SCHEDULE 14A
(Rule
14a-101)
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a)
of the
Securities Exchange Act of 1934
Filed by
the Registrant [X]
Filed by
a Party other than the Registrant [ ]
Check the
appropriate box:
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Preliminary
Proxy Statement
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o
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Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)
(2))
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x
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Definitive
Proxy Statement
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o
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Definitive
Additional Materials
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o
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Soliciting
Material Under Rule 14a-12
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AMERICAN
FINANCIAL GROUP, INC.
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(Name
of Registrant as Specified In Its Charter)
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(Name
of Person(s) Filing Proxy Statement if other than the
Registrant)
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Payment of Filing Fee (Check the appropriate box):
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x
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No
fee required.
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o
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Fee
computed on table below per Exchange Act Rules 14a-6(i) (1) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction
applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was
determined)
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(4)
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Proposed
maximum aggregate value of
transaction:
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(5)
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Total
fee paid:
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o
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Fee
paid previously with preliminary
materials.
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o
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Check
box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of this
filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement
No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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One East
Fourth Street
Cincinnati,
Ohio 45202
Notice
of Annual Meeting of Shareholders
and
Proxy Statement
To be
Held on May 14, 2009
Dear
Shareholder:
We
invite you to attend our Annual Meeting of Shareholders on Thursday, May 14,
2009, in Cincinnati, Ohio. In connection with the meeting, we will
report on our operations and you will have an opportunity to meet your Company’s
directors and senior executives.
This
booklet includes the formal notice of the meeting and the proxy
statement. The proxy statement tells you more about the agenda and
procedures for the meeting. It also describes how your Board of
Directors operates and provides information about the director
candidates.
We are pleased once again to take
advantage of U.S. Securities and Exchange Commission rules that allow companies
to furnish their proxy materials over the Internet. As a result, we
are mailing to most of our shareholders a Notice of Internet Availability of
Proxy Materials (the "Notice") instead of a paper copy of this proxy statement
and our 2008 Annual Report. The Notice contains instructions on how
to access and review those documents over the Internet. The Notice
also instructs you on how to submit your proxy over the Internet. We
believe that this process will allow us to provide our shareholders with the
information they need in a more timely manner, while reducing the environmental
impact and lowering the costs of printing and distributing our proxy
materials. If you received a Notice by mail and would like to receive
a printed copy of our proxy materials, you should follow the instructions for
requesting such materials included in the Notice.
We
want your shares to be represented at the meeting and urge you to vote using our
internet or telephone voting systems or by promptly returning a properly
completed proxy card.
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Sincerely,
 James C.
Kennedy
Vice
President,
Deputy General
Counsel & Secretary
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Cincinnati,
Ohio
March 27,
2009
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
OF
AMERICAN FINANCIAL GROUP, INC.
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Date:
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Thursday,
May 14, 2009
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Time:
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11:30
a.m. Eastern Daylight Saving Time
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Place:
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The
Cincinnatian Hotel
Second
Floor — Filson Room
601
Vine Street
Cincinnati,
Ohio 45202
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Purpose:
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1. Elect ten
Directors
2. Ratify Independent
Registered Public Accounting Firm
3. Approve the Annual
Co-CEO Equity Bonus Plan
4. Conduct other
business if properly raised
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Record
Date:
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March
17, 2009 - Shareholders registered in the records of the Company or its
agents on that date are entitled to receive notice of and to vote at the
meeting.
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Mailing
Date:
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The
approximate mailing date of the notice of availability of this proxy
statement and accompanying proxy card is April 3, 2009.
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Your
vote is important.
If you
are a shareholder of record, you can vote your shares via the Internet or by
using a toll-free telephone number by following the instructions on your proxy
card. If voting by mail, please complete, date and sign your proxy card and
return it as soon as possible in the enclosed postage-paid envelope.
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TABLE OF
CONTENTS
Page
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GENERAL
INFORMATION
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1
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MATTERS
TO BE
CONSIDERED
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2
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PRINCIPAL
SHAREHOLDERS
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8
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MANAGEMENT
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10
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EXECUTIVE
COMPENSATION
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13
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RELATED
PERSON
TRANSACTIONS
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32
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COMMITTEES
AND MEETINGS OF THE BOARD OF DIRECTORS
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33
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NOMINATIONS
AND SHAREHOLDER
PROPOSALS
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36
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COMMUNICATIONS
WITH
DIRECTORS
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37
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CODE
OF
ETHICS
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37
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ANNUAL
CO-CEO EQUITY BONUS
PLAN
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A-1
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The
Company makes available, free of charge on its website, all of its filings that
are made electronically with the Securities and Exchange
Commission (“SEC”), including Forms 10-K, 10-Q and 8-K. To
access these filings, go to the Company’s website (www.AFGinc.com) and click on
the “SEC Filings” tab at the left under the “Investor Relations” page.
Copies of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008, including financial statements and schedules
thereto, filed with the SEC, are also available without charge to shareholders
upon written request addressed to:
Investor
Relations
American Financial
Group, Inc.
580 Walnut Street,
Floor 9 East
Cincinnati, Ohio
45202
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GENERAL
INFORMATION
Record
Date; Shares Outstanding
As of
March 17, 2009, the record date for determining shareholders entitled to notice
of and to vote at the meeting, the Company had 115,721,254 shares of common
stock deemed outstanding and eligible to vote. This number does not
include 14,940,627 shares held by subsidiaries of AFG. Under Ohio
law, shares held by subsidiaries are not entitled to vote and are therefore not
considered to be outstanding for purposes of the meeting. Each share of
outstanding common stock is entitled to one vote on each matter to be presented
at the meeting. Abstentions (including instructions to withhold
authority to vote for one or more nominees) and broker non-votes are counted for
purposes of determining a quorum, but will have no effect on the outcome of any
matter voted on at the meeting. Broker non-votes occur when a broker
returns a proxy card but does not have authority to vote on a particular
proposal.
Proxies
and Voting Procedures
Shareholders
of record can vote by mail or via the Internet or by using the toll-free
telephone number listed on the proxy card. Internet and telephone
voting information is provided on the proxy card. If you vote via the Internet
or by telephone, please do not return a signed proxy
card. Shareholders who hold their shares through a bank or broker can
vote by mail, or via the Internet or by telephone if these options are offered
by the bank or broker. You may vote by telephone or Internet 24 hours
a day, 7 days a week until 11:59 p.m. Eastern Daylight Saving Time, the day
before the meeting. Your telephone or Internet vote authorizes the named
proxies to vote your shares in the same manner as if you had executed a proxy
card.
If voting
by mail, please complete, sign, date and return your proxy card enclosed with
the proxy statement in the accompanying postage-paid envelope.
If your
shares are held in the name of your broker or bank and you wish to vote in
person at the meeting, you should request your broker or bank to issue you a
proxy covering your shares.
Solicitation
of proxies through the mail, in person and otherwise, is being made by
management at the direction of AFG’s Board of Directors, without additional
compensation. AFG will pay all costs of soliciting proxies. In
addition, AFG will request brokers and other custodians, nominees and
fiduciaries to forward proxy-soliciting material to the beneficial owners of
shares held of record by such persons, and AFG will reimburse them for their
expenses.
If a
choice is specified on a properly executed proxy card, the shares will be voted
accordingly. If a proxy card is signed without a preference
indicated, those shares will be voted "FOR" the election of the ten nominees
proposed by the Board of Directors, "FOR" the ratification of the Company’s
independent registered public accounting firm, and "FOR" the proposal to approve the Annual
Co-CEO Equity Bonus
Plan. The authority solicited by this proxy statement includes
discretionary authority to cumulate votes in the election of
directors. If any other matters properly come before the meeting or
any postponement or adjournment thereof, each properly executed proxy card will
be voted in the discretion of the proxies named therein.
With
respect to Proposal No. 1, the ten nominees who receive the greatest number
of votes will be elected. With respect to Proposal Nos. 2 and 3,
the proposal will be adopted only if it receives approval by a majority of
the votes cast.
Retirement
and Savings Plan Participants
If you
are a participant in the Company’s retirement and savings plan with a balance in
the AFG Common Stock Fund, the accompanying proxy card shows the number of
shares of common stock attributed to your account balance, calculated as of the
record date. In order for your plan shares to be voted in your
discretion, you must vote at least two business days prior to the day of the
meeting (by the end of the day on May 11, 2009) either by Internet,
telephone, or returned properly signed proxy card. If you choose not
to vote or if you return an invalid or unvoted proxy card, the Administrative Plan Committee
will vote your plan shares in the Committee’s sole
discretion. Individual plan participants’ votes will be processed by
the plan trustee, and will not be disclosed to the
Company.
Revoking
a Proxy
Whether
you vote by mail, via the Internet or by telephone, you may revoke your proxy at
any time before it is voted by submitting a new proxy with a later date, voting
via the Internet or by telephone at a later time, delivering a written notice of
revocation to the Company's corporate secretary, or voting in person at the
meeting.
Cumulative
Voting
Shareholders
have cumulative voting rights in the election of directors and one vote per
share on all other matters. Cumulative voting allows a shareholder to
multiply the number of shares owned on the record date by the number of
directors to be elected and to cast the total for one nominee or distribute the
votes among the nominees as the shareholder desires. The ten nominees
who receive the greatest number of votes will be elected. In order to
invoke cumulative voting, notice of cumulative voting must be given in writing
to the Company's corporate secretary not less than 48 hours before the time
fixed for the holding of the meeting.
Adjournment
and Other Matters
Approval
of a motion for adjournment, postponement or other matters brought before the
meeting requires the affirmative vote of a majority of the shares voting at the
meeting. Management has not received proper notice of other matters
to be presented at the meeting other than those stated in this
document.
MATTERS
TO BE CONSIDERED
Proposal
No. 1 ► Elect
Ten Directors
The Board
of Directors oversees the management of the Company on your
behalf. The Board reviews AFG's long-term strategic plans and
exercises direct decision-making authority in key areas such as choosing the
Co-Chief Executive Officers, setting the scope of their authority to manage the
Company's business day-to-day, and evaluating senior management
performance.
Upon the
recommendation of the Corporate Governance Committee (the “Governance
Committee”), the Board of Directors has nominated ten individuals to hold
office until the next annual meeting of shareholders and until their successors
are elected and qualified. If any of the nominees should become
unable to serve as a director, the proxies will be voted for any substitute
nominee designated by the Board of Directors but, in any event, no proxy may be
voted for more than ten nominees.
The
nominees for election to the Board of Directors are:
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Carl
H. Lindner
Director
since 1959
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For
more than five years, Mr. Lindner has served as the Chairman of the Board,
and until January 2005, also served as Chief Executive Officer of the
Company.
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Carl
H. Lindner III
Director
since 1991
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He
has been Co-Chief Executive Officer since January 2005, and for more than
five years, Mr. Lindner has served as Co-President of the
Company. For more than ten years, Mr. Lindner has been
President of Great American Insurance Company and has been principally
responsible for the Company’s property and casualty insurance
operations.
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S.
Craig Lindner
Director
since 1985
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He
has been Co-Chief Executive Officer since January 2005, and for more than
five years, Mr. Lindner has served as Co-President of the
Company. For more than ten years, Mr. Lindner has been
President of our Great American Financial Resources, Inc. subsidiary, and
has been principally responsible for the Company’s annuity and
supplemental health insurance operations. He is also President
of American Money Management Corporation, a subsidiary that provides
investment services for the Company and certain of its affiliated
companies.
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- -2-
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Kenneth
C. Ambrecht
Director
since 2005
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(Member of the Compensation
Committee; Member of the Corporate Governance
Committee) Mr. Ambrecht has extensive corporate finance
experience having worked in the U.S. capital markets for over 30
years. In December 2005, Mr. Ambrecht organized KCA Associates
LLC, through which he serves as a consultant to several companies,
advising them with respect to financings and financial
transactions. From July 2004 to December 2005, he served as a
Managing Director with the investment banking firm First Albany
Capital. For more than five years prior, Mr. Ambrecht was a
Managing Director with Royal Bank Canada Capital Markets. Prior
to that post, Mr. Ambrecht worked with the investment bank Lehman Brothers
as Managing Director of its capital markets division. Mr.
Ambrecht is also a member of the Boards of Directors of Fortescue Metals
Group Limited, an Australian mining company and Dominion Petroleum Ltd.,
a Bermuda domiciled company dedicated to exploration of oil and gas
reserves in east and central Africa.
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Theodore
H. Emmerich
Director
since 1988
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(Chairman of the Audit
Committee) Prior to his retirement in 1986, Mr. Emmerich
was managing partner of the Cincinnati office of the independent
accounting firm of Ernst & Whinney. He serves on the Board
of Trustees of The Christ Hospital in Cincinnati, Ohio, and a number of
charitable organizations.
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James
E. Evans
Director
since 1985
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For
more than five years, Mr. Evans has served as Senior Vice President and
General Counsel of the Company.
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Terry
S. Jacobs
Director
since 2003
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(Chairman of the Compensation Committee; Member of the Audit
Committee) Mr. Jacobs has served as Chairman and Chief
Executive Officer of The JFP Group, LLC, a real estate development
company, since September 2005. Since September 2008, he has served
as Chairman and Chief Executive Officer of Jamos Capital, LLC, a private
equity firm specializing in alternative investment
strategies. From its founding in September 1996 until September
2005, Mr. Jacobs served as Chairman of the Board and Chief Executive
Officer of Regent Communications, Inc. Mr. Jacobs is a Fellow
of the Casualty Actuarial Society and a Member of the American Academy of
Actuaries. He also serves as a director of Global Entertainment
Corp and serves on the Board and Executive Committee of the National
Football Foundation and College Hall of Fame, Inc.
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Gregory
G. Joseph
Director
Since 2008
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(Member of the Audit Committee;
Member of the Corporate Governance Committee) For more than
five years, Mr. Joseph has been Executive Vice President, an attorney,
and a principal of Joseph Automotive Group, a Cincinnati,
Ohio-based company that manages a number of automobile dealerships and
certain real estate holdings. Until May 2008, he served as the
lead director of Infinity Property & Casualty Corporation (“IPCC”), an
insurance company primarily offering personal automobile
insurance. Since 2005, Mr. Joseph has served on the Board of
Trustees of Xavier University, a private college located in Cincinnati,
Ohio.
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William
W. Verity
Director
since 2002
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(Chairman of the Corporate
Governance Committee; Member of the Compensation
Committee) Mr. Verity has been President of Verity &
Verity, LLC, an investment management company, since January 1, 2002, and
prior to that, he was a partner of Pathway Guidance L.L.C., an executive
consulting firm, from October 2000. Previously, Mr. Verity was
Chairman and Chief Executive Officer of ENCOR Holdings, Inc., a developer
and manufacturer of plastic molded components.
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John
I. Von Lehman
Director
since 2008
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(Member of the Audit
Committee) For more than
five years until his retirement in 2007, Mr. Von Lehman served as
Executive Vice President, Chief Financial Officer, Secretary and a
director of The Midland Company, an Ohio-based provider of specialty
insurance products. He serves on the Board of Trustees of Ohio
National Mutual Funds and a number of Cincinnati-based charitable
organizations.
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Carl H.
Lindner is the father of Carl H. Lindner III and S. Craig
Lindner. All of the nominees other than Mr. Von Lehman were
elected directors at the last annual meeting of shareholders of the Company held
on May 15, 2008. See "Management" and "Compensation" below for
additional information concerning the background, securities holdings,
remuneration and other matters relating to the nominees.
The
Board of Directors recommends that shareholders vote FOR the election of these
ten nominees as directors.
- -3-
Proposal
No. 2 ► Ratification of the
Company’s Independent Registered Public Accounting Firm
The
Company’s Audit Committee Charter provides that the Audit Committee shall
appoint annually an independent registered public accounting firm to serve as
auditors. In February 2009, the Audit Committee appointed Ernst &
Young LLP to serve as auditors for 2009. Ernst & Young (or its
predecessor) has served as the Company’s independent auditors since the
Company’s founding.
Although
the Audit Committee has the sole authority to appoint auditors, shareholders are
being asked to ratify this appointment. If the shareholders do not
ratify the appointment, the Audit Committee will take that fact into
consideration, but may, nevertheless, continue to retain Ernst &
Young. However, the Audit Committee in its discretion may engage a
different registered public accounting firm at any time during the year if the
Audit Committee determines that such a change would be in the best interests of
the Company.
