On May 20, 2014, shareholders approved The Hanover Insurance Group 2014 Long-Term Incentive Plan (the “2014 Stock Plan”). With respect to new share-based award issuances, the 2014 Stock Plan replaced The Hanover Insurance Group, Inc. 2006 Long-Term Incentive Plan (the “2006 Stock Plan”) and authorized the issuance of 6,100,000 shares in a new share pool plus any shares subject to outstanding awards under the 2006 Stock Plan that may become available for reissuance as a result of the cash settlement, forfeiture, expiration or cancellation of such awards. The 2014 Stock Plan provides for the granting of the same types of awards as the 2006 Stock Plan, including stock options and stock appreciation rights (“SARS”), restricted and unrestricted stock, stock units, performance and market-based stock awards, and cash awards. In accordance with the 2014 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 3.8 shares. As of December 31, 2018, there were 4,343,301 shares available for grants under the 2014 Stock Plan.

Additionally, on May 20, 2014, shareholders approved The Hanover Insurance Group 2014 Employee Stock Purchase Plan (the “ESPP Plan”) and the Chaucer Share Incentive Plan (the “SIP Plan”), authorizing the issuance of 2,500,000 and 750,000 shares, respectively, under such plans. As of December 31, 2018, 2,371,060 shares were available for grant under the ESPP Plan. As a result of the sale of the Chaucer business in 2018, new grants of stock to the SIP Plan were terminated and the SIP Plan was transferred as part of the sale on December 28, 2018. Total shares awarded under this SIP Plan since 2014 were 74,189.

Compensation cost, excluding the discontinued operations related to the Chaucer business, for the years ended December 31, 2018, 2017, and 2016 totaled $14.9 million, $10.5 million and $10.5 million, respectively. Related tax benefits were $3.1 million, $3.7 million and $3.7 million, respectively. Compensation cost attributable to the Chaucer business, net of taxes, for the years ended December 31, 2017 and 2016 totaled $1.2 million and $1.0 million, respectively, and were reflected in discontinued operations.

Under the 2014 Stock Plan, options may be granted to eligible employees, directors or consultants at an exercise price equal to the market price of the Company’s common stock on the date of grant. Option shares may be exercised subject to the terms prescribed by the Compensation Committee of the Board of Directors (the “Committee”) at the time of grant. Options granted in 2018, 2017 and 2016 generally vest over 3 years with 33 1/3% vesting in each year. Options must be exercised not later than ten years from the date of grant.

YEARS ENDED DECEMBER 31	2018					2017					2016
(in whole shares and dollars)	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, beginning of year		1,062,177		$	75.53		1,396,152		$	68.63		1,619,948		$	56.57
Granted		301,152			110.98		460,610			90.85		587,340			82.17
Exercised		(210,190	)		69.41		(464,726	)		63.12		(589,666	)		48.99
Forfeited or cancelled		(54,063	)		89.09		(329,859	)		85.22		(221,470	)		68.61
Outstanding, end of year		1,099,076		$	85.75		1,062,177		$	75.53		1,396,152		$	68.63
Exercisable, end of year		515,286		$	69.83		423,883		$	62.41		441,256		$	53.59

Cash received for options exercised for the years ended December 31, 2018, 2017 and 2016 was $14.3 million, $20.5 million and $15.8 million, respectively. The intrinsic value of options exercised for the years ended December 31, 2018, 2017 and 2016 was $9.6 million, $15.6 million and $21.1 million, respectively.

The excess tax expense realized from options exercised for the years ended December 31, 2018, 2017 and 2016 was $1.6 million, $4.0 million, and $5.6 million, respectively. The aggregate intrinsic value at December 31, 2018 for shares outstanding and shares exercisable was $34.1 million and $24.2 million, respectively. At December 31, 2018, the weighted average remaining contractual life for shares outstanding and shares exercisable was 7.5 years and 6.2 years, respectively. Additional information about employee options outstanding and exercisable at December 31, 2018 is included in the following table:

		Options Outstanding						Options Currently Exercisable
Range of Exercise Prices		Number		Weighted Average Remaining Contractual Lives		Weighted Average Exercise Price		Number		Weighted Average Exercise Price
$	36.81 to $46.47		64,367		3.44	$	41.61		64,367	$	41.61
$	57.99		93,778		5.14		57.99		93,778		57.99
$	70.24 to $72.66		165,924		6.16		70.27		165,924		70.27
$	74.88 to $82.74		190,120		7.30		80.75		112,847		80.49
$	87.50 to $91.19		285,280		8.20		90.66		78,370		90.89
$	110.57 to $124.14		299,607		9.18		110.98		—		—

The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model. For all options granted through December 31, 2018, the exercise price equaled the market price on the grant date. Compensation cost related to options is based upon the grant date fair value and expensed on a straight-line basis over the service period for each separately vesting portion of the option as if the option was, in substance, multiple awards.

