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Incentive and Deferred Compensation Plans | 12 Months Ended
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Dec. 31, 2024
Compensation Related Costs [Abstract] |
Incentive and Deferred Compensation Plans | Incentive and Deferred Compensation Plans We have two incentive plans and two deferred compensation plans for our executives, senior vice presidents and other selected officers, and two deferred compensation plans for our outside directors. Executives, senior vice presidents and other selected officers and key employees are also eligible to receive awards under an equity compensation plan, subject to the discretion of the Executive Compensation and Development Committee of our Board of Directors ("ECDC") or the chief executive officer. Annual incentive plan Our annual incentive plan ("AIP") is a bonus plan that pays cash to our executives, senior vice presidents and other selected officers annually. Participants can elect to defer up to 100% of the award under either the deferred compensation plan or the incentive compensation deferral plan. If the funding qualifier is met, plan participants are eligible to receive the award based upon attainment of corporate and individual performance measures, which can include various financial measures. The measures are established at the beginning of each year by the ECDC, with ultimate approval by the full Board of Directors. The corporate performance measures included the reported growth in direct written premium and policies in force, and statutory combined ratio of the Exchange and its property and casualty subsidiaries for all periods presented. Long-term incentive plan Our long-term incentive plan ("LTIP") is an incentive plan designed to reward executives, senior vice presidents and other selected officers who can have a significant impact on our long-term performance, and to further align the interests of such employees with those of our shareholders. The LTIP permits grants of performance shares or units, or phantom performance shares, based on the level of achievement of performance goals as defined by us. Performance measures and a peer group of property and casualty companies to be used for comparison are determined by the ECDC. The performance measures for all periods presented were the reported growth in direct written premium and statutory combined ratio of the Exchange and its property and casualty subsidiaries and return on invested assets over a three-year performance period as compared to the results of the peer group over the same period. Because the performance component of the award is based upon a comparison to results of a peer group over a three-year period, the award accrual is based upon estimates of probable results for the remaining performance period. This estimate is subject to variability if our results or the results of the peer group are substantially different than the results we project. Effective April 23, 2024, for performance periods beginning in or after 2024, the plan was amended to also provide for grants of time-vesting restricted shares or units, or phantom shares, including payment of dividends or dividend equivalent credits on the time-vesting awards, based on continued employment for a specified restricted period. The type of award and form of payment, either in shares of our Class A common stock or cash, are determined by the ECDC at the beginning of each performance period, which is generally a three-year period. The ECDC determined for the 2024-2026 performance period that 75% of the award will be granted in phantom performance shares and 25% will be granted in time-vesting phantom shares, and the plan awards for the 2023-2025 and 2024-2026 performance periods will be paid in cash. Participants can elect to defer up to 100% of the award under the incentive compensation deferral plan. The number of shares of our common stock authorized for grant under the LTIP is 1.5 million shares. We repurchase our Class A common stock on the open market to settle stock awards under the plan. We do not issue new shares of common stock to settle stock awards. LTIP awards are considered vested at the end of each applicable performance period. The fair value of LTIP awards is measured at each reporting date at the current share price of our Class A common stock. A liability is recorded and compensation expense is recognized ratably over the performance period. At December 31, 2024, the plan awards for the 2022-2024 performance period, which will be granted as a cash award, were fully vested. Distributions will be made in 2025 once peer group financial information becomes available. The total estimated plan award based upon the peer group information as of September 30, 2024 is $5.5 million. At December 31, 2023, the fully vested plan awards for the 2021-2023 performance period totaled $0.2 million and were awarded to participants in June 2024. At December 31, 2022, the fully vested plan awards for the 2020-2022 performance period totaled $3.8 million and were awarded to participants in June 2023. At December 31, 2021, the fully vested plan awards for the 2019-2021 performance period totaled $3.8 million and were awarded to participants in June 2022. The Exchange and its insurance subsidiaries reimburse us for compensation costs of employees performing