Audit
Fees and Non-Audit Fees
The
following table presents fees for professional services performed by Ernst &
Young for the years ended December 31, 2008 and December
31, 2007.
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2008
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2007
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Audit
fees (1)
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$ | 5,112,000 | $ | 4,892,000 | ||||
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Audit
related fees (2)
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135,000 | 235,000 | ||||||
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Tax
fees (3)
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35,000 | 47,000 | ||||||
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All
other fees
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3,000 | 3,000 | ||||||
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Total
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$ | 5,285,000 | $ | 5,177,000 | ||||
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(1)
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These
aggregate fees were for audits of the financial statements (including
services incurred to render an opinion under Section 404 of the
Sarbanes-Oxley Act of 2002), subsidiary insurance company audits, reviews
of SEC filings, and quarterly
reviews.
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(2)
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These
fees related primarily to attestation services not required by regulation
and services related to state insurance
examinations.
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(3)
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These
fees relate primarily to review of federal and state tax
returns.
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Representatives
of Ernst & Young are expected to be at the meeting and will be given the
opportunity to make a statement if they so desire. They will also be
available to respond to appropriate questions from shareholders.
The
Board of Directors recommends that shareholders vote FOR the ratification of the
Audit Committee’s appointment of Ernst & Young as our independent registered
public accounting firm for 2009.
-4-
Proposal
No. 3 ► Proposal to Approve
the Annual Co-CEO Equity Bonus Plan
Shareholders
are being asked to approve the Annual Co-CEO Equity Bonus Plan (the “Equity
Bonus Plan”). A copy of this Plan is attached to these proxy
materials as Annex A. The following description of the material terms
of the Equity Bonus Plan is qualified in its entirety by reference to the
complete text set forth in Annex A.
The
Compensation Committee of the Board of Directors established the Plan to
formalize its practice of using equity awards to reward the Co-Chief Executive
Officers for extraordinary performance in enhancing the profitability of the
Company. The Plan is designed to reflect the current market for executive
compensation and to promote extraordinary levels of corporate performance
that the Committee believes will enhance long-term shareholder value. This
Plan is being presented for shareholder approval so that the compensation
expense for awards under the Plan will be, to the extent permissible, tax
deductible for the Company and not subject to the $1 million per year limitation
on deductibility ("Deduction Limit") as outlined under Section 162(m) of the
Internal Revenue Code of 1986, as amended (“Section 162(m)”).
Under the
Plan, the Company may grant bonus awards in the form of shares of common stock
of the Company to the Co-Chief Executive Officers of the Company, the only
participants in the Plan, based on the satisfaction of pre-established
performance goals set forth in the Plan. The Committee believes that
making bonus awards under the Plan payable only in shares of common stock of the
Company further aligns the interests of the Co-Chief Executive Officers with
those of our shareholders.
Administration. The Plan is administered
by the Compensation Committee, which is composed solely of three “outside
directors” as defined under Section 162(m). No member of the Committee is
eligible to be granted a bonus under the Plan. The Committee has exclusive
power to determine the conditions (including the specific annual performance
goals consistent with the Plan) to which the payment of the bonuses under the
Plan may be subject and to certify that performance goals are
attained.
Performance
Criteria and Goals. Performance criteria
and goals are established annually based on financial measurements and
operational metrics. The financial measurements may, among others,
include book value growth, return on equity, earnings per share from insurance
operations, operating earnings (pre-tax, pre-interest) of Great American
Financial Resources, Inc., a wholly owned-subsidiary of the Company (“GAFRI”),
and per share price of common stock relative to prior periods and an industry
benchmark. The operational metrics will include performance goals
relating to, among other metrics, the combined ratio of the Company's Specialty
Property & Casualty segment and investment portfolio performance (both
including and excluding realized gains and losses).
The
Committee evaluates the performance criteria, establishes a performance goal and
allocates a bonus amount to be awarded upon attainment of each performance
goal. Under the Plan in effect for 2009, $350,000 payable in shares
of AFG common stock has been allocated to each of the following financial
measurements for each Co-Chief Executive Officer: core earnings per share,
growth in adjusted book value compared to the immediately preceding year, growth
in book value compared to the immediately preceding year, combined ratio, GAFRI
earnings, return on equity and the increase in share price compared to the
immediately preceding year and to an industry benchmark.
In order
to receive the bonus amount allocated to a particular performance goal, that
goal must have been fully met, or exceeded, for the plan year. If the
Committee finds that a particular performance goal established for a participant
has not been fully met, or exceeded, for the plan year, the participant will not
receive any portion of the bonus amount allocated to that performance
goal. For example, under the Plan in effect for 2009, the bonus
amount allocated to the earnings per share goal will be awarded only if reported
earnings per common share from insurance operations for 2009 (“core earnings”)
is equal to or exceeds $3.95. If the earnings per common share goal
is not met, the participant will not receive any portion of the bonus amount
allocated to such goal.
Further,
under the Plan, neither the Board nor the Committee retains any discretion to
pay an excess amount above the established bonus amounts or to award any portion
of the bonus amount allocated to a performance goal which has not been met by a
participant.
-5-
As soon
as practicable after the end of a calendar year, the Committee will certify in
writing whether or not the performance goals of the participants have been
attained and shall report to the Board the bonus amount, if any, to be awarded
to each participant.
Once the
bonus amount to be awarded to each participant is determined, it shall be paid
in shares of common stock of the Company. Accordingly, up to two
million shares have been authorized for issuance under the Plan, which number
may be adjusted by the Committee in the event of certain corporate changes
affecting AFG common stock. The calculation and payment of shares
shall take place by March 31st
following the plan year, with the value of a share for purposes of determining
the number of shares to be awarded to be determined by taking the average of the
average high and low prices of a share for each of the ten trading days
immediately prior to and including the date of grant.
Each
year, typically within 90 days after the end of the previous year, the Committee
intends to establish new bonus amounts, performance criteria and performance
goals under the Plan. Bonus amounts, performance criteria and performance
goals for 2009 were established in February 2009.
The
Committee attempted, to the extent practicable, to structure the Plan as an
incentive compensation program that would satisfy the requirements for the
“performance-based compensation” exception to the Deduction Limit and,
accordingly, preserve the deductibility of compensation paid under the
Plan. As a consequence, the Plan and the material terms of the
performance goals described are being submitted to our shareholders for approval
in accordance with the requirements for the “performance-based
compensation” exception to the Deduction Limit. If so approved, the
Plan will remain in effect from year to year until terminated by the
Committee. While we will attempt to qualify compensation paid under
the Plan to participants as “performance-based compensation” so that it will not
be subject to the Deduction Limit, there can be no assurance in this
regard.
If our
shareholders do not approve the Plan, the Committee may still approve cash
incentive compensation for our Co-Chief Executive Officers’ achievement of the
objectives set forth in the Plan in order to maintain the market competitiveness
of the Company’s executive compensation program. However, some of the
amounts awarded under a plan not approved by shareholders may be subject to the
Deduction Limit. By triggering the Deduction Limit, the Company’s
corporate tax liability would be increased.
Amendment and
Termination. The Board may at any
time terminate the Plan. The Board may at any time, or from time to
time, amend or suspend and, if suspended, reinstate the Plan in whole or in
part. Any amendment or revision to the Plan and/or performance goals
therein that requires shareholder approval pursuant to Section 162(m) may be
submitted to our shareholders for approval. Notwithstanding the
foregoing, the Plan shall continue in effect to the extent necessary to settle
all matters relating to the payment of bonuses awarded prior to any such
termination or suspension. In no event shall the Board or Committee
have the discretion to increase compensation under the Plan after performance
goals are established and the period of service has commenced.
If a
participant’s employment with the Company or a subsidiary is terminated for any
reason other than discharge for cause, and he would otherwise be entitled to a
bonus under the Plan, the Committee, may, in its sole discretion, award such a
bonus. In the event of a participant’s discharge for cause from the
employ of the Company, he shall not be entitled to any amount of bonus, unless
the Committee, in its sole discretion, determines otherwise.
The Plan
has been adopted and approved by the Committee and will remain effective for
each year thereafter unless and until determined by the Committee.
Recoupment of
Awards. The
Board will have discretion to review bonus amounts paid to each participant
under the Plan and may authorize the Company to recoup such bonus amounts
awarded in the event of an accounting restatement by the Company that was caused
by that participant’s fraud or misconduct, and where the performance goals on
which the bonus amount was based would not have been met under the restated
results.
Federal Income
Tax Consequences. The
Company believes that under present law the following are the federal income tax
consequences generally arising with respect to awards granted under the
Plan. This summary is for shareholder informative purposes and is not
intended to provide tax advice to Plan participants.
-6-
It is
intended that the Plan will either be exempt from the application of, or comply
with, the requirements of Section 409A of the Code, and thus, the Plan will be
construed, administered, and governed in a manner that reflects such intent, and
the Committee shall not take any action that would be inconsistent with such
intent. For this reason, the shares shall not be deferred,
accelerated, extended, paid out, settled, adjusted, substituted, exchanged or
modified in a manner that would cause the award to fail to satisfy the
conditions of an applicable exception from the requirements of Section 409A of
the Code or otherwise would subject the participants to the additional tax
imposed under Section 409A of the Code. The amounts payable pursuant to the Plan
are intended to be separate payments that qualify for the "short-term deferral"
exception to Section 409A of the Code to the maximum extent
possible.
Plan
participants must generally recognize ordinary income equal to the cash value of
awards received. Subject to Section 162(m), the Company will be
entitled to a deduction for the same amount. The foregoing provides
only a general description of the application of federal income tax laws to
certain types of awards under the Plan. The summary does not address
the effects of foreign, state and local tax laws. Because of the
complexities of the tax laws, Plan participants are encouraged to consult a tax
advisor as to their individual circumstances.
New Plan
Benefits. Grants of awards under the Plan are subject to the
certification and discretion of the Committee and are, therefore, not
determinable at this time. The following table reflects the
attainment of all performance goals established by the Committee under the Plan
for 2009. The bonus amounts for future years may be higher, lower or
the same as bonus amounts in effect for 2009.
|
Name and Position
|
2009
Bonus
Amounts
(1)
|
|||
|
Carl
H. Lindner III, Co-Chief Executive Officer
|
$ | 2,450,000 | ||
|
S.
Craig Lindner, Co-Chief Executive Officer
|
2,450,000 | |||
|
All
executive officers as a group
|
4,900,000 | |||
|
Non-executive
directors as a group
|
n/a | |||
|
Non-executive
officers as a group
|
n/a | |||
________________________
|
|
(1)
|
Awards may range from
$0 to $2,450,000 for each
participant depending on whether the established performance goals have
been attained.
|
The
Board of Directors of the Company unanimously recommends that you vote “FOR” the
approval of the Annual Co-CEO Equity Bonus Plan.
-7-
PRINCIPAL
SHAREHOLDERS
The
following shareholders are the only persons known by the Company to own
beneficially 5% or more of its outstanding common stock as of February 27,
2009:
|
Amount
and Nature of Beneficial Ownership
|
||||||||||||||||
|
Name
and Address Of
Beneficial
Owner
|
Common
Stock
Held
(1)
|
Obtainable
upon
Exercise of Options (2)
|
Total
|
Percent
of Class
|
||||||||||||
|
Carl
H. Lindner
One
East Fourth Street
Cincinnati,
Ohio 45202
|
7,613,866 | (3) | --- | 7,613,866 | 6.6% | |||||||||||
|
Carl
H. Lindner III
One
East Fourth Street
Cincinnati,
Ohio 45202
|
11,353,816 | (4) | 573,000 | 11,926,816 | 10.3% | |||||||||||
|
S.
Craig Lindner
One
East Fourth Street
Cincinnati,
Ohio 45202
|
10,107,110 | (5) | 573,000 | 10,680,110 | 9.2% | |||||||||||
|
The
American Financial
Group,
Inc. Retirement
and
Savings Plan
One
East Fourth Street
Cincinnati,
Ohio 45202
|
7,241,376 | (6) | --- | 7,241,376 | 6.3% | |||||||||||
|
(1)
|
Unless
otherwise noted, the holder has sole voting and dispositive power with
respect to the shares listed.
|
|
(2)
|
Represents
shares of common stock that may be acquired within 60 days of February 27,
2009 through the exercise of options granted under the Company’s Stock
Option Plan.
|
|
(3)
|
Includes
3,230,383 shares held by his spouse individually and as trustee with
voting and dispositive power and 369,379 shares held in a charitable
foundation over which Mr. Lindner has sole voting and dispositive power
but no pecuniary interest.
|
|
(4)
|
Includes
33,188 shares held by his spouse in a trust over which she has voting and
dispositive power, 35,230 shares held by one of his children, 2,376 shares
held as custodian for one of his nieces, 1,468,500 shares held by a
limited liability company over which he holds dispositive but not voting
power, 1,465,455 shares held in a trust over which his spouse has
dispositive power, and 3,000,000 shares owned by a limited liability
company over which he shares voting and dispositive power with his
brother. Includes 25,549 shares beneficially owned through a Company
retirement plan over which he has voting and dispositive
power.
|
|
(5)
|
Includes
27,685 shares held by his spouse as custodian for their minor child,
108,449 shares held in trust for the benefit of his spouse over which
shares she has voting and dispositive power, 1,340,379 shares held in
trust for the benefit of his children, over which shares his spouse has
dispositive power, 1,485,000 shares held by a limited liability company
over which he holds dispositive but not voting power, and 3,000,000 shares
owned by a limited liability company over which he shares voting and
dispositive power with his brother. Includes 105,558 shares
held in a charitable foundation over which he has sole voting and
dispositive power but no pecuniary interest. Includes 26,870
shares beneficially owned through a Company retirement plan over which he
has voting and dispositive power. Mr. Lindner has pledged
3,400,761 shares as collateral under loan
agreements.
|
|
(6)
|
The
members of the Administrative Plan Committee of the American Financial
Group, Inc. Retirement and Savings Plan (the "RASP"), Sandra W. Heimann,
Thomas E. Mischell and Mark
|
-8-
|
|
F.
Muething direct the disposition of the securities held by the RASP and may
direct the voting of Plan shares for which valid voting instructions
have not been received by Plan participants at least two days prior
to the meeting. Mrs. Heimann and Mr. Mischell are senior executives
of the Company, and Mr. Muething is a senior executive of the Company’s
Great American Financial Resources, Inc. subsidiary. See
“General Information – Retirement and Savings Plan Participants” on
page 1 of this proxy statement.
|
|
|
|
-9-
MANAGEMENT
The
directors, nominees for director and executive officers of the Company
are:
|
Age (1)
|
Position
|
Director or
Executive Since
|
||||
|
Carl
H. Lindner
|
89
|
Chairman
of the Board
|
1959
|
|||
|
Carl
H. Lindner III
|
55
|
Co-Chief
Executive Officer, Co-President and a Director
|
1979
|
|||
|
S.
Craig Lindner
|
54
|
Co-Chief
Executive Officer, Co-President and a Director
|
1980
|
|||
|
Kenneth
C. Ambrecht
|
63
|
Director
|
2005
|
|||
|
Theodore
H. Emmerich
|
82
|
Director
|
1988
|
|||
|
James
E. Evans
|
63
|
Senior
Vice President, General Counsel and Director
|
1976
|
|||
|
Terry
S. Jacobs
|
66
|
Director
|
2003
|
|||
|
Gregory
G. Joseph
|
46
|
Director
|
2008
|
|||
|
William
W. Verity
|
50
|
Director
|
2002
|
|||
|
John
I. Von Lehman
|
56
|
Director
|
2008
|
|||
|
Keith
A. Jensen
|
58
|
Senior
Vice President
|
1999
|
|||
|
Thomas
E. Mischell
|
61
|
Senior
Vice President - Taxes
|
1985
|
|||
|
(1)
|
As
of March 31, 2009.
|
Keith A. Jensen has served as Senior
Vice President of the Company for over five years. Since January
2005, he has also served as the Company’s principal financial
officer.
Thomas E. Mischell has served
as Senior Vice President - Taxes of the Company for over five
years.
Information regarding all directors
of the Company is set forth above under “Matters to be Considered - Proposal No.
1 - Elect Ten Directors.”
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires AFG’s executive officers, directors and
persons who own more than ten percent of AFG’s common stock to file reports of
ownership with the Securities and Exchange Commission and to furnish AFG with
copies of these reports. Based on a review of these reports, the
Company believes that all filing requirements were met during
2008.
