9. Stock-based Compensation

As of September 30, 2017, there were 4,267,859 shares, 2,397,260 shares and 689,062 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 September 30,						Nine Months Ended September 30,
(in millions)	2017			2016			2017			2016
Stock-based compensation expense	$	4.2		$	3.0		$	11.5		$	8.5
Tax benefit		(1.5	)		(1.1	)		(4.0	)		(3.0	)
Stock-based compensation expense, net of taxes	$	2.7		$	1.9		$	7.5		$	5.5

Stock Options

Information on the Company’s stock option activity for the nine months ended September 30, 2017 and 2016 is summarized below.

	Nine Months Ended September 30,
	2017					2016
(in whole shares and dollars)	Shares ⁽¹⁾			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, beginning of period		1,396,152		$	68.63		1,619,948		$	56.57
Granted		460,610			90.85		524,940			82.74
Exercised		(327,205	)		57.29		(564,389	)		48.80
Forfeited or cancelled		(28,042	)		79.40		(207,203	)		68.23
Outstanding, end of period		1,501,515			77.72		1,373,296			68.01

(1)

Included in outstanding shares at the end of the period were 298,899 shares that are not expected to vest due to the announcement of the pending resignation of the Company’s CEO.

Restricted Stock Units

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

	Nine Months Ended September 30,
	2017					2016
(in whole shares and dollars)	Shares ⁽²⁾			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Time-based restricted stock units:
Outstanding, beginning of period		269,063		$	73.91		301,897		$	54.54
Granted		128,850			90.53		143,107			83.43
Vested		(70,590	)		59.29		(136,398	)		42.49
Forfeited		(26,615	)		84.59		(27,411	)		68.07
Outstanding, end of period		300,708			83.52		281,195			73.77
Performance-based and market-based restricted stock units:
Outstanding, beginning of period		115,057		$	78.82		196,142		$	47.89
Granted		60,101			79.48		118,736			73.14
Vested		(17,642	)		58.16		(144,141	)		41.11
Forfeited		(2,180	)		95.36		(63,740	)		64.13
Outstanding, end of period		155,336			81.19		106,997			75.38

(2)

Included in outstanding performance-based and market-based restricted stock units at the end of the period were 52,750 stock units that are not expected to vest due to the announcement of the pending resignation of the Company’s CEO.

In the first nine months of 2017 and 2016, the Company granted market-based awards totaling 56,571 and 79,153, 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 granted above in 2017 and 2016 are 5,881 shares and 30,453 shares, respectively, related to market-based awards that achieved a payout in excess of 100%. These awards vested in the first nine months of 2017 and 2016, respectively.

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. There were no awards vested in 2017 at a level greater than 100%. Included in the amounts granted above in 2016 for the performance-based restricted stock units are 1,949 shares related to awards that a performance metric in excess of 100% was achieved. These awards vested in the first nine months of 2016.