Stock-based Compensation

3 Months Ended

Mar. 31, 2023

Share-Based Payment Arrangement [Abstract]

9. Stock-based Compensation

As of March 31, 2023, there were 2,919,433 and 2,292,464 shares available for grants under The Hanover Insurance Group 2022 Long-Term Incentive Plan and The Hanover Insurance Group 2014 Employee Stock Purchase Plan, respectively.

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


	Three Months Ended March 31,
(in millions)	2023			2022
Stock-based compensation expense	$	7.1		$	6.7
Tax benefit		(1.5	)		(1.4	)
Stock-based compensation expense, net of taxes	$	5.6		$	5.3

Stock Options

Information on the Company’s stock option activity for the three months ended March 31, 2023 and 2022 is summarized below.


	Three Months Ended March 31,
	2023					2022
(in whole shares and dollars)	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, beginning of period		1,080,852		$	107.07		1,230,211		$	99.14
Granted		135,019			140.01		140,339			139.51
Exercised		(36,286	)		96.03		(192,400	)		81.48
Forfeited or cancelled		(1,046	)		115.79		(2,939	)		116.43
Outstanding, end of period		1,178,539			111.17		1,175,211			106.81

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:


	Three Months Ended March 31,
	2023					2022
(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		378,256		$	124.88		380,100		$	117.60
Granted		146,464			138.71		143,208			138.20
Vested		(125,686	)		118.10		(114,978	)		119.35
Forfeited		(965	)		123.64		(5,609	)		119.92
Outstanding, end of period		398,069			132.11		402,721			124.40
Performance-based and market-based restricted stock units:
Outstanding, beginning of period		119,163		$	122.81		113,848		$	115.92
Granted		50,115			137.90		47,954			140.36
Vested		(44,781	)		114.14		(39,338	)		124.42
Forfeited		(3,803	)		109.07		(2,936	)		121.73
Outstanding, end of period		120,694			132.73		119,528			122.78

In the first three months of 2023 and 2022, the Company granted market-based awards totaling 21,789 and 19,057, 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 2023 and 2022 are 2,836 and 1,282 shares, respectively, related to market-based awards that achieved a payout below 100%. These awards were forfeited in the first quarter of 2023 and 2022, respectively.

The Company also granted performance-based restricted stock units in 2023 and 2022, totaling 28,326 and 28,897, 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 2023 and 2022 are 5,961 and 7,988 shares, respectively, related to performance-based awards that achieved a payout in excess of 100%. These awards vested in the first quarter of 2023 and 2022, respectively.