8-KLeadership ChangesExhibits & Filings

ALLSTATE CORP 8-K Report, Executive Changes (Dec 28, 2011)

Filed December 28, 2011For Securities:ALLALL-PJALL-PBALL-PHALL-PI

Summary

Allstate Corporation (ALL) filed an 8-K on December 28, 2011, reporting on significant changes to its executive compensation arrangements related to change-of-control events. Effective December 30, 2011, the company's executive officers, including the CEO and other named executives, transitioned from their previous "tier one" change-of-control employment agreements to a new Change-in-Control Severance Plan (CIC Plan). This transition is designed to reduce potential benefits payable to executives in the event of a change in control. Key reductions include the elimination of excise tax gross-ups and lump-sum pension enhancements. The cash severance payable to most executives is also reduced to two times salary and target annual incentive. Furthermore, new equity awards (stock options and restricted stock units) granted after December 30, 2011, will have vesting accelerated upon a change in control only under specific termination circumstances, rather than automatic immediate vesting. Investors should view this as a move towards more standardized and potentially less generous executive severance and equity vesting provisions during transitional corporate events.

Key Highlights

  • 1Allstate is revising its executive change-of-control compensation arrangements, effective December 30, 2011.
  • 2Executive officers, including the CEO, have agreed to terminate existing 'tier one' change-of-control employment agreements.
  • 3A new Change-in-Control Severance Plan (CIC Plan) has been adopted, resulting in reduced benefits for executives.
  • 4Key benefit reductions include the elimination of excise tax gross-ups and lump-sum pension enhancements.
  • 5Cash severance for most executives is reduced to two times salary and target annual incentive under the CIC Plan.
  • 6New equity awards (stock options, RSUs) granted after December 30, 2011, will not automatically vest upon a change of control; accelerated vesting will be tied to specific termination scenarios.
  • 7The changes aim to align executive severance and equity vesting with more common market practices and reduce potential costs to the company in a change-of-control scenario.

Frequently Asked Questions

The main change is the revision of Allstate's executive change-of-control compensation arrangements. Existing agreements are being terminated and replaced with a new severance plan and updated equity award agreements, generally reducing potential benefits for executives in the event of a company acquisition or similar change of control.

Under the new Change-in-Control Severance Plan (CIC Plan), cash severance for most executives will be reduced to two times their salary plus target annual incentive. Importantly, excise tax gross-ups and lump-sum pension enhancements previously available are being eliminated.

For stock option and restricted stock unit awards granted on or after December 30, 2011, immediate vesting upon a change of control will be removed. Instead, accelerated vesting will only occur if the executive's employment is terminated by the company (without cause) or by the executive for 'good reason' within two years following a change of control.

While not explicitly stated as a reason, these changes are typical for companies looking to standardize executive compensation, reduce potential liabilities and costs associated with change-of-control events, and align their executive pay practices more closely with current market standards.