plan.

        One of our responsibilities is to administer the Company's equity incentive plans. In 2004, we formed a subcommittee to grant restricted stock to newly hired eligible persons, excluding individuals who are executive officers for purposes of Section 16 of the Securities Exchange Act of 1934, in situations that occur between regularly scheduled Committee meetings. The subcommittee is currently comprised solely of our Committee chairman. In addition, pursuant to the authority provided by Delaware law, we authorized the Chief Executive Officer to make stock option awards to eligible employees who are not Section 16 officers. This authority is limited to specific circumstances, including new hires, promotions and awards to key contributors.

        We generally grant awards on an annual basis to management-level employees, including each of the named executive officers. We base the size of each executive's award on a specified percentage of the executive's annual salary and our assessment of individual performance. The annual salary percentages for the total targeted value of the awards range from 15% for management-level employees to 200-290% for the named executive officers and 465% for the Chief Executive Officer.

        In 2004, we adjusted the mix of our equity-based awards, to grant 35% of the total value in restricted stock and 65% in stock options. We previously granted half of the value of awards in restricted stock and the other half in stock options. The adjustment was based on several factors including, a review of the relationship between Allstate's executive pay and Company performance, the performance goals relative to the payout opportunities, evolving market trends and the overall goals of our executive compensation program to retain talented leadership and reward the achievement of positive long-term performance. Restricted stock awards vest at the end of a four-year vesting period generally measured from the date of grant. All stock option awards are made in the form of nonqualified stock options at exercise prices equal to 100% of the fair market value of Allstate common stock on the date of grant. Beginning with stock option awards granted in 2004, we eliminated the reload provision previously included in awards to executives, based in part on a recommendation from our outside compensation consultant. Except in certain change of control situations, options are not fully exercisable until four years after the date of grant and expire in ten years. The vested portions of options may be transferred during the holder's lifetime to any defined family member, to a trust in which the family members have more than fifty percent of the beneficial interest, a foundation in which the family members (or the option holder) control the management of assets, and any other entity in which the family members (or option holder) own more than fifty percent of the voting interests.

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