THG 2019 Proxy Statement

THE HANOVER INSURANCE GROUP 2019 PROXY STATEMENT 32 Description of 2018 Performance-Based Restricted Stock Units (the “2018 PBRSUs”) The 2018 PBRSUs: • are earned only to the extent that our three-year (2018-2020) total shareholder return as compared to the companies that comprise the PBRSU Comparison Group set forth below (“ Relative Total Shareholder Return ” or “ RTSR ”) places our performance above a certain percentile; • may be achieved between 0% and 150% of the target award, based upon the level of RTSR achieved; and • are subject to a three-year time-based “cliff” vesting requirement (assuming achievement of performance goals, and continued employment through the vesting date, PBRSUs vest on the third anniversary of the grant date). The table below sets forth the level of RTSR required to achieve various payouts under the program: RTSR Percentage of Target Award Achieved† ≥75.0 th %tile 150% 62.5 th %tile 125% 50.0 th %tile 100% 37.5 th %tile 75% 25.0 th %tile 50% <25.0 th %tile 0% † In the event our total shareholder return is negative for the period, payout is capped at target even if our RTSR is above the 50 th percentile. If RTSR falls below the 25 th percentile, but our total shareholder return exceeds our three-year compounded dividend yield during the period, payout will equal 25% of target. PBRSU Comparison Group • American Financial Group, Inc. • Old Republic International Corporation • American International Group Inc. • ProAssurance Corporation • Argo Group International Holdings Ltd. • RLI Corp. • Chubb Limited • Safety Insurance Group, Inc. • Cincinnati Financial Corporation • Selective Insurance Group, Inc. • CNA Financial Corporation • State Auto Financial Corporation • Donegal Group Inc. • The Allstate Corporation • EMC Insurance Group Inc. • The Hartford Financial Services Group, Inc. • Employers Holdings, Inc. • The Navigators Group, Inc. • Horace Mann Educators Corporation • The Progressive Corporation • Infinity Property and Casualty Corporation • The Travelers Companies, Inc. • Kemper Corporation • United Fire Group Inc. • Markel Corporation • W.R. Berkley Corporation • Mercury General Corporation • XL Group plc We chose the 28 companies listed above because we believe these companies are most representative of the companies against which we compete for business. This list is the same as the one used for the 2017 PBRSUs, except Allied Word Assurance Company Holdings, AG and OneBeacon Insurance Group Ltd were removed due to the fact they were acquired. Although most of the companies that comprise our Comparative Proxy Data Companies are also included in this list, the Comparative Proxy Data Companies were specifically chosen because they are representative of the public companies against which we compete for executive talent. The Committee chose RTSR as the performance metric with respect to PBRSUs to further align our NEOs’ interests with those of our shareholders, to encourage a focus on long-term share price performance and to include a metric that explicitly measures our performance against other public companies in our industry. Description of Stock Options The exercise price for all stock option awards is the fair market value at closing on the NYSE on the date of grant. Each stock option has a ten-year term and, provided the NEO remains employed by us through the applicable vesting dates, vests as to one- third of the shares on each of the first three anniversaries of the grant date. Stock options directly align a portion of total compensation with our stock performance since they become valuable only if and to the extent our share price increases over a longer period of time after the date of grant. Additionally, because stock options do not fully vest for three years, they encourage executive retention.