The weighted average grant date fair value of options granted during the years ended December 31, 2018, 2017 and 2016 was $16.30, $13.05 and $10.83, respectively.

The following significant assumptions were used to determine the fair value for options granted in the years indicated.

The expected dividend yield is based on the Company’s dividend payout rate(s), in the year noted. Expected volatility is based generally on the Company’s historical daily stock price volatility. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected term of options granted represents the period of time that options are expected to be outstanding and is derived primarily using historical exercise, forfeit and cancellation behavior, along with certain other factors expected to differ from historical data.

The fair value of shares that vested during the years ended December 31, 2018 and 2017 was $9.3 million and $8.3 million, respectively. As of December 31, 2018, the Company had unrecognized compensation expense of $3.7 million related to unvested stock options that is expected to be recognized over a weighted average period of 1.5 years.

Stock grants may be awarded to eligible employees at a price established by the Committee (which may be zero). Under the 2014 Stock Plan, the Company may award shares of restricted stock, restricted stock units, as well as shares of unrestricted stock. Restricted stock grants may vest based upon performance criteria, market criteria or continued employment and be in the form of shares or units. Vesting periods are established by the Committee.

The Company granted market-based restricted share units in 2018, 2017 and 2016. These units generally vest after 3 years of continued employment and after the achievement of certain stock performance targets. The Company also granted time-based restricted stock units to eligible employees in 2018, 2017 and 2016 that generally vest after 3 years of continued employment.

The following table summarizes information about employee restricted stock units:

YEARS ENDED DECEMBER 31	2018					2017					2016
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Time-based restricted stock units:
Outstanding, beginning of year		298,528		$	83.45		269,063		$	73.91		301,897		$	54.54
Granted		152,529			111.66		130,075			90.40		143,107			83.43
Vested		(72,710	)		72.69		(70,590	)		59.29		(139,183	)		42.97
Forfeited ⁽¹⁾		(45,866	)		94.04		(30,020	)		84.88		(36,758	)		69.07
Outstanding, end of year		332,481		$	97.28		298,528		$	83.45		269,063		$	73.91
Performance and market-based restricted stock units:
Outstanding, beginning of year		102,586		$	81.21		115,057		$	78.82		196,142		$	47.89
Granted		35,063			118.60		60,101			79.48		126,796			73.42
Vested		(14,032	)		70.24		(17,642	)		56.45		(144,141	)		40.95
Forfeited ⁽¹⁾		(53,779	)		89.79		(54,930	)		82.27		(63,740	)		58.54
Outstanding, end of year ⁽²⁾		69,838		$	95.58		102,586		$	81.21		115,057		$	78.82

(1)	As a result of the sale of Chaucer and included in forfeitures in 2018 are 19,655 shares of time-based restricted stock units, 43,449 shares of performance-based restricted stock units and 2,705 shares of market-based restricted stock units that were awarded to Chaucer employees.

(2)	At December 31, 2018, only market-based awards were outstanding.

In 2018, 2017 and 2016, the Company granted market-based awards totaling 31,688, 56,571, and 87,213, 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 group of Property and Casualty peer 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.

In 2018, market-based restricted stock units of 3,115 were included as granted due to completion levels in excess of 100% for units granted in 2015. The weighted average grant date fair value of these awards was $70.24. In 2017, market-based restricted stock units of 5,881 were included as granted due to completion levels in excess of 100% for units granted in 2014. The weighted average grant date fair value of these awards was $56.45. In 2016, performance and market-based stock units of 2,268 and 30,134 were included as granted due to completion levels in excess of 100% for units granted in 2014 and 2013, respectively. The weighted average grant date fair value of these awards was $57.00 and $41.77, respectively.

The intrinsic value of restricted stock and restricted stock units that vested during the years ended December 31, 2018, 2017 and 2016 was $2.9 million, $2.3 million and $5.4 million, respectively. The intrinsic value for performance and market-based restricted stock units that vested in 2018, 2017 and 2016 was $0.6 million, $0.6 million and $5.8 million, respectively. There were 10,330 shares, 53,840 shares and 63,740 shares of market-based awards that forfeited in 2018, 2017 and 2016, respectively. Also, during 2018 and 2017, there were 43,449 shares and 1,090 shares, respectively, of performance-based awards that forfeited.

At December 31, 2018, the aggregate intrinsic value of restricted stock units was $39.1 million and the weighted average remaining contractual life was 1.3 years. The aggregate intrinsic value of market-based restricted stock units was $8.2 million and the weighted average remaining contractual life was 1.4 years. As of December 31, 2018, there was $19.7 million of total unrecognized compensation cost related to unvested restricted stock units and performance and market-based restricted stock units. The cost is expected to be recognized over a weighted average period of 1.8 years. Compensation cost associated with restricted stock, restricted stock units and performance and market-based restricted stock units is generally calculated based upon grant date fair value, which is determined using current market prices.