UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.              )

March 30, 2007

Dear Share Owners:

It is my pleasure to invite you to Protective’s annual meeting of share owners. We will hold the meeting at our home office on Monday, May 7, 2007 at 10:00 a.m., Central Time. The address for the meeting is the Protective Center, 2801 Highway 280 South, Birmingham, Alabama 35223. At this meeting, we will consider the matters described in the proxy statement and review the major developments since our last share owners’ meeting.

This booklet includes the notice of annual meeting and our proxy statement. The proxy statement describes the business that we will conduct at the meeting and provides information about Protective. Our 2006 Annual Report to Share Owners is also enclosed.

Your vote is important to us, no matter how many shares you own. You may vote on the Internet, by telephone or by using a traditional proxy card. If you attend the meeting and prefer to vote in person, you may do so even if you have previously voted your proxy.

We look forward to your participation.

NOTICE OF 2007 ANNUAL MEETING OF SHARE OWNERS

Dear Share Owners:

At the annual meeting, we will ask you to:

·       Elect 12 directors,

·       Ratify the appointment of PricewaterhouseCoopers LLP as our independent accountants,

·       Approve our Annual Incentive Plan, and

·       Transact any other business that may be properly presented at the meeting.

You may vote at the annual meeting if you were a share owner of record at the close of business on March 9, 2007.

The annual meeting may be postponed by an announcement at the meeting, and reconvened at a later time. Any business for which this notice is given may be transacted at the subsequent meeting.

March 30, 2007

TABLE OF CONTENTS

PROXY STATEMENT

The Board of Directors is soliciting proxies to be used at our annual meeting of share owners. We will hold the annual meeting on Monday, May 7, 2007, beginning at 10:00 a.m., Central Time, at our home office at 2801 Highway 280 South, Birmingham, Alabama 35223. This proxy statement and the

enclosed form of proxy are being mailed to our share owners beginning on or about March 30, 2007.

“We,” “our,” “us” and “Protective” each refers to Protective Life Corporation. “You” and “your” each refers to our share owners.

ABOUT THE ANNUAL MEETING

What is a proxy?

A proxy is another person whom you designate to vote your stock. If you designate someone as your proxy in a written document, that document is called a proxy or a proxy card.

What is a proxy statement?

A proxy statement is a document that the Securities and Exchange Commission (“SEC”) requires us to give to you when we ask you to sign a proxy card to vote your stock at the annual meeting.

What is the purpose of the annual meeting?

At our annual meeting, share owners will act upon the proposals outlined in the notice of meeting. Also, our management will report on our performance during the last fiscal year and respond to appropriate questions from share owners.

What is the record date and what does it mean?

The record date for the annual meeting is March 9, 2007. Our Board of Directors establishes the record date. Holders of common stock at the close of business on the record date are entitled to receive notice of, and to vote at, the meeting.

How many shares are entitled to vote at the annual meeting?

On March 9, 2007, 70,056,891 shares of common stock were outstanding and entitled to vote at the meeting. Each share of common stock is entitled to one vote on each proposal.

What happens if the meeting is postponed or adjourned?

The meeting may be postponed or adjourned by an announcement at the meeting. If this happens, the proxies may vote your shares at the subsequent meeting as well, unless you have revoked your voting instructions.

What constitutes a quorum at the meeting?

The holders of a majority of the outstanding shares of common stock, present in person or represented by proxy at the meeting, will constitute a quorum for transacting business. Abstentions count as “shares present” for determining whether a quorum exists.

What is the difference between a share owner of record and a “street name” holder?

If your shares are registered directly in your name with The Bank of New York, our stock transfer agent, you are considered the share owner of record of those shares.

If your shares are held in a stock brokerage account or by a bank or other nominee, you are

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considered the beneficial owner of those shares, and your shares are held in “street name.”

How do I vote my shares?

If you are a share owner of record, you can give a proxy to be voted at the meeting either:

·       by telephone by calling a toll-free number,

·       on the Internet, or

·       by mailing the enclosed proxy card.

We set up the telephone and Internet voting procedures for your convenience. We designed these procedures to authenticate your identity, to allow you to give voting instructions, and to confirm that those instructions have been recorded properly. If you are a share owner of record and you would like to vote by telephone or the Internet, please refer to the instructions on the enclosed proxy card. If you wish to vote using a paper format and you return your signed proxy to us before the annual meeting, your shares will be voted as you direct.

If you hold your shares in street name, your broker or nominee will vote your shares as you direct. You must give your voting instructions in the manner prescribed by your broker or nominee. Your broker or nominee has enclosed or provided a voting instruction card for you to use in directing the broker or nominee how to vote your shares.

What does it mean if I get more than one proxy card?

If you get more than one proxy card, it means that your shares are registered differently and are in more than one account. Please sign and return all proxy cards to be sure that all of your shares are voted.

Can I vote my shares in person at the meeting?

Yes. If you are a share owner of record, you may vote your shares at the meeting by completing a ballot at the meeting. However, if you are a street name holder, you may vote your shares in person only if you obtain a signed proxy from your broker or nominee giving you the right to vote the shares.

Even if you currently plan to attend the meeting, we recommend that you also submit your proxy as described above so that your vote will be counted if you later decide not to attend the meeting.

What are my choices when voting?

·       Election of directors – You may vote for all nominees, or you may withhold your vote with respect to one or more nominees. See page 4 for this proposal.

·       Ratification of appointment of PricewaterhouseCoopers LLP as our independent accountants – You may vote for or against, or abstain from voting on, the proposal. See page 6 for this proposal.

·       Approval of Annual Incentive Plan – You may vote for or against, or abstain from voting on, the proposal. See page 7 for this proposal.

What are the Board’s recommendations?

The Board of Directors recommends a vote:

·       FOR electing all nominees for director (Proposal 1)

·       FOR ratifying the appointment of PricewaterhouseCoopers LLP as our independent accountants (Proposal 2), and

·       FOR approving the Annual Incentive Plan (Proposal 3).

What if I do not specify how I want my shares voted?

If you sign and return your proxy card but do not specify on your proxy card (or when giving your proxy by telephone or over the Internet) how you want to vote your shares, they will be voted:

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·       FOR electing all nominees for director (Proposal 1)

·       FOR ratifying the appointment of PricewaterhouseCoopers LLP as our independent accountants (Proposal 2), and

·       FOR approving the Annual Incentive Plan (Proposal 3).

Can I change my vote?

Yes. You can revoke your proxy at any time before it is exercised by:

·       submitting written notice of revocation to Protective’s Secretary;

·       submitting another proxy by telephone, on the Internet or by mail that is later dated and, if by mail, that is properly signed; or

·       voting in person at the meeting.

What are the voting requirements for a proposal to be approved?

The affirmative vote of a majority of the shares present at the meeting, in person or by proxy, and entitled to vote on the proposal at the meeting, is required to elect each nominee for director and to approve each proposal. Abstentions have the effect of a vote “against” any proposal as to which they are specified.

What are “broker non-votes,” and how are they counted?

