Stock-based Compensation

9 Months Ended

Sep. 30, 2022

Share-Based Payment Arrangement [Abstract]

9. Stock-based Compensation

On May 10, 2022 the shareholders approved The Hanover Insurance Group 2022 Long-Term Incentive Plan (the “2022 Stock Plan”). With respect to new share-based issuances, the 2022 Stock Plan replaced The Hanover Insurance Group, Inc. 2014 Long-Term Incentive Plan (the “2014 Stock Plan”) and provided authorization for 3,380,000 shares in a new share pool plus any shares subject to outstanding awards under the 2014 Stock Plan that may become available for reissuance as a result of the cash settlement, forfeiture, expiration or cancellation of such awards. The 2022 Stock Plan provides for the granting of the same types of awards as the 2014 Stock Plan, which includes stock options and stock appreciation rights ("SARS"), restricted and unrestricted stock, stock units, performance based stock awards and cash awards. In accordance with the 2022 Stock Plan, the issuance of one share of common stock in the form of an option or SAR will reduce the share pool by one share, whereas the issuance of one share of common stock for the other types of stock awards provided by the plan will reduce the pool by 3.2 shares. As of September 30, 2022, there were 3,387,033 shares available for grants under the 2022 Stock Plan.

As of September 30, 2022, there were 2,303,574 shares available for grant under The Hanover Insurance Group 2014 Employee Stock Purchase Plan.

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


	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2022			2021			2022			2021
Stock-based compensation expense	$	7.7		$	5.8		$	21.8		$	16.8
Tax benefit		(1.7	)		(1.2	)		(4.6	)		(3.5	)
Stock-based compensation expense, net of taxes	$	6.0		$	4.6		$	17.2		$	13.3

Stock Options

Information on the Company’s stock option activity for the nine months ended September 30, 2022 and 2021 is summarized below.


	Nine Months Ended September 30,
	2022					2021
(in whole shares and dollars)	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, beginning of period		1,230,211		$	99.14		1,282,278		$	93.64
Granted		140,339			139.51		178,040			115.35
Exercised		(262,900	)		86.82		(223,426	)		80.46
Forfeited or cancelled		(6,075	)		116.44		(4,769	)		118.01
Outstanding, end of period		1,101,575			107.13		1,232,123			99.07

Restricted Stock Units

The Company currently issues time-based, market-based and performance-based restricted stock units to eligible employees, all of which generally vest after 3 years of continued employment.

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


	Nine Months Ended September 30,
	2022					2021
(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		380,100		$	117.60		350,480		$	116.37
Granted		147,438			138.46		171,575			115.44
Vested		(120,715	)		119.29		(116,739	)		111.06
Forfeited		(23,148	)		122.94		(20,846	)		117.18
Outstanding, end of period		383,675			124.77		384,470			117.53
Performance-based and market-based restricted stock units:
Outstanding, beginning of period		113,848		$	115.92		97,043		$	119.59
Granted		47,954			140.36		62,143			114.66
Vested		(39,338	)		124.42		(43,506	)		122.27
Forfeited		(3,301	)		120.66		(1,832	)		116.90
Outstanding, end of period		119,163			122.81		113,848			115.92

In the first nine months of 2022 and 2021, the Company granted market-based awards totaling 19,057 and 37,348, 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 pre-selected group of property and casualty 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 forfeited above in 2022 are 1,282 shares related to market-based awards that achieved a payout below 100%. These awards were forfeited in the first quarter of 2022. Included in the amount granted above in 2021 are 14,501 shares related to market-based awards that achieved a payout in excess of 100%. These awards vested in the first quarter of 2021.

The Company also granted performance-based restricted stock units in 2022 and 2021, totaling 28,897 and 21,401, respectively, which are based upon the Company’s achievement of return on equity objectives. These units have the potential to range from 0% to 150% of the shares disclosed. Increases above the 100% target level are reflected as granted in the period after which performance-based stock unit goals are achieved. Decreases below the 100% target level are reflected as forfeited. Included in the amount granted above in 2022 are 7,988 shares related to performance-based awards that achieved a payout in excess of 100%. These awards vested in the first quarter of 2022.