-10-
Securities
Ownership
The
following table sets forth information, as of February 27, 2009, concerning the
beneficial ownership of equity securities of the Company and its subsidiaries by
each director, nominee for director, the executive officers named in the Summary
Compensation Table (see "Compensation" below) and by all of these individuals as
a group. Except as set forth in the footnotes below or under
“Principal Shareholders” on page 8 of this proxy statement, no director or
executive officer beneficially owned 1% or more of any class of equity security
of the Company or any of its subsidiaries outstanding at
February 27, 2009. Unless otherwise indicated, the persons named have
sole voting and dispositive power over the shares reported.
|
Amount
and Nature of Beneficial Ownership (1)
|
||||||||
|
Name
of
Beneficial
Owner
|
Shares
of Common
Stock
Held
|
Shares
of Common Stock Obtainable on Exercise of Options or Beneficially
Owned Through Employee Retirement Plans (2)
|
||||||
|
Carl
H. Lindner (3)
|
7,613,866
|
-
|
||||||
|
Carl
H. Lindner III (3)
|
11,328,267
|
598,549 | ||||||
|
S.
Craig Lindner (3)
|
10,080,240
|
599,870 | ||||||
|
Kenneth
C. Ambrecht
|
10,495
|
- | ||||||
|
Theodore
H. Emmerich
|
39,236
|
14,250 | ||||||
|
James
E. Evans (4)
|
198,521
|
389,788 | ||||||
|
Terry
S. Jacobs
|
7,198
|
- | ||||||
|
Gregory
G. Joseph (5)
|
69,599
|
- | ||||||
|
William
W. Verity
|
16,808
|
11,250 | ||||||
|
John
I. Von Lehman
|
-
|
- | ||||||
|
Keith
A. Jensen
|
38,449
|
270,460 | ||||||
|
Thomas
E. Mischell (6)
|
182,205
|
356,969 | ||||||
|
All
directors, nominees, and
executive
officers as a group
(12
persons)(3)
|
29,584,884
|
2,241,136 | ||||||
|
(1)
|
Does
not include the following ownership interests in subsidiaries of
AFG: Mr. Jensen and Mr. Joseph beneficially own 500 and
597 shares, respectively, of common stock of the Company’s subsidiary,
National Interstate
Corporation.
|
|
(2)
|
Consists
of shares of common stock which may be acquired within 60 days of
February 27, 2009 through the exercise of the vested portion of stock
options granted under the Company's Stock Option Plan and shares which the
executive may be deemed to beneficially own through one or more of the
Company’s retirement plans. The amount of shares so
beneficially owned through a Company retirement plan is as follows:
C. H. Lindner III – 25,549; S. C. Lindner – 26,870; K. A. Jensen
– 730; T. E. Mischell – 47,218; and all directors and executive
officers as a group – 100,367. Does not include cash
invested in a retirement account, the value of which is partially based on
the price of the Company’s common stock, where the individual has no
voting or dispositive power of any such
shares.
|
|
(3)
|
The
shares beneficially owned by Carl H. Lindner, Carl H. Lindner III, and S.
Craig Lindner, and all directors and officers as a group, constituted
6.6%, 10.3%, 9.2%, and 27.0%, respectively, of the common stock
outstanding at February 27, 2009. See footnotes 3 through
5 to the Principal Shareholders table on page 8 for more information
regarding share ownership by Carl H. Lindner, Carl H. Lindner III,
and S. Craig Lindner.
|
-11-
|
(4)
|
Mr.
Evans has pledged 154,838 shares as collateral under a loan
agreement.
|
|
(5)
|
Includes
60,924 shares held by three companies in which he is a shareholder and for
which he serves as an executive
officer.
|
|
(6)
|
Excludes
shares held in the RASP, for which he serves on the Administrative Plan
Committee, other than those shares allocated to his personal RASP
account.
|
Equity
Compensation Plan Information
The following reflects certain
information about shares of AFG Common Stock authorized for issuance (at
December 31, 2008) under compensation plans.
|
Plan category
|
(a)
Number
of securities to be issued upon exercise of outstanding options, warrants, and rights
|
(b)
Weighted-average
exercise price of outstanding options, warrants, and rights
|
(c)
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column (a)
|
|||||||||
|
Equity
compensation plans approved by security holders
|
9,460,719 | $23.38 | 6,386,025 | (1) | ||||||||
|
Equity
compensation plans not approved by security holders
|
--
|
--
|
330,113 | (2) | ||||||||
|
Total
|
9,460,719 | $23.38 | 6,716,138 | |||||||||
|
(1)
|
Includes
3.26 million shares available for issuance under AFG’s Stock Incentive
Plan, 3.03 million shares issuable under AFG’s Employee Stock Purchase
Plan and 96,000 shares issuable under AFG’s Non-Employee Directors’
Compensation Plan.
|
|
(2)
|
Represents
shares issuable under AFG’s Deferred Compensation Plan. Under
this Plan, certain employees of AFG and its subsidiaries may defer up to
80% of their annual salary and/or bonus. Participants may elect
to have the value of deferrals (i) earn a return equal to the overall
performance of mutual fund alternatives, (ii) earn a fixed rate of
interest, set annually by the Board of Directors, or (iii) fluctuate based
on the market value of AFG Common Stock, as adjusted to reflect stock
splits, distributions and
dividends.
|
-12-
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Overview
of Compensation Program
The Compensation Committee (for
purposes of this analysis, the “Committee”) of the Board of Directors has
responsibility for reviewing and approving the compensation paid to the
Company’s Co-Chief Executive Officers, reviewing the compensation of the other
Company senior executive officers and overseeing the executive compensation
policies of the Company. The Committee ensures that the total
compensation paid to the named executive officers is fair, reasonable and
competitive.
Throughout this proxy statement, the
individuals who served as the Company’s Co-Chief Executive Officers during
fiscal year 2008, as well as the other individuals included in the Summary
Compensation Table on page 25, may also be referred to as the “named executive
officers” or “NEOs”.
Compensation
Philosophy and Objectives
AFG’s philosophy regarding executive
compensation programs is centered around the balance of motivating, rewarding
and retaining executives with a compensation package competitive among its
peers, and the determination of maximizing shareholder value by designing and
implementing programs that tie the performance of the Company to the
compensation earned. Guided by principles that reinforce the
Company’s pay-for-performance philosophy for the past several years, NEO
compensation has included base salary and eligibility for annual cash bonuses
and long-term incentives such as stock options, restricted stock and stock
awards and other compensation, including certain perquisites. A
significant portion of each senior executive officer’s compensation is dependent
upon achieving business and financial goals and realizing other performance
objectives.
Establishing
Compensation Levels
As in prior years, compensation levels
for the Co-CEOs are based primarily upon the Compensation Committee’s assessment
of the executive officers’ leadership performance and potential to enhance
long-term shareholder value. The Committee relies upon a combination
of judgment and guidelines in determining the amount and mix of compensation
elements for the Co-CEOs. The compensation levels for the other NEOs
are similarly determined by the Co-CEOs, and reviewed by the Compensation
Committee, again based primarily upon the assessment of each such executive
officer’s leadership performance and potential to enhance long-term shareholder
value.
Key factors affecting the Committee’s
judgment with respect to the Co-CEOs includes the nature and scope of their
responsibilities and their effectiveness in leading initiatives to increase
shareholder value, productivity, profitability and growth. The
Committee also considers the compensation levels and performances of a
comparison group of publicly-held insurance companies (collectively, the
“Compensation Peer Group”) in reviewing the appropriateness and competitiveness
of the Company’s compensation programs. The Committee believes,
however, that the peer review should be simply a point of reference for
measurement, not a determinative factor for executive
compensation. The purpose of comparison is not to supplant the
analyses of internal pay equity, wealth accumulation and the individual
performance of the executive officers that the Committee considers when making
compensation decisions. The Compensation Peer Group, which is
periodically reviewed and updated by the Committee, consisted in 2008 of
companies against which the Committee believes AFG competes for talent and for
stockholder investment, and in the marketplace for business. In
analyzing market pay levels among the Compensation Peer Group, the Committee
factors into its analysis the large variance in size (both in terms of revenues
and market capitalization) among the companies. The companies
comprising the Compensation Peer Group are ACE Limited, Arch Capital Group Ltd.,
The Chubb Corporation, Cincinnati Financial Corporation, The Hartford Financial
Services Group, Inc., HCC Insurance Holdings, Inc., Markel Corporation, W. R.
Berkley Corporation, XL Capital Ltd., and Zenith National Insurance
Corp.
-13-
The Committee and the Co-CEOs analyze
market pay rates at least annually using relevant published survey sources
available. In addition, the Committee and the Co-CEOs analyze
information reported in the SEC filings of companies in the Compensation Peer
Group and compiled by a service provider.
The types of compensation paid to the
Company’s senior executives (i.e. annual salary, performance bonus, retirement
plan contributions, certain perquisites, and equity incentives, including
employee stock options) are similar to those paid to senior management at
companies in the Compensation Peer Group. Although the Company seeks
to offer a level of total compensation to our executive officers that is
competitive with the compensation paid by companies in the Compensation Peer
Group, we do not target a particular percentile with respect to our executives’
total pay packages or any individual components thereof. Rather, the
Committee’s consideration of the compensation levels and performances of the
companies in the Compensation Peer Group constitutes just one of many of the
factors described in this Compensation Discussion and Analysis (“CD&A”) and
such peer group data is considered generally and not as a substitute for the
Committee’s discharge of its fiduciary duties in making executive officer
compensation decisions.
Based upon all these factors, the
Committee believes it is in AFG shareholders’ best long-term interest for the
Committee to ensure that the overall level of compensation, especially the
aggregate total of salary, bonus and equity-based awards, is competitive with
companies in the Compensation Peer Group. The Committee continues to
believe that the quality, skills and dedication of executive leaders are
critical factors affecting the long-term value of the
Company. Therefore, the Committee and the Co-CEOs continue to try to
maintain an executive compensation program that will attract, motivate and
retain the highest level of executive leadership possible and align the
interests of AFG’s executives with those of AFG’s shareholders.
The Committee’s decisions concerning
the specific 2008 compensation elements for the Co-CEOs were made within this
framework. The Committee also considered each such executive
officer’s performance, current salary, prior-year bonus and other
compensation. In all cases, specific decisions involving 2008
compensation were ultimately based upon the Committee’s judgment about the
Co-CEOs’ performance, potential future contributions and about whether each
particular payment or award would provide an appropriate incentive and reward
for performance that sustains and enhances long-term shareholder
value.
Tally
Sheet
The Compensation Committee reviews a
comprehensive tally sheet analysis compiled internally to review all elements of
the named executive officers’ compensation. The Committee noted that
there are no amounts payable to the NEOs under severance or change in control
arrangements, unlike many of the executive officers of the companies in the
Compensation Peer Group. The tally sheets reviewed include all of the
information that is reflected in the Summary Compensation Table as well as
amounts and descriptions of perquisites not required to be specifically
identified by SEC regulations, generally due to the fact that the amount of such
items is not material. The review by the Compensation Committee
analyzes how changes in any element of compensation would impact other
elements. Such analysis has become an important component in the
Compensation Committee’s review of executive compensation as various components,
including perquisites, are deemed by the Compensation Committee to be important
elements of an executive’s overall compensation. This also allows the
Compensation Committee to make compensation decisions and evaluate management
recommendations based upon a complete analysis of an executive’s total
compensation.
To get a clearer picture of the total
amount of compensation paid to the Company’s executive officers, the
Compensation Committee annually reviews all components of the NEOs’ total
compensation package. This review includes salary, bonus, equity and
long-term incentive compensation, accumulated realized and unrealized stock
option gains, the dollar value to the executive and cost to the Company of all
perquisites and other personal benefits, the earnings and accumulated payout
obligations under the Company’s Deferred Compensation Plan, and the
contributions to and investment performance under the Company’s Retirement and
Savings Plan. A tally sheet totaling all the above components was
prepared and reviewed by the Compensation Committee. The Committee
noted the annual limitations agreed upon by the Committee and the Co-CEOs with
respect to personal use of corporate aircraft (120 occupied flight hours
each) and the executive insurance program ($300,000) and the fact that, if such
limitations are exceeded, reimbursement is made based on the cost to the Company
of providing those benefits.
-14-
Based on this review, the Committee
found the NEOs’ total compensation in the aggregate to be reasonable and
consistent with the objectives of the Company’s compensation
programs.
Wealth
Accumulation
As part of its analysis and approval of
the long-term equity incentive compensation, the Committee reviewed information
relative to equity wealth accumulation based on previous grants. The
purpose of this analysis was to determine whether prior and proposed grants are
likely to be effective for retention and as performance incentives to the named
executive officers. Based on its analysis, the Committee did not
identify any issues that would warrant a change in the existing long-term equity
compensation strategy.
In using the wealth accumulation
analyses, in conjunction with the tally sheets, the Committee specifically
considered the following when establishing 2009 compensation for the NEOs: (i)
whether the information indicates that the program or accumulation of wealth
reflects performance and creation of shareholder value; (ii) whether the
individual’s total compensation and accumulated wealth reflect the contributions
and performance of that individual; (iii) whether the overall program and its
individual elements are functioning as designed; and (iv) whether any
adjustments need to be made to the overall compensation program, any elements of
the program or an individual’s compensation. After considering these
matters, the Committee determined that the program continues to meet the
objectives described above, and made no changes to the design of the program or
any individual pay element for any of the NEOs as a result of these
analyses.
Internal Pay
Equity
The Committee believes that the
relative difference between the Co-CEOs’ compensation and the compensation of
the Company’s other senior executives has not increased significantly over
recent years. Further, although the Committee does not apply fixed
ratios when conducting this analysis, the Committee believes that the Company’s
internal pay equity structure is consistent with those of the companies in the
Compensation Peer Group and is appropriate based upon the contributions to the
success of the Company and as a means of motivation to other executives and
employees.
Outside
Consultants
The Committee has from time to time
considered the use of outside consultants in assisting in evaluating the
Company’s executive compensation program and practices. While the
Committee did not formally engage such a compensation consultant during 2008, it
has obtained and considered studies and reports containing comparative market
and industry-wide data, which were generated by professional compensation
consulting firms, and has engaged the Company’s outside legal counsel to assist
in this process. As a result, the Committee believes that it has the
necessary resources available to survey the compensation practices of the
Company’s Compensation Peer Group and keep abreast of compensation developments
in the marketplace.
Tax Deductibility of
Pay
Section 162(m) of the Internal
Revenue Code places a limit of $1,000,000 on the amount of compensation that AFG
may deduct in any one year with respect to each of its five most highly paid
executive officers. There is an exception to the $1,000,000
limitation for performance-based compensation meeting certain
requirements. The Committee attempts, to the extent practicable, to
structure a significant portion of Co-CEO compensation as
“incentive-based.” As a result, the incentive compensation paid to
the Co-CEOs should also satisfy the requirements for the “performance-based
compensation” exception under Section 162(m).
Section
409A
Section 409A of the Internal Revenue
Code requires that “nonqualified deferred compensation” be deferred and paid
under plans or arrangements that satisfy the requirements of the law with
respect to the timing of deferral elections, timing of payments and certain
other
-15-
matters.
In general, it is AFG’s intention to design and administer its
compensation and benefits plans and arrangements for all of its employees so
that they are either exempt from, or satisfy the requirements of, Section
409A. In 2008, the Company approved minor changes to various
nonqualified compensation plans to make them compliant with Section
409A. AFG believes it is currently operating such plans in compliance
with Section 409A. However, no assurances can be made in this
regard.
Compensation
Components
For the fiscal year ended
December 31, 2008, the principal components of compensation for named
executive officers were:
• base
salary;
• annual
performance-based bonuses (including cash and stock awards);
• long-term
equity incentive compensation;
• retirement
and other related benefits; and
• perquisites
and other personal benefits.