If you hold your shares in street name, your broker or nominee can generally vote only in accordance with your instructions. However, if your broker or nominee has not received your voting instructions within 10 days before the meeting, it can vote on any proposal that is considered “routine” by the New York Stock Exchange (“NYSE”). If the broker or nominee cannot vote on a proposal because it is not routine, there is a “broker non-vote” on that proposal. Broker non-votes are counted for quorum purposes, but do not count as votes for or against the proposal.

We expect that the NYSE will consider Proposal 1 (election of directors), Proposal 2 (ratification of appointment of PricewaterhouseCoopers LLP as our independent accountants), and Proposal 3 (approval of Annual Incentive Plan) to be routine proposals.

Are there any other matters to be acted upon at the annual meeting?

We do not know of any other matters to be presented or acted upon at the meeting. Under our Bylaws, an item of business can be brought to a vote at the meeting only if it is specified in the meeting notice, or brought before the meeting by the Board of Directors or by a share owner who has met the notice requirements in the Bylaws. We have not received any such notice from a share owner.

If any other matter is presented at the meeting on which a vote may properly be taken, the shares represented by proxies will be voted in accordance with the judgment of the person or persons voting those shares.

Who pays for the proxy solicitation?

We pay the costs of soliciting proxies. We retain ADP Investor Communication Services to send proxy materials to share owners of record and to street name holders. Some of our employees may also help solicit proxies from time to time. They do not receive any extra or special pay for doing this.

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PROPOSALS REQUIRING YOUR VOTE

Proposal 1:  Election of Directors

Director Nominees

The Board of Directors has nominated all of our current directors for re-election at the 2007 annual meeting except for Gary Cooper. Mr. Cooper is retiring from the Board in accordance with the mandatory retirement age for directors established in our Bylaws, and will not be standing for re-election.

Our entire Board of Directors, which on May 7, 2007 will consist of 12 directors, will be elected at the annual meeting. Mr. Cooper’s seat on the Board will not be filled. Each director will serve until the next annual meeting or until he or she is succeeded by another qualified director who has been elected.

Each director nominee is now a member of the Board of Directors. Our share owners previously elected each nominee except for Vanessa Wilson. Ms. Wilson, who was recommended by a non-employee director and by the Corporate Governance and Nominating Committee, was elected as a director by the Board on October 4, 2006.

The Board has reviewed the external commitments of each of our directors, including their service as directors on other public company boards. In each instance, the Board feels that participation on these public company boards provides the directors with experience and insight that benefit us. The Board concluded that the external commitments of our directors are not excessive and do not negatively impact any director’s ability to satisfy the obligations of service on this Board.

Your shares will be voted as specified on your proxy. If you do not specify how you want your shares voted when you provide your proxy, they will be voted FOR the election of all nominees listed below. If unforeseen circumstances (such as death or disability) make it necessary for the Board to substitute another person for any nominee, then your shares will be voted for that other person. The Board may also choose to reduce the number of directors to be elected, as permitted by our Bylaws.

The director nominees provided the following information about themselves as of the date of this proxy statement:

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Board Recommendation

The Board of Directors unanimously recommends that you vote FOR the election of all 12 director nominees.

Proposal 2:   Ratification of Appointment of Independent Accountants

Appointment of PricewaterhouseCoopers LLP

The Audit Committee, which is composed of independent non-employee directors, has appointed PricewaterhouseCoopers LLP, a firm of independent public accountants, as independent accountants for Protective and its subsidiaries for 2007. This firm or its predecessor has served as our independent accountants since 1974. Representatives of PricewaterhouseCoopers LLP are expected to be present at the annual meeting, will have an opportunity to make a statement if they so desire, and are expected to be available to respond to appropriate questions by share owners.

Board Recommendation

The Board of Directors unanimously recommends that you vote FOR ratification of the appointment of PricewaterhouseCoopers LLP as our independent accountants.

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Proposal 3:   Approval of Annual Incentive Plan

Introduction

We believe it is in your best interests to provide our officers and key employees with the opportunity to earn competitive levels of incentive compensation based primarily on our performance. To implement this policy, the Board of Directors previously adopted the Protective Life Corporation Annual Incentive Plan (AIP). You have approved the AIP, most recently in 2002.

Code Section 162(m) of the Internal Revenue Code provides that we cannot take a tax deduction for annual compensation of over $1 million paid to certain executive officers. Code Section 162(m) does not apply to “performance-based compensation” as defined in Code Section 162(m). In general, for payments under the AIP to be performance-based, the AIP must specify:

·       the class of employees eligible to receive awards,

·       the performance objectives to be attained, and

·       the maximum amount that can be paid to an eligible employee under the plan.

In addition, you must approve the AIP and the performance objectives under the AIP every 5 years. We have designed the AIP to meet the Code Section 162(m) requirements, and are seeking your reapproval of the AIP so we can continue to take full tax deductions for performance-based incentive payments.

The principal features of the AIP are summarized below. The description is subject to the terms of the AIP plan document. The plan document is included as an appendix to this proxy statement.

Board Recommendation

The Board of Directors unanimously recommends that you vote FOR approval of the Annual Incentive Plan.

Annual Incentive Plan

Administration. The AIP is administered by the Compensation and Management Succession Committee of our Board of Directors. The Compensation Committee must be comprised of at least two directors, each of whom is an “outside director” under Code Section 162(m). The Committee interprets and administers the AIP so payments made under the plan qualify as performance-based compensation under Code Section 162(m). Before paying any executive officer an incentive payment under the AIP, the Compensation Committee must certify achievement of the performance objectives and the amount payable to the officer.

Eligibility. The AIP authorizes the Compensation Committee to award annual incentive opportunities to our officers and other key employees, including the “named executives” in our proxy statement. The number of eligible participants in the AIP varies from year to year. During 2006, about 375 employees (including our named executives) were eligible to receive incentive compensation under the AIP. About 360 employees will be eligible for the AIP in 2007.

Performance Criteria. The Compensation Committee establishes the specific performance objectives that must be achieved for us to make incentive payments under the AIP. It makes these decisions on or before April 1 of each year (or such other date as Code Section 162(m) requires or permits). The performance objectives are based on one or more of the following:

·       total shareholder return;

·       stock price appreciation;

·       our operating earnings, net income, operating income or economic value added, including measures on a per share basis (or that of a subsidiary, division or business unit);

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·       return on equity, assets or invested capital;

·       total return;

·       our assets, sales or revenues, or growth in assets, sales or revenues (or that of a subsidiary, division or business unit);

·       efficiency or expense management (such as unit cost);

·       investment returns;

·       premium income or earned premium;

·       value of new business or sales;

·       negotiation or completion of acquisitions, financings or similar transactions; or

·       for any participant other than an officer subject to Code Section 162(m), such other reasonable criteria as the Committee may determine.

If Code Section 162(m) so requires, each performance objective will state, in terms of an objective formula or standard, the method of computing the amount payable if the objective is achieved.

