DEF 14A 1 ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.      )

 

Filed by the Registrant

  

x

  

Filed by a Party other than the Registrant

  

¨

  

Check the appropriate box:

 

¨ 

Preliminary Proxy Statement

 

¨ 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

x 

Definitive Proxy Statement

 

¨ 

Definitive Additional Materials

 

¨ 

Soliciting Material Pursuant to §240.14a-12

The Travelers Companies, Inc.

 

(Name of Registrant as Specified In Its Charter)

  

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

x 

No fee required.

¨ 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1) 

Title of each class of securities to which transaction applies:

 

 

  (2) 

Aggregate number of securities to which transaction applies:

 

 

  (3) 

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

  (4) 

Proposed maximum aggregate value of transaction:

 

 

  (5) 

Total fee paid:

 

 

 

¨ 

Fee paid previously with preliminary materials.

 

¨ 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1) 

Amount Previously Paid:

 

 

  (2) 

Form, Schedule or Registration Statement No.:

 

 

  (3) 

Filing Party:

 

 

  (4) 

Date Filed:

 

 


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LOGO

March 17, 2010

Dear Shareholders:

Please join us for The Travelers Companies, Inc. Annual Meeting of Shareholders on Tuesday, May 4, 2010, at 10:30 a.m. (Eastern Daylight Time) at the Connecticut Convention Center, 100 Columbus Boulevard, Hartford, Connecticut 06103.

We are pleased to have again utilized the Securities and Exchange Commission rule allowing companies to furnish proxy materials to their shareholders over the Internet. The e-proxy process has allowed us to expedite our shareholders’ receipt of proxy materials, lower the costs of distribution and reduce the environmental impact of our annual meeting.

In accordance with this rule, we sent shareholders of record at the close of business on March 5, 2010 a Notice of Internet Availability of Proxy Materials on or about March 17, 2010. The notice contains instructions on how to access our Proxy Statement and Annual Report and vote online. If you would like to receive a printed copy of our proxy materials from us instead of downloading a printable version from the Internet, please follow the instructions for requesting such materials included in the notice, as well as in the attached Proxy Statement.

Attached to this letter are a Notice of Annual Meeting of Shareholders and Proxy Statement, which describe the business to be conducted at the meeting. We also will report on matters of current interest to our shareholders.

Your vote is important. Whether you own a few shares or many, and whether or not you plan to attend the Annual Meeting in person, it is important that your shares be represented and voted at the meeting. You may vote your shares by proxy on the Internet, by telephone or by completing, signing and promptly returning a proxy card, or you may vote in person at the Annual Meeting.

Thank you for your continued support of Travelers.

Sincerely,

LOGO

Jay S. Fishman

Chairman of the Board and Chief Executive Officer


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PROXY VOTING METHODS

If, at the close of business on March 5, 2010, you were a shareholder of record or held shares through a Travelers benefit or compensation plan or a broker or bank, you may vote your shares by proxy through the Internet, by telephone or by mail, or you may vote in person at the Annual Meeting. For shares held through a broker or nominee, you may vote by submitting voting instructions to your broker or nominee. To reduce our administrative and postage costs, we ask that you vote through the Internet or by telephone, both of which are available 24 hours a day. You may revoke your proxies at the times and as described on page 4 of this Proxy Statement.

If you are a shareholder of record or hold shares through a broker or bank and are voting by proxy, your vote must be received by 11:59 p.m. (Eastern Daylight Time) on May 3, 2010 to be counted.

Please note, if you hold shares through a Travelers benefit or compensation plan, your vote must be received by 11:59 p.m. (Eastern Daylight Time) on April 30, 2010. Those votes cannot be changed or revoked after that time, and those shares cannot be voted in person at the Annual Meeting.

To vote by proxy:

BY INTERNET

 

   

Go to the website www.proxyvote.com and follow the instructions, 24 hours a day, seven days a week.

 

   

You will need the 12-digit Control Number included on your Notice of Internet Availability of Proxy Materials or proxy card to obtain your records and to create an electronic voting instruction form.

BY TELEPHONE

 

   

From a touch-tone telephone, dial (800) 690-6903 and follow the recorded instructions, 24 hours a day, seven days a week.

 

   

You will need the 12-digit Control Number included on your Notice of Internet Availability of Proxy Materials or proxy card in order to vote by telephone.

BY MAIL

 

   

Request a proxy card from us by following the instructions on your Notice of Internet Availability of Proxy Materials.

 

   

When you receive the proxy card, mark your selections on the proxy card.

 

   

Date and sign your name exactly as it appears on your proxy card.

 

   

Mail the proxy card in the postage-paid envelope that will be provided to you.

YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.


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THE TRAVELERS COMPANIES, INC.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

TIME

10:30 a.m. (Eastern Daylight Time) on Tuesday, May 4, 2010

 

PLACE

Connecticut Convention Center

100 Columbus Boulevard

Hartford, Connecticut 06103

 

ITEMS OF BUSINESS

1.  

To elect the 12 directors listed herein.

 

  2.  

To ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2010.

 

  3.  

To consider such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof.

 

RECORD DATE

You may vote at the Annual Meeting if you were a shareholder of record at the close of business on March 5, 2010.

 

VOTING BY PROXY

To ensure your shares are voted, you may vote your shares over the Internet, by telephone or by requesting a paper proxy card to complete, sign and return by mail. Internet and telephone voting procedures are described on the preceding page, in the General Information section beginning on page 1 of this Proxy Statement and on the proxy card.

By Order of the Board of Directors,

LOGO

Matthew S. Furman

Senior Vice President and

Corporate Secretary

This Notice of Annual Meeting and Proxy Statement

are being distributed or made available, as the

case may be, on or about March 17, 2010.


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TABLE OF CONTENTS

 

General Information

   1

Item 1—Election of Directors

   6

Nominees for Election as Directors

   6

Board of Directors Information

   13

Committees of the Board and Meetings

   13

Audit Committee

   13

Compensation Committee

   14

Executive Committee

   16

Investment and Capital Markets Committee

   16

Nominating and Governance Committee

   16

Risk Committee

   16

Advisory Committee on Public Policy

   17

Governance of Your Company

   17

Governance Guidelines

   17

Code of Business Conduct and Ethics

   17

Significant Governance Practices

   17

Ethics Helpline

   17

Business Practices Committee

   17

Compliance Policy and Review Board

   18

Director Stock Ownership

   18

Director Age Limit

   18

Director Nominations

   18

Process and Criteria Generally

   18

Specific Considerations Regarding 2010 Directors and Nominees

   19

Annual Meeting of Shareholders

   20

Director Independence and Independence Determinations

   20

Dating and Pricing of Equity Grants

   21

Transactions with Related Persons and Certain Control Persons—Related Person Transaction Approval

   21

Employment Relationships

   22

Third-Party Transactions

   22

Governance Structure of the Board—Lead Director

   23

Executive Sessions

   24

Board and Committee Evaluations

   24

Communications with the Board

   24

Board’s Role in Risk Management; Enterprise Risk Management

   24

Item 2—Ratification of Independent Registered Public Accounting Firm

   26

Audit and Non-Audit Fees

   26

Report of the Audit Committee

   27

Executive Compensation

   28

Compensation Discussion and Analysis

   28

2009 Overview

   28

Risk Management and Compensation

   30

Objectives of Our Executive Compensation Program

   30

Compensation Determination Process

   32

Compensation Comparison Group

   32

Compensation Elements

   32

Total Direct Compensation

   33

Base Salary

   33

Performance-Based Annual Cash Bonus

   33

Stock-Based Long-Term Incentives

   37

Stock Options

   38

Performance Shares

   38

Total Direct Compensation for 2009 (Supplemental Table)

   40


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TABLE OF CONTENTS (Continued)

 

Other Compensation

   41

Pension Plans

   41

Deferred Compensation

   41

Other Benefits

   41

Personal Security

   41

Other Transportation

   42

Health Benefits; Treatment of Higher Paid and Lower Paid Employees

   42

Severance and Change in Control Agreements

   42

Non-Compete Agreements

   43

Stock Ownership Guidelines

   43

Recapture/Forfeiture Provisions

   44

Timing and Pricing of Equity Grants

   44

Compensation Committee Report

   45

Compensation Committee Interlocks and Insider Participation

   45

Tabular Executive Compensation Disclosure

   46

Summary Compensation Table

   46

Grants of Plan-Based Awards in 2009

   48

Narrative Supplement to the Summary Compensation Table and the Grants of Plan-Based Awards in 2009

   49

Mr. Fishman’s Employment Agreement

   49

Mr. Schnitzer’s Employment Agreement

   49

Restricted Stock

   50

Terms of Equity-Based Awards

   50

Outstanding Equity Awards at December 31, 2009

   52

Option Awards Vesting Schedule

   54

Stock Awards Vesting Schedule

   55

Option Exercises and Stock Vested in 2009

   55

Post-Employment Compensation

   56

Pension Benefits

   56

Non-Qualified Deferred Compensation for 2009

   58

Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control

   60

Accrued Pay and Regular Retirement Benefits

   60

Potential Payments Upon Termination of Employment or Change in Control

   61

Summary of Key Agreements

   63

Non-Employee Director Compensation

   66

Annual Retainer

   66

Annual Deferred Stock Award

   66

Committee Chair Fees

   66

Director Deferral Plan

   66

Legacy Directors’ Charitable Award Program

   66

Director Compensation for 2009

   68

Director Fee Breakdown for 2009

   69

Outstanding Equity Awards for Non-Employee Directors at December 31, 2009

   69

Share Ownership Information

   70

5% Owners

   70

Share Ownership of Directors and Executive Officers

   70

Section 16(a) Beneficial Ownership Reporting Compliance

   71

Shareholder Proposals for 2011 Annual Meeting

   72

Householding of Proxy Materials

   72

Reconciliation of Non-GAAP Measures to GAAP Measures

   72

Other Business

   73


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THE TRAVELERS COMPANIES, INC.

485 Lexington Avenue

New York, New York 10017

Telephone: 917-778-6000

 

 

PROXY STATEMENT

Annual Meeting of Shareholders

May 4, 2010

10:30 a.m. (Eastern Daylight Time)

 

 

GENERAL INFORMATION

Why am I being provided with these materials?

We have made these proxy materials available to you on the Internet or, upon your request, have delivered printed versions of these materials to you by mail in connection with the solicitation by the Board of Directors (the “Board”) of The Travelers Companies, Inc. (the “Company” or “Travelers”) of proxies to be voted at our Annual Meeting of Shareholders to be held on May 4, 2010 (“Annual Meeting”), and at any postponements or adjournments of the Annual Meeting. Directors, officers and other Company employees also may solicit proxies by telephone or otherwise. Brokers and other nominees will be requested to solicit proxies or authorizations from beneficial owners and will be reimbursed for their reasonable expenses. You are invited to attend the meeting and vote your shares in person.

Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials this year instead of a full set of proxy materials?

Pursuant to the rules adopted by the Securities and Exchange Commission (the “SEC”), we have again elected to provide shareholders access to our proxy materials over the Internet. The e-proxy process has allowed us to expedite our shareholders’ receipt of proxy materials, lower the costs of distribution and reduce the environmental impact of our Annual Meeting. Accordingly, we sent a Notice of Internet Availability of Proxy Materials (the “Notice”) on or about March 17, 2010 to shareholders of record entitled to vote at the Annual Meeting. All shareholders will have the ability to access the proxy materials on a website referred to in the Notice and to download printable versions of the proxy materials or to request and receive a printed set of the proxy materials from us. Instructions on how to access the proxy materials over the Internet or to request a printed copy from us may be found on the Notice.

What am I voting on?

There are two proposals scheduled to be voted on at the meeting:

 

   

Election of the 12 directors listed in this Proxy Statement.

 

   

Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 2010.

Who is entitled to vote?

Shareholders as of the close of business on March 5, 2010 (the “Record Date”) may vote at the Annual Meeting. As of that date, there were 505,933,508 shares of common stock and 234,661.39 shares of Series B convertible preferred stock outstanding. The holders of common stock and Series B convertible preferred stock vote as one class on all matters at the Annual Meeting. Each share of Series B convertible preferred stock is entitled to eight votes. You have one vote for each share of common stock held by you as of the Record Date, including shares:

 

   

Held directly in your name as “shareholder of record” (also referred to as “registered shareholder”);

 

   

Held for you in an account with a broker, bank or other nominee (shares held in “street name”) – street name holders generally cannot vote their shares directly and instead must instruct the brokerage firm, bank or nominee how to vote their shares;

 

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Credited to your account in our 401(k) Savings Plan; and

 

   

Held for you by us as restricted shares (whether vested or non-vested) under any of our stock incentive plans.

What constitutes a quorum?

A majority of the aggregate voting power of the shares of common stock and Series B convertible preferred stock entitled to vote must be present or represented by proxy to constitute a quorum for the Annual Meeting. Abstentions are counted as present and entitled to vote for purposes of determining a quorum. Shares represented by “broker non-votes” also are counted as present and entitled to vote for purposes of determining a quorum. However, if you hold your shares in street name and do not provide voting instructions to your broker, your shares will not be voted on any proposal on which your broker does not have discretionary authority to vote (a “broker non-vote”). Under current New York Stock Exchange (“NYSE”) rules, your broker will not have discretionary authority to vote your shares at the Annual Meeting with respect to the proposal relating to the election of the 12 directors listed in this Proxy Statement and will have the discretion to vote your shares on the proposal to ratify KPMG LLP as an independent registered public accounting firm for 2010. On the Record Date, 505,933,508 shares of our common stock and 234,661.39 shares of our Series B convertible preferred stock were outstanding. Each share of common stock is entitled to one vote, and each share of Series B convertible preferred stock is entitled to eight votes. Therefore, a total of 507,810,799 votes are eligible to be cast at the Annual Meeting.

How many votes are required to approve each proposal?

Each director shall be elected at the Annual Meeting by the vote of a majority of the votes cast with respect to the director. A majority of the votes cast with respect to election of a director means that, of the votes entitled to be cast by the holders of all the then outstanding shares of voting stock of the Company, those votes cast “for” a director must exceed the votes cast “against” that director. In an uncontested election of directors at which a quorum is present, if any nominee for director receives a greater number of votes “against” his or her election than votes “for” such election, our Governance Guidelines require that such person must promptly tender his or her resignation to the Board following certification of the shareholder vote. Our Governance Guidelines further provide that the Nominating and Governance Committee will then consider the tendered resignation and make a recommendation to the Board as to whether to accept or reject the tendered resignation or whether other action should be taken. The Board will act on the tendered resignation, taking into account the Nominating and Governance Committee’s recommendation, and publicly disclose its decision regarding the tendered resignation and the rationale behind the decision within 90 days from the date of the certification of the election results. Cumulative voting in the election of directors is not permitted.

Any other proposal requires an affirmative vote equal to the greater of (1) a majority of the votes represented in person or by proxy at the Annual Meeting that are entitled to vote on the proposal and (2) a majority of the voting power of the minimum number of shares entitled to vote that would constitute a quorum at the Annual Meeting.

How are votes counted?

You may vote “FOR” or “AGAINST” each of the nominees for the Board, or you may “WITHHOLD” authority to vote for one or more nominees. You may vote “FOR”, “AGAINST” or “ABSTAIN” on each of the other proposals. With respect to the election of directors, a “WITHHOLD” vote will have the same effect as an abstention and will not count as a vote cast “FOR” or “AGAINST” a director nominee. In addition, under current NYSE rules, a broker non-vote will also not count as a vote cast “FOR” or “AGAINST” a director nominee. If a majority of the votes represented in person or by proxy at the Annual Meeting that are entitled to vote on the proposal is required in order to approve a proposal, then an abstention will have the same effect as a vote against the proposal, and a broker non-vote will have no effect in determining whether the proposal is approved because the shares subject to the broker non-vote will not be deemed “present and entitled to vote” on the proposal. However, if a majority of the voting power of the minimum number of shares entitled to vote that would constitute a quorum at the Annual Meeting is required in order to approve a proposal, then an abstention or a broker non-vote on the proposal will be considered a vote against the proposal and may have a negative effect in determining whether the proposal is approved. If you just sign and submit your proxy card without voting instructions, your shares will be voted “FOR” each director nominee, “FOR” the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 2010, and in accordance with the discretion of the holders of the proxy with respect to any other matters that may be voted upon. Voting instructions are being provided separately to current and former employees who hold shares through any of our benefit or compensation plans.

 

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Who will count the vote?

Representatives of Broadridge Financial Solutions, Inc. will tabulate the votes, and representatives of American Election Services, LLC will act as inspectors of election.

How does the Board recommend that I vote?

Our Board recommends that you vote your shares:

 

   

“FOR” each of the nominees to the Board set forth in this Proxy Statement; and

 

   

“FOR” the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 2010.

How do I vote my shares without attending the Annual Meeting?

If you are a shareholder of record or hold shares through one of our benefit or compensation plans, you may vote by granting a proxy. For shares held in street name, you may vote by submitting voting instructions to your broker or nominee. In all circumstances, you may vote:

 

   

By Internet—If you have Internet access, you may submit your proxy by going to www.proxyvote.com and by following the instructions on how to complete an electronic proxy card. You will need the 12-digit Control Number included on your Notice or your proxy card in order to vote by Internet.

 

   

By Telephone—If you have access to a touch-tone telephone, you may submit your proxy by dialing (800) 690-6903 and by following the recorded instructions. You will need the 12-digit Control Number included on your Notice or your proxy card in order to vote by telephone.

 

   

By Mail—You may vote by mail by requesting a proxy card from us, indicating your vote by completing, signing and dating the card where indicated and by mailing or otherwise returning the card in the envelope that will be provided to you. You should sign your name exactly as it appears on the proxy card. If you are signing in a representative capacity (for example, as guardian, executor, trustee, custodian, attorney or officer of a corporation), indicate your name and title or capacity.

Internet and telephone voting facilities will close at 11:59 p.m. (Eastern Daylight Time) on May 3, 2010 for the voting of shares held by shareholders of record or held in street name and at 11:59 p.m. (Eastern Daylight Time) on April 30, 2010 for the voting of shares held by current and former employees through a Company benefit or compensation plan.

Mailed proxy cards with respect to shares held of record or in street name must be received no later than May 3, 2010.

Mailed proxy cards with respect to shares held by current and former employees through a Company benefit or compensation plan must be received no later than April 30, 2010.

How do I vote my shares in person at the Annual Meeting?

First, you must satisfy the requirements for admission to the Annual Meeting (see below). Then, if you are a shareholder of record and prefer to vote your shares at the Annual Meeting, you must bring proof of identification along with your Notice or proof of ownership. You may vote shares held in street name at the Annual Meeting only if you obtain a signed proxy from the record holder (broker or other nominee) giving you the right to vote the shares.

Even if you plan to attend the Annual Meeting, we encourage you to vote in advance by Internet, telephone or proxy card so that your vote will be counted even if you later were to decide not to attend the Annual Meeting.

Shares held by current and former employees through a Company benefit or compensation plan cannot be voted in person at the Annual Meeting.

What does it mean if I receive more than one Notice on or about the same time?

It generally means you hold shares registered in more than one account. To ensure that all your shares are voted, please sign and return each proxy card or, if you vote by Internet or telephone, vote once for each Notice you receive.

 

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May I change my vote or revoke my proxy?

Yes. Whether you have voted by Internet, telephone or mail, if you are a shareholder of record, you may change your vote and revoke your proxy by:

 

   

Sending a written statement to that effect to our Corporate Secretary or to any corporate officer of the Company, provided such statement is received no later than May 3, 2010;

 

   

Voting again by Internet or telephone at a later time before the closing of those voting facilities at 11:59 p.m. (Eastern Daylight Time) on May 3, 2010;

 

   

Submitting a properly signed proxy card with a later date that is received no later than May 3, 2010; or

 

   

Attending the Annual Meeting, revoking your proxy and voting in person.

If you are a current or former employee and hold shares through a Travelers benefit or compensation plan, you may change your vote and revoke your proxy by any of the first three methods listed above if you do so no later than 11:59 p.m. (Eastern Daylight Time) on April 30, 2010. You cannot, however, revoke or change your proxy with respect to shares held through a Company benefit or compensation plan after that date, and you cannot vote those shares in person at the Annual Meeting.

If you hold shares in street name, you may submit new voting instructions by contacting your bank, broker or other nominee. You may also change your vote or revoke your proxy in person at the Annual Meeting if you obtain a signed proxy from the record holder (broker or other nominee) giving you the right to vote the shares.

Do I need a ticket to be admitted to the Annual Meeting?

You will need your proof of identification along with either your Notice of Internet Availability of Proxy Materials or proof of stock ownership to enter the Annual Meeting. If your shares are held beneficially in the name of a bank, broker or other holder of record and you wish to be admitted to attend the Annual Meeting, you must present proof of your ownership of The Travelers Companies, Inc. stock, such as a bank or brokerage account statement.

Do I also need to present identification to be admitted to the Annual Meeting?

Yes, all shareholders must present a form of personal identification in order to be admitted to the Annual Meeting.

No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Annual Meeting.

Could other matters be decided at the Annual Meeting?

At the date this Proxy Statement went to press, we did not know of any matters to be raised at the Annual Meeting other than those referred to in this Proxy Statement.

If other matters are properly presented at the Annual Meeting for consideration and you are a shareholder of record and have submitted a proxy card, the persons named in your proxy card will have the discretion to vote on those matters for you.

Who will pay for the cost of this proxy solicitation?

We will pay the cost of soliciting proxies. Proxies may be solicited on our behalf by directors, officers or employees (for no additional compensation) in person or by telephone, electronic transmission and facsimile transmission. We have hired Morrow & Co. to solicit proxies. We expect to pay Morrow & Co. a fee of $14,000, plus reasonable expenses, for these services.

 

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Where do I send a shareholder proposal for consideration at the Company’s 2011 Annual Meeting of Shareholders?

If you wish to propose a matter for consideration at our 2011 Annual Meeting of Shareholders, the proposal should be mailed by certified mail return receipt requested, to our Corporate Secretary, at the Company’s principal executive office, 485 Lexington Avenue, New York, New York, 10017. To be eligible under the SEC’s shareholder proposal rule (Rule 14a-8(e) of the Exchange Act) for inclusion in our 2011 Annual Meeting Proxy Statement and form of proxy to be made available in March 2011, a proposal must be received by our Corporate Secretary at our principal executive office on or before November 17, 2010. For additional requirements, see “Shareholder Proposals for 2011 Annual Meeting” on page 72 of this Proxy Statement.

 

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ITEM 1—ELECTION OF DIRECTORS

There are currently 13 members of the Board. On February 3, 2010, the Board, upon recommendation of its Nominating and Governance Committee, unanimously nominated the 12 directors listed below for re-election to the Board at the Annual Meeting. Mr. Robert I. Lipp, who currently serves as a director, has notified the Board that, after many years of service to Travelers in various management and Board roles (including serving as Chairman between 2004 and 2005), he will not stand for re-election to the Board at the 2010 Annual Meeting of Shareholders. Mr. Lipp’s decision was not due to any disagreement with the Company’s management or Board. Mr. Lipp will serve the remainder of his term, which will end at the Annual Meeting. The Company is grateful to Mr. Lipp for his many years of dedicated service to the Company and the Board.

The directors elected at the Annual Meeting will hold office until the 2011 annual meeting of shareholders and until their successors are duly elected and qualified. Unless otherwise instructed, the persons named in the form of proxy card (the “proxyholders”) attached to this Proxy Statement, as filed with the SEC, intend to vote the proxies held by them for the election of the 12 nominees named below. The proxies cannot be voted for more than 12 candidates for director. If any of the 12 nominees ceases to be a candidate for election by the time of the Annual Meeting (a contingency which the Board does not expect to occur), such proxies may be voted by the proxyholders in accordance with the recommendation of the Board.

Nominees for Election as Directors

 

Name, Title and Age        Business Experience and Directorships

ALAN L. BELLER

Partner

Cleary Gottlieb Steen & Hamilton LLP

Director since 2007

Age 60

 

LOGO

   

Mr. Beller is a partner, based in the New York City office, of the law firm of Cleary Gottlieb Steen & Hamilton LLP (“Cleary”). Mr. Beller joined Cleary in 1976, became a partner in 1984 and returned to Cleary in August 2006 after serving as the Director of the Division of Corporation Finance of the U.S. Securities and Exchange Commission and as Senior Counselor to the Commission from January 2002 until February 2006. Mr. Beller is a member of the Board of Overseers of the University of Pennsylvania Law School.

 

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Nominees for Election as Directors

 

Name, Title and Age        Business Experience and Directorships

JOHN H. DASBURG

Chairman and Chief

Executive Officer

ASTAR Air Cargo, Inc.

Director since 1994

Age 67

 

LOGO

   

Mr. Dasburg has been Chairman and Chief Executive Officer of ASTAR Air Cargo, Inc., an air freight service company, since April 2003. He served as Chief Executive Officer and President of Burger King Corporation from April 2001 through January 2003 and as Chairman of Burger King from April 2001 to March 2003. Mr. Dasburg served as President and Chief Executive Officer of Northwest Airlines from 1989 through March 2001. From 1980 to 1989 he held a number of positions at Marriott Corporation, including President of The Lodging Group, Chief Financial Officer and Chief Real Estate Officer. From 1973 to 1980, Mr. Dasburg was employed by KPMG Peat Marwick, serving as a Tax Partner from 1978 to 1980. Mr. Dasburg is currently a member of the Advisory Board of Trilantic Capital Partners, a director of Mercy Hospital and Mercy Foundation, and a member of the Board of Governors of the Florida State University System. During the prior five years, Mr. Dasburg also served as a director of Winn-Dixie Stores, Inc. until December 2005 and WCI Communities, Inc. until January 2007.