Each of
these components has a different risk profile:
|
Element
|
Description
|
Examples
|
Risk
Profile
|
|
Base
Salary
|
Fixed
based on level of responsibility, experience, tenure and
qualifications
|
· Cash
|
· Low to
moderate
|
|
Annual
Performance-Based Bonuses
|
Variable
based on achievement of certain objectives
|
· Cash
· Stock
Awards
|
· Moderate to
high
|
|
Long-Term
Equity Incentive Compensation
|
Variable
based on responsibility and the achievement of longer term financial goals
and shareholder value creation
|
· Equity-Linked
Incentive Compensation
· Stock
Options
· Performance-Based
Stock Awards
|
· High
|
|
Retirement
and Other Related Benefits
|
Satisfy
employee retirement and tax planning needs
|
· Retirement &
Savings plans
· Deferred
Compensation Plan
|
· Low
|
|
Perquisites
and Other Personal Benefits
|
Satisfy
employee health and welfare needs
|
· Health
care
· Life, Auto, Home
Insurance
· Security
· Aircraft
Usage
· Entertainment
· Lodging
· Administrative
|
· Low
|
The Committee has reviewed the risk
profile of the components of AFG’s executive compensation program, including the
performance objectives and target levels used in connection with incentive
awards, and has considered the risks an NEO might be incentivized to take with
respect to such components. When establishing the mix among these
components, the Committee is careful not to encourage excessive risk
taking. Specifically, the performance objectives contained in AFG’s
executive compensation programs have been balanced between annual and long-term
incentive compensation to ensure that both components are aligned and consistent
with our long-term business plan and that our overall mix of equity-based awards
has been allocated to promote an appropriate combination of incentive and
retention objectives.
The Committee believes that AFG’s
executive compensation program does not incentivize the NEOs to engage in
business activities or other behavior that would threaten the value of the
Company or the investments of its shareholders.
The Committee continues to monitor and
evaluate on an on-going basis the mix of compensation, especially equity
compensation, awarded to the named executive officers, and the extent to which
such compensation aligns the interests of the NEOs with those of AFG’s
shareholders. In connection with this practice, the Committee has,
from time to time, reconsidered the structure of the Company’s executive
-16-
compensation
program and the relative weighting of various compensation
elements. As an example, in early 2009 the Committee began the
practice of granting restricted stock awards to key executives in place of a
similar value of employee stock options. In addition, the Committee
adopted a new Annual Co-CEO Equity Bonus Plan to formalize the process of
granting equity awards to reward extraordinary performance by the Co-Chief
Executive Officers.
Our Co-CEOs determine the compensation
for the NEOs other than themselves. The Compensation Committee
reviews the levels of compensation determined by the Co-CEOs, and annually
reviews the performance of the other NEOs with the Co-CEOs. The
Compensation Committee makes recommendations to the Board with respect to
general non-CEO compensation, incentive-compensation plans and equity-based
plans.
Our Co-CEOs discuss with the
Compensation Committee their thoughts on the Company’s performance, their
performance, their current and future compensation levels, and the reported
compensation of senior executives at the Compensation Peer Group prior to the
time that the Compensation Committee takes any action with respect to setting
the compensation of the Co-CEOs. The Co-CEOs also make
recommendations to the Compensation Committee with respect to the EPS and
Company Performance Components of the incentive compensation awarded to
them. Specifically, the Co-CEOs recommended that these components
from AFG’s business plan be considered in connection with compensation
objectives and targets. The Compensation Committee considers this
input in connection with its review and approval of corporate goals and
objectives relevant to Co-CEO compensation, deliberation of Co-CEO performance
in light of those goals and objectives, and determination of Co-CEO compensation
levels based on this evaluation.
The Company has no contracts,
employment agreements, plans or arrangements with any NEO which would give rise
to a payment to such NEO in the event of a change in control of the
Company.
Base
Salary
The Company pays salaries that are
designed to attract and retain superior leaders. Annual base salary
is paid for ongoing performance throughout the year. The Committee
determines annual base salaries for the Co-CEOs that are appropriate, in its
subjective judgment, based on each officer’s responsibilities and performance
and input from the Co-CEOs themselves. The Co-CEOs set salaries for
the other NEOs, which are reviewed by the Committee. The Co-CEOs
believe that such salaries are appropriate in light of the levels of
responsibility of such officers and their individual contributions to the
Company’s success.
Messrs. Carl H. Lindner III and S.
Craig Lindner each assumed the additional position of Co-Chief Executive Officer
in January 2005 and continued to serve as the Company’s Co-Presidents,
positions they had held for more than five years. Each Co-CEO’s role
has been clearly defined: Carl H. Lindner III is responsible for the Company’s
property and casualty insurance operations and investor relations and S. Craig
Lindner is responsible for the Company’s annuity and supplemental health
insurance operations and investments. In addition, they work closely
with one another and are significantly involved in all aspects of Company
management so that either could succeed the other in the event such a need
arose. We believe that this structure aids in succession planning and
provides the Company with significant executive depth and leadership experience
appropriate for the Company. For 2008, the Company paid each Co-CEO
$1,100,000 in salary, which was the same amount of salary paid in
2007.
The annual salary rate for Mr. Evans
remained the same as in 2007, and Messrs. Jensen and Mischell received increases
of approximately 3.5% over their 2007 salary rates. These salary
levels were justified, in the Co-CEO’s judgment, as the result of each NEO’s
role in the execution of the strategy to manage AFG’s business to enhance
long-term investor value through better profit margins and higher returns on
equity, their actions to ensure that AFG has a strong capital structure and cash
flow, their role in leading AFG to solid financial results, and their leadership
in realizing cost savings while, at the same time, driving successful growth
initiatives.
Annual Performance-Based
Bonuses
Annual performance-based cash bonuses
are designed to reward the positive performance of AFG as compared to AFG’s
performance in prior years and its performance versus other companies in its
market segment. The Company believes that the overall performance of
AFG is substantially related to the performance of its
executives. Cash bonuses are paid each year, generally in the first
quarter, for the prior year’s performance.
-17-
As has been the case for more than six
years, the Compensation Committee, working with management, developed an annual
bonus plan for 2008 (“2008 Bonus Plan”) for the Co-CEOs and other NEOs that made
a substantial portion of their 2008 compensation dependent on AFG’s
performance. Specifically, annual bonus determinations are based on a
two-part analysis of AFG and executive performance.
As discussed elsewhere in this
CD&A, the Compensation Committee considered AFG’s business plan and budgeted
targets in connection with its establishment of objectives in the EPS and
Company Performance Components under the 2008 Bonus
Plan. Specifically, with respect to personal objectives for each of
the Co-CEOs, the Compensation Committee did not establish quantifiable
measurements other than those identified in these EPS and Company Performance
Components because the Compensation Committee believes that the Co-CEOs are
ultimately jointly responsible for the achievement of such
objectives. The Compensation Committee views the roles of the Co-CEOs
as collaborative, as opposed to competitive, and thus does not seek to
distinguish the performance of one from the other. Rather, the
Compensation Committee scrutinized the Co-CEOs’ collective role in AFG’s
achievement of EPS targets, developing management personnel, focus on investment
portfolio performance and development and implementation of strategic
transactions and initiatives to enhance shareholder value. The
Compensation Committee believes these areas merit considerable attention by the
Co-CEOs and constitute areas of responsibility in which the Co-CEOs responded in
a manner commensurate with the level of compensation received under the
parameters of the 2008 Bonus Plan.
Individual areas of responsibility for
NEOs other than the Co-CEOs are assigned by the Co-CEOs as the fiscal year
progresses. As discussed elsewhere in this CD&A, the individual
performance component of the 2008 Bonus Plan for the other NEOs addresses the
factors considered by the Co-CEOs in their evaluation of the individual
performance and related incentive compensation for the other NEOs.
2008 Bonus Plan Components
and Bonus Amounts for Co-CEOs
Under the 2008 Bonus Plan, the
aggregate amount of cash bonus for 2008 for each Co-CEO is comprised of the sum
of such Co-CEO’s bonuses for the EPS Component and Company Performance
Component. The following table sets forth the Co-CEO 2008 bonus
target amounts with respect to the performance components that were recommended
by the Compensation Committee and approved by the Company’s Board of
Directors.
|
Name
|
Total
Bonus
Target
|
EPS Component
|
Company
Performance Component
|
|||||||||
|
Carl
H. Lindner, III
|
$ | 1,300,000 |
50%
|
50%
|
||||||||
|
S.
Craig Lindner
|
$ | 1,300,000 | 50% |
50%
|
||||||||
The Committee raised the 2008 bonus
target by $150,000 from the 2007 bonus target, reflecting the record core
operating earnings in the prior year.
1. EPS
Component
Pursuant to the 2008 Bonus Plan, each
Co-CEO’s EPS Component ranged from $0 up to $1,137,500 (175% of the dollar
amount of the Bonus Target allocated to the EPS Component), based on the
following levels of reported earnings per common share from insurance operations
(“Operating EPS” described below) achieved by the Company and its consolidated
subsidiaries for 2008:
|
Operating EPS
|
Percentage
of Bonus Target to be paid for
EPS Component
|
|||||
|
Less
than $3.50
|
0 | |||||
| $3.85 | 100 |
%
|
||||
|
$4.10
or more
|
175 |
%
|
||||
The Operating EPS targets set forth
under the 2008 Bonus Plan are derived from AFG’s business plan. The
target of $3.85 per share represented a 2.3% decrease over the prior year’s
actual reported Operating EPS of $3.94 per share, but a 15.6% increase from the
Operating EPS target for 2007. Management and the Compensation
Committee have intended that the EPS targets should be set at meaningful rates
so that management must be diligent, focused and effective in order to achieve
these goals. In other words, AFG and management believed at the time
of the establishment of these EPS targets that such targets would be challenging
to achieve and would require substantial efforts from AFG management, especially
in the areas of establishing appropriate pricing and achieving profitable growth
in a softening market environment. In each of the past three years,
the Compensation Committee has set the Operating EPS target above the analyst
consensus estimates at the time the targets were set.
-18-
The 2008 Bonus Plan provides that 100%
of the EPS Component of the bonus ($650,000) must be paid if Operating EPS were
$3.85 per share. The plan further provides that if the Company’s
Operating EPS were above $3.50 but less than $3.85 or above $3.85 but less than
$4.10, the EPS Component of the bonus is to be determined by straight-line
interpolation. If Operating EPS is $4.10 or more, 175% of the EPS
Component of the bonus is to be paid. The 2008 Bonus Plan provides
that Operating EPS differs from AFG’s reported net earnings determined in
accordance with generally accepted accounting principles because it does not
include realized gains and losses in the investment portfolio, investee results,
and unusual or non-recurring items. Further, any charge taken as a
result of a study of asbestos, environmental and other mass torts is to be
considered a non-recurring item.
For 2008, AFG reported Operating EPS of
$4.08. As a result, the Committee concluded that a bonus of
$1,098,500 (169% of the $650,000 bonus target allocated to the EPS Component)
must be paid to each Co-CEO under the EPS Component of the 2008 Bonus
Plan.
2. Company Performance
Component
Payment of fifty percent (50%) of the
$1,300,000 bonus target for the Co-CEOs is based on AFG’s overall performance,
as determined by the Committee, after considering certain factors determined at
the time of adoption of the 2008 Bonus Plan. The 2008 Bonus Plan
provides that each Co-CEO’s bonus allocated to the Company Performance Component
will range from $0 up to $1,137,500 (175% of the $650,000 bonus target allocated
to the Company Performance Component). The Committee considered all
factors deemed relevant, including financial, non-financial and strategic
factors, in determining whether to grant and/or how much to grant under the
Company Performance Component. Specifically, pursuant to the terms of
the 2008 Bonus Plan, the Committee considered these factors, which could impact
long-term shareholder value:
|
|
a.
|
Growth
in book value per share (as defined) in excess of 11% (not
achieved);
|
|
|
b.
|
Achievement
of core return on equity in excess of 14%
(achieved);
|
|
|
c.
|
Achievement
of specialty property and casualty calendar year combined ratio of 88% or
below (achieved);
|
|
|
d.
|
Achieve
life, annuity & supplemental insurance pre-tax, pre-interest expense
operating earnings of $136 million
(achieved);
|
|
|
e.
|
Returns
on our investment portfolio exceeding those of certain public benchmarks
(partially achieved);
|
|
|
f.
|
AFG
Common Stock outperformance of S&P Insurance Stock Index (achieved);
and
|
|
|
g.
|
Maintenance
of debt to capital ratio less than or equal to 25% (calculated consistent
with past practice) (achieved).
|
As a result, the
Plan required that the Co-CEOs receive 130% of the Company Performance Component
of the bonus, or $845,000. Consequently, the total bonus required for
each Co-CEO by the 2008 Bonus Plan, considering both the EPS and Company
Performance Components, is $1,943,500.
-19-
2008 Bonus Plan Components
and Bonus Amounts for other NEOs
The 2008 Bonus Plan provides bonuses
comprised of the sum of NEO bonuses for the EPS Component and Individual
Performance Component. The following table sets forth the NEO bonus
target amounts and performance criteria that were reviewed by the Compensation
Committee.
|
Name
|
Total
Bonus
Target
|
EPS Component
|
Individual
Performance
Component
|
|
James
E. Evans
|
$875,000
|
50%
|
50%
|
|
Keith
A. Jensen
|
$580,000
|
50%
|
50%
|
|
Thomas
E. Mischell
|
$390,000
|
50%
|
50%
|
1. EPS
Component
For the other named executive officers
participating in the 2008 Bonus Plan, the EPS Component was set at a maximum of
125% of the eligible bonus, based on the following levels of reported Operating
EPS achieved by the Company and its consolidated subsidiaries for
2008:
|
Operating EPS
|
Percentage
of Bonus Target to be paid for
EPS Component
|
|||||
|
Less
than $3.50
|
0 | |||||
| $3.85 | 100 |
%
|
||||
|
$4.10
or more
|
125 |
%
|
||||
For 2008,
AFG reported Operating EPS of $4.08 (123% of target). As a result,
under the EPS Component of the 2008 Bonus Plan, bonuses were paid to NEOs as
follows: $538,125 to Mr. Evans; $356,700 to Mr. Jensen; and $239,850 to
Mr. Mischell.
2. Individual Performance
Component
Under the 2008 Bonus Plan each NEO’s
bonus allocated to the Individual Performance Component will range from 0% up to
125% of the target amount allocated to the Individual Performance Component and
was determined by the Co-Chief Executive Officers based on such officers’
subjective rating of the NEOs relative overall performance for
2008. The rating for each of the NEOs includes a consideration of all
factors deemed relevant, including, but not limited to, operational, qualitative
measurements relating to the development and implementation of strategic
initiatives and annual objectives, responses to unexpected developments, the
development of management personnel, and the impact of any extraordinary
transactions involving or affecting the Company and its
subsidiaries. The Co-CEOs considered these factors, including the
respective roles of the NEOs with respect to the consistent improvement in the
Company’s operating performance over the past several years and determined that
the following bonuses should be paid: $503,125 to Mr. Evans (115% of target);
$348,000 to Mr. Jensen (120% target); and $224,250 to Mr. Mischell
(115% target).
As a result, the total bonuses paid to
the NEOs under the 2008 Bonus Plan (aggregating the amounts determined under
both the EPS Component and the Individual Performance Component) were:
$1,041,250 to Mr. Evans; $704,700 to Mr. Jensen; and $464,100 to
Mr. Mischell.
-20-
2009
Bonus Plan
With respect to the fiscal year ending
December 31, 2009, the performance components that were approved by the
Compensation Committee of the Company’s Board of Directors are set forth in the
following table and notes. The components and targets were derived
from AFG’s 2009 business plan and represent goals for that year that the
Compensation Committee believes will be challenging for AFG, yet achievable if
senior and operating management meet or surpass their business unit goals and
objectives. Management and the Compensation Committee believe that this
alignment of objectives in AFG’s 2009 business plan and the performance
measurements on which bonuses are based is in the best interests of all of AFG’s
shareholders.
|
Name
|
Total
Bonus
Target
|
EPS
Component
|
Company/Individual
Performance
Component
|
|
|
Carl
H. Lindner III
|
$1,300,000
|
|
50%
|
50%
|
|
S.