Payment of Annual Awards. If a performance objective established by the Compensation Committee is satisfied, the Committee may authorize an annual incentive payment to an eligible participant based on the terms of the original award. A participant’s annual incentive payment under the AIP may not exceed either 200% of the participant’s base salary or $2.5 million (instead of the $2.0 million maximum you have previously approved). The Compensation Committee may elect to approve incentive payments that are less than the amounts payable under the terms of the award, based on individual performance or other relevant factors. The Committee may also establish rules or procedures that will limit the amounts payable to each participant. Actual bonus payments under the AIP have historically been less than the maximum incentives payable under the plan.

The Compensation Committee also has the discretion to:

·       pay annual incentive payments for any calendar year to eligible participants whose compensation is not subject to the restrictions of Code Section 162(m) for that calendar year, and

·       provide a minimum incentive payment for any calendar year in connection with the hiring of any person who is or becomes subject to the restrictions of Code Section 162(m).

Amendment and Termination. The AIP will terminate on December 31, 2016, unless the Board extends its term. In addition, the Board or the Compensation Committee may amend, terminate or suspend the AIP, except that:

·       no such action may adversely affect a participant’s rights with respect to any award for any calendar year which has already begun, unless the participant consents, and

·       no such action may be effective without your approval if that approval is required to continue to qualify the AIP payments as performance-based compensation.

Federal Income Tax Consequences. Recipients are taxed on their AIP payments when paid. Protective or its subsidiary that employs or employed the recipient is generally entitled to a federal income tax deduction in the calendar year when the amount is paid.

Other Information. In March 2007, the Committee granted annual incentive opportunities under the AIP with respect to 2007 performance. These opportunities are subject to your approval of the AIP. We also use other plans and programs besides the AIP to compensate our officers and employees.

New Plan Award Table. Because any award payment is contingent on achievement of the performance objectives established by the Compensation Committee, the amounts payable to eligible participants in the future cannot be

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determined. The following table shows the incentive payments under the AIP for 2006 to each of the individuals and groups listed. Non-employee directors do not participate in the AIP.

New Plan Benefits Table

(1)          Mr. Corsi joined us in this role on September 25, 2006.

(2)          Mr. Ritchie resigned as an officer on September 10, 2006, and as an employee on November 30, 2006.

(3)          Mr. Bielen served as Senior Vice President from January 9, 2002 to August 31, 2006, when he was promoted to Executive Vice President.

(4)          Ms. Long was promoted to Executive Vice President on March 5, 2007.

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BOARD STRUCTURE AND CORPORATE GOVERNANCE

Board of Directors and Its Committees

Board of Directors

Our Board of Directors oversees our business and affairs and monitors the performance of our management. In accordance with corporate governance principles, the Board does not involve itself in day-to-day operations. The directors keep themselves informed through reports from and discussions with the Chief Executive Officer and other key executives and, as necessary, our outside advisors.

Committees of the Board of Directors

The Board of Directors has four standing committees to help it carry out its duties:

·       Audit Committee,

·       Compensation and Management Succession Committee,

·       Corporate Governance and Nominating Committee, and

·       Finance and Investments Committee.

Only independent directors serve on the Audit Committee, the Compensation and Management Succession Committee, and the Corporate Governance and Nominating Committee. Each committee has a formal written charter, a current copy of which is available on our website (www.protective.com), and reports its actions and recommendations to the Board of Directors.

Audit Committee. The Audit Committee:

·       oversees our financial reporting and control processes on behalf of the Board, including assistance in oversight of the integrity of our financial statements; our compliance with legal requirements; the independence, qualifications and performance of the independent accountants; and the performance of our internal audit function;

·       reviews internal controls, systems and procedures, accounting policies, and other matters affecting our financial condition;

·       reviews with management and the independent accountants our annual and quarterly financial statements and financial footnotes. Reviews earnings and earnings press releases with management and the independent accountants prior to publication;

·       appoints, evaluates and (if appropriate) terminates the independent accountants, approves all audit engagement fees and terms, and pre-approves all non-audit services; and

·       reviews with the independent accountants their audit procedures, management letters, and other significant aspects of their audit.

The Audit Committee concluded that, during 2006, it satisfied its responsibilities under its charter regarding our controls, internal audit functions and independent accountants. The Audit Committee Report is on page 47.

Compensation and Management Succession Committee. The Compensation and Management Succession Committee:

·       reviews and approves our base salary, annual incentive, and long-term incentive compensation practices for our officers and key employees;

·       administers annual cash incentive and long-term stock-based incentive programs under our Annual Incentive Plan and Long-Term Incentive Plan; and

·       recommends to the Board of Directors a successor to the Chief Executive Officer whenever the need to name a successor arises; reviews management succession planning with the Chief Executive Officer.

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Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee:

·       reviews and advises the Board of Directors on the functions and procedures of the Board and its committees, the compensation of the directors for service on the Board and its committees, and the selection and tenure of directors.

Finance and Investments Committee. The Finance and Investments Committee:

·       reviews and acts upon financial and investment matters, including borrowing and lending transactions entered into by Protective and its subsidiaries; and

·       establishes policies and guidelines for investment of our assets, reviews the investment and disposition of our funds, and reviews the risks inherent in our business and our strategy for understanding and minimizing the consequences of those risks.

Committee Memberships. The following table shows the current membership of each committee.

Meetings

Board and Committee Meetings. Each director attended at least 75% of the combined Board of Director and committee meetings held during the period served by that director in 2006. The Board and its committees held the following number of regular and special meetings during 2006:

Our Board meetings are designed to give directors both access to management and the opportunity to discuss matters outside the presence of management. Senior management attends the first part of each meeting and is available to answer any questions the directors may have. Only directors attend the second part, although selected members of management may attend a portion of this part of the meeting if appropriate for discussion of a specific agenda item; these management members are excused from the meeting after the agenda item has been covered.

Board Strategic Planning Session. About every 18 months, the Board has an extended 1- to 2-day meeting that focuses on strategic planning. Management gives the Board presentations about the strategic issues and opportunities facing us. The Board discusses these issues and gives our management its insight.

Non-Management Director Meetings. Our non-management directors are scheduled to meet in executive session without any management directors in attendance at each regularly scheduled Board meeting (usually at least 5 times a year). If the Board has a special meeting, the non-management directors may also decide to meet in executive session. The Lead Director presides at each executive session of the non-management directors. Our Lead Director is the Chairman of the Audit Committee, who is currently Mr. French.

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Share Owner Annual Meeting. Our directors are expected to attend annual meetings of share owners. Last year, 12 of the 13 directors then serving on our Board attended the 2006 annual meeting.

Board Composition, Qualifications and Nominations

Board Composition and Director Qualifications

The Board and its Corporate Governance and Nominating Committee adopted a policy that our directors should be non-employees, with the exception of our President and Chief Executive Officer. Under this policy, directors should have a background evidencing their high level of knowledge, experience, judgment, education, character, dedication and achievement, and collectively bring a diversity of background, experience and other factors to the Board. They should possess high personal and professional ethics, integrity and values; be committed to representing the long-term interests of our share owners; and have an inquisitive and objective perspective, practical wisdom and mature judgment. Directors should be willing to devote sufficient time and energy to Protective and should be share owners as required by our Bylaws.