JANET M. DOLAN

President

Act 3 Enterprises, LLC

Director since 2001

Age 60

 

LOGO

   

Ms. Dolan has been President of Act 3 Enterprises, LLC, a consulting services company, since August 2006. She served as Chief Executive Officer and President of Tennant Company, a manufacturer of nonresidential floor maintenance equipment and products, from April 1999 until her retirement in December 2005, and she had served in a number of senior executive positions with Tennant Company from 1986 until April 1999. Prior to joining Tennant Company, Ms. Dolan was a director of the Minnesota Lawyers’ Professional Responsibility Board. She is also a director of Donaldson Company, Inc. and Wenger Corporation. During the prior five years, Ms. Dolan also served as a director of Tennant Company until December 2005.

 

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Nominees for Election as Directors

 

Name, Title and Age        Business Experience and Directorships

KENNETH M. DUBERSTEIN

Chairman and Chief Executive Officer

The Duberstein Group, Inc.

Director since 1998

Age 65

 

LOGO

   

Mr. Duberstein has been Chairman and Chief Executive Officer of The Duberstein Group, Inc., a strategic advisory and consulting firm, since 1989. Previously, Mr. Duberstein served as Chief of Staff to President Ronald Reagan from 1988 to 1989 and as Deputy Chief of Staff during 1987. From 1984 to 1986, Mr. Duberstein was Vice President of Timmons & Company in Washington, DC. Prior to that, he held the White House position as Assistant to the President, Legislative Affairs from 1981 to 1983. From 1977 to 1980, Mr. Duberstein was Vice President of the Committee for Economic Development. He serves as a director of the Council on Foreign Relations, the Brookings Institution, the National Alliance to End Homelessness and the National Endowment for Democracy, and he is a trustee for Franklin & Marshall College and a lifetime trustee for the Kennedy Center for the Performing Arts. Mr. Duberstein is also a director of The Boeing Company, ConocoPhillips and Mack-Cali Realty Corp. During the prior five years, Mr. Duberstein also served as a director of Fannie Mae until February 2007 and Collegiate Funding Services, Inc. until March 2007.

JAY S. FISHMAN

Chairman and Chief Executive Officer

The Travelers Companies, Inc.

Director since 2001

Age 57

 

LOGO

   

Mr. Fishman is Chairman and Chief Executive Officer of Travelers. He has served as the Company’s Chief Executive Officer since the April 1, 2004 merger of The St. Paul Companies, Inc. (“St. Paul”) with Travelers Property Casualty Corp. (“TPC”) that formed the Company, and he assumed the additional role of Chairman in September 2005. He held the additional title of President from October 2001 until June 2008. From October 2001 until April 2004, Mr. Fishman had been Chairman, Chief Executive Officer and President of St. Paul. Mr. Fishman held several key executive posts at Citigroup Inc. from 1998 to October 2001, including Chairman, Chief Executive Officer and President of the Travelers insurance businesses. Starting in 1989, Mr. Fishman worked as an executive for Primerica, which became part of Citigroup. Mr. Fishman is a trustee of the University of Pennsylvania, a director of the National Academy Foundation, a director of the New York Philharmonic and a member of the board of directors of the Committee Encouraging Corporate Philanthropy. During the prior five years, Mr. Fishman also served as a director of Nuveen Investments, Inc. until August 2005 and Platinum Underwriters Holdings, Ltd. until April 2005.

 

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Nominees for Election as Directors

 

Name, Title and Age        Business Experience and Directorships

LAWRENCE G. GRAEV

Chairman, Chief Executive Officer and President

The GlenRock Group, LLC

Director since 2002

Age 65

 

LOGO

   

Mr. Graev has, since December 2000, held the positions of Chairman, Chief Executive Officer and President of The GlenRock Group, LLC, a merchant banking firm that invests in private equity opportunities and provides management assistance to the leadership and boards of a variety of businesses. Mr. Graev has, since September 1, 2007, also held the positions of President and Chief Operating Officer of GlenRock Capital Advisers, LLC, a registered investment adviser that acts as investment manager for institutional and other investors with respect to their alternative asset investment programs, primarily through investments in leading venture capital, buyout and real estate funds managed by independent third parties. In addition, Mr. Graev was an Adjunct Professor of Venture Capital Law at George Washington University Law School in 2007 and 2008, and he has held the same position at Fordham Law School since January 2009. He also serves as Chairman of Pangea3, Inc., an Indian provider of legal outsourcing services. From June 2001 until January 2006, Mr. Graev held an Of Counsel position with the law firm of King & Spalding, LLP. Prior to that, he was a Partner with the O’Sullivan Graev & Karabell, LLP law firm from 1973 to 2001. From 1969 to 1973, Mr. Graev was an Associate at the law firm of Cravath, Swaine & Moore, LLP.

PATRICIA L. HIGGINS

Retired President and Chief Executive Officer

Switch and Data Facilities, Inc.

Director since 2007

Age 60

 

LOGO

   

Ms. Higgins served as President and Chief Executive Officer of Switch and Data Facilities, Inc., a provider of neutral interconnection and collocation services, from September 2000 until her retirement in February 2004. In 1999 and 2000, Ms. Higgins served as Executive Vice President of the Gartner Group and Chairman and Chief Executive Officer of the Research Board, a segment of the Gartner Group. From 1997 to 1999, she served as Corporate Vice President and Chief Information Officer of Alcoa Inc., and from 1995 to 1997, she served as Vice President and President (Communications Market Business Unit) of Unisys Corporation. From 1977 to 1995, she served in various managerial positions, including as Corporate Vice President and Group Vice President (State of New York) for Verizon (NYNEX) and Vice President, International Sales Operations (Lucent) for AT&T Corporation/Lucent. Ms. Higgins currently serves on the Board of Directors of Barnes & Noble, Inc., Internap Network Services Corporation, Visteon Corporation and Dycom Industries. During the prior five years, Ms. Higgins also served as a director of Delta Air Lines, Inc. until April 2007 and SpectraSite Communications, Inc. until August 2005.

 

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Nominees for Election as Directors

 

Name, Title and Age        Business Experience and Directorships

THOMAS R. HODGSON

Retired President and Chief Operating Officer

Abbott Laboratories

Director since 1997

Age 68

 

LOGO

   

Mr. Hodgson served as President and Chief Operating Officer of Abbott Laboratories, a global diversified health care company, from 1990 until his retirement in 1998. Prior to that, he had been President of the Abbott International Division from 1983 to 1990 and President of the Hospital Products Division from 1978 to 1983. Mr. Hodgson held various other management positions with Abbott from 1972 to 1978. Mr. Hodgson is currently a director of Idenix Pharmaceuticals. During the prior five years, Mr. Hodgson also served as a director of Intermune, Inc. until May 2006.

CLEVE L. KILLINGSWORTH, JR.

Former President and Chief Executive Officer

Blue Cross Blue Shield of Massachusetts, Inc.

Director since 2007

Age 57

 

LOGO

   

Mr. Killingsworth served as the President and Chief Executive Officer of Blue Cross Blue Shield of Massachusetts, Inc. from July 2005 until March 2010. He served as Chairman from January 2008 to March 2010. He joined the company in February 2004 as President and Chief Operating Officer. Before joining Blue Cross Blue Shield of Massachusetts, Mr. Killingsworth served the Henry Ford Health System as Senior Vice President of Insurance and Managed Care, as well as President and Chief Executive Officer of the Health Alliance Plan. He joined Henry Ford Health Systems in January 1998 after holding senior management positions with the Kaiser Foundation Health Plan; Blue Cross Blue Shield of Rochester, NY; Group Health Cooperative of Puget Sound; The American Hospital Association and the Hospital of the University of Pennsylvania. Mr. Killingsworth is currently a faculty member of the Harvard School of Public Health and serves on the Harvard Medical School Board of Fellows. Mr. Killingsworth is currently a member of the Board of Trustees of The MITRE Corporation and the Board of Overseers of the Teachers Insurance and Annuity Association of America (TIAA) and the College Retirement Equities Fund (CREF). During the prior five years, Mr. Killingsworth also served as a director of The Reynolds & Reynolds Company until October 2006 and as a member of the Advisory Board of Rochester Gas and Electric until June 2005.

 

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Nominees for Election as Directors

 

Name, Title and Age        Business Experience and Directorships

BLYTHE J. MCGARVIE

Chief Executive Officer

Leadership for International Finance, LLC

Director since 2004

Age 53

 

LOGO

   

Ms. McGarvie has been Chief Executive Officer of Leadership for International Finance, LLC, a firm focusing on improving clients’ financial positions and providing leadership seminars for corporate and academic groups, since January 2003. Her firm specializes in providing global perspectives to U.S. and multinational companies, primarily in the consumer goods, financial services and knowledge-based industries. From 1999 through the end of 2002, Ms. McGarvie was the Executive Vice President and Chief Financial Officer at BIC Group, a leading manufacturer of convenient disposable products. Ms. McGarvie served as Senior Vice President and Chief Financial Officer of Hannaford Bros. Co., a food retailer, from 1994 to 1999. Ms. McGarvie is currently a director of Accenture Ltd., The Pepsi Bottling Group, Inc. and Viacom, Inc. During the prior five years, Ms. McGarvie also served as a director of Lafarge North America until May 2006.

DONALD J. SHEPARD

Retired Chairman of the Executive Board and Chief Executive Officer

AEGON N.V.

Director since 2009

Age 63

 

LOGO

   

Mr. Shepard served as Chairman of the Executive Board and Chief Executive Officer of AEGON N.V., an international life insurance and pension company, from April 2002 until his retirement in April 2008. Prior to that, he served as Chief Executive Officer of AEGON USA since 1989, and in 1992 he became a member of the Executive Board of AEGON N.V. Mr. Shepard currently serves as a member of the board of directors of PNC Financial Services Group, Inc., CSX Corporation, the U.S. Chamber of Commerce and The Financial Services Roundtable and is a trustee of Johns Hopkins Medicine and a trustee of Johns Hopkins University. During the prior five years, Mr. Shepard also served as a director of Mercantile Bankshares Corp. until March 2007.

 

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Nominees for Election as Directors

 

Name, Title and Age        Business Experience and Directorships

LAURIE J. THOMSEN

Executive Partner

New Profit, Inc.

Director since 2004

Age 52

 

LOGO

   

Ms. Thomsen joined New Profit, Inc., a venture philanthropy firm, as an Executive Partner in September 2006. She served on the board of New Profit from 2001 to 2006. Prior to that, she was a co-founding General Partner of Prism Venture Partners, a venture capital firm investing in healthcare and technology companies. Ms. Thomsen was employed at Prism from 1995 until she retired from the firm in June 2004. From 1984 until 1995, she worked at the venture capital firm Harbourvest Partners in Boston, where she was a General Partner from 1988 until 1995. Ms. Thomsen was in commercial lending at U.S. Trust Company of New York from 1979 until 1984. Ms. Thomsen is a director of MFS Mutual Funds. She is also a trustee of Williams College and a director of KickStart International and ACCESS.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE

ELECTION OF EACH OF THE NOMINEES NAMED ABOVE.

 

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BOARD OF DIRECTORS INFORMATION

Committees of the Board and Meetings

There are six standing committees of the Board: the Audit Committee; the Compensation Committee; the Executive Committee; the Investment and Capital Markets Committee; the Nominating and Governance Committee; and the Risk Committee. The Board also has an Advisory Committee on Public Policy.

The Board has adopted a written charter for each of the Committees, copies of which are posted on our website at www.travelers.com under Investors: Corporate Governance: Committee Charters. Each Committee reviews its charter annually and, when appropriate, presents to the Nominating and Governance Committee and the Board any recommended amendments for consideration and approval.

The following table summarizes the current membership of the Board and of each of its Committees, as well as the number of times the Board and each Committee met during 2009.

 

     Board    Audit    Compensation    Executive   

Investment and

Capital Markets 

 

Nominating and 

Governance

  Risk   Advisory
Committee
on Public
Policy

Mr. Beller

  X   X                   X    

Mr. Dasburg

  X   Chair        X           X    

Ms. Dolan

  X   X                   X   Chair

Mr. Duberstein

  X       X   X   X   Chair       X

Mr. Fishman

  Chair            Chair                

Mr. Graev

  X       Chair   X   X   X        

Ms. Higgins

  X   X                   X    

Mr. Hodgson

  X   X       X           Chair     

Mr. Killingsworth

  X       X       X   X       X

Mr. Lipp

  X           X           X    

Ms. McGarvie

  X       X   X   Chair   X       X

Mr. Shepard

  X       X           X        

Ms. Thomsen

  X   X                   X    

Number of 2009 meetings

  9   9   7   1   5   5   4   0

Each director attended 75% or more of the total number of meetings of the Board and of the Committees on which each such director served. Mr. Shepard became a director in December 2009, and neither the Board nor any of the Committees met during the portion of 2009 in which he was a director.

Audit Committee

 

All members of the Audit Committee are “independent”, consistent with our Governance Guidelines and the NYSE listing standards applicable to boards of directors in general and audit committees in particular. In addition, the Board has determined that the members of the Audit Committee meet the financial literacy and expertise requirements of the NYSE. The Board also has determined that Mr. Dasburg’s experience with KPMG Peat Marwick from 1973 to 1980 and his service as a KPMG Tax Partner from

1978 to 1980, his experience as Chief Financial Officer of Marriott Corporation, as Chief Executive Officer of Northwest Airlines, Burger King Corporation and ASTAR Air Cargo, Inc. and his service on the audit committees of other public companies qualify him as an audit committee financial expert, and he has been so designated.

The duties and responsibilities of the Audit Committee are set forth in its charter, which may be found at


 

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www.travelers.com under Investors: Corporate Governance: Committee Charters: Audit Committee, and include the following:

 

   

serve as an independent and objective body to carry out the responsibilities and duties delegated to it by the Board, including its oversight of our financial reporting principles and policies and internal controls and procedures;

 

   

select our independent registered public accounting firm and review and evaluate its qualifications, performance and independence;

 

   

review and pre-approve the audit and non-audit services and proposed fees of the independent registered public accounting firm;

 

   

review reports and other communications between management and the independent registered public accounting firm with respect to that firm’s evaluation of the design and operation of internal controls; and

 

   

review and evaluate the work of our internal audit unit.

With respect to our reporting and disclosure matters, the duties and responsibilities of the Audit Committee include reviewing our audited financial statements and recommending to the Board that they be included in our Annual Report on Form  10-K in accordance with applicable rules and regulations of the SEC.

Compensation Committee

All members of the Compensation Committee are “independent” as defined by our Governance Guidelines and the NYSE listing standards. In addition, all members of the Compensation Committee qualify as “non-employee directors” for purposes of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as “outside directors” for purposes of Section 162(m) (“Section 162(m)”) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The Compensation Committee has a charter, which may be found at www.travelers.com under Investors: Corporate Governance: Committee Charters: Compensation Committee.

Duties and Responsibilities

With respect to general compensation matters, the duties and responsibilities of the Compensation Committee include the following:

 

   

set the performance goals and objectives for our Chief Executive Officer (“CEO”) and members of

   

our Management Committee who are executive officers or direct reports of the CEO (together with the CEO, the “Committee Approved Officers”);

 

   

review the performance and approve the salaries and incentive compensation of the Committee Approved Officers;

 

   

approve policies with respect to perquisites of the Committee Approved Officers;

 

   

approve and monitor compliance with stock ownership guidelines applicable to the CEO and other members of management;

 

   

develop our executive compensation philosophy and objectives;

 

   

review the operation of our overall compensation program to evaluate its objectives and execution and recommend to the Board amendments to our compensation programs to better conform them with the established compensation objectives;

 

   

review and approve, and, in certain cases, recommend to the Board for approval, all new equity compensation plans and material amendments to existing plans, and administration of such plans;

 

   

recommend to the Board for approval nonequity compensation and benefit programs determined by the Compensation Committee to be appropriate;

 

   

review our regulatory compliance with respect to compensation matters;

 

   

review and approve, and, in certain cases, recommend to the Board for approval, any employment and severance contracts for the CEO and other members of management; and

 

   

review and approve stock options, restricted stock, restricted stock units, performance shares and similar stock-based grants to the Committee Approved Officers.

With respect to our reporting and disclosure matters, the duties and responsibilities of the Compensation Committee include reviewing and recommending the Compensation Discussion and Analysis to the Board for inclusion in our annual proxy statement and Annual Report on Form 10-K in accordance with applicable rules and regulations of the SEC.

Establishment of Annual Bonus and Equity Award Pools

As discussed more fully below under the caption “Executive Compensation—Compensation Discussion


 

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and Analysis—Compensation Determination Process”, the Compensation Committee sets executive compensation policy for the Company as a whole.

Pursuant to its charter, the Compensation Committee considered recommendations from the CEO regarding total compensation for each of the other executive officers named in the Summary Compensation Table on page 46 (together with the CEO, the “named executive officers”) and other officers.

During 2009, the Compensation Committee took those actions required under Section 162(m) in order for performance-based compensation to be fully deductible by the Company for income tax purposes.

The Compensation Committee approves the individual salary, annual bonus and equity awards for the Committee Approved Officers. In addition, the Compensation Committee approves the aggregate annual bonuses and all equity awards to employees who are not Committee Approved Officers.

Delegation of Authority with Respect to “Off-Cycle” Equity Grants

The Compensation Committee also has delegated limited authority to the Chairman and CEO to make certain “off-cycle” equity grants outside of the annual equity grant process to existing employees who are not Committee Approved Officers. The delegation is subject to maximum grant date values of equity that can be granted to any one person. These grants can only be made on the grant dates established by our Governance Guidelines for “off-cycle” equity awards. Our Governance Guidelines are available on our website at www.travelers.com under Investors: Corporate Governance: Governance Documents: Governance Guidelines. Any awards made “off-cycle” are reported to the Compensation Committee at the next regularly scheduled meeting following such awards.

Compensation Consultant

In addition to the independent, outside compensation consultant discussed below, our corporate staff (including Finance, Human Resources and Legal staff members) supports the Compensation Committee in its work. Other than the CEO (with respect to compensation for each of the other named executive officers and the other Committee Approved Officers) and the President and Chief Operating Officer and Chief Financial Officer (with respect to members of the Management Committee that report to them), no executive officer determines or recommends the amount or form of executive compensation. The Compensation Committee has the authority under its

charter to retain outside consultants or advisors, as it deems necessary or advisable. In accordance with this authority, the Compensation Committee has engaged Frederic W. Cook & Co. (“F. W. Cook”) as its independent outside compensation consultant to provide it with objective and expert analyses, advice and information with respect to executive compensation.

Neither F. W. Cook nor any of its affiliates maintains any other direct or indirect business relationships with the Company or any of its affiliates. All executive compensation services provided by F. W. Cook are conducted under the direction or authority of the Compensation Committee, and all work performed by F. W. Cook must be pre-approved by the Compensation Committee or the Chair of the Compensation Committee.

F. W. Cook also advises the Nominating and Governance Committee with respect to director compensation.

As requested by the Compensation Committee, in 2009, F. W. Cook’s services to the Compensation Committee included, among other things:

 

   

advising with respect to the Compensation Committee meeting materials;

 

   

evaluating changes to incentive plans;

 

   

advising with respect to individual compensation for the Committee Approved Officers;

 

   

reviewing and discussing possible aggregate levels of corporate-wide bonus payments and equity awards;

 

   

preparing comparative analyses of executive compensation levels and elements at peer group companies;

 

   

advising as to whether our compensation exceeded or fell below targeted levels and whether the actual amounts paid were commensurate with our operating performance as compared to our peer group companies; and

 

   

advising in connection with the preparation of certain of the information included in this Proxy Statement.

An F. W. Cook representative participated in three of the seven Compensation Committee meetings in 2009.

In 2009 and 2008, we paid F. W. Cook $118,942 and $242,731, respectively, for services to the Compensation Committee and the Nominating and Governance Committee. In 2009 and 2008, the Company paid $86,615 and $81,369, respectively, to certain other compensation consultants retained by management to


 

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provide broad-based compensation surveys. Such other consultants retained by management did not have any role in determining or recommending the amount or form of executive or director compensation.

Executive Committee

The Board has granted to the Executive Committee, subject to certain limitations set forth in its charter, the broad responsibility of exercising the authority of the Board in the oversight of our business during the intervals between Board meetings. The Executive Committee meets only as necessary. The duties and responsibilities of the Executive Committee are set forth in its charter, which may be found at www.travelers.com under Investors: Corporate Governance: Committee Charters: Executive Committee.

Investment and Capital Markets Committee

The Investment and Capital Markets Committee assists the Board in exercising its oversight of the Company’s management of its investment portfolios (including credit risk monitoring) and certain financial affairs of the Company (including capital management, such as dividend policy and actions, stock splits, repurchases of stock or other securities, financing arrangements, debt and equity financing and liquidity).

The Investment and Capital Markets Committee also reviews and either approves, or recommends appropriate Board action with respect to, among other matters, the issuance of securities, the establishment of bank lines of credit and certain purchases and dispositions of real property, capital expenditures and acquisitions and divestitures of assets.

The Investment and Capital Markets Committee’s charter can be found at www.travelers.com under Investors: Corporate Governance: Committee Charters: Investment and Capital Markets Committee.

Nominating and Governance Committee

Each member of the Nominating and Governance Committee is “independent”, consistent with our Governance Guidelines and the NYSE listing standards. The duties and responsibilities of the Nominating and Governance Committee are set forth in its charter, which may be found at www.travelers.com under Investors: Corporate Governance: Committee Charters: Nominating and Governance Committee, and include the following:

 

   

establishment of criteria for the selection of candidates to serve on the Board;

 

   

identification and selection of director candidates for election or re-election to the Board;

 

   

identification and selection of directors for appointment to serve on the committees of the Board;

 

   

recommendation of adjustments, from time to time, to the size of the Board or of any Board committee;

 

   

establishment of procedures for the evaluation of Board and director performance;

 

   

oversight of continuing education of directors in light of the Governance Guidelines;

 

   

periodic review and related recommended changes to the Board’s director compensation programs and policies;

 

   

establishment and periodic review of our Governance Guidelines and standards for determining the independence of directors and the absence of material relationships between the Company and a director;

 

   

annual review of succession plans for our senior management;

 

   

review and approval or ratification of all related person transactions under our Related Person Transaction Policy; and

 

   

recommendation to the Board of any guidelines for the removal of directors, as it determines appropriate.

Risk Committee

The purpose of the Risk Committee is to assist the Board in exercising its oversight of our operational activities and the identification and review of those risks that could have a material impact on us. The duties and responsibilities of the Risk Committee are set forth in its charter, which may be found at www.travelers.com under Investors: Corporate Governance: Committee Charters: Risk Committee, and include oversight of management’s risk management activities in the following areas:

 

   

our enterprise risk management program;

 

   

the underwriting of insurance;

 

   

the settlement of claims;

 

   

the management of catastrophe exposure;

 

   

the retention of insured risk and appropriate levels and types of reinsurance;

 

   

the credit risk in our insurance operations and ceded reinsurance program;

 

   

our information technology operations; and


 

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the business continuity and executive crisis management for the Company and its business operations.

Advisory Committee on Public Policy

The Advisory Committee on Public Policy assists the Board in reviewing and exercising its oversight of the Company’s positions on significant public policy matters and trends affecting the Company. The duties and responsibilities of the Advisory Committee on Public Policy are set forth in its charter, which may be found at www.travelers.com under Investors: Corporate Governance: Committee Charters: Advisory Committee on Public Policy, and include the following:

 

   

identify significant public policy matters and trends affecting the Company; and

 

   

review and oversee how the Company responds to such significant public policy matters and trends.

GOVERNANCE OF YOUR COMPANY

Our Governance Guidelines, which include our categorical standards of director independence, our Code of Business Conduct and Ethics, Board Committee charters and other corporate governance information are available on the Corporate Governance page of the Investors section on our website at www.travelers.com. Certain of the significant corporate governance practices that the Board has implemented are described further below.

Governance Guidelines

Our commitment to good corporate governance is reflected in our Governance Guidelines, which describe the Board’s views on a wide range of governance topics. These Governance Guidelines are reviewed annually by the Nominating and Governance Committee and, to the extent deemed appropriate in light of emerging practices, revised accordingly, upon recommendation to and approval by the full Board.

Code of Business Conduct and Ethics

We maintain a Code of Business Conduct and Ethics, which is applicable to all of our directors, officers and employees, including our CEO, Chief Financial Officer, Controller and other senior financial officers. The Code of Conduct sets forth our policies and expectations on a number of topics, including conflicts of interest, compliance with laws, use of our assets and business ethics.

 

The Code of Conduct may be found on our website at www.travelers.com under Investors: Corporate Governance: Code of Conduct.

Our Chief Compliance Officer is responsible for overseeing compliance with the Code of Conduct as part of fulfilling his responsibility for overseeing our compliance functions throughout the organization. Our Chief Compliance Officer also assists in the communication of the Code of Conduct and oversees employee education regarding its requirements, including online compliance training. All employees are required to certify periodically as to their familiarity and compliance with the Code of Conduct.