Craig Lindner
|
1,300,000
|
|
50%
|
50%
|
|
James
E. Evans
|
875,000
|
|
50%
|
50%
|
|
Keith
A. Jensen
|
600,000
|
|
50%
|
50%
|
|
Thomas
E. Mischell
|
400,000
|
50%
|
50%
|
|
EPS
Component
Pursuant to the 2009 Bonus Plan, each
participant’s EPS Component ranges from 0% up to 175%, with respect to the
Co-CEOs, and 0% to 125%, with respect to the other NEOs, of the dollar amount of
the Bonus Target allocated to the EPS Component, based on the following levels
of reported earnings per common share from insurance operations (“Operating EPS”
described below) achieved by the Company and its consolidated subsidiaries for
2009:
|
Operating EPS
|
Percentage
of Bonus Target to be paid for
EPS Component
|
|||||
|
Less
than $3.50
|
0 | |||||
| $3.85 | 100 |
%
|
||||
|
$4.10
or more
|
175%/ |
125%
|
||||
With respect to the Co-CEOs, the 2009
Bonus Plan provides that 100% of the EPS Component of the bonus ($650,000) must
be paid if Operating EPS is $3.85 per share. The plan further
provides that if the Company’s Operating EPS is above $3.50 but less than $3.85
or above $3.85 but less than $4.10, the EPS Component of the bonus is to be
determined by straight-line interpolation. If Operating EPS is $4.10
or more, 175% of the EPS Component of the bonus is to be paid. The
2009 Bonus Plan provides that Operating EPS will not include investee results,
realized gains and losses in the investment portfolio and unusual or
non-recurring items. Further, any charge taken as a result of a study
of asbestos, environmental and other mass torts is to be considered a
non-recurring item.
The Operating EPS target for 2009 was
established by the Compensation Committee after reviewing the Company’s 2009
business plan prepared by management and approved by the Co-CEOs. The
EPS target required to be achieved in order for 2009 Bonus Plan participants to
earn 100% of the EPS Component represents 100% of the 2009 EPS target in the
business plan, requiring substantial efforts on behalf of the entire
organization, including Company senior management, while giving consideration to
factors which might impact ongoing earnings, including, but not limited to,
competition, market influences, governmental regulation and the Board of
Directors’ desire to devote resources to other internal corporate objectives,
such as acquisitions or start-ups. While the Operating EPS target
does not reflect an increase in earnings per share over the prior year, the
Committee noted that for any bonus to be awarded under the EPS Component, 2009
EPS must exceed the then current analysts’ consensus estimate of 2009 core
earnings. Further, the Committee noted that Operating EPS of $3.50,
$3.85, and $4.10 would yield a return on shareholders equity of 12.2%, 13.4% and
14.3%, respectively.
-21-
Company/Individual
Performance Component
Payment of 50% of the bonus target is
based on AFG’s overall performance, as objectively determined by the Committee,
after considering certain factors determined at the time of adoption of the 2009
Bonus Plan. The 2009 Plan provides that the bonus allocated to the
Company/Individual Performance Component will range from 0% up to 175%, with
respect to the Co-CEOs, and 0% to 125%, with respect to the other NEOs, of the
bonus target allocated to that component. In addition to the
objective criteria described below, the Committee may consider all factors
deemed relevant, including financial, non-financial and strategic factors, in
determining whether to grant and/or how much to grant under the
Company/Individual Performance Component. Specifically, pursuant to
the terms of the 2009 Bonus Plan, the Committee will consider these factors,
which could impact long-term shareholder value:
Financial
measurements such as growth in book value, return on equity, per share price of
the Company’s common stock relative to prior periods and comparable companies as
well as financial markets, credit ratings on outstanding debt and claims paying
ability of the Company’s subsidiaries, the Company’s debt to capital ratio, the
combined ratios of the Company’s insurance subsidiaries, and investment
portfolio performance including realized gains and losses; and other
operational, qualitative measurements relating to the development and
implementation of strategic initiatives, responses to unexpected developments,
the development of management personnel, the results of any reexamination of
asbestos, environmental and other tort liabilities, and the impact of any
extraordinary transactions involving or affecting the Company and its
subsidiaries.
On an ongoing basis, the Compensation
Committee will annually determine the performance goals and objectives it will
use in the development of the performance-based portion of the Co-CEOs’
compensation.
Long-Term Equity Incentive
Compensation
The Compensation Committee believes
long-term equity incentive compensation encourages management to focus on
long-term Company performance and provides an opportunity for executive officers
and certain designated key employees to increase their stake in the Company
through stock option grants and restricted stock awards that vest over
time. The Committee believes that stock options and stock awards
represent an important part of AFG’s performance-based compensation
system. The Committee believes that AFG shareholders’ interests are
well served by aligning AFG’s senior executives’ interests with those of its
shareholders through the grant of stock options and stock awards. In
determining the size of overall annual grants, the Committee takes into
consideration the possible dilutive effect to shareholders of the additional
shares which may be issued upon exercise of stock-based awards as well as the
expense to AFG as stock-based awards and restricted shares vest. The
Committee believes that several features present in stock-based awards give
recipients substantial incentive to maximize AFG’s long-term
success. Specifically, options under AFG’s 2005 Stock Incentive Plan
are granted at exercise prices equal to the average of the high and low sales
prices reported on the New York Stock Exchange (“NYSE”) of AFG common stock on
the date of grant. Additionally, the Committee believes that because
the stock options vest at the rate of 20% per year, and the restricted stock
awarded in 2009 vests in four years, these awards promote executive retention
due to the forfeiture of options and restricted shares that have not fully
vested upon departure from AFG.
In February 2009, the Compensation
Committee decided to award a portion of the long-term equity incentive
compensation of eleven key executives in restricted stock awards. The
restricted stock awards vest over four years, or sooner upon the death or
permanent disability of the recipient. The recipients are entitled to
receive dividends on and vote the shares in spite of the restriction on
transfer.
Equity award levels are determined
based on award amounts for participants from previous years, market data,
including award levels to optionees at other insurance companies, fair value of
option grants, the expense of such options to AFG, the relative benefits to
participants of such expense, and the overall compensation level of such
participants. Equity grants vary among participants based on their
positions within the Company and AFG believes that the consideration of the
factors identified in the immediately preceding sentence results in reasonable
grant levels to its NEOs and other employees. Options and restricted
shares granted to NEOs are set forth in the Grants of Plan-Based Awards Table on
page 27 of this proxy statement.
-22-
Equity awards, including stock options
and restricted stock, are generally granted at a regularly scheduled
Compensation Committee meeting in February after AFG issues a press release
announcing results of the recently ended fiscal year. Other than
pursuant to the 2005 Stock Incentive Plan, which provides that the option
exercise price is determined by the average of the high and low sales prices of
AFG common stock reported on the NYSE, the Committee does not grant options with
an exercise price that is less than the closing price of the Company’s common
stock on the grant date, nor does it grant options which are priced on a date
other than the grant date. Prior to the exercise of an option, the
holder has no rights as a stockholder with respect to the shares subject to such
option, including voting rights and the right to receive dividends or dividend
equivalents.
The Company’s 2005 Stock Incentive Plan
also provides that a stock award may be granted to any eligible employee for
past services, or for any other valid purpose as determined by the Compensation
Committee. Such a stock award represents shares that are issued
without restrictions on transfer and free of forfeiture conditions except as
otherwise provided in such Plan. While the Compensation Committee
exercised its discretion under this Plan in granting approximately $1,000,000 of
Company common stock in 2008, and approximately $2,000,000 of Company common
stock in 2007, to each of the Co-CEOs, no such award was made in 2009 relative
to 2008 performance. The Compensation Committee generally intends to
grant such stock awards to the Co-CEOs only through the Annual Co-CEO Equity
Bonus Plan described beginning on page 5 of this Proxy Statement, under which
superior company performance will merit the Co-CEOs this extraordinary element
of compensation.
Recovery of Prior
Awards
Other
than in the Annual Co-CEO Equity Bonus Plan, AFG do not have an explicit policy
with respect to adjustment or recovery of awards or payments if relevant company
performance measures upon which previous awards were based are restated or
otherwise adjusted in a manner that would reduce the size of such award or
payment. Under those circumstances, we expect that the Compensation
Committee and the Board would evaluate whether compensation adjustments were
appropriate based upon the facts and circumstances surrounding the applicable
restatement or adjustment. Nevertheless, the Company is subject to
the provisions of Section 304 of the Sarbanes-Oxley Act, with its recoupment
requirements.
Stock Ownership
Guidelines
AFG’s Board adopted executive stock
ownership guidelines because it believes that it is in the best interests of AFG
and its shareholders to align the financial interests of its executives and
certain other officers of the Company and its principal subsidiaries with those
of AFG’s shareholders. AFG’s Board also adopted such guidelines
because it believes that the investment community values stock ownership by such
officers and that share ownership demonstrates a commitment to and belief in the
long-term profitability of AFG. Under the guidelines, AFG’s Co-CEOs
are required to own an amount of AFG common stock which is equal to or exceeds
five times their annual base salary; other NEOs and certain other senior
officers of the Company and its major subsidiaries (in excess of 40 executives)
are required to own an amount of AFG common stock which is equal to or exceeds
their annual base salary. Generally, persons subject to the
guidelines are required to achieve the applicable ownership guideline by
January 1, 2011. Notwithstanding this phase-in period, most
executives to whom the guidelines apply had met their ownership target and
continued to do so at December 31, 2008. The Co-CEOs own AFG
common stock having a value well in excess of the guidelines indicated by their
annual base salary.
Retirement and Other Related
Benefits
The Company provides retirement
benefits to NEOs through a combination of qualified (under the Internal Revenue
Code) and nonqualified plans. AFG provides retirement benefits to
qualified employees through the AFG Retirement and Savings Plan (“RASP”), a
defined contribution plan. AFG makes all contributions to the
retirement fund portion of the plan and matches a percentage of employee
contributions to the savings fund. The amount of such contributions
and matching payments are based on a percentage of the employee’s salary up to
certain thresholds. AFG also makes available to certain employees
benefits in its Nonqualified Auxiliary RASP (“Auxiliary RASP”). The
purpose of the Auxiliary RASP is
to enable employees whose contributions in the retirement contribution portion
of the RASP are limited by IRS regulations to have an additional benefit to the
RASP.
-23-
The Company also maintains a Deferred
Compensation Plan pursuant to which certain employees of AFG and its
subsidiaries (currently those paid $100,000 or more annually) may defer up to
80% of their annual salary and/or bonus. For 2008, participants could
elect to have the value of deferrals (i) earn a fixed rate of interest, set
annually by the Board of Directors (5-1/8% in 2008), or (ii) fluctuate
based on the market value of AFG common stock, as adjusted to reflect stock
splits, distributions, dividends, or (iii) earn interest as determined by
one or more publicly traded mutual funds. The deferral term of either
a fixed number of years or upon termination of employment must be elected at the
time of deferral. Under the plan, no federal or state income taxes
are paid on deferred compensation. Rather, such taxes will be due
upon receipt at the end of the deferral period. The Nonqualified
Deferred Compensation Table on page 30 discloses compensation earned in
connection with the Deferred Compensation Plan.
Perquisites and Other
Personal Benefits
Perquisites, such as insurance
coverage, security services, certain entertainment expenses, administrative
staff attending to occasional personal matters, and the personal use of
corporate aircraft, are made available to AFG’s executive
officers. These benefits are described below and the estimated costs
to the Company of such benefits are included in the All Other Compensation table
below on page 26. In 2007, the Committee and the Co-CEOs agreed to
limit the benefit attributable to the Co-CEOs’ personal use of corporate
aircraft and insurance coverage. See “Tally Sheet” discussion
above.
During 2008, as in prior years, the
Company operated corporate aircraft used for the business travel of senior
management of the Company and its subsidiaries. The Board has
encouraged the use of corporate aircraft for the travel needs of the Company’s
Chairman of the Board and Co-Chief Executive Officers, including personal
travel, in order to minimize and more efficiently utilize their travel time,
protect the confidentiality of their travel and the Company’s business, and to
enhance their personal security. Notwithstanding, the Committee and
the Chairman of the Board and Co-CEOs jointly acknowledge that such aircraft use
is a personal benefit, and as such, the Committee considers the cost to the
Company of such use to be an element of the total compensation paid to these
individuals.
The Committee believes these
perquisites to be reasonable, particularly as a part of total executive
compensation, comparable with peer companies and consistent with the Company’s
overall executive compensation program.
The Company does not provide tax
gross-up payments to NEOs for any perquisites.
COMPENSATION
COMMITTEE REPORT
The Compensation Committee has reviewed
and discussed the Compensation Discussion and Analysis required by Item 402(b)
of Regulation S-K with management. Based on these reviews and
discussions, the Compensation Committee recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in the Company’s proxy
statement on Schedule 14A.
|
Members
of the Compensation Committee:
|
Terry
S. Jacobs (Chairman)
|
|
William
W. Verity
|
|
|
Kenneth
C. Ambrecht
|
-24-
SUMMARY
COMPENSATION TABLE
The
following table summarizes the aggregate compensation paid or earned by each of
the named executive officers for the fiscal years ended December 31, 2008,
December 31, 2007 and December 31, 2006. Such compensation includes
amounts paid by AFG and its subsidiaries and certain affiliates for the years
indicated. Amounts shown relate to the year indicated,
regardless of when paid. AFG has no employment agreements with the
named executive officers.
|
Name
and Principal Position
|
Year
|
Salary
($)
(1)
|
Stock
Awards
($)
(2)
|
Option
Awards
($)
(3)
|
Non-Equity
Incentive Plan Compensation
($)
(4)
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)
(5)
|
All
Other Compensation
($)
(6)
|
Total
($)
|
|
Carl
H. Lindner III
Co-Chief
Executive Officer and Co-President (Co-Principal Executive
Officer)
|
2008
2007
2006
|
1,100,000
1,100,000
1,075,000
|
-
975,975
1,932,341
|
574,000
523,000
453,000
|
1,943,500
1,581,250
2,012,500
|
14,180
983
-
|
730,017
747,174
1,533,862
|
4,361,697
4,928,382
7,006,703
|
|
S.
Craig Lindner
Co-Chief
Executive Officer and Co-President (Co-Principal Executive
Officer)
|
2008
2007
2006
|
1,100,000
1,100,000
1,075,000
|
-
975,975
1,932,341
|
574,000
523,000
453,000
|
1,943,500
1,581,250
2,012,500
|
14,180
983
-
|
743,089
705,052
1,259,078
|
4,374,769
4,886,260
6,731,919
|
|
Keith
A. Jensen
Senior
Vice President (Principal Financial Officer)
|
2008
2007
2006
|
640,000
592,000
565,000
|
-
-
-
|
418,000
372,000
330,000
|
704,700
700,000
656,250
|
7,162
18,592
24,430
|
95,437
115,868
164,197
|
1,865,299
1,798,460
1,739,877
|
|
James
E. Evans
Senior
Vice President and General Counsel
|
2008
2007
2006
|
1,050,000
1,050,000
1,043,000
|
-
-
-
|
519,000
465,000
412,000
|
1,041,250
1,020,000
1,062,500
|
-
-
-
|
95,607
251,504
982,315
|
2,705,857
2,786,504
3,499,815
|
|
Thomas
E. Mischell
Senior
Vice President – Taxes
|
2008
2007
2006
|
597,000
555,000
531,000
|
-
-
-
|
368,000
326,000
288,000
|
464,100
450,000
468,750
|
-
11,602
-
|
84,975
84,704
993,802
|
1,514,075
1,427,306
2,281,552
|
|
(1)
|
Amounts
shown are not reduced to reflect the named executive officers’ elections,
if any, to defer receipt of salary into the Deferred Compensation
Plan.
|
|
(2)
|
Amounts
represent the value of discretionary awards made by the Compensation
Committee under the 2005 Stock Incentive Plan and paid to the Co-Chief
Executive Officers in the form of AFG common stock, as further described
in the Compensation Discussion and Analysis section beginning on page 13
of this proxy statement.
|
|
(3)
|
Amount
represents the dollar amount recognized for financial statement reporting
purposes with respect to fiscal years 2008, 2007 and 2006 in accordance
with FAS 123R. There can be no assurance that the value
realized from the exercise of stock options, if any, will equal the amount
of FAS 123R compensation expense recorded. A discussion of the
assumptions used in calculating these values may be found in Note
I beginning on page F-20 to the Company’s Annual Report on Form
10-K for the fiscal year ended December 31,
2008.
|
|
(4)
|
Amount
represents payment for performance in the year indicated, whenever paid,
under the Senior Executive Annual Bonus Plan as further described in the
Compensation Discussion and Analysis section beginning on page 13 of
this proxy statement. As these bonus payments were made
pursuant to a performance-based annual bonus plan, no separate bonus
column appears in the table.
|
|
(5)
|
For
2008, the amounts represent “above market” earnings on deferrals under the
Deferred Compensation Plan. For 2007, the
amounts represent a $16,648 Company match to Mr. Jensen’s
deferral under the Deferred Compensation Plan, and $1,944 of “above
market” earnings on
his deferrals, and a $11,602 Company match to Mr. Mischell’s deferral
under the Deferred Compensation
Plan.
|
-25-
|
(6)
|
See
All Other Compensation chart below for amounts, which include perquisites,
Company or subsidiary contributions or allocations under the (i) defined
contribution retirement plans and (ii) employee savings plan in which the
named executive officers participate (and related accruals for their
benefit under the Company’s benefit equalization plan which generally
makes up certain reductions caused by Internal Revenue Code limitations in
the Company’s contributions to certain of the Company’s retirement plans)
and Company paid group life insurance.
|
ALL
OTHER COMPENSATION—2008
|
Item
|
C.H.