administrative services. Earned compensation costs are allocated to these entities and reimbursed to us in cash once the payout is made. The total compensation cost charged to operations related to these LTIP awards, net of forfeitures, was $1.5 million in 2024, $7.3 million in 2023, and $3.4 million in 2022. The related tax benefits recognized in income were $0.3 million in 2024, $1.5 million in 2023, and $0.7 million in 2022. In 2024, the Exchange and its insurance subsidiaries reimbursed us for approximately 39% of the awards paid under these plans. At December 31, 2024, there was $9.4 million of total unrecognized compensation cost for non-vested LTIP awards related to open performance periods. Unrecognized compensation is expected to be recognized over a period of two years. Deferred compensation plan Our deferred compensation plan allows executives, senior vice presidents and other selected officers to elect to defer receipt of a portion of their compensation and AIP cash awards until a later date. Employer 401(k) matching contributions that are in excess of the annual contribution or compensation limits are also credited to the participant accounts for those who elected to defer receipt of some portion of their base salary. Participants select hypothetical investment funds for their deferrals, which are credited with the hypothetical returns generated. Incentive compensation deferral plan We have an unfunded, non-qualified incentive compensation deferral plan for participants of the AIP and LTIP. Deferred awards will be credited to a deferred stock account as credits denominated in shares of our Class A common stock until retirement or other separation from service. Participants are 100% vested at date of deferral. The shares are then held in a rabbi trust, which was established to hold the shares earned under both the incentive compensation deferral plan and the deferred stock compensation plan for outside directors. The rabbi trust is classified and accounted for as equity in a manner consistent with the accounting for treasury stock. Dividends received on the shares in the rabbi trust are used to purchase additional shares. Vested share credits will be paid to participants from the rabbi trust upon separation from service in approximate equal annual installments of Class A shares for a period of three years. In 2024, the rabbi trust was not required to purchase shares of our common stock in the open market to satisfy the liability for the 2023 AIP and 2021-2023 LTIP performance period awards deferred under the incentive compensation deferral plan, and dividend equivalent credits on rabbi trust shares. In 2023, the rabbi trust purchased 1,608 shares of our common stock in the open market at an average price of $230.71 for $0.4 million to satisfy the liability for the 2022 AIP and 2020-2022 LTIP performance period awards deferred under the incentive compensation deferral plan, and dividend equivalent credits on rabbi trust shares. In 2022, the rabbi trust purchased 7,046 shares of our common stock in the open market at an average price of $176.44 for $1.2 million to satisfy the liability for the 2021 AIP and 2019-2021 LTIP performance period awards deferred under the incentive compensation deferral plan, and dividend equivalent credits on rabbi trust shares. Deferred compensation plans for outside directors We have a deferred compensation plan for our outside directors that allows participants to defer receipt of a portion of their annual compensation until a later date. Participants select hypothetical investment funds for their deferrals, which are credited with the hypothetical returns generated. We also have a deferred stock compensation plan for our outside directors to further align the interests of directors with those of our shareholders that provides for payment of a portion of the directors' annual compensation in shares of our Class A common stock. Each director vests in the grant 25% every three months over the course of a year. Dividends paid by us are credited to each director's account and vest immediately. We do not issue new shares of common stock to directors. We repurchase shares of our Class A common stock in the open market to satisfy these awards, which are then held in the rabbi trust. The plan includes a maximum of 250,000 shares that may be issued under the plan and no shares may be credited later than ten years from the date our shareholders last approved the plan. The rabbi trust purchased 4,044 shares of our common stock on the open market at an average price of $405.60 for $1.6 million in 2024, 5,894 shares at an average price of $238.73 for $1.4 million in 2023 and 6,048 shares at an average price of $201.93 for $1.2 million in 2022 to satisfy the liability of the stock compensation plan for outside directors, and dividend equivalent credits on rabbi trust shares. The shares are distributed to the outside director from the rabbi trust upon ending board service. Director compensation charged to operations related to these awards totaled $1.1 million in 2024, $0.9 million in 2023 and $0.8 million 2022. The following table sets forth a reconciliation of beginning and ending balances of our deferred executive compensation liability as of December 31:
(in thousands) |  |
|  | 2024 |  | 2023 |  | 2022
Deferred executive compensation, beginning of the year |  | $ | 31,918 |  |  | $ | 25,760 |  |  | $ | 27,208 |