Significant Governance Practices

Ethics Helpline

We maintain an Ethics Helpline through which employees can report integrity concerns or seek guidance regarding a policy or procedure. The Ethics Helpline is serviced by an independent company and is available 7 days a week, 24 hours a day. The helpline can be accessed by any employee through a toll-free number. Employees may also access the helpline system and report integrity concerns via the Web. In either case, employees can report integrity concerns anonymously. We maintain a formal no retaliation policy that prohibits retaliation or discipline against an employee who raises an ethical concern in good faith. Once a complaint is alleged, the report is forwarded to our Chief Compliance Officer who is responsible for oversight of the helpline. Our Chief Compliance Officer coordinates with management and outside resources, as appropriate, to investigate the matter, and any ethical or compliance-related issues will not be closed until they have been addressed to his satisfaction. The Audit Committee receives quarterly summaries of matters reported through the Ethics Helpline. In addition, any matter reported to the Chief Compliance Officer that involves accounting, internal control or audit matters, or any fraud involving persons with a significant role in our internal controls, is required to be reported promptly to the Audit Committee.

Business Practices Committee

We have a Business Practices Committee that, along with the Business Conduct Officer who chairs that committee, oversees our Producer Protocol, which is a guide for all employees with underwriting responsibilities or who have direct contact with agents and brokers. This committee implemented a helpline to respond to employee questions relating to interactions with agents and brokers and meets on an as-needed basis.


 

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Compliance Policy and Review Board

Under the oversight of the Audit Committee, we have established a Company-wide compliance function, with a view to ensuring compliance with evolving laws, regulations and policies and to encourage and reinforce ongoing ethical and lawful business conduct. The compliance function involves our Chief Compliance Officer, the Business Conduct Officer and the Compliance Policy and Review Board, which comprises members of senior management and which oversees the activities of the Chief Compliance Officer. Together, this group oversees the implementation of the various compliance initiatives and functions in each of the business units and seeks to promote better coordination and effectiveness through corporate compliance policies and initiatives, program design and promotion of a culture of compliance. Training is a key element of this program, and we provide global, computer-based compliance training, supplemented with focused in-person sessions.

Director Stock Ownership

The Board believes its non-management directors should accumulate and retain certain levels of ownership of our equity securities to align the interests of the non-management directors and the shareholders. The Board established an ownership target of $580,000 of equity interests in the Company for each non-management director. Each new director is expected to meet or exceed this target within four years of his or her initial election to the Board. All of our current non-management directors, other than Ms. Higgins and Messrs. Beller and Killingsworth, each of whom was elected to our Board for the first time in May 2007, and Mr. Shepard who was elected to our Board in December 2009, have achieved stock ownership levels in excess of the amount required.

Director Age Limit

The Governance Guidelines provide generally that no person who will have reached the age of 72 on or before the date of the next annual shareholders’ meeting will be nominated for election at that meeting.

Under special circumstances, with the approval of the Board, exceptions can be made to this policy. The Board believes, however, that exceptions to this policy should not be commonplace and should be based upon the needs of the Company and the individual attributes of the director.

Director Nominations

Process and Criteria Generally

Pursuant to our Governance Guidelines, the Nominating and Governance Committee is responsible for

recommending to the Board nominees for election for director, and the Board is responsible for selecting nominees for election.

As required by our Governance Guidelines, the Board, based on the Nominating and Governance Committee’s recommendation, selects nominees after considering the following criteria:

 

   

personal qualities and characteristics, accomplishments and reputation in the business community;

 

   

current knowledge and contact in the communities in which the Company does business and in the Company’s industry or other industries relevant to the Company’s business;

 

   

ability and willingness to commit adequate time to Board and committee matters;

 

   

the fit of the individual’s skill and personality with those of other directors and potential directors in building a Board that is effective, collegial and responsive to the needs of the Company; and

 

   

diversity of viewpoints, background, experience and other demographics.

The evaluation of these criteria involves the exercise of careful business judgment. Accordingly, although the Nominating and Governance Committee and the Board at a minimum assess each candidate’s ability to satisfy any applicable legal requirements or listing standards, his or her strength of character, judgment, working style, specific areas of expertise and his or her ability and willingness to commit adequate time to Board and committee matters, they do not have fixed qualifications that are applicable to all director candidates. The Board seeks to ensure that the Board is composed of members whose particular expertise, qualifications, attributes and skills, when taken together, allow the Board to satisfy its oversight responsibilities effectively.

As mentioned above, the Nominating and Governance Committee and the Board include diversity of “viewpoints, background, experience and other demographics” as one of several criteria that they consider in connection with selecting candidates for the Board. While neither the Board nor the Nominating and Governance Committee has a formal diversity policy, one of many factors that the Board and the Nominating and Governance Committee carefully considers is the importance to the Company of racial and gender diversity in board composition. Moreover, when considering director candidates, the Nominating and Governance Committee and the Board seek individuals with backgrounds and qualities that, when combined


 

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with those of our incumbent directors, enhance the Board’s effectiveness and, as required by the Governance Guidelines, result in the Board having “a broad range of skills, expertise, industry knowledge, diversity of opinion and contacts relevant to the Company’s business”. As part of its annual self-evaluation, the Board assesses and confirms compliance with this Governance Guideline.

In identifying prospective director candidates for the Board, the Nominating and Governance Committee may seek referrals from other members of the Board, management, shareholders and other sources. The Nominating and Governance Committee also may, but need not, retain a professional search firm in order to assist it in these efforts. The Nominating and Governance Committee and the Board utilize the same criteria for evaluating candidates regardless of the source of the referral. Mr. Shepard, who was appointed by the Board in December 2009, was recommended to the Nominating and Governance Committee by a former member of the Company’s Board. No fees were paid with respect to the nomination of Mr. Shepard.

The Nominating and Governance Committee will consider director candidates recommended by shareholders. Shareholders wishing to propose a candidate for consideration may do so by submitting the proposed candidate’s full name and address, résumé and biographical information to the attention of the Corporate Secretary, The Travelers Companies, Inc., 485 Lexington Avenue, New York, New York 10017. All recommendations for nomination received by the Corporate Secretary that satisfy our bylaw requirements relating to such director nominations will be presented to the Nominating and Governance Committee for its consideration.

Specific Considerations Regarding 2010 Directors and Nominees

In considering the 12 director nominees named in this Proxy Statement and proposed for election by you at the upcoming Annual Meeting, the Nominating and Governance Committee and the Board evaluated each nominee’s experiences, qualifications, attributes and skills, in light of the Governance Guidelines’ criteria for nomination discussed above. The Board and the Nominating and Governance Committee also considered the years of experience many directors have had working together on the Board, as well as the contributions of those directors recommended for re-election in the context of the Board self-evaluation process and other perceived needs of the Board.

The Board and the Nominating and Governance Committee, in considering each nominee, principally

focused on the background and experiences of the nominee, as described in the biographies appearing on pages 6 through 12 of this Proxy Statement. The Board and the Nominating and Governance Committee considered that each nominee has experience serving in senior positions with significant responsibility, where each has gained valuable expertise in a number of areas relevant to the Company and its business. The Board and the Nominating and Governance Committee also considered that a number of directors have gained valuable experience and skills through serving as a director of other public companies. Specifically, among other things:

 

   

With respect to Mr. Beller, the Board and the Nominating and Governance Committee considered in particular his senior public service and his significant experience and expertise in the areas of law, corporate governance and financial regulation.

 

   

With respect to Mr. Dasburg, the Board and the Nominating and Governance Committee considered in particular his experience as a public company CEO and his significant experience and expertise in areas of management, accounting and finance.

 

   

With respect to Ms. Dolan, the Board and the Nominating and Governance Committee considered in particular her experience as a public company CEO and her significant experience and expertise in management and in legal and compliance matters.

 

   

With respect to Mr. Duberstein, the Board and the Nominating and Governance Committee considered in particular his experience both in the highest levels of the U.S. government and as an outside strategic corporate advisor and his significant experience and expertise in public policy, public affairs and government relations.

 

   

With respect to Mr. Fishman, the Board and the Nominating and Governance Committee considered his experience as CEO of the Company and his significant experience and expertise in property and casualty insurance, management and finance.

 

   

With respect to Mr. Graev, the Board and the Nominating and Governance Committee considered in particular his experience as CEO of a private equity management and investment company and as Chairman/Managing Partner of a law firm and his significant experience and expertise in the areas of corporate finance and mergers and acquisitions, corporate governance and private equity investing and management.


 

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With respect to Ms. Higgins, the Board and the Nominating and Governance Committee considered in particular her experience as a public company Chief Information Officer and her significant experience and expertise in management as well as information technology strategy and operations.

 

   

With respect to Mr. Hodgson, the Board and the Nominating and Governance Committee considered his experience as a public company President and COO and his significant experience and expertise in management, business operations and finance.

 

   

With respect to Mr. Killingsworth, the Board and the Nominating and Governance Committee considered in particular his experience as a health insurance CEO and his significant experience and expertise in management, insurance and regulation.

 

   

With respect to Ms. McGarvie, the Board and the Nominating and Governance Committee considered in particular her experience as a public company CFO and her significant experience and expertise in management, finance and accounting.

 

   

With respect to Mr. Shepard, the Board and the Nominating and Governance Committee considered in particular his experience as a public insurance company CEO and his significant experience and expertise in management and international business.

 

   

With respect to Ms. Thomsen, the Board and the Nominating and Governance Committee considered in particular her experience as a General Partner of a venture capital firm and her significant experience and expertise in investments, finance and the development of emerging businesses.

Annual Meeting of Shareholders

We encourage and expect all of the directors to attend each annual meeting of shareholders. To that end, and to the extent reasonably practicable, we regularly schedule a meeting of the Board on the day following the annual meeting of shareholders. All of our directors were present at the 2009 annual meeting of our shareholders, other than Mr. Shepard who did not join the Board until December 2009.

Director Independence and Independence Determinations

Under our Governance Guidelines and NYSE rules, a director is not independent unless the Board affirma -

tively determines that he or she does not have a direct or indirect material relationship with the Company. In addition, the director must meet the bright-line test for independence set forth by the NYSE rules.

The Board has established categorical standards of director independence to assist it in making independence determinations. These standards, which are included in our Governance Guidelines and may be found on our website at www.travelers.com under Investors; Corporate Governance; Governance Guidelines, set forth certain relationships between the Company and the directors and their immediate family members, or entities with which they are affiliated, that the Board, in its judgment, has determined to be material or immaterial in assessing a director’s independence. The Nominating and Governance Committee annually reviews the independence of all directors and reports its determinations to the full Board.

In the event a director has a relationship with the Company that is relevant to his or her independence and is not addressed by the categorical independence standards, the independent members of the Board determine in their judgment whether such relationship is material.

Our Governance Guidelines require that no less than three-fourths of the members of the Board and three-fourths of the members of each standing committee of the Board (other than the Executive Committee) be independent, and that no more than two members of the Board may concurrently serve as officers of the Company.

The Board has determined that all of its directors and all of the persons proposed for election at the upcoming annual meeting of shareholders are independent, other than Mr. Robert Lipp, who served as Chairman of the Company until September 2005, and our Chairman and Chief Executive Officer, Mr. Jay Fishman, who is an employee of the Company. Consequently, approximately 85% of the directors on the Board are independent.

In making its independence determinations, the Board considered and reviewed the various commercial, charitable and employment transactions and relationships known to the Board (including those identified through annual directors’ questionnaires) that exist between us and our subsidiaries and the entities with which certain of our directors or members of their immediate families are, or have been, affiliated. Specifically, the Board’s independence determinations included reviewing (1) charitable contributions to a non-profit organization where Ms. Janet Dolan serves


 

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as a director (but not as an executive officer or employee); and (2) membership dues and project funding paid to a trade association and affiliated entities where Mr. Shepard serves as a director (but not as an executive officer or employee). Payments to each organization constituted less than 1% of such organization’s annual consolidated gross revenues during its last completed fiscal year and were below the thresholds set forth under our categorical standards of director independence.

The Board determined that none of the transactions or relationships identified were material or affected the independence of such directors under either the Company’s Governance Guidelines or the applicable NYSE rules.

Dating and Pricing of Equity Grants

The Board has adopted a Governance Guideline establishing fixed grant dates for the award of “off-cycle” equity grants, so as to avoid the appearance that equity grant dates have been established with a view to benefiting grantees from the timing of material public announcements. Our Governance Guidelines are available on our website at www.travelers.com under Investors: Corporate Governance: Governance Documents: Governance Guidelines.

In addition, to further ensure the integrity of our equity awards process, the Compensation Committee requires that the exercise price of all stock options granted, and the fair value of all equity awards made, must be determined by reference to the closing price for a share of our common stock on the NYSE on the date of any such grant or award. Under the Amended and Restated 2004 Stock Incentive Plan, the Compensation Committee may not take any action with respect to any stock option that would be treated as a “repricing” of such stock option, unless such action is approved by the Company’s shareholders in accordance with applicable rules of the NYSE.

Transactions with Related Persons and Certain Control Persons—Related Person Transaction Approval

The Board has adopted a written Related Person Transaction Policy to assist it in reviewing, approving and ratifying related person transactions and to assist us in the preparation of related disclosures required by the SEC. This Related Person Transaction Policy supplements our other policies that may apply to transactions with related persons, such as the Board’s Governance Guidelines and our Code of Conduct.

The Related Person Transaction Policy provides that all related person transactions covered by the Policy

are prohibited, unless approved or ratified by the Board or by the Nominating and Governance Committee. Our directors and executive officers are required to provide prompt and detailed notice of any potential Related Person Transaction (as defined in the Policy) to the Corporate Secretary, who in turn must promptly forward such notice and information to the Chairperson of the Nominating and Governance Committee and to our counsel for analysis, to determine whether the particular transaction does constitute a Related Person Transaction requiring compliance with the Policy. The analysis and recommendation of counsel are then presented to the Nominating and Governance Committee for consideration at its next regular meeting.

In reviewing Related Person Transactions for approval or ratification, the Nominating and Governance Committee will consider the relevant facts and circumstances, including:

 

   

the commercial reasonableness of the terms;

 

   

the benefit (or lack thereof) to us;

 

   

opportunity costs of alternate transactions;

 

   

the materiality and character of the related person’s interest, including any actual or perceived conflicts of interest; and

 

   

with respect to a non-employee director or nominee, whether the transaction would compromise the director’s (1) independence under the Board’s Governance Guidelines, the NYSE rules and Rule 10A-3 of the Exchange Act, if such non-employee director serves on the Audit Committee, (2) status as an outside director under Section 162(m), if such non-employee director serves on the Compensation Committee, or (3) status as a “non-employee director” under Rule 16b-3 of the Exchange Act, if such non-employee director serves on the Compensation Committee.

The Nominating and Governance Committee will not approve or ratify a Related Person Transaction unless, after considering all relevant information, it has determined that the transaction is in, or is not inconsistent with, our best interests and the best interests of our shareholders.

Generally, the Related Person Transaction Policy applies to any current or proposed transaction in which:

 

   

the Company was or is to be a participant;

 

   

the amount involved exceeds $120,000; and


 

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any related person had or will have a direct or indirect material interest.

A copy of our Related Person Transaction Policy is available on our website at www.travelers.com under Investors: Corporate Governance: Governance Documents: Related Person Transaction Policy.

Employment Relationships

We employ approximately 32,000 employees, approximately 7,000 of whom work in and around Hartford, Connecticut. We employ several employees in the Hartford area who are related to the executive officers identified below:

 

   

Mr. Joseph Lacher served as Executive Vice President—Personal Insurance and Select Accounts for the Company until July 2009. His brother, Mr. Christopher Lacher, and his sister-in-law, Ms. Meghan Lacher, have been employed by the Company since 2003. In 2009, their combined total compensation, including salary, bonuses, equity awards and other benefits, totaled approximately $314,000. Their compensation is commensurate with that of their peers.

 

   

Mr. Brian MacLean is President and Chief Operating Officer of the Company. His daughter, Ms. Erin Cha, and his son-in-law, Mr. Junghwan Cha, have been employed by the Company since 2005 and June 2009 respectively. In 2009, their combined total compensation, including salary, bonuses, equity awards and other benefits, totaled approximately $173,000. Their compensation is commensurate with that of their peers.

 

   

Ms. Doreen Spadorcia is Executive Vice President—Claim Services and Chief Executive Officer—Personal Insurance. Her brother-in-law, Mr. Michael Giuffrida, has been employed by the Company since 1962. In 2009, his total compensation, including salary, bonus, equity awards and other benefits, totaled approximately $464,000. His compensation is commensurate with that of his peers.

 

   

Mr. William Cunningham was named Executive Vice President—Business Insurance effective March 1, 2010. His brother, Gregg T. Cunningham, has been employed by the Company since 2001. In 2009, his total compensation, including salary, bonus, equity awards and other benefits, totaled approximately $359,000. His compensation is commensurate with that of his peers.

Third-Party Transactions

We engage several thousand law firms, nationally and internationally, to represent us and/or our insureds in

connection with, among other things, corporate, litigation, regulatory, insurance coverage and claim matters. In 2009, we engaged several law firms with partners related to the executive officer or director identified below:

 

   

Mr. Robert Lipp is a director of the Company. Mr. Alan Schnitzer is Vice Chairman, Chief Legal Officer and Executive Vice President—Financial, Professional and International Insurance of the Company. Mr. Lipp’s step-son and Mr. Schnitzer’s brother-in-law, Mr. Joseph Berman, is a partner in the law firm Looney & Grossman. In 2009, the Company paid approximately $306,000 in legal fees and disbursements to Looney & Grossman. We engage this firm from time to time in the ordinary course of our business and on an arm’s length basis. Mr. Lipp and Mr. Schnitzer have each explicitly recused themselves from any involvement with respect to our retention of, or payments to, this law firm.

 

   

Ms. Doreen Spadorcia is Executive Vice President—Claim Services and Chief Executive Officer—Personal Insurance. Her husband, Mr. Richard Cavo, is a partner in the law firm Litchfield Cavo LLP. In 2009, we paid this firm approximately $8.4 million in legal fees and disbursements for work performed by the firm. Litchfield Cavo LLP has been an approved firm of the Company for more than ten years and is retained by the Company from time to time in the ordinary course of business and on an arm’s length basis. Ms. Spadorcia has been an executive officer of the Company since 2005. Ms. Spadorcia has explicitly recused herself from any involvement with respect to our retention of, or payments to, this law firm.

In its Schedule 13G filed on February 17, 2009, FMR LLC (“FMR”) reported that it beneficially owned just over 5% of the outstanding voting securities of the Company as of December 31, 2008 but noted that it was filing voluntarily because it was of the view that it was not acting as a “group” for purposes of Section 13(d) with certain of its affiliates. As a 5% holder, FMR would be a “related person” under the Related Persons Transactions Policy. In February 2009, the Company commenced a competitive process to select an administrator for its equity compensation programs. The Company ultimately selected Fidelity Stock Plan Services LLC (“Fidelity”), an affiliate of FMR, as the finalist in such competitive process and, in November 2009, entered into an agreement on an arm’s length basis whereby the Company will pay Fidelity approximately $1,500,000 for stock plan administration serv -


 

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ices over the five-year term of the contract. An affiliate of FMR has also provided 401(k) plan recordkeeping services to the Company since 1998. The current contract for 401(k) recordkeeping services has been in place since 2005 and has been updated from time-to-time. The Company paid Fidelity approximately $976,000 for 401(k) plan recordkeeping services in 2009. Each of these arrangements has been entered into on an arm’s length basis.

As a result of BlackRock, Inc.’s merger with Barclays Global Investors, and as disclosed on its Schedule 13G filed on January 29, 2010, BlackRock beneficially owns more than 5% of the outstanding voting securities of the Company and, as such, is a “related person” under the Related Person Transaction Policy. An affiliate of BlackRock provides investment management services to the Company and has done so since 2007. The Company will pay approximately $500,000 in management fees under the investment management agreement for services in 2009. Pursuant to the investment management agreement, the Company has also invested approximately $22 million in a fund of funds sponsored by a BlackRock affiliate. Separately, the Company’s pension plan has an investment of approximately $7 million in a fund sponsored by BlackRock, which investment was made in 2005. The investment management agreement and the investments were entered into on an arm’s length basis. Additionally, BlackRock from time-to-time has entered into insurance policies with Travelers. All of these transactions are entered into in the ordinary course of business on substantially the same terms as those offered to other customers. In 2009, BlackRock paid premiums of approximately $2.1 million for such policies.

In its Schedule 13G filed on February 12, 2010, State Street Corporation, through its affiliates noted on its Schedule 13G (“State Street”), reported that it beneficially owned greater than 5% of the outstanding voting securities of the Company as of December 31, 2009. Accordingly, State Street is a “related person” under the Related Person Transaction Policy. From time-to-time, State Street has entered into insurance policies with Travelers. All of these transactions are entered into in the ordinary course of business on substantially the same terms as those offered to other customers. In 2009, State Street paid premiums of approximately $1.4 million for such policies.

In addition to the Related Person Transaction Policy, our Code of Conduct requires that all employees, officers and directors avoid any situation that involves or appears to involve a conflict of interest between their

personal and professional relationships. Our Audit Committee provides oversight regarding compliance with our Code of Conduct and discusses any apparent conflicts of interest with senior management. The Code of Conduct also requires that all employees seek approval from both our General Counsel and our Chief Compliance Officer prior to accepting a position as a director or officer of any unaffiliated for-profit company or organization.

Governance Structure of the Board – Lead Director

Mr. Fishman serves as Chairman of the Board as well as Chief Executive Officer, and Mr. Dasburg currently serves as our Lead Director. This leadership structure has been in place since 2005.

Our Governance Guidelines provide for the position of Lead Director whenever the Chairman of the Board is also the Chief Executive Officer or is a director who does not otherwise qualify as an independent director. Under the Governance Guidelines, the Lead Director is responsible for coordinating the efforts of the independent and non-management directors “in the interest of ensuring that objective judgment is brought to bear on sensitive issues involving the management of the Company and, in particular, the performance of senior management.” Among other things, the Lead Director has the authority to:

 

   

convene, set the agendas for, and chair regular executive sessions of the independent directors;

 

   

convene meetings of the independent directors as he deems necessary;

 

   

provide direction to the Chairman regarding the meeting schedules, information to be sent to the Board and input regarding meeting agenda items;

 

   

act as a liaison between and among directors, committee chairs, the Chairman and senior management;

 

   

receive correspondence sent to the Company’s office addressed to the Board and to determine appropriate responses if any; and

 

   

recommend to the Board the retention of consultants and advisors who directly report to the Board, without consulting or obtaining the advance authorization of any officer of the Company.

The Lead Director is elected from among the independent directors by secret ballot of the independent directors, and no person may serve in such role for more than five consecutive years. A more complete description of the role of the Lead Director is


 

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set forth in our Governance Guidelines which are available on our website at www.travelers.com. Mr. Dasburg has been a director of the Company since 1994 and Lead Director since November 2005.

The Board believes that its current leadership structure is appropriate for the Company at this time. The Board believes that the responsibilities of the Lead Director help to assure appropriate oversight of Company management by the Board and optimal functioning of the Board. The effectiveness of the Lead Director is enhanced by the Board’s independent character. The Board annually reviews the independence of our directors and has determined that 11 of the 12 directors nominated for re-election are independent. See “Director Independence and Independence Determinations” on page 20 of this Proxy Statement. Each of the Compensation Committee, Audit Committee, Nominating and Governance Committee, Investment and Capital Markets Committee and Advisory Committee on Public Policy is comprised solely of independent directors. Further, following the annual meeting (assuming the directors nominated by the Board are re-elected), the Risk Committee will be comprised solely of independent directors. In addition, at each in-person Board meeting, the non-management directors have the opportunity to meet in executive session with the Lead Director presiding at such meetings.

Finally, as described in more detail under “Specific Considerations Regarding 2010 Directors and Nominees”, the Lead Director and the independent directors have substantial experience with public company management and governance, in general, and the Company, in particular. At the same time, the combined role of Chairman and Chief Executive Officer, in the case of the Company, means that the Chair of the Board has longstanding experience with property and casualty insurance and ongoing executive responsibility for the Company. In the Board’s view, this enables the Board to better understand the Company and work with management to enhance shareholder value. In the Board’s view, this also enables it to better fulfill its risk oversight responsibilities, as described below. In addition, this enables the Chief Executive Officer to effectively communicate the Board’s view to management thereby ensuring a common purpose.

In summary, the Board believes the appropriate leadership structure depends on the opportunities and challenges facing a company at a given time and that a one-size-fits-all approach to corporate governance, with a mandated independent Chair, would deprive the Company of benefits of its current leadership structure and would not result in better governance or oversight.

 

Executive Sessions

Executive sessions, which are meetings of the non-employee members of the Board, are regularly scheduled throughout the year. In addition, at least once a year, the independent directors meet in a private session that excludes management and any non-employee directors who are not independent. The Audit, Risk, Compensation and Nominating and Governance Committees also meet regularly in executive session.

Board and Committee Evaluations

Every year, the Board and each of its Committees evaluate and discuss their respective performances and effectiveness, as required by the Governance Guidelines. These evaluations cover a wide range of topics, including but not limited to, the fulfillment of the Board and Committee responsibilities identified in the Governance Guidelines and Committee charters, which are posted on our website at www.travelers.com under Investors: Corporate Governance.