Lindner III
($)
|
S.C.
Lindner
($)
|
K.A.
Jensen
($)
|
J.E.
Evans
($)
|
T.E.
Mischell
($)
|
|||||||||||||||
|
Group
life insurance
|
$ | 4,814 | $ | 2,622 | $ | 4,902 | $ | 7,524 | $ | 7,606 | ||||||||||
|
Insurance
(Auto/Home Executive Insurance Program)
|
246,180 | 300,000 | 17,760 | 15,993 | 7,919 | |||||||||||||||
|
Aircraft
Usage (1)
|
307,750 | 241,200 | 0 | 0 | 0 | |||||||||||||||
|
Car
and Related Expenses
|
3,960 | 5,478 | 4,905 | 2,900 | 2,900 | |||||||||||||||
|
Security
Services
|
35,807 | 17,903 | 0 | 0 | 0 | |||||||||||||||
|
Meals
and Entertainment
|
13,000 | 13,950 | 4,000 | 1,850 | 1,000 | |||||||||||||||
|
Administrative/Secretarial
Services
|
73,106 | 116,536 | 18,470 | 21,940 | 20,150 | |||||||||||||||
|
Annual
RASP Contribution
|
6,900 | 6,900 | 6,900 | 6,900 | 6,900 | |||||||||||||||
|
Annual
Auxiliary RASP Contribution
|
38,500 | 38,500 | 38,500 | 38,500 | 38,500 | |||||||||||||||
|
Annual
RASP & Auxiliary RASP Plan Earnings
|
0 | 0 | 0 | 0 | 0 | |||||||||||||||
|
Totals
|
$ | 730,017 | $ | 743,089 | $ | 95,437 | $ | 95,607 | $ | 84,975 | ||||||||||
|
|
(1)
|
The
Board of Directors has encouraged the Company's Chairman and Co-Chief
Executive Officers to use corporate aircraft for all travel whenever
practicable for productivity, security and confidentiality
reasons. On certain occasions, an executive’s spouse, other
family members or guests may fly on the corporate aircraft. The
value of the use of corporate aircraft is calculated based on the
aggregate incremental cost to the Company, including fuel costs,
trip-related maintenance, universal weather-monitoring costs, on-board
catering, landing/ramp fees and other miscellaneous variable
costs. Fixed costs which do not change based on usage, such as
pilot salaries, the amortized costs of the company aircraft, and the cost
of maintenance not related to trips, are excluded. Amounts for
personal use of company aircraft are included in the table. The amounts
reported utilize a different valuation methodology than used for income
tax purposes, where the cost of the personal use of corporate aircraft has
been calculated using the Standard Industrial Fare Level (SIFL) tables
found in the tax regulations.
|
-26-
POTENTIAL
PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
As
described in the Compensation Discussion and Analysis section, the named
executive officers do not have employment, severance or change-in-control
agreements with the Company. In addition, any agreements, plans or
arrangements that provide for payments to a named executive officer at,
following, or in connection with any termination (including retirement) of such
named executive officer, do not discriminate in scope, terms or operation in
favor of the named executive officer, and are available generally to all
salaried employees. All options granted under the Company's
shareholder approved plans provide for the acceleration of vesting upon a change
in control.
GRANTS
OF PLAN-BASED AWARDS
|
Name
|
Grant
Date
|
Estimated
Future Payouts
Under
Non-Equity Incentive Plan Awards (1)
|
All
other
Stock Awards: Number of Shares of Stock or Units
(#)
|
All
other Option Awards: Number of Securities Under-
lying
Options
(#)
|
Exercise
or Base Price of Option Awards ($/Sh) (2)(3) |
Closing
Market
Price on the Date
of
Grant |
Grant
Date
Fair
Value
of
Stock
and
Option Awards (4) |
||
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
|||||||
|
Carl
H. Lindner III
|
02/21/2008
|
$0
|
$1,300,000
|
$2,275,000
|
-
|
75,000
|
$27.20
|
$26.94
|
$594,345
|
|
S.
Craig Lindner
|
02/21/2008
|
0
|
1,300,000
|
$2,275,000
|
-
|
75,000
|
$27.20
|
$26.94
|
594,345
|
|
Keith
A. Jensen
|
02/21/2008
|
0
|
580,000
|
725,000
|
-
|
50,000
|
$27.20
|
$26.94
|
396,230
|
|
James
E. Evans
|
02/21/2008
|
0
|
875,000
|
1,093,750
|
-
|
62,500
|
$27.20
|
$26.94
|
495,288
|
|
Thomas
E. Mischell
|
02/21/2008
|
0
|
390,000
|
487,500
|
-
|
43,750
|
$27.20
|
$26.94
|
346,701
|
|
(1)
|
These
columns show the range of payouts targeted for 2008 performance under the
2008 Annual Senior Executive Bonus Plan with respect to the Co-Chief
Executive Officers and the remaining named executive
officers. These amounts, paid in 2009, are shown in the Summary
Compensation Table in the column titled “Non-Equity Incentive Plan
Compensation” because these awards were recognized in 2008 for financial
statement reporting purposes in accordance with FAS
123R.
|
|
(2)
|
These
Employee stock options were granted pursuant to the Company’s Stock Option
Plan and become exercisable as to 20% of the shares initially granted on
the first anniversary of the date of grant, with an additional 20%
becoming exercisable on each subsequent anniversary. The
options become fully exercisable in the event of death or disability or
within one year after a change in control of the Company. More
discussion regarding the Company’s Stock Option Plan can be found in the
Compensation Discussion and Analysis section beginning on page 13 of this
proxy statement.
|
|
(3)
|
Under
the terms of the Company’s Stock Option Plan, stock options are granted at
an exercise price equal to the average of the high and low trading prices
on the date of grant.
|
|
(4)
|
This
column represents the aggregate FAS 123R values of options granted during
the year. There can be no assurance that the options will ever
be exercised (in which case no value will be realized by the executive) or
that the amount received by the executive upon exercise will equal the FAS
123R value.
|
-27-
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
Option Awards (1)
|
|||||||||
|
Name
|
Number
of
Securities Underlying Unexercised Options
Exercisable
(#)
|
Number
of
Securities Underlying Unexercised Options
Unexercisable
(#)
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option
Exercise
Price
($)
|
Option
Grant
Date
|
Option
Expiration Date
|
|||
|
Carl
H. Lindner III
|
41,131
82,500
82,500
82,500
82,500
66,000
49,500
33,000
15,000 |
|
16,500
33,000
49,500
60,000
75,000
|
|
$23.79
13.23
13.17
17.19
12.30
20.01
20.28
26.89
36.57
27.20
|
|
02/23/1999
02/18/2000
12/14/2000
02/22/2002
02/20/2003
02/27/2004
02/24/2005
02/22/2006
02/22/2007
02/21/2008
|
02/26/2009
02/21/2010
12/17/2010
02/25/2012
02/23/2013
03/02/2014
02/27/2015
02/22/2016
02/22/2017
02/21/2018
|
|
|
S.
Craig Lindner
|
41,131
82,500
82,500
82,500
82,500
66,000
49,500
33,000
15,000 |
|
16,500
33,000
49,500
60,000
75,000
|
|
$23.79
13.23
13.17
17.19
12.30
20.01
20.28
26.89
36.57
27.20
|
|
02/23/1999
02/18/2000
12/14/2000
02/22/2002
02/20/2003
02/27/2004
02/24/2005
02/22/2006
02/22/2007
02/21/2008
|
02/26/2009
02/21/2010
12/17/2010
02/25/2012
02/23/2013
03/02/2014
02/27/2015
02/22/2016
02/22/2017
02/21/2018
|
|
|
Keith
A. Jensen
|
111,100
15,200
60,000
30,525
38,004
36,001
24,000
10,000 |
|
12,000
24,000
36,000
40,000
50,000
|
|
$23.79
17.73
17.19
12.30
20.01
20.28
26.89
36.57
27.20
|
|
02/23/1999
12/31/1999
02/22/2002
02/20/2003
02/27/2004
02/24/2005
02/22/2006
02/22/2007
02/21/2008
|
02/26/2009
01/03/2010
02/25/2012
02/23/2013
02/27/2014
02/24/2015
02/22/2016
02/22/2017
02/21/2018
|
|
|
James
E. Evans
|
32,283
75,000
75,000
50,004
45,001
30,000
12,500 |
|
15,000
30,000
45,000
50,000
62,500
|
|
$13.17
17.19
12.30
20.01
20.28
26.89
36.57
27.20
|
|
12/14/2000
02/22/2002
02/20/2003
02/27/2004
02/24/2005
02/22/2006
02/22/2007
02/21/2008
|
12/17/2010
02/25/2012
02/23/2013
02/27/2014
02/24/2015
02/22/2016
02/22/2017
02/21/2018
|
|
|
Thomas
E. Mischell
|
44,909
52,500
52,500
52,500
42,000
31,501
21,000
8,750 |
|
10,500
21,000
31,500
35,000
43,750
|
|
$23.79
13.23
13.17
17.19
20.01
20.28
26.89
36.57
27.20
|
|
02/23/1999
02/18/2000
12/14/2000
02/22/2002
02/27/2004
02/24/2005
02/22/2006
02/22/2007
02/21/2008
|
02/26/2009
02/21/2010
12/17/2010
02/25/2012
02/27/2014
02/24/2015
02/22/2016
02/22/2017
02/21/2018
|
|
|
(1)
|
These
employee stock options become exercisable as to 20% of the shares
initially granted on the first anniversary of the date of grant, with an
additional 20% becoming exercisable on each subsequent
anniversary. They are generally exercisable for ten
years. The options become fully exercisable in the event of
death or disability or within one year after a change in control of the
Company.
|
-28-
OPTION
EXERCISES AND STOCK VESTED
The
table below shows the number of shares of AFG common stock acquired during 2008
upon the exercise of options. No shares were acquired in 2008 by the
named executive officers pursuant to the vesting of stock awards.
|
Option
Awards
|
||||||||
|
Name
|
Number
of Shares Acquired on Exercise (#)
|
Value
Realized on Exercise
($)
(1)
|
||||||
|
Carl
H. Lindner III
|
- | - | ||||||
|
S.
Craig Lindner
|
- | - | ||||||
|
Keith
A. Jensen
|
38,700 | 177,047 | ||||||
|
James
E. Evans
|
57,717 | 876,046 | ||||||
|
Thomas
E. Mischell
|
52,591 | 817,855 | ||||||
|
(1)
|
Amounts
reflect the difference between the exercise price of the option and the
market price at the time of
exercise.
|
-29-
NONQUALIFIED
DEFINED CONTRIBUTION AND OTHER
NONQUALIFIED
DEFERRED COMPENSATION PLANS
The
Company provides retirement benefits to named executive officers through a
combination of qualified (under the Internal Revenue Code) and nonqualified
plans. AFG makes available to certain employees, including its named
executive officers, benefits in its Nonqualified Auxiliary RASP (“Auxiliary
RASP”). The purpose of the Auxiliary RASP is to enable employees
whose contributions are limited by IRS regulations in the retirement
contribution portion of the AFG Retirement and Savings Plan to have an
additional benefit to the RASP.
The
Company also maintains a Deferred Compensation Plan pursuant to which certain
key employees of AFG and its subsidiaries may defer up to 80% of their annual
salary and/or bonus. During 2008, participants could elect to have
the value of current or prior-year deferrals (i) earn a fixed rate of interest,
set annually by the Board of Directors (5⅛% in 2008), (ii) fluctuate based on
the market value of AFG Common Stock, as adjusted to reflect stock splits,
distributions, dividends, or (iii) determined on the basis of the returns on one
or more publicly traded mutual funds. The deferral term of either a fixed
number of years or upon termination of employment must be elected at the time of
deferral. Under the plan, no federal or state income taxes are paid
on deferred compensation. Rather, such taxes will be due upon receipt at the end
of the deferral period.
The table
below discloses information on the nonqualified deferred compensation of the
named executives in 2008, including the Auxiliary RASP and the Deferred
Compensation Plan. Any amounts deferred are included in compensation
figures disclosed in the Summary Compensation Table on page 25 of this proxy
statement.
|
Name
|
Executive
contributions in
last
FY ($)
|
Registrant
contributions in
last
FY ($) (1)
|
Aggregate
earnings
in last FY ($) (2)
|
Aggregate
withdrawals / distributions ($)
|
Aggregate
balances
at last FYE ($)
|
|||||||||||||||
|
Carl
H. Lindner III
|
-
|
52,680 | (733,213 |
)
|
-
|
804,797 | ||||||||||||||
|
S.
Craig Lindner
|
-
|
52,680 | (370,405 | ) |
-
|
804,797 | ||||||||||||||
|
Keith
A. Jensen
|
830,000
|
45,662 | (132,213 | ) | (518,726 | ) | 987,290 | |||||||||||||
|
James
E. Evans
|
-
|
38,500 | (916,450 | ) | (592,997 | ) | 3,212,241 | |||||||||||||
|
Thomas
E. Mischell
|
-
|
38,500 | (316,189 | ) | (137,299 | ) | 1,418,635 | |||||||||||||
|
(1)
|
Represents
Company contributions credited to participants’ Auxiliary RASP
accounts which are included in All Other Compensation in the Summary
Compensation Table on page 25, and includes, with respect to each of
Messrs. Lindner, $14,180; and Mr. Jensen $7,162, of preferential earnings
or above market earnings on deferred compensation which is reported under
Change in Pension Value and Nonqualified Deferred Compensation Earnings in
that table.
|
|
(2)
|
Earnings
are calculated by reference to actual earnings or losses of mutual funds
and securities, including Company common stock, held by the
plans.
|
-30-
DIRECTOR
COMPENSATION
In early
2004, the Board of Directors adopted the Company's Non-Employee Director
Compensation Plan, which was then approved at the 2004 annual meeting of
shareholders. The Plan was amended by the Board of Directors in 2007
to increase certain of the fees payable thereunder.
During
2008, under the Plan, all directors who were not officers or employees of the
Company were paid the following fees: an annual board retainer of $40,000 and
$1,750 per each board meeting attended. The Audit Committee Chairman
received an additional $20,000 retainer. Other committee Chairmen
received an additional $12,000 annual retainer. The members (non-chairman)
received an additional $6,000 annual retainer for each committee
served. All committee members received $1,250 for each meeting
attended. Non-employee directors who become directors during the year
receive a pro rata portion of these annual retainers. In addition,
non-employee directors receive an annual award of stock. In 2008,
this award was $85,000.
