Stock-based Compensation

9 Months Ended

Sep. 30, 2015

11. Stock-based Compensation

As of September 30, 2015, there were 5,340,812 shares, 2,446,944 shares and 714,868 shares available for grant under The Hanover Insurance Group 2014 Long-Term Incentive Plan, The Hanover Insurance Group 2014 Employee Stock Purchase Plan and the Chaucer Share Incentive Plan, respectively.

Compensation cost for the Company’s stock-based awards and the related tax benefits were as follows:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2015		2014		2015		2014
Stock-based compensation expense	$	1.9	$	3.8	$	9.4	$	11.1
Tax benefit		(0.7)		(1.3)		(3.3)		(3.9)
Stock-based compensation expense, net of taxes	$	1.2	$	2.5	$	6.1	$	7.2

Stock Options

Information on the Company’s stock option plans is summarized below.



	Nine Months Ended September 30,
	2015			2014
(in whole shares and dollars)	Shares		Weighted Average Exercise Price	Shares		Weighted Average Exercise Price
Outstanding, beginning of period	2,236,620	$	46.61	2,049,173	$	41.18
Granted	663,900		70.34	684,200		58.03
Exercised	(377,188)		45.66	(278,368)		38.99
Forfeited or cancelled	(245,974)		59.94	(47,553)		43.77
Outstanding, end of period	2,277,358		52.25	2,407,452		46.17

Included in the table above for the nine months ended September 30, 2015 as forfeited or cancelled were 128,334 options that are no longer expected to vest.

Restricted Stock Units

The following tables summarize activity information about employee restricted stock units:



	Nine Months Ended September 30,
	2015			2014
(in whole shares and dollars)	Shares		Weighted Average Grant Date Fair Value	Shares		Weighted Average Grant Date Fair Value
Time-based restricted stock units:
Outstanding, beginning of period	384,923	$	45.63	525,980	$	41.20
Granted	92,409		70.61	94,240		58.02
Vested	(119,117)		40.94	(225,178)		41.64
Forfeited	(31,573)		51.10	(10,851)		41.82
Outstanding, end of period	326,642		53.88	384,191		45.05

Performance-based and market-based restricted stock units:
Outstanding, beginning of period	218,338	$	44.24	184,626	$	40.42
Granted	82,025		48.55	60,338		55.73
Vested	(77,854)		38.82	(22,826)		44.78
Forfeited	(70,951)		55.08	(3,800)		37.90
Outstanding, end of period	151,558		44.27	218,338		44.24

In the first nine months of 2015 and 2014, the Company granted market-based awards totaling 80,738 and 56,625, respectively, to certain members of senior management, which are included in the table above as performance and market-based restricted stock activity. The vesting of these stock units is based on the relative total shareholder return (“TSR”) of the Company. This metric is generally based on relative TSR for a three-year period, as compared to a property and casualty index of selected competitor companies. The fair value of market-based awards was estimated at the date of grant using a valuation model. These units have the potential to range from 0% to 150% of the shares disclosed. Included in the amount granted above were 38,713 shares related to market-based awards that achieved a payout in excess of 100%, with 20,275 shares becoming vested in the first quarter of 2015 and the remaining 18,438 shares vesting in the first quarter of 2016 provided that the participant remains employed by the Company during the vesting period. Also, reflected in the table above as performance and market based restricted stock forfeitures for 2015 were 56,500 awards that are not expected to vest.

Performance-based restricted stock units are based upon the achievement of the performance metric at 100%. These units have the potential to range from 0% to 200% of the shares disclosed, which varies based on grant year and individual participation level. Increases above the 100% target level are reflected as granted in the period in which performance-based stock unit goals are achieved. Decreases below the 100% target level are reflected as forfeited. Included in the amounts granted above for the performance-based restricted stock units were 1,287 shares related to awards that a performance metric in excess of 100% was achieved. These awards vested in the first quarter of 2015.