Communications with the Board

As described on our website at www.travelers.com, interested parties, including shareholders, who wish to communicate with a member or members of the Board, including the Chairman of the Nominating and Governance Committee, the non-employee directors as a group, the Lead Director or the Audit Committee, may do so by addressing their correspondence as follows: if intended for the full Board or one or more non-employee directors, to the Lead Director; if intended for the Lead Director, to Mr. John Dasburg; and if intended for the Audit Committee, to the Chairman of the Audit Committee. All such correspondence should be sent to the following address: c/o Corporate Secretary, The Travelers Companies, Inc., 385 Washington Street, Saint Paul, Minnesota 55102. The office of the Corporate Secretary will forward all such correspondence to the appropriate person or persons.

Board’s Role in Risk Management; Enterprise Risk Management

Enterprise Risk Management is a company-wide initiative that involves the Board and management in identifying, assessing and managing risks that could affect our ability to fulfill our business objectives or execute our corporate strategy. Our Enterprise Risk Management activities involve the identification and assessment of a broad range of risks and the development of plans to mitigate their effects. The Risk


 

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Committee and the other committees of the Board, as well as our separate management risk committee, are key elements of our enterprise risk management structure and help to establish and reinforce our strong culture of risk management. For example, having both a Board Risk Committee that oversees operational risks and the Company’s Enterprise Risk Management activities, and a management risk committee that reports regularly to the Risk Committee, enables a high degree of coordination between management and the Board. We describe our Enterprise Risk Management function in more detail in our Annual Report on Form 10-K, under “Business—Enterprise Risk Management”. We also discuss the alignment of our executive compensation with our risk management under “Compensation Discussion & Analysis—Risk Management and Compensation” on page 30 of this Proxy Statement.

While the Risk Committee has oversight responsibility generally for our Enterprise Risk Management activities, the Board has allocated and delegated risk oversight responsibility to various committees of the Board in accordance with following principles:

 

   

The Audit Committee is responsible for oversight of risks related to integrity of financial statements, including preparation and presentation, and oversight of the process for establishing insurance reserves.

 

   

The Risk Committee is responsible for oversight of risks related to business operations, including insurance underwriting and claims, reinsurance, catastrophe risk, credit risk in insurance operations, information technology and business continuity plans.

 

   

The Compensation Committee is responsible for oversight of risks related to compensation programs, including formulation, administration and regulatory compliance.

 

   

The Investment and Capital Markets Committee is responsible for oversight of risks in the Company’s investment portfolio (including valuation and credit risks), capital structure, financing arrangements and liquidity.

 

   

The Nominating and Governance Committee is responsible for oversight of risks related to corporate governance matters, including succession planning, director independence and related person transactions.

 

   

Each committee is responsible for monitoring reputational risk to the extent arising out of its allocated subject matter.

 

As a result, each of the Committee charters contains specific risk oversight functions delegated by the Board, consistent with the principles set forth above. For example, our Investment and Capital Markets Committee oversees investment risk management and credit risk in the investment portfolio and our Audit Committee oversees financial reporting and the process for establishing insurance reserves. In that way, risk oversight responsibilities are shared by all Committees of the Board and do not rest entirely with the Risk Committee. Further, we believe that allocating responsibility to a committee with relevant knowledge and experience improves the oversight of risk. Charters are available on the Company’s website at www.travelers.com under Investors: Corporate Governance: Committee Charters and responsibilities are summarized under “Board of Directors Information—Committees of the Board and Meetings” on page 13 of this Proxy Statement.

The allocation of risk oversight responsibility may change, from time to time, based on the evolving needs of the Company. On at least an annual basis, the Board reviews significant risks that management, through its Enterprise Risk Management efforts, has identified and then evaluates, and may change, the allocation among the various Committees of oversight responsibility for each identified risk. Further, each Committee periodically reports to the Board on its risk oversight activ-ities. In addition, the Board has adopted a practice that at least annually, the Chief Risk Officer will conduct a review of the interrelationships of risks and report the results to the Risk Committee. These reports and reviews are intended to inform the Board’s annual evaluation of the allocation of risk oversight responsibility.


 

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ITEM 2—RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee has selected KPMG LLP to serve as our independent registered public accounting firm for 2010.

Although ratification is not required by our bylaws or otherwise, the Board is submitting the selection of KPMG to our shareholders for ratification because we value our shareholders’ views on the Company’s independent registered public accounting firm. If our shareholders fail to ratify the selection, it will be considered as notice to the Board and the Audit Committee to consider the selection of a different firm. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.

Representatives of KPMG will be present at the Annual Meeting to answer questions. They also will have the opportunity to make a statement if they desire to do so.

The shares represented by your proxy will be voted for the ratification of the selection of KPMG unless you specify otherwise. KPMG has served as the independent registered public accounting firm of the Company (including St. Paul and its subsidiaries prior to its merger with TPC) since 1968 and of TPC and its predecessors from December 1993 until the Merger.

Audit and Non-Audit Fees

In connection with the audit of the 2009 financial statements, we entered into an agreement with KPMG which sets forth the terms by which KPMG will perform audit services for the Company.

The following table presents fees for professional services rendered by KPMG for the audit of our financial statements for 2009 and 2008 and fees billed for other services rendered by KPMG for those periods:

 

     2009    2008

Audit fees(1)

   $ 8,572,637    $ 8,995,928

Audit-related fees(2)

     637,958      647,090

Tax fees(3)

     403,952      316,685

All other fees

         
             

Total:

   $ 9,614,547    $ 9,959,703

 

(1)

Fees paid were for audits of financial statements, reviews of quarterly financial statements and related reports and reviews of registration statements and certain periodic reports filed with the SEC.

(2)

Services primarily consisted of audits of employee benefit plans and reports on internal controls not required by applicable regulations.

 

(3)

Tax fees related primarily to tax return preparation and assistance services and occasionally to domestic and international tax planning.

The Audit Committee of the Board considered whether providing the non-audit services shown in this table was compatible with maintaining KPMG’s independence and concluded that it was.

Consistent with SEC policies regarding auditor independence and the Audit Committee’s charter, the Audit Committee has responsibility for appointing, setting compensation for and reviewing the performance of the independent registered public accounting firm. In exercising this responsibility, the Audit Committee preapproves all audit and permitted non-audit services provided by the independent registered public accounting firm. Each year, the Audit Committee approves an annual budget for such permitted non-audit services and requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year. The Audit Committee has authorized our Chief Auditor to approve KPMG’s commencement of work on permitted services within that budget, although the Chair of the Audit Committee must approve any permitted non-audit service within the budget if the expected cost for that service exceeds $100,000. During the year, circumstances may arise that make it necessary to engage the independent registered public accounting firm for additional services that would exceed the initial budget. The Audit Committee has delegated the authority to the Chair of the Audit Committee to review such circumstances and to grant approval when appropriate. All such approvals are then reported by the Audit Committee Chair to the full Audit Committee at its next meeting.

YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF KPMG AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2010.


 

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Report of the Audit Committee

The Audit Committee operates pursuant to a charter which is reviewed annually by the Audit Committee. Additionally, a brief description of the primary responsibilities of the Audit Committee is included in “Board of Directors Information—Audit Committee” on page 13 of this Proxy Statement. Under the Audit Committee charter, management is responsible for the preparation, presentation and integrity of the Company’s financial statements, the application of accounting and financial reporting principles and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public accounting firm is responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with accounting principles generally accepted in the United States of America. In addition, the independent registered public accounting firm is responsible for auditing and expressing an opinion on the Company’s internal controls over financial reporting.

In the performance of its oversight function, the Audit Committee reviewed and discussed the audited financial statements of the Company with management and with the independent registered public accounting firm. The Audit Committee also discussed with the independent registered public accounting firm the matters required to be discussed by the statement on

Auditing Standards No. 114, as amended (AICPA, Professional Standards, Vol. 1. AU section 380). In addition, the Audit Committee received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and discussed with the independent registered public accounting firm their independence.

Based upon the review and discussions described in the preceding paragraph, the Audit Committee recommended to the Board that the audited financial statements of the Company be included in the Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC.

Submitted by the Audit Committee of the Company’s Board of Directors:

 

John H. Dasburg (Chair)

Alan L. Beller

Janet M. Dolan

 

Patricia L. Higgins

Thomas R. Hodgson

Laurie J. Thomsen


 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This section of the Proxy Statement explains our compensation philosophy and describes how our compensation programs are designed and operate with respect to our named executive officers for whom compensation is disclosed in the tables below.

2009 Overview

The disruption in the economy and financial markets that existed in the United States and abroad during 2008 continued during 2009, although with somewhat moderated severity. The beginning of 2009 witnessed the steepest decline in real gross domestic product since 1982, and unemployment, commercial bankruptcies and bank failures increased to levels not seen in decades. This disruption, although followed by economic growth later in 2009, resulted in a number of financial institutions being downgraded by rating agencies, seeking assistance from the federal government or declaring bankruptcy. Of the 11 companies that the Compensation Committee believes to be an appropriate reference group for compensation practices (the “Compensation Comparison Group”), rating agencies downgraded the financial strength, debt ratings or outlook of seven of them during 2008 and nine of them during 2009 and two obtained financial assistance from the federal government. In 2009, our Compensation Committee removed American International Group from our Compensation Comparison Group because the level of disruption experienced by AIG and related circumstances severely impaired its comparability for compensation purposes.

We have not been immune to the disruption or the challenging economic conditions. In particular, lower levels of economic activity in 2009 resulted in reduced insured exposures of policyholders. In addition, very low short-term interest rates impacted investment income, as the federal funds effective rate declined to its lowest average annual levels in more than 50 years. Further, for much of 2009, challenging conditions persisted for our non-fixed income portfolio, composed primarily of private equity funds, real estate partnerships and hedge funds.

Despite the challenging environment, we continued to perform strongly, both on an absolute and a relative basis, as evidenced by the following:

 

   

Generated Significant Net Income and Substantial Operating Return on Equity. In 2009, we recorded net income per diluted share of

   

$6.33, the second highest in our history, and $3.6 billion of net income, the third highest in our history and the highest in our Compensation Comparison Group. Net income per diluted share was 32% higher in 2009 than in 2008. In addition, operating return on equity in 2009 was 14.0% and return on equity was 13.5%, an increase from 12.4% and 11.4% in 2008, respectively. Our 2009 operating return on equity substantially exceeded our business plan and was consistent with our financial goal of a mid-teens operating return on equity over time.*

 

   

Increased Book Value and Returned Significant Excess Capital to our Shareholders. During 2009, we increased our book value by 8% and our book value per share by 22%, after returning to shareholders approximately $3.3 billion through share repurchases and $690 million through dividends. In addition, in October 2009, we increased our regular quarterly dividend per share by 10% and our Board of Directors authorized an additional $6.0 billion of share repurchases. From the beginning of 2008 to the end of 2009, our book value per share increased by 24.4%, a greater percentage than 10 of the 11 companies in our Compensation Comparison Group. During the same period, three of the 11 companies in our Compensation Comparison Group had significant decreases in their book value per share. We were able to accomplish such leading book value per share growth while returning more capital to our shareholders through share repurchases and dividends, as a percentage of market capitalization, than any member of the Compensation Comparison Group during the last two years.

 

   

Continued Strong Financial Condition. All of our financial strength indicators were at or better than our target levels as of December 31, 2009, including our debt-to-capital ratio. On August 11, 2009, Standard & Poor’s affirmed our financial strength ratings of AA- and debt ratings of A- and revised its outlook on these ratings from “stable” to “positive” with a one-year time horizon for consideration of an upgrade. In May 2009, AM Best changed the outlook for our debt ratings to “positive.” These actions followed an upgrade of our financial strength and debt ratings by Moody’s Investors Services in June 2008.

 

*

For a definition of operating return on equity and a reconciliation of this measure to return on equity, see “Reconciliation of Non-GAAP Measures to GAAP Measures” on page 72 of this Proxy Statement.


 

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Total Return to Shareholders over Two and Five Year Periods Higher than Peer Group. From the beginning of 2008 to the end of 2009 we generated a higher total return to shareholders (measured as the change in the stock price plus the cumulative amount of dividends, assuming dividend reinvestment) than any other company in our Compensation Comparison Group. Our five-year total return to shareholders also ranks first among our Compensation Comparison Group.

 

   

Increased Market Share. Because our 2009 net written premium changes were better than substantially all of the companies in our property and casualty insurance competitor peer group (as defined under “Performance-Based Annual Cash Bonus” below), we believe we have expanded our share of the business and personal insurance markets to a greater degree than those competitors.

In addition to the significant accomplishments discussed above, during 2009, we were added to the Dow Jones Industrial Average. The Dow Jones Industrial Average measures the performance of the stock of 30 companies traded on the New York Stock Exchange recognized by the editors at Dow Jones as major factors in their industries. In 2009, we were also added to Dow Jones’ Global Dow index. The Global Dow index is an index of 150 companies selected by editors of Dow Jones as the “most innovative, vibrant and influential corporations from around the world”.

We believe that our strong 2009 performance resulted in large measure from the successful execution of our long-term strategy over a multi-year time period. As previously disclosed, we aspire to achieve an operating return on equity in the mid-teens over time. We believe that this goal is consistent with our careful balance of risk and reward, encourages a long-term perspective and recognizes the historic cyclicality of our business and the variability in our financial results from period to period. The variability in our business is due in large part to the periodic occurrence of catastrophes and the fact that claim and claim adjustment expenses develop over time, particularly in longer tail insurance lines, and may result in prior year reserve development. Consistent with that goal, from 2005 (the first full year after the merger between St. Paul and TPC that formed the Company) through December 31, 2009, we achieved an average annual operating return on equity of 14.4% and an average annual return on equity of 13.8%.

As part of our longstanding philosophy of pay for performance, the Compensation Committee believes that when we and our named executive officers per -

form at superior levels, total compensation for these executive officers should be above the median of the compensation levels for equivalent positions in the Compensation Comparison Group.

Specifically, in determining the amount of performance-based compensation paid to our named executive officers, the Compensation Committee considered our strong performance in light of the challenging environment in which we operated and our performance as compared to the companies in our Compensation Comparison Group, including as described earlier in “2009 Overview”. Based on this information, the Compensation Committee concluded that the Company performed in the top quartile relative to our Compensation Comparison Group and the named executive officers performed at superior levels. The Compensation Committee also noted that the most current compensation data available for the Compensation Comparison Group was for the 2008 performance year, when a number of members of the Compensation Comparison Group experienced significant financial distress. Given these factors, the Compensation Committee determined that our named executive officers as a group should receive total compensation for performance year 2009 in the top quartile of our Compensation Comparison Group based on the most current data available.

As noted below, the Compensation Committee generally targets base salaries for named executive officers on average at the 50th percentile for equivalent positions in the Compensation Comparison Group. For 2009, the Compensation Committee determined that the allocation of compensation between the other two elements of total direct compensation, performance-based annual cash bonus and stock-based long-term incentives, should be somewhat more heavily weighted towards cash bonus as compared to the Compensation Comparison Group. The Compensation Committee believes this allocation is appropriate in light of the fact that a higher percentage of the named executive officers’ total compensation is performance-based as compared to the Compensation Comparison Group. In particular, all of the equity awards made to the named executive officers are performance-based and our compensation program de-emphasizes other elements of compensation like pension benefits and perquisites.

Accordingly, in February 2010, the Compensation Committee awarded our named executive officers the following performance-based compensation with respect to 2009 performance:

 

   

First, the annual cash bonus paid to the CEO, and the average annual cash bonus paid to the other


 

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named executive officers as a group, increased by 50% and 38%, respectively, from 2008 and were generally consistent with, or moderately higher than, 2007 bonuses. The 2008 bonus for the CEO, and the average bonus amount for the other named executive officers as a group, had decreased by 33% and 19%, respectively, from 2007 bonuses, reflecting the Compensation Committee’s pay for performance philosophy.

 

   

Second, the Compensation Committee awarded the CEO stock-based long-term incentive grants with a grant date fair value of $11 million. The Committee also awarded the named executive officers, other than the CEO, annual stock-based long-term incentive grants with a grant date fair value equal to approximately 3.5 times the executive’s annual base salary rate at the time of grant.

The 2009 performance-based compensation, together with 2009 salary, placed the CEO and the other named executive officers considered as a group in the top quartile of the Compensation Comparison Group (based on data for the 2008 performance year, which was the most recent publicly available information). In February 2010, the Compensation Committee increased the base salaries of the named executive officers other than the CEO and the COO by $50,000 each and increased the base salary of the COO by $150,000. Such salary increases are effective April 1, 2010. The CEO’s base salary was not changed. For the COO, the increase in salary was intended to position him at approximately the 50th percentile of the Chief Operating Officers in the Compensation Comparison Group and was based in part on the fact that the COO last received a salary increase in 2005.

Risk Management and Compensation

The Compensation Committee believes that our stable performance is attributable in part to our strong culture of risk management. The Risk Committee and the other committees of the Board, as well as our separate management risk committee, are key elements of our enterprise risk management structure. Our compensation structure is designed to reinforce this culture. The Compensation Committee believes that our compensation structure encourages a careful balance of risk and reward, both on an individual risk basis and in the aggregate on a Company-wide basis, and encourages a long term perspective.

As discussed in more detail below, consistent with our goal of achieving an operating return on equity in the mid-teens over time, the Compensation Committee selected adjusted operating return on equity as the

quantitative performance measure for our stock-based long-term incentive program and as a quantitative performance measure for our annual bonus program. Because operating return on equity is a function of both operating income and shareholders’ equity, it encourages senior executives, as well as other employees with management responsibility, to focus on a variety of performance objectives that are important for creating shareholder value, including the quality and profitability of our underwriting and investing activities and capital management.

In addition, the long-term nature of the stock-based incentive awards (which do not vest until three-years after the award), our significant executive stock ownership requirements (described below) and the fact that more than 40% of our named executive officers’ compensation in the aggregate was in the form of long-term stock-based incentives in 2007, 2008 and 2009, all encourage prudent enterprise risk management and discourage excessive risk taking for short-term gain. Moreover, neither the long-term incentive awards nor annual bonuses require growth in revenues or earnings in order for our executives to be rewarded, and none of our employees are paid based on a percentage of revenues or profits. As a result of this and the mix of short- and long-term performance criteria, the Compensation Committee believes that our executives are not incentivized to employ disproportionately risky growth strategies.

Furthermore, the Compensation Committee’s independent outside compensation consultant, F. W. Cook, evaluates and advises the Compensation Committee as to the design and risk implications of our incentive plans and other aspects of our compensation programs to ensure that the mix of compensation, the balance of performance metrics and the overall compensation framework support our short and long-term objectives.

Objectives of Our Executive Compensation Program

The following five primary objectives of our executive compensation program have been approved by the Compensation Committee.

 

1.  

Link compensation to the achievement of our short- and long-term financial and strategic objectives

The Compensation Committee believes that a properly structured compensation system should measure and reward performance on multiple bases. To ensure an appropriate degree of balance in the program, the compensation system is designed to measure short- and long-term financial and operating performance, the


 

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efficiency with which capital is employed in the business, the effective management of risk, the achievement of strategic initiatives and the individual performance of each executive.

The Compensation Committee further believes that an executive’s total compensation opportunity should be commensurate with his or her position and level of responsibility. Accordingly, the proportion of total compensation that is performance-based increases with successively higher levels of responsibility. Thus, the senior-most executives who are responsible for the development and execution of our strategic and financial plans have the largest portion of their compensation tied to performance-based incentives, including equity-based compensation, where the ultimate value is completely or partly dependent on changes in stock price and return on equity.

 

2.  

Provide competitive compensation opportunities to attract, retain and motivate high-performing executive talent

Our overall compensation levels are targeted to attract and retain the best executives in light of the competition for executive talent. The Compensation Committee generally targets base salary for executive officers, including the named executive officers, on average at the 50th percentile for equivalent positions at the Compensation Comparison Group, based upon the most recently available public information. In addition, the Compensation Committee believes that, when we generally exceed our performance goals and the named executive officers individually perform at superior levels in achieving that performance, total compensation for these executive officers should be above the median of the compensation levels for equivalent positions in the Compensation Comparison Group. When we do not generally exceed our performance goals or the named executive officers individually do not perform at superior levels, total compensation for these executives should be set at lesser levels.

The Compensation Committee may also take into account other relevant facts and circumstances in awarding compensation in order to attract, retain and motivate high-performing executive talent.

Whereas in prior years the Compensation Committee focused on total direct compensation (that is, the sum of base salary, annual cash bonuses and stock-based long-term incentive awards) in determining compensation levels, in 2009, the Compensation Committee focused on total compensation. The Compensation Committee made this change because it believes that total compensation, which includes other elements of compensation such as pension and perquisites, is a

better measure of comparability. The Company’s compensation program de-emphasizes pension and perquisites.

 

3.  

Align the interests of management and shareholders by paying a substantial portion of total compensation in equity-based incentives and ensuring that executives accumulate meaningful stock ownership stakes over their tenure

The Compensation Committee believes that the interests of executives and shareholders should be aligned. Accordingly, a significant portion of the total compensation for the named executive officers is in the form of stock-based compensation. The components of stock-based compensation granted to named executive officers in 2009 and 2010 were stock options and performance shares. In addition, as discussed below, senior executives are expected to achieve specified stock ownership targets prior to selling any stock acquired upon the exercise of stock options or the vesting of performance shares or restricted stock units. The portion of total compensation attributable to stock-based programs, and the expected level of executive stock ownership, increases with successively higher levels of responsibility.

 

4.  

Maximize, to the extent equitable and practicable, the financial efficiency of the overall compensation program from tax, accounting and cash flow perspectives

We make reasonable efforts to maximize the tax deductibility of all elements of compensation. Section 162(m) of the Internal Revenue Code prohibits us from deducting compensation in excess of $1 million paid to most of the named executive officers, unless specified requirements are met, including that such amounts be considered “qualified performance-based compensation” under Section 162(m).

However, the Compensation Committee, in its discretion, may approve compensation that does not qualify for a deduction under Section 162(m) if it determines that it is appropriate to do so in light of other competing interests and goals, such as the attraction and retention of key executives.

As part of the process of approving the initial design of incentive plans, or any subsequent modifications made to such plans, and determining awards under the plans, the Compensation Committee also evaluates the aggregate economic costs of such compensation, the expected accounting treatment and the impact on our financial results. The Compensation Committee attempts to balance the various financial implications of each program to ensure that the system is as efficient as possible and that unnecessary costs are avoided.


 

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5.  

Reflect established and evolving corporate governance standards

The Compensation Committee, with the assistance of our Human Resources Department and independent compensation consultant, F. W. Cook, stays abreast of current and developing corporate governance standards with respect to executive compensation and adjusts the various elements of our executive compensation program, from time to time, as it deems appropriate.

Compensation Determination Process

The Compensation Committee is responsible for setting our executive compensation objectives and policies, establishing our executive compensation program consistent with those objectives and policies and determining the compensation for our CEO and members of our Management Committee who are executive officers or direct reports of the CEO. Determining the appropriate level of executive compensation is not an exact science or a formulaic process and involves careful deliberation and business judgment. As described more fully below, in determining executive compensation, the Compensation Committee reviews all components of the named executive officers’ compensation and takes into account a number of variables. The Compensation Committee also consults with F. W. Cook.

The CEO’s compensation was determined by the Compensation Committee consistent with his employment agreement and based on the prior year’s compensation levels adjusted to reflect (1) the Compensation Committee’s assessment of our overall performance and the individual performance of the CEO and (2) an assessment of management’s performance, including a written assessment provided by the CEO. The Compensation Committee also reviewed the most recent publicly available comparable compensation data (that is, 2008 performance year compensation) for the Compensation Comparison Group.

With respect to compensation for the other named executive officers, the Compensation Committee generally considers a variety of factors, including Company and individual performance, the recommendations of the CEO and comparable compensation data for the Compensation Comparison Group.

Compensation Comparison Group

The Compensation Comparison Group consisted of the following companies in the property and casualty insurance business:

 

   

ACE Ltd.

 

   

Allstate Corporation

 

   

Chubb Corporation

 

   

Hartford Financial Services Group

 

   

Progressive Corporation

The Compensation Comparison Group also included the following general financial services and life and health insurance companies:

 

   

Aetna, Inc.

 

   

American Express

 

   

CIGNA Corporation

 

   

Manulife Financial Corporation

 

   

MetLife Inc.

 

   

Prudential Financial Inc.

The Compensation Comparison Group includes (1) our key competitors in the property and casualty insurance industry and (2) general financial services and life and health insurance companies. We regard these general financial services and life and health insurance companies as potential competition for executive talent. Moreover, our revenues and market capitalization have been generally consistent with the median of the Compensation Comparison Group until 2008 when the median market capitalization of the Compensation Comparison Group dropped significantly.

The one change to our Compensation Comparison Group in 2009 was to remove American International Group. The Compensation Committee believes that the level of disruption experienced by American International Group and related circumstances severely impaired its comparability for compensation purposes. Therefore, the Compensation Committee determined that the compensation data related to American International Group’s executives is no longer meaningful to consider when setting compensation for our executives.

The factors considered by the Compensation Committee in determining the total compensation of the named executive officers are described below.

Compensation Elements

We deliver executive compensation through a combination of base salary and performance-based compensation consisting of annual cash bonus and stock-based long-term incentive awards. We also provide benefits and limited perquisites. Total direct compensation for a performance year consists of base salary, along with annual cash bonuses paid and stock-based long-term incentive awards granted to our named executive officers in February of each year with respect to the performance in the prior year.