Director Nominations

The Corporate Governance and Nominating Committee will consider recommendations for nominees to the Board from directors and from share owners. Share owners should submit recommendations in writing to the Corporate Governance and Nominating Committee, c/o Secretary, Protective Life Corporation, P.O. Box 2606, Birmingham, Alabama 35202. Please include relevant information (including name, address, telephone numbers, and a brief description of the individual’s background and experience) about the potential nominee. Each individual recommended will be evaluated in light of the criteria described above.

Corporate Governance

Corporate Governance Guidelines

The Board has adopted Corporate Governance Guidelines. These Guidelines and the charters of the Board committees provide the framework for our governance. Our Corporate Governance and Nominating Committee oversees and reviews the Guidelines at least annually, and recommends any proposed changes to the Board for approval.

Code of Business Conduct

Our Code of Business Conduct applies to all directors, officers and employees. The Code incorporates a code of ethics that applies to our Chief Executive Officer and to all of our financial officers (including our Chief Financial Officer and our Chief Accounting Officer).

Corporate Website

We maintain a corporate governance section on our website which contains copies of our principal governance documents. The corporate governance section may be found at www.protective.com under “Analyst/Investor – Corporate Governance.” This section contains the following documents, which are available in print to any share owner who requests a copy in writing to Protective Life Corporation, Corporate Secretary’s Office, Box 2606, Birmingham, Alabama 35202:

·       Corporate Governance Guidelines,

·       Code of Business Conduct,

·       Audit Committee Charter,

·       Compensation and Management Succession Committee Charter,

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·       Corporate Governance and Nominating Committee Charter, and

·       Finance and Investments Committee Charter.

Communications with Directors

Share owners and other interested parties may send communications to the Board of Directors, the Lead Director, the non-management directors as a group, or any specific director by mailing the communication to the Board of Directors, c/o Secretary, Protective

Life Corporation, P.O. Box 2606, Birmingham, Alabama 35202. Protective’s Secretary will forward the correspondence to the Chairman of the Corporate Governance and Nominating Committee unless it is addressed to an individual director or the Lead Director, in which case the correspondence will be forwarded accordingly. The Board of Directors has requested that certain items unrelated to its duties be excluded, such as solicitations and advertisements, junk mail, product-related communications, job referral materials such as resumes, and surveys.

Compensation Committee Interlocks and Insider Participation

During 2006, the members of our Compensation and Management Succession Committee were Messrs. Day (Chairman), Hamby, Donald M. James (until May 1, 2006), Ritter, and Warren (until January 4, 2006). No interlocking relationship existed during 2006 between any of these individuals and any of our executive officers. In addition, none of these individuals:

·       has ever been an officer or employee of ours; or

·       had any relationship for which the SEC requires disclosure.

Director Independence

Independence Standards

Our Corporate Governance Guidelines provide that a majority of our directors must meet the criteria for independence required by the NYSE. The Board has adopted categorical independence standards consistent with the NYSE listing guidelines. These standards are contained in Exhibit A to our Corporate Governance Guidelines, found on our website at www.protective.com under “Analyst/Investor – Corporate Governance.” No director is considered independent unless the Board has determined that the director has no direct or indirect material relationship with us. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, among others. In determining a director’s independence for the Board and its Committees, the Board also observes any other laws and regulations governing us and evaluates any information it has that may impact independence.

The Board has established certain categories of transactions that do not, in the Board’s opinion and absent other circumstances, cause a director to be less than independent. As a result, the Board did not consider the following when evaluating the independence of our directors:

·       if a family member of the director (other than a spouse, child or child-in-law) is, or has been within the last 3 years, a Protective employee, if the employee is not an executive officer of Protective or an officer with a policy-making role;

·       if an immediate family member of the director (a) is a current employee of our internal or external auditor, if the

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immediate family member does not participate in the firm’s audit, assurance or tax compliance practice; or (b) is a partner, member or principal of a law firm or other firm that provides non-accounting professional services, if the immediate family member does not derive income directly dependent on the revenues received from us or perform significant work for us;

·       if the director or an immediate family member is an officer or director of another company or an organization on whose board any of our present executive officers or other directors sit;

·       if the director or an immediate family member is a current executive officer or other employee of another company that: (a) does business with us and the annual sales to, or purchases from, us in any of the last 3 fiscal years were less than 2% of the other company’s consolidated gross revenues; or (b) is indebted to us, or to which we are indebted, and the total amount of either company’s indebtedness to the other is less than 1% of the other company’s total consolidated assets; or

·       if the director or an immediate family member is an executive officer, director or trustee of a foundation, university or other nonprofit organization that has received from us (including our foundation), during any of the last 3 fiscal years, contributions which did not exceed the greater of $1 million or 25% of that organization’s annual consolidated gross revenue during that organization’s fiscal year.

Review of Director Independence

The Board does an annual review of the independence of all directors. Before the meeting at which this review occurs, each director is asked to supply the Corporate Governance and Nominating Committee and the full Board with complete information about the director’s relationship with us and with our senior management and their affiliates. Our management provides additional information about transactions, relationships or arrangements between us and the directors or parties related to the directors.

The Corporate Governance and Nominating Committee reviews this information and makes its own determinations of the independence of each director. It reports its findings and the reasons for those findings to the full Board, which then makes the final determinations of director independence.

Independence Determinations

The Corporate Governance and Nominating Committee and the full Board has reviewed the independence of our directors, following the procedures outlined above. As part of this review, the Corporate Governance and Nominating Committee and the Board considered that a limited liability company established by limited liability companies maintained for the benefit of the families of Mr. Johns and Mr. Terry acquired certain recreational property from Mr. Terry, and subsequently conveyed a small portion of that property to each of Mr. Johns and Mr. Terry.

After review and discussion of the information provided to it and the report of the Corporate Governance and Nominating Committee, the Board affirmatively determined that, under the NYSE independence standards, all of our current non-employee directors (Cooper, Day, French, Hamby, Leonard, McCrary, McMahon, Portera, Ritter, Terry, Warren and Wilson) are independent, and that Donald M. James was independent during the period that he served in 2006. Mr. Johns, our Chairman, President and Chief Executive Officer, is our only non-independent director. The Board also determined that all members of the Audit Committee, the Compensation and Management Succession Committee, and the Corporate Governance and Nominating Committee meet the applicable independence tests.

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Related Party Transactions

Related Party Transaction Policy and Procedures

We review all relationships and transactions in which we and “related parties” (our directors, director nominees, executive officers, and their immediate family members) participate to determine whether any related party has a direct or indirect material interest. Our General Counsel’s Office is primarily responsible for developing and implementing processes to obtain the necessary information and for determining, based on the facts and circumstances, whether such a direct or indirect material interest exists. We disclose any such transactions in our proxy statement, as required by SEC rules.

If the General Counsel’s Office determines that a transaction may require disclosure under the SEC rules, the General Counsel’s Office will notify:

·       the Corporate Governance and Nominating Committee, if the transaction involves one of our directors or director nominees; otherwise,

·       the Audit Committee.

