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, 2020, there were 2,790,071 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”) authorizing the issuance of 2,500,000 shares under such plan. As of December 31, 2020, 2,332,094 shares were available for grant under the ESPP Plan.

Compensation cost, excluding the discontinued operations related to the Chaucer business, for the years ended December 31, 2020, 2019 and 2018 totaled $20.1 million, $17.4 million and $14.9 million, respectively. Related tax benefits were $4.2 million, $3.7 million and $3.1 million, respectively.

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 and Human Capital Committee of the Board of Directors (the “Committee”) at the time of grant. Options granted in 2020, 2019 and 2018 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	2020					2019					2018
(in whole shares and dollars)	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, beginning of year		1,121,559		$	87.88		1,099,076		$	85.75		1,062,177		$	75.53
Granted (1)		242,598			118.34		252,813			119.36		301,152			110.98
Exercised		(54,721	)		75.86		(191,601	)		71.20		(210,190	)		69.41
Forfeited or cancelled		(27,158	)		112.18		(38,729	)		107.34		(54,063	)		89.09
Outstanding, end of year		1,282,278		$	93.64		1,121,559		$	87.88		1,099,076		$	85.75
Exercisable, end of year		852,804		$	82.76		662,555		$	75.63		515,286		$	69.83

Cash received for options exercised for the years ended December 31, 2020, 2019 and 2018 was $3.9 million, $12.3 million and $14.3 million, respectively. The intrinsic value of options exercised for the years ended December 31, 2020, 2019 and 2018 was $2.7 million, $10.1 million and $9.6 million, respectively.

The excess tax benefit realized from options exercised for the years ended December 31, 2020, 2019 and 2018 was $2.1 million, $1.7 million and $1.6 million, respectively. The aggregate intrinsic value at December 31, 2020 for shares outstanding and shares exercisable was $29.9 million and $29.1 million, respectively. At December 31, 2020, the weighted average remaining contractual life for shares outstanding and shares exercisable was 6.6 years and 5.7 years, respectively. Additional information about employee options outstanding and exercisable at December 31, 2020 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
$	34.66 to $40.01		42,573		1.81	$	38.33		42,573	$	38.33
$	54.61		66,107		3.14		54.61		66,107		54.61
$	66.14 to $68.41		102,996		4.16		66.15		102,996		66.15
$	70.51 to $77.91		154,014		5.35		75.45		154,014		75.45
$	82.39 to $92.68		246,844		6.22		85.39		244,951		85.33
$	104.11 to $105.53		266,274		7.16		104.12		181,613		104.12
$	113.32 to $118.54		403,470		8.75		117.96		60,550		117.07

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, 2020, 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, 2020, 2019 and 2018 was $14.45 , $18.12 and $16.30, respectively.

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

	2020			2019		2018
Dividend yield	2.193% to 2.805		%	2.011	%	1.740% to 1.954	%
Expected volatility	17.671% to 24.495		%	18.495% to 19.100	%	17.943% to 18.500	%
Weighted average expected volatility		18.10	%	18.86	%	18.20	%
Risk-free interest rate	0.262 to 1.042%		%	2.527% to 2.617	%	2.365% to 2.969	%
Expected term, in years	2.5 to 6.5			2.5 to 6.5		2.5 to 6.0

The expected dividend yield is based on the Company’s dividend payout rate(s), in the year noted, excluding the effect of any special dividends provided. 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, 2020 and 2019 was $4.6 million and $9.5 million, respectively. As of December 31, 2020, the Company had unrecognized compensation expense of $2.6 million related to unvested stock options that is expected to be recognized over a weighted average period of 1.4 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 2020, 2019 and 2018. Additionally, in 2020 and 2019 the Company granted performance-based restricted share units. These units generally vest after three years of continued employment and after the achievement of certain performance targets. The Company also granted time-based restricted stock units to eligible employees in 2020, 2019 and 2018 that generally vest after three years of continued employment.

The following table summarizes information about employee restricted stock units:

YEARS ENDED DECEMBER 31	2020					2019					2018
	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		335,166		$	109.55		332,481		$	97.28		298,528		$	83.45
Granted		143,128			117.72		149,698			117.60		152,529			111.66
Vested		(94,993	)		94.54		(109,493	)		84.57		(72,710	)		72.69
Forfeited ⁽¹⁾		(32,821	)		115.74		(37,520	)		106.03		(45,866	)		94.04
Outstanding, end of year		350,480		$	116.37		335,166		$	109.55		332,481		$	97.28
Performance and market-based restricted stock units:
Outstanding, beginning of year		86,252		$	110.70		69,838		$	95.58		102,586		$	81.21
Granted		54,415			105.10		42,605			116.67		35,063			118.60
Vested		(40,601	)		80.92		(23,521	)		79.57		(14,032	)		70.24
Forfeited ⁽¹⁾		(3,023	)		124.78		(2,670	)		135.92		(53,779	)		89.79
Outstanding, end of year		97,043		$	119.59		86,252		$	110.70		69,838		$	95.58

In 2020, 2019 and 2018, the Company granted market-based awards totaling 21,379, 24,410, and 31,866, 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 2020, 13,532 market-based restricted stock units were included as granted due to completion levels in excess of 100% for units granted in 2017. The weighted average grant date fair value of these awards was $80.92. In 2019, 5,820 market-based restricted stock units were included as granted due to completion levels in excess of 100% for units granted in both 2016 and 2017. The weighted average grant date fair value of these awards was $75.95. In 2018, 3,115 market-based restricted stock units 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 2020 and 2019, the Company also granted performance-based restricted stock units totaling 19,504 and 18,195, 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 determined through the use of a performance-based metric (return on equity) and has the potential to range from 0% to 150% of the shares disclosed.

The increase in intrinsic value from grant date of restricted stock and restricted stock units that vested during the years ended December 31, 2020, 2019 and 2018 was $4.5 million, $3.7 million and $2.9 million, respectively. The intrinsic value for performance and market-based restricted stock units that vested in 2020, 2019 and 2018 was $2.0 million, $1.1 million, $0.6 million, respectively. There were 1,949 shares, 1,674 shares and 10,330 shares of market-based awards that forfeited in 2020, 2019 and 2018, respectively.

Also, during 2020, 2019 and 2018, there were 1,074 shares, 996 shares and 43,449 shares, respectively, of performance-based awards that forfeited.

At December 31, 2020, the aggregate intrinsic value of restricted stock units was $40.8 million and the weighted average remaining contractual life was 1.3 years. The aggregate intrinsic value of performance and market-based restricted stock units was $11.6 million and the weighted average remaining contractual life was 1.3 years. As of December 31, 2020, there was $25.1 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.