 

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In accordance with our philosophy that overall compensation should be competitive and that the compensation of the named executive officers should be most heavily dependent upon individual and Company performance, these executives receive a higher portion of total annual compensation in the form of performance-based compensation (consisting of annual cash bonuses and stock-based long-term incentive awards) as compared to other of our employees. Further, in support of pay-for-performance objectives, the portion of total direct compensation delivered through stock-based long-term incentives increases with successively higher levels of responsibility. As a result, the senior-most executives are held most accountable for changes in stock price and multi-year return on equity objectives.

Total Direct Compensation

The following table sets forth the composition of total direct compensation for the CEO and our other named executive officers for the 2009 performance year:

 

    

Percentage of

Total Direct
Compensation
of CEO

      

Percentage of

Average Total
Direct
Compensation of

Other NEOs

    

Base Salary

    5%       

11% 

   

Performance-Based Annual Cash Bonus

  39%       51%    

Stock-Based Long-Term Incentives

  56%       38%    

Base Salary

The Compensation Committee generally sets base salary for executive officers, including the named executive officers, at a level that is targeted at the 50th percentile for equivalent positions in the Compensation Comparison Group. This positioning is targeted because, among other things, it helps us to attract and retain high quality talent and enables us to grant the substantial majority of our named executives’ compensation in the form of variable performance-based compensation.

Individual salaries may range above or below the median based on a variety of factors, including the potential impact of the executive’s role at the Company, the terms of the executive’s employment agreement, if any, the experience the executive brings to the position and the performance and potential of the executive in his or her role. Base salaries in 2009 for the named executive officers, on average, approximated the 50th percentile for base salaries of the Compensation Comparison Group based upon the most

recently available public information. Because salaries for named executive officers are typically changed infrequently, at the time the Compensation Committee increases the salaries of executives who have not received an increase in several years, such salaries on average may initially be somewhat higher than the 50th percentile indicated by the most recently available data on the basis that over time they are expected to approximate the 50th percentile. Base salaries are reviewed annually, and adjustments are made from time to time as the Compensation Committee deems appropriate to recognize performance, changes in duties and/or changes in the competitive marketplace.

In February 2010, the Compensation Committee increased the base salaries of the named executive officers other than the CEO and COO by $50,000 each and increased the base salary of the COO by $150,000. Such salary increases are effective April 1, 2010. The CEO’s base salary was not changed. For the COO, the increase in salary was intended to position him at approximately the 50th percentile of Chief Operating Officers in the Compensation Comparison Group and was based in part on the fact that the COO last received a salary increase in 2005.

The CEO’s 2009 and 2010 base salary of $1,000,000 is set forth in Mr. Fishman’s employment agreement as a minimum and was at approximately the 25th percentile of the Compensation Comparison Group. Mr. Fishman’s base salary has not changed since he joined the Company in 2001. A description of Mr. Fishman’s employment agreement is set forth under the “Tabular Executive Compensation Disclosure—Narrative Supplement to the Summary Compensation Table and the Grants of Plan-Based Awards in 2009” on page 49.

Performance-Based Annual Cash Bonus

The named executive officers are eligible to earn annual cash bonuses under the Senior Executive Performance Plan, a plan approved by our shareholders in 2002. Annual bonuses are short-term compensation awards that are based upon the individual performance of each executive as well as that of the Company as a whole. These bonuses are intended to motivate and promote the achievement of our operating performance objectives and strategic initiatives that are important to our success, as well as individual contributions toward those ends.

The Senior Executive Performance Plan is designed to comply with the “qualified performance-based compensation” requirements of Section 162(m) of the Internal Revenue Code and thereby enable annual


 

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bonuses paid to the named executive officers to be fully tax deductible. Under the Senior Executive Performance Plan, a maximum pool for annual bonus awards is determined by a formula that was approved by shareholders. Notwithstanding the establishment of the bonus pool, the Compensation Committee may determine, in its discretion, to grant no bonuses if it believes none are warranted. Alternatively, even if the target under the Senior Executive Performance Plan is not achieved and no bonus pool is available under the Senior Executive Performance Plan, the Compensation Committee could award bonuses to the named executive officers if, in the exercise of its business judgment, the Compensation Committee determines that they are warranted under the circumstances and in the best interest of the Company. In such a case, the bonuses would be awarded outside the Senior Executive Performance Plan and would not qualify as “performance-based compensation” under Section 162(m).

Pursuant to the formula set forth in the Senior Executive Performance Plan, generally, if our return on equity, as described below, for the performance period is greater than 8%, then the pool available to pay bonuses to the named executive officers will equal 1.5% of After-Tax Operating Earnings, as defined below. The Senior Executive Performance Plan formula provides that the return on equity is determined by dividing After-Tax Operating Earnings by total common shareholders’ equity as of the beginning of the fiscal year (adjusted to exclude net unrealized appreciation or depreciation of investments). The Senior Executive Performance Plan defines “After-Tax Operating Earnings” as our net income from continuing operations for the performance period as reported in our financial statements for the performance period, adjusted to eliminate the after-tax effects of the following items:

 

   

net realized investment gains or losses in our fixed maturities and real estate portfolios;

 

   

extraordinary items and the cumulative effect of accounting changes as each is defined by U.S. generally accepted accounting principles (“GAAP”);

 

   

restructuring charges;

 

   

losses in our “core” businesses from officially designated catastrophes; and

 

   

underwriting results of our “non–core”, or exited, businesses placed into run-off.

The potential maximum award for each named executive officer is set annually by the Compensation Committee as a percentage of the aggregate pool

determined using the formula described above. For the 2009 performance period, the maximum percentage of the pool payable to each of the named executive officers was set at 35% for the CEO, 20% for the next most highly compensated executive officer and 15% for the other named executive officers.

After the close of the performance period and before the payment of any award under the Senior Executive Performance Plan, the Compensation Committee determines whether the threshold level of return on equity has been achieved, and if so, determines the maximum awards that could be paid to each named executive officer. Due to our substantial After-Tax Operating Earnings in 2009, we achieved a return on equity as defined under the Senior Executive Performance Plan of 15.44%, which resulted in a pool of $58.78 million available for bonuses for the named executive officers that would be deductible under Section 162(m). The Compensation Committee has discretion, subject to the maximum amounts described above, to determine the individual bonus amount to be paid to each named executive officer. The bonus pool is not an expectation of the amount of bonuses that will actually be paid. Rather, the bonus pool (and the maximum individual allocations established thereunder) represents the maximum amount of bonus awards that the Compensation Committee may approve under the Senior Executive Performance Plan as “qualified performance-based compensation” for tax purposes pursuant to Section 162(m). With respect to the bonuses paid for the 2009 performance period, because the amount of our After-Tax Operating Earnings generated a larger bonus pool than was necessary for awarding bonuses consistent with the Compensation Committee’s objectives, the Compensation Committee exercised its discretion to award less than the maximum amount that could have been awarded under the Plan as “qualified performance-based compensation”. As discussed below, the Compensation Committee awarded a total of $20,100,000 in bonuses to the named executive officers for the 2009 performance period. The Compensation Committee’s decision to award less than the maximum amount that could have been awarded was consistent with its practice in prior years.

In determining the actual annual bonuses awarded, the Compensation Committee applied its business judgment and considered a number of factors, including:

 

   

Company, business segment and/or investment results relative to the various financial measures set forth in our 2009 business plan that was established and approved by the Board at the end of 2008;


 

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the performance of the executive;

 

   

compensation market practices as reflected by the Compensation Comparison Group in the most recent publicly available data;

 

   

our performance relative to the companies in the Compensation Comparison Group; and

 

   

past awards to the executive.

In determining these bonuses, the Compensation Committee also considered additional qualitative factors, such as:

 

   

the strategic positioning of the Company or the applicable business unit;

 

   

the progress made on strategic and technology initiatives;

 

   

the identification and achievement of cost efficiencies (or, when appropriate, the maintenance of a business segment’s cost competitiveness);

 

   

the effective management of risk;

 

   

the demonstration of leadership, teamwork and innovation; and

 

   

the extent of accomplishment of the applicable business unit’s business plan.

With regard to CEO performance, the Compensation Committee also considered his development of management expertise, management depth and succession plans.

The achievement, or inability to achieve, any particular financial or operational measure in a given year neither guarantees nor precludes the payment of an award but is considered by the Compensation Committee as one of several factors in light of the other factors noted and any additional information available to it at the time, including, without limitation, market conditions in general. The Compensation Committee does not assign any particular relative weighting to the performance measures. However, the Compensation Committee generally weighs financial performance (particularly operating return on equity) more heavily than other factors. The Compensation Committee also generally weighs comparable compensation information more heavily than other factors.

In determining executive compensation levels, the Compensation Committee carefully considers many factors and does not use a formula or assign any pre-determined weight to any particular factor. Rather, the Compensation Committee evaluates performance as a whole and no specific financial or operational

measure, other than return on equity (as discussed below), is material on its own in setting compensation levels.

As one part of evaluating the foregoing factors for 2009, the Compensation Committee established in February 2009 the two specific executive management performance goals discussed below, and, in setting compensation for the 2009 performance year, considered management’s progress in achieving these specific goals.

 

1.  

Achieve 2009 financial objectives—return on equity

One of management’s important responsibilities is to produce an appropriate return on equity for our shareholders and to develop and execute financial and operational plans consistent with our aspiration of operating return on equity for our shareholders in the mid-teens over the long term. The Compensation Committee also recognizes, however, the historic cyclicality of our business and that there may be times when the operating return on equity achievable in a given year is greater than, or less than, a mid-teens level.

The Compensation Committee also recognizes that our business is subject to natural and man-made catastrophic events, as well as to various types of prior year reserve development. The Compensation Committee believes that, while the impact of catastrophes in any given year can produce significant volatility, management’s plan to manage volatility and earn a return on capital committed to insurance in catastrophe-prone areas must be long-term in nature.

During the year, the Compensation Committee reviews management’s progress in meeting a broad range of financial and operational metrics included in the financial plan approved by the Board at the end of 2008. On a quarterly basis, the Compensation Committee evaluates the Corporation’s performance in respect of these metrics, including premium revenues, investment income, insurance losses, expense management and the resulting operating income. However, while the Compensation Committee evaluates a broad range of metrics quarterly, no one metric is material and the Compensation Committee evaluates such data in light of the goal of achieving a mid-teens operating return on equity over time. Accordingly, the Compensation Committee places considerable importance on our operating return on equity, both on an as-reported basis and as adjusted to exclude the cost of catastrophes and prior year reserve development related to asbestos and environmental coverages. Prior period reserve developments related to asbestos and environmental coverages are excluded because, to a significant


 

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degree, they relate to policies that were written decades ago and, particularly in the case of asbestos, arise to a significant extent as a result of court decisions and other trends that have attempted to expand insurance coverage far beyond what we believe to be the intent of the original parties. Accordingly, the financial impact is largely beyond the control of current management. In terms of evaluating the appropriateness of the return on equity for any particular period, the Compensation Committee considers our return on equity relative to the Compensation Comparison Group and relative to our cost of equity.

When the Board approved our 2009 business plan, both management and the Board believed the plan to be reasonably difficult to achieve. That plan targeted an operating return on equity of 10.4% and an operating return on equity, adjusted to exclude catastrophes, of approximately 11.7%. The targeted returns reflected management’s expectation of margin compression from anticipated pricing and loss cost trends. We significantly exceeded both targets in 2009, with an operating return on equity of 14.0% and an operating return on equity, excluding catastrophes and prior year reserve development related to asbestos and environmental coverages, of 15.6%. These results reflected solid underwriting performance, including favorable prior year reserve development not related to asbestos and environmental matters and better than expected margins. The results also reflected solid investment performance, particularly in our long-term fixed income portfolio, which was offset by the impact of historically low short-term interest rates on our short-term portfolio and the impact of difficult market conditions on our non-fixed income portfolio, especially early in 2009. Finally, the results reflected the favorable impact of the Company’s capital management, particularly its share repurchase program, which increased in size in 2009.

 

2.  

Gain market share, as appropriate for market conditions

The Compensation Committee also reviewed changes, in light of market conditions, in our net written premiums and compared that to the business plan in each of our business segments. The Compensation Committee also reviewed our annual net written premiums as compared to a peer group of competitors in the property and casualty insurance business (a larger group than just the property and casualty companies included in the Compensation Comparison Group), on both an aggregated peer group basis and individually. These competitors were:

 

   

ACE Ltd.

 

   

Allstate Corporation

 

   

American International Group

 

   

Chubb Corporation

 

   

Cincinnati Financial Corporation

 

   

CNA Corporation

 

   

Hartford Financial Services Group

 

   

Liberty Mutual Group, Inc., including Safeco

 

   

Progressive Corporation

 

   

XL Capital Ltd.

In 2009, our net written premium changes were better than substantially all of the members of our competitor peer group. As a result, we believe that we have expanded our share of the business and personal insurance markets to a greater degree than those peers. Further, our 2009 net written premiums of $21.3 billion were only 3% lower than our business plan, notwithstanding the recent and rapid economic disruption and its resulting impact on insured exposures. If not for reduced insured exposures of policyholders caused by lower levels of economic activity (for example, a renewed business insurance policy that covers a business with fewer employees or less revenue), our level of net written premiums would have exceeded plan as the other elements of net written premiums (retention, renewal premium change and new business) were generally strong. Accordingly, the Compensation Committee believes that our level of net written premiums was generally consistent with our business plan in light of market conditions and our response to those conditions.

*        *        *

At its February 2010 meeting, the Compensation Committee considered the quantitative and qualitative factors described above and the substantial contributions made by the named executive officers in achieving the 2009 performance goals described above, including the performance of the Company relative to the Compensation Comparison Group. The Compensation Committee believed that all of the named executive officers individually performed at superior levels and contributed substantially to our results. The Compensation Committee also placed significant weight on the fact that the executive officers, including the named executive officers, were highly effective working as a team. The cash bonus for Mr. Fishman in particular recognizes his leadership, strategic vision and oversight of the successful implementation of the long-term strategy that distinguished the Company among financial services firms during the recent economic disruption; his


 

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attracting, retaining and motivating a strong senior management team; and, more broadly, his cultivating an effective corporate culture that prioritizes a proper balance of risk and reward. The cash bonus amounts for the other named executive officers recognize their superior individual performances and the scope of their respective responsibilities.

In light of the foregoing, the Compensation Committee determined in its judgment to award a cash bonus of $7,500,000 to the CEO and total cash bonuses of $12,600,000 to the other named executive officers.

Stock-Based Long-Term Incentives

As described below, in 2009, performance-based long-term compensation was awarded to the named executive officers in the form of stock options and performance shares. Our stock-based long-term incentive awards are designed to ensure that:

 

   

our executive officers have a continuing stake in our long-term success;

 

   

the total compensation realized by our executive officers reflects our multi-year performance as measured by the return on equity and changes in our stock price;

 

   

a large portion of the total compensation opportunity is earned over a multi-year period and is forfeitable in the event of termination of employment; and

 

   

our executive officers manage the business with a long-term risk-adjusted perspective.

The Compensation Committee generally begins its process for determining the amount of annual stock-based long-term incentive grants to each named executive officer, other than the CEO, by considering awards with a grant date fair value equal to 3 times the executive’s annual base salary rate. This practice began in 2006 and was intended to be and, since then, has been, generally consistent on an aggregate basis with the annual equity grants to named executive officers of the Compensation Comparison Group at the 50th percentile. At its February 2009 meeting and its February 2010 meeting, the Compensation Committee awarded annual stock-based long-term incentive grants to each named executive officer (other than the CEO) in an amount equal to 3 times and 3.5 times the executive’s annual base salary rate at the time of grant, respectively. The Compensation Committee increased the ratio from 3 times to 3.5 times in recognition of the Company’s and the named executive officers’ performance and in order to position the total compensation of the named executive officers as a group in

the top quartile of the Compensation Comparison Group (based upon data for the 2008 performance year, which was the most recent publicly available information).

The CEO is guaranteed a stock-based long-term incentive grant with a grant date fair value of at least $6.25 million pursuant to his employment agreement. At its February 2009 meeting, the Compensation Committee awarded the CEO stock-based long-term compensation equal to the contractual minimum because it believed that such an award was appropriate in light of the Company’s results and the significant economic and financial disruption that occurred in 2008 and the early part of 2009. At its February 2010 meeting, the Compensation Committee awarded the CEO stock-based long-term incentive grants with a grant date fair value of $11 million, in recognition of the CEO’s and the Company’s strong performance and the fact that such a grant would position his total compensation in the top quartile of the Compensation Comparison Group based on most recent data available.

The value of stock-based long-term incentive awards at the time of vesting or exercise (in the case of stock options) may be greater than or less than the grant date fair value, depending upon our operating performance and changes in the value of our stock price. Unless otherwise noted, the grant date fair values of long-term incentive awards are computed in accordance with the accounting standards described in footnote 2 to the Summary Compensation Table on page 46.

As part of the Compensation Committee’s process of evaluating whether the aggregate stock-based long-term incentive awards represent reasonable grants of compensation by us, F. W. Cook conducts an annual review of the economic costs and potential share dilution of our stock-based compensation, as well as the economic costs and potential share dilution relative to the Compensation Comparison Group based upon the most recently available public information.

Based on the results of these reviews as well as our historic grant patterns and budget constraints, in February 2009 the Compensation Committee granted approximately $117.9 million in grant date fair value of annual equity awards to approximately 6,900 employees in respect of 2008 performance. Those awards fell within the budget established by the Compensation Committee for all equity incentive awards to our employees, including the named executive officers. F. W. Cook advised the Compensation Committee that the 2009 stock-based long-term incentive award budget of approximately


 

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$117.9 million fell within the range of the equity award practices of the Compensation Comparison Group based on the most recently available public information.

In February 2010, the Compensation Committee granted approximately $124.4 million in grant date fair value of annual equity awards to approximately 5,800 employees in respect of 2009 performance. The decrease in 2010 as compared to 2009 in the number of employees receiving equity awards was due to a change in mix between cash and equity for employees at lower pay bands who had previously received very small grants of equity. F. W. Cook advised the Compensation Committee that the 2010 stock-based long-term incentive award level of approximately $124.4 million fell within the range of the equity award practices of the Compensation Comparison Group based on the most recently available public information.

The Compensation Committee, with advice from F. W. Cook, developed guidelines for the allocation of annual grants of equity compensation between stock options and performance shares. These allocations are intended to result in a mix of long-term incentives that is sufficiently performance-based and will ensure that (1) a large component of total compensation is variable and tied to the achievement of specific, multi-year operating performance objectives and (2) an appropriate portion is tied solely to changes in shareholder value. Under the guidelines, the mix of long-term incentives for the named executive officers is approximately 40% stock options and 60% performance shares, based on the grant date fair value of such awards. The mix of long-term incentive compensation reflects the Compensation Committee’s judgment as to the appropriate balance of these incentives to achieve its objectives. While the grant date fair values of equity awards granted to named executive officers take into account both individual and Company performance, the mix of equity incentives does not. For details of the equity awards granted in calendar year 2009, refer to the “Tabular Executive Compensation Disclosure—Grants of Plan-Based Awards in 2009” on page 48.

Stock Options. All stock options are granted with an exercise price equal to the closing price of the underlying shares on the date of grant. Our annual award of stock options generally has an expiration date of ten years from the date of grant, vests 100% three years after the date of grant and does not accelerate upon a change of control. Under the 2004 Stock Incentive Plan, stock options cannot be “repriced” unless such repricing is approved by our shareholders.

 

The Compensation Committee’s annual option award to the CEO had a grant date fair value of $2,500,000 for the February 2009 award and $4,400,000 for the February 2010 award. The Compensation Committee’s annual option awards to the other named executive officers had an average grant date fair value of approximately $795,000 for the February 2009 awards and $950,000 for the February 2010 awards.

Performance Shares. Under our program for granting performance shares, we may grant performance shares to certain of our employees who hold positions of Vice President (or its equivalent) or above, including the named executive officers. These awards provide the recipient with the right to receive a variable number of shares of our common stock based upon our attainment of specified performance goals discussed below. The performance goals for performance share awards granted in 2009 are based upon our attaining various adjusted returns on equity over a three-year performance period commencing January 1, 2009 and ending December 31, 2011 (“Performance Period Return on Equity”). Performance Period Return on Equity is the average of the “Adjusted Return on Equity” for each of the three calendar years in the Performance Period Return on Equity. The “Adjusted Return on Equity” for each calendar year is determined by dividing “Adjusted Operating Income” by “Adjusted Shareholders’ Equity” for the year, as defined below.

“Adjusted Operating Income”, as defined in the Performance Share Awards Program, excludes the after-tax effects of:

 

   

specified losses from officially designated catastrophes,

 

   

asbestos and environmental reserve charges or releases,

 

   

net realized investment gains or losses in the fixed maturities and real estate portfolios,

 

   

extraordinary items, and

 

   

restructuring charges and the cumulative effect of accounting changes and federal income tax rate changes, each as defined by GAAP, and each as reported in our financial statements (including accompanying footnotes and management’s discussion and analysis);

and is then reduced by the after-tax dollar amount for expected “normal” catastrophe losses for each calendar year in the performance period ($360 million for 2009).

For performance share awards granted in February 2010, the Compensation Committee further adjusted


 

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“Adjusted Operating Income” to reduce Performance Period Return on Equity by an amount reflecting the historical level of credit losses (on an after-tax basis) associated with our fixed income investments. Due to the increased level of impairments experienced by financial services firms in recent periods, the Compensation Committee believed this change was appropriate because credit losses in our fixed income portfolio otherwise would not be reflected in adjusted operating income. Specifically, for performance share awards granted in February 2010, the annual reduction is determined by multiplying a fixed factor (expressed as 2.25 basis points) by the amortized cost of the fixed maturity investment portfolio at the beginning of each quarter during the relevant year in the performance period and adding such amounts for each year in the performance period.

“Adjusted Shareholders’ Equity” for each year in the performance period is defined in the Performance Share Awards Program as the sum of our total common shareholders’ equity, as reported on our balance sheet as of the beginning and end of the year (excluding net unrealized appreciation or depreciation of investments and adjusted as set forth in the immediately following sentence), divided by two. In calculating Adjusted Shareholders’ Equity, our total common shareholders’ equity as of the beginning and end of the year is adjusted to remove the cumulative after-tax impact of the following items during the performance period: (1) discontinued operations and (2) the adjustments and reductions made in calculating Adjusted Operating Income.

The Compensation Committee selected Performance Period Return on Equity as the performance measure in the Performance Share Plan because the Compensation Committee believes it is the best measure of return to shareholders and efficient use of capital over a multi-year period. Because it is a function of both operating income and shareholders’ equity, Performance Period Return on Equity encourages senior executives to focus on a variety of multi-year performance areas that are critical to our success, including the quality and profitability of our underwriting and investing activities and capital management. In establishing the Performance Period Return on Equity standard shown in the charts below, the Compensation Committee considered, among other things: recent and historical trends in returns on equity for the Company, our Compensation Comparison Group and the insurance industry generally; our business plan; our historic cost of capital; and the fact that the performance shares are designed as a long-term incentive. In addition, in establishing the Performance Period Return on Equity

shown in the charts below, the Compensation Committee also considered our aspiration of achieving an operating return on equity in the mid-teens over the long-term and that such an operating return on equity would, in its view, be reasonably difficult to achieve and would represent an industry-leading return.

The actual distribution of any portion of the performance shares granted in 2009 or 2010 is contingent upon our attaining Performance Period Return on Equity as indicated on the following charts. Performance falling between any of the identified points in the applicable chart below will result in an interpolated vesting (for example, for shares granted in 2009 a 13.5% Performance Period Return on Equity will yield a vesting of 115%).

Performance Shares: 2009-2011 Performance Period Return on Equity Standard

 

     Performance
Period
Return on
Equity
    Vesting
Percentage
 

Maximum

   ³ 16.0   160
     15.5   150
     15.0   140
     14.5   130
     14.0   120
     13.0   110
     12.0   100
     10.0   75

Threshold

     8.0   50
     <8.0   0

The Compensation Committee changed the vesting percentages for awards made in 2010 to increase the return required for the actual distribution of shares to exceed 100% and to reduce the maximum vesting percentage. As a result of these changes, the maximum payout was reduced from 160% of the performance shares awarded to 150%, and the Performance Period Return on Equity required for payout levels above 100% of performance shares awarded was increased by 0.50% at each vesting threshold. The Committee made these changes in recognition of recent and historical trends in returns on equity for the Company and the Compensation Comparison Group, and so that vesting percentages above 100% would remain reasonably difficult to achieve.


 

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Performance Shares: 2010-2012 Performance Period Return on Equity Standard

 

     Performance
Period
Return on
Equity
    Vesting
Percentage
 

Maximum

   ³ 16.0   150
     15.5   140
     15.0   130
     14.5   120
     13.5   110
     12.0   100
     10.0   75

Threshold

     8.0   50
     <8.0   0

To support our recruitment and retention objectives and to encourage a long-term focus on our operations, the performance shares vest after the completion of the three-year performance period, subject to the participants’ continued employment and the satisfaction of the requisite performance goals. The program does not provide for accelerated vesting upon a change in control of the Company. However, the program provides for accelerated vesting and/or waiver of service requirements in the event of death or disability (and pro-rata accelerated vesting in the case of qualified retirement). Further, the CEO is entitled, under his employment agreement, to accelerated vesting in the event of a voluntary termination for good reason or an involuntary termination without cause. New performance share cycles commence annually and overlap one another, helping to foster strong retention and reduce the impact of the volatility in compensation associated with changes in our annual return on equity performance. Dividend equivalent shares are paid with respect to performance shares actually earned at the same vesting percentage as the underlying performance shares.