The relevant Board committee will approve or ratify the transaction only if it determines that the transaction is in our best interests. In considering the transaction, the committee will consider all relevant factors, including (as applicable):

·       our business rationale for entering into the transaction;

·       the alternatives to entering into the transaction;

·       whether the transaction is on terms comparable to those that could be obtained in arms-length dealings with an unrelated third party;

·       the potential for the transaction to lead to an actual or apparent conflict of interest, and any safeguards imposed to prevent actual or apparent conflicts; and

·       the overall fairness of the transaction to us.

Related Party Transactions

Based on the information available to the General Counsel’s Office and to the Board, there have been no transactions between us and any related party since January 1, 2006, nor are any currently proposed, for which disclosure is required under the SEC rules.

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SECURITY OWNERSHIP

Beneficial Ownership

The following table shows the number of shares of common stock and common stock equivalents beneficially owned as of March 9, 2007 (unless otherwise noted) by each current director, each of the executive officers named in the Summary Compensation Table, all current directors and executive officers of Protective as a group, and persons we believe to beneficially own 5% or more of our common stock.

Security Ownership of Certain Beneficial Owners and Management

*                    less than 1%

(1)          The number of shares reported includes shares that are deemed to be beneficially owned under SEC regulations. Under these regulations, a person is generally deemed to beneficially own shares as to which such person holds or shares, directly or indirectly, through any contract, relationship, arrangement, understanding or otherwise, either voting power or investment power. The total number of shares beneficially owned is subdivided, where applicable, into two categories: shares as to which voting/investment power is held solely and shares as to which voting/investment power is shared. The

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percentage calculation is based on the aggregate number of shares beneficially owned and on 70,056,891 shares of common stock outstanding on March 9, 2007.

(2)          This column may include shares held in the name of a spouse, minor children, or certain other relatives sharing the same home as the director or officer, or held by the director or officer (or the spouse of the director or officer) as a trustee or as a custodian for children. Unless otherwise noted below, the directors and officers disclaim beneficial ownership of these shares.

(3)          Includes the following number of shares allocated to accounts under our 401(k) and Stock Ownership Plan as follows: Mr. Bielen – 15,119; Mr. Briggs – 37,340; Mr. Corsi – 120; Mr. Johns – 9,474; Ms. Long – 3,403; and all current directors and executive officers as a group – 98,326.

Includes the following number of stock equivalents held under our Deferred Compensation Plan for Officers, as follows: Mr. Bielen – 42,966; Mr. Briggs – 83,660; Mr. Corsi – 15; Mr. Johns – 269,949; Ms. Long – 49,537; and all current directors and executive officers as a group – 497,755. Each stock equivalent entitles the participant to receive, upon distribution, one share of common stock.

Does not include the following number of stock appreciation rights: Mr. Bielen – 108,917; Mr. Briggs – 85,221; Mr. Corsi – 51,370; Mr. Johns – 575,202; Ms. Long – 46,162; and all current directors and executive officers as a group – 1,029,701.

Does not include the following number of restricted stock units: Mr. Bielen – 4,000; Mr. Corsi – 6,560; Ms. Long – 3,000; and all current directors and executive officers as a group – 24,000.

(4)          Includes the following number of stock equivalents held by certain directors under our Deferred Compensation Plan for Directors Who Are Not Employees of Protective, as follows: Mr. Day – 14,227; Mr. French – 16,886; Mr. Hamby – 3,032; Ms. Leonard – 2,427; Mr. McCrary – 2,988; Mr. McMahon – 26,486; Dr. Portera – 8,010; Mr. Terry – 5,941; Mr. Warren – 10,397; and all current directors and executive officers as a group – 90,394. Each stock equivalent entitles the participant to receive, upon distribution, one share of common stock.

(5)          Includes 5,000 shares of common stock owned by the Day Family Foundation, of which Mr. Day is a trustee, and 34,000 shares of common stock owned by Jemison Investment Co., Inc., of which Mr. Day is Chairman of the Executive Committee.

(6)          Includes 30,000 shares of common stock owned by Dunn Investment Company, of which Mr. French is Vice Chairman, Investments.

(7)          Does not include shares held by Regions Financial Corporation and Regions Bank (see Note 10 to this table), of which Mr. Ritter is President, Chief Executive Officer and a director. Mr. Ritter disclaims beneficial ownership of these shares.

(8)          Based on a Schedule 13G filed with the SEC on January 23, 2007. As of December 31, 2006, Barclays Global Investors, NA (a bank) and its affiliates may be deemed the beneficial owner of 3,794,212 shares of common stock as follows. Barclays Global Investors, NA (a bank) may be deemed the beneficial owner of 2,731,828 shares of common stock: it has sole voting power for 2,260,913 shares, sole investment power for 2,731,828 shares, and no shared voting or investment power. Barclays Global Fund Advisors (an investment adviser) may be deemed the beneficial owner of 893,859 shares of common stock: it has sole voting power for 893,859 shares, sole investment power for 893,859 shares, and no shared voting or investment power. Barclays Global Investors, Ltd (a bank) may be deemed the beneficial owner of 167,361 shares of common stock: it has sole voting power for 167,361 shares, sole investment power for 167,361 shares, and no shared voting or investment power. Barclays Global Investors Japan Limited (an investment adviser) may be deemed the beneficial owner of 1,164 shares of common stock: it has sole voting power for 1,164 shares, sole investment power for 1,164 shares, and no shared voting or investment power. The shares reported are held in trust accounts for the economic benefit of the beneficiaries of those accounts. The addresses of the filers are

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(a) Barclays Global Investors, NA and Barclays Global Fund Advisors – 45 Fremont Street, San Francisco, California 94105; (b) Barclays Global Investors, Ltd – Murray House, 1 Royal Mint Court, London, England EC3N 4HH; and (c) Barclays Global Investors Japan Limited – Ebisu Prime Square Tower, 8th Floor, 1-1-39 Hiroo Shibuya-Ku, Tokyo 150-8402, Japan.

(9)          Based on a Schedule 13G filed with the SEC on February 14, 2007. As of December 31, 2006, EARNEST Partners, LLC (an investment advisor), may be deemed the beneficial owner of 4,674,143 shares of common stock: it has sole voting power for 1,894,778 shares, shared voting power for 1,599,815 shares, sole investment power for 4,674,143 shares, and no shared investment power. No client interest relates to more than 5% of the outstanding shares of common stock. The address of EARNEST Partners, LLC is 1180 Peachtree Street NE, Suite 2300, Atlanta, Georgia 30309.

(10)   Based on a Schedule 13G filed with the SEC on February 14, 2007. As of December 31, 2006, Regions Financial Corporation (in its capacity as a bank holding company), may be deemed the beneficial owner of 3,949,374 shares of common stock: it has no sole voting or investment power, but has shared voting power for 3,129,793 shares and shared investment power for 3,689,955 shares. As of December 31, 2006, Regions Bank (in its capacity as a bank fiduciary of various trusts and estates) may be deemed the beneficial owner of 3,949,374 shares of common stock: it has sole voting power for 3,121,493 shares, shared voting power for 8,300 shares, sole investment power for 1,171,939 shares, and shared investment power for 2,518,016 shares. None of the separate trusts and estates of which Regions Bank is a fiduciary holds as much as 5% of the outstanding shares of common stock. The address of Regions Financial Corporation and Regions Bank is 1900 Fifth Avenue North, Birmingham, Alabama 35203.