Compensation
earned for director service in 2008 is set forth in the following
table. Other than the restricted stock grants, all amounts were paid
in cash.
|
Name
|
Fees
Earned
or
Paid in
Cash
($)
(1)
|
Stock
Awards
($)
(3)
|
Option
Awards
($)
(4)
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
|
All
Other Compensation
($)
(5)
|
Total
($)
|
||||||||||||||||||
|
Carl
H. Lindner
|
130,000 | (2) | - |
-
|
-
|
624,208
|
754,208 | |||||||||||||||||
|
Kenneth
C. Ambrecht
|
89,500 | 93,146 |
-
|
-
|
-
|
182,646 | ||||||||||||||||||
|
Theodore
H. Emmerich
|
98,250 | 93,146 |
-
|
-
|
-
|
191,396 | ||||||||||||||||||
|
Terry
S. Jacobs
|
103,750 | 93,146 |
-
|
-
|
-
|
196,896 | ||||||||||||||||||
|
Gregory
G. Joseph
|
35,750 | 93,146 |
-
|
-
|
-
|
128,896 | ||||||||||||||||||
|
William
W. Verity
|
106,750 | 93,146 |
-
|
-
|
-
|
199,896 | ||||||||||||||||||
|
John
I. Von Lehman
|
8,750 | - |
-
|
-
|
-
|
8,750 | ||||||||||||||||||
|
(1)
|
Includes
the total amounts paid for service as a director of any subsidiaries of
the Company as follows: Mr. Emmerich - $7,250; Mr. Jacobs - $7,250; and
Mr. Verity - $13,000.
|
|
(2)
|
In
January 2005, Carl H. Lindner stepped down as Chief Executive Officer of
the Company, but remained the non-executive Chairman of the
Board. Mr. Lindner has requested that his annual salary be no
more than the compensation paid to the Company’s independent
directors. In 2005, the Compensation Committee set his
annualized salary at $130,000, which has not changed through
2008. The Audit Committee annually reviews this salary and all
other compensation and perquisites received by him. The Audit
Committee has determined that the total compensation and benefits paid to
Mr. Lindner are appropriate in recognition of Mr. Lindner’s many
contributions to the Company’s success since the founding of its
predecessor in 1955.
|
|
(3)
|
Calculated
as the compensation cost for financial statement reporting purposes with
respect to the annual stock grant under the Company’s Non-Employee
Director Compensation Plan. The following table of
AFG common stock held includes the aggregate stock awards held by each
non-executive director as of December 31,
2008:
|
|
Director
Name
|
Aggregate
Shares of
Common
Stock Held
|
|||
|
Carl
H. Lindner
|
7,613,866 | |||
|
Kenneth
C. Ambrecht
|
10,495 | |||
|
Theodore
H. Emmerich
|
39,236 | |||
|
Terry
S. Jacobs
|
7,198 | |||
|
Gregory
G. Joseph
|
69,599 | |||
|
William
W. Verity
|
16,808 | |||
|
John
I. Von Lehman
|
-
|
|||
-31-
|
(4)
|
|
The
following table sets forth the aggregate option awards held by each
non-executive director as of December 31,
2008:
|
|
Director
Name
|
Aggregate
Stock
Options
Held
|
|||
|
Carl
H. Lindner
|
- | |||
|
Kenneth
C. Ambrecht
|
- | |||
|
Theodore
H. Emmerich
|
14,250 | |||
|
Terry
S. Jacobs
|
- | |||
|
Gregory
G. Joseph
|
- | |||
|
William
W. Verity
|
11,250 | |||
|
John
I. Von Lehman
|
-
|
|||
|
(5)
|
Amount
includes the following: aircraft usage, $134,785; automobile related
expenses, $48,000; security, $71,615; meals and entertainment, $50,000;
insurance (auto/home), $176,675; administrative/secretarial services,
$134,820; and annual RASP contribution, group life insurance, and club
dues. The value of the use of corporate aircraft is calculated
based on the aggregate incremental cost to the Company, including fuel
costs, trip-related maintenance, universal weather-monitoring costs,
on-board catering, landing/ramp fees and other miscellaneous variable
costs. Fixed costs which do not change based on usage, such as
pilot salaries, the amortized costs of the company aircraft, and the cost
of maintenance not related to trips, are excluded.
|
Director Stock Ownership
Guidelines
The Plan
also sets forth stock ownership guidelines for the non-employee
directors. Specifically, within three years after a non-employee
director receives the first restricted stock award under the Plan, such
non-employee director, as a consideration in the determination of his or her
future service to AFG's Board of Directors, is required to beneficially own a
minimum number of shares of AFG common stock, the value of which shall be equal
to six times the then-current annual board retainer.
Board Retirement
Program
Until
2003, the Board of Directors had a program under which a retiring non-employee
director, who is at least 55 years old and has served as a director for at least
four years, would receive upon retirement an amount equal to five times the then
current annual board retainer. In 2003, the Board of Directors
terminated the plan, except as it applied to those directors then eligible,
including Mr. Emmerich. In early 2006, the Company terminated the plan
entirely.
RELATED
PERSON TRANSACTIONS
From time
to time, the Company has transacted business with affiliates. The
financial terms of these transactions are comparable to those which would apply
to unrelated parties. Other than as described below, there were no
such transactions requiring disclosure under applicable rules.
A
subsidiary of the Company involved in real estate management and development
activities has employed a son of one of the Co-Chief Executive Officers since
2004. During 2008, he was paid an aggregate of $133,350 for services
to that subsidiary.
Certain
stock exchange rules require the Company to conduct an appropriate review of all
related party transactions (including those required to be disclosed by the
Company pursuant to SEC Regulation S-K Item 404) for potential conflict of
interest situations on an ongoing basis and that all such transactions must be
approved by the Audit Committee or another committee comprised of independent
directors. As a result, the Audit Committee annually reviews all such
related party transactions and approves such related party transactions only if
it determines that it is in the best interests of the Company. In
considering the transaction, the Committee may consider all relevant factors,
including as applicable (i) the Company’s business rationale for entering into
the transaction; (ii) the alternatives to entering into a related person
transaction; (iii) whether the transaction is on terms comparable to those
available to third parties, or in the case of employment relationships, to
employees generally; (iv) the potential for the transaction to lead to an actual
or apparent conflict of interest and any safeguards imposed to prevent such
actual or apparent conflicts; and (v) the overall fairness of the transaction to
the Company.
-32-
While
the Company adheres to this policy for potential related person transactions,
the policy is not in written form (other than as a part of listing agreements
with stock exchanges). However, approval of such related person
transactions is evidenced by Audit Committee resolutions in accordance with our
practice of approving transactions in this manner.
COMMITTEES
AND MEETINGS OF THE BOARD OF DIRECTORS
The
Company's Board of Directors held ten meetings in 2008. The Board has
an Audit Committee, a Compensation Committee, and a Corporate Governance
Committee. The charters for each of these Committees as well as the
Company's Corporate Governance Guidelines are available at www.afginc.com and
upon written request to the Company's Secretary, the address of whom is set
forth under “Communications with Directors” on page 37 of this proxy
statement.
Compensation Committee: The
Compensation Committee acts on behalf of the Board of Directors and by extension
the shareholders to monitor adherence to the Company's compensation
philosophy. The Committee ensures that the total compensation paid to
the named executive officers is fair, reasonable and competitive.
The
Compensation Committee also acts as the oversight committee with respect to the
Company’s deferred compensation plans, stock incentive plans, and bonus plans
covering senior executive officers. In overseeing those plans, the
Committee may delegate authority for day-to-day administration and
interpretation of the plan, including selection of participants, determination
of award levels within plan parameters, and approval of award documents, to
officers of the Company. However, the Committee may not delegate any
authority under those plans for matters affecting the compensation and benefits
of the Company’s Co-Chief Executive Officers.
The
Compensation Committee consulted among themselves and with management throughout
the year, and met nine times in 2008. The primary processes for
establishing and overseeing executive compensation can be found in the
Compensation Discussion and Analysis section beginning on page 13 of this proxy
statement.
Compensation
Committee Interlocks and Insider Participation
None of
the members of AFG’s Compensation Committee:
|
|
·
|
was
an officer or employee of the Company during the last fiscal year (Mr.
Jacobs served the Company’s predecessor as an officer; such service ended
in 1980);
|
|
|
·
|
is
or was a participant in any "related person" transaction in 2008 (see the
section titled “Related Person Transactions” in this proxy statement for a
description of our policy on related person
transactions)
|
|
|
·
|
is
an executive officer of another entity, at which one of our executive
officers serves on the board of directors. No named executive officer of
the Company serves as a director or as a member of a committee of any
company of which any of the Company's non-employee directors are executive
officers.
|
Audit Committee: The Audit
Committee met 11 times in 2008. The Company's Board has determined
that of the Audit Committee's members, Theodore H. Emmerich, Terry S. Jacobs,
and John I. Von Lehman are each considered to be an audit committee financial
expert as defined under SEC Regulation S-K Item 407(d). Each of
Messrs. Emmerich, Jacobs, Joseph and Von Lehman satisfies the NYSE and
NASDAQ independence standards. The Audit Committee Report is
presented on page 34 of this proxy statement.
Corporate Governance
Committee: The Corporate
Governance Committee met seven times in 2008. The Governance
Committee is responsible for, among other things, establishing criteria for
selecting new directors, identifying individuals qualified to be Board members
as
-33-
needed,
and recommending to the Board director nominees for the next annual meeting of
shareholders. The Committee is comprised of members who are “independent” as
defined under NYSE and NASDAQ listing standards. Information regarding the consideration by the
Governance Committee of any director candidates recommended by shareholders can
be found in the Nominations and Shareholder Proposals section on page 36 of this
proxy statement.
The
charters of the Board Committees are available at the Company’s website,
www.AFGinc.com.
Director
Attendance Policy
AFG
expects its directors to attend meetings of shareholders. All of
AFG’s directors attended last year’s meeting other than Mr. Von Lehman, who did
not join the Board until August, 2008.
Executive
Sessions
NYSE and
NASDAQ rules require non-management directors to meet regularly in executive
sessions. Five of these sessions were held during
2008. The non-management directors select one of such directors to
preside over each session. Shareholders and other interested parties
may communicate with any of the non-management directors, individually or as a
group, by following the procedures set forth on page 37 of this proxy
statement.
Audit
Committee Report
The
Audit Committee is comprised of four directors (since August 2008; it was
composed of three directors before Mr. Von Lehman was added to the Board and
Audit Committee), each of whom is experienced with financial statements and has
past accounting or related financial management experience. Each of
the members of the Audit Committee is independent as defined by the NYSE and
NASDAQ listing standards. The Board has determined that three of the
four members of the Audit Committee is an “audit committee financial expert” as
defined in Securities and Exchange Commission regulations.
The primary function of the Audit
Committee is to assist the Board in fulfilling its oversight responsibilities by
reviewing the financial information which will be provided to shareholders and
others, the systems of internal control which management has established and the
audit process. The members of the Committee are Theodore H. Emmerich
(Chairman), Terry S. Jacobs, Gregory G. Joseph and John I. Von
Lehman.
Management is responsible for the
Company’s internal controls and the financial reporting process. The
independent accountants are responsible for performing an independent audit of
the Company’s consolidated financial statements in accordance with generally
accepted auditing standards and issuing a report thereon. The
Committee’s responsibility is to monitor and oversee these
processes. Additionally, the Audit Committee engages the Company’s
independent accountants who report directly to the Committee.
The Committee has met and held
discussions with management and the independent
accountants. Management represented to the Committee that the
Company’s audited consolidated financial statements were prepared in accordance
with generally accepted accounting principles, and the Committee has reviewed
and discussed the audited consolidated financial statements with management and
the independent accountants. The Committee discussed with the
independent accountants the matters required to be discussed by the statement on
Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU
Section 380), as adopted by the Public Company Accounting Oversight Board in
Rule 3200 T.
The Company’s independent accountants
also provided to the Committee the written disclosures and the letter pursuant
to applicable requirements of the Public Company Accounting Oversight Board
regarding the independent accountant's communications with the Committee
concerning independence and the
Committee discussed with the independent accountants that firm’s
independence. As part of its discussions, the Committee determined
that Ernst & Young LLP was independent of AFG.
-34-
Based on the Committee’s discussions
with management and the independent accountants and the Committee’s review of
the representation of management and the report of the independent accountants
to the Committee, the Committee recommended that the audited consolidated
financial statements be included in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2008 filed with the Securities and Exchange
Commission.
|
Members
of the Audit Committee
|
Theodore
H. Emmerich,
Chairman
|
|
Terry
S. Jacobs
|
|
|
Gregory
G. Joseph
|
|
|
John
I. Von Lehman
|
Audit
Committee Pre-Approval Policies
The Audit
Committee has adopted policies that require its approval for any audit and
non-audit services to be provided to AFG by Ernst & Young LLP. The
Audit Committee delegated authority to the Committee Chairman to approve certain
non-audit services. Pursuant to these procedures and delegation of authority,
the Audit Committee was informed of and approved all of the audit and other
services described above. No services were provided with respect to the de
minimus waiver process provided by rules of the Securities and Exchange
Commission.
Independence
Determinations
In
accordance with NYSE and NASDAQ rules, the Board affirmatively determines the
independence of each director and nominee for election as a director in
accordance with guidelines it has adopted, which guidelines comply with the
listing standards set forth by the NYSE and NASDAQ. The Company's
director qualification standards are available on the Company's website at
www.afginc.com. Where the NYSE and NASDAQ rules on director
independence conflict, the Company’s Standards reflect the applicable rule which
is more stringent to the director and the Company. Based on these
standards, at its meeting held on May 15, 2008, the Board determined that each
of the following non-employee directors, namely Messrs. Ambrecht, Emmerich,
Jacobs, Joseph and Verity is independent and has no relationship with the
Company, except as a director and shareholder of the Company. The
same determination was made as to Mr. Von Lehman when he was first appointed to
the Board in August 2008, and such determination was made as to Messrs.
Ambrecht, Emmerich, Jacobs, Joseph, Verity and Von Lehman at a meeting of the
Board of Directors on February 12, 2009.
Mr.
Ambrecht was a Managing Director with First Albany Capital from July 2004 until
December 2005. For more than five years prior to that, Mr. Ambrecht
was a Managing Director with Royal Bank Canada Capital Markets. From
time to time, the Company has purchased or sold securities through these
companies in the ordinary course of business, for which it paid customary
commissions. The Company has acquired vehicles from, and had vehicles serviced
by, automobile dealerships affiliated with a company of which Mr. Joseph is an
executive and part owner. The amounts involved in these transactions
were deemed by AFG’s Board of Directors not to be material.
-35-
NOMINATIONS
AND SHAREHOLDER PROPOSALS
In
accordance with the Company's Amended and Restated Code of Regulations (the
"Regulations"), the only candidates eligible for election at a meeting of
shareholders are candidates nominated by or at the direction of the Board of
Directors and candidates nominated at the meeting by a shareholder who has
complied with the procedures set forth in the Regulations. Shareholders will be
afforded a reasonable opportunity at the meeting to nominate candidates for the
office of director. However, the Regulations require that a shareholder wishing
to nominate a director candidate must have first given the Secretary of the
Company at least ninety and not more than one hundred twenty days prior written
notice setting forth or accompanied by (1) certain disclosures about the
proposed nominee, including biographical, stock ownership and investment intent
information and all other information about the proposed nominee that is
required in the solicitation of proxies in an election contest or otherwise
required pursuant to Regulation 14A under the Securities Exchange Act of 1934,
(2) certain disclosures regarding the shareholder giving the notice and
specified persons associated with such shareholder, including biographical and
stock ownership information for and any hedging activity or other similar
arrangements entered into by such persons, (3) verification of the accuracy or
completeness of any information contained in the nomination at the Company's
request, (4) a statement that a nomination that is inaccurate or incomplete in
any manner shall be disregarded, (5) a representation that the shareholder was a
holder of record of the Company's voting stock and intended to appear, in person
or by proxy, at the meeting to nominate the persons specified in the notice, and
(6) the consent of each such nominee to serve as director if so
elected. Directors nominated through this process will be considered
by the Corporate Governance Committee.
The proxy
card used by AFG for the annual meeting typically grants authority to management
to vote in its discretion on any matters that come before the meeting as to
which adequate notice has not been received. In order for a notice to
be deemed adequate for the 2010 annual meeting, it must be received by February
17, 2010. In order for a proposal to be considered for inclusion in
AFG's proxy statement for that meeting, it must be received by December 4,
2009. Our Regulations, as they may be amended from time to time, may
contain additional requirements for matters to be properly presented at annual
meetings of shareholders.
The
Corporate Governance Committee does not have a policy with regard to the
consideration of director candidates recommended by shareholders because Ohio
law and the Regulations afford shareholders certain rights related to such
matters. Nominees for directorship will be recommended by the
Governance Committee in accordance with the principles in its charter and the
Corporate Governance Guidelines also on AFG's website. When
considering an individual candidate’s suitability for the Board, the Corporate
Governance Committee will evaluate each individual on a case-by-case basis.