The Compensation Committee awarded the CEO $3,750,000 in performance shares in February 2009 and $6,600,000 in performance shares in February 2010. These grant date fair values were determined by multiplying the number of performance shares awarded, assuming 100% vesting, by the closing price of our common stock on the date of grant ($39.19 and $51.09 in 2009 and 2010, respectively). The Compensation Committee also awarded an average of approximately $1,192,500 (determined as described above) in performance shares to each of the named executive officers (other than the CEO) in 2009 and $1,425,000 in 2010.

 

Total Direct Compensation for 2009 (Supplemental Table)

The following table shows base salary for 2009 and annual cash bonuses paid and equity awards granted to our named executive officers in February 2010 for the 2009 performance year.

This supplemental information has been included to provide investors with additional compensation information for the 2009 performance year and to better understand the actions of the Compensation Committee with respect to total direct compensation for the 2009 performance year. However, this supplemental information is not intended to be a substitute for the information provided in the Summary Compensation Table on page 46 required by the SEC’s disclosure rules.

 

Name  

Salary
($)

 

Bonus

($)

 

Equity
Awards

($)

 

Total

($)

J. S. Fishman

  1,000,000   7,500,000   11,000,000   19,500,000

J. S. Benet

  650,000   3,000,000   2,250,000   5,900,000

B.W. MacLean

  700,000   4,000,000   2,500,000   7,200,000

W. H. Heyman

  650,000   3,250,000   2,500,000   6,400,000

A. D. Schnitzer

  650,000   2,350,000   2,250,000   5,250,000

The information contained in this Supplemental Table differs substantially from the 2009 compensation information contained in the Summary Compensation Table.

The Summary Compensation Table on page 46 discusses compensation information in a format required by the SEC. In the Summary Compensation Table, the stock awards and option awards columns for 2009 report the grant date fair value of the awards made in 2009 (that is, awards made in February 2009 in respect of the 2008 performance year) and do not include awards made in February 2010 in respect of the 2009 performance year. The Supplemental Table presented above includes the grant date fair value of equity grants made in February 2010 in respect of the 2009 performance year. Grant date fair value of equity awards is calculated in accordance with the guidance in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718—Stock Compensation (FASB ASC Topic 718), excluding the effect of estimated forfeitures.

The Summary Compensation Table also includes the value of reload options issued in connection with options exercised during 2007, 2008 and 2009, while the Supplemental Table does not include the value of such reload options. The Compensation Committee does not consider the value of a reload option as 2009


 

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compensation because a reload option is a feature of original options granted as long-term compensation pursuant to reload programs that have been terminated, and such options are not currently a component of our executive compensation program.

Other Compensation

Pension Plans

We currently offer all of our employees a tax-qualified defined benefit plan with a cash-balance formula, with some “grandfathered” participants accruing benefits under a final average pay formula. Also, a number of employees and executives participate or have accrued benefits in other pension plans which are frozen as to new participants and/or new accruals. Under the cash balance formula, each enrolled employee has a hypothetical account balance that grows with interest and pay credits each year.

In addition, we sponsor a non-qualified excess benefit retirement plan that covers all employees whose tax-qualified plan benefit is limited by the Internal Revenue Code with respect to the amount of compensation that can be taken into account under a tax-qualified plan. The non-qualified plan makes up for the benefits that cannot be provided by the qualified plan as a result of those Internal Revenue Code limits by using the same cash-balance pension formula that applies under the qualified plan.

The details of the existing plans are described more fully under “Tabular Executive Compensation Disclosure—Post-Employment Compensation—Pension Benefits” on page 56 below.

Deferred Compensation

We offer a tax-qualified 401(k) plan to our employees and a non-qualified deferred compensation plan to those of our employees whose annual salary is at least $150,000. Both plans are available to the named executive officers.

Employees may make pre-tax contributions to the 401(k) plan up to the statutory maximum. We will match each active participant’s contributions on a dollar for dollar basis up to the lesser of 5% of salary or $5,000 per year. In February 2009, in light of our ongoing effort to promote retirement savings at all levels as well as recent equity market disruption, we made a special one-time contribution of up to $500 per employee to 401(k) accounts of employees with salaries of $60,000 or less.

The non-qualified deferred compensation plan allows an employee with an annual salary of $150,000 or

more to defer receipt of a portion of his or her salary and/or annual bonus until a future date or dates elected by the employee. This plan provides an additional vehicle for employees to save for retirement on a tax deferred basis. The deferred compensation plan is not funded by us and does not provide preferential rates of return. Participants have only an unsecured contractual commitment by us to pay amounts owed under that plan.

For further details, see “Tabular Executive Compensation Disclosure—Post-Employment Compensation—Non-Qualified Deferred Compensation for 2009” on page 58 below.

Other Benefits

We also provide certain other benefits described below to our named executive officers, which are not tied to any performance criteria. Rather, these benefits are intended to support objectives related to the attraction and retention of highly skilled executives and to ensure that they remain appropriately focused on their job responsibilities without unnecessary distraction.

Personal Security

We have established a security policy in response to a study prepared by an outside consultant that analyzed security risks to our CEO based on a number of factors, including travel patterns and past security threats. This security policy is periodically reviewed by our outside security consultant. The last review was completed in 2009. Pursuant to this security policy, a Company car and driver or other ground transportation arrangements are provided to the CEO for business and some personal travel. The methodologies that we use to value the personal use of a dedicated Company car and driver and other ground transportation arrangements as a perquisite are described in footnote 6(a) to the “Summary Compensation Table” on page 47. In 2009, the total incremental cost for personal use of a Company car and driver and other ground transportation provided to the CEO pursuant to our security policy was $82,505.

The security policy also requires that the CEO use our aircraft for all business and personal air travel. Prior to August 5, 2008, Mr. Fishman was required to reimburse us for all personal travel on our aircraft at the maximum amount legally payable for each such flight under FAA regulations, which is an amount equal to two times the fuel costs plus specified miscellaneous expenses. As a result of significant increases in the price of fuel, during the period January 1, 2007 through August 5, 2008, Mr. Fishman


 

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reimbursed us for personal use of our aircraft $149,427 more than the incremental cost to us of providing such flights. Accordingly, on August 5, 2008, we amended Mr. Fishman’s agreement to require that he reimburse us for all personal travel on our aircraft in an amount equal to the lesser of (1) the maximum amount legally payable under FAA regulations and (2) the incremental cost to us for each such flight. The Compensation Committee agreed to apply the $149,427 of excess reimbursement against future personal flights. During 2009, Mr. Fishman utilized $96,877 of such amount in connection with personal flights and, as of December 31, 2009, the excess reimbursement has been applied in its entirety. (See footnote 6(a) to the “Summary Compensation Table” on page 47 for additional information.)

Mr. Fishman is responsible for all taxes due on any income imputed to him in connection with his personal use of Company transportation. Effective April 21, 2009, Mr. Fishman determined that he would not accept any reimbursements for taxes related to income imputed to him for his personal commuting expenses, notwithstanding the fact that he was entitled to such reimbursement under the terms of his employment agreement.

In addition, pursuant to the security policy described above, we provide our CEO with additional home security enhancements and other protections. The methodology that we use to value the incremental costs of providing additional home security enhancements and other protections to the CEO is the actual cost to us relating to the installation of home security and other equipment and the incremental cost to us with respect to any related expenses. In 2009, the total incremental cost of the additional home security enhancements and other protections to Mr. Fishman pursuant to our security policy was $10,616. (See footnote 6(a) to the “Summary Compensation Table” on page 47 for additional information.)

Other Transportation

We also on occasion provide transportation on Company aircraft for spouses or other family members of the named executive officers who accompany the named executive officers on trips related to our business but which spousal or other family travel, under SEC rules, may not be considered to be directly and integrally related to our business. We reimburse the named executive officers for any tax liabilities incurred with respect to spousal travel only if such travel is considered directly and integrally related to business. In 2009, there was no incremental cost to us

associated with spousal and other family travel that was not directly and integrally related to business.

Health Benefits; Treatment of Higher Paid and Lower Paid Employees

We subsidize health benefits more heavily for lower paid employees as compared to higher paid employees, such as the named executive officers. Accordingly, our higher paid employees pay a significantly higher percentage of the cost of their health benefits than our lower paid employees.

Severance and Change in Control Agreements

The Compensation Committee believes that severance and, in certain circumstances, change in control arrangements are necessary to attract and retain the talent necessary for our long-term success. The Compensation Committee believes that our severance programs allow our executives to focus on duties at hand and provide security should their employment be terminated as a result of an involuntary termination without cause or a constructive discharge. Currently, all of our senior executives (other than the CEO) are covered by our severance plan.

Each of the named executive officers, other than Mr. Fishman, has entered into an agreement with us (which are discussed below under “Tabular Executive Compensation Disclosure—Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control—Summary of Key Agreements—Non-Solicitation and Non-Disclosure Agreements”), pursuant to which they are granted enhanced severance benefits in exchange for their agreement to non-solicitation and non-disclosure provisions. Under the terms of such agreements, these named executive officers are eligible to receive a severance benefit if they are involuntarily terminated due to a reduction in force or for reasons other than cause or if they are asked to take a substantial demotion. This benefit is equal to their total monthly cash compensation for 21 to 24 months, depending on their years of service with us, with the total monthly cash compensation equal to, at least, one-twelfth of the executive’s annual base salary in effect at the time of his termination plus the greater of (a) one-twelfth of the average of the executive’s two most recent cash payments under our annual incentive compensation plan or (b) one-twelfth of 125% of final annual base salary.

Mr. Fishman’s employment agreement, discussed at greater length below under “Tabular Executive Compensation Disclosure—Potential Payments to Named Executive Officers Upon Termination of Employment


 

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or Change in Control—Summary of Key Agreements—Mr. Fishman’s Employment Agreement”, contains severance benefits that are triggered under some circumstances, including some circumstances related to a change in control of the Company. The Compensation Committee believes that these arrangements are appropriate and consistent with similar provisions agreed to by members of our Compensation Comparison Group and their chief executive officers.

Non-Compete Agreements

In February 2010, following a review of existing arrangements governing the post-termination obligations of our senior executives, the Compensation Committee determined that it would be in our best interest to require members of our Management Committee to enter into a non-competition agreement with us. All continuing members of the Management Committee have signed the agreement.

The agreement provides that, upon an executive’s termination of employment, we may elect to impose a six-month non-competition obligation upon the executive that would preclude the executive, subject to limited exceptions, from (1) performing services for or having any ownership interest in any entity or business unit that is primarily engaged in the property and casualty insurance business, or (2) otherwise engaging in the property and casualty insurance business. This restriction will apply in the United States and any other country where we are physically present and engaged in the property and casualty insurance business as of the executive’s termination date.

If we elect to enforce the non-competition terms, and the executive complies with all of the obligations under the agreement, then the executive will be entitled to:

 

   

receive a lump sum payment at the end of the six-month restricted period equal to the sum of (1) six months base salary plus (2) 50% of the executive’s average annual bonus for the prior two years plus (3) 50% of the aggregate grant date fair value of the executive’s average annual equity awards for the prior two years; and

 

   

reimbursement for the cost of continuing health benefits on similar economic terms as in place immediately prior to the executive’s termination date during the six-month non-competition period or payment of an equivalent amount, payable at the end of the six-month restricted period.

 

Each signatory to such agreement received an award of restricted stock units with a grant date fair value of $10,000.

Stock Ownership Guidelines

We maintain an executive stock ownership policy pursuant to which executives are expected to accumulate and retain specified levels of ownership of our equity securities until termination of employment, so as to further align the interests of management and shareholders. The Compensation Committee developed this policy based in part on analyses provided by F. W. Cook and after an analysis of policies instituted at our peer competitors. Under the policy, the CEO has a target ownership level established as the lesser of 150,000 shares or the equivalent value of 500% of base salary. Vice chairmen and executive vice presidents have target ownership levels established as the lesser of 30,000 shares or the equivalent value of 300% of base salary, and senior vice presidents have target ownership levels established as the lesser of 5,000 shares or the equivalent value of 100% of base salary. Executives who have not achieved these levels of stock ownership are expected to retain the shares acquired upon exercising stock options or upon the vesting of restricted stock, restricted stock units or performance shares until the requirements are met.

We review stock ownership levels of all persons subject to this policy on a quarterly basis. In determining an executive’s share ownership level, the following are included:

 

   

100% of shares held directly by the executive;

 

   

100% of shares held indirectly through our 401(k) plan or deferred compensation plan;

 

   

50% of unvested restricted shares, restricted stock units or performance shares (assuming 100% vesting of the performance shares); and

 

   

a number of shares with a market value equal to 50% of any unrealized appreciation in stock options, whether vested or unvested.

As of December 31, 2009, each named executive officer had achieved a stock ownership level in excess of the applicable level set forth above.

We have a securities trading policy that sets forth guidelines and restrictions applicable to employees’ transactions involving our stock. Among other things, this policy prohibits our employees from engaging in short-term or speculative transactions involving our stock, including purchasing our stock on margin, short sales of our stock (that is, selling stock that is not


 

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owned and borrowing shares to make delivery), buying or selling puts, calls or other derivatives related to our stock and arbitrage trading or day trading of our stock.

Recapture/Forfeiture Provisions

Our Board has adopted a policy requiring the reimbursement and/or cancellation of all or a portion of any incentive cash bonus or equity-based incentive compensation awarded to members of the Management Committee or other Section 16 officers after February 1, 2010 where the Compensation Committee of the Board has determined that all of the following factors are present: (1) the award and/or payout thereof was predicated upon the achievement of certain financial results that were subsequently the subject of a restatement, (2) the employee engaged in fraud or willful misconduct that was a significant contributing factor in causing the restatement and (3) a lower award and/or payout thereof would have been made to the employee based upon the restated financial results.

Incentive compensation will be granted subject to the policy that, in each such instance described above, the Company will, to the extent permitted by applicable law and subject to the discretion and approval of the Compensation Committee of the Board, taking into account such facts and circumstances as it deems appropriate, including the costs and benefits of doing so, seek to recover the employee’s cash incentive bonus award and/or equity-based incentive compensation paid or issued to the employee in excess of the amount that would have been paid or issued based on the restated financial results. If the Compensation Committee determines, however, that, after recovery of an excess amount from an employee, the employee is nonetheless unjustly enriched, it may seek recovery of more than such excess amount up to the entire amount of the incentive compensation.

In addition, under the terms of our executive performance share, restricted stock, restricted stock unit and stock option award agreements, in the event that the employment of an executive, including the named executive officers, is terminated for gross misconduct or for cause, as determined by the Compensation Committee, all outstanding vested and unvested awards are cancelled upon his or her termination.

Further, in connection with equity awards, the named executive officers and certain other senior executives are parties to an agreement that provides for the forfeiture of unexercised or unvested awards and the recapture by us of any compensatory value, including any amount included as compensation in the taxable income, that the former executive received or realized

by way of payment, exercise or vesting during the period beginning 12 months prior to the date of termination of employment with us, and ending 12 months after the date of the termination of employment with us, if during the 12-month period following his or her termination, the executive:

 

(1)

fails to keep all confidential information strictly confidential;

 

(2)

uses confidential information to solicit or encourage any person or entity that is a client, customer, policyholder, vendor, consultant or agent of ours to discontinue business with us after accepting a position with a direct competitor;

 

(3)

is directly and personally involved in the negotiation or solicitation of the transfer of business away from us; or

 

(4)

solicits, hires or otherwise attempts to affect the employment of any person employed by us at any time during the last three months of the executive’s employment or thereafter, without our consent.

Timing and Pricing of Equity Grants

The Compensation Committee typically makes annual awards of equity at its meeting held in early February, which is set in advance as part of the Board’s annual calendar of scheduled meetings. The Compensation Committee has in the past, and may in the future, make limited grants of equity on other dates in order to retain key employees, to compensate an employee in connection with a promotion or to compensate newly hired executives for equity or other benefits lost upon termination of their previous employment or to otherwise induce them to join us. Pursuant to our Governance Guidelines, the Compensation Committee may make off-cycle equity grants only on previously determined dates in each calendar month, which will be either (1) the date of a regularly scheduled Board or Compensation Committee meeting, (2) the 15th day of the calendar month (or if the 15th is not a business day, the business day immediately preceding the 15th) or (3) in the case of grants in connection with new hires and/or promotions, on, or within 15 days of, the first day of employment or other personnel change. The grant date of equity grants to executives is the date of Compensation Committee approval. As discussed above, the exercise price of option grants is the closing market price of our common stock on the date of grant.

As discussed under “Board of Directors Information—Compensation Committee” on page 14, the Compensation Committee has delegated to the CEO, subject to


 

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the prior written consent of our Executive Vice President and General Counsel, the authority to make limited “off-cycle” grants to employees who are not Committee Approved Officers on pre-established grant dates, as determined by the Compensation Committee. For these grants, as discussed above, the grant date is the date of such approval, and the exercise price of all stock options is the closing market price of our common stock on the date of grant.

Under the 2004 Stock Incentive Plan, stock options cannot be “repriced” unless such repricing is approved by our shareholders. See “Dating and Pricing of Equity Grants” on page 21 of this Proxy Statement.

We monitor and periodically review our equity grant policies to ensure compliance with plan rules and applicable law. We do not have a program, plan or practice to time our equity grants in coordination with the release of material, non-public information.

Compensation Committee Report

The Compensation Committee has discussed and reviewed the foregoing Compensation Discussion and

Analysis with management. Based upon this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into our Annual Report on Form 10-K.

Submitted by the Compensation Committee of the Company’s Board of Directors:

Lawrence G. Graev (Chair)

Kenneth M. Duberstein

Cleve L. Killingsworth, Jr.

Blythe J. McGarvie

Donald J. Shepard

Compensation Committee Interlocks

and Insider Participation

None of the members of the Board who served on the Compensation Committee during 2009 was ever an officer or employee of the Company or of any of its subsidiaries.


 

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TABULAR EXECUTIVE COMPENSATION DISCLOSURE

Summary Compensation Table

The following table provides summary information concerning compensation paid or accrued by us to or on behalf of our Chairman and Chief Executive Officer, our Vice Chairman and Chief Financial Officer and each of our three other most highly compensated executive officers who served in such capacities at December 31, 2009, to whom we refer collectively as the named executive officers.

 

Name and
Principal Position
  Year  

Salary

($)

  Bonus
($)(1)
  Stock
Awards
($)(2)
  Option
Awards
($)(3)
  Non-Equity
Incentive Plan
Compensation
($)(4)
 

Change in
Pension Value
and
Non-Qualified
Deferred
Compensation
Earnings

($)(5)

  All Other
Compensation
($)(6)
 

Total

($)

Jay S. Fishman Chairman and Chief Executive Officer

  2009 

2008 

2007 

  1,000,000 
1,000,000 
1,000,000 
 

  3,750,013 
4,499,980 
4,350,009 
  7,128,696 
2,998,547 
2,899,997 
  7,500,000

5,000,000

7,500,000

  526,136

377,730

449,838

  724,124

622,601

355,613

  20,628,969 
14,498,858 
16,555,457 

Jay S. Benet

Vice Chairman and Chief Financial Officer

  2009 

2008 

2007 

  650,000 

650,000 

631,250 

 

  1,170,017 
1,169,982 
1,379,991 
  779,995 
779,624 
1,206,299 
  3,000,000

2,000,000

2,600,000

  251,021

152,715

174,707

  179,133

137,770

79,270

  6,030,166 

4,890,091 
6,071,517 

Brian W. MacLean President and Chief Operating Officer

  2009 

2008 

2007 

  700,000 

700,000 

700,000 

 

  1,259,998 
1,260,002 
1,679,984 
  839,994 
852,071 
1,393,071 
  4,000,000

2,500,000

3,700,000

  293,019

191,865

226,667

  217,217

140,997

71,965

  7,310,228 
5,644,935 
7,771,687 

William H. Heyman
Vice Chairman and Chief Investment Officer

  2009 

2008 

2007 

  650,000 

650,000 

631,250 

 

  1,170,017 

1,169,982 
1,379,991 

  779,995 
779,624 
1,232,266 
  3,250,000

2,900,000

3,000,000

  265,499

204,879

168,258

  174,738

106,943

127,205

  6,290,249 
5,811,428 
6,538,970 

Alan D. Schnitzer(7)
Vice Chairman and Chief Legal Officer and Executive Vice President-Financial, Professional and International Insurance

  2009 

2008 

2007 

  650,000 

650,000 

448,106 

 

500,000 

  1,170,017 
1,169,982 
8,000,020 
  779,995 
779,624 
2,000,000 
  2,350,000

1,700,000

2,000,000

  63,453

49,207

0

  109,109

176,399

4,266,136

  5,122,574 
4,525,212 
17,214,262 

 

(1)

Bonuses paid under the Company’s Senior Executive Performance Plan are reported under the “Non-Equity Incentive Plan Compensation” column.

 

(2)

The dollar amounts represent the aggregate grant date fair value of awards granted during each of the years presented of performance shares and, with respect to Mr. Schnitzer in 2007, restricted stock units. The grant date fair value of an award is measured in accordance with FASB ASC Topic 718 utilizing the assumptions discussed in Note 12 to our financial statements for the fiscal year ended December 31, 2009. With respect to the performance shares, the estimate of the grant date fair value determined in accordance with FASB ASC Topic 718 assumes the vesting of 100% of the performance shares awarded. Assuming the highest level of performance is achieved (which would result in the vesting of 160% of performance shares awarded with respect to each year), the aggregate grant date fair value of the stock awards set forth in the table above would be:

 

      2007
($)
   2008
($)
   2009
($)

Jay S. Fishman

   6,959,994    7,199,977    6,000,028

Jay S. Benet

   2,208,006    1,871,961    1,872,028

Brian W. MacLean

   2,687,964    2,016,013    2,016,012

William H. Heyman

   2,208,006    1,871,961    1,872,028

Alan D. Schnitzer

   8,000,020    1,871,961    1,872,028

 

    

For a discussion of specific stock awards during 2009, see “Grants of Plan-Based Awards in 2009” below and the narrative discussion that follows.

 

    

From the date of award of all restricted stock units, the recipient will receive cash dividend equivalents at the same times and in the same amounts per share as all other holders of common stock but cannot vote the restricted stock units. Cash dividends paid on shares of restricted stock, cash paid as dividend equivalents on restricted stock units and dividend equivalent shares paid with respect to performance shares at the time the performance shares vest are included in the “All Other Compensation” column above. Neither this column nor the “All Other Compensation” column includes any value relating to additional shares allocated to recipients of performance shares as a result of the phantom reinvestment of dividend equivalents on unvested performance shares. The dollar value of additional shares attributable to such dividend equivalents will be included in the “All Other Compensation” column if and when the shares actually vest using the market value of the shares on the date of vesting.

 

(3)

The dollar amounts represent the aggregate grant date fair value of option awards granted during each of the years presented. The grant date fair value of an option award is measured in accordance with FASB ASC Topic 718 utilizing assumptions discussed in Note 12 to our financial statements for the fiscal year

 

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ended December 31, 2009. For a discussion of specific stock option awards granted during 2009, see “Grants of Plan-Based Awards in 2009” below and the narrative discussion that follows. Certain of the dollar amounts include the grant date fair value of reload options issued in connection with the exercise of certain previously granted options. The amounts of the option awards related to reload options are as follows: for Mr. Fishman, $4,628,716 in 2009; for Mr. Benet, $286,294 in 2007; for Mr. MacLean, $12,473 in 2008 and $273,066 in 2007; for Mr. Heyman, $312,261 for 2007. We do not currently grant options with the reload feature as a part of our executive compensation program. For more information regarding reload options, see “Narrative Supplement to the Summary Compensation Table and the Grants of Plan-Based Awards in 2009—Terms of Equity-Based Awards—Reload Options” below.

 

(4)

Reflects incentive compensation paid under the Company’s Senior Executive Performance Plan in 2010 for performance year 2009, incentive compensation paid in 2009 for performance year 2008 and incentive compensation paid in 2008 for performance year 2007, respectively. For a discussion of the Company’s Senior Executive Performance Plan, see the “Compensation Discussion and Analysis—Compensation Elements—Performance-Based Annual Cash Bonus” section.

 

(5)

These amounts represent the aggregate change in actuarial present value of accumulated pension benefits for 2009, 2008 and 2007, respectively, using the same pension plan measurement date used for financial statement reporting purposes. The Company does not provide any of its executives with any above-market preferential earnings on non-qualified deferred compensation.

 

(6)

For 2009, “All Other Compensation” for each of the named executive officers includes:

 

  (a)

Mr. Fishman: $506,959 representing the market value on the vesting date of additional dividend equivalent performance shares delivered with respect to the performance shares granted in 2007, which vested on December 31, 2009; $82,505 for personal use of a Company car and driver and other ground transportation arrangements, calculated as described below; $18,000 for professional fees incurred in connection with the negotiation and execution of an amendment to Mr. Fishman’s employment agreement; and $10,616 of personal security expenses incurred on his behalf pursuant to the Company’s executive security program.