Section 16(a) Beneficial Ownership Reporting Compliance

Our directors and executive officers are required to file reports with the SEC showing changes in their beneficial ownership of our common stock. We have reviewed copies of these reports and written representations from the individuals who are required to file reports. Based on this review, we believe that each of our directors and executive officers complied with these reporting requirements in 2006.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Our Compensation Philosophy

The objectives of our executive compensation program are to:

·       attract the most qualified executives,

·       motivate them to achieve high levels of performance, and

·       retain executives who contribute to our success.

Principals of Our Compensation Program

To meet these objectives, we design our program to:

·       attract, motivate and retain officers who will commit to building long-term share owner value,

·       focus officers on key business goals,

·       enhance share owner value by rewarding officers for achieving long-term goals,

·       reflect market and industry practices, while taking internal pay equity into account, and

·       be communicated effectively, so our officers understand how compensation is linked to performance.

The Compensation Committee

The Compensation and Management Succession Committee of our Board of Directors designs and implements the compensation program for our officers. The Compensation Committee has a formal written charter. The charter is available on our website (www.protective.com). The Committee’s principal duties include:

·       determining our Chief Executive Officer’s compensation package,

·       determining the compensation package for other executive officers (considering the Chief Executive Officer’s recommendations),

·       setting annual cash incentive opportunities and determining whether the related performance objectives have been achieved,

·       granting long-term incentive awards and determining whether any related performance objectives have been achieved, and

·       reviewing senior management performance and succession plans with our Chief Executive Officer.

Our Human Resources and Legal Departments provide the Compensation Committee with information about our officers and our compensation arrangements. The Committee hires an independent compensation consultant to help it fulfill its duties. For the 2006 compensation cycle discussed in this proxy statement, the compensation consultant was Hewitt Associates LLC. We pay the compensation consultant’s fees and expenses.

The compensation consultant provides the Committee with compensation information from compensation surveys, its own database, and analysis of proxy statements. The consultant “size adjusts” the data, so the Committee can compare the compensation we pay to the compensation paid by larger and smaller companies. The compensation consultant focuses on the pay practices of a peer group of 40 life insurance and financial services companies that compete with us for executive talent. The Committee selects the companies in the peer group, taking into account our management’s recommendations. The consultant also provides a summary of compensation survey data for other companies, to give the Committee additional information for comparison purposes.

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For 2006, the 40 company peer group included:

The compensation consultant also advises the Committee about:

·       the amount and type of compensation to provide to our officers and key employees,

·       the value of long-term incentive grants,

·       the allocation of total compensation between cash (base salary and annual cash incentive opportunities) and stock-based incentives,

·       the allocation of total compensation between “at risk” (annual cash incentives and stock-based incentives) and not “at risk,” and

·       internal pay equity among key executives.

The Compensation Committee currently meets at least 3 times a year, in February, March and November. Other meetings are scheduled as necessary.

·       The November meeting starts each year’s compensation cycle. The Committee reviews our compensation program and senior management succession plans. It also gives the compensation consultant and our management guidance about senior management compensation for the following year.

·       In February, the Committee focuses on pay for our named executives – that is, the officers who are named in our proxy statement – and other senior officers. It reviews compensation information provided by the compensation consultant and our Human Resources department, and makes preliminary decisions about the compensation for our senior officers.

·       In March, the Committee evaluates the performance of our Chief Executive Officer and other key executives, and finalizes their compensation based on these evaluations. It also reviews and approves the proposed salaries and annual cash incentive opportunities of other key officers, and makes awards under our annual cash incentive and long-term incentive programs.

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Components of Our Compensation Program

The key components of our executive compensation program are

·       base salaries,

·       annual cash incentive awards, and

·       long-term equity-based incentives.

The Compensation Committee considers each component (separately and with the others) for our senior officers. As part of its review, the Committee compares the amount of each named executive’s cash compensation (base salary and annual cash incentive awards) and stock-based incentives to comparable officers in the 40 company peer group. The Committee also compares the amount of each named executive’s “not at risk” compensation (base salary) and “at risk” compensation (annual cash incentives and long-term equity based incentive awards) to these officers. The Committee does not have formal policies regarding these factors, but tries to make our practices generally consistent with the practices of the peer group.

The Committee targets each component, and the total annual compensation package, at the median of the 40 company peer group. The annual incentive and long-term incentive components of the program are designed so above-average company performance will result in above-median total compensation, and below-average company performance will result in below-median total compensation.

Base Salaries. Base salary is the primary fixed portion of executive pay. It compensates individuals for performing their day-to-day duties and responsibilities. Salary adjustments are usually made at the Committee’s March meeting, and are effective March 1 of that year. The Committee considers the responsibilities of the job, individual performance, the relative value of a position, experience, and comparisons to salaries for similar positions in other companies. For the Chief Executive Officer, the Committee also considers company performance. No particular weighting is given to any of these factors.

Annual Cash Incentive Awards. Officers and key employees are eligible for annual cash incentive opportunities under our Annual Incentive Plan (AIP). You have approved the AIP, most recently in 2002. The AIP’s purpose is to reward individuals for achievement of key annual goals that will enhance company performance and share owner value.

At its February and March meetings, the Compensation Committee determines the AIP target incentive opportunities and performance objectives for our named executives for the current year. Our executive officers select other officers and employees for AIP participation, and establish their target incentive opportunities and performance objectives. Each eligible employee has a target incentive of between 4% and 100% of salary.

Payment of AIP incentives is based on achievement of one or more performance goals. For 2006 (and for many prior years), our corporate operating earnings per share (OEPS) was the sole or a principal performance objective for our named executives, and a performance objective for a portion of all other incentive opportunities. We use OEPS as primary performance measure for executive bonuses because we want to focus their efforts on our profitability, which should lead to increased value for our shareholders. Other objectives include divisional and individual goals, depending on the employee’s role.

Each goal has threshold, minimum and maximum levels of achievement. Cash incentive payments range from 33% (threshold) to 200% (maximum) of the target. If performance is below threshold, no payment is made for that goal.

At its March meeting, the Compensation Committee also determines the achievement of the performance objectives for the incentive opportunities granted to the named executives in the previous year. For other officers and managers, the Committee reviews the total incentive opportunities and the methods used to determine individual payments. The Committee

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may decrease (but not increase) the incentive paid to a named executive, even if the incentive’s performance objectives were achieved. For other employees, the Committee may increase or decrease the incentive payable (up to the maximum otherwise payable under the original award).

Long-Term Equity-Based Incentive Awards. The decisions our executives make now will affect our performance for years to come. We believe that equity (stock) based compensation and stock ownership are the best way to establish and maintain a strong link between management objectives and your long-term interests.

