2005 PROGRESSIVE CAPITAL MANAGEMENT BONUS PLAN

 

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Exhibit No. 10(C)

 

                       2005 PROGRESSIVE CAPITAL MANAGEMENT

                                   BONUS PLAN

 

1.    The Progressive Corporation and its subsidiaries (collectively

      "Progressive" or "Company") have adopted the 2005 Progressive Capital

      Management Bonus Plan ("Plan") as part of their compensation program for

      the Company's investment professionals. The Plan is performance-based and

      is administered under the direction of the Compensation Committee of the

      Board of Directors of The Progressive Corporation ("Committee").

 

2.    Progressive employees who are assigned primarily to the Company's capital

      management function are eligible to be selected for participation in the

      Plan. Eligible employees may be selected by the Chief Executive Officer

      ("CEO") and Chief Human Resource Officer ("CHRO"), acting jointly

      (collectively, the "Designated Executives") to participate in the Plan for

      one or more Plan years. Participants may also participate in other

      gainsharing, bonus or incentive compensation plans maintained by

      Progressive, if so determined by the Designated Executives. Plan years

      shall coincide with Progressive's fiscal years. For 2005, and each Plan

      year thereafter until otherwise determined by the Designated Executives,

      the following individuals will be entitled to participate in the Plan:

      William Cody, David Benson, Anthony Grandolfo, Dominic Visco, Eleanora

      Crosby, Nhu Bragg, Joseph Zhu-Carnevale and Sandy Richards. Other eligible

      employees of the Company may be selected for participation in the Plan for

      or at any time during a Plan year by the Designated Executives. In such

      cases, the Designated Executives will determine whether the newly selected

      participant will be eligible to receive a Portfolio Performance Bonus, to

      participate in the Discretionary Bonus Pool or both and the Target

      Percentage and other terms of participation which will be applicable to

      such participant.

 

3.    The Plan offers participants the opportunity to earn bonus compensation

      through two (2) separate components: the Portfolio Performance Component

      and the Discretionary Bonus Pool Component, as described in Sections 4 and

      5 below ("Bonus Components"). The term "Annual Bonus," as used herein,

      shall mean the aggregate of all bonuses earned by or awarded to a

      participant under the two (2) Bonus Components.

 

4.    The Portfolio Performance Component

 

      A.    The amount of the Portfolio Performance Bonus earned by any

            participant under the Plan for any Plan year will be determined by

            application of the following formula:

 

            Portfolio Performance Bonus = Paid Earnings x Target Percentage x

            Portfolio Performance Factor

 

      B.    For purposes of the Plan, "Paid Earnings" shall include (a) regular,

            used Earned Time Benefit, sick, holiday, funeral and overtime pay

            received by the participant during the Plan year for work or

            services performed by the participant during the Plan year as an

            officer or employee of Progressive, and (b) retroactive payments of

            any of the foregoing relating to the same Plan year.

 

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            For purposes of the Plan, Paid Earnings shall not include any (a)

            short-term or long-term disability payments, (b) lump sum merit

            awards, (c) payments from the merit cash pool, (d) discretionary or

            other bonus or incentive compensation awards, (e) the earnings

            replacement component of any worker's compensation award or (f) any

            unused Earned Time Benefit. If an additional participant is added

            during the course of a given Plan year, his or her Portfolio

            Performance Bonus will be based on the portion of his or her salary

            earned during the part of the Plan year during which he or she

            participated in the Plan.

 

            Notwithstanding the foregoing, if the sum of the regular, used

            Earned Time Benefit, sick, holiday and funeral pay received by a

            participant for a Plan year exceeds his/her salary range maximum for

            the Plan year (determined on an individual pay period basis as of

            the end of the 24th pay period), then his/her Paid Earnings for that

            Plan year shall equal his/her salary range maximum, plus any of the

            following items received by such participant for that Plan year: (a)

            overtime pay, and (b) retroactive payments of regular, used Earned

            Time Benefit, sick, holiday, overtime and funeral pay relating to

            that Plan year.

 

      C.    The Target Percentages for participants in the Plan shall be

            determined by the Committee, but will not exceed 125% for any

            participant. Target Percentages may vary among Plan participants and

            may be changed from year to year by or under the direction of the

            Committee. For 2005, and each Plan year thereafter until otherwise

            determined by the Committee, the Target Percentages for the Plan

            participants shall be as follows:

 

<TABLE>

<CAPTION>

       Name               Target Percentages

--------------------      --------------------

<S>                       <C>

William Cody                     100%

David Benson                     100%

Anthony Grandolfo                100%

Dominic Visco                   30.0%

Eleanora Crosby                18.75%

Nhu Bragg                      11.25%

Joseph Zhu-Carnevale           11.25%

Sandy Richards                   6.0%

</TABLE>

 

 

      D.    Portfolio Performance Factor

 

            The Portfolio Performance Factor is determined by comparing the

            actual performance of designated segments of Progressive's

            investment portfolio ("Portfolio Segments") against the

            risk-adjusted returns of specified external benchmarks ("Investment

            Benchmarks").

 

            The applicable Portfolio Segments, the weighting of the applicable

            Portfolio Segments for any participant, the related Investment

            Benchmarks and the funds, investments or indexes which comprise the

            Investment Benchmarks will be designated, and may be changed from

            year to year, by or under the direction of the Committee.

 

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            The Portfolio Performance Factor is based on the Plan year

            performance of each designated Portfolio Segment of Progressive's

            investment portfolio. Investment results are marked to market in

            order to calculate total return, which is then compared against the

            risk-adjusted return(s) of the designated Investment Benchmark (or

            the investments that make up such Benchmark) to produce a

            Performance Score for the applicable Portfolio Segment.

 

            For 2005, and for each Plan year thereafter until otherwise

            determined by the Committee, for purposes of the Plan, performance

            shall be measured on the basis of a single Portfolio Segment: the

            fixed income portfolio ("Fixed Income Portfolio").

 

            Fixed Income Portfolio. At the conclusion of a Plan year, the

            returns achieved by the various investments that comprise the

            selected Investment Benchmark for the Fixed Income Portfolio will be

            risk-adjusted through application of the Modigliani & Modigliani

            formula for measuring risk-adjusted performance ("Modigliani

            Formula") in accordance with the provisions of Exhibit I hereto, and

            ranked according to their respective risk-adjusted returns for the

            Plan year. In applying the Modigliani Formula to the Investment

            Benchmark for the Fixed Income Portfolio, risk-adjusted returns are

            calculated using the standard deviation of three years of quarterly

            returns (i.e. 12 data points).

 

            The investment performance achieved by the Fixed Income Portfolio

            for the Plan year will then be compared against the risk-adjusted

            returns of the various investments which comprise the applicable

            Investment Benchmark to determine where the Fixed Income Portfolio's

            performance falls when compared to the risk-adjusted returns of the

            investments which comprise the Investment Benchmark ("Performance

            Ranking"). The Portfolio Performance of the Fixed Income Portfolio

            is determined by its Performance Ranking for the Plan year.

 

            The method to be used to calculate Interpolated Values, Linear

            Performance Targets and the Portfolio Performance Factor for

            purposes of this Plan is attached hereto as Exhibit II.