 

      

Pursuant to the Company’s security policy, the Company provides a car and driver or other ground transportation arrangements to Mr. Fishman for business and some personal travel. In 2009, the methodology that we use to calculate the incremental cost to us of the personal use of a dedicated Company car and driver (including commuting and business travel not considered directly and integrally related to the performance of his duties) was changed from that used in prior years because we believe that our revised methodology better reflects the incremental cost to the Company. Prior to 2009, we calculated the incremental cost by determining the aggregate amount of all fixed and variable costs associated with the car and driver and subtracting from that amount the fair market value of business use of the car based on limousine rates for the area. In 2009, we calculated the incremental cost of the dedicated Company car and driver for personal travel as a percentage of (1) costs relating to the car, including, among others, lease payments, fuel and insurance; and (2) driver overtime charges. That percentage is based on the portion of car use that relates to personal travel. Compensation and benefits for the driver, other than overtime charges, are not included in the calculation of incremental cost because the driver is a member of our staff and, consistent with our executive security policy, we would have otherwise incurred such costs for business purposes, whether or not the car and driver was available to Mr. Fishman for personal travel. The incremental costs of personal trips using other ground transportation arrangements are valued at the actual incremental cost to us.

 

      

We require that Mr. Fishman use Company aircraft for business and personal travel. Prior to August 5, 2008, Mr. Fishman was required to reimburse the Company for all personal travel on Company aircraft at the maximum amount legally payable for each such flight under FAA regulations, which is an amount equal to two times the fuel costs plus specified other expenses. Because significant increases in fuel costs in 2007 and 2008 resulted in Mr. Fishman reimbursing the Company an amount in excess of the incremental cost to the Company relating to personal travel, on August 5, 2008, the Company amended his agreement to require that he reimburse the Company for all personal travel on Company aircraft in an amount equal to the lesser of (1) the maximum amount legally payable under FAA regulations and (2) the incremental cost to the Company for each such flight. During 2007 and 2008 prior to this amendment, Mr. Fishman reimbursed the Company for personal use of the Company aircraft in an amount that exceeded the incremental cost to the Company of providing such flights by $149,427. Accordingly, the Compensation Committee agreed to apply that amount against his obligation to reimburse for subsequent personal use of Company aircraft. “All Other Compensation” for 2009 includes $96,877 of the $149,427, which was so applied during 2009.

 

      

For information about these perquisites, see “Compensation Discussion and Analysis—Compensation Elements—Other Compensation—Other Benefits”. In addition, the Company paid life insurance premiums in 2009 in relation to the participation of Mr. Fishman in the legacy St. Paul Directors Charitable Award Program. For more information, please refer to the narrative discussion under “Non-Employee Director Compensation—Legacy Directors’ Charitable Award Program”.

 

  (b)

Mr. Benet: cash dividends of $11,852 paid on shares of unvested restricted stock and $160,826 representing the market value on the vesting date of additional dividend equivalent performance shares delivered with respect to the performance shares granted in 2007, which vested on December 31, 2009.

 

  (c)

Mr. MacLean: cash dividends of $16,428 paid on shares of unvested restricted stock and $195,789 representing the market value on the vesting date of additional dividend equivalent performance shares delivered with respect to the performance shares granted in 2007, which vested on December 31, 2009.

 

  (d)

Mr. Heyman: cash dividends of $7,694 paid on shares of unvested restricted stock and $160,826 representing the market value on the vesting date of additional dividend equivalent performance shares delivered with respect to the performance shares granted in 2007, which vested on December 31, 2009.

 

  (e)

Mr. Schnitzer: cash dividend equivalents of $102,564 paid on unvested restricted stock units.

 

(7)

In connection with the commencement of his employment with the Company in April 2007, Mr. Schnitzer was awarded a sign-on bonus of $500,000, sign-on restricted stock units with a grant date fair value of $8,000,020 and sign-on stock options with a grant date fair value of $2,000,000, and Mr. Schnitzer received $4,000,000 in the form of a credit to his non-qualified deferred compensation account in recognition of the forfeiture by Mr. Schnitzer of certain pension benefits at his prior employer.

 

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Grants of Plan-Based Awards in 2009

The following table provides information on stock options and performance shares granted in 2009 to each of our named executive officers.

 

Name         

Estimated

Future

Payouts Under

Non-Equity

Incentive Plan

Awards

 

Estimated Future Payouts

Under Equity Incentive

Plan Awards

 

All Other

Stock

Awards:

Number of

Shares

of Stock or

Units

(#)

 

All Other

Option

Awards:

Number of

Securities

Underlying

Options

(#)

 

Exercise or

Base Price

of Option

Awards

($/Sh)

 

Grant Date
Fair Value
of Stock
and Option
Awards

($)(5)

 

Grant

Date

   

Target

($)(4)

  Threshold
(#)
  Target
(#)
  Maximum
(#)
       

J.S. Fishman

  2/3/2009 (1)     N/A   47,844    95,688    153,101                3,750,013 
    2/3/2009 (2)    N/A               263,711    39.19    2,499,980 
    5/22/2009 (3)    N/A               267,790    40.26    2,119,482 
    11/23/2009 (3)    N/A               227,893    52.97    2,434,779 
    11/24/2009 (3)    N/A                   11,162    53.09    74,455 

J.S. Benet

  2/3/2009 (1)    N/A   14,928   29,855   47,768               1,170,017 
    2/3/2009 (2)    N/A                   82,278    39.19    779,995 

B.W. MacLean 

  2/3/2009 (1)    N/A   16,076   32,151   51,442               1,259,998 
    2/3/2009 (2)    N/A                   88,607    39.19    839,994 

W.H. Heyman 

  2/3/2009 (1)    N/A   14,928   29,855   47,768               1,170,017 
    2/3/2009 (2)    N/A                   82,278    39.19    779,995 

A.D. Schnitzer 

  2/3/2009 (1)    N/A   14,928   29,855   47,768               1,170,017 
    2/3/2009 (2)    N/A                   82,278    39.19    779,995 

 

(1)

Represents performance share awards granted as part of the annual long-term equity grant. All performance share awards were granted under the Company’s Amended and Restated 2004 Stock Incentive Plan.

Performance shares represent the right to earn shares of our common stock based on our attainment of specified performance goals, as described above under “Compensation Discussion and Analysis—Compensation Elements—Stock-Based Long-Term Incentives—Performance Shares”. As described in more detail in that section, if our return on equity (as defined in the award agreement) over the three-year performance period is 12%, then 100% of the number of performance shares awarded and accumulated dividend equivalents will vest after the three-year performance period. If our return on equity over the three-year performance period falls below 12% but equals or exceeds 8%, then between 50% and 100% of the number of shares awarded and accumulated dividend equivalents will vest after the three-year performance period. If our return on equity over the three-year performance period falls below 8%, the entire award (including the accumulated dividend equivalents) will be forfeited. If our return on equity over the three-year performance period exceeds 12%, then more than 100% (up to a maximum of 160%) of the number of shares awarded and accumulated dividend equivalents will vest after the three-year performance period. The estimated future payouts of performance shares in the table above do not include additional shares that may be allocated to recipients of performance shares as a result of the phantom reinvestment of dividend equivalents on unvested performance shares.

 

(2)

Represents option awards granted as part of the annual long-term equity grant. All option awards were granted under the Company’s Amended and Restated 2004 Stock Incentive Plan.

 

(3)

Represents an option award granted pursuant to the reload option provisions of outstanding option agreements, which required no additional Compensation Committee action. For more information regarding reload options, see “Narrative Supplement to the Summary Compensation Table and the Grants of Plan-Based Awards in 2009-Terms of Equity-Based Awards-Reload Options” below. The reload option awards granted to Mr. Fishman vest 100% after one year.

 

(4)

Our Senior Executive Performance Plan does not include thresholds, targets or maximums that are determinable at the beginning of the performance year. For additional information on our Senior Executive Performance Plan, which is an annual plan, see “Compensation Discussion and Analysis—Compensation Elements—Performance-Based Annual Cash Bonus” above. The actual cash bonuses paid to our named executive officers under our Senior Executive Performance Plan are disclosed in the Summary Compensation Table under the Non-Equity Incentive Plan Compensation column.

 

(5)

Amount represents the grant date fair value of stock and option awards measured in accordance with the guidance in FASB ASC Topic 718, utilizing the assumptions discussed in Note 12 to our financial statements for the fiscal year ended December 31, 2009. With respect to the performance shares, the estimate of the grant date fair value determined in accordance with FASB ASC Topic 718 assumes the vesting of 100% of the performance shares awarded.

 

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Narrative Supplement to the Summary Compensation Table and the Grants of Plan-Based Awards in 2009 Table

 

Mr. Fishman’s Employment Agreement

Effective April 1, 2004, Mr. Fishman entered into an employment agreement with us for a five-year term. That agreement was subsequently amended as of November 5, 2004, as of December 13, 2006 and as of December 19, 2008. Commencing on the fourth anniversary of the effective date, and on each anniversary thereafter, the agreement’s term automatically renews for an additional one-year period, as long as neither we nor Mr. Fishman provide written notice requesting that the agreement not be so extended within at least 30 days prior to the agreement’s renewal date. The agreement provides that Mr. Fishman serve as Chief Executive Officer and Chairman of the Company.

Pursuant to this agreement, Mr. Fishman is entitled to receive a base annual salary of $1 million, and he is eligible to receive an annual bonus. Mr. Fishman also is entitled to receive an annual long-term incentive grant, consisting of stock options, restricted stock, other equity-based awards or a combination thereof, in an amount with a valuation upon the date of grant equal to not less than $6.25 million. Under the terms of the agreement, each long-term incentive grant is to be subject to vesting in equal annual installments over a four-year period and is to provide for full vesting on an accelerated basis in the event of earlier termination of employment for specified reasons, including termination of employment by us without “Cause” or by Mr. Fishman’s resignation for “Good Reason” (each as defined in the employment agreement and discussed under “Potential Payments to Named Executive Officers upon Termination of Employment or Change in Control—Summary of Key Agreements” below) or termination of employment by reason of his death or “disability” (as defined in the agreement). With respect to his February 2009 and February 2010 equity grants, Mr. Fishman waived the more favorable 4-year pro-rata vesting schedule provided for in his employment agreement in exchange for vesting of those equity awards on terms consistent with the awards of the other executives of the Company.

As described more fully in “Compensation Discussion and Analysis—Compensation Elements—Other Compensation—Other Benefits”, Mr. Fishman’s employment agreement provides that he will be required for security purposes to use our corporate aircraft for all business and personal travel. See the detailed discussion regarding Mr. Fishman’s use of the corporate aircraft on page 41 in the “Compensation Discussion and Analysis—Compensation Elements—Other Compensation—Other Benefits” section.

 

As described more fully in “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control—Summary of Key Agreements—Mr. Fishman’s Employment Agreement”, if Mr. Fishman’s employment is terminated by us without “Cause” or he resigns for “Good Reason” (as defined in the agreement), or his employment is terminated by reason of his death or “disability” (as defined in the agreement), Mr. Fishman would become entitled to receive specified additional benefits.

In addition, Mr. Fishman has entered into a non-competition agreement as described more fully in “Compensation Discussion and Analysis—Non-Compete Agreements”.

Mr. Schnitzer’s Employment Agreement

Effective April 15, 2007, Mr. Schnitzer entered into an at-will employment agreement with us. The agreement provides that Mr. Schnitzer serve as our Vice Chairman and Chief Legal Officer.

Pursuant to this agreement, Mr. Schnitzer is eligible to receive a base annual salary of $650,000, and he is eligible to receive an annual bonus. With respect to his 2007 annual bonus, he was entitled to not less than $1.5 million, subject to the achievement of the return on equity performance goal set forth in our Senior Executive Performance Plan for fiscal year 2007. Under the terms of the agreement, Mr. Schnitzer also is eligible to receive an annual equity grant on terms and conditions similar to those applicable to other senior executives of the Company.

The agreement also entitled Mr. Schnitzer to sign-on incentives consisting of: (1) $500,000 in cash, payable at the time he commenced employment on April 23, 2007; (2) an award of 148,644 restricted common stock units that vest in four equal annual installments on April 23, 2008, 2009, 2010 and 2011 (the “RSU Award”) and (3) an award of options to purchase 121,560 shares of common stock having an exercise price equal to the closing price per share of our common stock on his commencement date ($53.82) and cliff vesting on April 23, 2011 (the “Option Award”). The RSU Award provides that in the event of his termination of employment by us without “Cause” or his resignation for “Good Reason” (each as defined under the employment agreement) then the vesting of any unvested portion of the award will accelerate. The Option Award provides that in the event of his termination of employment by us without “cause” or his resignation for “good reason” (each as defined under the employment agreement) then (1) any unvested portion of the award will accelerate if the termination


 

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occurs on or after April 23, 2010, or (2) a pro-rata portion of the unvested award will accelerate (based on the date of termination) if the termination occurs prior to April 23, 2010. In either event, the vested portion of Mr. Schnitzer’s Option Award will remain exercisable for the earlier of (1) one year following of the date of such termination or resignation or (2) the expiration date of the award.

Pursuant to his employment agreement, Mr. Schnitzer was credited in 2007 with $4 million in a deferred compensation account under our Deferred Compensation Plan (discussed under “Post-Employment Compensation—Non-Qualified Deferred Compensation for 2009” below) in recognition of his forfeiture of pension benefits under his previous employer’s plan.

Mr. Schnitzer is also entitled to be made whole, on an after-tax basis, for any income taxes imposed on him in connection with specified business travel. In addition, if, prior to the time his sign-on incentives have vested in full, there occurs a transaction described in Section 280G of the Internal Revenue Code or any successor thereto, he is entitled to receive a tax gross-up payment for any taxes imposed or arising under Section 4999 of the Internal Revenue Code or any successor thereto in connection with (1) his involuntary termination without “cause” (as defined in the agreement), (2) his voluntary resignation for “good reason” (as defined in the agreement) and/or (3) the early vesting or payout of an award under the agreement (in connection with the transaction and with approval of our Board or Compensation Committee); provided, however, if all such taxes under Section 4999 of the Internal Revenue Code could be eliminated by reducing his payments by no more than 10%, then such payments will be so reduced.

As described more fully in “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control—Summary of Key Agreements.” Mr. Schnitzer is eligible to participate in our severance plan and would become entitled to receive specified benefits thereunder upon a qualifying termination of his employment.

In addition, Mr. Schnitzer has entered into a non-competition agreement as described more fully in “Compensation Discussion and Analysis—Non-Compete Agreements”.

Restricted Stock

From the date of award of all shares of restricted stock, the recipient can vote the restricted shares and receives cash dividends at the same times and in the same amounts per share as all shareholders of common stock.

 

Beginning in 2007, the Compensation Committee discontinued the use of time-based restricted stock as a component of the annual long-term equity awards of the named executive officers in favor of larger performance share awards.

Terms of Equity-Based Awards

Vesting Schedule

Unless otherwise provided in the footnote disclosure to the “Option Awards Vesting Schedule” table above or as discussed below under “—Mr. Schnitzer’s Employment Agreement”, option awards vest in full three years after the date of grant. Restricted stock awards also vest in full three years after the grant date. Performance shares, and accumulated dividend equivalents thereon, vest at the end of a three-year performance period, if and to the extent performance goals are attained, as more fully described above in “Compensation Discussion and Analysis—Compensation Elements—Stock-Based Long-Term Incentives—Performance Shares.” A description of the vesting of Mr. Schnitzer’s sign-on restricted stock unit award and option award is provided above under “—Mr. Schnitzer’s Employment Agreement”.

Forfeiture and Post-Employment Treatment

Unvested shares underlying option awards are generally forfeited upon termination of employment following a 90-day post-termination exercise period, except in specific cases (death, disability and retirement) in which different treatment is afforded. Unvested restricted stock awards, restricted stock unit awards and performance share awards are generally forfeited upon termination of employment except in specific cases (death, disability and retirement) in which different treatment is afforded.

Option Exercise Price

Options granted under the Company’s Amended and Restated 2004 Stock Incentive Plan have an exercise price equal to the closing price on the date of grant.

Dividends

From the date of award of all restricted stock awards and restricted stock unit awards, the recipient will receive cash dividends and cash dividend equivalents, respectively, at the same times and in the same amounts per share as holders of common stock. The additional shares allocated to recipients of performance shares as a result of the phantom reinvestment of dividend equivalents on unvested performance shares


 

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will only be distributed upon the vesting, if any, of such performance shares in accordance with the performance share award terms. See the “All Other Compensation” column and the related footnote of the Summary Compensation Table above for these cash dividends and cash dividend equivalents received by the named executive officers with respect to the shares of restricted stock, restricted stock units or performance shares, as the case may be, during 2007, 2008 and 2009.

Reload Options

Prior to the Merger, both St. Paul and TPC had stock option reload programs. St. Paul eliminated its reload program with respect to initial option grants made after February 1, 2004, and TPC eliminated its reload program with respect to initial option grants made after January 23, 2003. Holders of options granted under either of those reload programs can use common stock that they have owned for at least six months to pay the exercise price of those options and have shares withheld to pay income taxes on the gain that is realized upon exercise. They then receive a new reload option

to purchase the same number of shares they used to pay the exercise price and/or had withheld for taxes. The exercise price of any new reload option is equal to the closing price of our stock on the date on which the original option is exercised.

Reload options are subject to several restrictions, including the following: (1) the option holder cannot receive a reload option unless the market price of the common stock on the exercise date is at least 20% greater than the exercise price (an option holder can exercise an option at a lower price, but he or she will not receive a reload option); (2) if the option holder receives a reload option, the shares acquired must be held for one year for legacy St. Paul grants and for two years for legacy TPC grants, other than a small portion to account for the difference between the statutory minimum tax withholding rate and the highest marginal tax rate; (3) the reload options do not vest (that is, become exercisable) for one year for legacy St. Paul grants and for six months for legacy TPC grants; and (4) the expiration date of the reload option is the same as that for the initial option grant.


 

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Outstanding Equity Awards at December 31, 2009

The following table provides information with respect to holdings of stock options, restricted stock, performance shares and restricted stock unit awards by the named executives officers at December 31, 2009.

 

     Option Awards   Stock Awards
Name  

Option

Grant

Date

 

Number of

Securities

Underlying

Unexercised

Options

(#)

Exercisable

 

Number of

Securities

Underlying

Unexercised

Options

(#)

Unexercisable

 

Option

Exercise

Price

($)

 

Option

Expiration

Date

 

Stock

Award

Grant

Date

 

Number of

Shares or

Units of

Stock

That

Have Not

Vested

(#)

 

Market

Value of

Shares or

Units of

Stock

That

Have Not

Vested

($)(1)

 

Equity

Incentive

Plan Awards:

Number of

Unearned

Shares, Units

or Other

Rights

That Have

Not Vested

(#)(2)

 

Equity

Incentive

Plan Awards:

Market or

Payout Value

of Unearned

Shares, Units

or Other

Rights That

Have Not

Vested ($)(1)

J.S. Fishman

  10/10/2001   1,500,000   0   45.67   10/10/2011                    
    2/2/2004   500,000   0   42.88   2/2/2014                    
    1/25/2005   483,201   0   36.97   1/25/2015                    
    2/6/2006   255,678   0   44.79   2/6/2016                    
    2/6/2007   0   203,276   52.76   2/6/2017                    
    2/5/2008   0   313,984   47.23   2/5/2018                    
                        2/5/2008           157,882   7,871,997
    2/3/2009   0   263,711   39.19   2/3/2019                    
                        2/3/2009           155,789   7,767,640
    5/22/2009   0   267,790   40.26   2/4/2013                    
    11/23/2009   0   227,893   52.97   2/4/2013                    
    11/24/2009   0   11,162   53.09   2/5/2012                    

J.S. Benet

  1/16/2001   15,736   0   59.08   1/16/2011                    
    4/27/2004   64,096   0   42.55   4/27/2014                    
    1/25/2005   36,723   36,724   36.97   1/25/2015                    
    1/25/2005   44,455   0   36.97   1/25/2015                    
                        1/25/2005   9,636   480,451        
    2/6/2006   95,361   0   44.79   2/6/2016                    
    11/7/2006   27,513   0   51.57   3/22/2012                    
    2/6/2007   0   64,488   52.76   2/6/2017                    
    4/16/2007   37   0   53.67   3/22/2012                    
    5/8/2007   32,122   0   56.23   3/22/2012                    
    7/23/2007   5,869   0   52.18   3/22/2012                    
    7/25/2007   4,971   0   51.34   3/22/2012                    
    10/16/2007   41   0   52.30   3/22/2012                    
    10/29/2007   3,733   0   52.88   3/22/2012                    
    11/9/2007   2,235   0   51.40   3/22/2012                    
    2/5/2008   0   81,636   47.23   2/5/2018                    
                        2/5/2008           41,049   2,046,703
    2/3/2009   0   82,278   39.19   2/3/2019                    
                        2/3/2009           48,607   2,423,545

B.W. MacLean

  4/18/2000   19,183   0   49.42   4/18/2010                    
    6/30/2000   76   0   52.40   6/30/2010                    
    1/16/2001   10,790   0   59.08   1/16/2011                    
    4/27/2004   64,096   0   42.55   4/27/2014                    
    1/25/2005   40,589   0   36.97   1/25/2015                    
    1/25/2005   50,897   50,897   36.97   1/25/2015                    
                        1/25/2005   13,356   665,930        

 

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Table of Contents

Name

  Option Awards   Stock Awards  
  Option
Grant
Date
 

Number of
Securities
Underlying
Unexercised
Options

(#)
Exercisable

 

Number of
Securities
Underlying
Unexercised
Options

(#)
Unexercisable

  Option
Exercise
Price
($)
  Option
Expiration
Date
  Stock
Award
Grant
Date
 

Number of
Shares or
Units of
Stock
That
Have Not
Vested

(#)

  Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)(1)
 

Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights

That Have
Not Vested
(#)(2)

    Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested ($)(1)
 

B.W. MacLean

  2/6/2006   116,091   0   44.79   2/6/2016            

(continued)

  11/7/2006   12,922   0   51.57   3/22/2012            
    2/6/2007   0   78,507   52.76   2/6/2017            
    4/16/2007   1,597   0   53.67   3/22/2012            
    4/27/2007   2,709   0   53.67   3/22/2012            
    5/8/2007   13,794   0   56.23   3/22/2012            
    7/23/2007   3,833   0   52.18   3/22/2012            
    7/25/2007   4,468   0   51.34   3/22/2012            
    10/16/2007   1,815   0   52.30   3/22/2012            
    10/29/2007   6,874   0   52.88   3/22/2012            
    11/2/2007   311   0   52.42   3/22/2012            
    11/9/2007   17,041   0   51.40   3/22/2012            
    2/5/2008   0   87,916   47.23   2/5/2018            
              2/5/2008       44,207      2,204,161   
    5/1/2008   1,999   0   52.15   3/22/2012            
    2/3/2009   0   88,607   39.19   2/3/2019            
                        2/3/2009           52,345      2,609,922   

W.H. Heyman

  5/6/2002   200,000   0   47.79   5/6/2012            
    2/2/2004   100,000   0   42.88   2/2/2014            
    1/25/2005   0   23,838   36.97   1/25/2015            
              1/25/2005   6,255   311,874      
    2/6/2006   95,361   0   44.79   2/6/2016            
    12/18/2006   30,522   0   53.56   2/4/2013            
    2/6/2007   0   64,488   52.76   2/6/2017            
    4/17/2007   24,202   0   53.83   2/4/2013            
    7/2/2007   12,428   0   54.48   2/4/2013            
    10/4/2007   6,360   0   53.55   2/4/2013            
    2/5/2008   0   81,636   47.23   2/5/2018            
              2/5/2008       41,049      2,046,703   
    2/3/2009   0   82,278   39.19   2/3/2019            
              2/3/2009       48,607      2,423,545   

A.D. Schnitzer

  4/23/2007   0   121,560   53.82   4/23/2017                        
              4/23/2007   74,322   3,705,695      
    2/5/2008   0   81,636   47.23   2/5/2018            
              2/5/2008       41,049      2,046,703   
    2/3/2009   0   82,278   39.19   2/3/2019            
                        2/3/2009           48,607      2,423,545   

 

(1)

The market value is based on the closing price of our common stock on December 31, 2009 of $49.86 multiplied by the number of outstanding shares or units, as the case may be.

 

(2)

The number of shares reflected for each of the named executive officers represents the maximum number of performance shares plus the additional shares that have been allocated to the named executive officer through December 31, 2009 as a result of the phantom reinvestment of dividend equivalents on 100% of unvested performance shares. We have reflected the maximum number of performance shares for each named executive officer because results for 2008 and 2009, the first and second year of the three year performance period for the February 5, 2008 award, were above target, and results for 2009, the first year of the three year performance period for the February 3, 2009 award, were also above target. The actual number of shares that will be distributed with respect to the 2008 and 2009 awards is not yet determinable. See description of performance shares in the “Compensation Discussion and Analysis—Compensation Elements—Stock-Based Long Term Incentives—Performance Shares” section.

The vesting schedule for each option or stock award in the above table is shown below, based on the grant date.

 

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Table of Contents

Option Awards Vesting Schedule

The following table provides information with respect to the vesting schedule of stock options granted to our named executive officers.