The Compensation Committee implements this philosophy through grants under our Long-Term Incentive Plan (L-TIP). You have approved the L-TIP, most recently in 2003. In 2006, we made annual awards of long-term equity-based compensation with grants of performance shares and stock appreciation rights. We also made special performance share, stock appreciation rights and restricted stock unit awards to Mr. Corsi when we hired him as our Chief Financial Officer.

Performance shares provide the recipient with compensation based on our average return on average equity (ARAE) and our stock price. For each performance share award, the number of shares of common stock the officer actually receives is based on a comparison of our average return on average equity for a 4-year period to the ARAE of the companies in the 40 company life insurance and financial services peer group. We believe this is a good way to compare our performance to that of our competitors, and that our stock price should go up over the long term if we outperform these other companies on this key measure.

A named executive will receive a 2006 performance share award payout of 100% or more only if our ARAE that is better than the ARAE of 66% of the companies in the peer group. There is no payout if we are in the bottom 40% of the peer group. Since the award is paid in shares of our stock, the compensation the officer receives is directly related to our stock price as well.

Stock appreciation rights provide the recipient with compensation based on the price increase of our common stock. Each SAR has a base price equal to the closing price of our stock on the effective date of the grant (which is never earlier than the date the Committee makes the grant). An officer who exercises an SAR receives the “spread” (the difference between our stock’s value when the SAR is exercised and the base price), so the officer receives compensation from SARs only if our stock price goes up. The spread is paid in shares of our stock (except for a portion payable in cash equal to the tax withholding obligation due upon the SAR exercise).

Restricted stock units provide the recipient with compensation based on the value of our common stock. An RSU is not a share of stock – it is our agreement to transfer shares of our stock to the RSU recipient if and when the vesting conditions of the RSU award are satisfied. The only RSU award that we have granted was made to Mr. Corsi when we hired him as our Chief Financial Officer. We granted RSUs to Mr. Corsi to align his interests to those of our share owners, and to compensate him for restricted stock units that he lost by leaving his former employer.

At its February and March meetings, the Compensation Committee determines the total value of the long-term incentives to be granted to each officer. Grants are made at the March meeting. (The Committee makes special grants at other times upon the hiring or promotion of a senior officer.) The Committee considers a named executive’s responsibilities, performance and previous long-term incentive awards when making the award for a given year.

The compensation consultant provides an estimated value for each award, so the Committee can make awards with the appropriate total value. For 2006, the consultant recommended a value for a performance share of 70% of the value of our stock on the date of grant. The principal factor in this valuation was

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the earn-out schedule for the performance share award (shown on page 32), assuming that there was an equal chance that we would achieve each of the possible performance levels. The consultant recommended a value for an SAR of one-third of the value of our stock on the date of grant. This is an approximation of the FAS 123R value for SARs that we use for accounting purposes.

In 2006, each named executive received 75% of the value of their long-term incentives in performance shares and 25% of the value in stock appreciation rights. Other officers received only performance shares. The Committee also makes SAR grants to other officers when it believes they are appropriate.

The Committee’s meeting schedule is set several months in advance. The Committee does not attempt to coordinate its grants with the release of earnings or other inside information, and award sizes are not affected by the dates the awards are made.

Stock Ownership Guidelines

We have always encouraged our officers to hold shares of our common stock. We believe this aligns their interests with those of our share owners. Our policies encourage employees and officers to hold our stock as a long-term investment, and prohibit trading in options on our stock and other speculative transactions.

In 2004, the Compensation Committee adopted formal stock ownership guidelines. The guidelines provide that our officers are not to dispose of shares of stock unless their holdings exceed a multiple of their base salary. The multiples are

Shares owned by the officer and the officer’s spouse and children, shares in our 401(k) and stock ownership plan and share equivalents in our nonqualified deferred compensation plan all count as shares owned under the guidelines. Unearned performance shares, unexercised SARs and unvested restricted stock units do not count.

The Committee reviews compliance with the guidelines at each year’s March meeting. Each officer certified compliance with the guidelines for the twelve months ended February 2007.

Change of Control Arrangements

The Compensation Committee and our Board of Directors have carefully considered the effects that a change of control, or an attempted change of control, could have on us and our share owners. The Committee and the Board have addressed these concerns by approving change of control provisions in some of our compensation programs (including the Long-Term Incentive Plan) and providing key officers and employees with employment continuation agreements. We believe these arrangements benefit us and our share owners by:

·       assuring employees that we are aware of the issues they could face if a change of control occurs,

·       providing them with financial assurances so they can perform their duties with a minimum of distraction in the face of a pending change of control,

·       encouraging them to stay with us while a change of control is occurring, so the acquirer can retain people who have been key to our success, and

·       helping us recruit employees who have similar agreements at other companies.

The L-TIP provides for vesting and payment of outstanding performance share, SAR and restricted stock unit awards upon a change of control, even if the employee has not terminated employment. We believe it is appropriate (and consistent with the practice of most companies) to pay these awards when a change of control

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occurs, in recognition of the employee’s past performance and service while the change of control was pending.

Employment continuation agreements give the employee a guaranteed minimum level of ongoing base salary, cash incentive opportunities, and long-term incentive opportunities for 2 years after a change of control occurs. The agreements provide for additional benefits only if the employee is terminated or resigns due to significant adverse changes in their employment.

The Internal Revenue Code imposes an excise tax on officers who receive change of control payments that exceed 3 times their average pay over the last 5 years. This tax can affect officers who have similar compensation in different ways. For example, an officer who defers compensation, postpones the exercise of SARs, or postpones payment of previously deferred compensation will owe more excise tax than a similarly paid officer who makes other decisions about their compensation. To address this issue, our employment continuation agreements provide our officers with a tax reimbursement payment that will put the officer in the same after-tax position that the officer would be in if the excise tax did not apply.

Accounting and Tax Issues

We consider accounting and tax matters in the design of our compensation program. For example, we adopted FAS 123 (now FAS 123R) in 1995. As a result, we reduce our net income by the estimated cost of annual cash incentives and long-term equity-based incentives. The performance goals under the AIP and L-TIP reflect accruals for this estimated compensation.

Section 162(m) of the Internal Revenue Code limits our tax deduction for annual compensation in excess of $1 million paid to certain executive officers. Code Section 162(m) does not apply to performance-based compensation (as defined in that Code Section). The AIP and L-TIP are designed to provide performance-based compensation.

In general, the Compensation Committee intends to administer the performance-based portion of our compensation program in compliance with Code Section 162(m). However, the Committee believes there may be times when it will be in your best interests to pay compensation that is not tax-deductible under Code Section 162(m), and it may do so in the future.

Summary

The Compensation Committee has reviewed “tally sheets” that summarized each named executive’s total compensation, including:

·       current base salary,

·       current annual incentive opportunity,

·       current grant of long-term incentives,

·       pension benefits,

·       balances in our 401(k) and nonqualified deferred compensation plans,

·       dividend equivalents from the nonqualified deferred compensation plan,

·       health and welfare benefits and perquisites,

·       amounts previously paid under long-term incentives,

·       the value of outstanding long-term incentive opportunities, and

·       the severance benefits that would be payable under various circumstances (including a change of control).