Although the Committee does not prescribe minimum qualifications or standards
for directors, candidates for Board membership should have the highest personal
and professional integrity, demonstrated exceptional ability and judgment,
and availability and willingness to take the time necessary to properly
discharge the duties of a director. The Committee will make its
determinations on whether to nominate an individual based on the Board’s
then-current needs, the merits of each such candidate and the qualifications of
other available candidates. The Committee will have no obligation to respond to
shareholders who propose candidates that it has determined not to nominate for
election to the Board, but the Committee may do so in its sole
discretion. All director candidates are evaluated similarly, whether
nominated by the Board or by a shareholder.
The
Corporate Governance Committee did not seek, nor did it receive the
recommendation of any of the director candidates named in this proxy statement
from any shareholder, non-management director, executive officer or third-party
search firm in connection with its own approval of such
candidates. The Company has not paid any fee to a third party to
assist it in identifying or evaluating nominees.
-36-
COMMUNICATIONS
WITH DIRECTORS
The Board
of Directors has adopted procedures for shareholders to send written
communications to the Board as a group. Such communications must be clearly
addressed either to the Board of Directors or any or all of the non-management
directors, and sent to either of the following, who will forward any
communications so received:
|
James
C. Kennedy
Vice
President, Deputy General
Counsel
& Secretary
American
Financial Group, Inc.
One
East Fourth Street
Cincinnati,
Ohio 45202
|
Theodore
H. Emmerich
Chairman
of the Audit Committee
American
Financial Group, Inc.
One
East Fourth Street
Cincinnati,
Ohio 45202
|
CODE
OF ETHICS
The
Company's Board of Directors adopted a Code of Ethics applicable to the
Company's directors, officers and employees. The Code of Ethics is
available at www.afginc.com and upon written request to the Company's Secretary,
the address of whom is set forth immediately above. The Company
intends to disclose amendments and any waivers to the Code of Ethics on its
website within four business days after such amendment or waiver.
-37-
Annex
A
ANNUAL
CO-CEO EQUITY BONUS PLAN
ADOPTED
ON FEBRUARY 20, 2009
1.
PURPOSE
The purpose of the Annual Co-CEO Equity
Bonus Plan (the “Plan”) is to further the profitability of American Financial
Group, Inc. (the “Company”) to the benefit of the shareholders of the Company by
promoting extraordinary levels of corporate performance and by incentivizing the
Co-Chief Executive Officers of the Company through the potential for
performance-based compensation as a component of a Plan participant’s annual
compensation.
2.
ADMINISTRATION
Except as otherwise expressly provided
herein, the Plan shall be administered by the Compensation Committee or a
successor committee or subcommittee (the “Committee”) of the Board of Directors
of the Company (the “Board”) composed solely of two or more “outside directors”
as defined pursuant to Section 162(m) of the Internal Revenue
Code. No member of the Committee while serving as such shall be
eligible to be granted a bonus under the Plan. Subject to the
provisions of the Plan (and to the approval of the Board where specified in the
Plan), the Committee shall have exclusive power to determine the conditions
(including performance requirements) to which the payment of the bonuses may be
subject and to certify that performance goals are attained. Subject
to the provisions of the Plan, the Committee shall have the authority to
interpret the Plan and establish, adopt or revise such rules and regulations and
to make all determinations relating to the Plan as it may deem necessary or
advisable for the administration of the Plan. The Committee’s
interpretation of the Plan and all of its actions and decisions with respect to
the Plan shall be final, binding and conclusive on all parties.
3.
PLAN TERM AND BONUS YEARS
The term of the Plan is one year,
commencing January 1, 2009, which term shall be renewed from year to year unless
and until the Plan shall be terminated or suspended as provided in Section
14. As used in the Plan the term “Bonus Year” shall mean a calendar
year.
4.
PARTICIPATION
Subject to the approval of the
Committee, each of the Company’s Co-Chief Executive Officers shall participate
in the Plan (the “Participants”).
5.
SHARES SUBJECT TO PLAN
The number of shares of Common Stock of
the Company (“Shares”) which may be issued under this Plan shall not exceed Two
Million (2,000,000) Shares. Shares issued under the Plan shall be
authorized but unissued Shares. If there shall occur any change with
respect to the outstanding Shares by reason of any recapitalization,
reclassification, stock dividend, extraordinary dividend, stock
split,
A-1
Annex
A
reverse
stock split or other distribution with respect to the Shares, or any merger,
reorganization, consolidation, combination, spin-off or other similar corporate
change, or any other change affecting the Common Stock, the Committee may, in
the manner and to the extent that it deems appropriate and equitable to the
Participants and consistent with the terms of the Plan, cause an adjustment to
be made in the maximum number and kind of Shares provided in this Section
5.
6.
ESTABLISHMENT OF INDIVIDUAL BONUS TARGETS AND PERFORMANCE CRITERIA
The Committee shall approve the
individual amount of bonus (the “Bonus Amount”) that may be awarded to each
Participant. In no event shall the establishment of any Participant’s
Bonus Amount give a Participant any right to be paid all or any part of such
amount unless and until a bonus is actually awarded pursuant to Section
7.
The Committee shall establish the
objective performance criteria (the “Performance Criteria”) that will apply to
the determination of the Bonus Amount for each Participant for that Bonus
Year. The Bonus Amount and Performance Criteria shall be set forth on
a Schedule or Schedules attached to this Plan and shall be approved by the
Committee.
7.
DETERMINATION OF BONUSES AND TIME OF PAYMENT
The Committee intends to review the
Performance Criteria periodically with the Co-Chief Executive Officers in
connection with the discussion of management’s progress in addressing corporate
plans, results, and opportunities in the context of new economic and business
developments.
As soon as practicable after the end of
each calendar year during the term of the Plan, the Committee shall determine
whether or not the Performance Criteria of each Participant have been attained
and shall determine the Bonus Amount, if any, to be awarded to each Participant
for such year according to the terms of this Plan. Such Bonus Amount
determinations shall be based on achievement of the Performance Criteria for
such year.
8.
VALUATION OF SHARES
Once the Bonus Amount is determined for
each Participant pursuant to Section 7, it shall be paid in
Shares. The calculation and payment, if any, shall take place by the
March 31st following any Plan year. For the purpose of determining
the number of Shares to be awarded under this Plan, the value of a Share shall
be calculated by (i) taking the average high and low prices of a Share for each
the ten trading days immediately prior to and including the date of grant; then
(ii) taking the sum of these ten averages; and (iii) dividing that number by
ten.
9.
RIGHTS OF SHAREHOLDER
Upon the issuance of the Shares under
this Plan, the Participant shall have all rights of a Shareholder with respect
to the Shares, including the right to vote the Shares and receive all dividends
and other distributions paid or made with respect thereto.
10. TERMINATION
OF EMPLOYMENT
If a Participant’s employment with the
Company or a subsidiary, as the case may be, is terminated for any reason other
than discharge for “cause,” he may be entitled to such bonus, if any, as the
Committee, in its sole discretion, may determine. For purposes of the
Plan, “cause” shall mean: (i) a Participant’s failure or refusal to materially
perform his duties; (ii) a Participant’s failure or refusal to follow material
directions of the Board or any other act of material insubordination on the part
a Participant; (iii) the commission by a Participant of an act of fraud or
embezzlement against the Company; or (iv) any conviction of, or plea of guilty
or nolo contendere to, a felony by a Participant.
A-2
Annex
A
In the event of a Participant’s
discharge for cause from the employment of the Company or a subsidiary, as the
case may be, he shall not be entitled to any of the Bonus Amount unless the
Committee, in its sole discretion, determines otherwise.
11. RECOUPMENT
BY THE COMPANY
In the event of an accounting
restatement by the Company, the Board shall have discretion to review Bonus
Amounts paid to such Participants, and where the Board determines that a
Participant’s fraud or misconduct caused the restatement, the Board may
authorize the Company to recoup such Bonus Amounts to the extent that the
performance targets on which they were based would not have been met under the
restated results.
12. COMPLIANCE
WITH SECTION 409A OF THE CODE
It is intended that this Plan shall
either be exempt from the application of, or comply with, the requirements of
Section 409A of the Code. This Plan shall be construed, administered,
and governed in a manner that reflects such intent, and the Committee shall not
take any action that would be inconsistent with such intent. Without
limiting the foregoing, the Shares shall not be deferred, accelerated, extended,
paid out, settled, adjusted, substituted, exchanged or modified in a manner that
would cause the award to fail to satisfy the conditions of an applicable
exception from the requirements of Section 409A of the Code or otherwise would
subject the Grantee to the additional tax imposed under Section 409A of the
Code. The amounts payable pursuant to this Agreement are intended to
be separate payments that qualify for the "short-term deferral" exception to
Section 409A of the Code to the maximum extent possible.
13. MISCELLANEOUS
A. Government
and Other Regulations. The obligation of the Company to make payment
of bonuses shall be subject to all applicable laws, rules and regulations and to
such approvals by governmental agencies as may be required.
B. Tax
Withholding. The Company or a subsidiary, as appropriate, shall have
the right to deduct from all bonuses paid any federal, state or local taxes
required by law to be withheld with respect to such payments.
C. Claim
to Bonuses and Employment Rights. Neither this Plan nor any action
taken hereunder shall be construed as giving any Participant any right to be
retained in the employ of the Company or a subsidiary.
D. Beneficiaries. Any
bonuses awarded under this Plan to a Participant who dies prior to payment shall
be paid to the beneficiary designated by the Participant on a form filed with
the Company. If no such beneficiary has been designated or survives
the Participant, payment shall be made to the Participant’s legal
representative. A beneficiary designation may be changed or revoked
by a Participant at any time provided the change or revocation is filed with the
Company.
E. Nontransferability. A
person’s rights and interests under the Plan may not be assigned, pledged or
transferred except, in the event of a Participant’s death, to his designated
beneficiary as provided in the Plan or, in the absence of such designation, by
will or the laws of descent and distribution.
A-3
Annex
A
F. Indemnification. Each
person who is or shall have been a member of the Committee or of the Board shall
be indemnified and held harmless by the Company (to the extent permitted by the
Articles of Incorporation and Code of Regulations of the Company and applicable
law) against and from any loss, cost, liability or expense that may be imposed
upon or reasonably incurred by him in connection with or resulting from any
claim, action, suit or proceeding to which he may be a party or in which they
may be involved by reason of any action taken or failure to act under the Plan
and against and from any and all amounts paid by him in settlement thereof, with
the Company’s approval, or paid by him, in satisfaction of judgment in any such
action, suit or proceeding against him. He shall give the Company an
opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing
right of indemnification shall not be exclusive of any other rights of
indemnification to which such person may be entitled under the Company’s
Articles of Incorporation or Code of Regulations, as a matter of law or
otherwise or of any power that the Company may have to indemnify him or hold him
harmless.
G. Reliance
on Reports. Each member of the Committee and each member of the Board
shall be fully justified in relying or acting in good faith upon any report made
by the independent certified public accountants of the Company or of its
Subsidiaries or upon any other information furnished in connection with the Plan
by any officer, director or employee of the Company or any of its
Subsidiaries. In no event shall any person who is or shall have been
a member of the Committee or of the Board be liable for any determination made
or other action taken or any omission to act in reliance upon any such report or
information or for any action taken, including the furnishing of information, or
failure to act, if in good faith.
H. Expenses. The
expenses of administering the Plan shall be borne by the Company and its
subsidiaries in such proportions as shall be agreed upon by them from time to
time.
I. Pronouns. Masculine
pronouns and other words of masculine gender shall refer to both men and
women.
J. Titles
and Headings. The titles and headings of the sections in the Plan are
for convenience of reference only, and, in the event of any conflict between any
such title or heading and the text of the Plan, such text shall
control.
K. Shareholder
Approval. This Plan shall become effective following its adoption by
the Board of Directors and its approval by the Company’s shareholders on the
date of the 2009 Annual Meeting of Shareholders.
14. AMENDMENT
AND TERMINATION
The Board
may at any time terminate the Plan. Other than modifying the number
of Shares to be issued under the Plan, the Board may at any time, or from time
to time, amend or suspend and, if suspended, reinstate the Plan in whole or in
part. Notwithstanding the foregoing, the Plan shall continue in
effect to the extent necessary to settle all matters relating to the payment of
bonuses awarded prior to any such termination or suspension.
A-4
One East Fourth Street
Cincinnati, Ohio 45202
|
AMERICAN
FINANCIAL GROUP, INC.
ATTN:
SUITE 919
ONE
EAST FOURTH STREET
CINCINNATI,
OH 45202
|
VOTE
BY INTERNET - www.proxyvote.com
Use
the Internet to transmit your voting instructions and for electronic
delivery of
information up until 11:59 P.M. Eastern Time either on (i) May 11, 2009
for shares
in employee benefit plans, or (ii) May 13, 2009 for all other shares. Have
your
proxy card in hand when you access the web site and follow the
instructions to
obtain your records and to create an electronic voting instruction
form.
ELECTRONIC
DELIVERY OF FUTURE PROXY MATERIALS
If
you would like to reduce the costs incurred by our company in mailing
proxy materials,
you can consent to receiving all future proxy statements, proxy cards
and
annual reports electronically via e-mail or the Internet. To sign up for
electronic
delivery, please follow the instructions above to vote using the
Internet
and, when prompted, indicate that you agree to receive or access
proxy
materials electronically in future years.
VOTE
BY PHONE - 1-800-690-6903
Use
any touch-tone telephone to transmit your voting instructions up until
11:59 P.M.
Eastern Time either on (i) May 11, 2009 for shares in employee benefit
plans,
or (ii) May 13, 2009 for all other shares. Have your proxy card in hand
when
you call and then follow the instructions.
VOTE
BY MAIL
Mark,
sign and date your proxy card and return it in the postage-paid envelope
we
have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes
Way,
Edgewood, NY 11717.
|
TO VOTE,
MARK BLOCKS BELOW IN BLUE OR BLACK INK AS
FOLLOWS:
AFGRP1
KEEP THIS
PORTION FOR YOUR RECORDS
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DETACH AND
RETURN THIS PORTION ONLY
THIS
PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
|
AMERICAN
FINANCIAL GROUP, INC.
|
For
All
|
Withhold
All
|
For
All
Except
|
To
withhold authority to vote for any individual nominee(s), mark “For
All Except” and write the number(s) of the nominee(s) on the
line below.
|
|
|
The
Board of Directors recommends a vote FOR the following
Nominees:
Vote
On Directors
1. Proposal
to Elect Directors
Nominees:
01) Carl H.
Lindner
06) James E. Evans
02) Carl H.
Lindner III
07) Terry S. Jacobs
03) S. Craig
Lindner
08) Gregory G. Joseph
04) Kenneth
C. Ambrecht 09) William W.
Verity
05) Theodore
H. Emmerich 10) John I. Von Lehman
|
0
|
0
|
0
|
_______________________________
|
|
Vote
on Proposals
The
Board of Directors Recommends a vote FOR the following
Proposal:
|
For
|
Against
|
Abstain
|
|
2. Proposal
to ratify the Audit Committee’s appointment of Ernst & Young LLP as
the
Company’s
Independent Public Accountants for 2009.
|
□
|
□
|
□
|
|
The
Board of Directors Recommends a vote FOR the following
Proposal:
|
|||
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3. Proposal
to Approve the Annual Co-CEO Equity Bonus Plan
|
□
|
□
|
□
|
For
address changes and/or comments, please check this box and □
write
them on the back where indicated.
Please
indicate if you plan to attend this meeting. □
□
Yes No
|
|
Signature
[PLEASE SIGN WITHIN BLOCK]
Date Signature
(Joint
Owners) Date
Important
Notice Regarding Internet Availability of Proxy Materials for the Annual
Meeting:
The
Notice and Proxy Statement, Annual Report and Form 10-K are available at www.proxyvote.com.
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_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
AFGRP2
AMERICAN
FINANCIAL GROUP, INC.
Proxy
for Annual Meeting
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned hereby appoints Karl J. Grafe and James C. Kennedy, and either of
them, attorneys and proxies, with the power of substitution to each, to vote all
shares of Common Stock of the Company that the undersigned may be entitled to
vote at the Annual Meeting of Shareholders of the Company to be held May 14,
2009 at 11:30 A.M., on the matters set forth on the reverse side (and at their
discretion to cumulate votes in the election of directors if cumulative voting
is invoked by a shareholder through proper
notice to the Company), and on such other matters as may properly come before
the meeting or any postponement or adjournment thereof.
Address
Changes/Comments:__________________________________________________________
_________________________________________________________________________________
(if you
noted any Address Changes/Comments above, please mark corresponding box on the
reverse side.)