Deferred Compensation Example

DEFERRED COMPENSATION EXAMPLE

This is an example of the key financial features in a deferred compensation plan for top producers at a successful Northwest property/casualty insurance agency. It is not a substitute for the complete plan.

The deferred compensation amount will be based on the commissions received by the producer in the 12 months immediately before retirement. It will not include any contingencies. The producer's book will be determined based on the agency's standard allocation of production to producers for ongoing compensation purposes, unless otherwise mutually agreed.

Value of this deferred compensation will be 1.0 times commissions received if payments commence during the first 10 years following implementation of this plan, and 1.5 times commissions received if payments commence after that date.

Vesting will begin as of January 1 of this year at 20%. It will then increase 20% per year on January 1 of each year until fully vested.

The producer has an existing employment contract restricting competition and piracy of company accounts in the event the producer leaves the agency. This will continue to apply, with the additional right-of-offset provision that all deferred compensation payments are immediately forfeited if that non-compete is violated.

If the existing conditions in the producer's employment contract are violated (malfeasance, loss of license, failure to remit, etc.), then all deferred compensation is forfeited. In addition, the deferred compensation is forfeited if the employee leaves the company and stays in the property/ casualty insurance agency in the state of Washington.

The producer shall be fully vested and payments will begin immediately in the event of his death. Payments will not be made in a lump sum. Valuation of his book will include the adjustment in valuation at the 10-year point (i.e., 1.0 if less than 10 years, 1.5 if over 10 years).

If the producer is unable to continue employment due to disability, he or she will immediately vest and payments shall begin just as for death.