Based on this review, the Committee believes our compensation program is

·       providing the appropriate level of compensation to our senior officers,

·       properly designed to link compensation and performance, and

·       designed and implemented in your best interests as share owners.

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Compensation Summary

This table has information about the 2006 compensation of the executives named below. These named executives include our chief executive officer and the 2 individuals who served as our chief financial officer during 2006.

Summary Compensation Table

(1)   Mr. Corsi joined us in this role on September 25, 2006.

(2)   Mr. Ritchie resigned as an officer on September 10, 2006, and as an employee on November 30, 2006.

(3)   Mr. Bielen served as Senior Vice President from January 9, 2002 to August 31, 2006, when he was promoted to Executive Vice President.

(4)   Ms. Long was promoted to Executive Vice President on March 5, 2007.

(5)   These numbers show the amount realized for financial reporting purposes with respect to 2006, as calculated in accordance with the proxy statement disclosure rules and Financial Accounting Standards Board Statement No. 123R, Share-Based Payment. The assumptions we used under FAS 123R are: for 2003 SAR awards, expected volatility of 25%, a risk-free interest rate of 3.1%, a dividend rate of 2.1%, and an expected exercise date of 2009; for 2005 SAR awards, expected volatility of 24.1% to 31.9%, a risk-free interest rate of 4.1% to 4.3%, a dividend rate of 2.0%, and an expected exercise date of 2010 to 2014; for 2006 SAR awards, expected volatility of 15.5% to 32.5%,

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Summary Compensation Table

(continued from previous page)

a risk-free interest rate of 4.6% to 5.0%, a dividend rate of 1.7%, and an expected exercise date of 2011 to 2015; stock prices of $26.51 for the 2003 performance share awards, $36.94 for the 2004 performance share awards, $41.05 for the 2005 performance share awards, and $48.60 ($45.70 for Mr. Corsi’s awards) for the 2006 performance share awards; expected performance share payouts of 67% or 76% (depending on the terms of the award); a stock price of $45.70 for Mr. Corsi’s restricted stock unit grant; and a 0% forfeiture rate for all awards.

(6)   When Mr. Ritchie resigned as an employee, he forfeited 30,000 SARs granted in 2002, 12,280 performance shares and 15,000 SARs granted in 2003, 12,400 performance shares granted in 2004, 9,900 performance shares and 5,775 SARs granted in 2005, and 11,000 performance shares and 8,500 SARs granted in 2006. These numbers reflect the reversal of expenses previously recognized in our financial statements for the years 2002-2006, as required by FAS 123R.

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Discussion of Summary Compensation Table

Column (c) – Salary. These amounts include base salary the executive contributed to our 401(k) plan and (for everyone except Ms. Long) to our nonqualified deferred compensation plan. The Nonqualified Deferred Compensation Table on page 40 has more information.

The Compensation Committee reviewed the performance and base salaries of the named executives at its February and March 2006 meetings, and approved the following base salary increases, effective March 1, 2006:

·       Mr. Johns – 6.7%

·       Mr. Ritchie – 7.5%

·       Mr. Bielen – 6.7%

·       Ms. Long – 10.6%

Column (d) – Bonuses. We paid Mr. Corsi this bonus on March 15, 2007. (He had to remain employed with us until that date to get the bonus.) Mr. Corsi expected to receive a similar bonus from his previous employer in 2007. This bonus replaces the lost bonus opportunity and rewards Mr. Corsi for his performance since joining us. The Compensation Committee reviewed and approved this bonus.

Column (e) – Stock Awards. These values include performance share grants to the named executives. Mr. Corsi’s number also includes the value of a restricted stock unit grant. The Grants of Plan-Based Awards Table on page 30 has more information

Column (f) – SAR Awards. These values include stock appreciation rights granted to the named executives. The Grants of Plan-Based Awards Table on page 30 has more information.

Column (g) – Non-equity incentive plan compensation. These amounts show the annual cash incentives payable in March 2007 under our Annual Incentive Plan for 2006 performance. The Grants of Plan-Based Awards Table on page 30 has more information about this incentive opportunity.

Column (h) – Change in pension value and nonqualified deferred compensation earnings. These amounts represent the 2006 increase in the present value of the named executive’s benefits under our tax-qualified defined benefit pension plan, our nonqualified defined benefit excess pension plan, and (for Mr. Briggs) a special supplemental service arrangement. The total increase for each executive was divided between the plans as follows:

The Pension Benefits Table on page 38 has more information.

The named executives have account balances in our nonqualified deferred compensation plan. (The Nonqualified Deferred Compensation Table on page 40 has more information.) The earnings on an executive’s balance reflect the earnings of investments selected by that executive. These earnings are the same as for any other investor in these investments, and we do not provide any above-market or preferential earnings rates.

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Column (i) – All other compensation. These amounts include the following:

All Other Compensation Table

401(k) Matching. Our employees can contribute a portion of their salary, overtime and cash incentives to our tax-qualified 401(k) plan and receive a dollar-for-dollar company matching contribution. The maximum match is 4% of the employee’s eligible pay. The table shows the matching received by the named executives in 2006.

Nonqualified Deferred Compensation Plan Contributions. The table includes contributions that we made to each named executive’s account under our nonqualified deferred compensation plan. The Nonqualified Deferred Compensation Table on page 40 has more information.

Dividend Equivalents. The table includes dividend equivalents that Mr. Johns elected to receive in cash, instead of having them reinvested in our nonqualified deferred compensation plan.

Financial Planning Program. We have engaged a third party to provide a financial and tax planning program for certain senior officers. We believe this program helps the officers plan their financial future, while minimizing the distractions and time normally required.

We pay the provider’s fees and travel expenses. The amount of these payments is included in the table. These payments are taxable income to the officer. We do not provide a tax “gross up,” and the appropriate taxes are withheld from the officer’s pay.

Other Perquisites. We pay for dining club memberships for Messrs. Johns and Briggs and Ms. Long. The amount of these membership fees is included in the table. We reimburse the officers for business-related meals in accordance with our regular policies. They pay for all personal meals.

Our Board of Directors has adopted a corporate aircraft policy. Under this policy, family members or guests of our employees may travel on a corporate aircraft if the aircraft is making a business-related flight, the aircraft has empty seats, and the flight plan does not need to be changed to include special landings or additional destinations. We do not believe we incur any measurable additional costs under this policy. We assess the employee with imputed taxable income as required by the Internal Revenue Code. For 2006, we assessed Mr. Johns $1,133 in imputed taxable income under to this policy. This amount is included in the table.

We reimburse our employees for customary and reasonable expenses associated with business travel and meals. We also reimburse expenses incurred by an employee’s spouse to attend an event, meeting or conference to which the spouse has been invited. These amounts are not considered compensation and are not included in this table.

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Grants of Plan-Based Awards

This table has additional information about:

·       the stock and SAR awards shown in columns (e) and (f) of the Summary Compensation Table, and

·       the AIP incentive opportunities granted for 2006 (which were payable in March 2007 and are shown in column (g) of the Summary Compensation Table).

Grants of Plan-Based Awards Table