THG 2019 Proxy Statement

THE HANOVER INSURANCE GROUP 2019 PROXY STATEMENT 53 Without Cause / For Good Reason. The terms of Mr. Farber’s option awards provide that if his employment is terminated without cause (other than as a result of his death, disability, or a change in control), or if he terminates his employment for good reason, then he will be given one additional year’s vesting credit. Change in Control. Unless such award is assumed by the successor entity, upon a change in control such unvested options immediately vest and become exercisable in full. If awards are assumed, then participants are not entitled to any acceleration unless involuntarily or constructively terminated following the change in control. (6) Represents the estimated cost of continued health and dental benefits for a period not to exceed one year. All such benefits terminate in the event the NEO obtains other employment that provides the NEO with group health benefits. (7) Represents the estimated cost of one year of outplacement services. (8) Represents a lump sum payment equal to the amount which would be credited for 2018 to the NEO’s account balances under the 401(k) Plan and the Non-Qualified Retirement Savings Plan, based upon the higher of the NEO’s 2017 or annualized 2018 eligible compensation. CEO Pay Ratio Set forth below is an estimate of the relationship between the annual total compensation of our median employee and the annual total compensation of John C. Roche, our Chief Executive Officer. The pay ratio below is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K. For the 2018 fiscal year: The base salary of the median employee of our Company (other than our CEO) was $75,500, and when general bonus, 401(k) match and the cost of medical and health benefits is included, the median of the annual total compensation of all employees (calculated in accordance with the methodology used to determine the amounts reported in the Summary Compensation Table on page 39) was $93,723; Mr. Roche’s total compensation, calculated in accordance with the methodology used to determine the amounts reported in the Summary Compensation Table on page 39 (and then adding the cost of certain medical and health benefits, as described below), was $4,182,651; Based on the foregoing, for 2018 the ratio of the total compensation of Mr. Roche to the median of the annual total compensation of all other employees was 45 to 1. To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of our median employee and CEO, we used the following methodology and assumptions: Median Employee We selected December 31, 2018 as the date used to identify the median employee; We chose to select a new median employee in 2018 because on December 28, 2018 we sold Chaucer, and as of December 31, 2018 we no longer employed about 400 international employees, roughly 8% of the workforce used to calculate the median employee in 2017; As of December 31, 2018, we had approximately 4,200 employees, almost all of whom were located in the United States. As permitted under SEC rules, for purposes of identifying the median employee, we excluded all of our non-U.S. employees (6 in Ireland, and 29 in Australia) because in aggregate, these employees accounted for less than one percent of our total workforce, and the businesses that these employees worked for were under agreement to be sold as part of the Chaucer Sale, pending regulatory approvals. This resulted in a total remaining employee population of 4,246 employees (excluding our CEO) from which to determine the median employee; To identify the median employee, we analyzed the 4,246 employee population based on total target compensation for 2018 (i.e., 2018 base salary, 2018 target bonus or short-term incentive compensation to be paid in 2019 and the 2018 long-term incentive compensation granted in 2018). Total target compensation was selected as the consistently applied compensation measure because this is the metric that the Company bases its compensation decisions upon and how it views the compensation it pays to its employees; We selected the median employee from among eight employees with the same exact 2018 total target compensation because the employee selected was most representative of our employee population as a whole; and We calculated the actual annual total compensation paid to the selected median employee using the same methodology as was used to calculate Mr. Roche’s compensation in the Summary Compensation Table on page 39 (including annual bonus of $3,200 and the Company’s contribution to the 401(k) plan on behalf of median employee of $4,509), and added the $10,514 cost of medical and health benefits attributed to the median employee through Company-sponsored benefit plans. • • • • • • • • •