Annual incentive plan awards |  | 8,574 |  |  | 7,401 |  |  | 6,305 |
Long-term incentive plan awards |  | 1,786 |  |  | 7,332 |  |  | 3,417 |
Employer match and hypothetical earnings on deferred compensation |  | 4,680 |  |  | 2,828 |  |  | 404 |
Total plan awards and earnings |  | 15,040 |  |  | 17,561 |  |  | 10,126 |
Total plan awards paid |  | (8,105) |  |  | (10,211) |  |  | (10,413) |
Compensation deferred |  | 1,701 |  |  | 1,809 |  |  | 2,528 |
Distributions from the deferred compensation plans |  | (2,372) |  |  | (313) |  |  | (742) |
Forfeitures (1) |  | (244) |  |  | — |  |  | — |
Funding of rabbi trust for deferred stock compensation plan for outside directors |  | (1,640) |  |  | (1,407) |  |  | (1,221) |
Funding of rabbi trust for incentive compensation deferral plan (2) |  | (1,703) |  |  | (1,281) |  |  | (1,726) |
Deferred executive compensation, end of the year |  | $ | 34,595 |  |  | $ | 31,918 |  |  | $ | 25,760 |
(1) Forfeitures are the result of plan participants who separated from service and are recognized in the year they occur. (2) In 2024, 2023 and 2022, funding includes $1.7 million, $0.9 million and $0.5 million, respectively, representing shares held back to satisfy tax withholding on rabbi trust distributions that reduce funding requirements for performance award deferrals Equity compensation plan Our equity compensation plan ("ECP") is designed to reward executives, senior vice presidents and other selected officers and key employees who can have a significant impact on our long-term performance, and to further align the interests of such employees with those of our shareholders. The ECP permits grants of restricted shares, restricted share units and other share based awards, to be satisfied with shares of our Class A common stock or cash. The ECDC determines the form of the award to be granted at the beginning of each performance period. Effective April 23, 2024, the number of shares of our Class A common stock authorized for grant under the ECP increased from 100,000 shares to 250,000 shares, with no one person able to receive more than 10,000 shares in a calendar year. We do not issue new shares of common stock to satisfy plan awards. Share awards are settled through the repurchase of our Class A common stock on the open market. Restricted share awards may be entitled to receive dividends payable during the performance period, or, if subject to performance goals, to receive dividend equivalents payable upon vesting. Dividend equivalents may provide for the crediting of interest or hypothetical investment experience, payable after expiration of the performance period. Vesting conditions are determined at the time the award is granted and may include continuation of employment for a specific period, satisfaction of performance goals within a defined performance period, and the satisfaction of any other terms and conditions as determined to be appropriate. In 2024, we satisfied the plan liability in cash totaling $3.2 million. In 2023, we purchased 1,610 Class A shares with an average share price of $252.32 and a market value of $0.4 million to satisfy the plan liability. In 2022, we purchased 1,786 shares with an average share price of $190.68 and a market value of $0.3 million to satisfy the plan liability. The total compensation charged to operations related to ECP awards was $6.9 million in 2024, $4.0 million in 2023, and $0.8 million in 2022. The increases in 2024 and 2023 compared to the respective prior periods resulted from increases in plan participants and our stock price. The Exchange and its insurance subsidiaries reimburse us for earned compensation costs of employees performing administrative services, which can fluctuate each year based on the plan participants. The Exchange and its insurance subsidiaries reimbursed us for approximately 35%, 35%, and 3% of the awards paid in 2024, 2023, and 2022 respectively. Unearned compensation expense of $2.6 million is expected to be recognized over a period of two years.

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- Definition The entire disclosure for compensation-related costs for cash-based incentive and share/equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of compensation, incentive distributions, compensation arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details, employee stock purchase plan details, and income statement compensation items. Deferred compensation arrangements may include a description of an arrangement with an individual employee, which is generally an employment contract between the entity and a selected officer or key employee containing a promise by the employer to pay certain amounts at designated future dates, usually including a period after retirement, upon compliance with stipulated requirements. This type of arrangement is distinguished from broader based employee benefit plans as it is usually tailored to the employee. Disclosure also typically includes the amount of related compensation expense recognized during the reporting period, the number of shares (units) issued during the period under such arrangements, and the carrying amount as of the balance sheet date of the related liability. + References No definition available. + Details
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