 

Grant Date    Vesting Schedule     

04/18/2000

   20% exercisable on 7/18/01, 7/18/02, 7/18/03, 7/18/04 and 7/18/05    

06/30/2000

   20% exercisable on 6/30/01, 6/30/02, 6/30/03, 6/30/04 and 6/30/05    

01/16/2001

   20% exercisable on 7/16/02, 7/16/03, 7/16/04, 7/16/05 and 7/16/06    

10/10/2001

   100% exercisable at merger 4/1/04    

05/06/2002

   100% exercisable at merger 4/1/04    

02/02/2004

   25% exercisable on 2/2/05, 2/2/06, 2/2/07 and 2/2/08    

04/27/2004

   50% exercisable on 4/27/06; 25% exercisable on 4/27/07 and 4/27/08    

01/25/2005(1)

   50% exercisable on 1/25/07; 25% exercisable on 1/25/08 and 1/25/09    

01/25/2005(1)

   50% exercisable on 1/25/09 and 1/25/10    

02/06/2006

   100% exercisable on 2/6/09    

11/07/2006

   100% exercisable on 5/7/07    

12/18/2006

   100% exercisable on 12/18/07    

02/06/2007

   100% exercisable on 2/6/10    

04/16/2007

   100% exercisable on 10/16/07    

04/17/2007

   100% exercisable on 4/17/08    

04/23/2007(2)

   100% exercisable on 4/23/11    

04/27/2007

   100% exercisable on 10/27/07    

05/08/2007

   100% exercisable on 11/8/07    

07/02/2007

   100% exercisable on 7/2/08    

07/23/2007

   100% exercisable on 1/23/08    

07/25/2007

   100% exercisable on 1/25/08    

10/04/2007

   100% exercisable on 10/4/08    

10/16/2007

   100% exercisable on 4/16/08    

10/29/2007

   100% exercisable on 4/29/08    

11/02/2007

   100% exercisable on 5/2/08    

11/09/2007

   100% exercisable on 5/9/08    

02/05/2008

   100% exercisable on 2/5/11    

05/01/2008

   100% exercisable on 11/1/08    

02/03/2009

   100% exercisable on 2/3/12    

05/22/2009

   100% exercisable on 5/22/10    

11/23/2009

   100% exercisable on 11/23/10    

11/24/2009

 

  

100% exercisable on 11/24/10

 

   

 

(1)

The two different vesting schedules for the 1/25/2005 awards relate to two different types of grants made on that date as follows: (1) an annual grant of options made to all of the named executive officers who were employed by the Company on the grant date, which vested 50% on 1/25/2007 and 25% on each of 1/25/2008 and 1/25/2009 and (2) a special retention grant made in connection with the Merger to Mr. Benet (73,447 shares), Mr. Heyman (47,676 shares) and Mr. MacLean (101,794 shares), which vested 50% on 1/25/09 and 50% on 1/25/10.

 

(2)

Reflects the vesting schedule for an option award granted to Mr. Schnitzer in connection with his commencement of employment with the Company on 4/23/2007. Vesting will be accelerated under specified employment termination events as described above under “Narrative Supplement to the Summary Compensation Table and the Grants of Plan-Based Awards in 2009 Table—Mr. Schnitzer’s Employment Agreement”.

 

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Table of Contents

Stock Awards Vesting Schedule

The following table provides information with respect to the vesting schedule of stock awards to our named executive officers.

 

Grant Date    Vesting Schedule     

01/25/2005(1)

   50% on 1/25/09 and 50% on 1/25/10    

04/23/2007(2)

   25% on 4/23/08; 25% on 4/23/09; 25% on 4/23/10 and 25% on 4/23/11    

02/05/2008(3)

   100% on 12/31/10    

02/03/2009(4)

   100% on 12/31/11    

 

(1)

Reflects the vesting schedule for special retention restricted stock awards granted in connection with the Merger on 1/25/05 to Mr. Benet (19,272 shares), Mr. Heyman (12,510 shares) and Mr. MacLean (26,711 shares).

 

(2)

Reflects the vesting schedule for a restricted stock unit award granted to Mr. Schnitzer in connection with his commencement of employment with the Company on 4/23/2007. Vesting will be accelerated under specified employment termination events as described above under “Narrative Supplement to the Summary Compensation Table and the Grants of Plan-Based Awards in 2009 Table—Mr. Schnitzer’s Employment Agreement”.

 

(3)

Reflects the vesting schedule for performance shares granted on 2/05/2008 to each of our named executive officers.

 

(4)

Reflects the vesting schedule for performance shares granted on 2/03/2009 to each of our named executive officers.

Option Exercises and Stock Vested in 2009

The following table provides information regarding the amounts received by our named executive officers upon the exercise of stock options and the vesting of stock awards in 2009.

 

      Option Awards    Stock Awards
Name   

Number of Shares
Acquired on
Exercise

(#)(1)

          Value Realized
on Exercise
($)(2)
         

Number of Shares
Acquired on
Vesting

(#)(3)

          Value Realized
on Vesting
($)(4)
      

J.S. Fishman

   612,245           9,414,254           88,126           3,390,690       

J.S. Benet

   17,368           66,283           42,416           1,626,575       

B.W. MacLean

   0           0           53,260           2,041,726       

W.H. Heyman

   68,293           954,184           39,035           1,498,393       

A.D. Schnitzer

   0           0           37,161           1,484,768       

 

(1)

Of these shares acquired upon the exercise of options, the shares with respect to Mr. Fishman were acquired on exercise of options granted under a reload program. For more information regarding our reload program, please refer to the “Narrative Supplement to the Summary Compensation Table and the Grants of Plan-Based Awards in 2009—Terms of Equity-Based Awards—Reload Options” section above.

 

(2)

Value realized on exercise is based on the gain, if any, equal to the difference between the fair market value of the stock acquired upon exercise on the exercise date less the exercise price, multiplied by the number of options being exercised.

 

(3)

Of these shares acquired on vesting, with respect to Mr. Fishman (4,264 shares), Mr. Benet (1,584 shares), Mr. MacLean (1,928 shares) and Mr. Heyman (1,584 shares) were acquired in respect of phantom dividend equivalents on performance shares that vested in 2008, but were received in 2009.

 

(4)

The market price for stock that is used in calculating the value realized on vesting is the average of the high and low on the day of vesting. If vesting occurs on a day on which the market is closed, the market price is the average of the high and low on both the first open market day prior to, and following, the vesting date.

 

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Table of Contents

Post-Employment Compensation

The Company has four active retirement plans:

 

   

A qualified 401(k) plan;

 

   

A qualified pension plan—the “Pension Plan”;

 

   

A non-qualified pension restoration plan—the “Benefit Equalization Plan”; and

 

   

A non-qualified deferred compensation plan—the “Deferred Compensation Plan”.

The Company has three inactive retirement plans from which benefits are still payable, but under which no additional benefits are being earned (other than earnings credits as described below):

 

   

A non-qualified pension plan maintained by TPC prior to the Merger—the “TPC Benefit Equalization Plan,” (which is a component of the Benefit Equalization Plan);

 

   

A non-qualified deferred compensation plan maintained by TPC prior to the Merger—the “TPC Deferred Compensation Plan”; and

 

   

A non-qualified deferred compensation plan maintained by St. Paul prior to the Merger—the “Executive Savings Plan” (which is a component of the Benefit Equalization Plan).

Pension Benefits

The following table provides information regarding the pension benefits for our named executive officers under the Company’s pension plans. The material terms of the plans are described following the table.

 

Name    Plan Name   Number
of Years
Credited
Service(3)
      

Present
Value of
Accumulated
Benefit

($)(4)

       Payments
During
Last
Fiscal Year
($)

J.S. Fishman

  

Pension Plan

Benefit Equalization Plan(1)

 

22

26

         127,587

2,036,520

      0

0

J.S. Benet

  

Pension Plan

Benefit Equalization Plan

TPC Benefit Equalization Plan(2)

 

19

19

11

         338,126

   618,638

   179,337

      0

0

0

B.W. MacLean

  

Pension Plan

Benefit Equalization Plan

TPC Benefit Equalization Plan(2)

 

22

22

14

         312,973

   840,192

     75,302

      0

0

0

W.H. Heyman

  

Pension Plan

Benefit Equalization Plan

 

19

19

         114,156

   852,457

      0

0

A.D. Schnitzer

  

Pension Plan

Benefit Equalization Plan

 

  2

  2

           10,683

   101,977

      0

0

 

(1)

Mr. Fishman has four extra years of service in the Benefit Equalization Plan pursuant to his employment agreement. The extra service provided no additional value under the plan.

 

(2)

Service under the TPC Benefit Equalization Plan was frozen as of January 1, 2002, and was merged into the Benefit Equalization Plan as of January 1, 2009.

 

(3)

Credited service includes (as applicable) service for time worked at TPC, Citigroup and certain of its affiliates and predecessors (prior to August 20, 2002), St. Paul and the Company. Number of years of credited service represents actual years of service. Except as otherwise set forth in this section, we do not have a policy with respect to granting extra years of credited service.

 

(4)

Present value of accumulated benefit is calculated by projecting the qualified and non-qualified cash-balance accounts reflected in the tables below forward to age 65 by applying a 4.01% interest rate (except for some sub-accounts which use a 6.00% rate) and then discounting back to December 31, 2009 using a discount rate of 5.55%. These are the same assumptions the Company uses for financial reporting purposes.

 

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Table of Contents

The Company’s Pension Plan

The Company’s Pension Plan is a qualified defined benefit pension plan with a cash-balance formula as well as a traditional final average pay formula. Each named executive officer participates in the cash-balance formula, pursuant to which the named executive officer has a hypothetical account balance that grows with interest and pay credits each year. As of December 31, 2009, the named executive officers’ qualified pension account balances were as follows:

 

Name   12/31/2009
Qualified
Account Balance(1)
($)
    

J.S. Fishman

  143,174    

J.S. Benet

  353,974    

B.W. MacLean

  329,061    

W.H. Heyman

  119,829    

A.D. Schnitzer

  14,531    

 

(1)

These dollar amounts represent the participant’s account balance rather than the present value of the accumulated benefit, which is set forth in the Pension Benefits Table on page 56 and calculated as described in footnote 4 to that table.

Interest credits are applied quarterly to the prior quarter’s cash-balance pension account balance. These interest credits are generally based on the yield on 10-year treasury bonds, subject to a minimum annual interest rate of 4.01%. Pay credits are applied on an annual basis and are earned based on the sum of age plus service at the end of the year under the following schedule:

 

Age + Service    Pay Credit
%
    

< 30

   2.00    

30 - 39

   2.50    

40 - 49

   3.00    

50 - 59

   4.00    

60 - 69

   5.00    

> 69

   6.00    

Service is calculated based on elapsed time with the Company plus any service with TPC, Citigroup (through August 20, 2002) and St. Paul. Pay credits are calculated by multiplying the appropriate pay credit percentage with the named executive officer’s compensation for the year, including base salary and bonus up to the qualified plan compensation limit (which for 2009 was $245,000). The plan’s normal retirement age is 65. However, under the cash-balance formula, participants are eligible to receive a distribution from the plan any time after they vest (currently three years of service) and they separate from the Company. Prior to January 1, 2008, participants vested after five years of service. Once separated from us, participants may elect to receive a lump sum payment, life annuity, 50% joint and survivor annuity, 75% joint and survivor annuity, 100% joint

and survivor annuity or ten-year certain and life annuity. All payment forms are actuarially equivalent. There are no special early retirement benefits under the cash balance formula.

Under the plan, the benefits of some participants may be determined in whole or in part under transition benefit rules, that is, grandfathered benefit provisions.

The Company’s Benefit Equalization Plan (Non-Qualified Pension Plan)

The Benefit Equalization Plan is a non-qualified pension restoration plan, which provides non-qualified pension benefits on compensation in excess of the qualified plan compensation limit and the benefit limit (if applicable) under Internal Revenue Code income tax provisions. Benefits under the plan accrue in the same manner as described above for the Company’s Pension Plan for pay in excess of the compensation limit. As of December 31, 2009, the named executive officers’ non-qualified pension account balances were as follows:

 

Name   

12/31/2009
Non-Qualified
Account
Balance(1)

($)

    

J.S. Fishman

   2,285,307    

J.S. Benet

   691,675    

B.W. MacLean

   956,359    

W.H. Heyman

   894,820    

A.D. Schnitzer

   138,705    

 

(1)

These dollar amounts represent the participant’s account balance rather than the present value of the accumulated benefit, which is set forth in the Pension Benefits Table on page 56 and calculated as described in footnote 4 to that table.

The plan’s normal retirement age is 65. However, participants are eligible to receive a distribution from the plan any time after they vest (currently three years of service) and they separate from us, subject to a six-month delayed payment requirement following separation. Prior to January 1, 2008, participants vested after five years of service. Once separated from us, participants will receive their benefit in ten annual installment payments (for account balances greater than $50,000) or a single lump sum payment (for balances equal to or less than $50,000). There are no special early retirement benefits. To the extent that a participant’s qualified plan benefits are determined under grandfathered benefit provisions, those provisions can affect the benefits payable under the Benefit Equalization Plan.

The Benefit Equalization Plan is not funded, and plan participants have only an unsecured contractual commitment by the Company to pay amounts owed under the plan.


 

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Table of Contents

TPC Benefit Equalization Plan (Non-Qualified Pension Plan)

The TPC Benefit Equalization Plan is a non-qualified pension plan. Benefit accruals were frozen as of January 1, 2002. As of January 1, 2009, the TPC Benefit Equalization Plan was merged into the Benefit Equalization Plan. Participants in the plan have cash balance accounts that accrue interest credits, but no pay credits. As of December 31, 2009, the named executive officers’ non-qualified account balances were as follows:

 

Name   

12/31/2009
Non-Qualified
Account
Balance(1)

($)

    

J.S. Benet

   187,377    

B.W. MacLean

   82,817    

 

(1)

These dollar amounts represent the participant’s account balance rather than the present value of the accumulated benefit, which is set forth in the Pension Benefits Table on page 56 and calculated as described in footnote 4 to that table.

 

Interest credits are applied quarterly to the prior quarter’s account balance. These interest credits are generally based on the yield on ten-year treasury bonds, subject to a minimum annual interest rate of 4.01%. A portion of each named executive officer’s benefit is determined under a prior grandfathered formula which includes an embedded interest credit rate of 6.00%. The plan’s normal retirement age is 65. However, participants are eligible to receive a distribution from the plan any time after becoming vested, attaining age 55 and separating from us. Participants may elect to receive a lump sum payment, life annuity, 50% joint and survivor annuity, 75% joint and survivor annuity or 100% joint and survivor annuity. All payment forms are actuarially equivalent. There are no special early retirement benefits. To the extent that a participant’s qualified plan benefits are determined under grandfathered benefit provisions, those provisions can affect the benefits payable under the TPC Benefit Equalization Plan.


 

Non-Qualified Deferred Compensation for 2009

The following table provides information regarding contributions, earnings and balances for our named executive officers under the active Deferred Compensation Plan, as well as the TPC Deferred Compensation Plan and the Executive Savings Plan, which are closed to new deferrals. Each of these plans is further described below.

 

Name        Non-Qualified Deferred
Compensation Plan Name
      

Executive
Contributions

in 2009

($)

      

Company
Contributions
in 2009

($)

      

Aggregate
Earnings
in 2009

($)

        

Aggregate
Withdrawals/
Distributions
in 2009

($)

       Aggregate
Balance
at
12/31/09
($)(1)
 

J.S. Fishman

J.S. Benet

    Executive Savings Plan     0

0

      0

0

      171,822

0

  

  

      0

0

      868,598

0

  

  

B.W. MacLean

   

Deferred Compensation Plan

TPC Deferred Compensation Plan

    0

0

      0

0

      1,717

6,375

  

  

      0

0

      254,240

332,219

  

  

                                         
     

Total

    0       0       8,092          0       586,459   
                                         

W.H. Heyman

    Executive Savings Plan     0       0       9,078          0       270,648   

A.D. Schnitzer

      Deferred Compensation Plan       0       0       665,117          0       3,485,374   

 

(1)

Of the totals in this column, the following amounts have previously been reported in the Summary Compensation Table for this year and for previous years. The Company does not provide any of its executives with any above-market preferential earnings on non-qualified deferred compensation.

 

        Name   

2009

($)

       

Previous Years

($)

       

Total

($)

J.S. Fishman

   0        570,660        570,660

B.W. MacLean

   0        315,000        315,000

W.H. Heyman

   0        214,220        214,220

A.D. Schnitzer

   0        2,820,257        2,820,257

 

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Table of Contents

Deferred Compensation Plan

The Company’s current Deferred Compensation Plan is a non-qualified plan that allows employees with annual salaries of $150,000 or more to defer receipt of a portion of his or her salary and/or annual bonuses until a date or dates elected by the employee. Employees participating in the Deferred Compensation Plan elect the time and form of payout prior to the year in which the deferred amounts are earned. These elections are irrevocable.

Participants in the plan can receive distributions of deferred accounts in three situations: when the participant terminates employment or retires (in which case, payment will be made or commence six months after the date of the termination or retirement) or upon a distribution date the participant specifies in advance and that occurs while the participant is still an employee of the Company. The participant can elect to receive retirement distributions and in-service distributions as a lump sum or in up to ten annual installments. All other distributions will be paid in a lump sum, unless distributions in installments have already begun.

Deferrals may be allocated among 25 hypothetical investment options that generally mirror the investment options available under our qualified 401(k) plan. Under the Deferred Compensation Plan, no Company “match” is made on amounts deferred, “hardship” withdrawals are not permitted and the Company does not provide any opportunity for above-market preferential earnings, nor does it provide any minimum internal rate of return. As of December 31, 2009, Mr. MacLean and Mr. Schnitzer were the only named executive officers with account balances under the Deferred Compensation Plan, with balances as shown above.

The Deferred Compensation Plan is not funded, and plan participants have only an unsecured contractual commitment by the Company to pay amounts owed under the plan.

TPC Deferred Compensation Plan

The TPC Deferred Compensation Plan is a grandfathered non-qualified deferred compensation plan. It includes salary deferrals made to the plan prior to January 1, 2005. Under the TPC Deferred Compensation Plan, no Company “match” was made on amounts deferred. The plan was closed to any new deferrals beginning January 1, 2005. Deferrals may be allocated among 25 hypothetical investment options that generally mirror our qualified 401(k) plan investment options. “Hardship” withdrawals are available under

the TPC Deferred Compensation Plan. Based upon deferral elections made prior to the year in which the compensation was earned, executives can receive payments in either a lump sum or in annual installments over a five, 10 or 15 year period commencing in the month following retirement or age 65. The Company does not provide any of its executives with any above-market preferential earnings on non-qualified deferred compensation.

As of December 31, 2009, Mr. MacLean was the only named executive officer with an account balance under this inactive TPC Deferred Compensation Plan, which balance was as shown above.

The TPC Deferred Compensation Plan is not funded, and plan participants have only an unsecured contractual commitment by the Company to pay amounts owed under the plan.

Executive Savings Plan

The Executive Savings Plan is a grandfathered non-qualified excess deferral plan. It includes salary deferrals and Company matching contributions made to the plan only prior to January 1, 2005. The plan was closed to any new deferrals as of January 1, 2005. Executives will receive distribution of their vested accounts upon termination of employment from the Company. Once separated from us, executives will receive their benefits in ten annual installment payments (for account balances greater than $50,000) or a single lump sum (for balances of $50,000 or less), with the exception of balances remaining at the time of the executive’s death which will always be paid in a lump sum.

Deferrals may be allocated among 25 hypothetical investment options that generally mirror the investment options available under our qualified 401(k) plan.

As of December 31, 2009, Mr. Fishman and Mr. Heyman were the only named executive officers with account balances under this inactive Executive Savings Plan, with balances as shown above.

The Executive Savings Plan is not funded, and plan participants have only an unsecured contractual commitment by the Company to pay amounts owed under the plan.


 

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Table of Contents

Potential Payments to Named Executive Officers Upon

Termination of Employment or Change in Control

The following table describes the potential payments and benefits under the Company’s compensation and benefit plans and contractual agreements to which the named executive officers would be entitled upon termination of employment or change in control on December 31, 2009. The only agreements, arrangements or plans that entitle executive officers to severance, perquisites or other enhanced benefits upon termination of their employment are Mr. Fishman’s and Mr. Schnitzer’s employment agreements, the individual non-solicitation and non-disclosure agreements executed by members of our Management Committee, each as described below, the Company’s Executive Severance Plan and as provided under the terms of restricted stock, restricted stock units, performance shares and option awards.

Accrued Pay and Regular Retirement Benefits

The amounts shown in the table below do not include payments and benefits to the extent they are provided generally to all salaried employees upon termination of employment and do not discriminate in scope, terms or operation in favor of the named executive officers. These include welfare benefits that are provided to all U.S. retirees of the Company.

The table below also does not include:

 

   

regular pension benefits under our Pension Plan or the Benefit Equalization Plan (including the TPC Benefit Equalization Plan). See “Post-Employment Compensation—Pension Benefits” on page 56.

 

   

distributions of plan balances under our 401(k) plan, the Deferred Compensation Plan and the TPC Deferred Compensation Plan. See the “Compensation Discussion and Analysis—Compensation Elements—Other Compensation—Deferred Compensation” section on page 41 for information about the Company’s 401(k) plan and the “Post-Employment Compensation—Non-Qualified Deferred Compensation for 2009” section on page 58 for information about the Deferred Compensation Plan and the TPC Deferred Compensation Plan.

In February 2010, members of our Management Committee entered into a non-compete agreement that would entitle an executive to post-termination payments if the Company exercises its rights under the agreement with such executive. Such payments are not included in the following table. For a more detailed description of the non-compete agreements see “Non-Compete Agreements” on page 43 of this Proxy Statement.

 

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Table of Contents

Potential Payments Upon Termination of Employment or Change in Control

 

Named Executive Officer   Involuntary
Termination
without
“Cause” or, if
Applicable,
Voluntary
Termination for
“Good Reason”
 

Additional Value

if Involuntary
Termination

without “Cause”
or,

if Applicable,
Voluntary
Termination for
“Good Reason”

Follows a
Change in
Control

  Change in
Control
  Voluntary
Retirement(1)
  Disability   Death

J.S. Fishman

                   

Cash Severance Payment(2)

  $ 18,018,040   $ 0   $ 0   $ 0   $ 0   $ 0

Contractual Disability/Death Payments(3)

    0     0     0     0     2,500,000     2,500,000

Acceleration of Equity Awards(4)

    17,902,827     0     0     3,639,574     17,902,827     17,902,827

Present Value of Continuing Benefits as of December 31, 2009(5)

    43,902     559     0     27,667     43,902     43,902

Excise Tax Gross-up(6)

    0     11,862,085     0     0     0     0
                                     

Total Termination Benefits

  $ 35,964,769   $ 11,862,644   $ 0   $ 3,667,241   $ 20,446,729   $ 20,446,729
                                     

J.S. Benet

                                   

Cash Severance Payment(2)

  $ 5,900,000   $ 0   $ 0   $ 0   $ 0   $ 0

Contractual Disability/Death Payments

    0     0     0     0     0     0

Acceleration of Equity Awards(4)

    1,092,609     0     0     1,092,609     2,046,432     3,426,058

Present Value of Continuing Benefits as of December 31, 2009(5)

    34,617     0     0     27,667     27,667     27,667

Excise Tax Gross-up

    0     0     0     0     0     0
                                     

Total Termination Benefits

  $ 7,027,226   $ 0   $ 0   $ 1,120,276   $ 2,074,099   $ 3,453,725
                                     

B.W. MacLean

                                   

Cash Severance Payment(2)

  $ 7,600,000   $ 0   $ 0   $ 0   $ 0   $ 0

Contractual Disability/Death Payments

    0     0     0     0     0     0

Acceleration of Equity Awards(4)

    1,176,656     0     0     1,176,656     2,498,648     3,984,377

Present Value of Continuing Benefits as of December 31, 2009(5)

    6,950     0     0     0     0     0

Excise Tax Gross-up

    0     0     0     0     0     0
                                     

Total Termination Benefits

  $ 8,783,606   $ 0   $ 0   $ 1,176,656   $ 2,498,648   $ 3,984,377
                                     

W.H. Heyman

                                   

Cash Severance Payment(2)

  $ 7,200,000   $ 0   $ 0   $ 0   $ 0   $ 0

Contractual Disability/Death Payments

    0     0     0     0     0     0

Acceleration of Equity Awards(4)

    1,092,609     0     0     1,092,609     1,711,755     3,091,381

Present Value of Continuing Benefits as of December 31, 2009(5)

    6,950     0     0     0     0     0

Excise Tax Gross-up

    0     0     0     0     0     0
                                     

Total Termination Benefits

  $ 8,299,559   $ 0   $ 0   $ 1,092,609   $ 1,711,755   $ 3,091,381
                                     

A.D. Schnitzer

                                   

Cash Severance Payment(2)

  $ 4,375,000   $ 0   $ 0   $ 0   $ 0   $ 0

Contractual Disability/ Death Payments

    0     0     0     0     0     0

Acceleration of Equity Awards(4)

    3,705,695     0     0     0     4,798,304     6,177,930

Present Value of Continuing Benefits as of December 31, 2009(5)

    6,950     0     0     0     27,667     27,667

Excise Tax Gross-up(6)

    0     0     0     0     0     0
                                     

Total Termination Benefits

  $ 8,087,645   $ 0   $ 0   $ 0   $ 4,825,971   $ 6,205,597