THG 2019 Proxy Statement

THE HANOVER INSURANCE GROUP 2019 PROXY STATEMENT 23 2018 NEO Pay Mix The following charts represent the 2018 pay mix for John C. Roche, our President and CEO, and our other NEOs as a group, expressed as a percentage of total target compensation opportunity for the year. CEO target compensationaverageallotherNEO target compensation22%30%54%45%24%25% variable compensation78% variable compensation70%annualbase salary short term incentive compensation long term incentive compensation Relationship Between Pay and Performance One of the primary objectives in the design and implementation of our executive compensation programs is to ensure that a meaningful relationship exists between the compensation earned by our executives and the overall success of our organization. This objective, however, is also weighed against other important considerations, such as the importance of rewarding individual achievement, recognizing the longer-term value of achieving strategic and operating objectives, attracting and retaining key executives and maintaining stability in our organization. To that end, when making compensation decisions, the Committee also considers events or circumstances that we have limited ability to manage, such as unusual weather-related losses and catastrophes. To achieve these objectives, we design our executive compensation programs to include what we believe is an appropriate mix of fixed versus variable compensation elements. Over the past three years, variable compensation opportunities (long-and short-term incentive target awards) have comprised nearly three-quarters of our NEOs’ total target annual compensation opportunity, nearly two-thirds of which has been in the form of long-term equity awards tied to stock price performance. We believe tying such a large portion of our NEOs’ target compensation opportunity to variable compensation, while providing competitive levels of base salary, strikes an appropriate balance and has resulted in a meaningful relationship between our performance over the period and pay actually earned and realized by our NEOs. To demonstrate the relationship between pay and performance, compensation consultants and proxy advisory firms have promoted the use of various “realized,” “realizable” or “earned” pay formula analyses. We believe such analyses are useful and may serve as valuable tools to measure the effectiveness of our compensation program design, but we recognize that no standard definition of “realized,” “realizable” or “earned” pay has emerged, and each variation utilized by consultants and proxy advisory firms has significant limitations. Accordingly, rather than devise and illustrate alternative formulaic measures, we believe an examination of variable compensation earnings over the past three years sufficiently demonstrates the connection between our overall performance and the amounts earned by our NEOs. By most measures, we have demonstrated very strong performance over the past three years. During this period our stock price appreciated 44%, our ordinary annual dividends paid per share increased 18% ($1.88 per share in 2016 to $2.22 per share in 2018), and we returned approximately $462 million to shareholders in the form of stock buy-backs and dividend payments. Moreover, we strengthened our balance sheet and continued to diversify our business across product lines and geographies. In 2018, our domestic property and casualty business recorded the highest premiums, net income and operating income in its history. In addition to our financial performance, we executed on several key strategic priorities, including the divestiture of our Chaucer business unit, expense initiatives, an enhanced focus on innovation, human capital development and inclusion and diversity, and the 30% 25% 45% Average All Other NEO Target Compensation Variable Compensation 70% 22% 24% 54% CEO Target Compensation Variable Compensation 78%